<PAGE>
As filed with the Securities and Exchange Commission
on April 21, 1999
Registration No. 333-71469
811-7384
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. 2 [X]
POST-EFFECTIVE AMENDMENT NO. ___ [ ]
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 17
----------------------------
NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS
(Exact name of registrant as specified in its charter)
--------------------------
600 WEST BROADWAY, 30TH FLOOR
SAN DIEGO, CALIFORNIA 92101
(Address, including zip code, of Principal Executive Offices)
---------------------------
ARTHUR E. NICHOLAS
C/O NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
600 WEST BROADWAY, 30TH FLOOR
SAN DIEGO, CALIFORNIA 92101
(name and address of agent for service)
COPY TO:
CHARLES H. FIELD
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
600 WEST BROADWAY, SUITE 2900
SAN DIEGO, CALIFORNIA 92101
Approximate date of Proposed Public Offering: As soon as practicable after
this Registration Statement is declared effective.
Pursuant to Regulation 270.24f-2 under the Investment Company Act of 1940,
the Registrant hereby elects to register an indefinite number of shares of
beneficial interest.
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 9(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
N I C H O L A S-A P P L E G A T E-REGISTERED
TRADEMARK-
INSTITUTIONAL FUNDS PROSPECTUS
Institutional Shares
________, 1999
GLOBAL FUNDS
Global Blue Chip
International Core Growth
Worldwide Growth
International Small Cap Growth
Global Growth & Income
Emerging Countries
Pacific Rim
Greater China
[GRAPHIC] Latin America
Global Technology
US FUNDS
Large Cap Growth
Mid Cap Growth
Value
Small Cap Growth
Mini Cap Growth
Convertible
FIXED INCOME FUNDS
Short-Intermediate
High Quality Bond
High Yield Bond
AS WITH ALL MUTUAL FUNDS, THE SECURITIES
AND EXCHANGE COMMISSION DOESN'T
GUARANTEE THAT THE INFORMATION IN THIS
PROSPECTUS IS ACCURATE OR COMPLETE, NOR
HAS IT APPROVED OR DISAPPROVED THESE
SECURITIES. IT IS A CRIMINAL OFFENSE TO
STATE OTHERWISE.
<PAGE>
2
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
A FUND BY FUND LOOK AT GOALS,
STRATEGIES, RISKS AND HISTORICAL
PERFORMANCE.
GLOBAL FUNDS
Worldwide Growth 3
Global Blue Chip 5
Global Growth & Income 7
Global Technology 9
International Core Growth 11
International Small Cap Growth 13
Emerging Countries 15
Pacific Rim 17
Latin America 19
Greater China 21
US FUNDS
Large Cap Growth 23
Mid Cap Growth 25
Small Cap Growth 27
Mini Cap Growth 29
Value 31
Convertible 33
FIXED INCOME FUNDS
Short Intermediate 35
High Quality Bond 37
High Yield Bond 39
- --------------------------------------------------------------------------------
POLICIES AND INSTRUCTIONS FOR
OPENING, MAINTAINING AND
CLOSING AN ACCOUNT IN ANY
FUND.
SIMPLIFIED ACCOUNT INFORMATION
Opening an Account 41
Buying Shares 41
Exchanging Shares 41
Selling Shares 42
Signature Guarantees 42
YOUR ACCOUNT
Transaction Policies 43
Features and Account Policies 43
Minimum Investment Waivers 43
- --------------------------------------------------------------------------------
FURTHER INFORMATION THAT APPLIES
TO THE FUNDS AS A GROUP.
ORGANIZATION AND MANAGEMENT
Investment Adviser 45
Investment Adviser Compensation 45
Portfolio Trades 45
Portfolio Turnover 45
Portfolio Teams 46
- --------------------------------------------------------------------------------
EACH FUND HAS ITS OWN STRATEGY AND
HAS ITS OWN PROFILE. THE FUNDS CANNOT
GUARANTEE THAT THEY WILL MEET THEIR
SPECIFIC GOALS. BECAUSE YOU COULD LOSE
MONEY BY INVESTING IN THESE FUNDS, BE
SURE TO READ ALL RISK DISCLOSURES
CAREFULLY BEFORE INVESTING.
RISKS AND OTHER INFORMATION 49
FINANCIAL HIGHLIGHTS 56
PRIOR PERFORMANCE OF CERTAIN FUNDS 60
FOR MORE INFORMATION Back Cover
<PAGE>
3
WORLDWIDE GROWTH FUND
[GRAPHIC]GOAL AND PRINCIPAL STRATEGY
The Fund seeks maximum long-term capital appreciation. In pursuing this goal,
the Fund invests in companies located throughout the world including the United
States.
The Investment Adviser focuses on a "bottom-up" analysis on the financial
conditions and competitiveness of individual companies worldwide. It uses a
blend of both traditional fundamental research, calling on the expertise of many
external analysts in different countries, and computer intensive systematic
disciplines to uncover signs of "change at the margin"-- positive business
developments which are not yet fully reflected in a company's stock price. It
gathers financial data on 20,000 companies in over 50 countries, and searches
for successful, growing companies managing change advantageously and poised to
exceed growth expectations.
[GRAPHIC]INVESTMENTS
The Fund invests at least 65% of its total assets in securities of issuers
located in at least three different countries, one of which may be the United
States. When in the opinion of the Investment Adviser, greater investment
opportunities exist the Fund may also invest in countries with emerging
securities markets. The Fund normally invests at least 75% of its assets in
equity securities: common and preferred stocks, warrants and convertible
securities. As a non principal investment, the Fund may also invest in debt
securities of any maturity issued by foreign companies and foreign governments
and their agencies and instrumentalities which are rated investment grade or of
comparable quality if unrated.
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies, as well as general market and economic
conditions. Stock prices are unpredictable, may fall suddenly and may continue
to fall for extended periods. In addition, the securities in which the Fund
invests are subject to the risk that their intrinsic value may never be realized
by the market or their prices may go down. The Fund's performance also depends
upon changing currency values, political and regulatory environments, and
overall economic factors in the countries where the Fund invests. To the extent
the Fund invests in countries with emerging markets, the risks are magnified
since these countries may have unstable governments and less established
markets. The securities of small, less well-known companies may be more volatile
than those of larger companies. See "Risks and Other Information" starting on
page 51.
The Investment Adviser expects a high portfolio turnover rate of 200% or more,
which is likely to generate more taxable short-term gains for shareholders.
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns and its long-term
performance. The graph shows how the Fund's total return has varied from year to
year, while the table shows performance over time. This information provides
some indication of the risks of investing in the Fund by showing changes in the
Fund's performance from year to year and by showing how the Fund's average
annual returns compare with those of a broad measure of market performance.
Average annual return is determined by taking the Fund's performance over a
given period and expressing it as an average annual rate. All figures assume
dividend reinvestment. Past performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
94 2.99%
95 15.35%
96 18.51%
97 17.93%
98 37.98%
BEST QUARTER: Q4 '98
WORST QUARTER: Q3 '98 +28.34%
-13.27%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year 5 Years Since Inception
(4/19/93)
<S> <C> <C> <C>
- ----------------------------------------------------------------------
Fund 37.98% 18.03% 18.42%
MSCI World Index 24.33 15.62 15.38
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS 12.82%
INDEX: MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) WORLD INDEX IS AN
UNMANAGED TOTAL RETURN PERFORMANCE BENCHMARK. IT CONSISTS OF MORE THAN
1,400 SECURITIES LISTED ON EXCHANGES IN THE U.S., EUROPE, CANADA,
AUSTRALIA, NEW ZEALAND, AND THE FAR EAST. THE INDEX IS UNMANAGED.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF
THE DISTRIBUTOR AND INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF
THE FUND'S EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
4
WORLDWIDE GROWTH FUND
[GRAPHIC]INVESTOR 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%
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 0.54%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.54%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.19%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.35%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2000, the
Investment Adviser has agreed to waive or defer its management fees and to
pay other operating expenses otherwise payable by the Fund, subject to
possible later reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE AFTER WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$137 $428 $739 $1,624
</TABLE>
<PAGE>
5
GLOBAL BLUE CHIP FUND
[GRAPHIC]GOAL AND PRINCIPAL STRATEGY
The Fund seeks maximum long-term capital appreciation. In pursuing this goal, it
invests globally in blue chip companies with large stock market capitalizations.
Generally, these companies have an established history of earnings, easy access
to credit, good industry position, and a reputation as a global leader in their
industry.
In managing the portfolio, the Fund's Investment Adviser uses a bottom-up
analysis on the financial condition and competitiveness of individual companies
worldwide. The analysis entails a blend of both traditional fundamental
research, calling on the expertise of many external analysts in different
countries throughout the world, and computer-intensive systematic disciplines to
uncover signs of "change at the margin"--positive business developments which
are not yet fully reflected in a company's stock price. The Fund's Investment
Adviser gathers financial data on 20,000 companies in over 50 countries, and
searches for successful, growing companies managing change advantageously and
poised to exceed growth expectations.
[GRAPHIC]INVESTMENTS
The Fund normally invests at least 65% of its total assets in blue chip
companies located in at least three different countries, one of which may be the
United States. The Fund normally invests 75% of its assets in equity securities:
common and preferred stocks, warrants, and bonds convertible into common stock.
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. As a non principal investment, the Fund may also invest in
debt securities of any maturity of foreign companies and foreign governments and
their agencies and instrumentalities which are rated investment grade.
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies and general market and economic conditions.
Stock prices are unpredictable and may fall suddenly and may continue to fall
for extended periods. In addition, the securities in which the Fund invests are
subject to the risk that their intrinsic value may never be realized by the
market or their prices may go down. The Fund's performance also depends upon
changing values in foreign currencies, different political and regulatory
environments, and other overall economic factors in the countries where the Fund
invests. To the extent the Fund invests in countries with emerging markets, the
risks are magnified since these countries may have unstable governments and less
established markets. See "Risks and Other Information" starting on page 51.
The Investment Adviser expects a high portfolio turnover rate of 200% or more,
which is likely to generate more taxable short-term gains for shareholders.
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns since its introduction on
September 30, 1997. This information provides some indication of the risks of
investing in the Fund by showing how the Fund's average annual returns compare
with those of a broad measure of market performance. Average annual return is
determined by taking the Fund's performance over a given period and expressing
it as an average annual rate. All figures assume dividend reinvestment. Past
performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
98 46.18%
BEST QUARTER: Q4 '98 +25.89%
WORST QUARTER: Q3 '98 -11.97%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year Since Inception
(9/30/97)
<S> <C> <C>
- ---------------------------------------------------------------------
Fund 46.18 34.12
MSCI World Index 24.33 16.68
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS 14.48%
INDEX: THE MSCI WORLD INDEX CONSISTS OF MORE THAN 1,400 SECURITIES
LISTED ON EXCHANGES IN THE U.S., EUROPE, CANADA, AUSTRALIA, NEW
ZEALAND, AND THE FAR EAST. THE INDEX IS UNMANAGED.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF
THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S
EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
6
GLOBAL BLUE CHIP FUND
[GRAPHIC]INVESTOR 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 0.80%
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 1.52%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 2.32%
- ----------------------------------------------------------------------------
Waiver of fund expenses (1.12%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.20%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2000, the
Investment Adviser has agreed to waive or defer its management fees and to
pay other operating expenses otherwise payable by the Fund, subject to
possible later reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE AFTER WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$122 $381 $660 $1,455
</TABLE>
<PAGE>
7
GLOBAL GROWTH & INCOME FUND
[GRAPHIC]GOAL AND PRINCIPAL STRATEGY
The Fund seeks maximum long-term capital appreciation and current income. In
pursuing this goal, the Fund invests in the stocks and bonds of companies
located throughout the world.
The Fund's Investment Adviser actively manages a blended portfolio of U.S. and
foreign equity and fixed income securities. It spreads the Fund's investments
among countries. Normally at least 65% of its total assets are invested in at
least three countries, one of which may be the U.S.
For the stock portion, the Investment Adviser focuses on a "bottom-up" analysis
on the financial conditions and competitiveness of individual companies
worldwide. It uses a blend of both traditional fundamental research, calling on
the expertise of many external analysts in different countries, and computer
intensive systematic disciplines to uncover signs of "change at the
margin"--positive business developments which are not yet fully reflected in a
company's stock price. It gathers financial data on 20,000 companies in over 50
countries, and searches for successful, growing companies managing change
advantageously and poised to exceed growth expectations.
The Investment Adviser actively manages the fixed income portion to take
advantage of current interest rate and bond market trends. When evaluating any
bond, the Investment Adviser selects bonds based upon a "top down" analysis of
economic trends. Its investment philosophy emphasizes interest rate decisions
and shifts among sectors of the bond market. It also analyzes credit quality,
the yield to maturity of the security, and the effect the security will have on
the average yield to maturity of the Fund's bond portfolio. The Investment
Adviser seeks to add value by positioning portfolio securities among various
market sectors and maturities along the yield curve.
[GRAPHIC]INVESTMENTS
The Fund normally invests at least 60% of its assets in equity securities:
common and preferred stock, warrants and securities convertible into stock. The
Fund will invest the remainder in debt securities of any maturity issued by
foreign companies, foreign governments and their agencies and instrumentalities,
a portion of which (less than 35% of its net assets) may be rated below
investment grade ("high risk bonds") or of comparable quality if unrated. For a
description of these ratings, see "Bond Quality" beginning on page 55.
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
The value of the Fund's investments varies in response to movements in the stock
and bond markets. Stock values fluctuate in response to the activities of
individual companies and general market and economic conditions. Stock prices
are unpredictable, fall suddenly and may continue to fall for extended periods.
In addition, the securities in which the Fund invests are subject to the risk
that their intrinsic value may never be realized by the market or their prices
may go down. The value of bonds changes as interest rates fluctuate: if rates
rise, the prices of bonds fall; if rates fall, their prices rise. Lower rated
securities, while usually offering higher yields, generally have more risk and
volatility than higher-rated securities because of reduced creditworthiness and
greater chance of default. The Fund's performance also depends upon changing
foreign currency values, different political and regulatory environments, and
other overall economic factors in the countries where the Fund invests. To the
extent the Fund invests in emerging countries, the risks are magnified since
these countries may have unstable governments and less established markets. See
"Risks and Other Information" starting on page 51.
The Investment Adviser expects a high portfolio turnover rate of 200% or more,
which is likely to generate more taxable short-term gains for shareholders.
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns since the Fund's
introduction on June 30, 1997. This information provides some indication of the
risks of investing in the Fund by showing how the Fund's average annual returns
compare with those of a broad measure of market performance. Average annual
return is determined by taking the Fund's performance over a given period and
expressing it as an average annual rate. All figures assume dividend
reinvestment. Past performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
98 14.13%
BEST QUARTER: Q3 '97 +27.28%
WORST QUARTER: Q3 '98 -12.35%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
Since Inception
1 Year (6/30/97)
<S> <C> <C>
- ---------------------------------------------------------------------
Fund 14.13 26.42
MSCI World Index 24.33 15.87
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS 8.33%
INDEX: THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) WORLD INDEX IS
AN UNMANAGED TOTAL-RETURN PERFORMANCE BENCHMARK. IT CONSISTS OF MORE
THAN 1,400 SECURITIES LISTED ON EXCHANGES IN THE U.S., EUROPE,
CANADA, AUSTRALIA, NEW ZEALAND, AND THE FAR EAST. THE INDEX IS
UNMANAGED.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF
THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S
EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
8
GLOBAL GROWTH & INCOME FUND
[GRAPHIC]INVESTOR 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 0.85%
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 2.54%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 3.39%
- ----------------------------------------------------------------------------
Waiver of fund expenses (2.04%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.35%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2000, the
Investment Adviser has agreed to waive or defer its management fees and to
pay other operating expenses otherwise payable by the Fund, subject to
possible later reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE AFTER WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$137 $428 $739 $1,624
</TABLE>
<PAGE>
9
GLOBAL TECHNOLOGY FUND
[GRAPHIC]GOAL AND PRINCIPAL STRATEGY
The Fund seeks maximum long-term capital appreciation. In pursuing this goal,
the Fund invests primarily in the equity securities of U.S. and foreign
companies with business operations in technology and technology-related
industries. These companies may include, for example, companies that develop,
produce and distribute products or services in the computer, semi-conductor,
electronics, communications, health care, and biotechnology sectors.
The Fund's Investment Adviser focuses on a "bottom-up" analysis that evaluates
the financial conditions and competitiveness of individual companies worldwide.
The Investment Adviser uses a blend of both traditional fundamental research
calling on the expertise of many external analysts in different countries, and
computer intensive systematic disciplines to uncover signs of "change at the
margin"--positive business developments which are not yet fully reflected in a
company's stock price. It gathers financial data on 20,000 companies in over 50
countries, and searches for successful, growing companies managing change
advantageously and poised to exceed growth expectations.
[GRAPHIC]INVESTMENTS
The Fund normally invests at least 75% of its assets in technology related
equity securities: common and preferred stocks, warrants and securities
convertible into common stock. Normally, at least 65% of its assets will be
invested in companies located in at least three different countries, one of
which may be the United States. When in the opinion of the Investment Adviser
greater investment opportunities exist the Fund may also invest in the companies
located in countries with emerging securities markets. The Fund may also invest
in debt securities of any maturity issued by foreign companies and foreign
governments, and their agencies and instrumentalities, a portion of which (less
than 35% of its net assets) may be rated below investment grade ("high risk
bonds"), or of comparable quality if unrated. For a description of these
ratings, see "Bond Quality" beginning on page 55.
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments varies from day to day in response to
activities of individual companies, and general market and economic conditions.
Stock prices are unpredictable, may fall suddenly and may continue to fall for
extended periods. In addition, the securities in which the Fund invests are
subject to the risk that their intrinsic value may never be realized by the
market or their prices may go down.
The Fund's performance also depends upon changing currency values, different
political and regulatory environments, and overall economic factors in the
countries where the Fund invests. The risks are magnified in countries with
emerging markets, since these countries may have unstable governments and less
established markets. Lower rated securities in which the Fund invests are
considered speculative and subject to greater volatility and risk of loss than
investment grade securities, particularly in deteriorating economic periods.
Sector risk is the possibility that the technology sector may perform
differently than other sectors or as the market as a whole. The Fund's
performance will be more susceptible to any economic, business or other
developments which generally affect that sector.
Information regarding smaller technology companies may be less available,
incomplete or inaccurate, and their securities may trade less frequently than
those of larger companies. Accordingly, the securities of companies in which the
Fund invests may be more volatile and speculative than those of larger
companies. For further explanation, see "Risks and Other Information" starting
on page 51.
The Investment Adviser expects a high portfolio turnover rate of 200% or more,
which is likely to generate more taxable short-term gains for shareholders.
[GRAPHIC]PAST PERFORMANCE
The Global Technology Fund was introduced on August 1, 1998. Since its
introduction the Fund has returned 96.61%. The Fund's average annual return is
determined by taking the Fund's performance over a given period and expressing
it as an average annual rate. All figures assume dividend reinvestment. Past
performance does not indicate future results.
<PAGE>
10
GLOBAL TECHNOLOGY FUND
[GRAPHIC]INVESTOR 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%
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 4.60%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 5.60%
- ----------------------------------------------------------------------------
Waiver of fund expenses (4.20%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.40%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2000, the
Investment Adviser has agreed to waive or defer its management fees and to
pay other operating expenses otherwise payable by the Fund, subject to
possible later reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE AFTER WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$143 $443 $766 $1,680
</TABLE>
<PAGE>
11
INTERNATIONAL CORE GROWTH FUND
[GRAPHIC]GOAL AND PRINCIPAL STRATEGY
The Fund seeks maximum long-term capital appreciation. In pursuing this goal,
the Fund invests primarily in larger capitalized companies located in over 50
countries worldwide. Generally, this means companies whose stock market
capitalizations are in the top 75% of publicly traded companies, as measured by
stock market capitalization in each country.
The Investment Adviser focuses on a "bottom-up" analysis on the financial
conditions and competitiveness of individual companies worldwide. It uses a
blend of both traditional fundamental research, calling on the expertise of many
external analysts in different countries, and computer intensive systematic
disciplines to uncover signs of "change at the margin"-- positive business
developments which are not yet fully reflected in a company's stock price. It
gathers financial data on 20,000 companies in over 50 countries, and searches
for successful, growing companies managing change advantageously and poised to
exceed growth expectations.
[GRAPHIC]INVESTMENTS
The Fund normally invests at least 75% of its assets in equity securities:
common and preferred stocks, warrants and securities convertible into common
stock. In addition, the Fund spreads its investments among countries, with at
least 65% of its assets invested in companies located in at least three foreign
countries. 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. The Fund may invest at least 35% of its assets
in U.S. companies.
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies and general market and economic conditions.
Stock prices are unpredictable, may fall suddenly and may continue to fall for
extended periods. In addition, the securities in which the Fund invests are
subject to the risk that their intrinsic value may never be realized by the
market or their prices may go down. The Fund's performance also depends upon
changing values in foreign currencies, political and regulatory environments,
and other overall economic factors in the countries where the Fund invests. To
the extent the Fund invests in countries with emerging markets, the risks are
magnified since these countries may have unstable governments and less
established markets. See "Risks and Other Information" starting on page 51.
The Investment Adviser expects a high portfolio turnover rate of 200% or more,
which is likely to generate more taxable short-term gains for shareholders.
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns and its long-term
performance. The graph shows how the Fund's total return has varied from year to
year, while the table shows performance over time. This information provides
some indication of the risks of investing in the Fund by showing changes in the
Fund's performance from year to year and by showing how the Fund's average
annual returns compare with those of a broad measure of market performance.
Average annual return is determined by taking the Fund's performance over a
given period and expressing it as an average annual rate. All figures assume
dividend reinvestment. Past performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
97 30.63%
98 21.54%
BEST QUARTER: Q1 '98 +17.34%
WORST QUARTER: Q3 '98 -14.76%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year Since Inception
(12/27/96)
<S> <C> <C>
- ---------------------------------------------------------------------
Fund 21.54 26.44
MSCI EAFE 19.97 10.34
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS 2.76%
INDEX: MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALIA, FAR
EAST INDEX (MSCI EAFE) IS AN UNMANAGED TOTAL-RETURN PERFORMANCE
BENCHMARK. IT IS A CAPITALIZATION-WEIGHTED INDEX REPRESENTATIVE OF
THE STOCK MARKET STRUCTURE OF EUROPE AND THE PACIFIC BASIN. THE INDEX
IS UNMANAGED.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF
THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S
EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
12
INTERNATIONAL CORE GROWTH FUND
[GRAPHIC]INVESTOR 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%
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 0.61%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.61%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.21%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.40%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2000, the
Investment Adviser has agreed to waive or defer its management fees and to
pay other operating expenses otherwise payable by the Fund, subject to
possible later reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE AFTER WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$143 $443 $766 $1,680
</TABLE>
<PAGE>
13
INTERNATIONAL SMALL CAP GROWTH FUND
[GRAPHIC]GOAL AND PRINCIPAL STRATEGY
The Fund seeks maximum long-term capital appreciation. In pursuing this goal,
the Fund invests primarily in smaller-capitalized companies (those with
capitalization generally below $5 billion) located in over 50 countries
worldwide. Generally, this means companies worldwide whose stock market
capitalizations are in the bottom 25 percent of publicly traded companies as
measured by stock market capitalizations in each country.
The Investment Adviser focuses on a "bottom-up" analysis on the financial
condition and competitiveness of individual companies worldwide. It uses a blend
of both traditional fundamental research, calling on the expertise of many
external analysts in different countries throughout the world, and computer
intensive systematic disciplines to uncover signs of "change at the
margin"--positive business developments which are not yet fully reflected in a
company's stock price. It gathers financial data on 20,000 companies in over 50
countries, and searches for successful, growing companies managing change
advantageously and poised to exceed growth expectations.
[GRAPHIC]INVESTMENTS
The Fund normally invests 75% of its assets in equity securities: common and
preferred stock, warrants and securities convertible into common stocks. Under
normal conditions, the Fund invests at least 65% of its total assets in
small-cap securities of issuers located in at least three countries outside the
United States. 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. The Fund may invest up to 35% of its total
assets in U.S. issuers.
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies and general market and economic conditions.
Stock prices are unpredictable, may fall suddenly and may continue to fall for
extended periods. In addition, the securities in which the Fund invests are
subject to the risk that their intrinsic value may never be realized by the
market or their prices may go down. The Fund's performance also depends upon
changing currency values, different political and regulatory environments, and
other overall economic factors in the countries where the Fund invests. These
risks are magnified in countries with emerging markets since these countries may
have unstable governments and less established markets.
In addition to the risks posed by foreign investing, the information regarding
smaller companies may be less available, incomplete or inaccurate, and their
securities may trade less frequently than those of larger companies.
Accordingly, the securities of the companies in which the Fund invests may be
more volatile and speculative than those of larger companies. In addition,
investing in small-capitalization companies entails greater risk because these
companies may have unproven track records, limited product or service base,
limited access to capital and may be more likely to fail than larger, more
established companies. See "Risks and Other Information" starting on page 51.
The Investment Adviser expects a high portfolio turnover rate of 200% or more,
which is likely to generate more taxable short-term gains for shareholders.
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns and its long-term
performance. The graph shows how the Fund's total return has varied from year to
year, while the table shows performance over time. This information provides
some indication of the risks of investing in the Fund by showing changes in the
Fund's performance from year to year and by showing how the Fund's average
annual returns compare with those of a broad measure of market performance.
Average annual return is determined by taking the Fund's performance over a
given period and expressing it as an average annual rate. All figures assume
dividend reinvestment. Past performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
94 8.61%
95 6.00%
96 18.27%
97 14.09%
98 36.34%
BEST QUARTER: Q1 '98 +25.17%
WORST QUARTER: Q3 '98 -15.22%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year 5 Years Since Inception
(1/3/94)
<S> <C> <C> <C>
- ----------------------------------------------------------------------
Fund 36.34 16.19 16.22
Salomon EPAC/
EMI 14.05 4.56 2.35
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS 8.31%
INDEX: SOLOMON EPAC EMI IS AN UNMANAGED TOTAL-RETURN PERFORMANCE
BENCHMARK. THE INDEX INCLUDES SHARES OF ABOUT 2,821 COMPANIES IN 22
COUNTRIES EXCLUDING CANADA AND THE U.S. COMPANIES WITHIN THE INDEX ARE
SMALLER CAPITALIZATION COMPANIES. THE INDEX IS UNMANAGED.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF
THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S
EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
14
INTERNATIONAL SMALL CAP GROWTH FUND
[GRAPHIC]INVESTOR 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%
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 0.67%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.67%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.27%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.40%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2000, the
Investment Adviser has agreed to waive or defer its management fees and to
pay other operating expenses otherwise payable by the Fund, subject to
possible later reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE AFTER WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$143 $443 $766 $1,680
</TABLE>
<PAGE>
15
EMERGING COUNTRIES FUND
[GRAPHIC]GOAL AND PRINCIPAL STRATEGY
The Fund seeks maximum long-term capital appreciation. In pursuing this goal,
the Fund invests primarily in stocks of companies located in countries with
emerging securities markets--that is, countries with securities markets which
are, in the opinion of the Investment Adviser, less sophisticated than more
developed markets in terms of participation, analyst coverage, liquidity and
regulation. These are markets which have yet to reach a level of maturity
associated with developed foreign stock markets, especially in terms of
participation by investors.
The Investment Adviser seeks companies in the early stages of development,
believed to be undergoing a basic change in operations. The Investment Adviser
currently selects portfolio securities from an investment universe of
approximately 6,000 foreign companies in over 35 emerging markets.
[GRAPHIC]INVESTMENTS
The Fund normally invests at least 75% of its assets in equity securities:
common and preferred stocks, warrants and securities convertible into common
stock. In addition, the Fund spreads its investment among countries. Normally,
at least 65% of its assets will be invested in companies located in at least
three foreign countries with emerging securities markets. The Fund may invest at
least 35% of its assets in U.S. companies. The Fund may also invest in debt
securities of any maturity of foreign companies and foreign governments and
their agencies and instrumentalities which are rated investment grade or of
comparable quality if unrated.
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies and general market and economic conditions.
Stock prices are unpredictable, may fall suddenly and may continue to fall for
extended periods. In addition, the securities in which the Fund invests are
subject to the risk that their intrinsic value may never be realized by the
market or their prices may go down. The Fund's performance also depends upon
changing currency values, political and regulatory environments, and overall
economic factors in the countries where the Fund invests. Emerging countries
markets may present greater opportunity for gain, but also involve greater risk
than more developed markets. These countries tend to have less stable
governments and less established markets. The markets tend to be less liquid and
more volatile, and offer less regulatory protection for investors. The economies
of emerging countries may be predominantly based on only a few industries or
dependent on revenue from particular commodities, international aid or other
assistance. The information regarding smaller companies may be less available,
incomplete or inaccurate, and their securities may trade less frequently than
those of larger companies. Accordingly, the securities of the companies in which
the Fund invests may be more volatile and speculative than those of larger
companies. In addition, investing in small-caplitalization companies entails
greater risk because these companies may have unproven tract records, limited
product or service base, limited access to capital and may be more likely to
fail than larger more established companies. See "Risks and Other Information"
starting on page 51.
The Investment Adviser expects a high portfolio turnover rate of 200% or more,
which is likely to generate more taxable short-term gains for shareholders.
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns and its long-term
performance. The graph shows how the Fund's total return has varied from year to
year, while the table shows performance over time. This information provides
some indication of the risks of investing in the Fund by showing changes in the
Fund's performance from year to year and by showing how the Fund's average
annual returns compare with those of a broad measure of market performance.
Average annual return is determined by taking the Fund's performance over a
given period and expressing it as an average annual rate. All figures assume
dividend reinvestment. Past performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
95 6.96%
96 28.08%
97 10.12%
98 -21.22%
BEST QUARTER: Q2 '95 +15.12%
WORST QUARTER: Q3 '98 -25.93%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
Since Inception
1 Year (11/28/94)
<S> <C> <C>
- ---------------------------------------------------------------------
Fund -21.22 2.96
MSCI EMF Free -25.33 -10.98
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS 7.60%
INDEX: THE MORGAN STANLEY CAPITAL INTERNATIONAL EMERGING MARKETS FREE
INDEX (MSCI EMF) IS COMPOSED OF COMPANIES REPRESENTATIVE OF THE
MARKET STRUCTURE OF 22 EMERGING MARKET COUNTRIES IN EUROPE, LATIN
AMERICA, AND THE PACIFIC BASIN. THE INDEX EXCLUDES CLOSED MARKETS AND
THOSE SHARES IN OTHERWISE FREE MARKETS WHICH ARE NOT PURCHASABLE BY
FOREIGNERS. THE INDEX IS UNMANAGED.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF
THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S
EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
16
EMERGING COUNTRIES FUND
[GRAPHIC]INVESTOR 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 1.25%
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 0.72%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.97%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.32%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.65%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2000, the
Investment Adviser has agreed to waive or defer its management fees and to
pay other operating expenses otherwise payable by the Fund, subject to
possible later reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE AFTER WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$168 $520 $897 $1,955
</TABLE>
<PAGE>
17
PACIFIC RIM FUND
[GRAPHIC]GOAL AND PRINCIPAL STRATEGY
The Fund seeks long-term growth of capital. In pursuing this goal, the Fund
invests primarily in the stocks of companies located within the Pacific Rim
realm including Australia, China, Japan, India, Indonesia, South Korea,
Malaysia, New Zealand, the Phillippines, Singapore and Taiwan.
The Investment Adviser focuses on a "bottom up" analysis on the financial
conditions and competitiveness of individual companies within the region. It
uses a blend of both traditional fundamental research, calling on the expertise
of many external analysts in different countries throughout Asia and the Pacific
Rim, and computer-intensive systematic disciplines to uncover signs of "change
at the margin"-- positive business developments which are not yet fully
reflected in a company's stock price.
[GRAPHIC]INVESTMENTS
Normally, the Fund invests at least 65% of its total assets in equity securities
of companies that satisfy at least one of the following criteria: (i) they
derive 50% or more of their total revenue from goods produced, sales made or
services provided in one or more Pacific Rim countries; (ii) they are organized
under the laws of a Pacific Rim country; (iii) they maintain 50% or more of
their assets in one or more Pacific Rim countries; or (iv) the principal trading
market for a class of their securities is in a Pacific Rim country.
The Fund intends to invest in securities of issuers located in at least three
Pacific Rim countries. As a non principal investment, the Fund may also invest
in a combination of equity and debt securities of any maturity of issuers
located throughout the world. Although the Fund intends to allocate its
investments among at least three countries, the Fund may emphasize the
securities of issuers located in any one country in the Pacific Rim where the
investment adviser believes there is potential for above average capital
appreciation. The Fund may invest up to 35% of its net assets in debt securities
rated below investment grade ("high risk bonds") or of comparable quality if
unrated. See "Bond Quality" beginning on page 55.
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments varies day to day in response to the
activities of individual companies and general market and economic conditions.
Stock prices are unpredictable, may fall suddenly and may continue to fall for
extended periods. In addition, the securities in which the Fund invests are
subject to the risk that their intrinsic value may never be realized by the
market or their prices may go down. The Fund's performance also depends upon
changing values in foreign currencies, political and regulatory environments,
and overall economic factors in the countries where the Fund invests. These
risks are magnified in countries with emerging markets. The Fund's performance
is expected to be closely tied to economic and political conditions in the
Pacific Rim. Certain Asian and Pacific Rim countries may have relatively
unstable governments, economies based on only a few industries or heavily
dependent upon international trade, and securities markets that trade
infrequently or in low volumes. Lower rated securities in which the Fund invests
are considered speculative and subject to greater volatility and risk of loss
than investment grade securities, particularly in deteriorating economic
periods. See "Risks and Other Information" starting on page 51.
The Investment Adviser expects a high portfolio turnover rate of 200% or more,
which is likely to generate more taxable short-term gains for shareholders.
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns since its introduction on
December 31, 1997. This information provides some indication of the risks of
investing in the Fund by showing how the Fund's 1 year average annual return
compares with that of a broad measure of market performance. Average annual
return is determined by taking the Fund's performance over a given period and
expressing it as an average annual rate. All figures assume dividend
reinvestment. Past performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
98 -6.56%
BEST QUARTER: Q4 '98 +21.54%
WORST QUARTER: Q2 '98 -23.54%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
Since Inception
1 Year (12/31/97)
<S> <C> <C>
- ---------------------------------------------------------------------
Fund -6.56 -6.56
MSCI Pacific 1.85 1.85
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS 5.48%
INDEX: THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) PACIFIC INDEX
(MSCI PACIFIC) IS COMPOSED OF COMPANIES REPRESENTATIVE OF THE MARKET
STRUCTURE OF 6 DEVELOPED MARKET COUNTRIES IN THE PACIFIC BASIN,
INCLUDING, AUSTRALIA, HONG KONG, JAPAN, MALAYSIA, NEW ZEALAND, AND
SINGAPORE. THE INDEX IS CALCULATED WITHOUT DIVIDENDS OR WITH GROSS
DIVIDENDS REINVESTED IN BOTH U.S DOLLARS AND LOCAL CURRENCY. THE
INDEX IS UNMANAGED.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF
THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S
EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
18
PACIFIC RIM FUND
[GRAPHIC]INVESTOR 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%
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 7.48%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 8.48%
- ----------------------------------------------------------------------------
Waiver of fund expenses (7.08%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.40%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2000, the
Investment Adviser has agreed to waive or defer its management fees and to
pay other operating expenses otherwise payable by the Fund, subject to
possible later reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE AFTER WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$143 $443 $766 $1,680
</TABLE>
<PAGE>
19
LATIN AMERICA FUND
[GRAPHIC]GOAL AND PRINCIPAL STRATEGY
The Fund seeks long-term growth of capital. In pursuing this goal, the Fund
invests in the securities of companies located in Latin American countries such
as Mexico, Brazil, Argentina and Chile.
The Fund's Investment Adviser focuses on a "bottom-up" analysis on the financial
condition and competitiveness of individual companies within the region. The
Investment Adviser uses a blend of both traditional and fundamental research,
calling on the expertise of many external analysts in different countries
throughout Latin America, and computer intensive systematic disciplines to
uncover signs of "change at the margin"--positive business developments which
are not yet fully reflected in a company's stock price. The Investment Adviser
does not emphasize any particular company size but instead considers investments
which in its opinion offer potential for capital appreciation.
[GRAPHIC]INVESTMENTS
Normally, the Fund invests at least 65% of its total assets in equity securities
of issuers that satisfy at least one of the following criteria: (i) they derive
50% or more of their total revenue from goods produced, sales made or services
performed in one or more Latin American countries, (ii) they are organized under
the laws of a Latin American country; (iii) they maintain 50% or more of their
assets in one or more Latin American countries, or (iv) the principal trading
market for a class of their securities is in a Latin American country. As a non
principal investment, the Fund may invest in a combination of equity and debt
securities of any maturity of issuers located throughout the world. The Fund may
invest without limitation in debt securities rated below investment grade ("high
risk bonds") or of comparable quality if unrated. See "Bond Quality" beginning
on page 55.
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies, and general market and economic conditions.
Stock prices are unpredictable, may fall suddenly and may continue to fall for
extended periods. In addition, the securities in which the Fund invests are
subject to the risk that their intrinsic value may never be realized by the
market or their prices may go down. The Fund's performance also depends upon
changing currency values, political and regulatory environments, and overall
economic factors in the countries where the Fund invests. These risks are
magnified in many Latin American countries, since these countries have unstable
governments, less established markets, and volatile currencies. A number of
Latin American countires are currently experiencing economic difficulties and
significant declines in values in their financial markets. The unsettled
conditions of several Latin American financial markets has also affected
emerging markets in other countries and regions. These conditions could continue
to deteriorate further in the future. The information regarding smaller
companies may be less available, incomplete or inaccurate, and their securities
may trade less frequently than those of larger companies. Accordingly, the
securities of the companies in which the Fund invests may be more volatile and
speculative than those of larger companies. In addition, investing in
small-capitalization companies entails greater risk because these companies may
have unproven tract records, limited product or service base, limited access to
capital and may be more likely to fail than larger more established companies.
Lower rated securities in which the Fund invests are considered speculative and
subject to greater volatility and risk of loss than investment grade securities,
particularly in deteriorating economic periods. See "Risks and Other
Information" starting on page 51.
The Investment Adviser expects a high portfolio turnover rate of 200% or more,
which is likely to generate more taxable short-term gains for shareholders.
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns since its introduction on
December 31, 1997. This information provides some indication of the risks of
investing in the Fund by showing how the Fund's average annual return compares
with that of a broad measure of market performance. Average annual return is
determined by taking the Fund's performance over a given period and expressing
it as an average annual rate. All figures assume dividend reinvestment. Past
performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
98 -28.46%
BEST QUARTER: Q4 '98 +11.12%
WORST QUARTER: Q3 '98 -27.70%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year Since Inception
(11/28/97)
<S> <C> <C>
- ---------------------------------------------------------------------
Fund -28.46 -21.5
MSCI Latin
America -35.11 -28.81
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS 22.46%
INDEX: THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) LATIN AMERICA
INDEX IS COMPOSED OF COMPANIES REPRESENTATIVE OF THE MARKET STRUCTURE
OF 7 EMERGING MARKET COUNTRIES IN LATIN AMERICA, INCLUDING ARGENTINA,
CHILE, COLUMBIA, BRAZIL, MEXICO FREE, PERU AND VENEZUELA. THE INDEX
IS UNMANAGED.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF
THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S
EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
20
LATIN AMERICA FUND
[GRAPHIC]INVESTOR 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 1.25%
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 7.78%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 9.03%
- ----------------------------------------------------------------------------
Waiver of fund expenses (7.38%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.65%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2000, the
Investment Adviser has agreed to waive or defer its management fees and to
pay other operating expenses otherwise payable by the Fund, subject to
possible later reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE AFTER WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$168 $520 $897 $1,955
</TABLE>
<PAGE>
23
LARGE CAP GROWTH FUND
[GRAPHIC]GOAL AND PRINCIPAL STRATEGY
The Fund seeks long-term capital appreciation. In pursuing this goal, the Fund
invests primarily in stocks from a universe of large U.S. companies.
The Investment Adviser focuses on a "bottom-up" analysis on the financial
condition and competitiveness of individual companies. The Investment Adviser
uses a blend of both traditional fundamental research and computer intensive
systematic disciplines to uncover signs of "change at the margin"--positive
business developments which are not yet fully reflected in a company's stock
price. It searches for successful, growing companies that are managing change
advantageously and poised to exceed growth expectations.
The Fund emphasizes equity securities of U.S. companies with market
capitalizations generally above $3 billion and companies whose earnings and
stock prices are expected to grow faster than the Russell 1000 Growth Index
("the Russell 1000"). ("large cap securities").
[GRAPHIC]INVESTMENTS
Normally, the Fund invests at least 65% of its total assets in equity
securities, including common and preferred stocks, warrants, and convertible
securities of large U.S. companies. Generally, those companies are those with
market capitalizations corresponding to the upper 90% of the Russell 1000 Growth
Index at time of purchase. As of December 31, 1998, the bottom 10% of the Index
includes companies with capitalizations less than $3.9 billion. Capitalization
of companies in the Index will change with market conditions. As a non principal
investment, the Fund may invest in corporate debt securities of any maturity
which are rated investment grade, or of comparable quality if unrated, U.S.
Government securities, and equity securities of foreign issuers.
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies and general market and economic conditions.
Stock prices are unpredictable, may fall suddenly and may continue to fall for
extended periods. In addition, the securities in which the Fund invests are
subject to the risk that their intrinsic value may never be realized by the
market or their prices may go down. To the extent the Fund is overweighted in
certain market sectors compared to the Russell 1000, the Fund may be more
volatile than the Index. For further explanation, see "Risks and Other
Information" starting on page 51.
The Investment Adviser expects a high portfolio turnover rate of 200% or more,
which is likely to generate more taxable short-term gains for shareholders.
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns and its long-term
performance. The graph shows how the Fund's total return has varied from year to
year, while the table shows performance over time. This information provides
some indication of the risks of investing in the Fund by showing changes in the
Fund's performance from year to year and by showing how the Fund's average
annual returns compare with those of a broad measure of market performance.
Average annual return is determined by taking the Fund's performance over a
given period and expressing it as an average annual rate. All figures assume
dividend reinvestment. Past performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
97 46.07%
98 60.80%
BEST QUARTER: Q4 '98 +38.23%
WORST QUARTER: Q3 '98 -8.31%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
Since Inception
1 Year (12/27/96)
<S> <C> <C>
- -------------------------------------------------------------------------
Fund 60.80 52.04
Russell 1000 Growth 38.71 33.34
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS 20.15%
INDEX: THE RUSSELL 1000 GROWTH IS AN UNMANAGED INDEX CONTAINING THOSE
COMPANIES AMONG THE RUSSELL 1000 INDEX WITH HIGHER THAN AVERAGE
PRICE-TO-BOOK RATIOS AND FORECASTED GROWTH. THE RUSSELL 1000 INDEX
CONTAINS THE TOP 1,000 SECURITIES OF THE RUSSELL 3000 INDEX, WHICH IS
COMPRISED OF THE 3,000 LARGEST U.S. COMPANIES AS DETERMINED BY TOTAL
MARKET CAPITALIZATION. THE RUSSELL 1000 GROWTH IS CONSIDERED GENERALLY
REPRESENTATIVE OF THE MARKET FOR LARGE CAP STOCKS.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF THE
INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S EXPENSES. SEE
"EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
24
LARGE CAP GROWTH FUND
[GRAPHIC]INVESTOR 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)(1)
Management fee 0.75%
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 0.97%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.72%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.72%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.00%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2000, the
Investment Adviser has agreed to waive or defer its management fees and to
pay other operating expenses otherwise payable by the Fund, subject to
possible later reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE AFTER WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$102 $318 $552 $1,225
</TABLE>
<PAGE>
25
MID CAP GROWTH FUND
[GRAPHIC]GOAL AND PRINCIPAL STRATEGY
The Fund seeks maximum long-term capital appreciation. In pursuing this goal,
the Fund invests in stocks from a universe of U.S. companies with market
capitalizations corresponding to the middle 90% of the Russell Midcap Growth
Index. As of December 31, 1998, the middle 90% included companies with
capitalizations between $1.6 billion and $10.7 billion. Capitalization of
companies in the Index will change with market conditions.
The Fund's Investment Adviser focuses on a "bottom-up" analysis on the financial
condition and competitiveness of individual companies. The Investment Adviser
uses a blend of both traditional fundamental research and computer-intensive
systematic disciplines to uncover what it calls "change at the margin"--
positive business developments which are not yet fully reflected in the
company's stock price. It searches for successful, growing companies that are
managing change advantageously and poised to exceed growth expectations.
[GRAPHIC]INVESTMENTS
Normally, the Fund invests at least 75% of its total assets in common stocks of
U.S. issuers. As a non principal investment, the Fund may also invest in
preferred and convertible securities, debt securities of any maturity which are
rated investment grade, or of comparable quality if unrated, and securities
issued by the U.S. government and its agencies and instrumentalities.
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments varies day to day in response to the
activities of individual companies and general market and economic conditions.
The companies in which the Fund invests may be more subject to volatile market
movements than securities of larger, more established companies. Stock prices
are unpredictable, may fall suddenly and may continue to fall for extended
periods. In addition, the securities in which the Fund invests are subject to
the risk that their intrinsic value may never be realized by the market or their
prices may go down.
The information regarding smaller companies may be less available, incomplete or
inaccurate, and their securities may trade less frequently than those of larger
companies. Accordingly, the securities of the companies in which the Fund
invests may be more volatile and speculative than those of larger companies. In
addition, investing in small-caplitalization companies entails greater risk
because these companies may have unproven tract records, limited product or
service base, limited access to capital and may be more likely to fail than
larger more established companies. See "Risks and Other Information" starting on
page 51.
The Investment Adviser expects a high portfolio turnover rate of 200% or more,
which is likely to generate more taxable short-term gains for shareholders.
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns and its long-term
performance. The graph shows how the Fund's total return has varied from year to
year, while the table shows performance over time. This information provides
some indication of the risks of investing in the Fund by showing changes in the
Fund's performance from year to year and by showing how the Fund's average
annual returns compare with those of a broad measure of market performance.
Average annual return is determined by taking the Fund's performance over a
given period and expressing it as an average annual rate. All figures assume
dividend reinvestment. Past performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
94 -10.52%
95 38.57%
96 16.46%
97 16.16%
98 14.65%
BEST QUARTER: Q4 '98 +25.33%
WORST QUARTER: Q3 '98 -17.58%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year 5 Years Since Inception
(4/19/93)
<S> <C> <C> <C>
- ----------------------------------------------------------------------
Fund 14.65 14.07 15.35
Russell Midcap
Growth 17.86 17.34 15.79
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS 13.63%
INDEX: THE RUSSELL MID CAP GROWTH INDEX MEASURES THE PERFORMANCE OF
THOSE COMPANIES AMONG THE 800 SMALLEST IN THE RUSSELL 1000 INDEX WITH
HIGHER THAN AVERAGE PRICE-TO-BOOK RATIOS AND FORECASTED GROWTH. THE
RUSSELL MID CAP GROWTH INDEX IS CONSIDERED GENERALLY REPRESENTATIVE OF
THE U.S. MARKET FOR MID CAP STOCKS. THE INDEX IS UNMANAGED.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF
THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S
EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION".
</TABLE>
<PAGE>
26
MID CAP GROWTH FUND
[GRAPHIC]INVESTOR 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 0.75%
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 0.40%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.15%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.15%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.00%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2000, the
Investment Adviser has agreed to waive or defer its management fees and to
pay other operating expenses otherwise payable by the Fund, subject to
possible later reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE AFTER WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$102 $318 $552 $1,225
</TABLE>
<PAGE>
27
SMALL CAP GROWTH FUND
[GRAPHIC]GOAL AND PRINCIPAL STRATEGY
The Fund seeks maximum long-term capital appreciation. In pursuing this goal the
Fund invests in stocks from a universe of U.S. companies with market
capitalizations corresponding to the middle 90% of the Russell 2000 Growth
Index. As of December 31, 1998, the middle 90% included companies with
capitalizations between $255 million and $1.4 billion. Capitalization of
companies in the Index will change with market conditions.
The Fund's Investment Adviser focuses on a "bottom-up" analysis on the financial
condition and competitiveness of individual companies. The Investment Adviser
uses a blend of both traditional fundamental research and computer intensive
systematic disciplines to uncover what it calls "change at the margin"--positive
business developments which are not yet fully reflected in the company's stock
price. It searches for successful, growing companies that are managing change
advantageously and poised to exceed growth expectations.
[GRAPHIC]INVESTMENTS
Normally, the Fund invests at least 75% of its total assets in common stocks of
small capitalization U.S. companies. As a non principal investment, the Fund may
also invest in preferred and convertible securities, debt securities of any
maturity which are rated investment grade, or of comparable quality if unrated,
and securities issued by the U.S. government and its agencies and
instrumentalities.
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies and general market and economic conditions.
Stock prices are unpredictable, may fall suddenly and may continue to fall for
extended periods. In addition, the securities in which the Fund invests are
subject to the risk that their intrinsic value may never be realized by the
market or their prices may go down. Although small-cap stocks have a history of
long-term growth, they tend to carry additional risks. The information regarding
smaller companies may be less available, incomplete or inaccurate, and their
securities may trade less frequently than those of larger companies.
Accordingly, the securities of the companies in which the Fund invests may be
more volatile and speculative than those of larger companies. In addition,
investing in small-capitalization companies entails greater risk because these
companies may have unproven tract records, limited product or service base,
limited access to capital and may be more likely to fail than larger more
established companies. See "Risks and Other Information" starting on page 51.
The Investment Adviser expects a high portfolio turnover rate of 200% or more,
which is likely to generate more taxable short-term gains for shareholders.
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns and its long-term
performance, The graph shows how the Fund's total return has varied from year to
year, while the table shows performance over time. This information provides
some indication of the risks of investing in the Fund by showing changes in the
Fund's performance from year to year and by showing how the Fund's average
annual returns compare with those of a broad measure of market performance.
Average annual return is determined by taking the Fund's performance over a
given period and expressing it as an average annual rate. All figures assume
dividend reinvestment. Past performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
94 -3.51%
95 35.90%
96 18.88%
97 12.10%
98 4.37%
BEST QUARTER: Q4 '98 +26.99%
WORST QUARTER: Q3 '98 -23.46%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year 5 Years Since Inception
(10/1/93)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------
Fund 4.37 12.77 12.12
Russell 2000 Growth 1.25 10.20 10.24
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS 8.77%
INDEX: THE RUSSELL 2000 GROWTH INDEX IS AN UNMANAGED INDEX CONTAINING THOSE
SECURITIES IN THE RUSSELL 2000 INDEX WITH A GREATER-THAN-AVERAGE GROWTH
ORIENTATION. COMPANIES IN THIS INDEX GENERALLY HAVE HIGHER PRICE-TO-BOOK
AND PRICE-EARNINGS RATIOS. THE RUSSELL 2000 INDEX IN AN UNMANAGED INDEX AND
IS A WIDELY REGARDED SMALL-CAP INDEX OF THE 2,000 SMALLEST SECURITIES IN
THE RUSSELL 3000 INDEX WHICH COMPRISES THE 3,000 LARGEST U.S. SECURITIES AS
DETERMINED BY TOTAL MARKET CAPITALIZATION.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF THE
INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S EXPENSES. SEE
"EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
28
SMALL CAP GROWTH FUND
[GRAPHIC]INVESTOR 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%
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 0.36%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.36%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.19%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.17%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2000, the
Investment Adviser has agreed to waive or defer its management fees and to
pay other operating expenses otherwise payable by the Fund, subject to
possible later reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE AFTER WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$119 $372 $644 $1,420
</TABLE>
<PAGE>
29
MINI CAP GROWTH FUND
[GRAPHIC]GOAL AND PRINCIPAL STRATEGY
The Fund seeks maximum long-term capital appreciation. In pursuing its goal, the
Fund invests primarily in common stocks of U.S. companies with market
capitalizations generally below $300 million that offer superior growth
prospects.
The Fund's Investment Adviser focuses on a "bottom-up" analysis on the financial
condition and competitiveness of individual companies. It uses a blend of
traditional fundamental research and computer intensive systematic disciplines
to uncover signs of "change at the margin"--positive business developments which
are not yet fully reflected in a company's stock price. It searches for
successful, growing companies that are managing change advantageously and poised
to exceed growth expectations.
[GRAPHIC]INVESTMENTS
Normally, the Fund invests at least 75% of its total assets in common stocks. It
selects stocks with market capitalizations corresponding to the bottom 5% of the
Russell 2000 Growth Index at time of purchase. As of December 31, 1998, the
bottom 5% of the Index included companies with capitalizations less than $300
million. Capitalization of companies in the Index will change with market
conditions. As a non principal investment, the Fund may also invest in preferred
and convertible securities, debt securities of any maturity which are rated
investment grade, or of comparable quality if unrated, and securities issued by
the U.S. government and its agencies and instrumentalities.
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies and general market and economic conditions.
Stock prices are unpredictable, may fall suddenly and may continue to fall for
extended periods. In addition, the securities in which the Fund invests are
subject to the risk that their intrinsic value may never be realized by the
market or their prices may go down. Although small-cap stocks have a history of
long-term growth, they tend to carry additional risks.
The information regarding smaller companies may be less available, incomplete or
inaccurate, and their securities may trade less frequently than those of larger
companies. Accordingly, the securities of the companies in which the Fund
invests may be more volatile and speculative than those of larger companies. In
addition, investing in small-capitalization companies entails greater risk
because these companies may have unproven tract records, limited product or
service base, limited access to capital and may be more likely to fail than
larger more established companies. For further explanation, see "Risks and Other
Information" starting on page 51.
The Investment Adviser expects a high portfolio turnover rate of 200% or more,
which is likely to generate more taxable short-term gains for shareholders.
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns and its long-term
performance. The graph shows how the Fund's total return has varied from year to
year, while the table shows performance over time. This information provides
some indication of the risks of investing in the Fund by showing changes in the
Fund's performance from year to year and by showing how the Fund's average
annual returns compare with those of a broad measure of market performance.
Average annual return is determined by taking the Fund's performance over a
given period and expressing it as an average annual rate. All figures assume
dividend reinvestment. Past performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
96 28.73%
97 30.19%
98 8.43%
BEST QUARTER: Q4 '98 +29.43%
WORST QUARTER: Q3 '98 -25.67%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year Since Inception
(7/12/95)
<S> <C> <C>
- -------------------------------------------------------------------------
Fund 8.43 23.59
Russell 2000 Growth 1.29 9.85
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS (8.04%).
INDEX: THE RUSSELL 2000 GROWTH INDEX IS AN UNMANAGED INDEX CONTAINING
THOSE SECURITIES IN THE RUSSELL 2000 INDEX WITH A GREATER-THAN-AVERAGE
GROWTH ORIENTATION. COMPANIES IN THIS INDEX GENERALLY HAVE HIGHER
PRICE-TO-BOOK AND PRICE-EARNINGS RATIOS. THE RUSSELL 2000 INDEX IS AN
UNMANAGED INDEX AND IS A WIDELY REGARDED SMALL-CAP INDEX OF THE 2,000
SMALLEST SECURITIES IN THE RUSSELL 3000 INDEX WHICH COMPRISES THE 3,000
LARGEST U.S. SECURITIES AS DETERMINED BY TOTAL MARKET CAPITALIZATION.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF THE
INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S EXPENSES. SEE
"EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
30
MINI CAP GROWTH FUND
[GRAPHIC]INVESTOR 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 1.25%
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 0.56%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.81%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.25)%
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.56%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2000, the
Investment Adviser has agreed to waive or defer its management fees and to
pay other operating expenses otherwise payable by the Fund, subject to
possible later reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE AFTER WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$159 $493 $850 $1,856
</TABLE>
<PAGE>
31
VALUE FUND
[GRAPHIC]GOAL AND PRINCIPAL STRATEGY
The Fund seeks long-term capital appreciation. In pursuing its goal, the Fund
invests primarily in large U.S. companies that, in the opinion of the Investment
Adviser, are undervalued in the market place relative to other financial
measurements. The Fund emphasizes equity securities of undervalued, large U.S.
companies with market capitalizations generally above $5 billion.
The Fund's Investment Adviser employs a disciplined, "bottom-up" approach that
evaluates stocks on an individual basis and focuses on company fundamentals. It
uses a blend of computer-intensive systematic disciplines and traditional
fundamental research to uncover stocks that meet three investment criteria:
attractive valuations, underlying financial strength, and prospects for business
improvement.
[GRAPHIC]INVESTMENTS
Normally, the Fund invests at least 80% of its total assets in common stocks of
large U.S. companies. As a non principal investment, the Fund may also invest in
preferred and convertible securities, debt securities of any maturity which are
rated investment grade, or of comparable quality if unrated, and bonds issued by
the U.S. government and its agencies and instrumentalities.
[GRAPHIC]RISKS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies and general market and economic conditions.
Stock prices are unpredictable, may fall suddenly and may continue to fall for
extended periods. Value investing is subject to the risk that the stocks
intrinsic value may never be realized by the market. See "Risks and Other
Information" starting on page 51.
The Investment Adviser expects a high portfolio turnover rate of 200% or more,
which is likely to generate more taxable short-term gains for shareholders.
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns and its long-term
performance. The graph shows how the Fund's total return has varied from year to
year, while the table shows performance over time. This information provides
some indication of the risks of investing in the Fund by showing changes in the
Fund's performance from year to year and by showing how the Fund's average
annual returns compare with those of a broad measure of market performance.
Average annual return is determined by taking the Fund's performance over a
given period and expressing it as an average annual rate. All figures assume
dividend reinvestment. Past performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
97 40.55%
98 20.13%
BEST QUARTER: Q4 '98 +16.99%
WORST QUARTER: Q3 '98 -12.43%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
Since Inception
1 Year (4/30/96)
<S> <C> <C>
- ---------------------------------------------------------------------
Fund 20.13 31.97
S&P 500 28.58 29.00
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS (0.43%).
INDEX: THE STANDARD AND POOR'S 500 INDEX (S&P 500) IS AN UNMANAGED
INDEX COMPRISED OF 500 U.S. INDUSTRIAL, TRANSPORTATION, UTILITY AND
FINANCIAL COMPANIES AND IS CONSIDERED TO BE GENERALLY REPRESENTATIVE
OF THE U.S. STOCK MARKET.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF
THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S
EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
32
VALUE FUND
[GRAPHIC]INVESTOR 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 0.75%
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 1.29%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 2.04%
- ----------------------------------------------------------------------------
Waiver of fund expenses (1.04%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.00%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2000, the
Investment Adviser has agreed to waive or defer its management fees and to
pay other operating expenses otherwise payable by the Fund, subject to
possible later reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE AFTER WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$102 $318 $552 $1,225
</TABLE>
<PAGE>
33
CONVERTIBLE FUND
[GRAPHIC]GOAL AND PRINCIPAL STRATEGY
The Fund seeks maximum total return, consisting of capital appreciation and
current income. In pursuing its goal, the Fund invests primarily in income
producing equity securities of companies with market capitalizations above $500
million.
The Investment Adviser evaluates each security's investment characteristics as a
fixed income instrument as well as its potential for capital appreciation. The
Investment Adviser seeks to capture approximately 70-80% of the upside
performance of the underlying equities with 50% or less of the downside
exposure. In evaluating convertibles, the Investment Adviser searches for what
it calls "change at the margin"--positive business developments which are not
yet fully reflected in the company's stock price. It searches for successful
growing companies that are managing change advantageously and poised to exceed
growth expectations.
[GRAPHIC]INVESTMENTS
Normally, the Fund invests at least 65% of its total assets in income-producing
equity securities. Equity securities include common stocks, preferred stocks,
and securities (including debt securities) that are convertible into common
stock. It may also invest in securities issued by the U.S. government and its
agencies and instrumentalities.
At all times, the Fund invests a minimum of 25% of its total assets in common
and preferred stocks, and 25% in other income producing convertible and debt
securities. The Fund may also invest up to 35% of its net assets in debt
securities rated below investment grade ("high risk bonds"). For a description
of these ratings, see "Bond Quality" beginning on page 55.
[GRAPHIC]PRIMARY RISKS
Convertible securities have the investment characteristics of both equity and
debt securities. Accordingly, the value of the Fund's investments varies in
response to movements in the stock and bond markets. Stock prices are
unpredictable, may fall suddenly and may continue to fall for extended periods.
The value of the Fund's debt securities changes as interest rates fluctuate: if
rates rise, the prices of debt securities fall; if rates fall, the prices of
debt securities rise. Convertible securities are often rated below investment
grade or not rated because they fall below debt obligations and just above
common equity in order of preference or priority on the issuer's balance sheet.
Hence, an issuer with investment grade senior debt may issue convertible
securities with ratings less than investment grade or not rated. Convertible
securities rated below investment grade may be subject to some of the same risks
as those inherent in below investment grade debt. These lower-rated debt
securities are considered predominantly speculative and are subject to greater
volatility and risk of loss than investment grade securities, particularly in
deteriorating economic periods. See "Risks and Other Information" starting on
page 51.
The Investment Adviser expects a high portfolio turnover rate of 200% or more,
which is likely to generate more taxable short-term gains for shareholders.
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns and its long-term
performance. The graph shows how the Fund's total return has varied from year to
year, while the table shows performance over time. This information provides
some indication of the risks of investing in the Fund by showing changes in the
Fund's performance from year to year and by showing how the Fund's average
annual returns compare with those of a broad measure of market performance.
Average annual return is determined by taking the Fund's performance over a
given period and expressing it as an average annual rate. All figures assume
dividend reinvestment. Past performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
93 23.04%
94 -7.59%
95 22.26%
96 21.02%
97 23.30%
98 21.54%
BEST QUARTER: Q4 '98 19.91%
WORST QUARTER: Q3 '98 -8.98%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year 5 Years Since Inception
(4/19/93)
<S> <C> <C> <C>
- -----------------------------------------------------------------------------
Fund 21.54 21.95 17.61
First Boston Convertible 6.55 10.83 11.28
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS 6.96%.
INDEX: THE FIRST BOSTON CONVERTIBLE INDEX IS AN UNMANAGED MARKET WEIGHTED
INDEX REPRESENTING THE UNIVERSE OF CONVERTIBLE SECURITIES WHETHER THEY ARE
CONVERTIBLE PREFERRED STOCKS OR CONVERTIBLE BONDS.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF THE
INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S EXPENSES. SEE
"EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
34
CONVERTIBLE FUND
[GRAPHIC]INVESTOR 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 0.75%
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 0.43%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.18%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.18%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.00%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2000, the
Investment Adviser has agreed to waive or defer its management fees and to
pay other operating expenses otherwise payable by the Fund, subject to
possible later reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE AFTER WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$102 $318 $552 $1,225
</TABLE>
<PAGE>
35
SHORT INTERMEDIATE FIXED INCOME FUND
[GRAPHIC]GOAL AND PRINCIPAL STRATEGY
The Fund seeks to preserve principal and liquidity while seeking a relatively
high level of current income. In pursuing this goal, the Fund invests primarily
in a portfolio of short-to-intermediate-term bonds expected to generate a
greater return than the return on one-to three-year U.S. Treasury obligations
over a full market cycle.
When evaluating any bond, the Investment Adviser selects bonds based upon a "top
down" analysis of economic trends. Its investment philosophy emphasizes interest
rate decisions and shifts among sectors of the bond market. It also analyzes
credit quality, the yield to maturity of the security, and the effect the
security will have on the average yield to maturity of the Fund. The Investment
Adviser seeks to add value by positioning portfolio securities among various
market sectors and maturities along the yield curve.
[GRAPHIC]INVESTMENTS
Normally, the Fund invests at least 90% of its total assets in an actively
managed portfolio of debt obligations issued by U.S. and foreign corporations,
U.S. and foreign governments, and their agencies and instrumentalities which are
rated investment grade, or of comparable quality if unrated. All such
obligations are payable in U.S. dollars or, if not payable in U.S. dollars, are
fully hedged into U.S. dollars.
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments fluctuates in response to movements in
interest rates. If rates rise, the prices of debt securities fall; if rates
fall, the prices of debt securities rise. However, the Investment Adviser
expects the Fund's fluctuations to be more moderate than those of a fund with a
longer average portfolio duration. To the extent the Fund invests in foreign
securities, different political, regulatory environments and other overall
economic factors in the countries where the Fund invests may affect performance.
See "Risks and Other Information" starting on page 51.
The Investment Adviser expects a high portfolio turnover rate of 200% or more,
which is likely to generate more taxable short-term gains for shareholders.
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns and its long-term
performance. The graph shows how the Fund's total return has varied from year to
year, while the table shows performance over time. This information provides
some indication of the risks of investing in the Fund by showing changes in the
Fund's performance from year to year and by showing how the Fund's average
annual returns compare with those of a broad measure of market performance.
Average annual return is determined by taking the Fund's performance over a
given period and expressing it as an average annual rate. All figures assume
dividend reinvestment. Past performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
96 4.85%
97 6.67%
98 6.85%
BEST QUARTER: Q3 '98 +2.62%
WORST QUARTER: Q1 '96 +0.36%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year Since Inception
(8/31/95)
<S> <C> <C>
- -------------------------------------------------------------------------
Fund 6.85 7.03
Merrill Lynch
1-3 Year Treasury 6.99 6.51
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS 0.79%.
INDEX: THE MERRILL LYNCH 1-3 YEAR TREASURY IS AN UNMANAGED INDEX
CONSISTING OF ALL PUBLIC U.S. TREASURY OBLIGATIONS HAVING MATURITIES FROM
ONE TO 2.99 YEARS. THE INDEX IS UNMANAGED AND CONSIDERED GENERALLY
REPRESENTATIVE OF THE MARKET FOR INTERMEDIATE GOVERNMENT BOND SECURITIES
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF THE
INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S EXPENSES. SEE
"EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
36
SHORT INTERMEDIATE FIXED INCOME FUND
[GRAPHIC]INVESTOR EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
share 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 0.30%
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 1.02%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.32%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.97%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 0.35%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2000, the
Investment Adviser has agreed to waive or defer its management fees and to
pay other operating expenses otherwise payable by the Fund, subject to
possible later reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE AFTER WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$36 $113 $197 $443
</TABLE>
<PAGE>
37
HIGH QUALITY BOND FUND
[GRAPHIC]GOAL AND PRINCIPAL STRATEGY
The Fund seeks maximum total return. In pursuing this goal, the Fund invests
primarily in high quality bonds.
The Fund's Investment Adviser seeks to outperform the total return of an index
of Lehman Aggregate Bond Index through an actively managed diversified portfolio
of debt securities.
When evaluating any bond, the Investment Adviser selects bonds based upon a "top
down" analysis of economic trends. Its investment philosophy emphasizes
interest-rate decisions and shifts among sectors of the bond market. It also
analyzes credit quality, the yield-to-maturity of the security, and the effect
the security will have on the Fund.
[GRAPHIC]INVESTMENTS
Normally, the Fund invests at least 65% of its net assets in bonds of U.S. and
foreign corporations and governments. These bonds are rated in the top four
investment grades, or are of comparable quality if unrated. They include bonds,
notes, mortgage-backed and asset-backed securities with rates that are fixed,
variable or floating. The average portfolio duration of the Fund will range from
two to eight years. The Fund may invest up to 30% of its total assets in
securities payable in foreign currencies.
The Fund may invest up to 20% of its total assets in debt securities rated below
investment grade ("high risk bonds"). For a description of these ratings, see
"Bond Quality" beginning on page 55. The Fund may also use options, futures
contracts and interest rate and currency swaps as hedging techniques.
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments fluctuates in response to movements in
interest rates. If interest rates rise, the prices of debt securities fall; if
rates fall, the prices of debt securities rise. However, the Investment Adviser
expects the Fund's fluctuations to be more moderate than those of a fund with a
longer average duration. In addition, the lower-rated debt securities in which
the Fund invests are considered speculative and are subject to greater
volatility and risk of loss than investment grade securities, particularly in
deteriorating economic periods. To the extent the Fund invests in foreign
securities, performance also depends upon changing currency values, different
political and economic environments, and other overall economic conditions in
countries where the Fund invests. See "Risks and Other Information" starting on
page 51.
The Investment Adviser expects a high portfolio turnover rate of 200% or more,
which is likely to generate more taxable short-term gains for shareholders.
[GRAPHIC]PAST PERFORMANCE
The two tables show the Fund's annual returns and its long-term performance. The
graph shows how the Fund's total return has varied from year to year, while the
table shows performance over time. This information provides some indication of
the risks of investing in the Fund by showing changes in the Fund's performance
from year to year and by showing how the Fund's average annual returns compare
with those of a broad measure of market performance. Average annual return is
determined by taking the Fund's performance over a given period and expressing
it as an average annual rate. All figures assume dividend reinvestment. Past
performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
96 2.29%
97 9.52%
98 8.54%
BEST QUARTER: Q4 '95 +5.50%
WORST QUARTER: Q1 '96 -3.04%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year Since Inception
(8/31/95)
<S> <C> <C>
- ----------------------------------------------------------------------
Fund 8.54 8.76
Lehman Aggregate
Bond 8.67 8.19
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS 0.04%.
INDEX: THE LEHMAN BROTHERS AGGREGATE BOND INDEX (LEHMAN AGGREGATE
BOND) IS COMPOSED OF SECURITIES FROM LEHMAN BROTHERS
GOVERNMENT/CORPORATE BOND INDEX, MORTGAGE-BACKED SECURITIES INDEX, AND
ASSET-BACKED SECURITIES INDEX. THE INDEX IS UNMANAGED.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF
THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S
EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
38
HIGH QUALITY BOND FUND
[GRAPHIC]INVESTOR 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 0.45%
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 0.64%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.09%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.64%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 0.45%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2000, the
Investment Adviser has agreed to waive or defer its management fees and to
pay other operating expenses otherwise payable by the Fund, subject to
possible later reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE AFTER WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$46 $144 $252 $567
</TABLE>
<PAGE>
39
HIGH YIELD BOND FUND
[GRAPHIC]GOAL AND PRINCIPAL STRATEGY
The Fund seeks a high level of current income and capital growth. In pursuing
its goal, the Fund invests primarily in lower-rated debt securities commonly
referred to as "junk bonds".
When evaluating any bond, the Investment Adviser selects bonds based upon a
combination of both "top-down" analysis of economic trends and "bottom-up"
analysis that evaluates the financial condition and competitiveness of
individual companies. It also analyzes credit quality, the yield to maturity of
the security, and the effect the security will have on the average yield to
maturity of the Fund. The Investment Adviser believes it can lower the risks of
investing in lower-rated debt through these professional management techniques
and through diversification.
[GRAPHIC]PRINCIPAL INVESTMENTS
Normally, the Fund invests at least 65% of its total assets in debt and
convertible securities rated below investment grade, or of comparable quality if
unrated. There is no limit on either the portfolio maturity or the acceptable
rating of securities bought by the Fund. For a description of these ratings, see
"Bond Quality" beginning on page 55. Securities may bear rates that are fixed,
variable or floating. The Fund is not restricted to investments in companies of
any particular size, but currently intends to invest principally in companies
with market capitalizations above $100 million. The Fund may also invest up to
35% of its total assets in equity securities of U.S. and foreign companies.
[GRAPHIC]PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management to
maximize its overall effectiveness. For a complete list of the portfolio team,
see "Portfolio Teams" on page 48.
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments fluctuates in response to movements in
interest rates. When rates rise, debt security prices fall; when rates fall,
debt security prices rise. Lower-rated securities, while usually offering higher
yields, generally have more risk and volatility than higher-rated securities
because of reduced creditworthiness and greater chance of default. Periods of
high interest rates and recession may adversely affect the issuer's ability to
pay interest and principal. To the extent the Fund invests in stocks, the value
of those investments will fluctuate day to day with movements in the stock
market as well as in response to the activities of individual companies. The
smaller companies in which the Fund invests may be more subject to volatile
market movements than larger, more established companies. To the extent the Fund
invests in foreign securities, performance also depends on changes in foreign
currency values different political and regulatory environments, and overall
economic factors in the countries where the Fund invests. For further
explanation, see "Risks and Other Information" starting on page 51.
The Investment Adviser expects a high portfolio turnover rate of 200% or more,
which is likely to generate more taxable short-term gains for shareholders.
[GRAPHIC]PAST PERFORMANCE
The two tables show the Fund's annual returns and its long-term performance. The
graph shows how the Fund's total return has varied from year to year, while the
table shows performance over time. This information provides some indication of
the risks of investing in the Fund by showing changes in the Fund's performance
from year to year and by showing how the Fund's average annual returns compare
with those of a broad measure of market performance. Average annual return is
determined by taking the Fund's performance over a given period and expressing
it as an average annual rate. All figures assume dividend reinvestment. Past
performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
97 21.40%
98 4.52%
BEST QUARTER: Q3 '97 +8.42%
WORST QUARTER: Q3 '98 -6.95%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year Since Inception
(7/31/96)
<S> <C> <C>
- ----------------------------------------------------------------------
Fund 4.52 15.35
First Boston High
Yield Bond 0.58 8.44
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS 2.89%.
INDEX: THE FIRST BOSTON HIGH YIELD BOND INDEX INCLUDES OVER 180 U.S.
DOMESTIC ISSUERS WITH AND AVERAGE MATURITY RANGE OF SEVEN TO TEN YEARS
AND WITH A MINIMUM ISSUE SIZE OF $100 MILLION. THE INDEX IS UNMANAGED
AND CONSIDERED GENERALLY REPRESENTATIVE OF THE U.S. MARKET FOR HIGH
YIELD BONDS.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF
THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S
EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
40
HIGH YIELD BOND FUND
[GRAPHIC]INVESTOR 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 0.60%
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 0.89%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.49%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.74%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 0.75%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2000, the
Investment Adviser has agreed to waive or defer its management fees and to
pay other operating expenses otherwise payable by the Fund, subject to
possible later reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE AFTER WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$77 $240 $417 $930
</TABLE>
<PAGE>
41
SIMPLIFIED ACCOUNT INFORMATION
<TABLE>
<CAPTION>
OPENING AN ACCOUNT
<S> <C>
This is the minimum
initial investment $250,000
- -----------------------------------------------------------------------------------------------------------------------------------
Use this type of
application New Account Form or IRA Application
- -----------------------------------------------------------------------------------------------------------------------------------
Before completing Each Fund offers a variety of features, which are described in the "Your Account" section of this
the application prospectus. Please read this section before completing the application.
- -----------------------------------------------------------------------------------------------------------------------------------
Completing the
application If you need assistance, contact your financial representative, or call us at (800) 551-8043.
- -----------------------------------------------------------------------------------------------------------------------------------
If you are sending money Mail application and check, payable to: NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS,
by CHECK PO BOX 8326, BOSTON, MA 02266-8326. The Trust will not accept third-party checks.
- -----------------------------------------------------------------------------------------------------------------------------------
Please read the bank wire or ACH section under the "Buying Shares" section below.
If you are sending money You will need to obtain an account number with the Trust by sending a completed application to:
by BANK WIRE or ACH NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS, PO BOX 8326, BOSTON, MA 02266-8326.
To receive your account number, contact your financial representative or call us at (800) 551-8043.
<CAPTION>
BUYING SHARES
<S> <C>
This is the minimum
subsequent investment $10,000
- -----------------------------------------------------------------------------------------------------------------------------------
The Trust is generally open on days that the New York Stock Exchange is open.
The price you will All transactions received in good order before the market closes
receive (normally 4:00 p.m. Eastern time) receive that day's NAV.
- -----------------------------------------------------------------------------------------------------------------------------------
Instruct your bank to wire the amount you wish to invest to:
STATE STREET BANK & TRUST CO.--ABA #011000028
If you are sending money DDA #9904-645-0
by BANK WIRE STATE STREET BOS, ATTN: MUTUAL FUNDS
CREDIT: NICHOLAS-APPLEGATE [FUND NAME], [YOUR NAME], [ACCOUNT NAME OR NUMBER]
- -----------------------------------------------------------------------------------------------------------------------------------
Call your bank to ensure (1) that your bank supports ACH, and (2) this feature is active on your bank
If you are sending money account. To establish this option, either complete the appropriate sections when opening an account,
by ACH contact your financial representative, or call us at (800) 551-8043 for further information.
To initiate an ACH purchase, call the Trust at (800) 551-8043.
<CAPTION>
EXCHANGING SHARES
<S> <C>
This is the minimum
exchange amount to open a $250,000
new account
- -----------------------------------------------------------------------------------------------------------------------------------
The Trust is open on days that the New York Stock Exchange is open.
The price you will All transactions received in good order before the market closes
receive (normally 4:00 p.m. Eastern time) receive that day's NAV.
- -----------------------------------------------------------------------------------------------------------------------------------
The exchange must be to an account with the same registration.
If you intend to keep money in the Fund you are exchanging from, make sure that you leave an amount
Things you should know equal to or greater than the Fund's minimum account size (see the "Opening an Account" section).
To protect other investors, the Trust may limit the number of exchanges you can make.
- -----------------------------------------------------------------------------------------------------------------------------------
Contact your financial representative, or call us at (800) 551-8043.
How to request an The Trust will accept a request by phone if this feature was previously established on your account.
exchange by PHONE See the "Your Account" section for further information.
- -----------------------------------------------------------------------------------------------------------------------------------
Please put your exchange request in writing, including: the name on the account, the name of the Fund
How to request an and the account number you are exchanging from, the shares or dollar amount you wish to exchange,
exchange by MAIL and the Fund you wish to exchange to. Mail this request to: PO BOX 8326, BOSTON, MA 02266-8326.
</TABLE>
<PAGE>
42
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) 551-8043 for further
Things you should know GUARANTEE. See the next section for further information. The maximum amount which may be
information. You may sell up to the full account requested by phone, regardless of account size, is
value. $50,000. Amounts greater than that must be
requested in writing. If you wish to receive your
monies by bank wire, the minimum request is
$5,000.
- ---------------------------------------------------------------------------------------------------------------------------------
If you purchased shares through a financial representative or plan administrator/sponsor, you should
call them regarding the most efficient way to sell shares. If you bought shares recently by check,
payment may be delayed until the check clears, which may take up to 15 calendar days from the date of
purchase. Sales by a corporation, trust or fiduciary may have special requirements. Please contact
your financial representative, a plan administrator/sponsor or us for further information.
- ---------------------------------------------------------------------------------------------------------------------------------
The Trust is open on days that the New York Stock Exchange is open.
The price you will All transactions received in good order before the market closes
receive (normally 4:00 p.m. Eastern time) receive that day's NAV.
- ---------------------------------------------------------------------------------------------------------------------------------
Please put your request in writing, including: the
name of the account owners, account number and
Fund you are redeeming from, and the share or
dollar amount you wish to sell, signed by all Contact your financial representative,
If you want to receive account owners. Mail this request to: or call us at (800) 551-8043.
your monies by BANK WIRE NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS, The proceeds will be sent to the existing bank
PO BOX 8326, BOSTON, MA 02266-8326. wire address listed on the account.
The check will be sent to the existing bank wire
address listed on the account.
- ---------------------------------------------------------------------------------------------------------------------------------
Contact your financial representative,
or call us at (800) 551-8043.
If you want to receive The proceeds will be sent in accordance with the
your monies by ACH Please call us at (800) 551-8043. existing ACH instructions on the account and will
generally be received at your bank two business
days after your request is received.
- ---------------------------------------------------------------------------------------------------------------------------------
The Trust intends to pay in cash for all shares of a Fund redeemed, but the Trust reserves the right
to make payment wholly or partly in shares of readily marketable investment securities. In such cases,
a shareholder may incur brokerage costs in converting such securities to cash. However, the Trust has
Redemption in Kind elected to be governed by the provisions of Rule 18f-1 under the Investment Company Act, pursuant to
which it is obligated to pay in cash all requests for redemptions by any shareholder of record,
limited in amount with respect to each shareholder during any 90-day period to the lesser of $250,000
or 1% of the net asset value of the Trust at the beginning of such period.
</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>
43
YOUR ACCOUNT
[GRAPHIC]TRANSACTION POLICIES
PURCHASE OF SHARES. Shares are offered at net asset value without a sales charge
to institutional investors and "wrap accounts." The minimum initial investment
is $250,000, and the minimum subsequent investment is $10,000. The Distributor
may waive these minimums from time to time.
PRICING OF SHARES. The net asset value per share ("NAV") of the Fund is
determined each business day at the close of regular trading on the New York
Stock Exchange (usually 4 p.m. Eastern time) by dividing the value of the Funds'
net assets by the number of its shares outstanding.
BUY AND SELL PRICES. When you buy shares, you pay the NAV, as described earlier.
When you sell shares, you receive the NAV. Your financial institution may charge
you a fee to execute orders on your behalf.
EXECUTION OF REQUESTS. Each Fund is open on the days the New York Stock Exchange
is open, usually Monday-Friday. Buy and sell requests are executed at the NAV
next calculated after your request is received in good order by the transfer
agent or another agent designated by the Trust. The Fund reserves the right to
refuse any purchase order.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider sending your request in writing. Each Fund reserves
the right to reject any purchase or to suspend or modify the continuous offering
of its shares. Your financial representative is responsible for forwarding
payment promptly to the transfer agent. The Trust reserves the right to cancel
any buy request if payment is not received within three days.
In unusual circumstances, any Fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to three business days
or longer, as allowed by federal securities laws.
TELEPHONE TRANSACTIONS. For your protection, telephone requests may be recorded
in order to verify their accuracy. In addition the Trust will take measures to
verify the identity of the caller, such as asking for name, account number,
Social Security or taxpayer ID number and other relevant information. If these
measures are not taken, your Fund may be responsible for any losses that may
occur in your account due to an unauthorized telephone call.
CERTIFICATED SHARES. Most shares are electronically recorded. If you wish to
have certificates for your shares, please write to the transfer agent.
Certificated shares can only be sold by returning the certificates to the
transfer agent, along with a letter of instruction or a stock power and a
signature guarantee.
SALES IN ADVANCE OF PURCHASE PAYMENTS. When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but the Fund will not release the proceeds to you
until your purchase payment clears. This may take up to fifteen calendar days
after the purchase.
MINIMUM INVESTMENT WAIVER
The minimum initial investment is $250,000. However, 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.
[GRAPHIC]FEATURES AND ACCOUNT POLICIES
The services referred to in this section may be terminated or modified at any
time upon 60 days' written notice to shareholders. Shareholders seeking to add
to, change or cancel their selection of available services should contact the
transfer agent.
RETIREMENT PLANS. You may invest in each Fund through various retirement plans,
including IRAs, Roth IRAs, Simplified Employee Plan (SEP) IRAs, 403(b) plans,
457 plans, and all qualified retirement plans. For further information about any
of the plans, agreements, applications and annual fees, contact the Distributor,
your financial representative or plan sponsor. To determine which retirement
plan is appropriate for you, consult your tax adviser.
ACCOUNT STATEMENTS. Shareholders will receive periodic statements reporting all
account activity, including systematic transactions, dividends and capital gains
paid.
MULTI CLASS STRUCTURE. Certain Funds also offer Class R Shares, which have
different service charges and other expenses that may affect their performance.
You can obtain more information about these other share classes from the
Distributor.
<PAGE>
44
YOUR ACCOUNT
DIVIDENDS. The Funds generally distribute most or all of their net earnings in
the form of dividends. Each Fund pays dividends of net investment income as
follows:
<TABLE>
<CAPTION>
ANNUALLY QUARTERLY MONTHLY
<S> <C> <C>
Worldwide Growth Global Blue Chip Global Growth & Income High Yield Bond
Global Technology Convertible
International Core Growth High Quality Bond
International Small Cap Short Intermediate
Emerging Countries
Pacific Rim
Latin America
Greater China
Large Cap Growth
Mid Cap Growth
Small Cap Growth
Mini Cap Growth
Value
</TABLE>
Any net capital gains are distributed annually.
DIVIDEND REINVESTMENTS. If you choose this option, or if you do not indicate any
choice, your dividends will be reinvested on the ex-dividend date.
Alternatively, you can choose to have a check for your dividends mailed to you.
Interest will not accrue or be paid on uncashed dividend checks.
TAXABILITY OF DIVIDENDS. Dividends you receive from a Fund, whether reinvested
or taken as cash, are generally taxable. Dividends from a Fund's long-term
capital gains are taxable as capital gains; dividends from other sources are
generally taxable as ordinary income.
Some dividends paid in January may be taxable as if they had been paid the
previous December. Corporations may be entitled to take a dividends-received
deduction for a portion of certain dividends they receive.
The tax information statement that is mailed to you details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
TAXABILITY OF TRANSACTIONS. Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
SMALL ACCOUNTS (NON-RETIREMENT ONLY). If you draw down a non-retirement account
so that its total value is less than $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 WITHDRAWALS. You may make automatic withdrawals from a Fund of $250 or
more on a monthly or quarterly basis if you have an account of $15,000 or more
in the Fund. Withdrawal proceeds will normally be received prior to the end of
the month or quarter. See the account application for further information.
AUTOMATIC INVESTMENT PLAN. You may make regular monthly or quarterly investments
in each Fund through automatic withdrawals of specified amounts from your bank
account once an automatic investment plan is established. See the account
application for further details about this service or call the Transfer Agent at
1-800-551-8043.
CROSS-REINVESTMENT. You may cross-reinvest dividends or dividends and capital
gains distributions paid by one Fund into another Fund, subject to conditions
outlined in the Statement of Additional Information and the applicable
provisions of the qualified retirement plan.
SHAREHOLDER SERVICES. The Investment Adviser may make payments from its own
resources to brokers, consultants and financial institutions for performing
certain services for shareholders and for the maintenance of shareholder
accounts.
<PAGE>
45
ORGANIZATION AND MANAGEMENT
THE INVESTMENT ADVISER
Investment decisions for the Funds 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. Arthur E. Nicholas and 22 other partners with a staff of
approximately 500 employees currently manage over $30 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
Each Fund pays the Investment Adviser a monthly fee pursuant to an investment
advisory agreement dated ____________, 1999. Each of the following Funds pays an
advisory fee monthly at the following annual rates of their average net assets:
Large Cap Growth 0.75%
Value Fund 0.75%
Global Technology Fund 1.00%
Mini Cap Growth Fund 1.25%
Pacific Rim Fund 1.00%
Greater China Fund 1.00%
Small Cap Growth Fund 1.00%
Global Growth & Income Fund 0.85%
Global Blue Chip Fund 0.80%
Emerging Countries Fund 1.25%
Latin America Fund 1.25%
High Yield Bond Fund 0.60%
The Worldwide Growth, International Core Growth and International Small Cap
Growth Funds each pays monthly at the following annual rates:
1.00% on the first $500 million
0.90% on the next $500 million
0.85% on net assets in excess of $1 billion
The Short Intermediate Fund pays monthly at the following annual rates:
0.30% on the first $250 million
0.25% on net assets in excess of $250 million
The High Quality Bond Fund pays monthly at the following annual rates:
0.45% on the first $500 million
0.40% on the next $250 million
0.35% on net assets in excess of $750 million
The Mid Cap Growth, and Convertible Funds each pays monthly at the following
annual rates:
0.75% of the first $500 million
0.675% on the next $500 million
0.65% on net assets in excess of $1 billion
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio mangement. See
"Portfolio Teams" starting on page 47.
PORTFOLIO TRADES
The Investment Adviser is responsible for the Fund's portfolio transactions. In
placing portfolio trades, the Investment Adviser may use brokerage firms that
provide research services to the Fund, or that sell shares of the Fund but only
when the Investment Adviser believes no other firm offers a better combination
of quality execution (e.g., timeliness and completeness) and favorable price.
PORTFOLIO TURNOVER
To the extent that the Investment Adviser actively trades the Fund's portfolio
securities is an attempt to achieve the Fund's investment goal, such trading may
cause the Fund to have an increased portfolio turnover rate of 200% or more,
which is likely to generate shorter-term gains (losses) for its shareholders,
which are taxed at a higher rate than longer-term gains (losses). Actively
trading portfolio securities may have an adverse impact on the Fund's
performance.
<PAGE>
46
ORGANIZATION AND MANAGEMENT
[GRAPHIC]PORTFOLIO TEAMS
EQUITY MANAGEMENT--U.S.
ARTHUR E. NICHOLAS,
MANAGING PARTNER & CHIEF INVESTMENT OFFICER
Since 1984
B.S.--San Diego State University
CATHERINE SOMHEGYI
PARTNER & CHIEF INVESTMENT OFFICER
Since 1987
M.B.A and B.S.--University of Southern California
LARGE CAP GROWTH, VALUE, SMALL CAP GROWTH, MINI CAP GROWTH, CONVERTIBLE AND MID
CAP GROWTH
THOMAS BLEAKLEY
PARTNER & PORTFOLIO MANAGER
Since 1997; 1995-1997 Portfolio Manager
M.B.A.--University of Texas; B.A.--Boston University;
SMALL CAP AND MINI CAP GROWTH
WILLIAM H. CHENOWETH, CFA
PARTNER & PORTFOLIO MANAGER
Since 1998; 1993 - 1998 Senior Portfolio Manager with Turner Investment
Partners, Inc.
M.A. and B.A.--Columbia University; M.B.A.--University of California, Los
Angeles
MID CAP GROWTH AND LARGE CAP GROWTH
ANDREW B. GALLAGHER
PARTNER & PORTFOLIO MANAGER
Since 1996; 1992-1996 Portfolio Manager
M.B.A.--San Diego State University; B.A.--University of California, Irvine
MID CAP GROWTH AND LARGE CAP GROWTH
JOHN J. KANE
PARTNER & PORTFOLIO MANAGER
Since 1996; 1994-1996 Portfolio Manager
M.A. and B.A.--Columbia University; M.B.A.--University of California, Los
Angeles
VALUE
LARRY SPEIDELL, CFA
PARTNER & DIRECTOR OF GLOBAL RESEARCH
Since 1994
M.B.A.--Harvard University; B.E.--Yale University
VALUE
JOHN C. MCCRAW
PORTFOLIO MANAGER
Since 1996; 1995-1996 Assistant Portfolio Manager
M.B.A.--University of California, Irvine; B.A.--Flagler College
SMALL CAP GROWTH
PAUL E. CLUSKEY
PORTFOLIO MANAGER
Since 1998; 1996-1998 Investment Analyst, SEI Investments; 1995-1996 Investment
Banking Analyst, Piper Jaffray, Inc.
B.S.--New York University
MINI CAP GROWTH AND SMALL CAP GROWTH
DOUGLAS FORSYTH, CFA
PORTFOLIO MANAGER
Since 1995
B.B.A.--University of Iowa
CONVERTIBLE
AARON HARRIS
PORTFOLIO MANAGER
Since 1997; 1995 - 1997 Research Analyst
B.A.--Princeton University
SMALL CAP GROWTH, MINI CAP GROWTH AND GLOBAL TECHNOLOGY
EMMY SOBIESKI, CFA
PORTFOLIO MANAGER
Since 1998; May 1995 - June 1998 Advanced Securities Analyst, Farmers Insurance
Investment Division; 1995 - April 1995 Financial Analyst, EEN Business
Network
M.B.A.--University of Southern California; B.A.--University of San Diego
MID CAP GROWTH AND LARGE CAP GROWTH
MARK STUCKLEMAN
PORTFOLIO MANAGER
Since December 1995; January 1995 - December 1995 Senior Quantitative Analyst,
Wells Fargo Bank
M.B.A.--University of Pennsylvania/Wharton School; B.A.--University of
California, Berkley
VALUE
THOMAS J. SULLIVAN
PORTFOLIO MANAGER
Since 1997; 1995 - 1997 Assistant Portfolio Manager B.S.--Rochester Institute of
Technology
MID CAP GROWTH AND LARGE CAP GROWTH
INTERNATIONAL EQUITY MANAGEMENT
ARTHUR E. NICHOLAS,
MANAGING PARTNER & CHIEF INVESTMENT OFFICER
Since 1984
B.S.--San Diego State University
<PAGE>
47
CATHERINE SOMHEGYI
PARTNER & CHIEF INVESTMENT OFFICER
Since 1987
M.B.A and B.S.--University of Southern California
WORLDWIDE GROWTH, INTERNATIONAL SMALL CAP GROWTH, INTERNATIONAL CORE GROWTH,
GLOBAL GROWTH & INCOME, GLOBAL TECHNOLOGY, GLOBAL BLUE CHIP, LATIN AMERICA,
GREATER CHINA, PACIFIC RIM AND EMERGING COUNTRIES
LARRY SPEIDELL, CFA
PARTNER & DIRECTOR OF GLOBAL RESEARCH
Since 1994
M.B.A.--Harvard University; B.E.--Yale University
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, GLOBAL GROWTH & INCOME,
INTERNATIONAL SMALL CAP GROWTH, EMERGING COUNTRIES, GLOBAL BLUE CHIP, GREATER
CHINA, LATIN AMERICA AND PACIFIC RIM
ANDREW B. GALLAGHER
PARTNER & PORTFOLIO MANAGER
Since 1996; 1992-1996 Portfolio Manager
M.B.A.--San Diego State University; B.A.--University of California, Irvine
WORLDWIDE GROWTH
PEDRO V. MARCAL
PARTNER & PORTFOLIO MANAGER
Since 1997; 1994 - 1997 Assistant Portfolio Manager
B.A.--University of California, San Diego
EMERGING COUNTRIES
LORETTA J. MORRIS
PARTNER & PORTFOLIO MANAGER
Since 1990
Attended California State University, Long Beach
CFA Level II Candidate
WORLDWIDE GROWTH, INTERNATIONAL SMALL CAP GROWTH, GLOBAL TECHNOLOGY, GLOBAL BLUE
CHIP, AND GLOBAL GROWTH & INCOME
ESWAR MENON
PORTFOLIO MANAGER
Since 1997; 1996 to 1997 International Analysts; 1995 - 1995 Junior Quantitative
Analyst
M.B.A.--University of Chicago; M.S.--University of California, Santa Barbara;
B.S.--Indian Institute of Technology, Madras
EMERGING COUNTRIES, GLOBAL TECHNOLOGY AND PACIFIC RIM
ALEX MUROMCEW
PORTFOLIO MANAGER
Since 1996; 1993-1996 Investment Analyst, Teton Partners L.P.
M.B.A.--Stanford University; B.A.--Dartmouth College
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, INTERNATIONAL SMALL CAP GROWTH,
GLOBAL BLUE CHIP, GLOBAL TECHNOLOGY, AND GLOBAL GROWTH & INCOME
ERNESTO RAMOS, PH.D.
PORTFOLIO MANAGER
Since 1996; 1994-1996 Research Manager
PH.D. Harvard University; B.S.--Massachusetts Institute of Technology
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, INTERNATIONAL SMALL CAP GROWTH,
EMERGING COUNTRIES AND LATIN AMERICA
JOHN BORCHARDT
PORTFOLIO MANAGER
Since November 1998; 1996 - November 1998 Investment Analyst; 1995-1996 Senior
Account Administrator
B.A. University of San Francisco
LATIN AMERICA AND EMERGING COUNTRIES
TIM GREATON
PORTFOLIO MANAGER
Since 1992
B.A.--Middlebury College; attended Taiwan University and Nanjing University
GREATER CHINA
MELISA A. GRIGOLITE
PORTFOLIO MANAGER
Since December 1998; 1996 - 1998 Junior Portfolio Manager
M.S.--San Diego State University; B.S.--Southwest Missouri State University
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, INTERNATIONAL SMALL CAP GROWTH,
GLOBAL BLUE CHIP, AND GLOBAL GROWTH & INCOME
JESSICA HILINSKI
PORTFOLIO MANAGER
Since March 1999; 1996 - 1999 Investment Analyst; 1995-1996 Investment Assistant
Attended University of Pennsylvania
EMERGING COUNTRIES
<PAGE>
48
ORGANIZATION AND MANAGEMENT
JOHN TRIBOLET
PORTFOLIO MANAGER
Since March 1999; 1997- March 1999 Investment Analyst; 1995-March 1997 Full Time
Student University of Chicago
M.B.A--University of Chicago; B.A.--Columbia University
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, INTERNATIONAL SMALL CAP GROWTH,
GLOBAL BLUE CHIP, AND GLOBAL GROWTH & INCOME
FIXED INCOME MANAGEMENT
FRED S. ROBERTSON, III
PARTNER & CHIEF INVESTMENT OFFICER--FIXED INCOME
Since 1995
M.B.A.--College of William and Mary; B.S.--Cornell University
HIGH QUALITY BOND, SHORT INTERMEDIATE AND HIGH YIELD BOND
JAMES E. KELLERMAN
PARTNER & PORTFOLIO MANAGER
Since 1995
M.B.A.--St. John's University; B.B.A.--Susquehanna University
HIGH QUALITY BOND AND SHORT INTERMEDIATE
MALCOM S. DAY, CFA
PORTFOLIO MANAGER
Since 1995
M.B.A.--University of California, Los Angeles; B.S.-- Northern University
HIGH QUALITY BOND, SHORT INTERMEDIATE AND GLOBAL GROWTH & INCOME
DOUGLAS FORSYTH, CFA
PORTFOLIO MANAGER
Since 1995
B.B.A.--University of Iowa
HIGH YIELD BOND
SUSAN MALONE
PORTFOLIO MANAGER
Since November 1996; 1995 -1996 AVP, Fixed Income Department, BEA Associates
M.B.A.--New York University; B.S.--Carnegie Mellon University
HIGH YIELD BOND, SHORT INTERMEDIATE AND HIGH QUALITY BOND
<PAGE>
49
RISKS AND OTHER INFORMATION
GENERAL INVESTMENT RISKS
In pursuing their investment strategy, the Funds' portfolio securities may be
subject to the following risks.
RISKS RELATED TO COMPANY SIZE. Generally, the smaller the market capitalization
of a company, the fewer the number of shares traded daily, the less liquid its
stock and the more volatile its price. Market capitalization is determined by
multiplying the number of outstanding shares by the current market price per
share.
In addition, investing in small-capitalization companies entails greater risk
because these companies may have unproven track records, limited product or
service base, limited access to capital and may be more likely to fail than
larger, more established companies.
SECTOR RISKS. Companies with similar characteristics may be grouped together in
broad categories called sectors. Sector risk is the possibility that a certain
sector may perform differently than other sectors or as the market as a whole.
As the Adviser allocates more of the Fund's portfolio holdings to a particular
sector, the Fund's performance will be more susceptible to any economic,
business or other developments which generally affect that sector.
STOCK MARKET RISKS. The value of equity securities in the Fund's portfolio will
go up and down. These fluctuations could be a sustained trend or a drastic
movement. The Fund's portfolio will reflect changes in prices of individual
portfolio stocks or general changes in stock valuations. Consequently, the
Fund's share price may decline and you could lose money.
The Fund's Adviser attempts to manage market risk of investing in individual
securities by limiting the amount the Fund invests in each stock.
INTERNATIONAL INVESTMENT RISKS AND CONSIDERATIONS
FOREIGN SECURITIES. All of the Funds may invest in foreign securities, including
money market instruments and other fixed-income securities, stock and other
equity-related securities. For purposes of this limitation, the Funds do not
consider ADRs and other similar receipts or shares to be foreign securities.
CURRENCY FLUCTUATIONS. When a Fund invests in instruments issued by foreign
companies, the principal, income and sales proceeds may be paid to the Fund in
local foreign currencies. A reduction in the value of local currencies relative
to the U.S. dollar could mean a corresponding reduction in the value of a Funds'
investments. Also, a Fund may incur costs when converting from one currency to
another.
SOCIAL, POLITICAL AND ECONOMIC FACTORS. The economies of many of the countries
where the Funds may invest may be subject to a substantially greater degree of
social, political and economic instability than the United States. This
instability might impair the financial conditions of issuers or disrupt the
financial markets in which the Funds invest.
The economies of foreign countries may differ significantly from the economy of
the United States as to, for example, the rate of growth of gross domestic
product 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 Funds.
A number of Asian countries are currently experiencing economic difficulties and
significant declines in values in their financial markets. The unsettled
condition of several Asian financial markets has also affected emerging markets
in other countries and regions. These conditions could continue or deteriorate
further in the future.
INFLATION. Certain foreign countries, especially many emerging countries, have
experienced substantial, and in some periods extremely high and volatile, rates
of inflation. Rapid fluctuations in inflation rates and wage and price controls
may continue to have unpredictable effects on the economies, companies and
securities markets of these countries.
DIFFERENCES IN SECURITIES MARKETS. The securities markets in foreign countries
have substantially less trading volume than the markets in the United States and
debt and equity securities of many companies listed on such markets may be less
liquid and more volatile than comparable securities in the United States. Some
of the stock exchanges in foreign countries, to the extent that established
markets exist, are in the earlier stages of their development. The limited
liquidity of certain securities markets may affect the ability of each Fund to
buy and sell securities at the desired price and time.
Trading practices in certain foreign countries are also significantly different
from those in the United States. Although brokerage commissions are generally
higher than those in the U.S., the Investment Adviser will seek to achieve the
most favorable net results. In addition, securities settlements and clearance
procedures may be less developed and less reliable than
<PAGE>
50
RISKS AND OTHER INFORMATION
those in the United States. Delays in settlement could result in temporary
periods in which the assets of the Funds are not fully invested, or could result
in a Fund being unable to sell a security in a falling market.
CUSTODIAL AND REGISTRATION PROCEDURES. Systems for the registration and transfer
of securities in foreign markets can be less developed than similar systems in
the United States. There may be no standardized process for registration of
securities or a central registration system to track share ownership. The
process for transferring shares may be cumbersome, costly, time-consuming and
uncertain.
GOVERNMENT SUPERVISION OF SECURITIES MARKETS. Disclosure and regulatory
standards in many foreign countries are, in many respects, less stringent than
those in the United States. There may be less government supervision and
regulation of securities exchanges, listed companies, investors, and brokers in
foreign countries than in the United States, and enforcement of existing
regulations may be extremely limited.
FINANCIAL INFORMATION AND REPORTING STANDARDS. Issuers in foreign countries are
generally subject to accounting, auditing, and financial standards and
requirements that differ, in some cases materially, from those in the United
States. In particular, the assets and profits appearing in financial statements
may not reflect their financial position or results in the way they would be
reflected had the statements been prepared in accordance with U.S. generally
accepted accounting principles. Consequently, financial data may not reflect the
true condition of those issuers and securities markets.
FIXED INCOME SECURITIES
All of the Funds may invest in debt securities of any maturity issued by U.S.
and foreign companies or foreign governments and their agencies and
instrumentalities which are rated investment grade of comparable quality if
unrated.
When evaluating any bond, the Investment Adviser selects bonds based upon a "top
down" analysis of economic trends. Its investment philosophy emphasizes interest
rate decisions and shifts among sectors of the bond market. It also analyzes
credit quality, the yield to maturity of the security, and the effect the
security will have on the average yield to maturity of the Fund. The Investment
Adviser seeks to add value by positioning portfolio securities among various
market sectors and maturities along the yield curve. 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.
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.
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.
The debt securities in which the Funds may invest 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.
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
<PAGE>
51
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.
LOWER RATED SECURITIES RISKS. The Funds may invest in debt and convertible
securities rated below investment grade ("high risk bonds"). These securities
usually offer higher yields than higher-rated securities but are also subject to
more risk than higher-rated securities.
Lower-rated or unrated debt obligations are more likely to react to developments
affecting market and credit risks than are more high-rated securities, which
react primarily to movements in interest rates. In the past, economic downturns
or increases in interest rates caused a higher incidence of default by issuers
of lower-rated securities.
In some cases, such obligations may be highly speculative, and may have poor
prospects for reaching investment grade. To the extent the issuer defaults, the
Fund may incur additional expenses in order to enforce its rights or to
participate in a restructuring of the obligation. In addition, the prices of
lower-rated securities generally tend to be more volatile and the market less
liquid than those of higher-rated securities. Consequently, the Funds may at
times experience difficulty in liquidating their investments at the desired
times and prices.
THE FUNDS' INVESTMENT TECHNIQUES AND RISKS
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements--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 Funds enter into these agreements only with brokers, dealers, or banks that
meet credit quality standards established by the Board of Trustees.
SHORT SALES. A "short sale" is the sale by the Fund of a security which has been
borrowed from a third party on the expectation that the market price will drop.
If the price of the security drops, the Fund will make a profit by purchasing
the security in the open market at a lower price than at which it sold the
security. If the price of the security rises, the Fund may have to cover its
short position at a higher price than the short sale price, resulting in a loss.
A short sale can be covered or uncovered. In a covered short sale, the Fund
either (1) borrows and sells securities it already owns (also known as a short
sale "against the box"), or (2) deposits in a segregated account cash, U.S.
government securities, or other liquid securities in an amount equal to the
difference between the market value of the securities and the short sale price.
Use of uncovered short sales is a speculative investment technique and has
potentially unlimited risk of loss. Accordingly, a Fund will not make uncovered
short sales in an amount exceeding the lesser of 2% of the Fund's net assets or
2% of the securities of such class of the issuer. The Board of Trustees has
determined that no Fund will make short sales if to do so would create
liabilities or require collateral deposits of more than 25% of the Fund's total
assets.
TEMPORARY INVESTMENTS. Each Fund may, from time to time, invest all of its
assets in short-term instruments to maintain liquidity or when the Investment
Adviser determines that adverse market, economic, political or other conditions
call for a temporary defensive posture. Such a defensive position may result in
a 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 Adviser has determined are creditworthy under guidelines
established by the Directors and will receive collateral in the form of cash or
U.S. government securities equal to least 100% of the value of the securities
loaned.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
HEDGING TRANSACTION RISKS
Each of the Funds may trade in derivative contracts to hedge portfolio holdings.
Hedging activities are intended to reduce various kinds of risks. For example,
in order to protect against certain events that might cause the value of its
portfolio securities to decline, the Fund can buy or sell a derivative contract
(or a combination of derivative contracts) intended to
<PAGE>
52
RISKS AND OTHER INFORMATION
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 portfolio
managers could be incorrect in their expectations about the direction or extent
of market factors such as interest rate movements. In these events, the Fund may
lose money on the futures contracts or options.
It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the Investment Adviser will
consider liquidity before entering into options transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will exist
for any particular futures contract or option at any particular time. The Fund's
ability to establish and close out futures and options positions depends on this
secondary market.
THE YEAR 2000
Information technology is critical to the Funds' operations. Many existing
information technology products and systems containing embedded processor
technology were originally programmed to represent any date by using six digits
(e.g., 12/31/99), as opposed to eight digits (e.g., 12/31/1999). Accordingly
such products and systems may experience malfunctions, miscalculations or
disruptions when attempting to process information containing dates that fall
after December 31, 1999 or when attempting to recognize the year 2000 as a leap
year. These potential problems are collectively referred to as the "Y2K"
problem.
There is a risk that outside service agents, such as transfer agents, portfolio
accountants, stock brokers, and custodians who perform certain mission critical
processing may not have remedied all of their Y2K problems. Additionally, a
portion of the Funds' business involves international investments, thereby
exposing the Funds to operations, custody and settlement processes outside the
United States where Y2K risks may not be readily understood. Accordingly, if not
addressed, Y2K issues could result in the Funds' inability to perform its
mission critical functions, including trading and settling tades of portfolio
securities and processing shareholder transactions.
The Investment Adviser has established an enterprise-wide project to address the
issue. This includes testing, assessing, and remedying its own internal systems
as well as monitoring the progress of outside service providers, international
custodians and foreign brokers in addressing Y2K issues. Despite these
precautions, no guarantee can be made that Y2K-related disruptions will not
occur.
EURO
On January 1, 1999, 11 of the 15 member states of the European Monetary Union
introduced the "euro" as a common currency. During a three-year transitional
period, the euro will coexist with each participating state's currency and, on
July 1, 2002, the euro is expected to become the sole currency of the
participating states. During the transition period, the Funds will treat the
euro as a separate currency from that of any participating state.
The conversion may adversely affect a Fund if the euro does not take effect as
planned; if a participating state withdraws from the European Monetary Union; or
if the computing, accounting and trading systems used by the Funds' service
providers, or by entities with which the Fund or its service providers do
business, are not capable of recognizing the euro as a
<PAGE>
53
distinct currency at the time of, and following, euro conversion. In addition,
the conversion could cause markets to become more volatile.
The overall effect of the transition of member states' currencies to the euro is
not known at this time. It is likely that more general short- and long-term
ramifications can be expected, such as changes in the economic environment and
change in the behavior of investors, which would affect a Fund's investments and
its net asset value. In addition, although U.S. Treasury regulations generally
provide that the euro conversion will not, in itself, cause a U.S. taxpayer to
realize gain or loss, other changes that may occur at the time of the
conversion, such as accrual periods, holiday conventions, indices, and other
features may require the realization of a gain or loss by a Fund as determined
under existing tax law.
The Investment Adviser has taken steps: (1) that it believes will reasonably
address euro-related changes to enable the Trust and its service providers to
process transactions accurately and completely with minimal disruption to
business activities; and (2) obtain reasonable assurances that appropriate steps
have been taken by the Fund's other service providers to address the conversion.
The Trust has not borne any expense relating to these actions.
BOND QUALITY
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds rated Aa are judged to be high quality by all standards. Together
with the Aaa group they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A - Bonds Rated A possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered medium-grade obligations (i.e., they are
neither highly protected nor poorly secured). Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba - Bonds rated Ba are judged to have speculative elements; their future cannot
be considered well-assured. Often the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B - Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or maintenance of other terms of
the contract over any long period of time may be small.
Caa - Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca - Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked short-comings.
C - Bonds rated C are the lowest-rated class of bonds, and such issues can be
regarding as having extremely poor prospects of ever attaining any real
investment standing.
Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through B in its corporate bond rating system. The
modified 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF S&P'S CORPORATE BOND RATINGS
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
<PAGE>
54
RISKS AND OTHER INFORMATION
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
BB - Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B - Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business financial or economic conditions, it is not likely to have the capacity
to pay interest and repay principal. The CCC rating category is also used for
debt subordinated to senior debt that is assigned an actual or implied B or B-
Rating.
CC - Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C - The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI - The rating CI is reserved for income bonds on which no interest is being
paid.
D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating will also be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
The ratings from AA to CCC may be modified by the addition of a plus or minus
sign to show relative standing within the major rating categories.
<PAGE>
55
(This page has been left blank intentionally.)
<PAGE>
56
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand the Funds'
financial performance for the period since commencement of operations. Certain
information reflects financial results for a share of the predecessor
Institutional Portfolio outstanding throughout each period indicated. The total
returns in the table represent the rate that an investor would have earned [or
lost] on an investment in the Fund (assuming reinvestment of all dividends and
distributions). The figures have been audited by Ernst & Young L.L.P. with
respect to the fiscal year ended March 31, 1998 and the prior two fiscal years,
if any, and by another independent auditor with respect to commencement of
operations through March 31, 1995. Please read in conjunction with the Trust's
1998 Semi Annual and Annual Reports which are available upon request.
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS
----------------------- FROM:
NET ---------------------
REALIZED DIVIDENDS
NET NET AND FROM NET
ASSET INVESTMENT UNREALIZED TOTAL FROM NET REALIZED
VALUE INCOME GAINS INVESTMENT INVESTMENT CAPITAL
BEGINNING (LOSS) (LOSSES) OPERATIONS INCOME GAINS
<S> <C> <C> <C> <C> <C> <C>
US EQUITY FUNDS
LARGE CAP GROWTH
For the period ended 9/30/98 $16.50 (0.01) (0.15) (0.16) -- (0.15)
For the year ended 3/31/98 13.00 (0.02) 7.55 7.53 -- (4.03)
12/27/96 (commenced) to 3/31/97 12.50 -- 0.50 0.50 -- --
MID CAP GROWTH
For the period ended 9/30/98 $17.16 (0.05) (3.00) (3.05) -- (0.65)
For the year ended 3/31/98 15.39 (0.07) 6.00 5.93 -- (4.16)
For the year ended 3/31/97 16.26 (0.08) 0.49 0.41 -- (1.28)
For the year ended 3/31/96 12.62 (0.03) 4.47 4.44 -- (0.80)
For the year ended 3/31/95 12.68 (0.01) 0.38 0.37 -- (0.43)
4/19/93 (commenced) to 3/31/94 12.50 (0.01) 0.92 0.91 -- (0.73)
SMALL CAP GROWTH
For the period ended 9/30/98 $14.17 0.70 (4.45) (3.75) -- (0.25)
For the year ended 3/31/98 11.06 (0.03) 5.10 5.07 -- (1.96)
For the year ended 3/31/97 15.10 (0.08) (0.31) (0.39) -- (3.65)
For the year ended 3/31/96 11.58 (0.11) 4.45 4.34 -- (0.82)
For the year ended 3/31/95 11.38 (0.05) 0.95 0.90 -- (0.70)
10/1/93 (commenced) to 3/31/94 12.50 (0.04) (0.69) (0.73) -- (0.39)
MINI CAP GROWTH
For the period ended 9/30/98 $25.05 (0.18) (6.62) (6.80) -- (0.42)
For the year ended 3/31/98 15.94 (0.17) 10.93 10.76 -- (1.65)
For the year ended 3/31/97 15.85 (0.17) 0.84 0.67 -- (0.58)
7/12/95 (commenced) to 3/31/96 12.50 (0.05) 3.40 3.35 -- --
VALUE
For the period ended 9/30/98 $21.90 0.11 (2.24) 2.13 -- (0.93)
For the year ended 3/31/98 15.06 -- 8.27 8.27 -- (1.43)
4/30/96 (commenced) to 3/31/97 12.50 1.50 3.11 4.61 (1.44) (0.61)
CONVERTIBLE
For the period ended 9/30/98 $18.64 0.25 (1.42) (1.17) (0.29) (0.18)
For the year ended 3/31/98 14.97 0.47 4.20 4.67 (0.47) (0.53)
For the year ended 3/31/97 14.45 0.51 1.51 2.02 (0.52) (0.98)
For the year ended 3/31/96 11.86 0.53 2.59 3.12 (0.53) --
For the year ended 3/31/95 13.39 0.54 (0.85) (0.31) (0.54) (0.68)
4/19/93 (commenced) to 3/31/94 12.50 0.42 2.12 2.63 (0.42) (1.23)
US FIXED INCOME FUNDS
SHORT INTERMEDIATE
For the period ended 9/30/98 $12.76 0.42 0.14 0.56 (0.42) --
For the year ended 3/31/98 12.66 0.83 0.10 0.93 (0.83) --
For the year ended 3/31/97 12.79 0.79 (0.13) 0.66 (0.79) --
8/31/95 (commenced) to 3/31/96 12.50 0.37 0.29 0.66 (0.37) --
HIGH QUALITY BOND
For the period ended 9/30/98 $13.10 0.44 0.17 0.61 (0.38) (0.28)
For the year ended 3/31/98 12.54 0.84 0.70 1.54 (0.84) (0.14)
For the year ended 3/31/97 12.72 0.79 (0.17) 0.62 (0.80) --
8/31/95 (commenced) to 3/31/96 12.50 0.45 0.47 0.92 (0.44) (0.26)
HIGH YIELD BOND
For the period ended 9/30/98 $13.46 0.60 (1.29) (0.69) (0.65) --
For the year ended 3/31/98 13.20 1.11 2.02 3.13 (1.15) (1.72)
7/31/96 (commenced) to 3/31/97 12.50 0.74 0.95 1.69 (0.73) (0.26)
</TABLE>
<PAGE>
57
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET
ASSETS (a)
-------------------------
NET INVESTMENT
NET ASSET NET ASSETS, INCOME
VALUE TOTAL ENDING BEFORE EXPENSE TOTAL
END OF PERIOD RETURN (IN 000s) REIMBURSEMENTS EXPENSES
<S> <C> <C> <C> <C> <C>
US EQUITY FUNDS
LARGE CAP GROWTH
For the period ended 9/30/98 $16.19 (1.09%) $ 2,490 (0.11%) 1.62%
For the year ended 3/31/98 16.50 63.32% 2,556 (0.17%) 3.67%
12/27/96 (commenced) to 3/31/97 13.00 4.00% 1,293 (0.06%) 4.99%
MID CAP GROWTH
For the period ended 9/30/98 $13.46 (18.49%) $122,822 (0.41%) 1.05%
For the year ended 3/31/98 17.16 42.49% 169,412 (0.72%) 1.19%
For the year ended 3/31/97 15.39 1.74% 156,443 (0.45%) 1.02%
For the year ended 3/31/96 16.26 35.81% 149,969 (0.32%) 1.06%
For the year ended 3/31/95 12.62 3.30% 72,826 (0.06%) 1.07%
4/19/93 (commenced) to 3/31/94 12.68 6.84% 77,947 (0.07%) 1.14%
SMALL CAP GROWTH
For the period ended 9/30/98 $10.17 (26.86%) $162,157 (0.55%) 1.26%
For the year ended 3/31/98 14.17 47.38% 257,599 (1.16%) 1.44%
For the year ended 3/31/97 11.06 (5.66%) 167,230 (0.72%) 1.26%
For the year ended 3/31/96 15.10 38.27% 224,077 (0.62%) 1.20%
For the year ended 3/31/95 11.58 8.69% 206,696 (0.58%) 1.24%
10/1/93 (commenced) to 3/31/94 11.38 (6.06%) 165,940 (0.83%) 1.18%
MINI CAP GROWTH
For the period ended 9/30/98 $17.83 (27.58%) $ 52,708 (1.12%) 1.71%
For the year ended 3/31/98 25.05 68.89% 82,122 (2.51%) 1.83%
For the year ended 3/31/97 15.94 3.90% 28,712 (1.08%) 1.99%
7/12/95 (commenced) to 3/31/96 15.85 26.80% 25,237 (0.98%) 2.46%
VALUE
For the period ended 9/30/98 $18.84 (10.35%) $ 6,847 0.84% 1.94%
For the year ended 3/31/98 21.90 57.78% 10,260 2.33% 2.46%
4/30/96 (commenced) to 3/31/97 15.06 26.77% 3,062 1.64% 3.34%
CONVERTIBLE
For the period ended 9/30/98 $17.00 (6.49%) $ 70,316 2.71% 1.08%
For the year ended 3/31/98 18.64 31.78% 80,084 6.25% 1.20%
For the year ended 3/31/97 14.97 14.37% 18,344 3.43% 1.37%
For the year ended 3/31/96 14.45 26.69% 17,239 3.88% 1.53%
For the year ended 3/31/95 11.86 (2.02%) 12,506 4.28% 1.48%
4/19/93 (commenced) to 3/31/94 13.39 20.18% 18,332 3.36% 1.50%
US FIXED INCOME FUNDS
SHORT INTERMEDIATE
For the period ended 9/30/98 $12.90 4.43% $ 13,594 6.36% 1.22%
For the year ended 3/31/98 12.76 7.50% 13,535 13.03% 1.51%
For the year ended 3/31/97 12.66 5.30% 5,364 6.18% 2.86%
8/31/95 (commenced) to 3/31/96 12.79 5.33% 4,726 5.81% 3.17%
HIGH QUALITY BOND
For the period ended 9/30/98 $13.05 4.72% $ 15,413 6.59% 0.99%
For the year ended 3/31/98 13.10 12.60% 15,759 12.80% 1.64%
For the year ended 3/31/97 12.54 4.98% 15,865 6.12% 3.74%
8/31/95 (commenced) to 3/31/96 12.72 5.49% 4,413 6.39% 6.45%
HIGH YIELD BOND
For the period ended 9/30/98 $12.12 (5.35%) $ 9,380 9.24% 1.39%
For the year ended 3/31/98 13.46 25.49% 10,771 8.28% 2.66%
7/31/96 (commenced) to 3/31/97 13.20 13.90% 4,608 8.47% 1.95%
<CAPTION>
AFTER PORTFOLIO
EXPENSE EXPENSE TURNOVER
REIMBURSEMENTS REIMBURSEMENTS RATE
<S> <C> <C> <C>
LARGE CAP GROWTH
For the period ended 9/30/98 (0.64%) 0.98% 125%
For the year ended 3/31/98 (2.66%) 1.01% 306%
12/27/96 (commenced) to 3/31/97 (3.99%) 1.00% 321%
MID CAP GROWTH
For the period ended 9/30/98 (0.12%) 0.93% 67%
For the year ended 3/31/98 (0.22%) 0.97% 200%
For the year ended 3/31/97 (0.02%) 1.00% 153%
For the year ended 3/31/96 (0.08%) 0.98% 114%
For the year ended 3/31/95 (0.08%) 0.99% 98%
4/19/93 (commenced) to 3/31/94 (0.17%) 0.97% 85%
SMALL CAP GROWTH
For the period ended 9/30/98 (0.10%) 1.16% 42%
For the year ended 3/31/98 (0.25%) 1.19% 92%
For the year ended 3/31/97 (0.09%) 1.17% 113%
For the year ended 3/31/96 (0.04%) 1.16% 130%
For the year ended 3/31/95 (0.06%) 1.18% 100%
10/1/93 (commenced) to 3/31/94 (0.01%) 1.17% 51%
MINI CAP GROWTH
For the period ended 9/30/98 (0.16%) 1.55% 48%
For the year ended 3/31/98 (0.26%) 1.57% 113%
For the year ended 3/31/97 (0.43%) 1.56% 164%
7/12/95 (commenced) to 3/31/96 (0.91%) 1.55% 107%
VALUE
For the period ended 9/30/98 (0.94%) 1.00% 52%
For the year ended 3/31/98 (1.45%) 1.01% 55%
4/30/96 (commenced) to 3/31/97 (2.34%) 1.00% 139%
CONVERTIBLE
For the period ended 9/30/98 (0.15%) 0.93% 71%
For the year ended 3/31/98 (0.23%) 0.97% 160%
For the year ended 3/31/97 (0.37%) 1.00% 167%
For the year ended 3/31/96 (0.53%) 1.00% 145%
For the year ended 3/31/95 (0.48%) 1.00% 126%
4/19/93 (commenced) to 3/31/94 (0.51%) 0.99% 178%
US
SHORT INTERMEDIATE
For the period ended 9/30/98 (0.89%) 0.33% 49%
For the year ended 3/31/98 (1.15%) 0.36% 197%
For the year ended 3/31/97 (2.51%) 0.35% 132%
8/31/95 (commenced) to 3/31/96 (2.82%) 0.35% 114%
HIGH QUALITY BOND
For the period ended 9/30/98 (0.53%) 0.46% 170%
For the year ended 3/31/98 (1.18%) 0.46% 407%
For the year ended 3/31/97 (3.29%) 0.45% 190%
8/31/95 (commenced) to 3/31/96 (6.00%) 0.45% 60%
HIGH YIELD BOND
For the period ended 9/30/98 (0.64%) 0.75% 133%
For the year ended 3/31/98 (1.90%) 0.76% 484%
7/31/96 (commenced) to 3/31/97 (1.20%) 0.75% 465%
</TABLE>
- ----------------------------------------
(a) Ratios are annualized for periods of less than one year. Expense
reimbursements reflect voluntary reductions to total expenses, as discussed
in the notes to financial statements. Net investment income ratios would
have been lower had such reductions not occurred.
<PAGE>
60
PRIOR PERFORMANCE OF CERTAIN FUNDS AND THEIR PREDECESSORS
The following tables set forth historical performance information for the
Mid Cap Growth, Convertible and International Small Cap Growth Funds (the
"Funds") as their respective pool of assets converted from one form of legal
entity to another. Each Fund's performance includes historical performance of
comparable managed institutional separate accounts ("Institutional Accounts")
managed by the Investment Adviser prior to the Funds' inception. The Investment
Adviser has advised the Trust that the Institutional Accounts were operated with
materially equivalent investment objectives, policies, strategies and
restrictions as the Funds.
The Mid Cap Growth Fund performance includes performance information for
Whitehall Partners, a California limited partnership whose total assets were
transferred to the Mid Cap Growth Fund in April 1993. The Convertible Fund
includes performance information for Coventry Partners, a California limited
partnership whose total assets were transferred to the Convertible Fund in April
1993. The International Small Cap Growth Fund includes performance information
for Huntington Partners, a California limited partnership whose assets were
transferred to the International Small Cap Growth Fund in January 1994.
Until July 24, 1998, the Funds were organized in the Nicholas-Applegate
"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 Investment Trust (the "Trust").
On July 24, 1998, the "master-feeder" arrangement was reorganized into
multi-class structure in which the Nicholas-Applegate Mutual Funds invested in
securities directly and offered various classes of shares.
In May 1999, the Trust became the successor entity to the assets of the
Class I shares of the Nicholas-Applegate Mutual Funds when, substantially all of
those "Institutional" assets transferred to the Trust. The investment objective,
policies and limitations of the portfolios of the Trust are identical in every
respect to the corresponding portfolios of the Nicholas-Applegate Mutual Funds.
The investment management fees and expense limitations are also identical.
The performance returns for the Institutional Accounts have been adjusted to
reflect the deduction of the fees and expenses of the Funds and, for the period
preceding the period the reorganization of the Trust, the proportionate shares
of the operating expenses of the corresponding master funds of the Master Trust
(including advisory fees), and give effect to transaction costs as well as
reinvestment of income and gains. However, the prior investment partnerships
were not registered under the Investment Company Act and were therefore not
subject to the investment restrictions imposed by the Act; if they had been so
registered, their performance might have been lower.
The performance results presented may not necessarily equal the return
experienced by any particular shareholder or partner as a result of the timing
of investments and redemptions. In addition, the results do not reflect the
effect of income or excise taxes on any shareholder, partner or trust
beneficiary.
<PAGE>
61
<TABLE>
<CAPTION>
INTERNATIONAL SMALL
MID CAP GROWTH CONVERTIBLE CAP GROWTH PERFORMANCE
PERFORMANCE PERFORMANCE
<S> <C> <C> <C> <C> <C> <C>
RUSSELL CS FIRST INTERNATIONAL SALOMON
MID CAP MID CAP BOSTON SMALL CAP EPAC/
GROWTH GROWTH CONVERTIBLE CONVERTIBLE GROWTH EMI
YEAR FUND INDEX(1) FUND INDEX(2) FUND INDEX(3)
1985(4) 24.74% n/a n/a n/a n/a n/a
1986(4) 32.85 17.55% n/a n/a n/a n/a
1987 3.59 2.76 (3.12)% (0.22)% n/a n/a
1988 12.67 12.92 19.88 13.41 n/a n/a
1989 33.92 31.48 28.39 13.76 n/a n/a
1990(4) 0.73 (5.13) 1.84 (6.89) (17.48)% (16.96)%
1991 55.52 47.02 38.36 29.11 11.78 6.66
1992 13.55 8.71 9.84 17.58 (12.36) (15.42)
1993 19.77 (11.19) 27.08 18.55 26.03 30.34
1994 (10.52) (2.17) (7.59) (4.72) 8.61 9.44
1995(4) 38.67 33.99 22.26 23.72 6.00 4.79
1996 16.46 17.48 21.02 13.84 18.27 6.47
1997 16.66 22.58 23.30 16.92 14.09 (10.27)
1998 14.65 17.86 21.54 6.55 36.34 14.05
Last year(5) 14.65 17.86 21.54 6.55 36.34 14.05
Last 5 years(5) 14.07 17.34 15.43 10.83 16.19 4.56
Last 10 years(5) 18.62 17.30 15.43 12.29 n/a n/a
Since inception(5) 19.54 15.79 16.11 11.28 9.39 2.35
</TABLE>
1 The Russell Midcap Growth Index measures the performance of those companies
among the 800 smallest companies in the Russell 1000 Index with higher than
average price-to-book ratios and forecasted growth. The Russell 1000 Index
contains the top 1,000 securities of the Russell 3000 Index, which
comprises the 3,000 largest U.S. securities as determined by total market
capitalization. The Russell Midcap Growth Index is considered generally
representative of the U.S. market for midcap stocks. The average market
capitalization is approximately $4 billion, the median market
capitalization is approximately $2.5 billion, and the largest company in
the Index had an approximate market capitalization of $8.7 billion. This
Index reflects the reinvestment of income dividends and capital gains
distributions, if any, but does not reflect fees, brokerage commissions, or
other expenses of investing. The Index was not available until 1986.
2 The CS First Boston Convertible Index is an unmanaged market weighted index
representing the universe of convertible securities, whether they are
convertible preferred stocks or convertible bonds. The Index reflects the
reinvestment of income dividends and capital gains distributions, if any,
but does not reflect fees, brokerage commissions or markups, or other
expenses of investing.
3 The Salomon EPAC Extended Market Index ("EMI") is an unmanaged index that
includes shares of approximately 2,800 companies in 22 countries excluding
Canada and the United States. Companies included in the Index are smaller
capitalization companies with available float market capitalizations
greater than U.S. $100 million. Only issuers that are legally and
practically available to outside investors are included in the Index. Index
returns reflect the reinvestment of income dividends and capital gains
distributions, if any, but do not reflect fees, brokerage commissions, or
other expenses of investing.
4 Performance Inception dates are as follows: Core Growth--September 30, 1985
(registration statement effective June 30, 1994); Convertible--December 31,
1986 (registration statement effective April 19, 1993); International Small
Cap Growth-- June 7, 1990 (registration statement effective January 3,
1994).
5 Through December 31, 1998.
<PAGE>
NEW ACCOUNT FORM (NON-IRA)
FOR AN IRA ACCOUNT APPLICATION, CALL 800 - 551-8043.
N I C H O L A S-A P P L E G A T E-REGISTERED TRADEMARK-
MAIL TO:
Nicholas-Applegate Institutional Funds
PO Box 8326
Boston, MA 02266-8326
800 - 551-8043
1. YOUR ACCOUNT REGISTRATION
- --------------------------------------------------------------------------------
PLEASE PRINT. COMPLETE ONE SECTION ONLY. Joint account owners will be registered
joint tenants with the right of survivorship unless otherwise indicated. It is
the shareholder(s) responsibility to specify ownership designations which comply
with applicable state law.
<TABLE>
<S> <C> <C> <C> <C>
/ / INDIVIDUAL OR JOINT ACCOUNT
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ - _ _ _ _
First Name Middle Initial Last Name Social Security Number
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ - _ _ _ _
Joint Tenant (IF ANY) Middle Initial Last Name Social Security Number
/ / GIFT OR TRANSFER TO MINOR (UGMA/UTMA)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Custodian's First Name (ONLY ONE) Middle Initial Last Name
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Minor's First Name (ONLY ONE) Middle Initial Last Name
_ _ _ _ _ - _ _ - _ _ _ _
_ _ - _ _ - _ _
Minor's State of Residence Minor's Date of Birth Minor's Social Security
Number
</TABLE>
<TABLE>
<S> <C> <C>
/ / TRUST, CORPORATION, PARTNERSHIP OR OTHER ENTITY (CORPORATE RESOLUTION REQUIRED)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Name of Trust, Corporation or Other Entity
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ - _ _ _ _
Trustee Name(s) or Type of Entity Date of Trust Agreement
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ _ _ _ _
Name of Beneficiary (OPTIONAL) Taxpayer Identification Number
</TABLE>
2. YOUR ADDRESS
- --------------------------------------------------------------------------------
Do you have any other identically registered Nicholas-Applegate accounts?
/ / Yes / / No
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Street Address or PO Box Number Apartment Number
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ _
City State Zip
_ _ _ - _ _ _ - _ _ _ _
Area Code Home Phone
_ _ _ - _ _ _ - _ _ _ _
Area Code Business Phone
CITIZENSHIP:/ / U.S.
/ / Resident Alien
/ / Non-resident Alien
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Specify Country (if not U.S.)
3. YOUR INVESTMENT
- --------------------------------------------------------------------------------
Please select your fund. See prospectus for investment minimums.
<TABLE>
<CAPTION>
CLASS AMOUNT
<S> <C> <C>
- ---------------------------------------------------------
Emerging Countries I(179) / / $
- ---------------------------------------------------------
International Small Cap Growth I(356) / / $
- ---------------------------------------------------------
International Core Growth I(180) / / $
- ---------------------------------------------------------
Worldwide Growth I(374) / / $
- ---------------------------------------------------------
Global Growth & Income I(970) / / $
- ---------------------------------------------------------
Global Blue Chip I(943) / / $
- ---------------------------------------------------------
Pacific Rim I(789) / / $
- ---------------------------------------------------------
Greater China I(788) / / $
- ---------------------------------------------------------
Latin America I(787) / / $
- ---------------------------------------------------------
Mini Cap Growth I(753) / / $
- ---------------------------------------------------------
Small Cap Growth I(359) / / $
- ---------------------------------------------------------
Mid Cap Growth I(371) / / $
- ---------------------------------------------------------
Large Cap Growth I(181) / / $
- ---------------------------------------------------------
Convertible I(372) / / $
- ---------------------------------------------------------
Value I(378) / / $
- ---------------------------------------------------------
Short Intermediate I(182) / / $
- ---------------------------------------------------------
High Quality Bond I(183) / / $
- ---------------------------------------------------------
High Yield Bond I(377) / / $
- ---------------------------------------------------------
Global Technology I(437) / / $
- ---------------------------------------------------------
Other $
- ---------------------------------------------------------
TOTAL $
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
</TABLE>
4. YOUR METHOD OF PAYMENT
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
/ / BY CHECK: Payable to NICHOLAS-APPLEGATE
INSTITUTIONAL FUNDS / / BY EXCHANGE: Fund name from which
(Third party checks will NOT be accepted.) you are exchanging _ _ _ _ _ _ _ _ _ _ _ _ _
/ / BY WIRE: Please call 1-800-551-8043 for your
account number / / BY CONFIRM TRADE ORDER: Trade Order # _ _ _ _ _ _ _ _ _ _ _ _ _
</TABLE>
<PAGE>
5. YOUR DIVIDEND AND CAPITAL GAIN PAYMENT OPTIONS
- --------------------------------------------------------------------------------
Distributions will automatically be reinvested in additional shares of your
Fund(s) unless you check the box(es) below.
DIVIDENDS (CHECK ONE) / / Reinvest / / Cash CAPITAL GAINS (CHECK
ONE) / / Reinvest / / Cash
/ / CROSS FUND REINVESTMENT+ (OPTIONAL)--Reinvest all dividends and capital
gains into an existing account in another Nicholas-Applegate Fund.
<TABLE>
<S> <C> <C> <C>
From _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ To _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Fund Name Fund Name
</TABLE>
+MUST BE SAME ACCOUNT TYPE AND CLASS OF SHARES. MUST BE A $5,000 MINIMUM ACCOUNT
VALUE FOR THIS SERVICE.
SERVICE OPTIONS
- --------------------------------------------------------------------------------
6. TELEPHONE REDEMPTIONS AND EXCHANGES
- --------------------------------------------------------------------------------
This allows you to use the telephone to redeem or exchange shares, unless you
check the box below. Redemptions will be made payable to the registered owner(s)
and mailed to the address of record. Maximum redemption by telephone is $50,000.
/ / I do not want telephone redemption privilege. / / I do not want telephone
exchange privilege.
7. SYSTEMATIC INVESTMENT--TO MY MUTUAL FUND ACCOUNT VIA ACH
- --------------------------------------------------------------------------------
/ / Check this box to invest on a regular basis from your bank account. Please
complete "Checking Account Information" (SECTION 10).
<TABLE>
<S> <C> <C> <C> <C> <C>
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ $_ _ ,_ _ _ ._ _ _ _ _ _
Fund Name Amount ($50 MINIMUM) Day* Monthly Quarterly (JAN/APRIL/JULY/OCT)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ $_ _ ,_ _ _ ._ _ _ _ _ _
Fund Name Amount ($50 MINIMUM) Day* Monthly Quarterly (JAN/APRIL/JULY/OCT)
</TABLE>
*IF YOU DO NOT PROVIDE A DATE, THEN IT WILL DEFAULT TO THE 15TH OF THE MONTH.
8. SYSTEMATIC EXCHANGES--FROM ONE NICHOLAS-APPLEGATE MUTUAL FUND ACCOUNT TO
ANOTHER
- --------------------------------------------------------------------------------
/ / Check this box to exchange on a regular basis from one Nicholas-Applegate
account to another.
<TABLE>
<S> <C> <C> <C> <C> <C>
FROM:
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ $_ _ ,_ _ _ ._ _ _ _ _ _
Fund Name Day* Monthly Quarterly (JAN/APRIL/JULY/OCT)
Amount ($50 MINIMUM, $5,000 MINIMUM ACCOUNT VALUE)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Account Number (IF KNOWN)
TO:
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ $_ _ ,_ _ _ ._ _ _ _ _ _
Fund Name Day* Monthly Quarterly (JAN/APRIL/JULY/OCT)
Amount ($50 MINIMUM, $5,000 MINIMUM ACCOUNT VALUE)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Account Number (IF KNOWN)
</TABLE>
*IF YOU DO NOT PROVIDE A DATE, THEN IT WILL DEFAULT TO THE 15TH OF THE MONTH.
<PAGE>
9. SYSTEMATIC WITHDRAWAL--FROM MY MUTUAL FUND ACCOUNT VIA ACH OR CHECK
- --------------------------------------------------------------------------------
/ / Check this box to withdraw on a regular basis from my mutual fund account.
Please complete "Checking Account Information" below (SECTION 10):
<TABLE>
<S> <C> <C> <C> <C> <C>
BY ACH TO MY BANK ACCOUNT
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ $_ _ ,_ _ _ ._ _ _ _ _ _
Fund Name Day* Monthly Quarterly (JAN/APRIL/JULY/OCT)
Amount ($50 MINIMUM, $5,000 MIN. ACCOUNT VALUE)
BY CHECK (DO NOT NEED TO COMPLETE
SECTION 10)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ $_ _ ,_ _ _ ._ _ _ _ _ _
1 5
Fund Name Day* Monthly Quarterly (JAN/APRIL/JULY/OCT)
Amount ($50 MINIMUM, $5,000 MIN. ACCOUNT VALUE)
</TABLE>
SEND PROCEEDS TO:
/ / Address of record
/ / Special Payee (LIST BELOW)
<TABLE>
<S> <C> <C> <C> <C>
INDIVIDUAL OR JOINT ACCOUNT
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
First Name Middle Initial Last Name
</TABLE>
<TABLE>
<S> <C> <C> <C>
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ _
Address City State Zip
</TABLE>
*IF YOU DO NOT PROVIDE A DATE, THEN IT WILL DEFAULT TO THE 15TH OF THE MONTH.
10. CHECKING ACCOUNT INFORMATION--FOR ACH OR REDEMPTIONS BY WIRE
- --------------------------------------------------------------------------------
Must be completed for Sections 7 and 9. PLEASE ATTACH A VOIDED CHECK OR DEPOSIT
SLIP.
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Name of Institution
<TABLE>
<S> <C> <C> <C>
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ _
Address City State Zip
</TABLE>
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Bank ABA Routing Number Bank Account Number
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Any joint owner of your bank account who is NOT a joint owner of your fund
account(s) must sign above.
11. DUPLICATE STATEMENTS
- --------------------------------------------------------------------------------
/ / I wish to have a duplicate statement sent to the interested party listed
below.
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Name of Interested Party
<TABLE>
<S> <C> <C> <C>
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ _
Address City State Zip
</TABLE>
(SEE REVERSE)
<PAGE>
12. SIGNATURES
- --------------------------------------------------------------------------------
BY SIGNING THIS NEW ACCOUNT FORM BELOW, I ASSURE THAT:
/ / I have received and read the prospectus for each of the Funds in which I am
investing, and I believe each investment is suitable for me. I understand
that the prospectus terms are incorporated into this New Account Form by
reference.
/ / I authorize Nicholas-Applegate Institutional Funds, their affiliates and
agents to act on any instructions believed to be genuine for any service
authorized on this form. I agree they will not be liable for any resulting
loss or expense.
/ / I am of legal age in my state and have the authority and legal capacity to
purchase mutual fund shares.
/ / I understand that neither the fund(s) nor the distributor,
Nicholas-Applegate Securities, is a bank and that fund shares are not
obligations of or guaranteed by any bank or insured by the FDIC.
/ / I understand that mutual funds involve risks, including possible loss of
principal.
I CERTIFY, UNDER PENALTIES OF PERJURY, THAT:
1. The Social Security or Taxpayer Identification Number shown on this form is
correct. (If I fail to give the correct number or to sign this form,
Nicholas-Applegate Institutional Funds may reject or redeem my investment. I
may also be subject to any applicable IRS Backup Withholding for all
distributions and redemptions.)
2. / / I am NOT currently subject to IRS Backup Withholding because (a) I have
not been notified of it or (b) notification has been revoked.
/ / I am currently subject to IRS Backup Withholding.
I agree that neither Nicholas-Applegate Securities, the Trust, nor any of their
affiliates will be responsible for the authenticity of any instructions given
and shall be fully indemnified as to and held harmless from any and all direct
and indirect liabilities, losses, or costs resulting from acting upon such
transactions.
<TABLE>
<S> <C>
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ - _ _ _ _
Shareowner, Custodian, Trustee or Authorized Officer Date
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ - _ _ _ _
Joint Owner, Custodian, Trustee or Authorized Officer Date
</TABLE>
<PAGE>
F O R M O R E I N F O R M A T I O N
Nicholas-Applegate Institutional Funds
SEC file number: 333-71469
More information on these Funds is available
free upon request, including the following:
ANNUAL/SEMIANNUAL REPORT
Describes the Funds' performance, lists portfolio
holdings and contains a letter from the Funds'
Investment Adviser discussing recent market
conditions and investment strategies that
significantly affected the Funds' performance
during the last fiscal year.
STATEMENT OF ADDITIONAL
INFORMATION (SAI)
Provides more details about the Funds and their
policies. A current SAI is on file with the
Securities and Exchange Commission (SEC) and
is incorporated by reference (is legally considered
part of this prospectus).
TO OBTAIN INFORMATION:
BY TELEPHONE
Call 1-800-551-8643
BY MAIL Write to:
Nicholas-Applegate Institutional Funds
600 West Broadway
San Diego, CA 92101
BY E-MAIL Send your request to nacm.com
ON THE INTERNET Text versions of the Fund
documents can be viewed online or downloaded from:
SEC
http://www.sec.gov
NACM
http://www.nacm.com
You can also obtain copies by visiting the SEC's
Public Reference Room in Washington, DC
(phone 1-800-SEC-0330) or sending your request
and a duplicating fee to the SEC's Public
Reference Section, Washington, DC 20549-6009
N I C H O L A S-A P P L E G A T E-REGISTERED
TRADEMARK-
600 West Broadway
San Diego, California 92101
800-551-8045
Nicholas-Applegate Securities, Distributor
Visit us at www.nacm.com
ITPRO399
<PAGE>
N I C H O L A S-A P P L E G A T E-REGISTERED
TRADEMARK-
INSTITUTIONAL FUNDS PROSPECTUS
QUALIFIED SHARES
________, 1999
GLOBAL FUNDS
International Core Growth
[GRAPHIC] Emerging Countries
US FUNDS
Large Cap Growth
Mid Cap Growth
Value
Small Cap Growth
FIXED INCOME FUNDS
High Quality Bond
AS WITH ALL MUTUAL FUNDS, THE SECURITIES
AND EXCHANGE COMMISSION DOESN'T
GUARANTEE THAT THE INFORMATION IN THIS
PROSPECTUS IS ACCURATE OR COMPLETE, NOR
HAS IT APPROVED OR DISAPPROVED THESE
SECURITIES. IT IS A CRIMINAL OFFENSE TO
STATE OTHERWISE.
<PAGE>
2
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
A FUND BY FUND LOOK AT GOALS,
STRATEGIES, RISKS AND HISTORICAL
PERFORMANCE.
GLOBAL FUNDS
International Core Growth 3
Emerging Countries 5
US FUNDS
Large Cap Growth 7
Mid Cap Growth 9
Small Cap Growth 11
Value 13
FIXED INCOME FUNDS
High Quality Bond 15
- --------------------------------------------------------------------------------
POLICIES AND INSTRUCTIONS FOR
OPENING, MAINTAINING AND
CLOSING AN ACCOUNT IN ANY
FUND.
SIMPLIFIED ACCOUNT INFORMATION
Opening an Account 17
Buying Shares 17
Exchanging Shares 17
Selling Shares 18
Signature Guarantees 18
YOUR ACCOUNT
Transaction Policies 19
Features and Account Policies 19
- --------------------------------------------------------------------------------
FURTHER INFORMATION THAT APPLIES
TO THE FUNDS AS A GROUP.
ORGANIZATION AND MANAGEMENT
Investment Adviser 21
Investment Adviser Compensation 21
Multi Class Structure 21
Shareholder Services and
Distribution Plan 21
Portfolio Turnover 21
Portfolio Trades 21
Minimum Investment Waivers
Portfolio Teams 22
- --------------------------------------------------------------------------------
EACH FUND HAS ITS OWN STRATEGY
AND HAS IT OWN PROFILE. THE FUNDS
CANNOT GUARANTEE THAT THEY WILL MEET
THEIR SPECIFIC GOALS. BECAUSE YOU
COULD LOSE MONEY BY INVESTING IN
THESE FUNDS, BE SURE TO READ ALL
RISK DISCLOSURES CAREFULLY
BEFORE INVESTING.
RISKS AND OTHER INFORMATION 24
PRIOR PERFORMANCE OF CERTAIN FUNDS 30
FOR MORE INFORMATION Back Cover
<PAGE>
3
INTERNATIONAL CORE GROWTH FUND
[GRAPHIC]GOAL AND PRINCIPAL STRATEGY
The Fund seeks maximum long-term capital appreciation. In pursuing this goal,
the Fund invests primarily in larger capitalized companies located in over 50
countries worldwide. Generally, this means companies whose stock market
capitalizations are in the top 75% of publicly traded companies, as measured by
stock market capitalization in each country.
The Investment Adviser focuses on a "bottom-up" analysis on the financial
conditions and competitiveness of individual companies worldwide. It uses a
blend of both traditional fundamental research, calling on the expertise of many
external analysts in different countries, and computer intensive systematic
disciplines to uncover signs of "change at the margin"-- positive business
developments which are not yet fully reflected in a company's stock price. It
gathers financial data on 20,000 companies in over 50 countries, and searches
for successful, growing companies managing change advantageously and poised to
exceed growth expectations.
[GRAPHIC]INVESTMENTS
The Fund normally invests at least 75% of its assets in equity securities:
common and preferred stocks, warrants and securities convertible into common
stock. Normally, at least 75% of the Fund's total assets will be invested in
these securities. In addition, the Fund spreads its investments among countries,
with at least 65% of its assets invested in companies located in at least three
foreign countries. When in the opinion of the Investment Adviser greater
investment opportunities exist the Fund may also invest in the companies. The
Fund may invest at least 35% of its assets in U.S. companies located in
countries with emerging securities markets.
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies and general market and economic conditions.
Stock prices are unpredictable, may fall suddenly and may continue to fall for
extended periods. In addition, the securities in which the Fund invests are
subject to the risk that their intrinsic value may never be realized by the
market or their prices may go down. The Fund's performance also depends upon
changing values in foreign currencies, political and regulatory environments,
and other overall economic factors in the countries where the Fund invests. To
the extent the Fund invests in countries with emerging markets, the risks are
magnified since these countries may have unstable governments and less
established markets. See "Risks and Other Information" starting on page 27.
The Investment Adviser expects a high portfolio turnover rate of 200% or more,
which is likely to generate more taxable short-term gains for shareholders.
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns and its long-term
performance. The graph shows how the Fund's total return has varied from year to
year, while the table shows performance over time. This information provides
some indication of the risks of investing in the Fund by showing changes in the
Fund's performance from year to year and by showing how the Fund's average
annual returns compare with those of a broad measure of market performance.
Average annual return is determined by taking the Fund's performance over a
given period and expressing it as an average annual rate. All figures assume
dividend reinvestment. Past performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
97 30.38%
98 21.22%
BEST QUARTER: Q1 '98 +17.31
WORST QUARTER: Q3 '98 -14.84%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
Since Inception
1 Year (12/27/96)
<S> <C> <C>
- ---------------------------------------------------------------------
Fund 21.22 26.16
MSCI EAFE 19.97 10.34
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS 2.68%
INDEX: MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALIA, FAR
EAST INDEX (MSCI EAFE) IS AN UNMANAGED TOTAL-RETURN PERFORMANCE
BENCHMARK. IT IS A CAPITALIZATION-WEIGHTED INDEX REPRESENTATIVE OF
THE STOCK MARKET STRUCTURE OF EUROPE AND THE PACIFIC BASIN.
CLASS R SHARES ARE NEW AND THEREFORE CALCULATE THEIR PERFORMANCE
BASED UPON THE HISTORICAL PERFORMANCE OF A CORRESPONDING SERIES
(FUND) OF NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS ADJUSTED TO REFLECT
SHARE CLASS OPERATING EXPENSES.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF
THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S
EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
4
INTERNATIONAL CORE GROWTH FUND
[GRAPHIC]INVESTOR 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%
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 0.86%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.86%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.21%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.65%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2000, the
Investment Adviser has agreed to waive or defer its management fees and to
pay other operating expenses otherwise payable by the Fund, subject to
possible later reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE AFTER WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$168 $520 $897 $1,955
</TABLE>
<PAGE>
5
EMERGING COUNTRIES FUND
[GRAPHIC]GOAL AND PRINCIPAL STRATEGY
The Fund seeks maximum long-term capital appreciation. In pursuing this goal,
the Fund invests primarily in stocks of companies located in countries with
emerging securities markets--that is, countries with securities markets which
are, in the opinion of the Investment Adviser, less sophisticated than more
developed markets in terms of participation, analyst coverage, liquidity and
regulation emerging as investment markets. These are markets which have yet to
reach a level of maturity associated with developed foreign stock markets,
especially in terms of participation by investors.
The Investment Adviser seeks companies in the early stages of development
believed to be undergoing a basic change in operations. The Investment Adviser
currently selects portfolio securities from an investment universe of
approximately 6,000 foreign companies in over 35 emerging markets.
[GRAPHIC]INVESTMENTS
The Fund normally invests 75% of its assets in equity securities: common and
preferred stocks, warrants and securities convertible into common stock.
Normally, at least 65% of its assets will be invested in companies located in at
least three foreign countries with emerging securities markets. The Fund may
invest at least 35% of its assets in U.S. companies. The Fund may also invest in
debt securities of any maturity of foreign companies and foreign governments and
their agencies and instrumentalities which are rated investment grade or of
comparable quality if unrated.
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies and general market and economic conditions.
Stock prices are unpredictable, may fall suddenly and may continue to fall for
extended periods. In addition, the securities in which the Fund invests are
subject to the risk that their intrinsic value may never be realized by the
market or their prices may go down. The Fund's performance also depends upon
changing currency values, political and regulatory environments, and overall
economic factors in the countries where the Fund invests. Emerging countries
markets may present greater opportunity for gain, but also involve greater risk
than more developed markets. These countries tend to have less stable
governments and less established markets. The markets tend to be less liquid and
more volatile, and offer less regulatory protection for investors. The economies
of emerging countries may be predominantly based on only a few industries or
dependent on revenue from particular commodities, international aid or other
assistance. The information regarding smaller companies may be less available,
incomplete or inaccurate, and their securities may trade less frequently than
those of larger companies. Accordingly, the securities of the companies in which
the Fund invests may be more volatile and speculative than those of larger
companies. In addition, investing in small-capitalization companies entails
greater risk because these companies may have unproven tract records, limited
product or service base, limited access to capital and may be more likely to
fail than larger more established companies. See "Risks and Other Information"
starting on page 27.
The Investment Adviser expects a high portfolio turnover rate of 200% or more,
which is likely to generate more taxable short-term gains for shareholders.
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns and its long-term
performance. The graph shows how the Fund's total return has varied from year to
year, while the table shows performance over time. This information provides
some indication of the risks of investing in the Fund by showing changes in the
Fund's performance from year to year and by showing how the Fund's average
annual returns compare with those of a broad measure of market performance.
Average annual return is determined by taking the Fund's performance over a
given period and expressing it as an average annual rate. All figures assume
dividend reinvestment. Past performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
95 6.84%
96 27.72%
97 10.03%
98 -21.46%
BEST QUARTER: Q2 '97 +15.06%
WORST QUARTER: Q3 '98 -25.99%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
Since Inception
1 Year (11/28/94)
<S> <C> <C>
- ---------------------------------------------------------------------
Fund -21.46 2.96
MSCI EMF Free -25.33 -10.98
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS 7.56%
INDEX: THE MORGAN STANLEY CAPITAL INTERNATIONAL EMERGING MARKETS FREE
INDEX (MSCI EMF) IS COMPOSED OF COMPANIES REPRESENTATIVE OF THE
MARKET STRUCTURE OF 22 EMERGING MARKET COUNTRIES IN EUROPE, LATIN
AMERICA, AND THE PACIFIC BASIN. THE INDEX EXCLUDES CLOSED MARKETS AND
THOSE SHARES IN OTHERWISE FREE MARKETS WHICH ARE NOT PURCHASABLE BY
FOREIGNERS. THE INDEX IS UNMANAGED.
CLASS R SHARES ARE NEW AND THEREFORE CALCULATE THEIR PERFORMANCE
BASED UPON THE HISTORICAL PERFORMANCE OF A CORRESPONDING SERIES
(FUND) OF NICHOLAS-APPLEGATE INVESTMENT TRUST ADJUSTED TO REFLECT
SHARE CLASS OPERATING EXPENSES.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF
THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S
EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
6
EMERGING COUNTRIES FUND
[GRAPHIC]INVESTOR 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 1.25%
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 0.97%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 2.22%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.32%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.90%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2000, the
Investment Adviser has agreed to waive or defer its management fees and to
pay other operating expenses otherwise payable by the Fund, subject to
possible later reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE AFTER WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$193 $597 $1,026 $2,222
</TABLE>
<PAGE>
9
MID CAP GROWTH FUND
[GRAPHIC]GOAL AND PRINCIPAL STRATEGY
The Fund seeks maximum long-term capital appreciation. In pursuing this goal,
the Fund invests in stocks from a universe of U.S. companies with market
capitalizations corresponding to the middle 90% of the Russell Midcap Growth
Index. As of December 31, 1998, the middle 90% included companies with
capitalizations between $1.6 billion and $10.7 billion. Capitalization of
companies in the Index will change with market conditions.
The Fund's Investment Adviser focuses on a "bottom-up" analysis on the financial
condition and competitiveness of individual companies. The Investment Adviser
uses a blend of both traditional fundamental research and computer-intensive
systematic disciplines to uncover what it calls "change at the margin"--
positive business developments which are not yet fully reflected in the
company's stock price. It searches for successful, growing companies that are
managing change advantageously and poised to exceed growth expectations.
[GRAPHIC]INVESTMENTS
Normally, the Fund invests at least 75% of its total assets in common stocks of
U.S. issuers. As a non principal investment, the Fund may also invest in
preferred and convertible securities, debt securities of any maturity which are
rated investment grade, or of comparable quality if unrated, and securities
issued by the U.S. government and its agencies and instrumentalities.
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments varies day to day in response to the
activities of individual companies and general market and economic conditions.
The companies in which the Fund invests may be more subject to volatile market
movements than securities of larger, more established companies. Stock prices
are unpredictable, may fall suddenly and may continue to fall for extended
periods. In addition, the securities in which the Fund invests are subject to
the risk that their intrinsic value may never be realized by the market or their
prices may go down.
The information regarding smaller companies may be less available, incomplete or
inaccurate, and their securities may trade less frequently than those of larger
companies. Accordingly, the securities of the companies in which the Fund
invests may be more volatile and speculative than those of larger companies. In
addition, investing in small-capitalization companies entails greater risk
because these companies may have unproven tract records, limited product or
service base, limited access to capital and may be more likely to fail than
larger more established companies. See "Risks and Other Information" starting on
page 27.
The Investment Adviser expects a high portfolio turnover rate of 200% or more,
which is likely to generate more taxable short-term gains for shareholders.
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns and its long-term
performance. The graph shows how the Fund's total return has varied from year to
year, while the table shows performance over time. This information provides
some indication of the risks of investing in the Fund by showing changes in the
Fund's performance from year to year and by showing how the Fund's average
annual returns compare with those of a broad measure of market performance.
Average annual return is determined by taking the Fund's performance over a
given period and expressing it as an average annual rate. All figures assume
dividend reinvestment. Past performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
94 -10.89%
95 38.24%
96 16.07%
97 16.19%
98 14.37%
BEST QUARTER: Q1 '91 +25.95%
WORST QUARTER: Q4 '87 -17.67%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
Since Inception
1 Year 5 Years (4/19/93)
<S> <C> <C> <C>
- -----------------------------------------------------------------------
Fund 14.33 13.69 19.26
Russ Midcap Growth 17.86 17.34 15.79
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS 13.60%
INDEX: THE RUSSELL MID CAP GROWTH INDEX MEASURES THE PERFORMANCE OF
THOSE COMPANIES AMONG THE 800 SMALLEST IN THE RUSSELL 1000 INDEX WITH
HIGHER THAN AVERAGE PRICE-TO-BOOK RATIOS AND FORECASTED GROWTH. THE
RUSSELL MID CAP GROWTH INDEX IS CONSIDERED GENERALLY REPRESENTATIVE OF
THE U.S. MARKET FOR MID CAP STOCKS. THE INDEX IS UNMANAGED.
CLASS R SHARES ARE NEW AND THEREFORE CALCULATE THEIR PERFORMANCE BASED
UPON THE HISTORICAL PERFORMANCE OF A CORRESPONDING SERIES (FUND) OF
NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS ADJUSTED TO REFLECT SHARE CLASS
OPERATING EXPENSES.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF
THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S
EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION".
</TABLE>
<PAGE>
10
MID CAP GROWTH FUND
[GRAPHIC]INVESTOR 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 0.75%
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 0.65%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.40%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.10%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.25%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2000, the
Investment Adviser has agreed to waive or defer its management fees and to
pay other operating expenses otherwise payable by the Fund, subject to
possible later reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE AFTER WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$127 $397 $686 $1,511
</TABLE>
<PAGE>
11
SMALL CAP GROWTH FUND
[GRAPHIC]GOAL AND PRINCIPAL STRATEGY
The Fund seeks maximum long-term capital appreciation. In pursuing this goal the
Fund invests in stocks from a universe of U.S. companies with market
capitalizations corresponding to the middle 90% of the Russell 2000 Growth
Index. As of December 31, 1998, the middle 90% included companies with
capitalizations between $255 million and $1.4 billion. Capitalization of
companies in the Index will change with market conditions.
The Fund's Investment Adviser focuses on a "bottom-up" analysis on the financial
condition and competitiveness of individual companies. The Investment Adviser
uses a blend of both traditional fundamental research and computer intensive
systematic disciplines to uncover what it calls "change at the margin"--positive
business developments which are not yet fully reflected in the company's stock
price. It searches for successful, growing companies that are managing change
advantageously and poised to exceed growth expectations.
[GRAPHIC]INVESTMENTS
Normally, the Fund invests at least 75% of its total assets in common stocks. As
a non principal investment, the Fund may also invest in preferred and
convertible securities, debt securities of any maturity which are rated
investment grade, or of comparable quality if unrated, and securities issued by
the U.S. government and its agencies and instrumentalities.
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments varies from day to day in response to the
activities of individual companies and general market and economic conditions.
Stock prices are unpredictable, may fall suddenly and may continue to fall for
extended periods. In addition, the securities in which the Fund invests are
subject to the risk that their intrinsic value may never be realized by the
market or their prices may go down.
Although small-cap stocks have a history of long-term growth, they tend to carry
additional risks because their earnings tend to be less predictable. The stock
prices of smaller companies are more volatile and their securities may be less
liquid. In addition, investing in small-capitalization companies entails greater
risk because these companies may have unproven track records, limited product or
service base, limited access to capital and may be more likely to fail than
larger, more established companies. See "Risks and Other Information" starting
on page 27.
The Investment Adviser expects a high portfolio turnover rate of 200% or more,
which is likely to generate more taxable short-term gains for shareholders.
[GRAPHIC]PAST PERFORMANCE
The two tables below show the Fund's annual returns and its long-term
performance, The graph shows how the Fund's total return has varied from year to
year, while the table shows performance over time. This information provides
some indication of the risks of investing in the Fund by showing changes in the
Fund's performance from year to year and by showing how the Fund's average
annual returns compare with those of a broad measure of market performance.
Average annual return is determined by taking the Fund's performance over a
given period and expressing it as an average annual rate. All figures assume
dividend reinvestment. Past performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
94 -3.83%
95 35.53%
96 19.46%
97 11.54%
98 4.26%
BEST QUARTER: Q4 '98 +27.03%
WORST QUARTER: Q1 '97 -14.85%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98 Since Inception
1 Year 5 Years (10/1/93)
<S> <C> <C> <C>
- ---------------------------------------------------------------------------
Fund 4.26 12.61 11.95
Russell 2000 Growth 1.25 10.20 10.24
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS 8.67%
INDEX: THE RUSSELL 2000 GROWTH INDEX IS AN UNMANAGED INDEX CONTAINING THOSE
SECURITIES IN THE RUSSELL 2000 INDEX WITH A GREATER-THAN-AVERAGE GROWTH
ORIENTATION. COMPANIES IN THIS INDEX GENERALLY HAVE HIGHER PRICE-TO-BOOK
AND PRICE-EARNINGS RATIOS. THE RUSSELL 2000 INDEX IN AN UNMANAGED INDEX AND
IS A WIDELY REGARDED SMALL-CAP INDEX OF THE 2,000 SMALLEST SECURITIES IN
THE RUSSELL 3000 INDEX WHICH COMPRISES THE 3,000 LARGEST U.S. SECURITIES AS
DETERMINED BY TOTAL MARKET CAPITALIZATION.
CLASS R SHARES ARE NEW AND THEREFORE CALCULATE THEIR PERFORMANCE BASED UPON
THE HISTORICAL PERFORMANCE OF A CORRESPONDING SERIES (FUND) OF
NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS ADJUSTED TO REFLECT SHARE CLASS
OPERATING EXPENSES.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF THE
INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S EXPENSES. SEE
"EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
12
SMALL CAP GROWTH FUND
[GRAPHIC]INVESTOR 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%
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 0.61%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.61%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.19%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.42%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2000, the
Investment Adviser has agreed to waive or defer its management fees and to
pay other operating expenses otherwise payable by the Fund, subject to
possible later reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE AFTER WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$143 $443 $766 $1,680
</TABLE>
<PAGE>
15
HIGH QUALITY BOND FUND
[GRAPHIC]GOAL AND PRINCIPAL STRATEGY
The Fund seeks maximum total return. In pursuing this goal, the Fund invests
primarily in high quality bonds.
The Fund's Investment Adviser seeks to outperform the total return of the Lehman
Aggregate Bond Index through an actively managed diversified portfolio of debt
securities.
When evaluating any bond, the Investment Adviser selects bonds based upon a "top
down" analysis of economic trends. Its investment philosophy emphasizes
interest-rate decisions and shifts among sectors of the bond market. It also
analyzes credit quality, the yield-to-maturity of the security, and the effect
the security will have on the Fund.
[GRAPHIC]INVESTMENTS
Normally, the Fund invests at least 65% of its net assets in bonds of U.S. and
foreign corporations and governments. These bonds are rated in the top four
investment grades, or are of comparable quality if unrated. They include bonds,
notes, mortgage-backed and asset-backed securities with rates that are fixed,
variable or floating. The average portfolio duration of the Fund will range from
two to eight years. The Fund may invest up to 30% of its total assets in
securities payable in foreign currencies.
The Fund may invest up to 20% of its total assets in debt securities rated below
investment grade ("high risk bonds"). For a description of these ratings, see
"Bond Quality" beginning on page . The Fund may also use options, futures
contracts and interest rate and currency swaps as hedging techniques.
[GRAPHIC]PRIMARY RISKS
The value of the Fund's investments fluctuates in response to movements in
interest rates. If interest rates rise, the prices of debt securities fall; if
rates fall, the prices of debt securities rise. However, the Investment Adviser
expects the Fund's fluctuations to be more moderate than those of a fund with a
longer average duration. In addition, the lower-rated debt securities in which
the Fund invests are considered speculative and are subject to greater
volatility and risk of loss than investment grade securities, particularly in
deteriorating economic periods. To the extent the Fund invests in foreign
securities, performance also depends upon changing currency values, different
political and economic environments, and other overall economic conditions in
countries where the Fund invests. See "Risks and Other Information" starting on
page 27.
The Investment Adviser expects a high portfolio turnover rate of 200% or more,
which is likely to generate more taxable short-term gains for shareholders.
[GRAPHIC]PAST PERFORMANCE
The two tables show the Fund's annual returns and its long-term performance. The
graph shows how the Fund's total return has varied from year to year, while the
table shows performance over time. This information provides some indication of
the risks of investing in the Fund by showing changes in the Fund's performance
from year to year and by showing how the Fund's average annual returns compare
with those of a broad measure of market performance. Average annual return is
determined by taking the Fund's performance over a given period and expressing
it as an average annual rate. All figures assume dividend reinvestment. Past
performance does not indicate future results.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<S> <C> <C>
96 1.77%
97 8.96%
98 8.18%
BEST QUARTER: Q4 '95 +5.39%
WORST QUARTER: Q1 '96 -3.16%
</TABLE>
<TABLE>
<CAPTION>
Average annual total return AS OF 12/31/98
1 Year 5 Years Since Inception
(8/31/95)
<S> <C> <C> <C>
- ----------------------------------------------------------------------
Fund 8.18 n/a 8.25
Lehman Aggregate
Bond 8.67 n/a 8.19
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/99 WAS (0.08)%.
INDEX: THE LEHMAN BROTHERS AGGREGATE BOND INDEX (LEHMAN AGGREGATE
BOND) IS COMPOSED OF SECURITIES FROM LEHMAN BROTHERS
GOVERNMENT/CORPORATE BOND INDEX, MORTGAGE-BACKED SECURITIES INDEX, AND
ASSET-BACKED SECURITIES INDEX. THE INDEX IS UNMANAGED.
CLASS R SHARES ARE NEW AND THEREFORE CALCULATE THEIR PERFORMANCE BASED
UPON THE HISTORICAL PERFORMANCE OF A CORRESPONDING SERIES (FUND) OF
NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS ADJUSTED TO REFLECT SHARE CLASS
OPERATING EXPENSES.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF
THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S
EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
<PAGE>
16
HIGH QUALITY BOND FUND
[GRAPHIC]INVESTOR 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 0.45%
- ----------------------------------------------------------------------------
Distribution (12b-1) fee None
- ----------------------------------------------------------------------------
Other expenses (before waivers) 0.89%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.34%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.63%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 0.71%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2000, the
Investment Adviser has agreed to waive or defer its management fees and to
pay other operating expenses otherwise payable by the Fund, subject to
possible later reimbursement during a five year period.
</TABLE>
EXAMPLE:
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
THEN REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO
ASSUMES THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S
OPERATING EXPENSES ARE AFTER WAIVERS AS SHOWN ABOVE AND REMAIN THE SAME.
ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER, BASED ON THESE ASSUMPTIONS
YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
Expenses Year 1 Year 3 Year 5 Year 10
<S> <C> <C> <C> <C>
$ $ $ $
</TABLE>
<PAGE>
17
SIMPLIFIED ACCOUNT INFORMATION
<TABLE>
<CAPTION>
OPENING AN ACCOUNT
FOR THIS TYPE OF ACCOUNT REGULAR INVESTMENT PARTICIPANTS IN QUALIFIED RETIREMENT PLANS
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
This is the minimum
initial investment $250,000 Contact your plan administrator or sponsor.
- ---------------------------------------------------------------------------------------------------------------------------------
Use this type of New Account Form or IRA Application
application
- ---------------------------------------------------------------------------------------------------------------------------------
Before completing Each Fund offers a variety of features, which are described in the "Your Account" section of this
the application prospectus. Please read this section before completing the application.
- ---------------------------------------------------------------------------------------------------------------------------------
Completing the If you need assistance, contact your financial representative, or call us at (800) 551-8043.
application
- ---------------------------------------------------------------------------------------------------------------------------------
If you are a participant
in Make purchases through your plan administrator or sponsor,
a qualified retirement who is responsible for transmitting orders.
plan
- ---------------------------------------------------------------------------------------------------------------------------------
If you are sending money Mail application and check, payable to: NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS,
by CHECK PO BOX 8326, BOSTON, MA 02266-8326. The Trust will not accept third-party checks.
- ---------------------------------------------------------------------------------------------------------------------------------
Please read the bank wire or ACH section under the "Buying Shares" section below.
If you are sending money You will need to obtain an account number with the Trust by sending a completed application to:
by BANK WIRE or ACH NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS, PO BOX 8326, BOSTON, MA 02266-8326.
To receive your account number, contact your financial representative or call us at (800) 551-8043.
</TABLE>
<TABLE>
<CAPTION>
BUYING SHARES
FOR THIS TYPE OF ACCOUNT REGULAR INVESTMENT PARTICIPANTS IN QUALIFIED RETIREMENT PLANS
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
This is the minimum
subsequent investment $10,000 Contact your plan administrator or sponsor.
- ---------------------------------------------------------------------------------------------------------------------------------
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.
- ---------------------------------------------------------------------------------------------------------------------------------
If you are a participant
in Make purchases through your plan administrator or sponsor,
a qualified retirement who is responsible for transmitting orders.
plan
- ---------------------------------------------------------------------------------------------------------------------------------
Instruct your bank to wire the amount you wish to invest to:
STATE STREET BANK & TRUST CO.--ABA #011000028
If you are sending money DDA #9904-645-0
by BANK WIRE STATE STREET BOS, ATTN: MUTUAL FUNDS
CREDIT: NICHOLAS-APPLEGATE [FUND NAME], [YOUR NAME], [ACCOUNT NAME OR NUMBER]
- ---------------------------------------------------------------------------------------------------------------------------------
Call your bank to ensure (1) that your bank supports ACH, and (2) this feature is active on your bank
If you are sending money account. To establish this option, either complete the appropriate sections when opening an account,
by ACH contact your financial representative, or call us at (800) 551-8043 for further information.
To initiate an ACH purchase, call the Trust at (800) 551-8043.
</TABLE>
<TABLE>
<CAPTION>
EXCHANGING SHARES
FOR THIS TYPE OF ACCOUNT REGULAR INVESTMENT PARTICIPANTS IN QUALIFIED RETIREMENT PLANS
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
This is the minimum
exchange amount to open a $250,000 Contact your plan administrator or sponsor.
new account
- ---------------------------------------------------------------------------------------------------------------------------------
The Trust is open on days that the New York Stock Exchange is open.
The price you will All transactions received in good order before the market closes
receive (normally 4:00 p.m. Eastern time) receive that day's NAV.
- ---------------------------------------------------------------------------------------------------------------------------------
The exchange must be to an account with the same registration.
If you intend to keep money in the Fund you are exchanging from, make sure that you leave an amount
Things you should know equal to or greater than the Fund's minimum account size (see the "Opening an Account" section).
To protect other investors, the Trust may limit the number of exchanges you can make.
- ---------------------------------------------------------------------------------------------------------------------------------
Contact your financial representative, or call us at (800) 551-8043.
How to request an The Trust will accept a request by phone if this feature was previously established on your account.
exchange by PHONE See the "Your Account" section for further information.
- ---------------------------------------------------------------------------------------------------------------------------------
Please put your exchange request in writing, including: the name on the account, the name of the Fund
How to request an and the account number you are exchanging from, the shares or dollar amount you wish to exchange,
exchange by MAIL and the Fund you wish to exchange to. Mail this request to: PO BOX 8326, BOSTON, MA 02266-8326.
</TABLE>
<PAGE>
18
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) 551-8043 for further
Things you should know GUARANTEE. See the next section for further information. The maximum amount which may be
information. You may sell up to the full account requested by phone, regardless of account size, is
value. $50,000. Amounts greater than that must be
requested in writing. If you wish to receive your
monies by bank wire, the minimum request is
$5,000.
- ---------------------------------------------------------------------------------------------------------------------------------
If you purchased shares through a financial representative or plan administrator/sponsor, you should
call them regarding the most efficient way to sell shares. If you bought shares recently by check,
payment may be delayed until the check clears, which may take up to 15 calendar days from the date of
purchase. Sales by a corporation, trust or fiduciary may have special requirements. Please contact
your financial representative, a plan administrator/sponsor or us for further information.
- ---------------------------------------------------------------------------------------------------------------------------------
The Trust is open on days that the New York Stock Exchange is open.
The price you will All transactions received in good order before the market closes
receive (normally 4:00 p.m. Eastern time) receive that day's NAV.
- ---------------------------------------------------------------------------------------------------------------------------------
If you are a participant
in Make sales through your plan administrator or
a qualified retirement sponsor, who is responsible for transmitting orders.
plan
- ---------------------------------------------------------------------------------------------------------------------------------
Please put your request in writing, including: the
name of the account owners, account number and
Fund you are redeeming from, and the share or
dollar amount you wish to sell, signed by all Contact your financial representative,
If you want to receive account owners. Mail this request to: or call us at (800) 551-8043.
your monies by BANK WIRE NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS, The proceeds will be sent to the existing bank
PO BOX 8326, BOSTON, MA 02266-8326. wire address listed on the account.
The check will be sent to the existing bank wire
address listed on the account.
- ---------------------------------------------------------------------------------------------------------------------------------
Contact your financial representative,
or call us at (800) 551-8043.
If you want to receive The proceeds will be sent in accordance with the
your monies by ACH Please call us at (800) 551-8043. existing ACH instructions on the account and will
generally be received at your bank two business
days after your request is received.
- ---------------------------------------------------------------------------------------------------------------------------------
The Trust intends to pay in cash for all shares of a Fund redeemed, but the Trust reserves the right
to make payment wholly or partly in shares of readily marketable investment securities. In such cases,
a shareholder may incur brokerage costs in converting such securities to cash. However, the Trust has
Redemption in Kind elected to be governed by the provisions of Rule 18f-1 under the Investment Company Act, pursuant to
which it is obligated to pay in cash all requests for redemptions by any shareholder of record,
limited in amount with respect to each shareholder during any 90-day period to the lesser of $250,000
or 1% of the net asset value of the Trust at the beginning of such period.
</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>
19
YOUR ACCOUNT
[GRAPHIC]TRANSACTION POLICIES
PURCHASE OF SHARES. Shares are offered at net asset value without a sales charge
to qualified retirement plans, financial and other institutions and "wrap
accounts." The minimum initial investment is $250,000, and the minimum
subsequent investment is $10,000. The Distributor may waive these minimums from
time to time.
PRICING OF SHARES. The net asset value per share ("NAV") of the Fund is
determined each business day at the close of regular trading on the New York
Stock Exchange (usually 4 p.m. Eastern time) by dividing the value of the Funds'
net assets by the number of its shares outstanding.
BUY AND SELL PRICES. When you buy shares, you pay the NAV, as described earlier.
When you sell shares, you receive the NAV. Your financial institution may charge
you a fee to execute orders on your behalf.
EXECUTION OF REQUESTS. Each Fund is open on the days the New York Stock Exchange
is open, usually Monday-Friday. Buy and sell requests are executed at the NAV
next calculated after your request is received in good order by the transfer
agent or another agent designated by the Trust. The Fund has the right to refuse
any purchase order.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider sending your request in writing. Each Fund reserves
the right to reject any purchase or to suspend or modify the continuous offering
of its shares. Your financial representative is responsible for forwarding
payment promptly to the transfer agent. The Trust reserves the right to cancel
any buy request if payment is not received within three days.
In unusual circumstances, any Fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to three business days
or longer, as allowed by federal securities laws.
TELEPHONE TRANSACTIONS. For your protection, telephone requests may be recorded
in order to verify their accuracy. In addition the Trust will take measures to
verify the identity of the caller, such as asking for name, account number,
Social Security or taxpayer ID number and other relevant information. If these
measures are not taken, your Fund may be responsible for any losses that may
occur in your account due to an unauthorized telephone call.
CERTIFICATED SHARES. Most shares are electronically recorded. If you wish to
have certificates for your shares, please write to the transfer agent.
Certificated shares can only be sold by returning the certificates to the
transfer agent, along with a letter of instruction or a stock power and a
signature guarantee.
SALES IN ADVANCE OF PURCHASE PAYMENTS. When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but the Fund will not release the proceeds to you
until your purchase payment clears. This may take up to fifteen calendar days
after the purchase.
[GRAPHIC]FEATURES AND ACCOUNT POLICIES
The services referred to in this section may be terminated or modified at any
time upon 60 days' written notice to shareholders. Shareholders seeking to add
to, change or cancel their selection of available services should contact the
transfer agent.
RETIREMENT PLANS. You may invest in each Fund through various retirement plans,
including IRAs, Roth IRAs, Simplified Employee Plan (SEP) IRAs, 403(b) plans,
457 plans, and all qualified retirement plans. For further information about any
of the plans, agreements, applications and annual fees, contact the Distributor,
your financial representative or plan sponsor. To determine which retirement
plan is appropriate for you, consult your tax adviser.
ACCOUNT STATEMENTS. Shareholders will receive periodic statements reporting all
account activity, including systematic transactions, dividends and capital gains
paid.
MULTI CLASS STRUCTURE. The Funds also offer Class I shares, which have different
service charges and other expenses that may affect their performance. You can
obtain more information about these other share classes from the Distributor.
<PAGE>
20
YOUR ACCOUNT
DIVIDENDS. The Funds generally distribute most or all of their net earnings in
the form of dividends. Each Fund pays dividends of net investment income as
follows:
<TABLE>
<CAPTION>
ANNUALLY QUARTERLY
<S> <C>
International Core Growth High Quality Bond
Emerging Countries
Large Cap Growth
Mid Cap Growth
Small Cap Growth
Value
</TABLE>
Any net capital gains are distributed annually.
DIVIDEND REINVESTMENTS. If you choose this option, or if you do not indicate any
choice, your dividends will be reinvested on the ex-dividend date.
Alternatively, you can choose to have a check for your dividends mailed to you.
Interest will not accrue or be paid on uncashed dividend checks.
TAXABILITY OF DIVIDENDS. Dividends you receive from a Fund, whether reinvested
or taken as cash, are generally taxable. Dividends from a Fund's long-term
capital gains are taxable as capital gains; dividends from other sources are
generally taxable as ordinary income.
Some dividends paid in January may be taxable as if they had been paid the
previous December. Corporations may be entitled to take a dividends-received
deduction for a portion of certain dividends they receive.
The tax information statement that is mailed to you details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
TAXABILITY OF TRANSACTIONS. Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
SMALL ACCOUNTS (NON-RETIREMENT ONLY). If you draw down a non-retirement account
so that its total value is less than the Fund minimum (see "Buying Shares" on
page 18), you may be asked to purchase more shares within 60 days. If you do not
take action, the Fund may close out your account and mail you the proceeds. Your
account will not be closed if its drop in value is due to Fund performance.
AUTOMATIC WITHDRAWALS. You may make automatic withdrawals from a Fund of $250 or
more on a monthly or quarterly basis if you have an account of $15,000 or more
in the Fund. Withdrawal proceeds will normally be received prior to the end of
the month or quarter. See the account application for further information.
AUTOMATIC INVESTMENT PLAN. You may make regular monthly or quarterly investments
in each Fund through automatic withdrawals of specified amounts from your bank
account once an automatic investment plan is established. See the account
application for further details about this service or call the Transfer Agent at
1-800-551-8043.
CROSS-REINVESTMENT. You may cross-reinvest dividends or dividends and capital
gains distributions paid by one Fund into another Fund, subject to conditions
outlined in the Statement of Additional Information and the applicable
provisions of the qualified retirement plan.
SHAREHOLDER SERVICES. The Investment Adviser may make payments from its own
resources to brokers, consultants and financial institutions for performing
certain services for shareholders and for the maintenance of shareholder
accounts.
<PAGE>
21
ORGANIZATION AND MANAGEMENT
THE INVESTMENT ADVISER
Investment decisions for the Funds 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. Arthur E. Nicholas and 22 other partners with a staff of
approximately 500 employees currently manage over $30 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
Each Fund pays the Investment Adviser a monthly fee pursuant to an investment
advisory agreement. Each of the following Funds pays an advisory fee monthly at
the following annual rates of their average net assets:
Large Cap Growth 0.75%
Value Fund 0.75%
Small Cap Growth Fund 1.00%
Emerging Countries Fund 1.25%
The International Core Growth Fund pays monthly at the following annual rates:
1.00% on the first $500 million
0.90% on the next $500 million
0.85% on net assets in excess of $1 billion
The High Quality Bond Fund pays monthly at the following annual rates:
0.45% on the first $500 million
0.40% on the next $250 million
0.35% on net assets in excess of $750 million
The Mid Cap Growth Fund pays monthly at the following annual rates:
0.75% of the first $500 million
0.675% on the next $500 million
0.65% on net assets in excess of $1 billion
MULTI CLASS STRUCTURE
The Funds also offer Class I Shares, which have different sales charges and
other expenses that may affect their performance. You can obtain more
information about these other share classes from the Distributor.
SHAREHOLDER SERVICES AND
DISTRIBUTION PLANS
Each of the Funds has entered into a Shareholder Services Agreement with the
Distributor under which each Fund will reimburse the Distributor up to 0.25% of
the average daily assets of each of the Funds to pay financial institutions for
certain personal services for shareholders and for the maintenance of
shareholder accounts.
Each Fund has adopted a distribution plan in accordance with Rule 12b-1 under
the Investment Company Act. Class R Shares may pay a fee to the Distributor in
an amount computed at an annual rate of up to 0.25% of the average daily net
assets to finance any activity which is principally intended to result in the
sale of shares. The schedule of such fees and the basis upon which such fees
will be determined from time to time by the Distributor. The Funds have no
current intention to activate the 12b-1 Plan. Shareholders will be given a 60
day notice upon the Funds' determination to activate the Plan.
PORTFOLIO TURNOVER
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 200% or more,
which is likely to generate shorter-term gains (losses) for its shareholders,
which are taxed at a higher rate than longer-term gains (losses). Actively
trading portfolio securities may have an adverse impact on the Fund's
performance.
PORTFOLIO TRADES
The Investment Adviser is responsible for the Fund's portfolio transactions. In
placing portfolio trades, the Investment Adviser may use brokerage firms that
provide research services to the Fund, or that sell shares of the Fund but only
when the Investment Adviser believes no other firm offers a better combination
of quality execution (e.g., timeliness and completeness) and favorable price.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management. See
"Portfolio Teams" starting on page 22.
<PAGE>
22
ORGANIZATION AND MANAGEMENT
[GRAPHIC]PORTFOLIO TEAMS
EQUITY MANAGEMENT--U.S.
ARTHUR E. NICHOLAS,
MANAGING PARTNER & CHIEF INVESTMENT OFFICER
Since 1984
B.S.--San Diego State University
CATHERINE SOMHEGYI
PARTNER & CHIEF INVESTMENT OFFICER
Since 1987
M.B.A and B.S.--University of Southern California
LARGE CAP GROWTH, VALUE, SMALL CAP GROWTH AND MID CAP GROWTH
THOMAS BLEAKLEY
PARTNER & PORTFOLIO MANAGER
Since 1997; 1995-1997 Portfolio Manager
B.A.--Boston University; M.B.A.--University of Texas
SMALL CAP
WILLIAM H. CHENOWETH, CFA
PARTNER & PORTFOLIO MANAGER
Since 1998; 1993 - 1998 Senior Portfolio Manager with Turner Investment
Partners, Inc.
M.A. and B.A.--Columbia University; M.B.A.--University of California, Los
Angeles
MID CAP GROWTH AND LARGE CAP GROWTH
ANDREW B. GALLAGHER
PARTNER & PORTFOLIO MANAGER
Since 1996; 1992-1996 Portfolio Manager
M.B.A.--San Diego State University; B.A.--University of California, Irvine
MID CAP GROWTH AND LARGE CAP GROWTH
JOHN J. KANE
PARTNER & PORTFOLIO MANAGER
Since 1996; 1994-1996 Portfolio Manager
M.A. and B.A.--Columbia University; M.B.A.--University of California, Los
Angeles
VALUE
LARRY SPEIDELL, CFA
PARTNER & DIRECTOR OF GLOBAL RESEARCH
Since 1994
M.B.A.--Harvard University; B.E.--Yale University
VALUE
JOHN C. MCCRAW
PORTFOLIO MANAGER
Since 1996; 1995-1996 Assistant Portfolio Manager
M.B.A.--University of California, Irvine; B.A.--Flagler College
SMALL CAP GROWTH
PAUL E. CLUSKEY
PORTFOLIO MANAGER
Since 1998; 1996-1998 Investment Analyst, SEI Investments; 1995-1996 Investment
Banking Analyst, Piper Jaffray, Inc.
B.S.--New York University
SMALL CAP GROWTH
AARON HARRIS
PORTFOLIO MANAGER
Since 1997; 1995 - 1997 Research Analyst
B.A.--Princeton University
SMALL CAP GROWTH
EMMY SOBIESKI, CFA
PORTFOLIO MANAGER
Since 1998; May 1995 - June 1998 Advanced Securities Analyst, Farmers Insurance
Investment Division; 1995 - April 1995 Financial Analyst, EEN Business
Network
M.B.A.--University of Southern California; B.A.--University of San Diego
MID CAP GROWTH AND LARGE CAP GROWTH
MARK STUCKLEMAN
PORTFOLIO MANAGER
Since December 1995; January 1995 - December 1995 Senior Quantitative Analyst,
Wells Fargo Bank
M.B.A.--University of Pennsylvania/Wharton School; B.A.--University of
California, Berkley
VALUE
THOMAS J. SULLIVAN
PORTFOLIO MANAGER
Since 1997; 1995 - 1997 Assistant Portfolio Manager B.S.--Rochester Institute of
Technology
MID CAP GROWTH AND LARGE CAP GROWTH
INTERNATIONAL EQUITY MANAGEMENT
ARTHUR E. NICHOLAS,
MANAGING PARTNER & CHIEF INVESTMENT OFFICER
Since 1984
B.S.--San Diego State University
CATHERINE SOMHEGYI
PARTNER & CHIEF INVESTMENT OFFICER
Since 1987
M.B.A and B.S.--University of Southern California
INTERNATIONAL CORE GROWTH AND EMERGING COUNTRIES
LARRY SPEIDELL, CFA
PARTNER & DIRECTOR OF GLOBAL RESEARCH
Since 1994
M.B.A.--Harvard University; B.E.--Yale University
EMERGING COUNTRIES AND INTERNATIONAL CORE GROWTH
<PAGE>
23
ANDREW B. GALLAGHER
PARTNER & PORTFOLIO MANAGER
Since 1996; 1992-1996 Portfolio Manager
M.B.A.--San Diego State University; B.A.--University of California, Irvine
MID CAP GROWTH AND LARGE CAP GROWTH
PEDRO V. MARCAL
PARTNER & PORTFOLIO MANAGER
Since 1997; 1994 - 1997 Assistant Portfolio Manager
B.A.--University of California, San Diego
EMERGING COUNTRIES
LORETTA J. MORRIS
PARTNER & PORTFOLIO MANAGER
Since 1990
Attended California State University, Long Beach
CFA Level II Candidate
INTERNATIONAL CORE GROWTH
ESWAR MENON
PORTFOLIO MANAGER
Since 1997; 1996 to 1997 International Analysts; 1995 - 1995 Junior Quantitative
Analyst
M.B.A.--University of Chicago; M.S.--University of California, Santa Barbara;
B.S.--Indian Institute of Technology, Madras
EMERGING COUNTRIES
ALEX MUROMCEW
PORTFOLIO MANAGER
Since 1996; 1993-1996 Investment Analyst, Teton Partners L.P.
M.B.A.--Stanford University; B.A.--Dartmouth College
INTERNATIONAL CORE GROWTH
ERNESTO RAMOS, PH.D.
PORTFOLIO MANAGER
Since 1996; 1994-1996 Research Manager
PH.D. Harvard University; B.S.--Massachusetts Institute of Technology
INTERNATIONAL CORE GROWTH
JOHN BORCHARDT
PORTFOLIO MANAGER
Since November 1998; 1996 - November 1998 Investment Analyst; 1995-1996 Senior
Account Administrator
B.A. University of San Francisco
EMERGING COUNTRIES
MELISA A. GRIGOLITE
PORTFOLIO MANAGER
Since December 1998; 1996 - 1998 Junior Portfolio Manager
M.S.--San Diego State University; B.S.--Southwest Missouri State University
INTERNATIONAL CORE GROWTH
JESSICA HILINSKI
PORTFOLIO MANAGER
Since March 1999; 1996 - 1999 Investment Analyst; 1995-1996 Investment Assistant
Attended University of Pennsylvania
EMERGING COUNTRIES
JOHN TRIBOLET
PORTFOLIO MANAGER
Since March 1999; 1997- March 1999 Investment Analyst; 1995-March 1997 Full Time
Student University of Chicago
M.B.A--University of Chicago; B.A.--Columbia University
INTERNATIONAL CORE GROWTH
FIXED INCOME MANAGEMENT
FRED S. ROBERTSON, III
PARTNER & CHIEF INVESTMENT OFFICER--FIXED INCOME
Since 1995
M.B.A.--College of William and Mary; B.S.--Cornell University
HIGH QUALITY BOND
JAMES E. KELLERMAN
PARTNER & PORTFOLIO MANAGER
Since 1995
M.B.A.--St. John's University; B.B.A.--Susquehanna University
HIGH QUALITY BOND
MALCOM S. DAY, CFA
PORTFOLIO MANAGER
Since 1995
M.B.A.--University of California, Los Angeles; B.S.-- Northern University
HIGH QUALITY BOND
<PAGE>
24
RISKS AND OTHER INFORMATION
GENERAL INVESTMENT RISKS
In pursuing their investment strategy, the Funds' portfolio securities may be
subject to the following risks.
RISKS RELATED TO COMPANY SIZE. Generally, the smaller the market capitalization
of a company, the fewer the number of shares traded daily, the less liquid its
stock and the more volatile its price. Market capitalization is determined by
multiplying the number of outstanding shares by the current market price per
share.
In addition, investing in small-capitalization companies entails greater risk
because these companies may have unproven track records, limited product or
service base, limited access to capital and may be more likely to fail than
larger, more established companies.
SECTOR RISKS. Companies with similar characteristics may be grouped together in
broad categories called sectors. Sector risk is the possibility that a certain
sector may perform differently than other sectors or as the market as a whole.
As the Adviser allocates more of the Fund's portfolio holdings to a particular
sector, the Fund's performance will be more susceptible to any economic,
business or other developments which generally affect that sector.
STOCK MARKET RISKS. The value of equity securities in the Fund's portfolio will
go up and down. These fluctuations could be a sustained trend or a drastic
movement. The Fund's portfolio will reflect changes in prices of individual
portfolio stocks or general changes in stock valuations. Consequently, the
Fund's share price may decline and you could lose money.
The Fund's Adviser attempts to manage market risk of investing in individual
securities by limiting the amount the Fund invests in each stock.
INTERNATIONAL INVESTMENT RISK AND CONSIDERATIONS
FOREIGN SECURITIES. All of the Funds may invest in foreign securities, including
money market instruments and other fixed-income securities, stock and other
equity-related securities. For purposes of this limitation, the Funds do not
consider ADRs and other similar receipts or shares to be foreign securities.
CURRENCY FLUCTUATIONS. When a Fund invests in instruments issued by foreign
companies, the principal, income and sales proceeds may be paid to the Fund in
local foreign currencies. A reduction in the value of local currencies relative
to the U.S. dollar could mean a corresponding reduction in the value of a Funds'
investments. Also, a Fund may incur costs when converting from one currency to
another.
SOCIAL, POLITICAL AND ECONOMIC FACTORS. The economies of many of the countries
where the Funds may invest may be subject to a substantially greater degree of
social, political and economic instability than the United States. This
instability might impair the financial conditions of issuers or disrupt the
financial markets in which the Funds invest.
The economies of foreign countries may differ significantly from the economy of
the United States as to, for example, the rate of growth of gross domestic
product 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 Funds.
A number of Asian countries are currently experiencing economic difficulties and
significant declines in values in their financial markets. The unsettled
condition of several Asian financial markets has also affected emerging markets
in other countries and regions. These conditions could continue or deteriorate
further in the future.
INFLATION. Certain foreign countries, especially many emerging countries, have
experienced substantial, and in some periods extremely high and volatile, rates
of inflation. Rapid fluctuations in inflation rates and wage and price controls
may continue to have unpredictable effects on the economies, companies and
securities markets of these countries.
DIFFERENCES IN SECURITIES MARKETS. The securities markets in foreign countries
have substantially less trading volume than the markets in the United States and
debt and equity securities of many companies listed on such markets may be less
liquid and more volatile than comparable securities in the United States. Some
of the stock exchanges in foreign countries, to the extent that established
markets exist, are in the earlier stages of their development. The limited
liquidity of certain securities markets may affect the ability of each Fund to
buy and sell securities at the desired price and time.
Trading practices in certain foreign countries are also significantly different
from those in the United States. Although brokerage commissions are generally
higher than those in the U.S., the Investment Adviser will seek to achieve the
most favorable net results. In
<PAGE>
25
addition, securities settlements and clearance procedures may be less developed
and less reliable than those in the United States. Delays in settlement could
result in temporary periods in which the assets of the Funds are not fully
invested, or could result in a Fund being unable to sell a security in a falling
market.
CUSTODIAL AND REGISTRATION PROCEDURES. Systems for the registration and transfer
of securities in foreign markets can be less developed than similar systems in
the United States. There may be no standardized process for registration of
securities or a central registration system to track share ownership. The
process for transferring shares may be cumbersome, costly, time-consuming and
uncertain.
GOVERNMENT SUPERVISION OF SECURITIES MARKETS. Disclosure and regulatory
standards in many foreign countries are, in many respects, less stringent than
those in the United States. There may be less government supervision and
regulation of securities exchanges, listed companies, investors, and brokers in
foreign countries than in the United States, and enforcement of existing
regulations may be extremely limited.
FINANCIAL INFORMATION AND REPORTING STANDARDS. Issuers in foreign countries are
generally subject to accounting, auditing, and financial standards and
requirements that differ, in some cases materially, from those in the United
States. In particular, the assets and profits appearing in financial statements
may not reflect their financial position or results in the way they would be
reflected had the statements been prepared in accordance with U.S. generally
accepted accounting principles. Consequently, financial data may not reflect the
true condition of those issuers and securities markets.
FIXED INCOME SECURITIES
All of the Funds may invest in debt securities of any maturity issued by foreign
companies and foreign governments and their agencies and instrumentalities which
are rated investment grade of comparable quality if unrated. When evaluating any
bond, the Investment Adviser selects bonds based upon a "top down" analysis of
economic trends. Its investment philosophy emphasizes interest rate decisions
and shifts among sectors of the bond market. It also analyzes credit quality,
the yield to maturity of the security, and the effect of the security will have
on the average yield to maturity of the Fund. The Investment Adviser seeks to
add value by positioning portfolio securities among various market sectors and
maturities along the yield curve. 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.
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.
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.
The debt securities in which the Funds may invest 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.
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.
<PAGE>
26
RISKS AND OTHER INFORMATION
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.
LOWER RATED SECURITIES CONSIDERATIONS. The Funds may invest in debt and
convertible securities rated below investment grade. These securities usually
offer higher yields than higher-rated securities but are also subject to more
risk than higher-rated securities.
Lower-rated or unrated debt obligations are more likely to react to developments
affecting market and credit risks than are more high-rated securites, which
react primarily to movements in interest rates. In the past, economic downturns
or increases in interest rates caused a higher incidence of default by issuers
of lower-rated securities.
In some cases, such obligations may be highly speculative, and may have poor
prospects for reaching investment grade. To the extent the issuer defaults, the
Fund may incur additional expenses in order to enforce its rights or to
participate in a restructuring of the obligation. In addition, the prices of
lower-rated securities generally tend to be more volatile and the market less
liquid than those of higher-rated securities. Consequently, the Funds may at
times experience difficulty in liquidating their investments at the desired
times and prices.
THE FUNDS' INVESTMENT TECHNIQUES AND RISKS
REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements--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 Funds enter into these agreements only with brokers, dealers, or banks that
meet credit quality standards established by the Board of Trustees.
SHORT SALES. A "short sale" is the sale by the Fund of a security which has been
borrowed from a third party on the expectation that the market price will drop.
If the price of the security drops, the Fund will make a profit by purchasing
the security in the open market at a lower price than at which it sold the
security. If the price of the security rises, the Fund may have to cover its
short position at a higher price than the short sale price, resulting in a loss.
A short sale can be covered or uncovered. In a covered short sale, the Fund
either (1) borrows and sells securities it already owns (also known as a short
sale "against the box"), or (2) deposits in a segregated account cash, U.S.
government securities, or other liquid securities in an amount equal to the
difference between the market value of the securities and the short sale price.
Use of uncovered short sales is a speculative investment technique and has
potentially unlimited risk of loss. Accordingly, a Fund will not make uncovered
short sales in an amount exceeding the lesser of 2% of the Fund's net assets or
2% of the securities of such class of the issuer. The Board of Trustees has
determined that no Fund will make short sales if to do so would create
liabilities or require collateral deposits of more than 25% of the Fund's total
assets.
TEMPORARY INVESTMENTS. Each Fund may, from time to time, invest all of its
assets in short-term instruments to maintain liquidity or when the Investment
Adviser determines that adverse market, economic, political or other market
conditions call for a temporary defensive posture. Such a defensive posture may
result in a Fund failing to achieve its investment objective.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend portfolio securities,
on a short-term or a long-term basis, up to 30% of a Fund's total assets to
broker/dealers, banks, or other institutional borrowers of securities. The Fund
will only enter into loan arrangements with broker/dealers, banks, or other
institutions which the Adviser has determined are creditworthy under guidelines
established by the Directors and will receive collateral in the form of cash or
U.S. government securities equal to least 100% of the value of the securities
loaned.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
<PAGE>
27
HEDGING TRANSACTIONS
Each of the Funds may trade in derivative contracts to hedge portfolio holdings.
Hedging activities are intended to reduce various kinds of risks. For example,
in order to protect against certain events that might cause the value of its
portfolio securities to decline, the Fund can buy or sell a derivative contract
(or a combination of derivative contracts) intended to rise in value under the
same circumstances. Hedging activities will not eliminate risk, even if they
work as they are intended to. In addition, these strategies are not always
successful, and could result in increased expenses and losses to the Fund. The
Fund may trade in the following types of derivative contracts.
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a price, date, and
time specified when the contract is made. Futures contracts traded OTC are
frequently referred to as forward contracts. Entering into a contract to buy is
commonly referred to as buying or purchasing a contract or holding a long
position. Entering into a contract to sell is commonly referred to as selling a
contract or holding a short position. Futures are considered to be commodity
contracts. The Fund can buy or sell futures contracts on portfolio securities or
indexes and engage in foreign currency forward contracts.
Options are rights to buy or sell an underlying asset for a specified price (the
exercise price) during, or at the end of, a specified period of time. A call
option gives the holder (buyer) the right to purchase the underlying asset from
the seller (writer) of the option. A put option gives the holder the right to
sell the underlying asset to the writer of the option. The writer of the option
receives a payment, or "premium," from the buyer, which the writer keeps
regardless of whether the buyer uses (or exercises) the option.
When the Fund uses financial futures and options on financial futures as hedging
devices, much depends on the ability of the portfolio manager to predict market
conditions based upon certain economic analysis and factors. There is a risk
that the prices of the securities subject to the futures contracts may not
correlate perfectly with the prices of the securities in the Fund's portfolio.
This may cause the futures contract and any related options to react differently
than the portfolio securities to market changes. In addition, the portfolio
managers could be incorrect in their expectations about the direction or extent
of market factors such as interest rate movements. In these events, the Fund may
lose money on the futures contracts or options.
It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the Investment Adviser will
consider liquidity before entering into options transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will exist
for any particular futures contract or option at any particular time. The Fund's
ability to establish and close out futures and options positions depends on this
secondary market.
THE YEAR 2000
Information technology is critical to the Funds' operations. Many existing
information technology products and systems containing embedded processor
technology were originally programmed to represent any date by using six digits
(e.g., 12/31/99), as opposed to eight digits (e.g., 12/31/1999). Accordingly
such products and systems may experience malfunctions, miscalculations or
disruptions when attempting to process information containing dates that fall
after December 31, 1999 or when attempting to recognize the year 2000 as a leap
year. These potential problems are collectively referred to as the "Y2K"
problem.
There is a risk that outside service agents, such as transfer agents, portfolio
accountants, stock brokers, and custodians who perform certain mission critical
processing may not have remedied all of their Y2K problems. Additionally, a
portion of the Funds' business involves international investments, thereby
exposing the Funds to operations, custody and settlement processes outside the
United States where Y2K risks may not be readily understood. Accordingly, if not
addressed, Y2K issues could result in the Funds' inability to perform its
mission critical functions, including trading and settling tades of portfolio
securities and processing shareholder transactions.
The Investment Adviser has established an enterprise-wide project to address the
issue. This includes testing, assessing, and remedying its own internal systems
as well as monitoring the progress of outside service providers, international
custodians and foreign brokers in addressing Y2K issues. Despite these
precautions, no guarantee can be made that Y2K-related disruptions will not
occur.
EURO
On January 1, 1999, 11 of the 15 member states of the European Monetary Union
introduced the "euro" as a common currency. During a three-year transitional
period, the euro will coexist with each participating state's currency and, on
July 1, 2002, the euro is
<PAGE>
28
RISKS AND OTHER INFORMATION
expected to become the sole currency of the participating states. During the
transition period, the Funds will treat the euro as a separate currency from
that of any participating state.
The conversion may adversely affect a Fund if the euro does not take effect as
planned; if a participating state withdraws from the European Monetary Union; or
if the computing, accounting and trading systems used by the Funds' service
providers, or by entities with which the Fund or its service providers do
business, are not capable of recognizing the euro as a distinct currency at the
time of, and following, euro conversion. In addition, the conversion could cause
markets to become more volatile.
The overall effect of the transition of member states' currencies to the euro is
not known at this time. It is likely that more general short- and long-term
ramifications can be expected, such as changes in the economic environment and
change in the behavior of investors, which would affect a Fund's investments and
its net asset value. In addition, although U.S. Treasury regulations generally
provide that the euro conversion will not, in itself, cause a U.S. taxpayer to
realize gain or loss, other changes that may occur at the time of the
conversion, such as accrual periods, holiday conventions, indices, and other
features may require the realization of a gain or loss by a Fund as determined
under existing tax law.
The Investment Adviser has taken steps: (1) that it believes will reasonably
address euro-related changes to enable the Trust and its service providers to
process transactions accurately and completely with minimal disruption to
business activities; and (2) obtain reasonable assurances that appropriate steps
have been taken by the Fund's other service providers to address the conversion.
The Trust has not borne any expense relating to these actions.
BOND QUALITY
DESCRIPTION OF MOODY'S CORPORATE BOND RATINGS
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as "gilt edge."
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds rated Aa are judged to be high quality by all standards. Together
with the Aaa group they comprise what are generally known as high-grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or other elements present which make the long-term risks
appear somewhat larger than in Aaa securities.
A - Bonds Rated A possess many favorable investment attributes and are to be
considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered medium-grade obligations (i.e., they are
neither highly protected nor poorly secured). Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba - Bonds rated Ba are judged to have speculative elements; their future cannot
be considered well-assured. Often the protection of interest and principal
payments may be very moderate, and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B - Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or maintenance of other terms of
the contract over any long period of time may be small.
Caa - Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Ca - Bonds rated Ca represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked short-comings.
C - Bonds rated C are the lowest-rated class of bonds, and such issues can be
regarding as having extremely poor prospects of ever attaining any real
investment standing.
Moody's applies numerical modifiers, 1, 2, and 3, in each generic rating
classification from Aa through B in its corporate bond rating system. The
modified 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
DESCRIPTION OF S&P'S CORPORATE BOND RATINGS
<PAGE>
29
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
BB - Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B - Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB- rating.
CCC - Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business financial or economic conditions, it is not likely to have the capacity
to pay interest and repay principal. The CCC rating category is also used for
debt subordinated to senior debt that is assigned an actual or implied B or B-
Rating.
CC - Debt rated CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
C - The rating C is typically applied to debt subordinated to senior debt which
is assigned an actual or implied CCC- debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
CI - The rating CI is reserved for income bonds on which no interest is being
paid.
D - Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if the
applicable grace period has not expired, unless S&P believes that such payments
will be made during such grace period. The D rating will also be used upon the
filing of a bankruptcy petition if debt service payments are jeopardized.
The ratings from AA to CCC may be modified by the addition of a plus or minus
sign to show relative standing within the major rating categories.
<PAGE>
30
PRIOR PERFORMANCE OF CERTAIN FUNDS AND THEIR PREDECESSORS
The following table sets forth historical performance information for the
Mid Cap Growth, Fund (the "Fund"), as its pool of assets converted from one
legal entity to another. The Fund's performance includes historical performance
for Whitehall Partners, a California limited partnership (the "Partnership") an
institutional separate account managed by the Investment Adviser prior to the
Fund's inception. The Investment Adviser has advised the Trust that the
Partnership was operated with materially equivalent investment objectives,
policies, strategies and restrictions as the Fund. The assets of the Partnership
were transferred to the Mid Cap Growth Fund in April 1993.
Until to July 24, 1998, the Fund was organized in the Nicholas-Applegate
"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 Investment Trust (the "Trust").
On July 24, 1998, the "master-feeder" arrangement was reorganized into a
multi-class structure in which the Nicholas-Applegate Mutual Funds invested in
securities directly and offered various classes of shares.
In May 1999, the Trust became the successor entity to the assets of the
Class I shares of the Nicholas-Applegate Mutual Funds when substantially all of
those "Institutional" assets transferred to the Trust. The investment
objectives, policies and limitations of the portfolios of the Trust are
identical in every respect to the corresponding portfolios of the
Nicholas-Applegate Mutual Funds. The investment management fees and expense
limitations are also identical.
The performance returns for the Partnership have been adjusted to reflect
the deduction of the fees and expenses of the Mid Cap Growth Fund Retirement
shares and, for the period preceding the period the reorganization of the Trust,
the proportionate shares of the operating expenses of the corresponding master
funds of the Trust (including advisory fees), and give effect to transaction
costs as well as reinvestment of income and gains. However, the prior investment
partnership was not registered under the Investment Company Act and were
therefore not subject to the investment restrictions imposed by the Act; if it
had been so registered, its performance might have been lower.
The performance results presented may not necessarily equal the return
experienced by any particular shareholder or partner as a result of the timing
of investments and redemptions. In addition, the results do not reflect the
effect of income or excise taxes on any shareholder, partner or trust
beneficiary.
<PAGE>
31
<TABLE>
<CAPTION>
MID CAP GROWTH
PERFORMANCE
<S> <C> <C> <C>
RUSSELL
MID CAP MID CAP
GROWTH GROWTH
YEAR FUND INDEX(1)
1985(2) 24.74% n/a
1986 32.85 17.55%
1987 3.59 2.76
1988 12.67 12.92
1989 33.92 31.48
1990 0.73 (5.13)
1991 55.52 47.02
1992 13.55 8.71
1993 19.77 (11.19)
1994 (10.52) (2.17)
1995 38.67 33.99
1996 16.46 17.48
1997 16.66 22.58
1998 14.33 17.86
Last year(3) 14.33 17.86
Last 5 years(3) 13.69 17.34
Last 10 years(3) 18.32 17.30
Since inception(3) 19.26 15.79
</TABLE>
1 The Russell Midcap Growth Index measures the performance of those companies
among the 800 smallest companies in the Russell 1000 Index with higher than
average price-to-book ratios and forecasted growth. The Russell 1000 Index
contains the top 1,000 securities of the Russell 3000 Index, which
comprises the 3,000 largest U.S. securities as determined by total market
capitalization. The Russell Midcap Growth Index is considered generally
representative of the U.S. market for midcap stocks. The average market
capitalization is approximately $4 billion, the median market
capitalization is approximately $2.5 billion, and the largest company in
the Index had an approximate market capitalization of $8.7 billion. This
Index reflects the reinvestment of income dividends and capital gains
distributions, if any, but does not reflect fees, brokerage commissions, or
other expenses of investing. The Index was not available until 1986.
2 Performance inception date--September 30, 1985; (Mid Cap Growth Retirement
shares registration statement effective
date--April , 1999).
3 Through December 31, 1998.
<PAGE>
NEW ACCOUNT FORM (NON-IRA)
RETIREMENT CLASS SHARES
FOR AN IRA ACCOUNT APPLICATION, CALL 800 - 551-8043.
N I C H O L A S-A P P L E G A T E-REGISTERED TRADEMARK-
MAIL TO:
Nicholas-Applegate Institutional Funds
PO Box 8326
Boston, MA 02266-8326
800 - 551-8043
1. YOUR ACCOUNT REGISTRATION
- --------------------------------------------------------------------------------
PLEASE PRINT. COMPLETE ONE SECTION ONLY. Joint account owners will be registered
joint tenants with the right of survivorship unless otherwise indicated. It is
the shareholder(s) responsibility to specify ownership designations which comply
with applicable state law.
<TABLE>
<S> <C> <C> <C> <C>
/ / INDIVIDUAL OR JOINT ACCOUNT
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ - _ _ _ _
First Name Middle Initial Last Name Social Security Number
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ - _ _ _ _
Joint Tenant (IF ANY) Middle Initial Last Name Social Security Number
/ / GIFT OR TRANSFER TO MINOR (UGMA/UTMA)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Custodian's First Name (ONLY ONE) Middle Initial Last Name
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Minor's First Name (ONLY ONE) Middle Initial Last Name
_ _ _ _ _ - _ _ - _ _ _ _
_ _ - _ _ - _ _
Minor's State of Residence Minor's Date of Birth Minor's Social Security
Number
</TABLE>
<TABLE>
<S> <C> <C>
/ / TRUST, CORPORATION, PARTNERSHIP OR OTHER ENTITY (CORPORATE RESOLUTION REQUIRED)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Name of Trust, Corporation or Other Entity
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ - _ _ _ _
Trustee Name(s) or Type of Entity Date of Trust Agreement
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ _ _ _ _
Name of Beneficiary (OPTIONAL) Taxpayer Identification Number
</TABLE>
2. YOUR ADDRESS
- --------------------------------------------------------------------------------
Do you have any other identically registered Nicholas-Applegate accounts?
/ / Yes / / No
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Street Address or PO Box Number Apartment Number
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ _
City State Zip
_ _ _ - _ _ _ - _ _ _ _
Area Code Home Phone
_ _ _ - _ _ _ - _ _ _ _
Area Code Business Phone
CITIZENSHIP:/ / U.S.
/ / Resident Alien
/ / Non-resident Alien
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Specify Country (if not U.S.)
3. YOUR INVESTMENT
- --------------------------------------------------------------------------------
Please select your fund. See prospectus for investment minimums.
<TABLE>
<CAPTION>
CLASS AMOUNT
<S> <C> <C>
- ---------------------------------------------------------
Emerging Countries R(576) / / $
- ---------------------------------------------------------
International Core Growth R(676) / / $
- ---------------------------------------------------------
Small Cap Growth R(375) / / $
- ---------------------------------------------------------
Mid Cap Growth R(171) / / $
- ---------------------------------------------------------
Large Cap Growth R(969) / / $
- ---------------------------------------------------------
Value R(997) / / $
- ---------------------------------------------------------
High Quality Bond R(175) / / $
- ---------------------------------------------------------
TOTAL $
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
</TABLE>
4. YOUR METHOD OF PAYMENT
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
/ / BY CHECK: Payable to NICHOLAS-APPLEGATE
INSTITUTIONAL FUNDS
(Third party checks will NOT be / / BY EXCHANGE: Fund name from which
accepted.) you are exchanging _ _ _ _ _ _ _ _ _ _ _ _ _
/ / BY WIRE: Please call 1-800-551-8043 for your
account number / / BY CONFIRM TRADE ORDER: Trade Order # _ _ _ _ _ _ _ _ _ _ _ _ _
</TABLE>
<PAGE>
5. YOUR DIVIDEND AND CAPITAL GAIN PAYMENT OPTIONS
- --------------------------------------------------------------------------------
Distributions will automatically be reinvested in additional shares of your
Fund(s) unless you check the box(es) below.
DIVIDENDS (CHECK ONE) / / Reinvest / / Cash CAPITAL GAINS (CHECK
ONE) / / Reinvest / / Cash
/ / CROSS FUND REINVESTMENT+ (OPTIONAL)--Reinvest all dividends and capital
gains into an existing account in another Nicholas-Applegate Fund.
<TABLE>
<S> <C> <C> <C>
From _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ To _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Fund Name Fund Name
</TABLE>
+MUST BE SAME ACCOUNT TYPE AND CLASS OF SHARES. MUST BE A $5,000 MINIMUM ACCOUNT
VALUE FOR THIS SERVICE.
SERVICE OPTIONS
- --------------------------------------------------------------------------------
6. TELEPHONE REDEMPTIONS AND EXCHANGES
- --------------------------------------------------------------------------------
This allows you to use the telephone to redeem or exchange shares, unless you
check the box below. Redemptions will be made payable to the registered owner(s)
and mailed to the address of record. Maximum redemption by telephone is $50,000.
/ / I do not want telephone redemption privilege. / / I do not want telephone
exchange privilege.
7. SYSTEMATIC INVESTMENT--TO MY MUTUAL FUND ACCOUNT VIA ACH
- --------------------------------------------------------------------------------
/ / Check this box to invest on a regular basis from your bank account. Please
complete "Checking Account Information" (SECTION 10).
<TABLE>
<S> <C> <C> <C> <C> <C>
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ $_ _ ,_ _ _ ._ _ _ _ _ _
Fund Name Amount ($50 MINIMUM) Day* Monthly Quarterly (JAN/APRIL/JULY/OCT)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ $_ _ ,_ _ _ ._ _ _ _ _ _
Fund Name Amount ($50 MINIMUM) Day* Monthly Quarterly (JAN/APRIL/JULY/OCT)
</TABLE>
*IF YOU DO NOT PROVIDE A DATE, THEN IT WILL DEFAULT TO THE 15TH OF THE MONTH.
8. SYSTEMATIC EXCHANGES--FROM ONE NICHOLAS-APPLEGATE MUTUAL FUND ACCOUNT TO
ANOTHER
- --------------------------------------------------------------------------------
/ / Check this box to exchange on a regular basis from one Nicholas-Applegate
account to another (must be same share class and registration).
<TABLE>
<S> <C> <C> <C> <C> <C>
FROM:
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ $_ _ ,_ _ _ ._ _ _ _ _ _
Fund Name Day* Monthly Quarterly (JAN/APRIL/JULY/OCT)
Amount ($50 MINIMUM, $5,000 MINIMUM ACCOUNT VALUE)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Account Number (IF KNOWN)
TO:
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ $_ _ ,_ _ _ ._ _ _ _ _ _
Fund Name Day* Monthly Quarterly (JAN/APRIL/JULY/OCT)
Amount ($50 MINIMUM, $5,000 MINIMUM ACCOUNT VALUE)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Account Number (IF KNOWN)
</TABLE>
*IF YOU DO NOT PROVIDE A DATE, THEN IT WILL DEFAULT TO THE 15TH OF THE MONTH.
<PAGE>
9. SYSTEMATIC WITHDRAWAL--FROM MY MUTUAL FUND ACCOUNT VIA ACH OR CHECK
- --------------------------------------------------------------------------------
/ / Check this box to withdraw on a regular basis from my mutual fund account.
Please complete "Checking Account Information" below (SECTION 10):
<TABLE>
<S> <C> <C> <C> <C> <C>
BY ACH TO MY BANK ACCOUNT
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ $_ _ ,_ _ _ ._ _ _ _ _ _
Fund Name Day* Monthly Quarterly (JAN/APRIL/JULY/OCT)
Amount ($50 MINIMUM, $5,000 MIN. ACCOUNT VALUE)
BY CHECK (DO NOT NEED TO COMPLETE
SECTION 10)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ $_ _ ,_ _ _ ._ _ _ _ _ _
1 5
Fund Name Day* Monthly Quarterly (JAN/APRIL/JULY/OCT)
Amount ($50 MINIMUM, $5,000 MIN. ACCOUNT VALUE)
</TABLE>
SEND PROCEEDS TO:
/ / Address of record
/ / Special Payee (LIST BELOW)
<TABLE>
<S> <C> <C> <C> <C>
INDIVIDUAL OR JOINT ACCOUNT
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
First Name Middle Initial Last Name
</TABLE>
<TABLE>
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_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ _
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>
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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>
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Address City State Zip
</TABLE>
(SEE REVERSE)
<PAGE>
12. DEALER INFORMATION
- --------------------------------------------------------------------------------
HOME OFFICE INFORMATION (TO BE COMPLETED BY INVESTMENT REPRESENTATIVE)
<TABLE>
<S> <C>
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ - _ _ _ _
Dealer Name and Number (IF
KNOWN) Area Code Phone
</TABLE>
<TABLE>
<S> <C> <C> <C>
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ _
Home Office Address City State Zip
</TABLE>
BRANCH OFFICE INFORMATION
<TABLE>
<S> <C>
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ - _ _ _ _
Branch Office Number Area Code Phone
</TABLE>
<TABLE>
<S> <C> <C> <C>
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ _
Branch Office Address City State Zip
</TABLE>
REPRESENTATIVE INFORMATION
<TABLE>
<S> <C>
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Representative's Name Representative's Number
</TABLE>
13. SIGNATURES
- --------------------------------------------------------------------------------
BY SIGNING THIS NEW ACCOUNT FORM BELOW, I ASSURE THAT:
/ / I have received and read the prospectus for each of the Funds in which I am
investing, and I believe each investment is suitable for me. I understand
that the prospectus terms are incorporated into this New Account Form by
reference.
/ / I authorize Nicholas-Applegate Institutional Funds, their affiliates and
agents to act on any instructions believed to be genuine for any service
authorized on this form. I agree they will not be liable for any resulting
loss or expense.
/ / I am of legal age in my state and have the authority and legal capacity to
purchase mutual fund shares.
/ / I understand that neither the fund(s) nor the distributor,
Nicholas-Applegate Securities, is a bank and that fund shares are not
obligations of or guaranteed by any bank or insured by the FDIC.
/ / I understand that mutual funds involve risks, including possible loss of
principal.
I CERTIFY, UNDER PENALTIES OF PERJURY, THAT:
1. The Social Security or Taxpayer Identification Number shown on this form is
correct. (If I fail to give the correct number or to sign this form,
Nicholas-Applegate Institutional Funds may reject or redeem my investment. I
may also be subject to any applicable IRS Backup Withholding for all
distributions and redemptions.)
2. / / I am NOT currently subject to IRS Backup Withholding because (a) I have
not been notified of it or (b) notification has been revoked.
/ / I am currently subject to IRS Backup Withholding.
I agree that neither Nicholas-Applegate Securities, the Trust, nor any of their
affiliates will be responsible for the authenticity of any instructions given
and shall be fully indemnified as to and held harmless from any and all direct
and indirect liabilities, losses, or costs resulting from acting upon such
transactions.
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Shareowner, Custodian, Trustee or Authorized Officer Date
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ - _ _ _ _
Joint Owner, Custodian, Trustee or Authorized Officer Date
</TABLE>
<PAGE>
F O R M O R E I N F O R M A T I O N
Nicholas-Applegate Institutional Funds
SEC file number: 333-71469
More information on these Funds is available
free upon request, including the following:
ANNUAL/SEMIANNUAL REPORT
Describes the Funds' performance, lists portfolio
holdings and contains a letter from the Funds'
Investment Adviser discussing recent market
conditions and investment strategies that
significantly affected the Funds' performance
during the last fiscal year.
STATEMENT OF ADDITIONAL
INFORMATION (SAI)
Provides more details about the Funds and their
policies. A current SAI is on file with the
Securities and Exchange Commission (SEC) and
is incorporated by reference (is legally considered
part of this prospectus).
TO OBTAIN INFORMATION:
BY TELEPHONE
Call 1-800-551-8643
BY MAIL Write to:
Nicholas-Applegate Institutional Funds
600 West Broadway
San Diego, CA 92101
BY E-MAIL Send your request to nacm.com
ON THE INTERNET Text versions of the Fund
documents can be viewed online or downloaded from:
SEC
http://www.sec.gov
NACM
http://www.nacm.com
You can also obtain copies by visiting the SEC's
Public Reference Room in Washington, DC
(phone 1-800-SEC-0330) or sending your request
and a duplicating fee to the SEC's Public
Reference Section, Washington, DC 20549-6009
N I C H O L A S-A P P L E G A T E-REGISTERED
TRADEMARK-
600 West Broadway
San Diego, California 92101
800-551-8045
Nicholas-Applegate Securities, Distributor
Visit us at www.nacm.com
ITPRO399
<PAGE>
NICHOLAS-APPLEGATE INSTITUTIONAL AND RETIREMENT SHARES-Registered Trademark-
INSTITUTIONAL FUNDS
600 West Broadway, 30th Floor
San Diego, California 92101
(800) 551-8043
STATEMENT OF ADDITIONAL INFORMATION
May , 1999
<TABLE>
<S> <C> <C>
Global Blue Chip Fund International Core Growth Fund Worldwide Growth Fund
Global Growth & Income Fund Emerging Countries Fund Global Technology Fund
Convertible Fund Pacific Rim Fund Greater China Fund
Latin America Fund Large Cap Growth Fund Mid Cap Growth Fund
Mini Cap Growth Fund Value Fund Small Cap Growth Fund
High Yield Bond Fund High Quality Bond Fund
Short Intermediate Fund
</TABLE>
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the Funds' prospectuses dated -----, 1999. This SAI
incorporates by reference the Funds' Annual Report. Obtain the prospectus or
the Annual Report without charge by calling 800-551-8043.
B-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-3
Securities Descriptions and Techniques . . . . . . . . . . . . . . . . B-4
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . B-22
Trustees and Principal Officers . . . . . . . . . . . . . . . . . . . . B-24
Investment Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . B-27
Administrator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-30
Distributor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-31
Portfolio Transactions and Brokerage . . . . . . . . . . . . . . . . . B-32
Purchase and Redemption of Fund Shares . . . . . . . . . . . . . . . . B-34
Shareholder Services . . . . . . . . . . . . . . . . . . . . . . . . . B-35
Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-36
Dividends, Distributions and Taxes . . . . . . . . . . . . . . . . . . B-37
Performance Information . . . . . . . . . . . . . . . . . . . . . . . . B-41
Custodian, Transfer and Dividend Disbursing Agent and,
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . B-51
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-51
Appendix A - Description of Securities Ratings . . . . . . . . . . . . A-1
</TABLE>
B-2
<PAGE>
ORGANIZATION
Nicholas-Applegate Institutional Funds (the "Trust") is an open-end
management investment company currently offering a number of separate
portfolios (each a "Fund" and collectively the "Funds"). This Statement of
Additional Information contains information regarding the Institutional and
Retirement shares of these Funds. The Trust was organized in December 1992 as
a business trust under the laws of Delaware.
Prior to July 24, 1998, the Nicholas-Applegate mutual fund complex was
organized in a "master-feeder" investment structure. Under that structure,
the Nicholas-Applegate Mutual Funds invested all of their assets in
corresponding portfolios, or series, of the Nicholas-Applegate Institutional
Funds. On July 24, 1998, the shareholders of the Nicholas-Applegate Mutual
Funds approved a plan that reorganized the "master-feeder" arrangement into
multi-class structure in which the Nicholas-Applegate Mutual Funds invested
in securities directly and offered various classes of shares through multiple
distribution channels. At the same time the Trust was liquidated.
In 1999, the Trust was reactivated to be the successor entity to the
assets a of the "Institutional" series and the I class of shares of the
Nicholas-Applegate Mutual Funds. On March 31, 1999, substantially all of
those "Institutional" assets transferred to the Trust. The investment
objectives, policies and limitations of the portfolios of the Trust are
identical in every respect to the corresponding portfolios of the
Nicholas-Applegate Mutual funds. The investment management fees and expense
limitations are also identical. Since both the Trust and the
Nicholas-Applegate Mutual Funds are organized as Delaware business trusts
under substantially similar trust instruments, shareholder rights in the two
funds are substantially identical. Both funds are authorized to issue an
unlimited number of shares.
B-3
<PAGE>
SECURITIES DESCRIPTIONS AND TECHNIQUES
EQUITY SECURITIES:
The following describes the types of equity securities in which the
Funds invest.
COMMON STOCKS are the most prevalent type of equity security. Common
stockholders receive the residual value of the issuer's earnings and assets
after the issuer pays its creditors and any preferred stockholders. As a
result, changes in an issuer's earnings directly influence the value of its
common stock.
PREFERRED STOCKS have the right to receive specified dividends or
distributions before the payment of dividends or distributions on common
stock. Some preferred stocks also participate in dividends and distributions
paid on common stock. Preferred stocks may also permit the issuer to redeem
the stock.
WARRANTS give the Funds the option to buy the issuer's stock or other
equity securities at a specified price. The Funds may buy the designated
shares by paying the exercise price before the warrant expires. Warrants may
become worthless if the price of the stock does not rise above the exercise
price by the expiration date. Rights are the same as warrants, except they
are typically issued to existing stockholders.
CONVERTIBLE SECURITIES are fixed income securities that a Fund has the
option to exchange for equity securities at a specified conversion price. The
option allows the Fund to realize additional returns if the market price of
the equity securities exceeds the conversion price.
Convertible securities have lower yields than comparable fixed income
securities to compensate for the value of the conversion option. In addition,
the conversion price exceeds the market value of the underlying equity
securities at the time a convertible security is issued. Thus, convertible
securities may provide lower returns than non-convertible fixed income
securities or
B-4
<PAGE>
equity securities depending upon changes in the price of the underlying
equity securities. However, convertible securities permit a Fund to realize
some of the potential appreciation of the underlying equity securities with
less risk of losing its initial investment.
The Funds treat convertible securities as equity securities for purposes of
its investment policies and limitations, because of their unique
characteristics.
FIXED INCOME SECURITIES
The following describes the types of fixed income securities in which
the Funds invest.
CORPORATE DEBT SECURITIES are fixed income securities issued by
businesses. Notes, bonds, debentures and commercial paper are the most
prevalent types of corporate debt security. The Credit Risks of corporate
debt securities vary widely among issuers.
ZERO COUPON SECURITIES do not pay interest or principal until final
maturity. Most debt securities provide periodic payments of interest
(referred to as a "coupon payment"). In contrast, investors buy zero coupon
securities at a price below the amount payable at maturity. The difference
between the price and the amount paid at maturity represents interest on the
zero coupon security. This increases the market and credit risk of a zero
coupon security, because an investor must wait until maturity before
realizing any return on the investment.
There are many forms of zero coupon securities. Some securities are
originally issued at a discount and are referred to as "zero coupon" or
"capital appreciation" bonds. Others are created by separating the right to
receive coupon payments from the principal due at maturity, a process known
as "coupon stripping." Treasury STRIPs, IOs and POs are the most common forms
of "stripped" zero coupon securities. In addition, some securities give the
issuer the option to deliver additional securities in place of cash interest
payments, thereby increasing the amount payable at maturity. These are
referred to as "pay-in-kind" or "PIK" securities.
COMMERCIAL PAPER is an issuer's draft or note with a maturity of less
than nine months. Companies typically issue commercial paper to fund current
expenditures. Most issuers constantly reissue their commercial paper and use
the proceeds (or bank loans) to repay maturing paper. Commercial paper may
default if the issuer cannot continue to obtain liquidity in this fashion.
The short maturity of commercial paper reduces both the market and credit
risk as compared to other debt securities of the same issuer.
BANK INSTRUMENTS are unsecured interest bearing deposits with banks.
Bank instruments include bank accounts, time deposits, certificates of
deposit and banker's acceptances. Instruments denominated in U.S.
dollars and issued by Non-U.S. branches of U.S. or foreign banks are
commonly referred to as Eurodollar instruments. Instruments denominated
in U.S. dollars and issued by U.S. branches of foreign banks are referred to
as Yankee instruments.
DEMAND INSTRUMENTS are corporate debt securities that the issuer must
repay upon demand. Other demand instruments require a third party, such as a
dealer or bank, to repurchase the security for its face value upon demand.
The Funds treats demand instruments as short-term
B-5
<PAGE>
securities, even though their stated maturity may extend beyond one year.
Insurance contracts include guaranteed investment contracts, funding
agreements and annuities.
GOVERNMENT OBLIGATIONS Each Fund may make short-term investments in U.S.
Government obligations. Such obligations include Treasury bills,
certificates of indebtedness, notes and bonds, and issues of such entities as
the Government National Mortgage Association ("GNMA"), Export-Import Bank of
the United States, Tennessee Valley Authority, Resolution Funding
Corporation, Farmers Home Administration, Federal Home Loan Banks, Federal
Intermediate Credit Banks, Federal Farm Credit Banks, Federal Land Banks,
Federal Housing Administration, Federal National Mortgage Association
("FNMA"), Federal Home Loan Mortgage Corporation, and the Student Loan
Marketing Association. No assurance can be given that the U.S. Government
would provide financial support to U.S. Government-sponsored
instrumentalities if it is not obligated to do so by law.
PARTICIPATION INTERESTS. Each Fund may invest in participation
interests, subject to the limitation on investments by the Funds in illiquid
investments. Participation interests represent an undivided interest in or
assignment of a loan made by an issuing financial institution. Participation
interests are primarily dependent upon the financial strength of the
borrowing corporation, which is obligated to make payments of principal and
interest on the loan, and there is a risk that such borrowers may have
difficulty making payments. In the event the borrower fails to pay scheduled
interest or principal payments, a Fund could experience a reduction in its
income and might experience a decline in the net asset value of its shares.
In the event of a failure by the financial institution to perform its
obligation in connection with the participation, a Fund might incur certain
costs and delays in realizing payment or may suffer a loss of principal
and/or interest. In acquiring participation interests, the Investment Adviser
will conduct analysis and evaluation of the financial condition of each
co-lender and participant to ensure that the participation interest meets a
high quality standard and will continue to do so as long as it holds a
participation. In conducting its analysis and evaluation, the Investment
Adviser will consider all relevant factors in determining the credit quality
of the underlying borrower, the amount and quality of the collateral, the
terms of the loan participation agreement and other relevant agreements
(including any intercreditor agreements), the degree to which the credit of a
intermediary was deemed material to the decision to purchase the loan
participation, the interest environment, and general economic conditions
applicable to the borrower and the intermediary.
VARIABLE AND FLOATING RATE INSTRUMENTS Each Fund may acquire variable
and floating rate instruments. Credit rating agencies frequently do not rate
such instruments; however, the Investment Adviser under guidelines
established by the Trust's Board of Trustees will determine what unrated and
variable and floating rate instruments are of comparable quality at the time
of the purchase to rated instruments eligible for purchase by the Fund. In
making such determinations, the Investment Adviser considers the earning
power, cash flow and other liquidity ratios of the issuers of such
instruments (such issuers include financial, merchandising, bank holding and
other companies) and will monitor their financial condition. An active
secondary market may not exist with respect to particular variable or
floating rate instruments purchased by a Fund. The absence of such an active
secondary market could make it difficult for the Fund to dispose of the
variable or floating rate instrument involved in the event of the issuer of
the instrument defaulting on its payment obligation or during periods in
which the Fund is not entitled to exercise its demand rights, and the Fund
could, for these or other reasons, suffer a loss to the extent of the
default. Variable and floating rate instruments may be secured by bank
letters of credit.
FOREIGN SECURITIES
Foreign securities are securiites of issuers based outside the U.S. They
are primarily denominated in foreign currencies and traded outside of the
U.S. In addition to the risks normally
B-6
<PAGE>
associated with equity and fixed income securities, foreign securities are
subject to Country Risk and Currency Risk. Trading in certain foreign markets
is also subject to Liquidity Risks.
The following describes the types of foreign securities in which the
Funds invest.
FOREIGN EXCHANGE CONTRACTS. In order to convert U.S. dollars into the
currency needed to buy a foreign security, or to convert foreign currency
received from the sale of a foreign security into U.S. dollars, a Fund may
enter into "spot" currency trades. A Fund may also enter into derivative
contracts in which a foreign currency is an underlying asset. Use of these
derivative contracts may increase or decrease the Fund's exposure to Currency
Risk.
FOREIGN GOVERNMENT SECURITIES generally consist of fixed income
securities supported by national, state or provincial governments or similar
political subdivisions. Foreign government securities also include debt
obligations of supranational entities, such as international organizations
designed or supported by governmental entities to promote economic
reconstruction or development, international banking institutions and related
government agencies. Examples of these include, but are not limited to, the
International Bank for Reconstruction and Development (the World Bank), the
Asian Development Bank, the European Investment Bank and the Inter-American
Development Bank.
Foreign government securities also include fixed income securities of
"quasi-governmental agencies" which are either issued by entities that are
owned by a national, state or equivalent government or are obligations of a
political unit that are not backed by the national government's full faith
and credit and general taxing powers. Further, foreign government securities
include mortgage-related securities issued or guaranteed by national, state
or provincial governmental instrumentalities, including quasi-governmental
agencies.
DEPOSITORY RECEIPTS. Each of the Funds may invest in American Depository
Receipts ("ADRs"), which are receipts issued by an American bank or trust
company evidencing ownership of underlying securities issued by a foreign
issuers. ADRs, in registered form, are designed for use in U.S. securities
markets. Such depository receipts may be sponsored by the foreign issuer or
may be unsponsored. The Funds may also invest in European and Global
Depository Receipts ("EDRs" and "GDRs"), which, in bearer form, are designed
for use in European securities markets, and in other instruments representing
securities of foreign companies. Such depository receipts may be sponsored by
the foreign issuer or may be unsponsored. Unsponsored depository receipts are
organized independently and without the cooperation of the foreign issuer of
the underlying securities; as a result, available information regarding the
issuer may not be as current as for sponsored depository receipts, and the
prices of unsponsored depository receipts may be more volatile than if they
were sponsored by the issuer of the underlying securities. ADRs may be listed
on a national securities exchange or may trade in the over-the-counter
market. ADR prices are denominated in United States dollars; the underlying
security may be denominated in a foreign currency, although the underlying
security may be subject to foreign government taxes which would reduce the
yield on such securities.
EURODOLLAR CONVERTIBLE SECURITIES are fixed-income securities of a U.S.
issuer or a foreign issuer that are issued outside the United States and are
convertible into equity securities of the same or a different issuer.
Interest and dividends on Eurodollar securities are payable in U.S.
B-7
<PAGE>
dollars outside of the United States. Each Fund may invest without
limitation in Eurodollar convertible securities that are convertible into
foreign equity securities listed, or represented by ADRs listed, on the New
York Stock Exchange or the American Stock Exchange or convertible into
publicly traded common stock of U.S. companies.
EURODOLLAR AND YANKEE DOLLAR. Eurodollar instruments are bonds that pay
interest and principal in U.S. dollars held in banks outside the United
States, primarily in Europe. Eurodollar instruments are usually issued on
behalf of multinational companies and foreign governments by large
underwriting groups composed of banks and issuing houses from many countries.
Yankee Dollar instruments are U.S. dollar denominated bonds issued in the
U.S. by foreign banks and corporations.
RISK MANAGEMENT AND RETURN ENHANCEMENT STRATEGIES
Each Fund may engage in various portfolio stratgies, including using
derivatives, to reduce certain risks of its investments and to enhance
return. A 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. A 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
policies.
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 to which a Fund
would not be subject absent the use of these stratgies. A 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 a Fund may leave the Fund in a worse position than if
such strategies were not used. Risks 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 otpions 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 a Portfolio to purchase or sell a portfolio
security at a disadvantageous time, due to the need for a Portfolio to
maintain "cover" or to segregate assets in connection with hedging
transactions.
DERIVATIVES
The Funds may trade in the following types of derivative contracts.
INDEX AND CURRENCY-LINKED SECURITIES are debt securities of companies
that call for interest payments and/or payment at maturity in different terms
than the typical note where the borrower agrees to make fixed interest
payments and to pay a fixed sum at maturity. Principal and/or interest
payments on an index-linked note depend on the performance of one or more
market indices, such as the S&P 500 Index or a weighted index of commodity
futures such as crude oil, gasoline and natural gas. The Funds may also
invest in "equity linked" and "currency-linked" debt securities. At
maturity, the principal amount of an equity-linked debt security is exchanged
for common stock of the issuer or is payable in an amount based on the
issuer's common stock price at the time of maturity. Currency-linked debt
securities are short-term or intermediate term instruments having a value at
maturity, and/or an interest rate, determined by reference to one or more
foreign currencies. Payment of principal or periodic interest may be
calculated as a multiple of the movement of one currency against another
currency, or against an index.
MORTGAGE-RELATED SECURITIES are derivative interests in pools of
mortgage loans made to U.S. residential home buyers, including mortgage loans
made by savings and loan institutions, mortgage bankers, commercial banks and
others. Pools of mortgage loans are assembled as securities for sale to
investors by various governmental, government-related and private
organizations.
U.S. MORTGAGE PASS-THROUGH SECURITIES. Interests in pools of
mortgage-related securities differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and
principal payments. In
B-8
<PAGE>
effect, these payments are a "pass-through" of the monthly payments made by
the individual borrowers on their residential mortgage loans, net of any fees
paid to the issuer or guarantor of such securities. Additional payments are
caused by repayments of principal resulting from the sale of the underlying
residential property, refinancing or foreclosure, net of fees or costs which
may be incurred. Some mortgage-related securities (such as securities issued
by the Government National Mortgage Association) are described as "modified
pass-throughs." These securities entitle the holder to receive all interest
and principal payments owed on the mortgage pool, net of certain fees, at the
scheduled payment dates regardless of whether or not the mortgagor actually
makes the payment.
The principal governmental guarantor of U.S. mortgage-related securities
is the Government National Mortgage Association ("GNMA"). GNMA is a wholly
owned United States Government corporation within the Department of Housing
and Urban Development. GNMA is authorized to guarantee, with the full faith
and credit of the United States Government, the timely payment of principal
and interest on securities issued by institutions approved by GNMA (such as
savings and loan institutions, commercial banks and mortgage bankers) and
backed by pools of mortgages insured by the Federal Housing Agency or
guaranteed by the Veterans Administration.
Government-related guarantors include the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC"). FNMA is a government-sponsored corporation owned entirely by
private stockholders and subject to general regulation by the Secretary of
Housing and Urban Development. FNMA purchases conventional residential
mortgages not insured or guaranteed by any government agency from a list of
approved seller/services which include state and federally chartered savings
and loan associations, mutual savings banks, commercial banks and credit
unions and mortgage bankers. FHLMC is a government-sponsored corporation
created to increase availability of mortgage credit for residential housing
and owned entirely by private stockholders. FHLMC issues participation
certificates which represent interests in conventional mortgages from FHLMC's
national portfolio. Pass-through securities issued by FNMA and participation
certificates issued by FHLMC are guaranteed as to timely payment of principal
and interest by FNMA and FHLMC, respectively, but are not backed by the full
faith and credit of the United States Government.
Although the underlying mortgage loans in a pool may have maturities of
up to 30 years, the actual average life of the pool certificates typically
will be substantially less because the mortgages will be subject to normal
principal amortization and may be prepaid prior to maturity. Prepayment rates
vary widely and may be affected by changes in market interest rates. In
periods of falling interest rates, the rate of prepayment tends to increase,
thereby shortening the actual average life of the pool certificates. In the
event higher than anticipated prepayments of principal, a Fund may be subject
to reinvestment in a market of lower interests rates. Conversely, when interest
rates are rising, the rate of prepayments tends to decrease, thereby
lengthening the actual average life of the certificates. Accordingly, it is
not possible to predict accurately the average life of a particular pool.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). A domestic or foreign CMO in
which a Fund may invest is a hybrid between a mortgage-backed bond and a
mortgage pass-through security. Like a bond, interest is paid, in most cases,
semiannually. CMOs may be collateralized by whole mortgage loans, but are more
typically collateralized by portfolios of mortgage pass-through securities
guaranteed by GNMA, FHLMC, FNMA or equivalent foreign entities.
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CMOs are structured into multiple classes, each bearing a different
stated maturity. Actual maturity and average life depend upon the prepayment
experience of the collateral. CMOs provide for a modified form of call
protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
and interest received from the pool of underlying mortgages, including
prepayments, is first returned to the class having the earliest maturity date
or highest maturity. Classes that have longer maturity dates and lower
seniority will receive principal only after the higher class has been retired.
SYNTHETIC CONVERTIBLE SECURITIES are derivative positions composed of
two or more different securities whose investment characteristics, taken
together, resemble those of convertible securities. For example, a Fund may
purchase a non-convertible debt security and a warrant or option, which
enables the Fund to have a convertible-like position with respect to a
company, group of companies or stock index. Synthetic convertible securities
are typically offered by financial institutions and investment banks in
private placement transactions. Upon conversion, the Fund generally receives
an amount in cash equal to the difference between the conversion price and
the then current value of the underlying security. Unlike a true convertible
security, a synthetic convertible comprises two or more separate securities,
each with its own market value. Therefore, the market value of a synthetic
convertible is the sum of the values of its fixed-income component and its
convertible component.For this reason, the values of a synthetic convertible
and a true convertible security may respond differently to market
fluctuations. A Fund only invests in synthetic convertibles with respect to
companies whose corporate debt securities are rated "A" or higher by Moody's
or "A" or higher by S&P.
OPTIONS AND FUTURES
OPTIONS are rights to buy or sell an underlying asset for a specified price
(the exercise price) during, or at the end of, a specified period of time. A
call option gives the holder (buyer) the right to purchase the underlying
asset from the seller (writer) of the option. A put option gives the holder
the right to sell the underlying asset to the writer of the option. The
writer of the option receives a payment, or "premium," from the buyer, which
the writer keeps regardless of whether the buyer uses (or exercises) the
option.
The Funds may:
- - Buy call options on foreign currency in anticipation of an increase in the
value of the underlying asset.
- - Buy put options on foreign currency, portfolio securities, and futures in
anticipation of a decrease in the value of the underlying asset.
- - Write call options on portfolio securities and futures to generate income
from premiums, and in anticipation of a decrease or only limited increase
in the value of the underlying asset. If a call written by a Fund is
exercised, the Fund foregoes any possible profit from an increase in the
market price of the underlying asset over the exercise price plus the
premium received. When the Fund writes options on futures contracts, it
will be subject to margin requirements similar to those applied to futures
contracts.
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STOCK INDEX OPTIONS. Each Fund may also purchase put and call options with
respect to the S&P 500 and other stock indices. The Funds may purchase such
options as a hedge against changes in the values of portfolio securities or
securities which it intends to purchase or sell, or to reduce risks inherent in
the ongoing management of the Fund.
The distinctive characteristics of options on stock indices create certain
risks not found in stock options generally. Because the value of an index
option depends upon movements in the level of the index rather than the price of
a particular stock, whether the Fund will realize a gain or loss on the purchase
or sale of an option on an index depends upon movements in the level of stock
prices in the stock market generally rather than movements in the price of a
particular stock. Accordingly, successful use by a Fund of options on a stock
index depends on the Investment Adviser's ability to predict correctly movements
in the direction of the stock market generally. This requires different skills
and techniques than predicting changes in the price of individual stocks.
Index prices may be distorted if circumstances disrupt trading of certain
stocks included in the index, such as if trading were halted in a substantial
number of stocks included in the index. If this happens, the Fund could not be
able to close out options which it had purchased, and if restrictions on
exercise were imposed, the Fund might be unable to exercise an option it holds,
which could result in substantial losses to the Fund. The Funds purchase put or
call options only with respect to an index which the Investment Adviser believes
includes a sufficient number of stocks to minimize the likelihood of a trading
halt in the index.
FOREIGN CURRENCY OPTIONS. Each Fund may buy or sell put and call options on
foreign currencies. A put or call option on a foreign currency gives the
purchaser of the option the right to sell or purchase a foreign currency at the
exercise price until the option expires. The Funds use foreign currency options
separately or in combination to control currency volatility. Among the
strategies employed to control currency volatility is an option collar. An
option collar involves the purchase of a put option and the simultaneous sale of
call option on the same currency with the same expiration date but with
different exercise (or "strike") prices. Generally, the put option will have an
out-of-the-money strike price, while the call option will have either an
at-the-money strike price or an in-the-money strike price. Foreign currency
options are derivative securities. Currency options traded on U.S. or other
exchanges may be subject to position limits which may limit the ability of the
Funds to reduce foreign currency risk using such options.
As with other kinds of option transactions, writing options on foreign
currency constitutes only a partial hedge, up to the amount of the premium
received. The Funds could be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on foreign currency may constitute an effective hedge against exchange
rate fluctuations; however, in the event of exchange rate movements adverse to a
Fund's position, the Fund may forfeit the entire amount of the premium plus
related transaction costs.
FORWARD CURRENCY CONTRACTS. Each Fund may enter into forward currency
contracts in anticipation of changes in currency exchange rates. A forward
currency contract is an obligation to purchase or sell a specific currency at a
future date, which may be any fix number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. For
example, a Fund might purchase a particular currency or enter into a forward
currency contract to
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preserve the U.S. dollar price of securities it intends to
or has contracted to purchase. Alternatively, it might sell a particular
currency on either a spot or forward basis to hedge against an anticipated
decline in the dollar value of securities it intends to or has contracted to
sell. Although this strategy could minimize the risk of loss due to a decline
in the value of the hedged currency, it could also limit any potential gain from
an increase in the value of the currency.
FUTURES CONTRACTS provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a price, date, and
time specified when the contract is made. Futures contracts traded OTC are
frequently referred to as "forward contracts." Entering into a contract to buy
is commonly referred to as buying or purchasing a contract or holding a long
position. Entering into a contract to sell is commonly referred to as selling a
contract or holding a short position. Futures are considered to be commodity
contracts.
The Funds may buy and sell interest rate or financial futures, futures on
indices, foreign currency exchange contracts, forward foreign currency exchange
contracts, foreign currency options, and foreign currency futures contracts.
INTEREST RATE OR FINANCIAL FUTURES CONTRACTS. Each Fund may invest in
interest rate or financial futures contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures market, a contract is made to purchase or sell a bond in the future for
a set price on a certain date. Historically, the prices for bonds established
in the futures markets have generally tended to move in the aggregate in concert
with cash market prices, and the prices have maintained fairly predictable
relationships.
The sale of an interest rate or financial futures sale by a Fund obligates
the Fund, as seller, to deliver the specific type of financial instrument called
for in the contract at a specific future time for a specified price. A futures
contract purchased by a Fund obligates the Fund, as purchaser, to take delivery
of the specific type of financial instrument at a specific future time at a
specific price. The specific securities delivered or taken, respectively, at
settlement date, would not be determined until at or near that date. The
determination would be in accordance with the rules of the exchange on which the
futures contract sale or purchase was made.
Although interest rate or financial futures contracts by their terms call
for actual delivery or acceptance of securities, in most cases the contracts are
closed out before the settlement date without delivery of securities. A Fund
closes out a futures contract sale by entering into a futures contract purchase
for the same aggregate amount of the specific type of financial instrument and
the same delivery date. If the price in the sale exceeds the price in the
offsetting purchase, the Fund receives the difference and thus realizes a gain.
If the offsetting purchase price exceeds the sale price, the Fund pays the
difference and realizes a loss. Similarly, the Fund closes out a futures
contract purchase by entering into a futures contract sale. If the offsetting
sale price exceeds the purchase price, the Fund realizes a gain, and if the
purchase price exceeds the offsetting sale price, the Fund realizes a loss.
OPTIONS ON FUTURES CONTRACTS. The Funds may purchase options on the
futures contracts they can purchase or sell, as described above. A futures
option gives the holder, in return for the premium paid, the right to buy
(call) from or sell (put) to the writer of the option a futures contract at a
specified price at any time during the period of the option. Upon exercise,
the writer of the option is obligated to pay the difference between the cash
value of the futures contract and the exercise price. Like the buyer or
seller of a futures contract, the holder or writer of an option has the right
to terminate its position prior to the scheduled expiration of the option by
selling, or purchasing an option of the same series, at which time the person
entering into the closing transaction will realize a gain or loss. There is
no guarantee that such closing transactions can be effected.
Investments in futures options involve some of the same considerations
as investments in futures contracts (for example, the existence of a liquid
secondary market). In addition, the purchase of an option also entails the
risk that changes in the value of the underlying futures contract will not be
fully reflected in the value of the option. Depending on the pricing of the
option compared to either the futures contract upon which it is based, or
upon the price of the securities being hedged, an option may or may not be
less risky than ownership of the futures contract or such securities. In
general, the market prices of options are more volatile than the market
prices on the underlying futures contracts. Compared to the purchase or sale
of futures contracts, however, the purchase of call or put options on futures
contracts may frequently involve less potential risk to the Funds because the
maximum amount at risk is limited to the premium paid for the options (plus
transaction costs).
RISKS OF TRANSACTIONS IN OPTIONS AND FUTURES CONTRACTS. There are several
risks related to the use of futures as a hedging device. One risk arises
because of the imperfect correlation
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between movements in the price of the options or futures contract and
movements in the price of the securities which are the subject of the hedge.
The price of the contract may move more or less than the price of the
securities being hedged. If the price of the contract moves less than the
price of the securities which are the subject of the hedge, the hedge will
not be fully effective, but if the price of the securities being hedged has
moved in an unfavorable direction, a Fund would be in a better position than
if it had not hedged at all. If the price of the securities being hedged has
moved in a favorable direction, this advantage will be partially offset by
the loss on the contract. If the price of the future moves more than the
price of the hedged securities, the Fund will experience either a loss or a
gain on the contract which will not be completely offset by movements in the
price of the securities which are subject to the hedge.
When contracts are purchased to hedge against a possible increase in the
price of securities before a Fund is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline instead. If the Fund then decides not to invest
in securities or options at that time because of concern as to possible
further market decline or for other reasons, it will realize a loss on the
contract that is not offset by a reduction in the price of securities
purchased.
Although the Funds intend to purchase or sell contracts only on
exchanges or boards of trade where there appears to be an active secondary
market, there is no assurance that a liquid secondary market on an exchange
or board of trade will exist for any particular contract or at any particular
time. In such event, it may not be possible to close a futures position, and
in the event of adverse price movements, the Funds would continue to be
required to make daily cash payments of variation margin.
Most United States futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.
Successful use of futures by a Fund depends on the Investment Adviser's
ability to predict correctly movements in the direction of the market. For
example, if the Fund hedges against the possibility of a decline in the
market adversely affecting stocks held in its portfolio and stock prices
increase instead, the Fund will lose part or all of the benefit of the
increased value of the stocks which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations,
if the Fund has insufficient cash, it may have to sell securities to meet
daily variation margin requirements. Such sales of securities may be, but
will not necessarily be, at increased prices which reflect the rising market.
The Fund may have to sell securities at a time when it may be disadvantageous
to do so.
In the event of the bankruptcy of a broker through which a Fund engages in
transactions in
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futures contracts or options, the Fund could experience delays and losses in
liquidating open positions purchased or sold through the broker, and incur a
loss of all or part of its margin deposits with the broker.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS AND RELATED OPTIONS. Except
as described below under "Non-Hedging Strategic Transactions," a Fund will
not engage in transactions in futures contracts or related options for
speculation, but only as a hedge against changes resulting from market
conditions in the values of securities held in the Fund's portfolio or which
it intends to purchase and where the transactions are economically
appropriate to the reduction of risks inherent in the ongoing management of
the Fund. A Fund may not purchase or sell futures or purchase related options
if, immediately thereafter, more than 25% of its net assets would be hedged.
A Fund also may not purchase or sell futures or purchase related options if,
immediately thereafter, the sum of the amount of margin deposits on the
Fund's existing futures positions and premiums paid for such options would
exceed 5% of the market value of the Fund's net assets.
Upon the purchase of futures contracts, a Fund will deposit an amount of
cash or liquid debt or equity securities, equal to the market value of the
futures contracts, in a segregated account with the Custodian or in a margin
account with a broker to collateralize the position and thereby insure that
the use of such futures is unleveraged.
These restrictions, which are derived from current federal and state
regulations regarding the use of options and futures by mutual funds, are not
"fundamental restrictions" and the Trustees of the Trust may change them if
applicable law permits such a change and the change is consistent with the
overall investment objective and policies of a Fund.
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INTEREST RATE AND CURRENCY SWAPS
For hedging purposes, each Fund may enter into interest rate and
currency swap transactions and purchase or sell interest rate and currency
caps and floors. An interest rate or currency swap involves an agreement
between a Fund and another party to exchange payments calculated as if they
were interest on a specified ("notional") principal amount (e.g., an exchange
of floating rate payments by one party for fixed rate payments by the other).
An interest rate cap or floor entitles the purchaser, in exchange for a
premium, to receive payments of interest on a notional principal amount from
the seller of the cap or floor, to the extent that a specified reference rate
exceeds or falls below a predetermined level.
CROSS-CURRENCY SWAPS. A cross-currency swap is a contract between two
counterparties to exchange interest and principal payments in different
currencies. A cross-currency swap normally has an exchange of principal at
maturity (the final exchange); an exchange of principal at the start of the
swap (the initial exchange) is optional. An initial exchange of notional
principal amounts at the spot exchange rate serves the same function as a
spot transaction in the foreign exchange market (for an immediate exchange of
foreign exchange risk). An exchange at maturity of notional principal amounts
at the spot exchange rate serves the same function as a forward transaction
in the foreign exchange market (for a future transfer of foreign exchange
risk). The currency swap market convention is to use the spot rate rather
than the forward rate for the exchange at maturity. The economic difference
is realized through the coupon exchanges over the life of the swap. In
contrast to single currency interest rate swaps, cross-currency swaps involve
both interest rate risk and foreign exchange risk.
SWAP OPTIONS. Each Fund may invest in swap options. A swap option is a
contract that gives a counterparty the right (but not the obligation) to
enter into a new swap agreement or to shorten, extend, cancel or otherwise
change an existing swap agreement, at some designated future time on
specified terms. It is different from a forward swap, which is a commitment
to enter into a swap that starts at some future date with specified rates. A
swap option may be structured European-style (exercisable on the
pre-specified date) or American-style (exercisable during a designated
period). The right pursuant to a swap option must be exercised by the right
holder. The buyer of the right to receive fixed pursuant to a swap option is
said to own a call.
SECURITIES SWAPS. Each Fund may enter into securities swaps, a technique
primarily used to indirectly participate in the securities market of a
country from which a Fund would otherwise be precluded for lack of an
established securities custody and safekeeping system. The Fund deposits an
amount of cash with its custodian (or the broker, if legally permitted) in an
amount equal to the selling price of the underlying security. Thereafter, the
Fund pays or receives cash from the broker equal to the change in the value
of the underlying security.
INTEREST RATE SWAPS. As indicated above, an interest rate swap is a
contract between two entities ("counterparties") to exchange interest
payments (of the same currency) between the parties. In the most common
interest rate swap structure, one counterparty agrees to make floating rate
payments to the other counterparty, which in turn makes fixed rate payments
to the first counterparty. Interest payments are determined by applying the
respective interest rates to an agreed upon amount, referred to as the
"notional principal amount." In most such transactions, the
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floating rate payments are tied to the London Interbank Offered Rate, which
is the offered rate for short-term Eurodollar deposits between major
international banks. As there is no exchange of principal amounts, an
interest rate swap is not an investment or a borrowing.
RISKS ASSOCIATED WITH SWAPS. The risks associated with interest rate and
currency swaps and interest rate caps and floors are similar to those
described above with respect to dealer options. In connection with such
transactions, a Fund relies on the other party to the transaction to perform
its obligations pursuant to the underlying agreement. If there were a default
by the other party to the transaction, the Fund would have contractual
remedies pursuant to the agreement, but could incur delays in obtaining the
expected benefit of the transaction or loss of such benefit. In the event of
insolvency of the other party, the Fund might be unable to obtain its
expected benefit. In addition, while each Fund will seek to enter into such
transactions only with parties which are capable of entering into closing
transactions with the Fund, there can be no assurance that a Fund will be
able to close out such a transaction with the other party, or obtain an
offsetting position with any other party, at any time prior to the end of the
term of the underlying agreement. This may impair a Fund's ability to enter
into other transactions at a time when doing so might be advantageous.
A Fund usually enters into such transactions on a "net" basis, with the
Fund receiving or paying, as the case may be, only the net amount of the two
payment streams. The net amount of the excess, if any, of a Fund's
obligations over its entitlements with respect to each swap is accrued on a
daily basis, and an amount of cash or high-quality liquid securities having
an aggregate net asset value at least equal to the accrued excess is
maintained in a segregated account by the Trust's custodian. If a Fund enters
into a swap on other than a net basis, or sells caps or floors, the Fund
maintains a segregated account in the full amount accrued on a daily basis of
the Fund's obligations with respect to the transaction. Such segregated
accounts are maintained in accordance with applicable regulations of the
Commission.
A Fund will not enter into any of these transactions unless the
unsecured senior debt or the claims paying ability of the other party to the
transaction is rated at least "high quality" at the time of purchase by at
least one of the established rating agencies (e.g., AAA or AA by S&P).
SPECIAL TRANSACTIONS
TEMPORARY INVESTMENTS. The Funds may temporarily depart from their
principal investment strategies in response to adverse market, economic,
political or other conditions by investing its assets in cash, cash items,
and shorter-term, higher quality debt securities. It may do this to minimize
potential losses and maintain liquidity to meet shareholder redemptions
during adverse market conditions. A defensive posture taken by a Fund may
result in a Fund failing to achieve its investment objective.
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INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may
invest its assets in securities of other investment companies, including the
securities of affiliated money market funds, as an efficient means of
carrying out its investment policies and managing its uninvested cash. It
should be noted that investment companies incur certain expenses, such as
management fees, and, therefore, any investment by the Fund in shares of
other investment companies may be subject to such duplicate expenses.
"ROLL" TRANSACTIONS. Each Fund may enter into "roll" transactions, which
are the sale of GNMA certificates and other securities together with a
commitment to purchase similar, but not identical, securities at a later date
from the same party. During the roll period, a Fund forgoes principal and
interest paid on the securities. The Fund is compensated by the difference
between the current sales price and the forward price for the future
purchase, as well as by the interest earned on the cash proceeds of the
initial sale. Like when-issued securities or firm commitment agreements, roll
transactions involve the risk that the market value of the securities sold by
the Fund may decline below the price at which the Fund is committed to
purchase similar securities. Additionally, in the event the buyer of
securities under a roll transaction files for bankruptcy or becomes
insolvent, the Fund's use of the proceeds of the transactions may be
restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the
securities.
A Fund will engage in roll transactions for the purpose of acquiring
securities for its portfolio consistent with its investment objective and
policies and not for investment leverage. Nonetheless, roll transactions are
speculative techniques and are considered to be the economic equivalent of
borrowings by the Fund. To avoid leverage, the Fund will establish a
segregated account with its Custodian in which it will maintain liquid assets
in an amount sufficient to meet its payment obligations with respect to these
transactions. A Fund will not enter into roll transactions if, as a result,
more than 15% of the Fund's net assets would be segregated to cover such
contracts.
NON-HEDGING STRATEGIC TRANSACTIONS
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Each Fund's options, futures and swap transactions will generally be
entered into for hedging purposes -- to protect against possible changes in
the market values of securities held in or to be purchased for the Fund's
portfolio resulting from securities markets, currency or interest rate
fluctuations, to protect the Fund's unrealized gains in the values of its
portfolio securities, to facilitate the sale of such securities for
investment purposes, to manage the effective maturity or duration of the
Fund's portfolio, or to establish a position in the derivatives markets as a
temporary substitute for purchase or sale of particular securities. However,
in addition to the hedging transactions referred to above, the
Short-Intermediate, High Quality Bond, Global Blue Chip, Pacific Rim, Greater
China and Latin America Funds may enter into options, futures and swap
transactions to enhance potential gain in circumstances where hedging is not
involved. Each Fund's net loss exposure resulting from transactions entered
into for each purposes will not exceed 5% of the Fund's net assets at any one
time and, to the extent necessary, the Fund will close out transactions in
order to comply with this limitation. Such transactions are subject to the
limitations described above under "Options," "Futures Contracts," and
"Interest Rate and Currency Swaps."
REPURCHASE AGREEMENTS
Repurchase agreements are transactions in which a Fund buys a Security
from a dealer or bank and agrees to sell the security back at a mutally
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 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.
A 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
Each Fund may enter into reverse repurchase agreements, which involve
the sale of a security by a Fund and its agreement to repurchase the security
(or, in the case of mortgage-backed securities, substantially similar but not
identical securities) at a specified time and price. A Fund will maintain in
a segregated account with the Custodian cash, U.S. Government securities or
other appropriate liquid securities in an amount sufficient to cover its
obligations under these agreements with broker-dealers (no such collateral is
required on such agreements with banks). Under the 1940 Act, these agreements
may be considered borrowings by the Funds, and are subject to the percentage
limitations on borrowings described below. The agreements are subject to the
same types of risks as borrowings.
WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS
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Each Fund may purchase securities on a "when-issued," forward commitment
or delayed settlement basis. In this event, the Custodian will set aside cash
or liquid portfolio securities equal to the amount of the commitment in a
separate account. Normally, the Custodian will set aside portfolio securities
to satisfy a purchase commitment. In such a case, a Fund may be required
subsequently to place additional assets in the separate account in order to
assure that the value of the account remains equal to the amount of the
Fund's commitment. It may be expected that a Fund's net assets will fluctuate
to a greater degree when it sets aside portfolio securities to cover such
purchase commitments than when it sets aside cash.
The Funds do not intend to engage in these transactions for speculative
purposes but only in furtherance of their investment objectives. Because a
Fund will set aside cash or liquid portfolio securities to satisfy its
purchase commitments in the manner described, the Fund's liquidity and the
ability of the Investment Adviser to manage it may be affected in the event
the Fund's forward commitments, commitments to purchase when-issued
securities and delayed settlements ever exceeded 15% of the value of its net
assets.
When a Fund engages in when-issued, forward commitment and delayed
settlement transactions, it relies on the other party to consummate the
trade. Failure of such party to do so may result in a Fund's incurring a loss
or missing an opportunity to obtain a price credited to be advantageous.
BORROWING
The use of borrowing by a Fund involves special risk considerations that
may not be associated with other funds having similar objectives and
policies. Since substantially all of a Fund's assets fluctuate in value,
whereas the interest obligation resulting from a borrowing remain fixed by
the terms of the Fund's agreement with its lender, the asset value per share
of the Fund tends to increase more when its portfolio securities increase in
value and to decrease more when its portfolio assets decrease in value than
would otherwise be the case if the Fund did not borrow funds. In addition,
interest costs on borrowings may fluctuate with changing market rates of
interest and may partially offset or exceed the return earned on borrowed
funds. Under adverse market conditions, the Fund might have to sell portfolio
securities to meet interest or principal payments at a time when fundamental
investment considerations would not favor such sales.
The Trust entered into a Credit Agreement on behalf of its various
series, including the Funds, with several banks and The Chase Manhattan Bank,
as administrative agent for the lenders, to borrow up to $75,000,000 from
time to time to satisfy shareholder redemption requests without the necessity
of requiring the Funds to sell portfolio securities, at times when the
Investment Adviser believes such sales are not in the best interests of the
shareholders of the Funds or other series of the Trust, in order to provide
the Funds or such other series with cash to meet such redemption requests.
The Credit Agreement expires on April 7, 1999, unless renewed by the parties.
Under the Credit Agreement, each Fund may borrow, repay and reborrow
amounts (collectively, the "Revolving Credit Loans") in increments of $50,000,
provided the Revolving
B-19
<PAGE>
Credit Loans outstanding at any time aggregate at least $350,000 (the "Credit
Facility"). The Trust will pay a commitment fee at the rate of 0.10% per
annum of the average daily unused portion of the Credit Facility, and may at
any time terminate the Credit Agreement or reduce the lenders' commitment
thereunder in increments of $2,500,000.
While outstanding, the Revolving Credit Loans bear interest, fluctuating
daily and payable monthly, at either of the following rates or a combination
thereof, at the Trust's option: (i) at the weighted average of the rates on
overnight federal funds transactions with members of the Federal Reserve
System arranged by federal funds brokers, plus 0.625% per annum; or (ii) the
prime rate of interest of The Chase Manhattan Bank. If, as a result of
changes in applicable laws, regulations or guidelines with respect to the
capital adequacy of any lender, the return on such lender's capital is
reduced, the Trust may be required to adjust the rate of interest to
compensate such lender for such reduction. Each Revolving Credit Loan is
payable in thirty days, and may be prepaid at any time in increments of
$100,000 without premium or penalty. No Fund is liable for repayment of a
Revolving Credit Loan to any other Fund.
The Credit Agreement contains, among other things, covenants that
require each Fund to maintain certain minimum ratios of debt to net worth;
limit the ability of the Trust to incur other indebtedness and create liens
on its assets or guarantee obligations of others; merge or consolidate with,
or sell its assets to, others; make material changes in its method of
conducting business; make distributions to shareholders in excess of the
requirements of Subchapter M of the Internal Revenue Code in the event of a
default under the Credit Agreement; or make changes in fundamental investment
policies. The Credit Agreement also contains other terms and conditions
customary in such agreements, including various events of default.
SHORT SALES
Certain Funds may make short sales of securities they own or have the
right to acquire at no added cost through conversion or exchange of other
securities they own (referred to as short sales "against the box") and short
sales of securities which they do not own or have the right to acquire.
In a short sale that is not "against the box," a Fund sells a security
which it does not own, in anticipation of a decline in the market value of
the security. To complete the sale, the Fund must borrow the security
generally from the broker through which the short sale is made) in order to
make delivery to the buyer. The Fund must replace the security borrowed by
purchasing it at the market price at the time of replacement. The Fund is
said to have a "short position" in the securities sold until it delivers them
to the broker. The period during which the Fund has a short position can
range from one day to more than a year. Until the Fund replaces the security,
the proceeds of the short sale are retained by the broker, and the Fund must
pay to the broker a negotiated portion of any dividends or interest which
accrue during the period of the loan. To meet current margin requirements,
the Fund must deposit with the broker additional cash or securities so that
it maintains with the broker a total deposit equal to 150% of the current
market value of the securities sold short (100% of the current market value
if a security is held in the account that is convertible or exchangeable into
the security sold short within 90 days without restriction other than the
payment of money).
B-20
<PAGE>
Since the Fund in effect profits from a decline in the price of the
securities sold short without the need to invest the full purchase price of
the securities on the date of the short sale, the Fund's net asset value per
share tends to increase more when the securities it has sold short decrease
in value, and to decrease more when the securities it has sold short increase
in value, than would otherwise be the case if it had not engaged in such
short sales. The amount of any gain will be decreased, and the amount of any
loss increased, by the amount of any premium, dividends or interest the Fund
may be required to pay in connection with the short sale. Short sales
theoretically involve unlimited loss potential, as the market price of
securities sold short may continually increase, although a Fund may mitigate
such losses by replacing the securities sold short before the market price
has increased significantly. Under adverse market conditions the Fund might
have difficulty purchasing securities to meet its short sale delivery
obligations, and might have to sell portfolio securities to raise the capital
necessary to meet its short sale obligations at a time when fundamental
investment considerations would not favor such sales.
As a matter of policy, the Trust's Board of Trustees has determined that no
Fund will make short sales of securities or maintain a short position if to do
so could create liabilities or require collateral deposits and segregation of
assets aggregating more than 25% of the Fund's total assets, taken at market
value.
ILLIQUID SECURITIES
Historically, illiquid securities have included securities subject to
contractual or legal restrictions on resale because they have not been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), securities which are otherwise not readily marketable and repurchase
agreements having a maturity of longer than seven days. Limitations on resale
may have an adverse effect on the marketability of portfolio securities and
the Fund might be unable to dispose of restricted or other illiquid
securities promptly or at reasonable prices and might thereby experience
difficulty satisfying redemption within seven days. The Fund might also have
to register such restricted securities in order to dispose of them, resulting
in additional expense and delay. Adverse market conditions could impede such
a public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act,
including repurchase agreements, commercial paper, foreign securities,
municipal securities and corporate bonds and notes. Institutional investors
depend on an efficient institutional market in which the unregistered
security can be readily resold or on an issuer's ability to honor a demand
for repayment. The fact that there are contractual or legal restrictions on
resale to the general public or to certain institutions may not be indicative
of the liquidity of such investments. If such securities are subject to
purchase by institutional buyers in accordance with Rule 144A promulgated by
the Commission under the Securities Act, the Trust's Board of Trustees has
determined that such securities are not illiquid securities notwithstanding
their legal or contractual restrictions on resale. In all other cases,
however, securities subject to restrictions on resale will be deemed
illiquid. Investing in restricted securities eligible for resale under Rule
144A could have the effect of increasing the level of illiquidity in the
Funds to the extent that qualified institutional buyers become uninterested
in purchasing such securities.
B-21
<PAGE>
The Emerging Countries, Global Blue Chip, Pacific Rim, Greater China and
Latin America Funds may invest in foreign securities that are restricted
against transfer within the United States or to United States persons.
Although securities subject to such transfer restrictions may be marketable
abroad, they may be less liquid than foreign securities of the same class
that are not subject to such restrictions. Unless these securities are
acquired directly from the issuer or its underwriter, the Fund treats foreign
securities whose principal market is abroad as not subject to the investment
limitation on securities subject to legal or contractual restrictions on
resale.
DIVERSIFICATION
Each Fund is "diversified" within the meaning of the Investment Company
Act. In order to qualify as diversified, a Fund must diversify its holdings
so that at all times at least 75% of the value of its total assets is
represented by cash and cash items (including receivables), securities issued
or guaranteed as to principal or interest by the United States or its
agencies or instrumentalities, securities of other investment companies, and
other securities (for this purpose other securities of any one issuer are
limited to an amount not greater than 5% of the value of the total assets of
the Fund and to not more than 10% of the outstanding voting securities of the
issuer).
INVESTMENT RESTRICTIONS
The Trust, on behalf of the Funds, has adopted the following fundamental
policies that cannot be changed without the affirmative vote of a majority of
the outstanding shares of the appropriate Fund (as defined in the Investment
Company Act).
All percentage limitations set forth below apply immediately after a
purchase or initial investment, and any subsequent change in any applicable
percentage resulting from market fluctuations will not require elimination of
any security from the relevant portfolio.
The investment objective of each Fund is a fundamental policy. In
addition, no Fund:
1. May invest in securities of any one issuer if more than 5% of the
market value of its total assets would be invested in the securities of such
issuer, except that up to 25% of a Fund's total assets may be invested
without regard to this restriction and a Fund will be permitted to invest all
or a portion of its assets in another diversified, open-end management
investment company with substantially the same investment objective, policies
and restrictions as the Fund. This restriction also does not apply to
investments by a Fund in securities of the U.S. Government or any of its
agencies and instrumentalities.
2. May purchase more than 10% of the outstanding voting securities, or
of any class of securities, of any one issuer, or purchase the securities of
any issuer for the purpose of exercising control or management, except that a
Fund will be permitted to invest all or a portion of its assets in another
diversified, open-end management investment company with substantially the
same investment objective, policies and restrictions as the Fund.
3. May invest 25% or more of the market value of its total assets in the
securities of issuers in any one particular industry, except that a Fund will be
permitted to invest all or a portion of its assets in another diversified,
open-end management investment company with substantially
B-22
<PAGE>
the same investment objective, policies and restrictions as the Fund. This
restriction does not apply to investments by a Fund in securities of the U.S.
Government or its agencies and instrumentalities.
4. May purchase or sell real estate. However, a Fund may invest in
securities secured by, or issued by companies that invest in, real estate or
interests in real estate.
5. May make loans of money, except that a Fund may purchase publicly
distributed debt instruments and certificates of deposit and enter into
repurchase agreements. Each Fund reserves the authority to make loans of its
portfolio securities in an aggregate amount not exceeding 30% of the value of
its total assets.
6. May borrow money on a secured or unsecured basis, provided that,
pursuant to the Investment Company Act, a Fund may borrow money if the
borrowing is made from a bank or banks and only to the extent that the value
of the Fund's total assets, less its liabilities other than borrowings, is
equal to at least 300% of all borrowings (including proposed borrowings).
7. May pledge or in any way transfer as security for indebtedness any
securities owned or held by it, except to secure indebtedness permitted by
restriction 6 above. This restriction shall not prohibit the Funds from
engaging in options, futures and foreign currency transactions.
8. May underwrite securities of other issuers, except insofar as it may
be deemed an underwriter under the Securities Act in selling portfolio
securities.
9. May invest more than 15% of the value of its net assets in
securities that at the time of purchase have legal or contractual
restrictions on resale or are otherwise illiquid.
10. May purchase securities on margin, except for initial and variation
margin on options and futures contracts, and except that a Fund may obtain
such short-term credit as may be necessary for the clearance of purchases and
sales of securities.
11. May engage in short sales (other than the Mid Cap Growth, Mini Cap
Growth, Small Cap Growth, Worldwide Growth, International Core Growth,
International Small Cap Growth, High Yield Bond, Global Blue Chip, Pacific
Rim, Greater China and Latin America Funds), except that a Fund may use such
short-term credits as are necessary for the clearance of transactions.
12. May invest in securities of other investment companies, except (a)
that a Fund will be permitted to invest all or a portion of its assets in
another diversified, open-end management investment company with the same
investment objective, policies and restrictions as the Fund; (b) in
compliance with the Investment Company Act, or (c) as part of a merger,
consolidation, acquisition or reorganization involving the Fund.
13. May issue senior securities, except that a Fund may borrow money as
permitted by restrictions 6 and 7 above. This restriction shall not prohibit
the Funds from engaging in short sales, options, futures and foreign currency
transactions.
14. May enter into transactions for the purpose of arbitrage, or invest
in commodities and
B-23
<PAGE>
commodities contracts, except that a Fund may invest in stock index, currency
and financial futures contracts and related options in accordance with any
rules of the Commodity Futures Trading Commission.
15. May purchase or write options on securities, except for hedging
purposes (except in the case of the Short-Intermediate, High Quality Bond,
Global Blue Chip, Pacific Rim, Greater China and Latin America Funds, which
may do so for non-hedging purposes) and then only if (i) aggregate premiums
on call options purchased by a Fund do not exceed 5% of its net assets, (ii)
aggregate premiums on put options purchased by a Fund do not exceed 5% of its
net assets, (iii) not more than 25% of a Fund's net assets would be hedged,
and (iv) not more than 25% of a Fund's net assets are used as cover for
options written by the Fund.
OPERATING RESTRICTIONS
As a matter of operating (not fundamental) policy adopted by the Board
of Trustees of the Trust, no Fund:
1. May invest in interests in oil, gas or other mineral exploration or
development programs or leases, or real estate limited partnerships, although
a Fund may invest in the securities of companies which invest in or sponsor
such programs.
2. May lend any securities from its portfolio unless the value of the
collateral received therefor is continuously maintained in an amount not less
than 100% of the value of the loaned securities by marking to market daily.
TRUSTEES AND PRINCIPAL OFFICERS
The names, addresses and ages of the Trustees and principal officers of
the Trust, including their positions and principal occupations during the
past five years, are shown below. Trustees whose names are followed by an
asterisk are "interested persons" of the Trust (as defined by the Investment
Company Act). Unless otherwise indicated, the address of each Trustee and
officer is 600 West Broadway, 30th Floor, San Diego, California 92101.
ARTHUR E. NICHOLAS (51), TRUSTEE AND PRESIDENT.* Managing Partner and
Chief Investment Officer, Nicholas-Applegate Capital Management (since 1984),
and Chairman / President Nicholas-Applegate Securities. Director and Chairman
of the Board of Directors of Nicholas-Applegate Fund, Inc., a registered
open-end investment company, since 1987. Chairman, Nicholas-Applegate Fund,
Inc. (since 1989) -- Formerly, Chairman of Nicholas- Applegate Mutual Funds
(until 1999).
JOHN J.P. MCDONNELL (47), 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).
B-24
<PAGE>
WALTER E. AUCH (76), TRUSTEE.* 6001 North 62nd Place, Paradise Valley,
Arizona. Director, Geotech Communications, Inc., a mobile radio
communications company (since 1987); Fort Dearborn Fund (since 1987); Brinson
Funds (since 1994), Smith Barney Trak Fund (since 1992), registered
investment companies; Pimco Advisors L.P., an investment manager (since
1994); and Banyan Realty Fund (since 1987), Banyan Strategic Land Fund (since
1987), Banyan Strategic Land Fund II (since 1988), and Banyan Mortgage Fund
(since 1988), real estate investment trusts. Formerly Chairman and Chief
Executive Officer, Chicago Board Options Exchange (1979 to 1986); Senior
Executive Vice President, Director and Member of the Executive Committee,
PaineWebber, Inc. (until 1979). Formerly Trustee, Nicholas-Applegate Mutual
Funds (until 1999). Mr. Auch is considered to be an "interested person" of
the Trust under the 1940 Act because he is on the board of a company a
subsidiary of which is a broker-dealer.
DARLENE DEREMER (42), TRUSTEE. 155 South Street, Wrentham,
Massachusetts. President and Founder, DeRemer Associates, a marketing
consultant for the financial services industry (since 1987); Vice President,
PBNG Funds, Inc. (since 1995); formerly Vice President and Director, Asset
Management Division, State Street Bank and Trust Company (from 1982 to 1987),
and Vice President, T. Rowe Price & Associates (1979 to 1982); Director,
Jurika & Voyles Fund Group (since 1994), Nicholas-Applegate Strategic
Opportunities Ltd. (since 1994), Nicholas-Applegate Securities International
(since 1994), and King's Wood Montessori School (since 1995); Member of
Advisory Board, Financial Women's Association (since 1995). Formerly
Trustee, Nicholas-Applegate Mutual Funds.
GEORGE F. KEANE (68), TRUSTEE. 450 Post Road East, Westport,
Connecticut. President Emeritus and Senior Investment Adviser, The Common
Fund, a non-profit investment management organization representing
educational institutions (since 1993), after serving as its President (from
1971 to 1992); Member of Investment Advisory Committee, New York State Common
Retirement Fund (since 1982); Director and Chairman of the Investment
Committee, United Negro College Fund (since 1987); Director, United Educators
Risk Retention Group (since 1989); Director, RCB Trust Company (since 1991);
Director, School, College and University Underwriters Ltd. (since 1986);
Trustee, Fairfield University (since 1993); Director, The Bramwell Funds,
Inc. (since 1994); Chairman of the Board, Trigen Energy Corporation (since
1994); Director Universal Stainless & Alloy Products Inc. (since 1994).
Formerly President, Endowment Advisers, Inc. (from August 1987 to December
1992; Trustee, Nicholas-Applegate Mutual Funds (until 1999).
B-25
<PAGE>
E. BLAKE MOORE, JR. (40), SECRETARY. Chief Financial Officer,
Nicholas-Applegate Capital Management and Nicholas-Applegate Securities
(since 1998), and General Counsel and Secretary, Nicholas-Applegate Capital
Management and Nicholas-Applegate Securities (since 1993). Formerly
Attorney, Luce, Forward, Hamilton & Scripps (from 1989 to 1993); Treasurer
(since 1998) and Secretary (since 1994), Nicholas-Applegate Mutual Funds,
(until 1999).
CHARLES 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).
The Trust has Trustees who, in addition to overseeing the actions of the
Investment Adviser and Distributor, decide upon matters of general policy.
The Trustees also review the actions of the Trust's officers, who conduct and
supervise the daily business operations of the Trust.
Each Trustee of the Trust who is not an officer or affiliate of the
Trust, the Investment Adviser or the Distributor receives an aggregate annual
fee of $14,000 for services rendered as a Trustee of the Trust, and $1,000
for each meeting attended ($2,000 per Committee meeting for Committee
chairmen). Each Trustee is also reimbursed for out-of-pocket expenses
incurred as a Trustee.
The following table sets forth the aggregate compensation paid by the
Trust for the fiscal year ended March 31, 1998, to the Trustees who are not
affiliated with the Investment Adviser and the aggregate compensation paid to
such Trustees for service on the Trust's board and that of all other funds in
the "Trust complex" (as defined in Schedule 14A under the Securities Exchange
Act of 1934):
B-26
<PAGE>
<TABLE>
<CAPTION>
Aggregate Pension or Retirement Estimated Total Compensation
Compensation Benefits Accrued as Part Annual Benefits from Trust and Trust
Name from Trust of Trust Expenses Upon Retirement Complex Paid to Trustee
<S> <C> <C> <C> <C>
Walter E. Auch $20,000 None N/A $20,000(17*)
Darlene Deremer $18,000 None N/A $18,000(17*)
George F. Keane $20,000 None N/A $20,000(17*)
</TABLE>
* Indicates total number of funds in Trust complex, including the Funds.
INVESTMENT ADVISER
THE INVESTMENT ADVISORY AGREEMENT
Under the Investment Advisory Agreement between the Trust and the
Investment Adviser with respect to the Funds, the Trust retains the
Investment Adviser to manage the Funds' investment portfolios, subject to the
direction of the Trust's Board of Trustees. The Investment Adviser is
authorized to determine which securities are to be bought or sold by the
Funds and in what amounts.
The Investment Advisory Agreement provides that the Investment Adviser
will not be liable for any error of judgment or for any loss suffered by a
Fund or the Trust in connection with the matters to which the Investment
Advisory Agreement relates, except for liability resulting from willful
misfeasance, bad faith or gross negligence in the performance of its duties
or by reason of the Investment Adviser's reckless disregard of its duties and
obligations under the Investment Advisory Agreement. The Trust has agreed to
indemnify the Investment Adviser against liabilities, costs and expenses that
the Investment Adviser may incur in connection with any action, suit,
investigation or other proceeding arising out of or otherwise based on any
action actually or allegedly taken or omitted to be taken by the Investment
Adviser in connection with the performance of its duties or obligations under
the Investment Advisory Agreement or otherwise as an investment adviser of
the Trust. The Investment Adviser is not entitled to indemnification with
respect to any liability to the Trust or its shareholders by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties, or of its reckless disregard of its duties and obligations under the
Investment Advisory Agreement.
B-27
<PAGE>
The amounts of the advisory fees earned by the Investment Adviser and
reported below were for services provided to the master funds of the Master
Trust prior to the Reorganization. The amounts of the advisory fees earned
by the Investment Adviser for the fiscal years ended March 31, 1996, 1997 and
1998, and the amounts of the reductions in fees and reimbursement of expenses
by the Investment Adviser (or recoupment of fees previously deferred and
expenses previously reimbursed) as a result of the expense limitations and
fee waivers described below under "Expense Limitation" were as follows:
For the Year ended
March 31, 1996
<TABLE>
<CAPTION>
Fee Reductions
and Expense
Reimbursements
FUND ADVISORY FEES (OR RECOUPMENTS)
- ---- ------------- ----------------
<S> <C> <C>
Global Blue Chip Fund $ 0 $ 0
International Core Growth Fund 0 0
Worldwide Growth Fund 922,328 58,228
International Small Cap Growth Fund 69,849 117,278
Global Growth & Income Fund 0 0
Emerging Countries Fund 49,827 57,853
Pacific Rim Fund 0 0
Greater China Fund 0 0
Latin America Fund 0 0
Large Cap Fund 0 0
Mid Cap Growth Fund 2,563,061 0
Value Fund 0 0
Small Cap Growth Fund 5,190,853 0
Mini Cap Growth Fund 98,817 (40,723)
Convertible Fund 723,032 (4,263)
Short Intermediate Fund 5,905 5,905
High Quality Bond Fund (1) 3,962 3,962
High Yield Bond Fund 0 0
Global Technology Fund 0 0
</TABLE>
(1) Includes the advisory fees, fee reductions and expense reimbursements of
the Government Income Fund, the assets and liabilities of which were assigned
to and assumed by the High Quality Bond Fund pursuant to the Reorganization.
B-28
<PAGE>
For the Year Ended
March 31, 1997
<TABLE>
<CAPTION>
Fee Reductions
and Expense
Reimbursements
FUND ADVISORY FEES (OR RECOUPMENTS)
- ---- ------------- ----------------
<S> <C> <C>
Global Blue Chip Fund $ 0 $ 0
International Core Growth Fund 5,726 5,696
Worldwide Growth Fund 1,028,250 62,497
International Small Cap Growth Fund 477,212 13,583
Global Growth & Income Fund 0 0
Emerging Countries Fund 915,615 (22,429)
Pacific Rim Fund 0 0
Greater China Fund 0 0
Latin America Fund 0 0
Large Cap Fund 2,359 7,907
Mid Cap Growth Fund 3,594,196 0
Value Fund 17,527 30,135
Small Cap Growth Fund 5,836,182 0
Mini Cap Growth Fund 376,577 (59,756)
Convertible Fund 902,615 (39,067)
Short Intermediate Fund 15,497 81,090
High Quality Bond Fund (1) 20,207 83,987
High Yield Bond Fund 17,627 19,182
Global Technology Fund 0 0
</TABLE>
(1) Includes the advisory fees, fee reductions and expense reimbursements of
the Government Income Fund, the assets and liabilities of which were assigned
to and assumed by the High Quality Bond Fund pursuant to the Reorganization.
For the Year Ended
March 31, 1998
<TABLE>
<CAPTION>
Fee Reductions and
Expense Reimbursements
FUND ADVISORY FEES (OR RECOUPMENTS)
- ---- ------------- ----------------
<S> <C> <C>
Global Blue Chip Fund $ 21,373 $ 25,177
International Core Growth Fund 308,562 30,669
Worldwide Growth Fund 1,251,181 111,071
International Small Cap Growth Fund 658,893 79,886
Global Growth & Income Fund 29,786 20,322
Emerging Countries Fund 2,790,216 84,868
Pacific Rim Fund 2,848 8,837
Greater China Fund 2,721 8,977
Latin America Fund 4,778 13,560
Large Cap Fund 32,530 53,872
Mid Cap Growth Fund 3,422,148 9,400
</TABLE>
B-29
<PAGE>
<TABLE>
<S> <C> <C>
Value Fund 52,328 60,348
Small Cap Growth Fund 6,613,874 0
Mini Cap Growth Fund 866,987 (5,098)
Convertible Fund 1,427,198 0
Short Intermediate Fund 37,524 93,900
High Quality Bond Fund (1) 94,359 193,047
High Yield Bond Fund 36,505 111,479
</TABLE>
(1) Includes the advisory fees, fee reductions and expense reimbursements of
the Government Income Fund, the assets and liabilities of which were assigned
to and assumed by the High Quality Bond Fund pursuant to the Reorganization.
ADMINISTRATOR
The principal administrator of the Trust is Investment Company
Administration Corporation ("ICAC"), 4455 East Camelback Road, Suite 261-E,
Phoenix, Arizona 85018.
Pursuant to an Administration Agreement with the Trust, ICAC is
responsible for performing all administrative services required for the daily
business operations of the Trust, subject to the supervision of the Board of
Trustees of the Trust. ICAC has no supervisory responsibility over the
investment operations of the Funds. The management or administrative
services of ICAC for the Trust are not exclusive under the terms of the
Administration Agreement and ICAC is free to, and does, render management and
administrative services to others. ICAC also serves as the administrator for
the Master Trust.
For its services, ICAC receives under the Administration Agreement
annual fees from each Fund equal to the Fund's pro rata portion (based on its
net assets compared to the Trust's total net assets) of a fee equal to 0.05%
of the first $100 million of the Trust's average net assets, 0.04% of the
next $150 million, 0.03% of the next $300 million, 0.02% of the next $300
million and 0.01% thereafter, subject to a $40,000 annual minimum. As a
result, for the fiscal year ended March 31, 1996, 1997 and 1998, ICAC
received aggregate compensation of $ 318,556, $386,550 and $848,799,
respectively for all of the series of the Trust.
Pursuant to an Administrative Services Agreement with the Trust, the
Investment Adviser is responsible for providing all administrative services
which are not provided by ICAC or by the Trust's Distributor, transfer
agents, accounting agents, independent accountants and legal counsel. These
services are comprised principally of assistance in coordinating with the
Trust's various service providers, providing certain officers of the Trust,
responding to inquiries from shareholders which are directed to the Trust
rather than other service providers, calculating performance data, providing
various reports to the Board of Trustees, and assistance in preparing
reports, prospectuses, proxy statements and other shareholder communications.
The Agreement contains provisions regarding liability and termination
similar to those of the Administration Agreement.
Under the Administrative Services Agreement, the Investment Adviser is
compensated at the annual rate of up to 0.10% of the average daily net
assets on all Fund assets.
B-30
<PAGE>
DISTRIBUTOR
Nicholas-Applegate Securities (the "Distributor"), 600 West Broadway,
30th Floor, San Diego, California 92101, is the principal underwriter and
distributor for the Trust and, in such capacity, is responsible for
distributing shares of the Funds. The Distributor is a California limited
partnership organized in 1992 to distribute shares of registered investment
companies. Its general partner is Nicholas-Applegate Capital Management
Holdings, L.P., the general partner of the Investment Adviser.
Pursuant to its Distribution Agreement with the Trust, the Distributor
has agreed to use its best efforts to effect sales of shares of the
Portfolios, but is not obligated to sell any specified number of shares. The
Distribution Agreement contains provisions with respect to renewal and
termination similar to those in the Investment Advisory Agreement discussed
above. The minimum assets for investors in the Funds may be waived from time
to time. Pursuant to the Distribution Agreement, the Trust has agreed to
indemnify the Distributor to the extent permitted by applicable law against
certain liabilities under the Securities Act.
SHAREHOLDER SERVICE PLAN
The Trust has also adopted a Shareholder Service Plan with respect to
the Class R shares of the Trust. Under the Shareholder Service Plan, the
Distributor may be compensated at the annual rate of up to 0.25% of the
average daily net assets of each Fund attributable to the Class R shares of
each Fund.
Support services include, among other things, establishing and
maintaining accounts and records relating to their clients that invest in
Fund shares; processing dividend and distribution payments from the Funds on
behalf of clients; preparing tax reports; arranging for bank wires;
responding to client inquiries concerning their investments in Fund shares;
providing the information to the Funds necessary for accounting and
subaccounting; preparing tax reports, forms and related documents; forwarding
shareholder communications from the Trust (such as proxies, shareholder
reports, annual and semi-annual financial statements and dividend,
distribution and tax notices) to clients; assisting in processing exchange
and redemption requests from clients; assisting clients in changing dividend
options, account designations and addresses; and providing such other similar
services.
The Shareholder Service Plan continues in effect from year to year,
provided that each such continuance is approved at least annually by a vote
of the Board of Trustees of the Trust, including a majority of the Trustees
who have no direct or indirect financial interest in the operation of the
Shareholder Service Plan or in any agreement related to the Shareholder
Service Plan (the "Independent Trustees"), cast in person at a meeting called
for the purpose of voting on such continuance. The Shareholder Service Plan
may be amended at any time by the Board, provided that any material
amendments of the terms of the Plan will become effective only upon the
approval by a majority of the Board and a majority of the Independent
Trustees pursuant to a vote cast in person at a meeting called for the
purpose of voting on the Plan. The Shareholder Service Plan may be
terminated with respect to any Fund or class at any time, without penalty, by
the Board.
B-31
<PAGE>
DISTRIBUTION PLAN
Under a plan of distribution for the Trust with respect to the Class R
shares of the Funds (the "Distribution Plan") adopted pursuant to Rule 12b-1
under the Investment Company Act and distribution agreement (the
"Distribution Agreement"), the Distributor incurs the expense of distributing
such shares of the Funds. The Distribution Plan provides for compensation to
the Distributor for the services it provides, and the costs and expenses it
incurs, related to marketing such Class R shares of the Funds. The
Distributor is paid for: (a) expenses incurred in connection with
advertising and marketing such shares of the Funds, including but not limited
to any advertising by radio, television, newspapers, magazines, brochures,
sales literature, telemarketing or direct mail solicitations; (b) periodic
payments of fees or commissions for distribution assistance made to one or
more securities brokers, dealers or other industry professionals such as
investment advisers, accountants, estate planning firms and the Distributor
itself in respect of the average daily value of such shares owned by clients
of such service organizations, and (c) expenses incurred in preparing,
printing and distributing the Funds' prospectuses and statements of
additional information with respect to such shares.
The Distribution Plan continues in effect from year to year, provided
that each such continuance is approved at least annually by a vote of the
Board of Trustees of the Trust, including a majority vote of the Trustees of
the Trust who are not interested persons of the Trust and who have no direct
or indirect financial interest in the operation of the Distribution Plan or
in any agreements related to the Distribution Plan (the "Rule 12b-1
Trustees"), cast in person at a meeting called for the purpose of voting on
such continuance. The Distribution Plan may be terminated at any time,
without penalty, by the vote of a majority of the Rule 12b-1 Trustees or by
the vote of the holders of a majority of the outstanding shares of such Fund.
The Distribution Plan may not be amended to increase materially the amounts
to be paid by the Q Class of shares of a Fund for the services described
therein without approval by a majority of such outstanding shares of the
Fund, and all material amendments are required to be approved by the Board of
Trustees in the manner described above. The Distribution Plan will
automatically terminate in the event of its assignment. The Class R shares of
a Fund will not be contractually obligated to pay expenses incurred under the
Distribution Plan if the Plan is terminated or not continued with respect to
such shares.
Under the Distribution Plan, the Distributor is compensated for
distribution-related expenses with respect to the Class R Shares of the Funds.
The Distributor is compensated at the annual rate of 0.25%, payable monthly,
based on the average daily net assets. The Distributor recovers the distribution
expenses it incurs through the receipt of compensation payments from the Trust
under the Distribution Plan.
If the Distributor incurs expenses greater than the maximum distribution
fees payable under the Distribution Plan, as described above, with respect to
Class R Shares of a Fund, the Class will not reimburse the Distributor for the
excess in the subsequent fiscal year. However, because the Distribution Plan is
a "compensation-type" plan, the distribution fees are payable even if the
Distributor's actual distribution related expenses are less than the percentages
described above.
The Trust currently has no intention to activate the 12b-1 Plan.
Shareholders will be given a 60 day notice upon the Trust's determination to
activate the Plan.
MISCELLANEOUS
Pursuant to the Shareholder Service Plan, the Board of Trustees reviews
at least quarterly a written report of the service expenses incurred on
behalf of Class R shares of the Funds by the Distributor. The report
includes an itemization of the service expenses and the purposes of such
expenditures. Because the Trust offers Class R shares of numerous Funds
which are subject to Rule 12b-1 under the Investment Company Act, the
selection and nomination of Trustees who are not interested persons of the
Trust is committed to the Trustees who are not interested persons of the
Trust.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Trust's Board of Trustees, the
Investment Adviser executes the Funds' portfolio transactions and allocates
the brokerage business. In executing such transactions, the Investment
Adviser seeks to obtain the best price and execution for the Funds, taking
into account such factors as price, size of order, difficulty and risk of
execution and operational facilities of the firm involved. Securities in
which the Funds invest may be traded in the over-the-counter markets, and the
Funds deal directly with the dealers who make markets in such securities
except in those circumstances where better prices and execution are available
elsewhere. The Investment Adviser negotiates commission rates with brokers
or dealers based on the quality or quantity of services provided in light of
generally prevailing rates, and while the Investment Adviser generally seeks
reasonably competitive commission rates, the Funds do not necessarily pay the
lowest commissions available. The Board of Trustees of the Trust
periodically reviews the commission rates and allocation of orders.
The Funds have no obligation to deal with any broker or group of brokers in
executing transactions in portfolio securities. Subject to obtaining the best
price and execution, brokers who sell shares of the Funds or provide
supplemental research, market and statistical information and other research
services and products to the Investment Adviser may receive orders for
transactions by the Funds. Such information, services and products are those
which brokerage houses customarily provide to institutional investors, and
include items such as statistical and economic data, research reports on
particular companies and industries, and computer software used for research
with respect to investment decisions. Information, services and products so
received are in addition to and not in lieu of the services required to be
performed by the Investment Adviser under the Investment Advisory Agreement, and
the expenses of the Investment Adviser are not necessarily reduced as a result
of the receipt of such supplemental information, services and products. Such
information, services and products may be useful to the Investment Adviser in
providing services to clients other than the Trust, and not all such
information, services and products are used by the Investment Adviser in
connection with the Funds. Similarly, such information, services and products
provided to the Investment Adviser by brokers and dealers
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<PAGE>
through whom other clients of the Investment Adviser effect securities
transactions may be useful to the Investment Adviser in providing services to
the Funds. The Investment Adviser may pay higher commissions on brokerage
transactions for the Funds to brokers in order to secure the information,
services and products described above, subject to review by the Trust's Board
of Trustees from time to time as to the extent and continuation of this
practice.
Although the Investment Adviser makes investment decisions for the Trust
independently from those of its other accounts, investments of the kind made
by the Funds may often also be made by such other accounts. When the
Investment Adviser buys or sells the same security at substantially the same
time on behalf of the Funds and one or more other accounts managed by the
Investment Adviser, the Investment Adviser allocates available investments by
such means as, in its judgment, result in fair treatment. The Investment
Adviser aggregates orders for purchases and sales of securities of the same
issuer on the same day among the Funds and its other managed accounts, and
the price paid to or received by the Funds and those accounts is the average
obtained in those orders. In some cases, such aggregation and allocation
procedures may affect adversely the price paid or received by the Funds or
the size of the position purchased or sold by the Funds.
Securities trade in the over-the-counter market on a "net" basis with
dealers acting as principal for their own accounts without a stated
commission, although the price of the security usually includes a profit to
the dealer. In underwritten offerings, securities are purchased at a fixed
price which includes an amount of compensation to the underwriter, generally
referred to as the underwriter's commission or discount. On occasion,
certain money market instruments and agency securities may be purchased
directly from the issuer, in which case no commissions or discounts are paid.
During the fiscal year ended March 31, 1998, the following master funds
(which were predecessors to the corresponding Funds) acquired securities of
their regular brokers or dealers (as defined in Rule 10b-1 under the
Investment Company Act) or their parents: Worldwide Growth Fund -- Merrill
Lynch & Co.; International Small Cap Growth Fund -- Merrill Lynch & Co.;
Global Growth & Income Fund -- Salomon Smith Barney, J. P. Morgan & Co.,
Merrill Lynch & Co.; Emerging Countries Fund -- Merrill Lynch & Co.; Large
Cap Growth Fund -- Merrill Lynch & Co., J. P. Morgan & Co.; Mid Cap Growth
Fund -- Merrill Lynch & Co., J. P. Morgan & Co.; Small Cap Growth Fund --
Merrill Lynch & Co.; Mini Cap Growth Fund -- Merrill Lynch & Co.; Convertible
Fund -- Salomon Smith Barney, Merrill Lynch & Co., J. P. Morgan & Co.;
Short-Intermediate Fund -- Lehman Brothers; High Yield Bond Fund -- Merrill
Lynch & Co., J. P. Morgan & Co. The holdings of securities of such brokers
and dealers were as follows as of March 31, 1998: Worldwide Growth Fund --
Merrill Lynch & Co. ($456,500); Global Growth & Income -- Salomon Smith
Barney ($56,737); Large Cap Growth Fund -- Merrill Lynch & Co. ($116,200);
Mid Cap Growth Fund -- Merrill Lynch & Co. ($3,925,900); Convertible Fund --
Salomon Smith Barney ($2,619,937); Short-Intermediate Fund -- Lehman Brothers
($202,356); High Yield Bond Fund -- Merrill Lynch & Co. ($1,205,000).
The aggregate dollar amount of brokerage commissions paid by the master
fund predecessors to the corresponding Funds during the last three fiscal
years of the Trust were as follows:
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<PAGE>
<TABLE>
<CAPTION>
Year Ended
---------------------------------------------------
MARCH 31, 1998 MARCH 31, 1997 MARCH 31, 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Global Blue Chip Fund $ 49,764 N/A N/A
International Core Growth Fund 464,615 $ 24,643 N/A
Worldwide Growth Fund 1,065,153 970,564 $ 484,310
International Small Cap Growth Fund 745,259 692,326 116,735
Global Growth & Income Fund 52,145 0 N/A
Emerging Countries Fund 3,634,338 1,427,861 169,728
Pacific Rim Fund 10,403 N/A N/A
Greater China Fund 11,105 N/A N/A
Latin America Fund 12,759 N/A N/A
Large Cap Growth Fund 30,907 4,620 0
Mid Cap Growth Fund 1,809,755 1,139,938 862,396
Value Fund 14,316 8,996 N/A
Small Cap Growth Fund 1,002,867 987,245 1,038,140
Mini Cap Growth Fund 202,223 90,844 40,185
Convertible Fund 130,017 114,243 83,459
Short Intermediate Fund 0 0 0
High Quality Bond Fund (1) 100 0 0
High Yield Bond Fund 1,896 200 N/A
</TABLE>
(1) The Government Income Fund, the assets and liabilities of which were
assigned to and assumed by the High Quality Bond Fund paid no brokerage fees in
the fiscal year ended March 31, 1998.
Of the total commissions paid during the fiscal year ended March 31, 1998,
$1,155,155 (12.39%) were paid to firms which provided research, statistical or
other services to the Investment Adviser. The Investment Adviser has not
separately identified a portion of such commissions as applicable to the
provision of such research, statistical or otherwise.
PURCHASE AND REDEMPTION OF FUND SHARES
Shares of the Funds may be purchased and redeemed at their net asset
value without any initial or deferred sales charge.
The offering price is effective for orders received by the Transfer
Agent or any sub-transfer agent prior to the time of determination of net
asset value. Dealers are responsible for promptly transmitting purchase
orders to the Transfer Agent or a sub-transfer agent. The Trust reserves the
right in its sole discretion to suspend the continued offering of the Funds'
shares and to reject purchase orders in whole or in part when such rejection
is in the best interests of the Trust and the affected Funds. Payment for
shares redeemed will be made not more than seven days after receipt of a
written or telephone request in appropriate form, except as permitted by the
Investment Company Act and the rules thereunder. Such payment may be
postponed or the right of redemption suspended at times when the New York
Stock Exchange is closed for other than
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<PAGE>
customary weekends and holidays, when trading on such Exchange is restricted,
when an emergency exists as a result of which disposal by a Fund of securities
owned by it is not reasonably practicable or it is not reasonably practicable
for the Fund fairly to determine the value of its net assets, or during any
other period when the Securities and Exchange Commission, by order, so permits.
SHAREHOLDER SERVICES
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
A shareholder of one Fund may elect to cross-reinvest dividends or
dividends and capital gain distributions paid by that Fund (the "paying
Fund") into any other Fund of the same share class (the "receiving Fund")
subject to the following conditions: (i) the aggregate value of the
shareholder's account(s) in the paying Fund(s) must equal or exceed $5,000
(this condition is waived if the value of the account in the receiving Fund
equals or exceeds that Fund's minimum initial investment requirement), (ii)
as long as the value of the account in the receiving Fund is below that
Fund's minimum initial investment requirement, dividends and capital gain
distributions paid by the receiving Fund must be automatically reinvested in
the receiving Fund, (iii) if this privilege is discontinued with respect to a
particular receiving Fund, the value of the account in that Fund must equal
or exceed the Fund's minimum initial investment requirement or the Fund will
have the right, if the shareholder fails to increase the value of the account
to such minimum within 90 days after being notified of the deficiency,
automatically to redeem the account and send the proceeds to the shareholder.
These cross-reinvestments of dividends and capital gain distributions will
be at net asset value (without a sales charge).
AUTOMATIC WITHDRAWAL
The Transfer Agent arranges for the redemption by the Fund of sufficient
shares, deposited by the shareholder with the Transfer Agent, to provide the
withdrawal payment specified. Withdrawal payments should not be considered
as dividends, yield or income. Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals. Withdrawals
of amounts exceeding reinvested dividends and distributions and increases in
share value will reduce the aggregate value of the shareholder's account.
B-35
<PAGE>
REPORTS TO INVESTORS
Each Fund will send its investors annual and semi-annual reports. The
financial statements appearing in annual reports will be audited by
independent accountants. In order to reduce duplicate mailing and printing
expenses, the Funds may provide one annual and semi-annual report and annual
prospectus per household. In addition, quarterly unaudited financial data
are available from the Funds upon request.
NET ASSET VALUE
The net asset value of a Fund is calculated by dividing (i) the value of
the securities held by the Fund , plus any cash or other assets, minus all
the Class' proportional interest in the Fund's liabilities (including accrued
estimated expenses on an annual basis) and all liabilities allocable to such
Class, by (ii) the total number of Class I or Q shares of the Fund
outstanding. The value of the investments and assets of a Fund is determined
each business day. Investment securities, including ADRs and EDRs, that are
traded on a stock exchange or on the NASDAQ National Market System are valued
at the last sale price as of the close of business on the New York Stock
Exchange (normally 4:00 P.M. New York time) on the day the securities are
being valued, or lacking any sales, at the mean between the closing bid and
asked prices. Securities listed or traded on certain foreign exchanges whose
operations are similar to the United States over-the-counter market are
valued at the price within the limits of the latest available current bid and
asked prices deemed by the Investment Adviser best to reflect fair value. A
security which is listed or traded on more than one exchange is valued at the
quotation on the exchange determined to be the primary market for such
security by the Investment Adviser. Listed securities that are not traded on
a particular day and other over-the-counter securities are valued at the mean
between the closing bid and asked prices.
In the event that the New York Stock Exchange or the national securities
exchange on which stock or stock options are traded adopt different trading
hours on either a permanent or temporary basis, the Board of Trustees of the
Trust will reconsider the time at which they compute net asset value. In
addition, the asset value of the Fund may be computed as of any time
permitted pursuant to any exemption, order or statement of the Commission or
its staff.
The Funds value long-term debt obligations at the quoted bid prices for
such securities or, if such prices are not available, at prices for
securities of comparable maturity, quality and type; however, the Investment
Adviser will use, when it deems it appropriate, prices obtained for the day
of valuation from a bond pricing service, as discussed below. The Funds
value debt securities with maturities of 60 days or less at amortized cost if
their term to maturity from date of purchase is less than 60 days, or by
amortizing, from the sixty-first day prior to maturity, their value on the
sixty-first day prior to maturity if their term to maturity from date of
purchase by the Fund is more than 60 days, unless this is determined by the
Board of Trustees of the Trust not to represent fair value. The Funds value
repurchase agreements at cost plus accrued interest.
The Funds value U.S. Government securities which trade in the
over-the-counter market at the last available bid prices, except that
securities with a demand feature exercisable within one to seven days are
valued at par. Such valuations are based on quotations of one or more dealers
that make markets in the securities as obtained from such dealers, or on the
evaluation of a pricing
B-36
<PAGE>
service.
The Funds value options, futures contracts and options thereon, which
trade on exchanges, at their last sale or settlement price as of the close of
such exchanges or, if no sales are reported, at the mean between the last
reported bid and asked prices. If an options or futures exchange closes
later than 4:00 p.m. New York time, the options or futures traded on it are
valued based on the sale price, or on the mean between the bid and ask
prices, as the case may be, as of 4:00 p.m. New York time.
Trading in securities on foreign securities exchanges and
over-the-counter markets is normally completed well before the close of
business day in New York. In addition, foreign securities trading may not
take place on all business days in New York, and may occur in various foreign
markets on days which are not business days in New York and on which net
asset value is not calculated. The calculation of net asset value may not
take place contemporaneously with the determination of the prices of
portfolio securities used in such calculation. Events affecting the values of
portfolio securities that occur between the time their prices are determined
and the close of the New York Stock Exchange will not be reflected in the
calculation of net asset value unless the Board of Trustees of the Trust
deems that the particular event would materially affect net asset value, in
which case an adjustment will be made. Assets or liabilities initially
expressed in terms of foreign currencies are translated prior to the next
determination of the net asset value into U.S. dollars at the spot exchange
rates at 1:00 p.m. New York time or at such other rates as the Investment
Adviser may determine to be appropriate in computing net asset value.
Securities and assets for which market quotations are not readily
available, or for which the Trust's Board of Trustees or persons designated
by the Board determine that the foregoing methods do not accurately reflect
current market value, are valued at fair value as determined in good faith by
or under the direction of the Trust's Board of Trustees. Such valuations and
procedures will be reviewed periodically by the Board of Trustees.
The Trust may use a pricing service approved by its Board of Trustees.
Prices provided by such a service represent evaluations of the mean between
current bid and asked market prices, may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, yield, quality, coupon
rate, maturity, type of issue, individual trading characteristics, indications
of values from dealers and other market data. Such services may use electronic
data processing techniques and/or a matrix system to determine valuations. The
procedures of such services are reviewed periodically by the officers of the
Trust under the general supervision and responsibility of its Board of Trustees,
which may replace a service at any time if it determines that it is in the best
interests of the Funds to do so.
DIVIDENDS, DISTRIBUTIONS AND TAXES
REGULATED INVESTMENT COMPANY
The Trust has elected to qualify each Fund as a regulated investment
company under Subchapter M of the Code, and intends that each Fund will remain
so qualified.
B-37
<PAGE>
As a regulated investment company, a Fund will not be liable for federal
income tax on its income and gains provided it distributes all of its income
and gains currently. Qualification as a regulated investment company under
the Code requires, among other things, that each Fund (a) derive at least 90%
of its gross income from dividends, interest, payments with respect to
securities loans, and gains from the sale or other disposition of securities
or foreign currencies, or other income (including, but not limited to, gains
from options, futures or forward contracts) derived with respect to its
business of investing in such securities or currencies; (b) for taxable years
beginning on or before August 5, 1997 derive less than 30% of its gross
income from the sale or other disposition of stock, securities, options,
futures, forward contracts, certain foreign currencies and certain options,
futures, and forward contracts on foreign currencies held less than three
months; (c) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the market value of the Fund's assets is
represented by cash, U.S. Government securities and securities of other
regulated investment companies, and other securities (for purposes of this
calculation generally limited, in respect of any one issuer, to an amount not
greater than 5% of the market value of the Fund's assets and 10% of the
outstanding voting securities of such issuer) and (ii) not more than 25% of
the value of its assets is invested in the securities of any one issuer
(other than U.S. Government securities or the securities of other regulated
investment companies), or two or more issuers which the Trust controls and
which are determined to be engaged in the same or similar trades or
businesses; and (d) distribute at least 90% of its investment company taxable
income (which includes dividends, interest, and net short-term capital gains
in excess of net long-term capital losses) each taxable year.
A Fund generally will be subject to a nondeductible excise tax of 4% to
the extent that it does not meet certain minimum distribution requirements as
of the end of each calendar year. To avoid the tax, a Fund must distribute
during each calendar year an amount equal to the sum of (1) at least 98% of
its ordinary income and net capital gain (not taking into account any capital
gains or losses as an exception) for the calendar year, (2) at least 98% of
its capital gains in excess of its capital losses (and adjusted for certain
ordinary losses) for the twelve month period ending on October 31 of the
calendar year, and (3) all ordinary income and capital gains for previous
years that were not distributed during such years. A distribution will be
treated as paid on December 31 of the calendar year if it is declared by the
Fund in October, November, or December of that year to shareholders of record
on a date in such a month and paid by the Portfolio during January of the
following year. Such distributions will be taxable to shareholders (other
than those not subject to federal income tax) in the calendar year in which
the distributions are declared, rather than the calendar year in which the
distributions are received. To avoid the excise tax, the Funds intend to
make timely distributions of their income in compliance with these
requirements and anticipate that they will not be subject to the excise tax.
Dividends paid by a Fund from ordinary income, and distributions of the
Fund's net realized short-term capital gains, are taxable to its shareholders
as ordinary income. Distributions to corporate shareholders will be eligible
for the 70% dividends received deduction to the extent that the income of the
Funds is derived from dividends on common or preferred stock of domestic
corporations. Dividend income earned by a Fund will be eligible for the
dividends received deduction only if the Fund has satisfied a 46-day holding
period requirement (described below) with respect to the underlying portfolio
security (91 days in the case of dividends derived from preferred stock). In
addition, a corporate shareholder must have held its shares in the Fund for
not less than 46 days during the 90-day period that begins 45 days before the
stock becomes ex-
B-38
<PAGE>
dividend with respect to the dividend (91 days during the 180-day period that
begins 90 days before the stock becomes ex-dividend with respect to the
dividend in the case of dividends derived from preferred stock) in order to
claim the dividend received deduction. Not later than 60 days after the end
of its taxable year, the Fund will send to its shareholders a written notice
designating the amount of any distributions made during such year which may
be taken into account by its shareholders for purposes of such deduction
provisions of the Code. Net capital gain distributions are not eligible for
the dividends received deduction.
SPECIAL TAX CONSIDERATIONS
SECTION 1256 CONTRACTS. Many of the futures contracts and forward
contracts used by the Funds are "section 1256 contracts." Any gains or
losses on section 1256 contracts are generally credited 60% long-term and 40%
short-term capital gains or losses ("60/40") although gains and losses from
hedging transactions, certain mixed straddles and certain foreign currency
transactions from such contracts may be treated as ordinary in character.
Also, section 1256 contracts held by the Funds at the end of each taxable
year (and, for purposes of the 4% excise tax, on certain other dates as
prescribed under the Code) are "marked to market" with the result that
unrealized gains or losses are treated as though they were realized and the
resulting gain or loss is treated as ordinary or 60/40 gain or loss,
depending on the circumstances.
STRADDLE RULES. Generally, the hedging transactions and certain other
transactions in options, futures and forward contracts undertaken by the
Funds may result in "straddles" for U.S. federal income tax purposes. The
straddle rules may affect the character of gains (or losses) realized by the
Funds. In addition, losses realized by a Fund on positions that are part of
a straddle may be deferred under the straddle rules, rather than being taken
into account in calculating the taxable income for the taxable year in which
such losses are realized. Because only a few regulations implementing the
straddle rules have been promulgated, the tax consequences of transactions in
options, futures and forward contracts to the Funds are not entirely clear.
The transactions may increase the amount of short-term capital gain realized
by a Fund which is taxed as ordinary income when distributed to shareholders.
The Funds may make one or more of the elections available under the Code
which are applicable to straddles. If the Funds make any of the elections,
the amount, character and timing of the recognition of gains or losses from
the affected straddle positions will be determined under rules that vary
according to the election(s) made. The rules applicable under certain of the
elections operate to accelerate the recognition of gains or losses from the
affected straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to the shareholders, and which will be taxed to shareholders as
ordinary income or long-term capital gain, may be increased or decreased
substantially as compared to a fund that did not engage in such hedging
transactions.
The qualifying income and diversification requirements applicable to the
Funds' assets may limit the extent to which the Funds will be able to engage in
transactions in options, futures
B-39
<PAGE>
contracts or forward contracts.
SECTION 988 GAINS AND LOSSES. Under the Code, gains or losses
attributable to fluctuations in exchange rates which occur between the time a
Fund accrues interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the Fund actually
collects such receivables or pays such liabilities generally are treated as
ordinary income or loss. Similarly, gains or losses on disposition of debt
securities denominated in a foreign currency and on disposition of certain
futures attributable to fluctuations in the value of the foreign currency
between the date of acquisition of the security or contract and the date of
disposition also are treated as ordinary gain or loss. These gains and
losses, referred to under the Code as "section 988" gains or losses, may
increase or decrease the amount of the Fund's investment company taxable
income to be distributed to the shareholders.
FOREIGN TAX. Foreign countries may impose withholding and other taxes
on income received by a Fund from sources within those countries. Tax
conventions between certain countries and the U.S. may reduce or eliminate
such taxes. In addition, the Investment Adviser intends to manage the Funds
with the intention of minimizing foreign taxation in cases where it is deemed
prudent to do so. If more than 50% of the value of a Fund's total assets at
the close of its taxable year consists of securities of foreign corporations,
the Fund will be eligible to elect to "pass-through" to the Fund's
shareholders the amount of foreign income and similar taxes paid by the Fund.
Each shareholder will be notified in writing within 60 days after the close
of the Fund's taxable year whether the foreign taxes paid by the Fund will be
"pass-through" for that year.
Generally, a credit for foreign taxes is subject to the limitation that
it may not exceed the shareholder's U.S. tax attributable to his or her total
foreign source taxable income. For this purpose, if the Fund elects
pass-through treatment, the source of the Fund's income flows through to
shareholders of the Fund. With respect to such election, the Fund treats
gains from the sale of securities as derived from U.S. sources and certain
currency fluctuation gains, including fluctuation gains from foreign currency
denominated debt securities, receivables and payables as ordinary income
derived from U.S. sources. The limitation on the foreign tax credit applies
separately to foreign source passive income, and to certain other types of
income. Shareholders may be unable to claim a credit for the full amount of
their proportion at share of the foreign taxes paid by the Fund. The foreign
tax credit is modified for purposes of the federal alternative minimum tax
and can be used to offset only 90% of the alternative minimum tax imposed on
corporations and individuals and foreign taxes generally are not deductible
in computing alternative minimum taxable income.
ORIGINAL ISSUE DISCOUNT. The Funds may treat some of the debt
securities (with a fixed maturity date of more than one year from the date of
issuance) they may acquire as issued originally at a discount. Generally,
the Funds treat the amount of the original issue discount ("OID") as interest
income and include it in income over the term of the debt security, even
though they do not receive payment of that amount until a later time, usually
when the debt security matures. The Funds treat a portion of the OID
includable in income with respect to certain high-yield corporation debt
securities as a dividend for federal income tax purposes.
The Funds may treat some of the debt securities (with a fixed maturity
date of more than one year from the date of issuance) they may acquire in the
secondary market as having market
B-40
<PAGE>
discount. Generally, a Fund treats any gain recognized on the disposition of,
and any partial payment of principal on, a debt security having market
discount as ordinary interest income to the extent the gain, or principal
payment, does not exceed the "accrued market discount" on such debt security.
Market discount generally accrues in equal daily installments. The Funds
may make one or more of the elections applicable to debt securities having
market discount, which could affect the character and timing the recognition
of income.
The Funds generally must distribute dividends to shareholders
representing discount on debt securities that is currently includable in
income, even though the Funds have yet to receive cash representing such
income. The Funds may obtain cash to pay such dividends from sales proceeds
of securities held by the Funds.
PERFORMANCE INFORMATION
The Trust may from time to time advertise total returns and yields for
the Funds, compare Fund performance to various indices, and publish rankings
of the Funds prepared by various ranking services. Any performance
information should be considered in light of the Fund's investment objectives
and policies, characteristics and quality of the its portfolio, and the
market conditions during the given period, and should not be considered to be
representative of what may be achieved in the future. For purposes of
calculating the historical performance of a Fund, the Trust will take into
account the historical performance of the series of the Trust corresponding
to the Fund prior to the Reorganization.
TOTAL RETURN
The total return for a Fund is computed by assuming a hypothetical
initial payment of $1,000. It is assumed that all investments are made at
net asset value (as opposed to market price) and that all of the dividends
and distributions by the Fund over the relevant time periods are invested at
net asset value. It is then assumed that, at the end of each period, the
entire amount is redeemed without regard to any redemption fees or costs.
The average annual total return is then determined by calculating the annual
rate required for the initial payment to grow to the amount which would have
been received upon redemption. Total return does not take into account any
federal or state income taxes.
Total return is computed according to the following formula:
n
P(1 + T) = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value at the end of the period
(or fractional portion thereof) of a hypothetical
$1,000 payment made at the beginning of the period.
B-41
<PAGE>
YIELD
The yield for a Fund is calculated based on a 30-day or one-month
period, according to the following formula:
6
Yield = 2[(a - b + 1) -1]
------
(c x d)
For purposes of this formula, "a" is total dividends and interest
earned during the period; "b" is total expenses accrued for the period (net of
reimbursements); "c" is the average daily number of shares outstanding during
the period that were entitled to receive dividends; and "d" is the maximum
offering price per share on the last day of the period.
Yields for the predecessors to the Funds for the 30-day period ended
December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Fund Class I Class R
<S> <C> <C>
Convertible Fund 2.11% 1.87%
Short-Intermediate Fund 5.93% 5.93%
High Quality Bond Fund 6.22% 5.96%
High Yield Bond Fund 10.75% 10.48%
</TABLE>
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
- - references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
- - charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
- - discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views
on how such developments could impact the Funds; and information about
the mutual fund industry from sources such as the Investment Company
Institute.
The Fund may compare its performance, or performance for the types of
securities in which it invests, to a variety of other investments, including
federally insured bank products such as bank savings accounts, certificates
of deposit, and Treasury bills.
B-42
<PAGE>
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete
view of Share performance. When comparing performance, you should consider
all relevant factors such as the composition of the index used, prevailing
market conditions, portfolio compositions of other funds, and methods used to
value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
Standard & Poor's Low-Priced Index compares a group of approximately twenty
actively traded stocks priced under $25 for one month periods and
year-to-date.
Value Line Mutual Fund Survey, published by Value Line Publishing, Inc.,
analyzes price, yield, risk, and total return for equity and fixed income
mutual funds. The highest rating is One, and ratings are effective for one
month.
CDA Mutual Fund Report, published by CDA Investment Technologies, Inc.,
analyzes price, current yield, risk, total return, and average rate of
return (average annual compounded growth rate) over specified time periods
for the mutual fund industry.
PRIOR PERFORMANCE OF CERTAIN FUNDS AND THEIR PREDECESSORS
The following tables set forth historical performance information for
the Large Cap, Value, Mini Cap Growth, Short-Intermediate, High Quality Bond,
and High Yield Bond Funds. It includes historical performance information
for the Institutional and Qualified Portfolios which preceded the Funds prior
to the reorganization of the Trust in July 1998 and the Investment Adviser's
composite performance data relating to the historical performance of all
institutional private accounts managed by the Investment Adviser, since the
dates indicated, that have investment objectives, policies, strategies and
risks substantially similar to those of such Funds. The composite data is
provided to illustrate the past performance of the Investment Adviser in
managing substantially similar accounts as measured against specified market
indices and does not represent the performance of the Funds. Investors
should not consider this performance data as an indication of future
performance of the Funds or of the Investment Adviser.
The Investment Adviser has advised the Trust that the net performance
results for the Funds are calculated as set forth above under "General
Information -- Performance Information." All information set forth in the
tables below relies on data supplied by the Investment Adviser or from
statistical services, reports or other sources believed by the Investment
Adviser to be reliable. However, except as otherwise indicated, such
information has not been verified and is unaudited.
The Investment Adviser's composite performance data shown below were
calculated in accordance with recommended standards of the Association for
Investment Management and
B-43
<PAGE>
Research ("AIMR")(1), retroactively applied to all time periods. All returns
presented were calculated on a total return basis and include all dividends
and interest, accrued income and realized and unrealized gains and loses.
All returns reflect the deduction of investment advisory fees, brokerage
commissions and execution costs paid by the Investment Adviser's
institutional private accounts, without provision for federal or state income
taxes. Custodial fees, if any, were not included in the calculation. The
Investment Adviser's composites include all actual, fee-paying, discretionary
institutional private accounts managed by the Investment Adviser that have
investment objectives, policies, strategies and risks substantially similar
to those of the Large Cap, Value, Mini Cap Growth, Short-Intermediate, High
Quality Bond and High Yield Bond Funds. Securities transactions are
accounted for on the trade date and accrual accounting is utilized. Cash and
equivalents are included in performance returns. The monthly returns of the
Investment Adviser's composites combine the individual accounts' returns
(calculated on a time-weighted rate of return that is revalued whenever cash
flows exceed $500) by asset-weighing each individual account's asset value as
of the beginning of the month. Quarterly and yearly returns are calculated
by geometrically linking the monthly and quarterly returns, respectively.
The yearly returns are computed by geometrically linking the returns of each
quarter within the calendar year. Investors should be aware that the SEC
uses a methodology different from that used below to calculate performance
which, as with the use of any methodology different from that below, could
result in different performance data.
The institutional private accounts that are included in the Investment
Adviser's composites are not subject to the same types of expenses to which
the Large Cap, Value, Mini Cap Growth, Short-Intermediate, High Quality Bond
and High Yield Bond Funds are subject nor to the diversification
requirements, specific tax restrictions and investment limitations imposed on
the Funds by the Investment Company Act or Subchapter M of the Internal
Revenue Code. Consequently, the performance results for the Investment
Adviser's composites could have been adversely affected if the institutional
private accounts included in the composites had been subject to the same
expenses as the Funds or had been regulated as investment companies under the
federal securities laws.
The results presented below may not necessarily equate with the return
experienced by any particular investor as a result of the timing of investments
and redemptions. In addition, the effect of taxes on any investor will depend
on such person's tax status, and the results have not been reduced to reflect
any income tax which may have been payable.
The investment results presented below are not intended to predict or
suggest the returns that might be experienced by the Large Cap, Value, Mini
Cap, Short-Intermediate, High Quality Bond or High Yield Bond Funds or an
individual investor investing in such Funds.
- -------------------------
(1) AIMR is a non-profit membership and education with more than 60,000
members worldwide that, among other things, has formulated a set of
performance presentation standards for investment advisers. These AIMR
performance presentation standards are intended to (i) promote full and fair
presentations by investment advisers of their performance results, and (ii)
ensure uniformity in reporting so that performance results of investment
advisers are directly comparable.
B-44
<PAGE>
<TABLE>
<CAPTION>
CLASS I SHARES OF THE FUNDS
---------------------------
VALUE PERFORMANCE
------------------------------------
INVESTMENT
ADVISER'S
VALUE VALUE S&P 500
YEAR FUND COMPOSITE INDEX(1)
----- ------ ----------- ---------
<S> <C> <C> <C>
1994(2) 3.79% 5.32%
1995 30.79 37.60
1996(2) 24.25% 32.01 22.95
1997 40.55 40.55 33.36
1998(3) 20.13 20.19 28.58
Last Year(3) 20.13 20.19 28.58
Last 5 Years(3) N/A N/A N/A
Since Inception(3) 31.97 26.24 26.51
</TABLE>
- ------------------------
(1) The S&P 500 Index is an unmanaged index containing common stocks of 500
industrial, transportation, utility and financial companies, regarding as
generally representative of the U.S. stock market. The Index reflects the
reinvestment of income dividends and capital gain distributions, if any,
but does not reflect fees, brokerage commissions, or other expenses of
investing.
(2) Inception dates are as follows: Value Composite - April 1, 1994; Value
Fund - April 30, 1996.
(3) Through December 31, 1998
B-45
<PAGE>
<TABLE>
<CAPTION>
CLASS I SHARES OF THE FUNDS
--------------------------------------------
LARGE CAP GROWTH MINI CAP PERFORMANCE
---------------- --------------------
PERFORMANCE
-----------
INVESTMENT RUSSELL INVESTMENT
LARGE CAP ADVISER'S LARGE 1000 MINI CAP ADVISER'S RUSSELL 2000
GROWTH CAP GROWTH GROWTH GROWTH MINI CAP GROWTH STOCK
YEAR FUND COMPOSITE INDEX(1) FUND COMPOSITE INDEX(2)
---- ------ --------------- -------- --------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
1991(3) 28.69% 14.77%
1992 11.58 7.77
1993 7.25 13.36
1994 (5.85) (2.43)
1995(3) 35.38% 14.80% 55.93 31.06
25.26%
1996(3) (1.12%) 26.63 23.12 28.73 27.72 11.26
1997 46.07 33.06 30.48 30.19 30.61 12.84
1998(4) 60.29 -- 38.71 8.43 -- 1.28
Last Year(4) 60.29 -- 38.71 8.43 -- 1.28
Last 5 Years(4) N/A N/A N/A N/A 24.78 10.21
Since Inception(4) 51.81 -- 31.49 23.59 -- 11.75
</TABLE>
- ---------------------
(1) The Russell 1000 Growth Index contains those companies among the Russell
1000 securities with higher than average price-to-book ratios and
forecasted growth. The Russell 1000 Index contains the top 1,000
securities of the Russell 3000 Index, which comprises the 3,000 largest
U.S. securities as determined by total market capitalization. The Russell
1000 Growth Index is considered generally representative of the U.S. market
for large cap stocks. The Index reflects the reinvestment of income
dividends and capital gains distributions, if any, but does not reflect
fees, brokerage commissions, or other expenses of investing.
(2) The Russell 2000 Growth Stock Index contains those securities in the
Russell 2000 Index with a greater-than-average growth orientation.
Companies in the Growth Stock Index generally have higher price-to-book and
price-earnings ratios than the average for all companies in the 2000 Index.
The Russell 2000 Index is a widely regarded small-cap index of the 2,000
smallest securities in the Russell 3000 Index, which comprises the 3,000
largest U.S. securities as determined by total market capitalization. The
Index reflects the reinvestment of income dividends and capital gains
distributions, if any, but does not reflect fees, brokerage commissions, or
other expenses of investing.
(3) Inception dates are as follows: Large Cap Growth Composite - April 1,
1995; Large Cap Growth Fund - December 26, 1996; Mini Cap Composite -
August 1, 1991; Mini Cap Growth Fund - July 12, 1995.
(4) Through December 31, 1998
B-46
<PAGE>
<TABLE>
<CAPTION>
CLASS I SHARES OF THE FUNDS
---------------------------
SHORT-INTERMEDIATE
PERFORMANCE HIGH QUALITY BOND PERFORMANCE
----------- -----------------------------
SHORT- MERRILL LYNCH LEHMAN BROS.
INTERMEDIATE INVESTMENT 1-3 YR. HIGH QUALITY INVESTMENT GOVT./CORP.
FUND ADVISER'S TREASURY BOND ADVISER'S BOND
YEAR COMPOSITE INDEX(1) FUND COMPOSITE INDEX(2)
- ---- ------------ ---------- ------------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
1984(3) 13.28% 13.78% 15.72% 15.00%
1985 15.66 13.96 21.98 21.30
1986 10.71 10.35 16.13 15.59
1987 5.09 5.65 2.60 2.31
1988 7.93 6.22 7.87 7.52
1989 10.16 10.87 12.53 14.23
1990 9.43 9.72 8.37 8.29
1991 12.56 11.68 17.38 16.13
1992 6.20 6.30 7.38 7.57
1993 7.19 5.41 12.32 11.06
1994 0.39 0.57 (4.16) (3.51)
1995 (3) 4.95% 10.24 10.99 8.81% 16.69 19.24
1996 4.85 4.79 4.99 2.29 3.00 2.89
1997 6.67 6.66 6.65 9.52 9.49 9.75
1998 (4) 6.85 -- 6.99 8.54 -- 9.47
Last year (4) 6.85 -- 6.99 8.54 -- 9.47
Last 5 years (4) N/A -- 5.98 -- -- 7.30
Last 10 years (4) N/A -- 7.37 N/A -- 9.33
Since inception (4) 7.03 -- 8.22 8.76 -- 10.26
</TABLE>
- -----------------------
(1) The Merrill Lynch 1-3 Year Treasury Index is an index consisting of all
public U.S. Treasury obligations having maturities from one to 2.99 years.
The Index includes income and distributions but does not reflect fees,
brokerage commissions or other expenses of investing.
(2) The Lehman Brothers Government/Corporate Bond Index is an index consisting
of the Lehman Brothers Government Bond Index and the Lehman Brothers
Corporate Bond Index. The Government Bond Index includes all public
obligations of the U.S. Treasury (excluding flower bonds and
foreign-targeted issues), its agencies and quasi-federal corporations, and
corporate debt guaranteed by the U.S. Government.
B-47
<PAGE>
The Corporate Bond Index includes all publicly issued, fixed rate, non-
convertible investment grade U.S. dollar denominated corporate debt
registered with the Securities and Exchange Commission; it also includes
debt issued or guaranteed by foreign sovereign governments, municipalities,
and governmental or international agencies. The Index includes income and
distributions but does not reflect fees, brokerage commissions or other
expenses of investing.
(3) Inception dates are as follows: Short-Intermediate Composite - January 1,
1984; Short-Intermediate Fund - August 31, 1995; Discretionary-U.S.
Composite - January 1, 1984; High Quality Bond Fund - August 31, 1995.
(4) Through December 31, 1998
<TABLE>
<CAPTION>
CLASS I SHARES OF THE FUNDS
------------------------------------------------------------------
HIGH YIELD BOND PERFORMANCE
---------------------------
INVESTMENT
HIGH YIELD ADVISER'S FIRST BOSTON
BOND HIGH YIELD HIGH YIELD
YEAR FUND BOND COMPOSITE INDEX(1)
- ---- ---------- -------------- -------------
<S> <C> <C> <C>
1994(2) 1.45% 0.09%
1995 19.40 17.38
1996(2) 11.33% 21.87 12.42
1997 21.40 21.83 12.63
1998(3) 4.52 -- 0.58
Last Year(3) 4.52 -- 0.58
Since inception(3) 15.35 -- 8.85
</TABLE>
- -----------------------
(1) The First Boston High Yield Index includes over 180 U.S. domestic issues
with an average maturity range of seven to ten years and with a minimum issue
size of $100 million. The Index reflects the reinvestment of income, if any,
but does not reflect fees, dealer markups, or other expenses of investing.
B-48
<PAGE>
(2) Inception dates are as follows: High Yield Bond Composite - April 1, 1994;
High Yield Bond Fund - July 31, 1996.
(3) Through December 31, 1998
<TABLE>
<CAPTION>
CLASS R SHARES OF THE FUND VALUE PERFORMANCE
----------------------------------------------------
INVESTMENT
ADVISER'S
VALUE S&P 500
YEAR COMPOSITE VALUE FUND INDEX(1)
- ---- ----------- ---------- --------
<S> <S> <S> <S>
1994(2) 3.79% 1.32%
1995 30.79 37.60
1996 32.01 22.96
1997 40.55 33.31
1998(4) 20.19 19.74 28.58
Last Year(3) 20.19 19.74 28.58
Last 5 years(3) N/A N/A N/A
Since inception(3) 26.24 31.61 26.51
</TABLE>
- -----------------------
(1) The S&P 500 Index is an unmanaged index containing common stocks of 500
industrial, transportation, utility and financial companies, regarding as
generally representative of the U.S. stock market. The Index reflects the
reinvestment of income dividends and capital gain distributions, if any,
but does not reflect fees, brokerage commissions, or other expenses of
investing.
B-49
<PAGE>
(2) Inception dates are as follows: Value Composite - April 1, 1994; Value
Fund - August 1, 1998; Value Fund Class R Shares - April __, 1999.
(3) Through December 31, 1998.
<TABLE>
<CAPTION>
CLASS R SHARES OF THE FUND LARGE CAP GROWTH
-------------------------------------------
INVESTMENT ADVISER'S
LARGE CAP GROWTH RUSSELL 1,000 LARGE CAP
YEAR COMPOSITE GROWTH INDEX(1) FUND
- ---- ------------ ------------- -----------
<S> <C> <C> <C>
1995(2).........................35.38% 25.26%
1996(2).........................26.63 23.12 (1.18)%
1997............................33.06 30.48 45.45
1998(3)......................... -- 38.71 60.02
Last Year(3).................... -- 38.71 60.02
Since inception(3).............. -- 31.49 51.32
</TABLE>
- -----------------------
(1) The Russell 1000 Growth Index contains those companies among the Russell
1000 Securities with higher than average price-to-book ratios and
forecasted growth. The Russell 1000 Index contains the top 1,000
securities of the Russell 3000 Index, which comprises the 3,000 largest
U.S. securities as determined by total market capitalization. The Russell
1000 Growth Index is considered generally representative of the U.S. market
for large cap stocks. The Index reflects the reinvestment of income
dividends and capital gains distributions, if any, but does not reflect
fees, brokerage commissions, or other expenses of investing.
(2) Inception dates are as follows: Large Cap Growth Composite - April 1,
1995; Large Cap Fund - December 27, 1996.
(3) Through December 31, 1998.
B-50
<PAGE>
CUSTODIAN, TRANSFER AND DIVIDEND DISBURSING AGENT,
INDEPENDENT AUDITORS
PNC Bank, Airport Business Center, International Court 2, 200 Stevens
Drive, Lester, Pennsylvania 19113, serves as Custodian for the portfolio
securities and cash of the Funds and in that capacity maintains certain
financial and accounting books and records pursuant to agreements with the
Trust. PFPC Inc., 103 Bellevue Parkway, Wilmington, Delaware, an affiliate of
the Custodian, provides additional accounting services to the Portfolios and
Funds.
Brown Brothers Harriman & Company, 40 Water Street, Boston,
Massachusetts, 02109, serves as Foreign Custodian for the portfolio
securities and cash of the Funds and in that capacity maintains certain
financial and accounting books and records pursuant to agreements with the
Trust.
State Street Bank and Trust Company, 2 Heritage Drive, 7th Floor, North
Quincy, Massachusetts, 02171, serves as the Dividend Disbursing Agent and
as the Transfer Agent for the Funds. The Transfer Agent provides customary
transfer agency services to the Trust, including the handling of shareholder
communications, the processing of shareholder transactions, the maintenance
of shareholder account records, and related functions. The Dividend
Disbursing Agent provides customary dividend disbursing services to the
Trust, including payment of dividends and distributions and related functions.
Ernst & Young, L.L.P., 515 South Flower Street, Los Angeles, California
90071, serves as the independent auditors for the Trust, and in that capacity
examines the annual financial statements of the Trust.
MISCELLANEOUS
SHARES OF BENEFICIAL INTEREST
On any matter submitted to a vote of shareholders of the Trust, all
shares then entitled to vote will be voted by the affected series unless
otherwise required by the Investment Company Act, in which case all shares of
the Trust will be voted in the aggregate. For example, a change in a Fund's
fundamental investment policies would be voted upon by shareholders of that
Fund, as would the approval of any advisory or distribution contract for the
Fund. However, all shares of the Trust may vote together in the election or
selection of Trustees, principal underwriters and accountants for the Trust.
Rule 18f-2 under the Investment Company Act provides that any matter
required to be submitted to the holders of the outstanding voting securities
of an investment company such as the Trust shall not be deemed to have been
effectively acted upon unless approved by a majority of the outstanding
shares of the series of the Trust affected by the matter. Under Rule 18f-2,
a series is presumed to be affected by a matter, unless the interests of each
series in the matter are identical or the matter does not affect any interest
of such series. Under Rule 18f-2 the approval of an investment advisory
agreement or any change in a fundamental investment policy would be
effectively acted upon with respect to a Fund only if approved by a majority
of its outstanding shares. However, the rule also provides that the
ratification of independent public accountants, the approval of principal
underwriting contracts and the election of directors may be
B-51
<PAGE>
effectively acted upon by the shareholders of the Trust voting without regard
to Fund.
As used in the Funds' prospectus and in this Statement of Additional
Information, the term "majority," when referring to approvals to be obtained
from shareholders of a Fund, means the vote of the lesser of (i) 67% of the
shares of the Fund represented at a meeting if the holders of more than 50%
of the outstanding shares of the Fund are present in person or by proxy, or
(ii) more than 50% of the outstanding shares of the Fund. The term
"majority," when referring to the approvals to be obtained from shareholders
of the Trust, means the vote of the lesser of (i) 67% of the Trust's shares
represented at a meeting if the holders of more than 50% of the Trust's
outstanding shares are present in person or by proxy, or (ii) more than 50%
of the Trust's outstanding shares. Shareholders are entitled to one vote for
each full share held and fractional votes for fractional shares held. Unless
otherwise provided by law (for example, by Rule 18f-2 discussed above) or by
the Trust's Declaration of Trust or Bylaws, the Trust may take or authorize
any action upon the favorable vote of the holders of more than 50% of the
outstanding shares of the Trust.
The Trust will dispense with annual meetings of shareholders in any year
in which it is not required to elect Trustees under the Investment Company
Act. However, the Trust undertakes to hold a special meeting of its
shareholders for the purpose of voting on the question of removal of a
Trustee or Trustees if requested in writing by the holders of at least 10% of
the Trust's outstanding voting securities, and to assist in communicating
with other shareholders as required by Section 16(c) of the Investment
Company Act.
Each share of each Fund represents an equal proportional interest in the
Fund and is entitled to such dividends and distributions out of the income
earned on the assets allocable to the Fund as are declared in the discretion
of the Trustees. In the event of the liquidation or dissolution of the
Trust, shareholders of a Fund are entitled to receive the assets attributable
to the Fund that are available for distribution, and a distribution of any
general assets not attributable to a particular Fund that are available for
distribution in such manner and on such basis as the Trustees in their sole
discretion may determine.
Shareholders are not entitled to any preemptive rights. All shares, when
issued, will be fully paid and nonassessable by the Trust.
DECLARATION OF TRUST
The Declaration of Trust of the Trust provides that obligations of the
Trust are not binding upon its Trustees, officers, employees and agents
individually and that the Trustees, officers, employees and agents will not
be liable to the trust or its investors for any action or failure to act, but
nothing in the Declaration of Trust protects a Trustee, officer, employee or
agent against any liability to the trust or its investors to which the
Trustee, officer, employee or agent would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of
his or her duties. The Declaration of Trust also provides that the debts,
liabilities, obligations and expenses incurred, contracted for or existing
with respect to a designated Fund shall be enforceable against the assets and
property of such Fund only, and not against the assets or property of any
other Fund or the investors therein.
FINANCIAL STATEMENTS
The Trust's 1998 Annual Report to Shareholders of the Institutional
Portfolios (predecessor to the Class I shares of the Funds) and the Trust's
1998 Semi Annual Report accompanies this Statement of Additional
B-52
<PAGE>
Information. The financial statements in such Reports are incorporated in
this Statement of Additional Information by reference. Such financial
statements for the fiscal years ended March 31, 1996, 1997 and 1998 have been
audited by the Funds' independent auditors, Ernst & Young L.L.P., whose
report thereon appears in such Annual Report. The Trust's Semi Annual
Reports are unaudited. Such financial statements have been incorporated
herein in reliance upon such report given upon their authority as experts in
accounting and auditing. Additional copies of the Trust's 1998 Annual and
Semi Annual Reports to Shareholders may be obtained at no charge by writing
or telephoning the Trust at the address or number on the front page of this
Statement of Additional Information.
B-53
<PAGE>
APPENDIX A
DESCRIPTION OF SECURITIES RATINGS
The following paragraphs summarize the descriptions for the rating
symbols of securities.
COMMERCIAL PAPER
The following paragraphs summarize the description for the rating symbols
of commercial paper.
MOODY'S INVESTORS SERVICE, INC.
Moody's short-term debt ratings, which are also applicable to commercial
paper investments permitted to be made by the Master Trust, are opinions of
the ability of issuers to repay punctually their senior debt obligations
which have an original maturity not exceeding one year. Moody's employs the
following designations, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers:
PRIME 1: Issuers (or related supporting institutions) rated PRIME-1 have
a superior ability for repayment of short-term promissory obligations.
PRIME-1 repayment ability will often be evidenced by the following
characteristics: (a) leading market positions in well-established
industries; (b) high rates of return on funds employed; (c) conservative
capitalization structures with moderate reliance on debt and ample asset
protection; (d) broad margins in earnings coverage of fixed financial charges
and high internal cash generation; and (e) well-established access to a range
of financial markets and assured sources of alternate liquidity.
PRIME-2: Issuers rated PRIME-2 (or related supporting institutions) have
a strong ability for repayment of senior short-term debt obligations. This
will normally be evidenced by many of the characteristics cited above in the
PRIME-1 category but to a lesser degree. Earning trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
PRIME 3: Issuers rated PRIME-3 (or related supporting institutions) have
an acceptable ability for repayment of short-term debt obligations. The
effect of industry characteristics and market composition may be more
pronounced. Variability in earnings and profitability may result in changes
in the level of debt protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
STANDARD & POOR'S CORPORATION
Standard & Poor's ratings are a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
The ratings are based on current information furnished to Standard & Poor's
by the issuer and obtained by Standard & Poor's from other sources it
considers reliable. Ratings are graded into four categories, ranging from
"A" for the highest quality obligations to "D" for the lowest. Issues within
the "A" category are delineated with the numbers 1, 2, and
A-1
<PAGE>
3 to indicate the relative degree of safety, as follows:
A-1: This designation indicates the degree of safety regarding timely
payment is overwhelming or very strong. Those issuers determined to possess
overwhelming safety characteristics are denoted with a "PLUS" (+) designation.
A-2: Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as overwhelming as for
issues designated A-1.
A-3: Issues carrying this designation have a satisfactory capacity for
timely payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B: Issues rated "B" are regarded as having only an adequate capacity for
timely payment. However, such capacity may be damaged by changing conditions
or short-term adversities.
C: Issues rated "C" are regarded as having a doubtful capacity for
payment.
FITCH INVESTORS SERVICE, INC.
F-1+: Exceptionally strong credit quality. Commercial paper assigned
this rating is regarded as having the strongest degree of assurance for
timely payment.
F-1: Very strong credit quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
F-1+.
F-2: Good credit quality. Commercial paper assigned this rating has a
satisfactory degree of assurance for timely payment but the margin of safety is
not as great as for issuers assigned F-1+ and F-1 ratings.
F-3: Fair credit quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely payment is
adequate, however, near term adverse changes could cause these securities to be
rated below investment grade.
DUFF & PHELPS
The three rating categories of Duff & Phelps for investment grade
commercial paper are "Duff 1," "Duff 2" and "Duff 3." Duff & Phelps employs
three designations, "Duff 1+," Duff 1" and "Duff 1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
DUFF 1+ - Debt possesses highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.
DUFF 1 - Debt possesses very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental protection factors. Risk
factors are minor.
DUFF 1- - Debt possesses high certainty of timely payment. Liquidity
factors are strong and
A-2
<PAGE>
supported by good fundamental protection factors. Risk factors are very
small.
DUFF 2 - Debt possesses good certainty of timely payment. Liquidity
factors and company fundamentals are sound. Although ongoing funding needs may
enlarge total financing requirements, access to capital markets is good. Risk
factors are small.
DUFF 3 - Debt possesses satisfactory liquidity, and other protection
factors qualify issue as investment grade. Risk factors are larger and subject
to more variation. Nevertheless, timely payment is expected.
DUFF 4 - Debt possesses speculative investment characteristics.
DUFF 5 - Issuer has failed to meet scheduled principal and/or interest
payments.
THOMSON BANKWATCH
Thomson BankWatch commercial paper ratings assess the likelihood of an
untimely payment of principal or interest of debt having a maturity of one year
or less which is issued by United States commercial banks, thrifts and non-bank
banks; non-United States banks; and broker-dealers. The following summarizes
the ratings used by Thomson BankWatch:
TBW-1 - This designation represents Thomson BankWatch's highest rating
category and indicates a very high degree of likelihood that principal and
interest will be paid on a timely basis.
TBW-2 - This designation indicates that while the degree of safety
regarding timely payment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated "TBW-1."
TBW-3 - This designation represents the lowest investment grade category
and indicates that while the debt is more susceptible to adverse developments
(both internal and external) than obligations with higher ratings, capacity to
service principal and interest in a timely fashion is considered adequate.
IBCA
IBCA assesses the investment quality of unsecured debt with an original
maturity of less than one year which is issued by bank holding companies and
their principal bank subsidiaries. The following summarizes the rating
categories used by IBCA for short-term debt ratings:
A1+ - Obligations are supported by the highest capacity for timely
repayment.
A1 - Obligations are supported by a strong capacity for timely repayment.
A2 - Obligations are supported by a satisfactory capacity for timely
repayment, although such capacity may be susceptible to adverse changes in
business, economic, or financial conditions.
A3 - Obligations are supported by an adequate capacity for timely
repayment. Such capacity is more susceptible to adverse changes in business,
economic, or financial conditions than for obligations in higher categories.
A-3
<PAGE>
CORPORATE BONDS
DUFF & PHELPS
The following summarizes the ratings used by Duff & Phelps for corporate
and municipal long-term debt:
AAA - Debt is considered to be of the highest credit quality. The risk
factors are negligible, being only slightly more than for risk-free U.S.
Treasury debt.
AA - Debt is considered of high credit quality. Protection factors are
strong. Risk is modest but may vary slightly from time to time because of
economic conditions.
A - Debt possesses protection factors which are average but adequate.
However, risk factors are more variable and greater in periods of economic
stress.
BBB - Debt possesses below average protection factors but such protection
factors are still considered sufficient for prudent investment. Considerable
variability in risk is present during economic cycles.
BB, B, CCC, DD, AND DP - Debt that possesses one of these ratings is
considered to be below investment grade. Although below investment grade, debt
rated "BB" is deemed likely to meet obligations when due. Debt rated "B"
possesses the risk that obligations will not be met when due. Debt rated "CCC"
is well below investment grade and has considerable uncertainty as to timely
payment of principal, interest or preferred dividends. Debt rated "DD" is a
defaulted debt obligation, and the rating "DP" represents preferred stock with
dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A,"
"BBB," "BB" and "B" ratings may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within these major categories.
FITCH INVESTORS SERVICE, INC.
The following summarizes the highest four ratings used by Fitch for
corporate and municipal bonds:
AAA - Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated "AAA." Because bonds
rated in the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated "F-1+."
A - Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
A-4
<PAGE>
BBB - Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have an adverse impact on these
bonds, and therefore, impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds with
higher ratings.
BB, B, CCC, CC, C, DDD, DD, AND D - Bonds that possess one of these
ratings are considered by Fitch to be speculative investments. The ratings
"BB" to "C" represent Fitch's assessment of the likelihood of timely payment
of principal and interest in accordance with the terms of obligation for bond
issues not in default. For defaulted bonds, the rating "DDD" to "D" is an
assessment of the ultimate recovery value through reorganization or
liquidation.
To provide more detailed indications of credit quality, the Fitch ratings
from and including "AA" to "C" may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within these major rating
categories.
ICBA
IBCA assesses the investment quality of unsecured debt with an original
maturity of more than one year which is issued by bank holding companies and
their principal bank subsidiaries. The following summarizes the rating
categories used by IBCA for long-term debt ratings:
AAA - Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial
such that adverse changes in business, economic or financial conditions are
unlikely to increase investment risk significantly.
AA - Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial.
Adverse changes in business, economic or financial conditions may increase
investment risk albeit not very significantly.
A - Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
BBB - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial conditions
are more likely to lead to increased investment risk than for obligations in
higher categories.
BB, B, CCC, CC, AND C - Obligations are assigned one of these ratings where
it is considered that speculative characteristics are present. "BB" represents
the lowest degree of speculation and indicates a possibility of investment risk
developing. "C" represents the highest degree of speculation and indicates that
the obligations are currently in default.
IBCA may append a rating of plus (+) or minus (-) to a rating to denote
relative status within major rating categories.
THOMSON BANKWATCH
A-5
<PAGE>
Thomson BankWatch assesses the likelihood of an untimely repayment of
principal or interest over the term to maturity of long term debt and
preferred stock which are issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The
following summarizes the rating categories used by Thomson BankWatch for
long-term debt ratings:
AAA - This designation represents the highest category assigned by
Thomson BankWatch to long-term debt and indicates that the ability to repay
principal and interest on a timely basis is very high.
AA - This designation indicates a superior ability to repay principal and
interest on a timely basis with limited incremental risk versus issues rated
in the highest category.
A - This designation indicates that the ability to repay principal and
interest is strong. Issues rated "A" could be more vulnerable to adverse
developments (both internal and external) than obligations with higher
ratings.
BBB - This designation represents Thomson BankWatch's lowest investment
grade category and indicates an acceptable capacity to repay principal and
interest. Issues rated "BBB" are, however, more vulnerable to adverse
developments (both internal and external) than obligations with higher
ratings.
BB, B, CCC, AND CC, - These designations are assigned by Thomson
BankWatch to non-investment grade long-term debt. Such issues are regarded
as having speculative characteristics regarding the likelihood of timely
payment of principal and interest. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation.
D - This designation indicates that the long-term debt is in default.
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may include a
plus or minus sign designation which indicates where within the respective
category the issue is placed.
A-6
<PAGE>
NICHOLAS-APPLEGATE INVESTMENT TRUST
PART C
ITEM 23. EXHIBITS.
(1)(a) Certificate of Trust of Registrant - filed as Exhibit 1.1 to
Amendment No. 1 to the Registrant's Form N-1A Registration
Statement ("Amendment No. 1") on March 17, 1993 and incorporated
herein by reference.
(2)(a) Certificate of Amendment of Certificate of Trust of Registrant -
filed as Exhibit 1.2 to Amendment No. 1 on March 17, 1993 and
incorporated herein by reference.
(3)(a) Declaration of Trust of Registrant - filed as Exhibit 1 to
Registrant's Form N1-A Registration Statement on December 31,
1992 and incorporated herein by reference.
(4)(a) Amended and Restated Declaration of Trust of Registrant - filed
as Exhibit 1.4 to Amendment No. 1 on March 17, 1993 and
incorporated herein by reference.
(5)(a) Amended and Restated Declaration of Trust dated February 19,
1999.
(1)(b) Amended and Restated Bylaws of Registrant - filed as Exhibit 2
to Amendment No. 2 on April 6, 1993 and incorporated herein by
reference.
(2)(b) Amended Bylaws of Registrant dated February 19, 1999
(c) Not applicable.
(d) Investment Advisory Agreement between Registrant and Nicholas-
Applegate Capital Management.
(e) Distribution Agreement between Registrant and Nicholas-Applegate
Securities dated May 10, 1999.
(f) None.
(1)(g) Custodian Services Agreement between Registrant and Brown
Brothers Harriman & Co.
(2)(g) Foreign Custody Agreement between Registrant and Brown Brothers
Harriman & Co.
(3)(g) Amendment to Custodian Services Agreement between Registrant and
Brown Brothers Harriman & Co.
(4)(g) Cash Management Authorization Services Agreement between
Registrant and Brown Brothers Harriman & Co.
(1)(h) Administration and Fund Accounting Agency Agreement between
Registrant and Brown Brothers Harriman & Co.
(2)(h) Administration Services Agreement between Registrant and
Nicholas-Applegate Capital Management
(3)(h) License Agreement between Registrant and Nicholas-Applegate
Capital Management
(4)(h) Expense Reimbursement Agreement between Registrant and Nicholas-
Applegate Capital Management
(5)(h) Transfer Agency and Service Agreement between Registrant and
State Street Bank and Trust Company (to be filed by amendment)
(6)(h) Shareholder Service Plan between Registrant and Nicholas-
Applegate Securities for Class Q Shares
C-1
<PAGE>
(i) Opinion of Counsel on legality of shares being issued with
respect to Registrant - filed as Exhibit (i) to the Registrant's
Form N-1A Registration Statement on January 29, 1999 and
incorporated herein by reference.
(j) Consent of independent auditors - filed as Exhibit (j) to the
Registrant's Form N-1A Registration Statement on January 29, 1999
and incorporated herein by reference.
(k) Not Applicable
(l) Investment Letter of initial investor in Registrant (to be filed
by amendment)
(m) Form of Rule 12b-1 Plan for Class Q Shares
(n) Financial Data Schedules (Institutional Shares) - filed as
Exhibit (n) to the Registrant's Form N-1A Registration Statement
on January 29, 1999 and incorporated herein by reference.
(o) Rule 18f-3 Plan between Registrant and Nicholas-Applegate Capital
Management
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Fred C. Applegate 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. 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(2)
hereto and incorporated herein by reference, provides for the indemnification of
Registrant's trustees, officers, employees and agents.
Indemnification of the Registrant's Investment Adviser and Placement Agent
is provided for, respectively, in Section 8 of the Investment Advisory
Agreement.
Registrant has obtained from a major insurance carrier a trustees' and
officers' liability policy covering certain types of errors and omissions. In
no event will Registrant indemnify any of its trustees, officers, employees or
agents against any liability to which such person would otherwise be subject by
reason of his willful misfeasance, bad faith or gross negligence in the
performance of his duties or by reason of his reckless disregard of the duties
involved in the conduct of his office or under his agreement with Registrant.
Registrant will comply with Rule 484 under the Securities Act of 1933 and
Release 11330 under the Investment Company Act in connection with any
indemnification.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Nicholas-Applegate Capital Management, the Investment Adviser to the Trust,
is a California limited partnership, the general partner of which is
Nicholas-Applegate Capital Management Holdings, L.P. During the three fiscal
years ended December 31, 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.
C-2
<PAGE>
The principal business address of such persons is 600 West Broadway, 30th Floor,
San Diego, California 92101, except as otherwise indicated below.
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with Positions in Offices
Business Address Principal Underwriter with Registrant
- ---------------- --------------------- ---------------
<S> <C> <C>
John J.P. McDonnell None President
Peter J. Johnson Vice President Vice President
Blake Moore, Jr. General Counsel Secretary
C. William Maher Chief Financial Officer Treasurer
</TABLE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act and the rules promulgated thereunder
will be maintained either at the offices of the Registrant (600 West Broadway,
30th Floor, San Diego, California 92101); the Investment Adviser,
Nicholas-Applegate Capital Management (600 West Broadway, 30th Floor, San Diego,
California 92101); the Administrator, Investment Company Administration
Corporation (4455 East Camelback Road, Suite 261-E, Phoenix, Arizona 85018); or
the Custodian, PNC Bank (Airport Business Center, International Court 2, 200
Stevens Drive, Lester, Pennsylvania 19113).
ITEM 29. MANAGEMENT SERVICES.
None.
ITEM 30. UNDERTAKINGS.
Not Applicable
C-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of San Diego, State of California, on the 21st day
of April 1999.
Nicholas-Applegate Investment Trust
By: John J.P. McDonnell*
---------------------
John J.P. McDonnell
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
John J.P. McDonnell* Principal Executive Office [date]
- ---------------------
John J.P. McDonnell
/s/ C. William Maher
- ---------------------
C. William Maher Principal Financial and [date]
Accounting Officer
Walter E. Auch* Trustee [date]
- ---------------------
Walter E. Auch
Darlene Deremer* Trustee [date]
- ---------------------
Darlene Deremer
George F. Keane* Trustee [date]
- ---------------------
George F. Keane
*/s/ E. Blake Moore, Jr.
- ------------------------
By: E. Blake Moore, Jr.
Attorney In Fact
C-4
<PAGE>
Exhibit (5)(a)
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS
a Delaware Business Trust
February 19, 1999
<PAGE>
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I -- The Trust 1
1.1 Name 1
1.2 Trust Purpose 2
1.3 Definitions 2
ARTICLE II -- Trustees 4
2.1 Number and Qualification 4
2.2 Term and Election 5
2.3 Resignation and Removal 5
2.4 Vacancies 6
2.5 Meetings 6
2.6 Officers; Chairman of the Board 7
2.7 By-Laws 8
ARTICLE III -- Powers of Trustees 8
3.1 General 8
3.2 Investments 8
3.3 Legal Title 9
3.4 Sale of Interests 9
3.5 Borrow Money 10
3.6 Delegation; Committees 10
3.7 Collection and Payment 10
3.8 Expenses 10
3.9 Miscellaneous Powers 10
3.10 Further Powers 11
ARTICLE IV -- Investment Advisory, Administrative Services
and Placement Agent Arrangements 12
4.1 Investment Advisory and Other Arrangements 12
4.2 Parties to Contract 12
<PAGE>
ARTICLE V -- Limitations of Liability 13
5.1 No Personal Liability of Trustees Officers, Employees, Agents 13
5.2 Indemnification of Trustees, Officers, Employees Agents 13
5.3 Liability of Holders; Indemnification 14
5.4 No Bond Required of Trustees 14
5.5 No Duty of Investigation; Notice in Trust Instruments, Etc 14
5.6 Reliance on Experts, Etc 15
5.7 Assent To Declaration 15
ARTICLE VI -- Interests in the Trust 16
6.1 Interests 16
6.2 Rights of Holders 17
6.3 Register of Interests 18
6.4 Notices 18
6.5 No Pre-emptive Rights; Derivative Suits 18
6.6 No Appraisal Rights 18
6.7 Dividends and Distributions 19
6.8 Voting Rights 20
6.9 Equality 20
6.10 Fractions 20
6.11 Class Differences 21
6.12 Conversion of Interest 21
ARTICLE VII -- Purchases and Redemptions 21
7.1 Purchases 21
7.2 Redemption by Holder 21
7.3 Redemption by Trust 22
7.4 Net Asset Value 22
ARTICLE VIII -- Holders 23
8.1 Meetings of Holders 23
8.2 Notice of Meetings 24
8.3 Record Date for Meetings 24
8.4 Proxies, Etc 24
8.5 Reports 25
8.6 Inspection of Records 25
8.7 Voting Powers 25
8.8 Series of Interests 26
8.9 Holder Action by Written Consent 28
8.10 Holder Communications 28
<PAGE>
ARTICLE IX -- Duration; Termination of Trust;
Amendment; Mergers: Etc 29
9.1 Duration 29
9.2 Termination of Trust 29
9.3 Amendment Procedure 30
9.4 Merger, Consolidation and Sale of Assets 31
9.5 Incorporation 32
ARTICLE X -- Miscellaneous 32
10.1 Certificate of Designation; Agent for Service of Process 32
10.2 Governing Law 33
10.3 Counterparts 33
10.4 Reliance by Third Parties 33
10.5 Provisions in Conflict With Law or Regulations 34
10.6 Trust Only 34
10.7 Withholding 34
10.8 Headings and Construction 34
<PAGE>
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS
This AMENDED AND RESTATED DECLARATION OF TRUST of
NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS is made on the 19th day of February, 1999
by the parties signatory hereto, as trustees.
WHEREAS, Nicholas-Applegate Investment Trust has heretofore been
formed as a business trust under the law of Delaware for the investment and
reinvestment of its assets, by the execution of the Declaration of Trust of
Nicholas-Applegate Investment Trust on December 17, 1992; and
WHEREAS, the Trustees desire to change the name of such business
trust and to amend and restate such Declaration of Trust in its entirety; and
WHEREAS, it is proposed that the Trust assets be composed of
cash, securities and other assets contributed to the Trust by the holders of
interests in the Trust entitled to ownership rights in the Trust;
NOW, THEREFORE, the Trustees hereby declare that the Trustees
will hold in trust all cash, securities and other assets which they may from
time to time acquire in any manner as Trustees hereunder, and manage and dispose
of the same for the benefit of the holders of interests in the Trust and subject
to the following terms and conditions, and the Declaration of Trust is amended
and restated to read in full as set forth herein.
<PAGE>
ARTICLE I
THE TRUST
1.1 NAME. The name of the trust created hereby (the "Trust")
shall be "Nicholas-Applegate Institutional Funds", and so far as may be
practicable the Trustees shall conduct the Trust's activities, execute all
documents and sue or be sued under that name, which name (and the word "Trust"
wherever hereinafter used) shall not refer to the Trustees in their individual
capacities or to the officers, agents, employees or holders of interest in the
Trust. However, should the Trustees determine that the use of the name of the
Trust is not advisable, they may select such other name for the Trust as they
deem proper and the Trust may hold its property and conduct its activities under
such other name. Any name change shall become effective upon the execution by a
majority of the then Trustees of an instrument setting forth the new name and
the filing of a certificate of amendment pursuant to Section 3810(b) of the
DBTA. Any such instrument shall not require the approval of the holders of
interests in the Trust, but shall have the status of an amendment to this
Declaration.
1.2 TRUST PURPOSE. The purpose of the Trust is to conduct,
operate and carry on the business of an open-end management investment company
registered under the 1940 Act. In furtherance of the foregoing, it shall be the
purpose of the Trust to do everything necessary, suitable, convenient or proper
for the conduct, promotion and attainment of any businesses and purposes which
at any time may be incidental or may appear conducive or expedient for the
accomplishment of the business of an open-end management investment company
registered under the 1940 Act and which may be engaged in or carried on by a
trust organized under the DBTA, and in connection therewith the Trust shall have
and may exercise all of the powers conferred by the laws of the State of
Delaware upon a Delaware business trust.
1.3 DEFINITIONS. As used in this Declaration, the following
terms shall have the following meanings:
(a) "1940 ACT" shall mean the Investment Company Act of
1940, as amended from time to time, and the
-6-
<PAGE>
rules and regulations thereunder, as adopted or amended from time to time.
(b) "AFFILIATED PERSON", "ASSIGNMENT" and "INTERESTED PERSON"
shall have the meanings given them in the 1940 Act.
(c) "ADMINISTRATOR" shall mean any party furnishing services to
the Trust pursuant to any administrative services contract described in Section
4.1 hereof.
(d) "BY-LAWS" shall mean the By-Laws of the Trust as amended
from time to time.
(e) "CODE" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and the rules and regulations thereunder, as adopted
or amended from time to time.
(f) "COMMISSION" shall mean the Securities and Exchange
Commission.
(g) "DECLARATION" shall mean this Declaration of Trust as
amended from time to time. References in this Declaration to "DECLARATION",
"HEREOF", "HEREIN" and "HEREUNDER" shall be deemed to refer to the Declaration
rather than the article or section in which such words appear. This Declaration
shall, together with the By-Laws, constitute the governing instrument of the
Trust under the DBTA.
(h) "DBTA" shall mean the Delaware Business Trust Act, Delaware
Code Annotated title 12, Sections 3801 et seq., as amended from time to time.
(i) "FISCAL YEAR" shall mean an annual period as determined by
the Trustees unless otherwise provided by the Code or applicable regulations.
(j) "HOLDERS" shall mean as of any particular time any or all
holders of record of Interests in the Trust or in Trust Property, as the case
may be, at such time.
-7-
<PAGE>
(k) "INTEREST" shall mean a Holder's units of interest into
which the beneficial interest in the Trust and each series of the Trust shall be
divided from time to time.
(1) "INVESTMENT ADVISER" shall mean any party furnishing
services to the Trust pursuant to any investment advisory contract described in
Section 4.1 hereof.
(m) "MAJORITY INTERESTS VOTE" shall mean the vote, at a meeting
of the Holders of Interests, of the lesser of (A) 67% or more of the Interests
present or represented at such meeting, provided the Holders of more than 50% of
the Interests are present or represented by proxy or (B) more than 50% of the
Interests.
(n) "PERSON" shall mean and include an individual, corporation,
partnership, trust, association, joint venture and other entity, whether or not
a legal entity, and a government and agencies and political subdivisions
thereof.
(o) "REGISTRATION STATEMENT" as of any particular time shall
mean the Registration Statement of the Trust which is effective at such time
under the 1940 Act.
(p) "TRUST PROPERTY" shall mean as of any particular time any
and all property, real or personal, tangible or intangible, which at such time
is owned or held by or for the account of the Trust or the Trustees. The
Trustees may authorize the division of Trust Property into two or more series,
in accordance with the provisions of Section 8.8 hereof, in which case all
references in this Declaration to the Trust, Trust Property, Interests therein
or Holders thereof shall be deemed to refer to each such series, as the case may
be, except as the context otherwise requires. Any series of Trust Property
shall be established and designated, and the variations in the relative rights
and preferences as between the different series shall be fixed and determined,
by the Trustees.
(q) "TRUSTEES" shall mean such persons who are identified as
trustees of the Trust on the signature page of this Declaration, so long as they
shall continue in office in accordance with the terms of this Declaration of
Trust, and all other persons who at the time in question have been
-8-
<PAGE>
duly elected or appointed as trustees in accordance with the provisions of this
Declaration of Trust and are then in office, in their capacity as trustees
hereunder.
ARTICLE II
TRUSTEES
2.1 NUMBER AND QUALIFICATION. The number of Trustees shall initially
be four and shall thereafter be fixed from time to time by written instrument
signed by majority of the Trustees so fixed then in office, provided, however,
that the number of Trustees shall in no event be less than one. A Trustee shall
be an individual at least 21 years of age who is not under legal disability.
(a) Any vacancy created by an increase in Trustees shall be
filled by the appointment or election of an individual having the qualifications
described in this Article as provided in Section 2.4. Any such appointment
shall not become effective, however, until the individual appointed or elected
shall have accepted in writing such appointment or election and agreed in
writing to be bound by the terms of the Declaration. No reduction in the number
of Trustees shall have the effect of removing any Trustee from office.
(b) Whenever a vacancy in the number of Trustees shall occur,
until such vacancy is filled as provided in Section 2.4 hereof, the Trustees in
office, regardless of their number, shall have all the powers granted to the
Trustees and shall discharge all the duties imposed upon the Trustees by this
Declaration.
2.2 TERM AND ELECTION. Each Trustee named herein, or elected or
appointed prior to the first meeting of the Holders, shall (except in the event
of resignations or removals or vacancies pursuant to Section 2.3 or 2.4 hereof)
hold office until his or her successor has been elected at such meeting and has
qualified to serve as Trustee. Beginning with the Trustees elected at the first
meeting of Holders, each Trustee shall hold office during the lifetime of this
Trust and until its termination as hereinafter provided unless such Trustee
resigns or is removed as
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provided in Section 2.3 below.
2.3 RESIGNATION AND REMOVAL. Any Trustee may resign (without need
for prior or subsequent accounting) by an instrument in writing signed by him or
her and delivered or mailed to the Chairman, if any, the President or the
Secretary and such resignation shall be effective upon such delivery, or at a
later date according to the terms of the instrument.
(a) Any of the Trustees may be removed with or without cause, by
the affirmative vote of the Holders of two-thirds (2/3) of the Interests or
(provided the aggregate number of Trustees, after such removal and after giving
effect to any appointment made to fill the vacancy created by such removal,
shall not be less than the number required by Section 2.1 hereof), or with
cause, by the action of two-thirds (2/3) of the remaining Trustees. Removal
with cause shall include, but not be limited to, the removal of a Trustee due to
physical or mental incapacity.
(b) Upon the resignation or removal of a Trustee, or his or her
otherwise ceasing to be a Trustee, he or she shall execute and deliver such
documents as the remaining Trustees shall require for the purpose of conveying
to the Trust or the remaining Trustees any Trust Property held in the name of
the resigning or removed Trustee. Upon the death of any Trustee or upon removal
or resignation due to any Trustee's incapacity to serve as trustee, his or her
legal representative shall execute and deliver on his or her behalf such
documents as the remaining Trustees shall require as provided in the preceding
sentence.
2.4 VACANCIES. The term of office of a Trustee shall terminate and a
vacancy shall occur in the event of the death, resignation, adjudicated
incompetence or other incapacity to perform the duties of the office, or
removal, of a Trustee. A vacancy shall also occur in the event of an increase
in the number of trustees as provided in Section 2.1. No such vacancy shall
operate to annul this Declaration or to revoke any existing trust created
pursuant to the terms of this Declaration. In the case of a vacancy, the
Holders of at least a plurality of the Interests
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entitled to vote, acting at any meeting of the Holders held in accordance with
Section 8.1 hereof, or, to the extent permitted by the 1940 Act, a majority vote
of the Trustees continuing in office acting by written instrument or
instruments, may fill such vacancy, and any Trustee so elected by the Trustees
or the Holders shall hold office as provided in this Declaration. There shall
be no cumulative voting by the Holders in the election of Trustees.
2.5 MEETINGS. Meetings of the Trustees shall be held from time to
time within or without the State of Delaware upon the call of the Chairman, if
any, the President, the Chief Operating Officer, the Secretary, an Assistant
Secretary or any two Trustees.
(a) Regular meetings of the Trustees may be held without call or
notice at a time and place fixed by the By-Laws or by resolution of the
Trustees. Notice of any other meeting shall be given not later than 72 hours
preceding the meeting by United States mail or by electronic transmission to
each Trustee at his business address as set forth in the records of the Trust or
otherwise given personally not less than 24 hours before the meeting but may be
waived in writing by any Trustee either before or after such meeting. The
attendance of a Trustee at a meeting shall constitute a waiver of notice of such
meeting except where a Trustee attends a meeting for the express purpose of
objecting to the transaction of any business on the ground that the meeting has
not been lawfully called or convened.
(b) A quorum for all meetings of the Trustees shall be one-third
of the total number of Trustees, but (except at such time as there is only one
Trustee) no less than two Trustees. Unless provided otherwise in this
Declaration, any action of the Trustees may be taken at a meeting by vote of a
majority of the Trustees present (a quorum being present) or without a meeting
by written consent of a majority of the Trustees, which written consent shall be
filed with the minutes of proceedings of the Trustees or any such committee. If
there be less than a quorum present at any meeting of the Trustees, a majority
of those present may adjourn the meeting until a quorum shall have been
obtained.
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(c) Any committee of the Trustees, including an executive
committee, if any, may act with or without a meeting. A quorum for all meetings
of any such committee shall be two or more of the members thereof, unless the
Board shall provide otherwise. Unless provided otherwise in this Declaration,
any action of any such committee may be taken at a meeting by vote of a majority
of the members present (a quorum being present) or without a meeting by written
consent of a majority of the members, which written consent shall be filed with
the minutes of proceedings of the Trustees or any such committee.
(d) With respect to actions of the Trustees and any committee of
the Trustees, Trustees who are Interested Persons of the Trust or are otherwise
interested in any action to be taken may be counted for quorum purposes under
this Section 2.5 and shall be entitled to vote to the extent permitted by the
1940 Act.
(e) All or any one or more Trustees may participate in a meeting
of the Trustees or any committee thereof by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting pursuant to such
communications system shall constitute presence in person at such meeting,
unless the 1940 Act specifically requires the Trustees to act "in person," in
which case such term shall be construed consistent with Commission or staff
releases or interpretations.
2.6 OFFICERS; CHAIRMAN OF THE BOARD. The Trustees shall, from time
to time, elect officers of the Trust, including a President, a Secretary and a
Treasurer. The Trustees shall elect or appoint, from time to time, a Trustee to
act as Chairman of the Board who shall preside at all meetings of the Trustees
and carry out such other duties as the Trustees shall designate. The Trustees
may elect or appoint or authorize the President to appoint such other officers
or agents with such powers as the Trustees may deem to be advisable. The
President, Secretary and Treasurer may, but need not, be a Trustee. The
Chairman of the Board and such officers of the Trust shall serve in such
capacity for such time and with such authority as the Trustees may,
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in their discretion, so designate or as provided by in the By-Laws.
2.7 BY-LAWS. The Trustees may adopt and, from time to time, amend or
repeal the By-Laws for the conduct of the business of the Trust not inconsistent
with this Declaration and such ByLaws are hereby incorporated in this
Declaration by reference thereto.
ARTICLE III
POWERS OF TRUSTEES
3.1 GENERAL. The Trustees shall have exclusive and absolute control
over management of the business and affairs of the Trust, but with such powers
of delegation as may be permitted by this Declaration and the DBTA. The
Trustees may perform such acts as in their sole discretion are proper for
conducting the business and affairs of the Trust. The enumeration of any
specific power herein shall not be construed as limiting the aforesaid power.
Such powers of the Trustee may be exercised without order of or recourse to any
court.
3.2 INVESTMENTS. The Trustees shall have power to:
(a) conduct, operate and carry on the business of an investment
company;
(b) subscribe for, invest in, reinvest in, purchase or otherwise
acquire, hold, pledge, sell, assign, transfer, exchange, distribute or otherwise
deal in or dispose of United States and foreign currencies and related
instruments including forward contracts, and securities, including common and
preferred stock, warrants, bonds, debentures, time notes and all other evidences
of indebtedness, negotiable or non-negotiable instruments, obligations,
certificates of deposit or indebtedness, commercial paper, repurchase
agreements, reverse repurchase agreements, convertible securities, forward
contracts, options, futures contracts, and other securities, including, without
limitation, those issued, guaranteed or sponsored by any state, territory or
possession of the United States and
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the District of Columbia and their political subdivisions, agencies and
instrumentalities, or by the United States Government, any foreign government,
or any agency, instrumentality or political subdivision of the United States
Government or any foreign government, or international instrumentalities, or by
any bank, savings institution, corporation or other business entity organized
under the laws of the United States or under foreign laws; and to exercise any
and all rights, powers and privileges of ownership or interest in respect of any
and all such investments of every kind and description, including, without
limitation, the right to consent and otherwise act with respect thereto, with
power to designate one or more persons, firms, associations, or corporations to
exercise any of said rights, powers and privileges in respect of any of said
instruments; and the Trustees shall be deemed to have the foregoing powers with
respect to any additional securities in which the Trustees may determine to
invest.
The Trustees shall not be limited to investing in obligations maturing
before the possible termination of the Trust, nor shall the Trustees be limited
by any law limiting the investments which may be made by fiduciaries.
3.3 LEGAL TITLE. Legal title to all the Trust Property shall be
vested in the Trust as a separate legal entity under the DBTA, except that the
Trustees shall have the power to cause legal title to any Trust Property to be
held by or in the name of one or more of the Trustees or in the name of any
other Person on behalf of the Trust on such terms as the Trustees may determine.
In the event that title to any part of the Trust Property is vested in
one or more Trustees, the right, title and interest of the Trustees in the Trust
Property shall vest automatically in each person who may hereafter become a
Trustee upon his or her due election and qualification. Upon the resignation,
removal or death of a Trustee he or she shall automatically cease to have any
right, title or interest in any of the Trust Property, and the right, title and
interest of such Trustee in the Trust Property shall vest automatically in the
remaining Trustees. To the extent permitted by law, such vesting and cessation
of title shall be effective whether or not conveyancing documents have been
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executed and delivered.
3.4 SALE OF INTERESTS. Subject to the more detailed provisions set
forth in Article VII, the Trustees shall have the power to permit persons to
purchase Interests and to add or reduce, in whole or in part, their Interest in
the Trust.
3.5 BORROW MONEY. The Trustees shall have power to borrow money or
otherwise obtain credit and to secure the same by mortgaging, pledging or
otherwise subjecting as security the assets of the Trust, including the lending
of portfolio securities, and to endorse, guarantee or undertake the performance
of any obligation, contract or engagement of any other person, firm, association
or corporation.
3.6 DELEGATION; COMMITTEES. The Trustees shall have the power,
consistent with their continuing exclusive authority over the management of the
Trust and the Trust Property, to delegate from time to time to such of their
number or to officers, employees or agents of the Trust the doing of such things
and the execution of such instruments, either in the name of the Trust or the
names of the Trustees or otherwise, as the Trustees may deem expedient.
3.7 COLLECTION AND PAYMENT. The Trustees shall have power to collect
all property due to the Trust; to pay all claims, including taxes, against the
Trust Property; to prosecute, defend, compromise or abandon any claims relating
to the Trust Property; to foreclose any security interest securing any
obligations, by virtue of which any property is owned to the Trust; and to enter
into releases, agreements and other instruments.
3.8 EXPENSES. The Trustees shall have the power to incur and pay any
expenses which in the opinion of the Trustees are necessary or incidental to
carry out any of the purposes of this Declaration, and to pay reasonable
compensation from the funds of the Trust to themselves as Trustees. The
Trustees shall fix the compensation of all officers, employees and Trustees.
The Trustees may pay themselves such compensation for special services,
including legal and brokerage services, as they in good faith may deem
reasonable (subject to any limitations in the 1940 Act), and
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reimbursement for expenses reasonably incurred by themselves on behalf of the
Trust.
3.9 MISCELLANEOUS POWERS. The Trustees shall have the power to: (a)
employ or contract with such Persons as the Trustees may deem desirable for the
transaction of the business of the Trust and terminate such employees or
contractual relationships as they consider appropriate; (b) enter into joint
ventures, partnerships and any other combinations or associations; (c) purchase,
and pay for out of Trust Property, insurance policies (including, but not
limited to, fidelity bonding and errors and omission policies) insuring the
Investment Adviser, Administrator, distributor, Holders, Trustees, officers,
employees, agents, or independent contractors of the Trust against all claims
arising by reason of holding any such position or by reason of any action taken
or omitted by any such person in such capacity, whether or not the Trust would
have the power to indemnify such Person against liability; (d) establish
pension, profit-sharing and other retirement, incentive and benefit plans for
any Trustees, officers, employees and agents of the Trust; (e) to the extent
permitted by law, indemnify any Person with whom the Trust has dealings,
including the Investment Adviser, Administrator, distributor, Holders, Trustees,
officers, employees, agents or independent contractors of the Trust, to such
extent as the Trustees shall determine; (f) guarantee indebtedness or
contractual obligations of others; (g) determine and change the Fiscal Year of
the Trust and the method by which its accounts shall be kept; and (h) adopt a
seal for the Trust, but the absence of such seal shall not impair the validity
of any instrument executed on behalf of the Trust.
3.10 FURTHER POWERS. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its branches
and maintain offices, whether within or without the State of Delaware, in any
and all states of the United States of America, in the District of Columbia, in
any foreign countries, and in any and all commonwealths, territories,
dependencies, colonies, possessions, agencies or instrumentalities of the United
States of America and of foreign countries, and to do all such other things and
execute all such instruments as they deem necessary, proper or desirable in
order to promote the
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interests of the Trust although such things are not herein specifically
mentioned. Any determination as to what is in the interests of the Trust made
by the Trustees in good faith shall be conclusive and shall be binding upon the
Trust and the Holders, past, present and future. In construing the provisions
of this Declaration, the presumption shall be in favor of a grant of power to
the Trustees. The Trustees shall not be required to obtain any court order to
deal with Trust Property.
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ARTICLE IV
INVESTMENT ADVISORY, ADMINISTRATIVE SERVICES
AND PLACEMENT AGENT ARRANGEMENTS
4.1 INVESTMENT ADVISORY AND OTHER ARRANGEMENTS. The Trustees may in
their discretion, from time to time, enter into contracts or agreements for
investment advisory services, administrative services (including transfer and
dividend disbursing agency services), distribution services, fiduciary
(including custodian) services, placement agent services, Holder servicing and
distribution services, or other services, whereby the other party to such
contract or agreement shall undertake to furnish the Trustees such services as
the Trustees shall, from time to time, consider desirable and all upon such
terms and conditions as the Trustees may in their discretion determine.
Notwithstanding any other provisions of this Declaration to the contrary, the
Trustees may authorize any Investment Adviser (subject to such general or
specific instructions as the Trustees may, from time to time, adopt) to effect
purchases, sales, loans or exchanges of Trust Property on behalf of the Trustees
or may authorize any officer, employee or Trustee to effect such purchases,
sales, loans or exchanges pursuant to recommendations of any such Investment
Adviser (all without further action by the Trustees). Any such purchases,
sales, loans and exchanges shall be binding upon the Trust.
4.2 PARTIES TO CONTRACT. Any contract or agreement of the character
described in Section 4.1 of this Article IV or in the By-Laws of the Trust may
be entered into with any Person, although one or more of the Trustees or
officers of the Trust or any Holder may be an officer, director, trustee,
shareholder, or member of such other party to the contract or agreement, and no
such contract or agreement shall be invalidated or rendered voidable by reason
of the existence of any such relationship, nor shall any person holding such
relationship be liable merely by reason of such relationship for any loss or
expense to the Trust under or by reason of such contract or agreement or
accountable for any profit realized directly or indirectly therefrom, provided
that the contract or agreement when entered into
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was reasonable and fair and not inconsistent with the provisions of this Article
IV or the By-Laws. Any Trustee or officer of the Trust or any Holder may be the
other party to contracts or agreements entered into pursuant to Section 4.1
hereof or the By-Laws of the Trust, and any Trustee or officer of the Trust or
any Holder may be financially interested or otherwise affiliated with Persons
who are parties to any or all of the contracts or agreements mentioned in this
Section 4.2.
ARTICLE V
LIMITATIONS OF LIABILITY
5.1 NO PERSONAL LIABILITY OF TRUSTEES OFFICERS, EMPLOYEES, AGENTS.
No Trustee, officer, employee or agent of the Trust when acting in such capacity
shall be subject to any personal liability whatsoever, in his or her individual
capacity, to any Person, other than the Trust or its Holders, in connection with
Trust Property or the affairs of the Trust; and all such Persons shall look
solely to the Trust Property for satisfaction of claims of any nature against a
Trustee, officer, employee or agent of the Trust arising in connection with the
affairs of the Trust. No Trustee, officer, employee or agent of the Trust shall
be liable to the Trust, Holders of Interests therein, or to any Trustee,
officer, employee, or agent thereof for any action or failure to act (including,
without limitation, the failure to compel in any way any former or acting
Trustee to redress any breach of trust) except for his or her own bad faith,
willful misfeasance, gross negligence or reckless disregard of his or her
duties.
5.2 INDEMNIFICATION OF TRUSTEES, OFFICERS, EMPLOYEES AGENTS. The
Trust shall indemnify each of its Trustees, officers, employees, and agents
(including Persons who serve at its request as directors, officers or trustees
of another organization in which it has any interest, as a shareholder, creditor
or otherwise) against all liabilities and expenses (including amounts paid in
satisfaction of judgments, in compromise, as fines and penalties, and as counsel
fees) reasonably incurred by him or her in connection with the defense or
disposition of any action,
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suit or other proceeding, whether civil or criminal, in which he or she may be
involved or with which he or she may be threatened, while in office or
thereafter, by reason of his or her being or having been such a Trustee,
officer, employee or agent, except with respect to any matter as to which he or
she shall have been adjudicated to have acted in bad faith, willful misfeasance,
gross negligence or reckless disregard of his or her duties; provided, however,
that as to any matter disposed of by a compromise payment by such Person,
pursuant to a consent decree or otherwise, no indemnification either for said
payment or for any other expenses shall be provided unless there has been a
determination that such Person did not engage in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
his or her office by the court or other body approving the settlement or other
disposition or by a reasonable determination, based upon review of readily
available facts (as opposed to a full trial-type inquiry), that he or she did
not engage in such conduct by written opinion from independent legal counsel
approved by the Trustees. The rights accruing to any Person under these
provisions shall not exclude any other right to which he or she may be lawfully
entitled; provided that no Person may satisfy any right of indemnity or
reimbursement granted herein or in Section 5.1 or to which he or she may be
otherwise entitled except out of the Trust Property. The Trustees may make
advanc payments in connection with indemnification under this Section 5.2,
provided that the indemnified Person shall have given a written undertaking to
reimburse the Trust in the event it is subsequently determined that he or she is
not entitled to such indemnification.
5.3 LIABILITY OF HOLDERS; INDEMNIFICATION. The Trust shall indemnify
and hold each Holder harmless from and against any claim or liability to which
such Holder may become subject solely by reason of his or her being or having
been a Holder and not because of such Holder's acts or omissions or for some
other reason, and shall reimburse such Holder for all legal and other expenses
reasonably incurred by him or her in connection with any such claim or liability
(upon proper and timely request by the Holder); provided, however, that no
Holder shall be entitled to indemnification by any series established in
accordance with
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Section 8.8 unless such Holder is a Holder of Interests of such series. The
rights accruing to a Holder under this Section 5.3 shall not exclude any other
right to which such Holder may be lawfully entitled, nor shall anything herein
contained restrict the right of the Trust to indemnify or reimburse a Holder in
any appropriate situation even though not specifically provided herein.
5.4 NO BOND REQUIRED OF TRUSTEES. No Trustee shall, as such, be
obligated to give any bond or surety or other security for the performance of
any of his or her duties hereunder.
5.5 NO DUTY OF INVESTIGATION; NOTICE IN TRUST INSTRUMENTS, ETC. No
purchaser, lender, or other Person dealing with the Trustees or any officer,
employee or agent of the Trust shall be bound to make any inquiry concerning the
validity of any transaction purporting to be made by the Trustees or by said
officer, employee or agent or be liable for the application of money or property
paid, loaned, or delivered to or on the order of the Trustees or of said
officer, employee or agent. Every obligation, contract, instrument, certificate
or other interest or undertaking of the Trust, and every other act or thing
whatsoever executed in connection with the Trust, shall be conclusively taken to
have been executed or done by the executors thereof only in their capacity as
Trustees, officers, employees or agents of the Trust. Every written obligation,
contract, instrument, certificate or other interest or undertaking of the Trust
made by the Trustees or by any officer, employee or agent of the Trust, in his
or her capacity as such, shall contain an appropriate recital to the effect that
the Trustee, officer, employee and agent of the Trust shall not personally be
bound by or liable thereunder, nor shall resort be had to their private property
or the private property of the Holders for the satisfaction of any obligation or
claim thereunder, and appropriate references shall be made therein to the
Declaration, and may contain any further recital which they may deem
appropriate, but the omission of such recital shall not operate to impose
personal liability on any of the Trustees, officers, employees or agents of the
Trust. The Trustees may maintain insurance for the protection of the Trust
Property, Holders, Trustees, officers, employees and agents in such amount as
the
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Trustees shall deem advisable.
5.6 RELIANCE ON EXPERTS, ETC. Each Trustee and officer or employee
of the Trust shall, in the performance of his or her duties, be fully and
completely justified and protected with regard to any act or any failure to act
resulting from reliance in good faith upon the books of account or other records
of the Trust, upon an opinion of counsel, or upon reports made to the Trust by
any of its officers or employees or by any Investment Adviser, Administrator,
accountant, appraiser or other experts or consultants selected with reasonable
care by the Trustees, officers or employees of the Trust, regardless of whether
such counsel or expert may also be a Trustee.
5.7 ASSENT TO DECLARATION. Every Holder, by virtue of having become
a Holder in accordance with the terms of this Declaration, shall be held to have
expressly assented and agreed to the terms hereof and to have become a party
hereto.
ARTICLE VI
INTERESTS IN THE TRUST
6.1 INTERESTS. The beneficial interests in the property of the Trust
shall consist of an unlimited number of Interests. No certificates certifying
the ownership of Interests need be issued except as the Trustees may otherwise
determine from time to time.
(a) The Trustees shall have the power and authority, without Holder
approval, to issue Interests in one or more series from time to time as they
deem necessary or desirable. Each series shall be separate from all other
series in respect of the assets and liabilities allocated to that series and
shall represent a separate investment portfolio of the Trust. The Trustees
shall have exclusive power without the requirement of Holder approval to
establish and designate such separate and distinct series and to fix and
determine the relative rights and preferences as between the Interests of the
separate series as to right of redemption, special and relative rights as to
dividends and other distributions and on liquidation, conversion
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rights, and conditions under which the series shall have separate voting rights
or no voting rights.
(b) The Trustees may, without Holder approval, divide Interests
of any series into two or more classes, Interests of each such class having such
preferences and special or relative rights and privileges (including conversion
rights, if any) as the Trustees may determine. The fact that a series created
after the Effective Date shall have been initially established and designated
without any specific establishment or designation of classes, shall not limit
the authority of the Trustees to divide a series and establish and designate
separate classes thereof.
(c) The number of Interests authorized shall be unlimited, and
the Interests so authorized may be represented in part by fractional Interests.
From time to time, the Trustees may divide or combine the Interests of any
series or class into a greater or lesser number without thereby changing the
proportionate beneficial interests in the series or class. The Trustees may
issue Interests of any series or class thereof for such consideration and on
such terms as they may determine (or for no consideration if pursuant to an
Interest dividend or split-up), all without action or approval of the Holders.
All Interests when so issued on the terms determined by the Trustees shall be
fully paid and non-assessable. The Trustees may classify or reclassify any
unissued Interests or any Interests previously issued and reacquired of any
series or class thereof into one or more series or classes thereof that may be
established and designated from time to time. The Trustees may hold as treasury
Interests, reissue for such consideration and on such terms as they may
determine, or cancel, at their discretion from time to time, any Interests of
any series or class thereof reacquired by the Trust.
(d) The establishment and designation of any series of Interests
other than those set forth in Section 8.8 below shall be effective upon the
execution by a majority of the then Trustees of an instrument setting forth such
establishment and designation and the relative rights and preferences of such
series to the extent not otherwise set forth herein, or as otherwise provided in
such instrument. At any time that there are no Interests
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outstanding of any series established and designated in Section 8.8 hereof as of
the date first set forth above (the "Existing Series"), the Trustees may by an
instrument executed by a majority of their number abolish that series and the
establishment and designation thereof. Whether or not there are any Interests
outstanding of any other series established and designated after the date first
set forth above, the Trustees may by an instrument executed by a majority of
their number abolish that series and the establishment and designation thereof.
Each instrument referred to in this paragraph shall have the status of an
amendment to this Declaration.
(e) The division of any series into two or more classes and the
establishment and designation of such classes shall be effective upon the
execution by a majority of the then Trustees of an Instrument setting forth such
division, and the establishment, designation, and relative rights and
preferences of such classes to the extent not otherwise set forth herein, or as
otherwise provided in such instrument. The relative rights and preferences of
the classes of any series may differ in such respects as the Trustees may
determine to be appropriate, provided that such differences are set forth in the
aforementioned instrument. At any time that there are no Interests outstanding
of the Class I shares of any Existing Series, the Trustees may by an instrument
executed by a majority of their number abolish that class and the establishment
and designation thereof. Whether or not there are any Interests outstanding of
any other Class of the Existing Series, or any class of any other series created
after the date first set forth above, the Trustees may by an instrument executed
by a majority of their number abolish that class and the establishment and
designation thereof. Each instrument referred to in this paragraph shall have
the status of an amendment to this Declaration.
6.2 RIGHTS OF HOLDERS. The ownership of the Trust Property of every
description and the right to conduct any business hereinbefore described are
vested exclusively in the Trust or the Trustees, and the Holders shall have no
right or title therein other than the beneficial interest conferred by their
Interests and they shall have no right to call for any partition or division of
any property, profits
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or rights of the Trust. The Interests shall be personal property giving only
the rights specifically set forth in this Declaration.
6.3 REGISTER OF INTERESTS. A register shall be kept by the Trust
under the direction of the Trustees which shall contain the names and addresses
of the Holders and Interests held by each Holder. Each such register shall be
conclusive as to the identity of the Holders of the Trust and the Persons who
shall be entitled to payments of distributions or otherwise to exercise or enjoy
the rights of Holders. No Holder shall be entitled to receive payment of any
distribution, nor to have notice given to it as herein provided, until it has
given its address to such officer or agent of the Trustees as shall keep the
said register for entry thereon.
6.4 NOTICES. Any and all notices to which any Holder hereunder may
be entitled and any and all communications shall be deemed duly served or given
if mailed, postage prepaid, addressed to any Holder of record at its last known
address as recorded on the register of the Trust.
6.5 NO PRE-EMPTIVE RIGHTS; DERIVATIVE SUITS. Holders shall have no
pre-emptive or other right to subscribe to any additional Interests or other
securities issued by the Trust. No action may be brought by a Holder on behalf
of the Trust unless Holders owning no less than 10% of the then outstanding
Interests, or series or class thereof, join in the bringing of such action. A
Holder of Interests in a particular series or a particular class of the Trust
shall not be entitled to participate in a derivative or class action lawsuit on
behalf of any other series or any other class or on behalf of the Holders of
Interests in any other series or any other class of the Trust.
6.6 NO APPRAISAL RIGHTS. Holders shall have no right to demand
payment for their Interests or to any other rights of dissenting Holders in the
event the Trust participates in any transaction which would give rise to
appraisal or dissenters' rights by a holder of a corporation organized under the
General Corporation Law of Delaware, or
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otherwise.
6.7 DIVIDENDS AND DISTRIBUTIONS. (a) Dividends and distributions on
Interests of a particular series or any class thereof may be paid with such
frequency as the Trustees may determine, which may be daily or otherwise,
pursuant to a standing resolution or resolution adopted only once or with such
frequency as the Trustees may determine, to the Holders of Interests in that
series or class, from such of the income and capital gains, accrued or realized,
from the Trust Property belonging to that series, or in the case of a class,
belonging to that series and allocable to that class, as the Trustees may
determine, after providing for actual and accrued liabilities belonging to that
series. All dividends and distributions on Interests in a particular series or
class thereof shall be distributed pro rata to the Holders of Interests in that
series or class in proportion to the total outstanding Interests in that series
or class held by such Holders at the date and time of record established for the
payment of such dividends or distribution, except to the extent otherwise
required or permitted by the preferences and special or relative rights and
privileges of any series or class. Such dividends and distributions may be made
in cash or Interests of that series or class or a combination thereof as
determined by the Trustees or pursuant to any program that the Trustees may have
in effect at the time for the election by each Holder of the mode of the making
of such dividend or distribution to that Holder.
(b) The Interests in a series or a class of the Trust shall
represent beneficial interests in the Trust Property belonging to such series or
in the case of a class, belonging to such series and allocable to such class.
Each Holder of Interests in a series or a class shall be entitled to receive its
pro rata share of distributions of income and capital gains made with respect to
such series or such class. Upon reduction or withdrawal of its Interests or
indemnification for liabilities incurred by reason of being or having been a
Holder of Interests in a series or a class, such Holder shall be paid solely out
of the funds and property of such series or in the case of a class, the funds
and property of such series and allocable to such class of the Trust. Upon the
Trustees' determination to effect a
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liquidation or termination of a series or class of the Trust, Holders of
Interests in such series or class shall be entitled to receive a pro rata share
of the Trust Property belonging to such series or in the case of a class, belong
to such series and allocable to such class.
6.8 VOTING RIGHTS. Notwithstanding any other provision hereof, on
each matter submitted to a vote of the Holders, each Holder shall be entitled to
one vote for each whole Interest standing in his name on the books of the Trust,
and each fractional Interest shall be entitled to a proportionate fractional
vote, irrespective of the series thereof or class thereof and all Interests of
all series and classes thereof shall vote together as a single class; provided,
however, that as to any matter (i) with respect to which a separate vote of one
or more series or classes thereof is required by the 1940 Act or the provisions
of the instrument establishing and designating the series or class, such
requirements as to a separate vote by such series or class thereof shall apply
in lieu of all Interests of all series and classes thereof voting together; and
(ii) as to any matter which affects only the interests of one or more particular
series or classes thereof, only the Holders of the one or more affected series
or class shall be entitled to vote, and each such series or class shall vote as
a separate class.
6.9 EQUALITY. Except as provided herein or in the instrument
designating and establishing any class or series, all Interests of each
particular series or class thereof shall represent an equal proportionate
interest in the assets belonging to that series, or in the case of a class,
belonging to that series and allocable to that class, subject to the liabilities
belonging to that series, and each Interest of any particular series or class
shall be equal to each other Interest of that series or class; but the
provisions of this sentence shall not restrict any distinctions permissible
under Section 6.7 that may exist with respect to dividends and distributions on
Interests of the same series or class. The Trustees may from time to time
divide or combine the Interests of any particular series or class into a greater
or lesser number of Interests of that series or class without thereby changing
the proportionate beneficial interest in the assets belonging to
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that series or in any way affecting the rights or Interests of any other series
or class.
6.10 FRACTIONS. Any fractional Interest of any series or class, if
any such fractional Interest is outstanding, shall carry proportionately all the
rights and obligations of a whole Interest of that series or classes, including
rights and obligations with respect to voting, receipt of dividends and
distributions, redemption of Interests, and liquidation of the Trust.
6.11 CLASS DIFFERENCES. Subject to Section 6.1, the relative rights
and preferences of the classes of any series may differ in such other respects
as the Trustees may determine to be appropriate in their sole discretion,
provided that such differences are set forth in the instrument establishing and
designating such classes and executed by a majority of the Trustees.
6.12 CONVERSION OF INTERESTS. Subject to compliance with the
requirements of the 1940 Act, the Trustees shall have the authority to provide
that Holders of Interests of any series shall have the right to convert said
Interests into one or more other series in accordance with such requirements and
procedures as may be established by the Trustees. The Trustees shall also have
the authority to provide that Holders of Interests of any class of a particular
series shall have the right to convert said Interests into one or more other
classes of that particular series or any other series in accordance with such
requirements and procedures as may be established by the Trustees.
ARTICLE VII
PURCHASES AND REDEMPTIONS
7.1 PURCHASES. The Trustees, in their discretion, may, from time to
time, without a vote of the Holders, permit the purchase of Interests by such
party or parties (or increase in the Interests of a Holder) and for such type of
consideration, including, without
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limitation, cash or property, at such time or times (including, without
limitation, each business day), and on such terms as the Trustees may deem
best, and may in such manner acquire other assets (including, without
limitation, the acquisition of assets subject to, and in connection with the
assumption of, liabilities) and businesses.
7.2 REDEMPTION BY HOLDER. Each Holder of Interests of the Trust or
any series thereof shall have the right at such times as may be permitted by the
Trust to require the Trust to redeem all or any part of his or her Interests of
the Trust or series thereof at a redemption price equal to the net asset value
per Interest of the Trust or series thereof next determined in accordance with
Section 7.4 hereof after the Interests are properly tendered for redemption,
subject to any contingent deferred sales charge in effect at the time of
redemption. Payment of the redemption price shall be in cash; provided, however,
that if the Trustees determine, which determination shall be conclusive, that
conditions exist which make payment wholly in cash unwise or undesirable, the
Trust may, subject to the requirements of the 1940 Act, make payment wholly or
partly in securities or other assets belonging to the Trust or series thereof of
which the Interests being redeemed are part at the value of such securities or
assets used in such determination of net asset value.
Notwithstanding the foregoing, the Trust may postpone payment of the
redemption price and may suspend the right of the Holders of Interests of the
Trust or series thereof to require the Trust to redeem Shares of the Trust of
series during any period or at any time when and to the extent permissible under
the 1940 Act.
7.3 REDEMPTION BY TRUST. Each Interest of the Trust or any series or
class thereof that has been established and designated is subject to redemption
by the Trust at the redemption price which would be applicable if such Interest
was then being redeemed by the Holder pursuant to Section 7.2 hereof: (i) at any
time, if the Trustees determine in their sole discretion and by majority vote
that failure to so redeem may have materially adverse consequences to the Trust
or any series or class or to the Holders of the Interests of the Trust or any
series or class thereof, or (ii) upon such other conditions as may from time to
time be determined by the Trustees and set forth in the
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then current Prospectus of the Trust with respect to maintenance of Holder
accounts of a minimum amount. Upon such redemption the Holders of the Interests
so redeemed shall have no further right with respect thereto other than to
receive payment of such redemption price.
7.4 NET ASSET VALUE. The net asset value per Interest of any series
shall be (i) in the case of a series whose Interests are not divided into
classes, the quotient obtained by dividing the value of the net assets of that
series (being the value of the assets belonging to that series less the
liabilities belonging to that series) by the total number of Interests of that
series outstanding, and (ii) in the case of a class of Interests of a series
whose Interests are divided into classes, the quotient obtained by dividing the
value of the net assets of that series allocable to such class (being the value
of the assets belonging to that series allocable to such class less the
liabilities belonging or allocable to such class) by the total number of
Interests of such class outstanding; all determined in accordance with the
methods and procedures, including without limitation those with respect to
rounding, established by the Trustees from time to time.
The Trustees may determine to maintain the net asset value per
Interest of any series at a designated constant dollar amount and in connection
therewith may adopt procedures consistent with the 1940 Act for continuing
declarations of income attributable to that series as dividends payable in
additional Interests of that series at the designated constant dollar amount and
for the handling of any losses attributable to that series.
ARTICLE VIII
HOLDERS
8.1 MEETINGS OF HOLDERS. Meetings of the Holders may be called at
any time by a majority of the Trustees and shall be called by any Trustee upon
written request of Holders holding, in the aggregate, not less than 10% of the
Interests, such request specifying the purpose or purposes for which such
meeting is to be called. Any such meeting
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shall be held within or without the State of Delaware on such day and at such
time as the Trustees shall designate. Holders of one-third of the Interests in
the Trust (or class or series thereof), present in person or by proxy, shall
constitute a quorum for the transaction of any business, except as may otherwise
be required by the 1940 Act or other applicable law or by this Declaration or
the By-Laws of the Trust. If a quorum is present at a meeting, an affirmative
vote by the Holders present, in person or by proxy, holding more than 50% of the
Interests (or class or series thereof) of the Holders present, either in person
or by proxy, at such meeting constitutes the action of the Holders, unless the
1940 Act, other applicable law, this Declaration or the By-Laws of the Trust
require a greater number of affirmative votes. Notwithstanding the foregoing,
the affirmative vote by the Holders present, in person or by proxy, holding less
than 50% of the Interests (or class or series thereof) of the Holders present,
in person or by proxy, at such meeting shall be sufficient for adjournments.
Any meeting of Holders, whether or not a quorum is present, may be adjourned for
any lawful purpose provided that no meeting shall be adjourned for more that six
months beyond the originally scheduled meeting date.
8.2 NOTICE OF MEETINGS. Written or printed notice of all meetings of
the Holders, stating the time, place and purposes of the meeting, shall be given
by the Trustees either by presenting it personally to a Holder, leaving it at
his or her residence or usual place of business, or by sending it via United
States mail or by electronic transmission to a Holder, at his or her registered
address, at least 10 business days and not more than 90 business days before the
meeting. If mailed, such notice shall be deemed to be given when deposited in
the United States mail addressed to the Holder at his or her address as it is
registered with the Trust, with postage thereon prepaid. At any such meeting,
any business properly before the meeting may be considered whether or not stated
in the notice of the meeting. Any adjourned meeting may be held as adjourned
without further notice.
8.3 RECORD DATE FOR MEETINGS. For the purpose of determining the
Holders who are entitled to notice of any meeting and to vote at any meeting, or
to participate in any
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distribution, or for the purpose of any other action, the Trustees may from time
to time fix a date, not more than 90 calendar days prior to the date of any
meeting of the Holders or payment of distributions or other action, as the case
may be, as a record date for the determination of the persons to be treated as
Holders of record for such purposes. If the Trustees shall divide the Trust
Property into two or more series in accordance with Section 8.8 herein, nothing
in this Section 8.3 shall be construed as precluding the Trustees from setting
different record dates for different series. If the Trustees shall divide any
series into two or more classes in accordance with Section 6.1 herein, nothing
in this Section 8.3 shall be construed as precluding the Trustees from setting
different record dates for different classes.
8.4 PROXIES, ETC. At any meeting of Holders, any Holder entitled to
vote thereat may vote by proxy, provided that no proxy shall be voted at any
meeting unless it shall have been placed on file with the Secretary, or with
such other officer or agent of the Trust as the Secretary may direct, for
verification prior to the time at which such vote shall be taken.
(a) Pursuant to a resolution of a majority of the Trustees,
proxies may be solicited in the name of one or more Trustees or one or more of
the officers of the Trust. Only Holders of record shall be entitled to vote.
Each Holder shall be entitled to a vote proportionate to its Interest in the
Trust.
(b) When Interests are held jointly by several persons, any one
of them may vote at any meeting in person or by proxy in respect of such
Interest, but if more than one of them shall be present at such meeting in
person or by proxy, and such joint owners or their proxies so present disagree
as to any vote to be cast, such vote shall not be received in respect of such
Interest.
(c) A proxy purporting to be executed by or on behalf of a
Holder shall be deemed valid unless challenged at or prior to its exercise, and
the burden of proving invalidity shall rest on the challenger. If the Holder is
a minor or a person of unsound mind, and subject to
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guardianship or to the legal control of any other person regarding the charge or
management of its Interest, he or she may vote by his or her guardian or such
other person appointed or having such control, and such vote may be given in
person or by proxy.
8.5 REPORTS. The Trustees shall cause to be prepared, at least
annually, a report of operations containing a balance sheet and statement of
income and undistributed income of the Trust prepared in conformity with
generally accepted accounting principles and an opinion of an independent public
accountant on such financial statements. The Trustees shall, in addition,
furnish to the Holders at least semi-annually interim reports containing an
unaudited balance sheet as of the end of such period and an unaudited statement
of income and surplus for the period from the beginning of the current Fiscal
Year to the end of such period.
8.6 INSPECTION OF RECORDS. The records of the Trust shall be open to
inspection by Holders during normal business hours and for any purpose not
harmful to the Trust.
8.7 VOTING POWERS. The Holders shall have power to vote only (a) for
the election of Trustees as contemplated by Section 2.2 hereof, (b) with respect
to any investment advisory contract as contemplated by Section 4.1 hereof, (c)
with respect to termination of the Trust as provided in Section 9.2 hereof, (d)
with respect to any merger, consolidation or sale of assets as provided in
Section 9.4 hereof, (e) with respect to incorporation of the Trust to the extent
and as provided in Section 9.5 hereof, (f) with respect to such additional
matters relating to the Trust as may be required by the 1940 Act, DBTA, or any
other applicable law, the Declaration, the By-Laws or any registration of the
Trust with the Commission (or any successor agency) or any state, or as and when
the Trustees may consider necessary or desirable.
Each Holder shall be entitled to vote based on the ratio its Interest
bears to the Interests of all Holders entitled to vote. Until Interests are
issued, the Trustees may exercise all rights of Holders and may take any action
required by law, the Declaration or the By-Laws to be taken
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by Holders. The By-Laws may include further provisions for Holders' votes and
meetings and related matters not inconsistent with this Declaration.
8.8 SERIES OF INTERESTS. The Trustees may establish and designate
series of Interests in accordance with the provisions of Section 6.1 hereof.
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 Fund
Nicholas-Applegate High Quality Bond Fund
Nicholas-Applegate Balanced 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 Greater China Fund
Nicholas-Applegate Latin America Fund
Nicholas-Applegate Mini Cap Growth Fund
Nicholas-Applegate Short Intermediate Fund
The following provisions shall be applicable to such series and any further
series that may from time to time be established and designated by the Trustees:
(a) All consideration received by the Trust for the issue or
sale of Interests of a particular series together with all Trust Property in
which such consideration is invested or reinvested, all income, earnings,
profits, and proceeds thereof, including any proceeds derived from the sale,
exchange or liquidation of such assets, and any funds or payments derived from
any reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that series for all purposes, subject only to the
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rights of creditors of such series and except as may otherwise be required by
applicable tax laws, and shall be so recorded upon the books of account of the
Trust. In the event that there is any Trust Property, or any income, earnings,
profits, and proceeds thereof, funds, or payments which are not readily
identifiable as belonging to any particular series, the Trustees shall allocate
them among any one or more of the series established and designated from time to
time in such manner and on such basis as they, in their sole discretion, deem
fair and equitable. Each such allocation by the Trustees shall be conclusive
and binding upon the Holders of all Interests for all purposes.
(b) The Trust Property belonging to each particular series shall
be charged with the liabilities of the Trust in respect of that series and all
expenses, costs, charges and reserves attributable to that series, and any
general liabilities, expenses, costs, charges or reserves of the Trust which are
not readily identifiable as belonging to any particular series shall be
allocated and charged by the Trustees to and among any one or more of the series
established and designated from time to time in such manner and on such basis as
the Trustees in their sole discretion deem fair and equitable. Each allocation
of liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon the Holders of all Interests for all purposes. The
Trustees shall have full discretion, to the extent not inconsistent with the
1940 Act, to determine which items shall be treated as income and which items as
capital, and each such determination and allocation shall be conclusive and
binding upon the Holders. Without limitation of the foregoing provisions of
this Section, but subject to the right of the Trustees in their discretion to
allocate general liabilities, expenses, costs, charges or reserves as herein
provided, the debts, liabilities, obligations and expenses incurred, contracted
for or otherwise existing with respect to a particular series shall be
enforceable against the assets of such series only, and not against the assets
of any other series. Notice of this limitation on inter-series liabilities may,
in the Trustees' sole discretion, be set forth in the certificate of trust of
the Trust (whether originally or by amendment) as filed or to be filed in the
Office of the Secretary of State of the State of Delaware pursuant to the DBTA,
and upon the giving
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of such notice in the certificate of trust, the statutory provisions of Section
3804 of the DBTA relating to limitations on interseries liabilities (and the
statutory effect under Section 3804 of setting forth such notice in the
certificate of trust) shall become applicable to the Trust and each series.
Every note, bond, contract or other undertaking issued by or on behalf of a
particular series shall include a recitation limiting the obligation represented
thereby to that series and its assets.
(c) If the Trust Property has been divided into two or more
series or classes, then Section 9.2 of this Agreement shall apply also with
respect to each such series or class thereof as if such series or class were a
separate trust.
8.9 HOLDER ACTION BY WRITTEN CONSENT. Any action which may be taken
by Holders may be taken without notice and without a meeting if Holders holding
more than 50% of the total Interests entitled to vote (or such larger proportion
thereof as shall be required by any express provision of this Declaration) shall
consent to the action in writing and the written consents shall be filed with
the records of the meetings of Holders. Such consents shall be treated for all
purposes as votes taken at a meeting of Holders.
8.10 HOLDER COMMUNICATIONS. Whenever ten or more Holders who have
been such for at least six months preceding the date of application, and who
hold in the aggregate at least 1% of the total Interests, shall apply to the
Trustees in writing, stating that they wish to communicate with other Holders
with a view to obtaining signatures to a request for a meeting of Holders and
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five business days after receipt of such application
either (1) afford to such applicants access to a list of the names and addresses
of all Holders as recorded on the books of the Trust; or (2) inform such
applicants as to the approximate number of Holders, and the approximate cost of
transmitting to them the proposed communication and form of request.
If the Trustees elect to follow the course specified
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in clause (2) above, the Trustees, upon the written request of such applicants,
accompanied by a tender of the material to be transmitted and of the reasonable
expenses of transmission, shall, with reasonable promptness, transmit, by United
States mail or by electronic transmission, such material to all Holders at their
addresses as recorded on the books, unless within five business days after such
tender the Trustees shall transmit, by United States mail or by electronic
transmission, to such applicants and file with the Commission, together with a
copy of the material to be transmitted, a written statement signed by at least a
majority of the Trustees to the effect that in their opinion either such
material contains untrue statements of fact or omits to state facts necessary to
make the statements contained therein not misleading, or would be in violation
of applicable law, and specifying the basis of such opinion. The Trustees shall
thereafter comply with any order entered by the Commission and the requirements
of the 1940 Act and the Securities Exchange Act of 1934.
ARTICLE IX
Duration; Termination of Trust;
AMENDMENT; MERGERS: ETC.
9.1 DURATION. Subject to possible termination in accordance with the
provisions of Section 9.2, the Trust created hereby shall continue perpetually
pursuant to Section 3808 of DBTA.
9.2 TERMINATION OF TRUST.
(a) The Trust may be terminated (i) by the affirmative vote of
the Holders of not less than two-thirds of the Interests in the Trust at any
meeting of the Holders, or (ii) by an instrument in writing, without a meeting,
signed by a majority of the Trustees and consented to by the Holders of not less
than two-thirds of such Interests, or (iii) by the Trustees by written notice to
the Holders. Upon any such termination,
(i) The Trust shall carry on no business except for the
purpose of winding up its affairs.
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(ii) The Trustees shall proceed to wind up the affairs of
the Trust and all of the powers of the Trustees under this Declaration
shall continue until the affairs of the Trust shall have been wound up,
including the power to fulfill or discharge the contracts of the Trust,
collect its assets, sell, convey, assign, exchange, or otherwise dispose of
all or all or any part of the remaining Trust Property to one or more
Persons at public or private sale for consideration which may consist in
whole or in part of cash, securities or other property of any kind,
discharge or pay its liabilities, and do all other acts appropriate to
liquidate its business; provided that any sale, conveyance, assignment,
exchange, or other disposition of all or substantially all of the Trust
Property shall require approval of the principal terms of the transaction
and the nature and amount of the consideration by the Holders by a Majority
Interests Vote.
(iii) After paying or adequately providing for the payment of
all liabilities, and upon receipt of such releases, indemnities and
refunding agreements, as they deem necessary for their protection, the
Trustees may distribute the remaining Trust Property, in cash or in kind or
partly each, among the Holders according to their respective rights.
(b) Upon termination of the Trust and distribution to the
Holders as herein provided, a majority of the Trustees shall execute and lodge
among the records of the Trust an instrument in writing setting forth the fact
of such termination and file a certificate of cancellation in accordance with
Section 3810 of the DBTA. Upon termination of the Trust, the Trustees shall
thereon be discharged from all further liabilities and duties hereunder, and the
rights and interests of all Holders shall thereupon cease.
9.3 AMENDMENT PROCEDURE.
(a) All rights granted to the Holders under this Declaration of
Trust are granted subject to the reservation of the right of the Trustees to
amend this Declaration of Trust as herein provided, except as set forth
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herein to the contrary. Subject to the foregoing, the provisions of this
Declaration of Trust (whether or not related to the rights of Holders) may be
amended at any time, so long as such amendment is not in contravention of
applicable law, including the 1940 Act, by an instrument in writing signed by a
majority of the then Trustees (or by an officer of the Trust pursuant to the
vote of a majority of such Trustees). Any such amendment shall be effective as
provided in the instrument containing the terms of such amendment or, if there
is no provision therein with respect to effectiveness, upon the execution of
such instrument and of a certificate (which may be a part of such instrument)
executed by a Trustee or officer of the Trust to the effect that such amendment
has been duly adopted.
(b) No amendment may be made, under Section 9.4(a) above, which
would change any rights with respect to any Interest in the Trust by reducing
the amount payable thereon upon liquidation of the Trust, by repealing the
limitations on personal liability of any Holder or Trustee, or by diminishing or
eliminating any voting rights pertaining thereto, except with a Majority
Interests Vote.
(c) A certification signed by a majority of the Trustees setting
forth an amendment and reciting that it was duly adopted by the Holders or by
the Trustees as aforesaid or a copy of the Declaration, as amended, and executed
by a majority of the Trustees, shall be conclusive evidence of such amendment
when lodged among the records of the Trust.
(d) Notwithstanding any other provision hereof, until such time
as Interests are first sold, this Declaration may be terminated or amended in
any respect by the affirmative vote of a majority of the Trustees or by an
instrument signed by a majority of the Trustees.
9.4 MERGER, CONSOLIDATION AND SALE OF ASSETS. The Trust, or any
series or class thereof, may merge or consolidate with any other corporation,
association, trust or other organization or may sell, lease or exchange all or
substantially all of its property, including its good will, upon such terms and
conditions and for such consideration when and as authorized by no less than a
majority of the
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Trustees and by a Majority Interests Vote of the Trust or such series or class,
as the case may be, or by an instrument or instruments in writing without a
meeting, consented to by the Holders of not less than 50% of the total Interests
of the Trust or such series or class, as the case may be, and any such merger,
consolidation, sale, lease or exchange shall be deemed for all purposes to have
been accomplished under and pursuant to the statutes of the State of Delaware.
In accordance with Section 3815(f) of DBTA, an agreement of merger or
consolidation may effect any amendment to the Declaration or By-Laws or effect
the adoption of a new declaration of trust or by-laws of the Trust if the Trust
is the surviving or resulting business trust. A certificate of merger or
consolidation of the Trust shall be signed by a majority of the Trustees.
9.5 INCORPORATION. Upon a Majority Interests Vote, the Trustees may
cause to be organized or assist in organizing a corporation or corporations
under the laws of any jurisdiction or any other trust, partnership, association
or other organization to take over all of the Trust Property or to carry on any
business in which the Trust shall directly or indirectly have any interest, and
to sell, convey and transfer the Trust Property to any such corporation, trust,
association or organization in exchange for the equity interests thereof or
otherwise, and to lend money to, subscribe for the equity interests of, and
enter into any contracts with any such corporation, trust, partnership,
association or organization, or any corporation, partnership, trust, association
or organization in which the Trust holds or is about to acquire equity
interests. The Trustees may also cause a merger or consolidation between the
Trust or any successor thereto and any such corporation, trust, partnership,
association or other organization if and to the extent permitted by law, as
provided under the law then in effect. Nothing contained herein shall be
construed as requiring approval of the Holders for the Trustees to organize or
assist in organizing one or more corporations, trusts, partnerships,
associations or other organizations and selling, conveying or transferring a
portion of the Trust Property to such organizations or entities.
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ARTICLE X
MISCELLANEOUS
10.1 CERTIFICATE OF DESIGNATION; AGENT FOR SERVICE OF PROCESS. The
Trust shall file, in accordance with Section 3812 of DBTA, in the office of the
Secretary of State of Delaware, a certificate of trust, in the form and with
such information required by Section 3810 by DBTA and executed in the manner
specified in Section 3811 of DBTA. In the event the Trust does not have at
least one Trustee qualified under Section 3807(a) of DBTA, then the Trust shall
comply with Section 3807(b) of DBTA by having and maintaining a registered
office in Delaware and by designating a registered agent for service of process
on the Trust, which agent shall have the same business office as the Trust's
registered office. The failure to file any such certificate, to maintain a
registered office, to designate a registered agent for service of process, or to
include such other information shall not affect the validity of the
establishment of the Trust, the Declaration, the By-Laws or any action taken by
the Trustees, the Trust officers or any other Person with respect to the Trust
except insofar as a provision of the DBTA would have governed, in which case the
Delaware common law governs.
10.2 GOVERNING LAW. This Declaration is executed by all of the
Trustees and delivered with reference to DBTA and the laws of the State of
Delaware, and the rights of all parties and the validity and construction of
every provision hereof shall be subject to and construed according to DBTA and
the laws of the State of Delaware (unless and to the extent otherwise provided
for and/or preempted by the 1940 Act or other applicable federal securities
laws); provided, however, that there shall not be applicable to the Trust, the
Trustees or this Declaration (a) the provisions of Section 3540 of Title 12 of
the Delaware Code or (b) any provisions of the laws (statutory or common) of the
State of Delaware (other than the DBTA) pertaining to trusts which are
inconsistent with the rights, duties, powers, limitations or liabilities of the
Trustees set forth or referenced in this Declaration.
10.3 COUNTERPARTS. This Declaration may be
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simultaneously executed in several counterparts, each of which shall be deemed
to be an original, and such counterparts, together, shall constitute one and the
same instrument, which shall be sufficiently evidenced by any such original
counterpart.
10.4 RELIANCE BY THIRD PARTIES. Any certificate executed by an
individual who, according to the records of the Trust or of any recording office
in which this Declaration may be recorded, appears to be a Trustee hereunder,
certifying to (a) the number or identity of Trustees or Holders, (b) the due
authorization of the execution of any instrument or writing, (c) the form of any
vote passed at a meeting of Trustees or Holders, (d) the fact that the number of
Trustees or Holders present at any meeting or executing any written instrument
satisfies the requirements of this Declaration, (e) the form of any By-Laws
adopted by or the identity of any officers elected by the Trustees, or (f) the
existence of any fact or facts which in any manner relate to the affairs of the
Trust, shall be conclusive evidence as to the matters so certified in favor of
any person dealing with the Trustees and their successors.
10.5 PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS.
(a) The provisions of this Declaration are severable, and if the
Trustees shall determine, with the advice of counsel, that any of such
provisions is in conflict with the 1940 Act, the DBTA, or with other applicable
laws and regulations, the conflicting provisions shall be deemed never to have
constituted a part of this Declaration; provided, however, that such
determination shall not affect any of the remaining provisions of this
Declaration or render invalid or improper any action taken or omitted prior to
such determination.
(b) If any provision of this Declaration shall be held invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provision in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
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[Continued on page 35]
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10.6 TRUST ONLY. It is the intention of the Trustees to create only
a business trust under DBTA with the relationship of Trustee and beneficiary
between the Trustees and each Holder from time to time. It is not the intention
of the Trustees to create a general partnership, limited partnership, joint
stock association, corporation, bailment, or any form of legal relationship
other than a Delaware business trust except to the extent such trust is deemed
to constitute a corporation under the Code and applicable state tax laws.
Nothing in this Declaration of Trust shall be construed to make the Holders,
either by themselves or with the Trustees, partners or members of a joint stock
association.
10.7 WITHHOLDING. Should any Holder be subject to withholding
pursuant to the Code or any other provision of law, the Trust shall withhold all
amounts otherwise distributable to such Holder as shall be required by law and
any amounts so withheld shall be deemed to have been distributed to such Holder
under this Declaration of Trust. If any sums are withheld pursuant to this
provision, the Trust shall remit the sums so withheld to and file the required
forms with the Internal Revenue Service, or other applicable government agency.
10.8 HEADINGS AND CONSTRUCTION. Headings are placed herein for
convenience of reference only and shall
[Continued on page 36]
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not be taken as a part hereof or control or affect the meaning, construction or
effect of this instrument. Whenever the singular number is used herein, the
same shall include the plural; and the neuter, masculine and feminine genders
shall include each other, as applicable.
IN WITNESS WHEREOF, the undersigned have caused these presents to be
executed as of the day and year first above written.
- -------------------------- February 19, 1999
Walter E. Auch
- -------------------------- February 19, 1999
Darlene DeRemer
- -------------------------- February 19, 1999
George F. Keane
- -------------------------- February 19, 1999
John J.P. McDonnell
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Exhibit (1)(b)
NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS
AMENDED AND RESTATED BY-LAWS
These Amended and Restated By-Laws are made as of the 19th day of
February, 1999 and adopted pursuant to Section 2.7 of the Declaration of Trust
establishing Nicholas-Applegate Institutional Funds dated December 17, 1992, as
from time to time amended (hereinafter called the "Declaration"). All words and
terms capitalized in these By-Laws shall have the meaning or meanings set forth
for such words or terms in the Declaration.
ARTICLE I
MEETINGS OF HOLDERS
Section 1.1 ANNUAL MEETING. An annual meeting of the Holders of
Interests in the Trust, which may be held on such date and at such hour as may
from time to time be designated by the Board of Trustees and stated in the
notice of such meeting, is not required to be held unless certain actions must
be taken by the Holders as set forth in Section 8.7 of the Declaration, or
except when the Trustees consider it necessary or desirable.
Section 1.2 CHAIRMAN. The President or, in his or her absence, the
Chief Operating Officer shall act as chairman at all meetings of the Holders
and, in the absence of both of them, the Trustee or Trustees present at the
meeting may elect a temporary chairman for the meeting, who may be one of
themselves or an officer of the Trust.
Section 1.3 PROXIES; VOTING. Holders may vote either in person or by
duly executed proxy and each Holder shall be entitled to a vote proportionate to
his or her Interest in the Trust, all as provided in Article IX of the
Declaration. No proxy shall be valid after eleven (11) months from the date of
its execution, unless a longer period is expressly stated in such proxy.
Section 1.4 FIXING RECORD DATES. For the purpose of determining the
Holders who are entitled to notice of or to vote or act at a meeting, including
any adjournment thereof, or who are entitled to participate in any
distributions, or for any other proper purpose, the Trustees may from time to
time fix a record date in the manner provided in Section 9.3 of the Declaration.
If the Trustees do not, prior to any meeting of the Holders, so fix a record
date, then the date of mailing notice of the meeting shall be the record date.
Section 1.5 INSPECTORS OF ELECTION. In advance of any meeting of the
Holders, the Trustees may appoint Inspectors of Election to act at the meeting
or any adjournment thereof. If Inspectors of Election are not so appointed, the
chairman, if any, of any meeting of the Holders may, and on the request of any
Holder or his or her proxy
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shall, appoint Inspectors of Election of the meeting. The number of Inspectors
shall be either one or three. If appointed at the meeting on the request of one
or more Holders or proxies, a Majority Interests Vote shall determine whether
one or three Inspectors are to be appointed, but failure to allow such
determination by the Holders shall not affect the validity of the appointment of
Inspectors of Election. In case any person appointed as Inspector fails to
appear or fails or refuses to act, the vacancy may be filled by appointment made
by the Trustees in advance of the convening of the meeting or at the meeting by
the person acting as chairman. The Inspectors of Election shall determine the
Interests owned by Holders, the Interests represented at the meeting, the
existence of a quorum, the authenticity, validity and effect of proxies, shall
receive votes, ballots or consents, shall hear and determine all challenges and
questions in any way arising in connection with the right to vote, shall count
and tabulate all votes or consents, determine the results, and do such other
acts as may be proper to conduct the election or vote with fairness to all
Holders. If there are three Inspectors of Election, the decision, act or
certificate of a majority is effective in all respects as the decision, act or
certificate of all. On request of the chairman, if any, of the meeting, or of
any Holder or his or her proxy, the Inspectors of Election shall make a report
in writing of any challenge or question or matter determined by them and shall
execute a certificate of any facts found by them.
Section 1.6 RECORDS OF MEETINGS OF HOLDERS. At each meeting of the
Holders there shall be open for inspection the minutes of the last previous
meeting of Holders of the Trust and a list of the Holders of the Trust,
certified to be true and correct by the Secretary or other proper agent of the
Trust, as of the record date of the meeting. Such list of Holders shall contain
the name of each Holder in alphabetical order, the Holder's address and
Interests owned by such Holder. Holders shall have the right to inspect books
and records of the Trust during normal business hours for any purpose not
harmful to the Trust.
ARTICLE II
TRUSTEES
Section 2.1 ANNUAL AND REGULAR MEETINGS. The Trustees shall hold an
Annual Meeting of the Trustees for the election of officers and the transaction
of other business which may come before such meeting. Regular meetings of the
Trustees may be held without call or notice at such place or places and times as
the Trustees may by resolution provide from time to time.
Section 2.2 SPECIAL MEETINGS. Special Meetings of the Trustees shall
be held upon the call of the chairman, if any, the President, the Secretary, or
any two Trustees, at such time, on such day and at such place, as shall be
designated in the notice of the meeting.
Section 2.3 NOTICE. Notice of a meeting shall be given by United
States mail (which term shall include overnight mail) or by electronic
transmission (which term shall include without limitation by telephone,
cablegram or telefacsimile) or delivered personally, to each Trustee at his or
her business address as set forth in the records of the Trust. If notice is
given by mail, it shall be mailed not later than 72 hours preceding the
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meeting and if given by telegram, electronic transmission or personally, such
notice shall be delivered not later than 24 hours preceding the meeting. Notice
of a meeting of Trustees may be waived before or after any meeting by signed
written waiver. Neither the business to be transacted at, nor the purpose of,
any meeting of the Board of Trustees need be stated in the notice or waiver of
notice of such meeting, and no notice need be given of action proposed to be
taken by written consent. The attendance of a Trustee at a meeting shall
constitute a waiver of notice of such meeting except where a Trustee attends a
meeting for the express purpose of objecting, at the commencement of such
meeting, to the transaction of any business on the ground that the meeting has
not been lawfully called or convened.
Section 2.4 CHAIRMAN; RECORDS. The Trustees shall appoint a Chairman
of the Board from among their number. Such Chairman of the Board shall act as
chairman at all meetings of the Trustees; in his or her absence the President
shall act as chairman; and, in the absence of all of them, the Trustees present
shall elect one of their number to act as temporary chairman. The results of
all actions taken at a meeting of the Trustees, or by written consent of the
Trustees, shall be recorded by the Secretary.
Section 2.5 AUDIT COMMITTEE. The Audit Committee shall (a) recommend
independent public accountants for selection by the Board, (b) review the scope
of audit, accounting and financial internal controls and the quality and
adequacy of the Trust's accounting staff with the independent public accountants
and such other persons as may be deemed appropriate, (c) review with the
accounting staff and the independent public accountants the compliance of
transactions of the Trust with its investment adviser, administrator or any
other service provider with the financial terms of applicable contracts or
agreements, (d) review reports of the independent public accountants and comment
to the Board when warranted, (e) report to the Board at least once each year and
at such other times as the committee deems desirable, and (f) be directly
available at all times to independent public accountants and responsible
officers of the Trust for consultation on audit, accounting and related
financial matters.
Section 2.6 NOMINATING COMMITTEE OF TRUSTEES. The Board of Trustees
may, by the affirmative vote of a majority of the entire Board, appoint from its
members a Trustee Nominating Committee composed of two or more Trustees. The
Trustee Nominating Committee shall recommend to the Board a slate of persons to
be nominated for election as Trustees by the Holders at a meeting of the Holders
and a person to be elected to fill any vacancy occurring for any reason in the
Board. Notwithstanding anything in this Section to the contrary, if the Trust
has in effect a plan pursuant to Rule 12b-1 under the 1940 Act, the selection
and nomination of those Trustees who are not "interested persons" (as defined in
the Act) shall be committed to the discretion of such Disinterested Trustees.
Section 2.7 EXECUTIVE COMMITTEE. The Board of Trustees may appoint
from its members an Executive Committee composed of those Trustees as the Board
may from time to time determine, of which committee the Chairman of the Board
shall be a member. In the intervals between meetings of the Board, the
Executive Committee shall have the power of the Board to (a) determine the value
of securities and assets owned by
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the Trust, (b) elect or appoint officers of the Trust to serve until the next
meeting of the Board, and (c) take such action as may be necessary to manage the
portfolio security loan business of the Trust. All action by the Executive
Committee shall be recorded and reported to the Board at its meeting next
succeeding such action.
Section 2.8 OTHER COMMITTEES. The Board of Trustees may appoint from
among its members other committees composed of two or more of its Trustees which
shall have such powers as may be delegated or authorized by the resolution
appointing them.
Section 2.9 COMMITTEE PROCEDURES. The Board of Trustees may at any
time change the members of any committee, fill vacancies or discharge any
committee. In the absence of any member of any committee, the member or members
thereof present at any meeting, whether or not they constitute a quorum, may
unanimously appoint to act in the place of such absent member a member of the
Board who, except in the case of the Executive Committee, is not an "interested
person" of the Trust as the Board may from time to time determine. Each
committee may fix its own rules of procedure and may meet as and when provided
by those rules. Copies of the minutes of all meetings of committees other than
the Nominating Committee and the Executive Committee shall be distributed to the
Board unless the Board shall otherwise provide.
ARTICLE III
OFFICERS
Section 3.1 OFFICERS OF THE TRUST; COMPENSATION. The officers of the
Trust shall consist of a President, a Secretary, a Treasurer and such other
officers or assistant officers, including Vice Presidents, as may be elected by
the Trustees. Any two or more of the offices may be held by the same person.
The Trustees may designate a Vice President as an Executive Vice President and
may designate the order in which the other Vice Presidents may act. No officer
of the Trust need be a Trustee. The Board of Trustees may determine what, if
any, compensation shall be paid to officers of the Trust.
Section 3.2 ELECTION AND TENURE. At the initial organization meeting
and thereafter at each annual meeting of the Trustees, the Trustees shall elect
the Chairman, President, Secretary, Treasurer and such other officers as the
Trustees shall deem necessary or appropriate in order to carry out the business
of the Trust. The Chairman of the Board and such officers shall hold office
until the next annual meeting of the Trustees and until their successors have
been duly elected and qualified. The Trustees may fill any vacancy in or add
any additional officers at any time.
Section 3.3 REMOVAL OF OFFICERS. Any officer may be removed at any
time, with or without cause, by action of a majority of the Trustees. This
provision shall not prevent the making of a contract of employment for a
definite term with any officer and shall have no effect upon any cause of action
which any officer may have as a result of removal in breach of a contract of
employment. Any officer may resign at any time by notice in writing signed by
such officer and delivered or mailed to the President or Secretary, and such
resignation shall take effect immediately, or at a later date according
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to the terms of such notice in writing.
Section 3.4 BONDS AND SURETY. Any officer may be required by the
Trustees to be bonded for the faithful performance of his or her duties in such
amount and with such sureties as the Trustees may determine.
Section 3.5 PRESIDENT AND VICE-PRESIDENTS. The President shall be
the chief executive officer of the Trust and, subject to the control of the
Trustees, shall have general supervision, direction and control of the business
of the Trust and of its employees and shall exercise such general powers of
management as are usually vested in the office of president of a corporation.
The President shall preside at all meetings of the Holders and, in the absence
of the Chairman of the Board, the President shall preside at all meetings of the
Trustees. The President shall be, ex officio, a member of all standing
committees. Subject to direction of the Trustees, the President shall have the
power, in the name and on behalf of the Trust, to execute any and all loan
documents, contracts, agreements, deeds, mortgages, and other instruments in
writing, and to employ and discharge employees and agents of the Trust. Unless
otherwise directed by the Trustees, the President shall have full authority and
power, on behalf of all of the Trustees, to attend and to act and to vote, on
behalf of the Trust at any meetings of business organizations in which the Trust
holds an interest, or to confer such powers upon any other persons, by executing
any proxies duly authorizing such persons. The President shall have such
further authorities and duties as the Trustees shall from time to time
determine. In the absence or disability of the President, the Vice Presidents
in order of their rank or the Vice President designated by the Trustees, shall
perform all of the duties of President, and when so acting shall have all the
powers of and be subject to all of the restrictions upon the President. Subject
to the direction of the President, the Treasurer and each Vice President shall
have the power in the name and on behalf of the Trust to execute any and all
loan documents, contracts, agreements, deeds, mortgages and other instruments in
writing, and, in addition, shall have such other duties and powers as shall be
designated from time to time by the Trustees, the Chairman, or the Prsident.
Section 3.6 SECRETARY. The Secretary shall keep the minutes of all
meetings of, and record all votes of, Holders, Trustees and any committees of
Trustees, provided that, in the absence or disability of the Secretary, the
Holders or Trustees or committee may appoint any other person to keep the
minutes of a meeting and record votes. The Secretary shall attest the signature
or signatures of the officer or officers executing any instrument on behalf of
the Trust. The Secretary shall also perform any other duties commonly incident
to such office in a Delaware corporation, and shall have such other authorities
and duties as the Trustees shall from time to time determine.
Section 3.7 TREASURER. Except as otherwise directed by the
Trustees, the Treasurer shall have the general supervision of the monies,
funds, securities, notes receivable and other valuable papers and documents
of the Trust, and shall have and exercise under the supervision of the
Trustees and of the Chairman and the President all powers and duties normally
incident to his office. He may endorse for deposit or collection all notes,
checks and other instruments payable to the Trust or to its order. He shall
deposit all funds of the Trust as may be ordered by the Trustees, the
Chairman or the
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President. He shall keep accurate account of the books of the Trust's
transactions which shall be the property of the Trust and which, together
with all other property of the Trust in his possession, shall be subject at
all times to the inspection and control of the Trustees. Unless the Trustees
shall otherwise determine, the Treasurer shall be the principal accounting
officer of the Trust and shall also be the principal financial officer of the
Trust. He shall have such other duties and authorities as the Trustees shall
from time to time determine. Notwithstanding anything to the contrary herein
contained, the Trustees may authorize any adviser or administrator to
maintain bank accounts and deposit and disburse funds on behalf of the Trust.
Section 3.8 OTHER OFFICERS AND DUTIES. The Trustees may elect such
other officers and assistant officers as they shall from time to time determine
to be necessary or desirable in order to conduct the business of the Trust.
Assistant officers shall act generally in the absence of the officer whom they
assist and shall assist that officer in the duties of his office. Each officer,
employee and agent of the Trust shall have such other duties and authority as
may be conferred upon him by the Trustees or delegated to him by the President.
ARTICLE IV
CUSTODIAN
Section 4.1 APPOINTMENT AND DUTIES. The Trustees shall at all times
employ a custodian or custodians with authority as its agent, but subject to
such restrictions, limitations and other requirements, if any, as may be
contained in these By-Laws:
(1) to hold the securities owned by the Trust and deliver the
same upon written order;
(2) to receive and receipt for any moneys due to the Trust and
deposit the same in its own banking department or elsewhere as the Trustees
may direct;
(3) to disburse such funds upon orders or vouchers;
(4) if authorized by the Trustees, to keep the books and
accounts of the Trust and furnish clerical and accounting services; and
(5) if authorized to do so by the Trustees, to compute the net
income and net assets of the Trust;
all upon such basis of compensation as may be agreed upon between the Trustees
and the custodian. The Trustees may also authorize the custodian to employ one
or more sub-custodians, from time to time, to perform such of the acts and
services of the custodian and upon such terms and conditions as may be agreed
upon between the custodian and such sub-custodian and approved by the Trustee.
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Section 4.2 CENTRAL CERTIFICATE SYSTEM. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct the
custodian to deposit all or any part of the securities owned by the Trust in a
system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, any such other person or
entity with which the Trustees may authorize deposit in accordance with the 1940
Act, pursuant to which system all securities of any particular class or series
of any issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of such
securities. All such deposits shall be subject to withdrawal only upon the
order of the Trust.
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ARTICLE V
MISCELLANEOUS
Section 5.1 DEPOSITORIES. In accordance with Article IV of these
By-Laws, the funds of the Trust shall be deposited in such depositories as the
Trustees shall designate and shall be drawn out on checks, drafts or other
orders signed by such officer, officers, agent or agents (including any adviser
or administrator), as the Trustees may from time to time authorize.
Section 5.2 SIGNATURES. All contracts and other instruments shall be
executed on behalf of the Trust by such officer, officers, agent or agents, as
provided in these By-Laws or as the Trustees may from time to time by resolution
or authorization provide.
Section 5.3 FISCAL YEAR. The fiscal year of the Trust shall end on
December 31 of each year, subject, however, to change from time to time by the
Board of Trustees.
ARTICLE VI
INTERESTS
Section 6.1 INTERESTS. Except as otherwise provided by law, the
Trust shall be entitled to recognize the exclusive right of a person in whose
name Interests stand on the record of Holders as the owners of such Interests
for all purposes, including, without limitation, the rights to receive
distributions, and to vote as such owner, and the Trust shall not be bound to
recognize any equitable or legal claim to or interest in any such Interests on
the part of any other person.
Section 6.2 REGULATIONS. The Trustees may make such additional rules
and regulations, not inconsistent with these By-Laws, as they may deem expedient
concerning the sale and purchase of Interests of the Trust.
Section 6.3 DISTRIBUTION DISBURSING AGENTS AND THE LIKE. The
Trustees shall have the power to employ and compensate such distribution
disbursing agents, warrant agents and agents for the reinvestment of
distributions as they shall deem necessary or desirable. Any of such agents
shall have such power and authority as is delegated to any of them by the
Trustees.
ARTICLE VII
AMENDMENT OF BY-LAWS
Section 7.1 AMENDMENT AND REPEAL OF BY-LAWS. In accordance with
Section 2.7 of the Declaration, the Trustees shall have the power to alter,
amend or repeal the By-Laws or adopt new By-Laws at any time. The Trustees
shall in no event adopt By-Laws which are in conflict with the Declaration,
DBTA, the 1940 Act or applicable
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federal securities laws.
Section 7.2 NO PERSONAL LIABILITY. The Declaration establishing
Nicholas-Applegate Investment Trust provides that the name Nicholas-Applegate
Investment Trust does not refer to the Trustees as individuals or personally;
and no Trustee, officer, employee or agent of, or Holder of Interest in,
Nicholas-Applegate Investment Trust shall be held to any personal liability, nor
shall resort be had to their private property for the satisfaction of any
obligation or claim or otherwise in connection with the affairs of
Nicholas-Applegate Investment Trust (except to the extent of a Holder's Interest
in the Trust).
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Exhibit (d)
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT is made as May _, 1999, between
NICHOLAS-APPLEGATE INSTITUTIONAL FUND, a Delaware business trust (the "Trust"),
and NICHOLAS-APPLEGATE CAPITAL MANAGEMENT, a California limited partnership (the
"Investment Adviser").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended ("1940 Act");
WHEREAS, the Trust currently offers shares of eighteen series (each a
"Fund" and collectively the "Funds; and
WHEREAS, the Trust desires to retain the Investment Adviser to furnish
investment advisory services to the Trust and each of its Funds;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT.
(a) The Trust hereby appoints the Investment Adviser to serve as
investment adviser to each of the Funds for the period and on the terms set
forth in this Agreement. The Investment Adviser accepts such appointment and
agrees to furnish the services herein set forth for the compensation herein
provided.
(b) In the event that the Trust establishes one or more series other than
the Funds with respect to which it desires to retain the Investment Adviser to
serve as investment adviser hereunder, it will notify the Investment Adviser in
writing. If the Investment Adviser is willing to render such services under this
Agreement it will so notify the Trust in writing, whereupon such series will
become a "Fund" (as defined hereunder) and will be subject to the provisions of
this Agreement to the same extent as the Funds except to the extent that such
provisions (including those relating to the compensation payable by the Fund to
the Investment Adviser) are modified with respect to such Fund in writing by the
Trust and the Adviser at the time.
2. SERVICES.
(a) Subject to the supervision of the Trust's Board of Trustees (the
"Board"), the Investment Adviser will provide a continuous investment program
for each of the Funds, including investment research and management with respect
to all securities and investments and cash equivalents in the Funds. The
Investment Adviser will determine from time to time what securities and other
investments will be purchased, retained or sold by the Trust with respect to
each Fund. The Investment Adviser will provide the services under this Agreement
in accordance with each Fund's investment objective, policies and restrictions
as stated in the Fund's prospectus and statement of additional
<PAGE>
information, as currently in effect and as from time to time amended
(collectively, the "Prospectus"), and resolutions of the Board. The Investment
Adviser further agrees that it:
(b) Will conform with all applicable rules and regulations of the
Securities and Exchange Commission and will in addition conduct its activities
under this Agreement in accordance with other applicable law.
(c) Will place all orders for the purchase and sale of portfolio
securities for the account of each Fund with brokers or dealers selected by the
Investment Adviser. In executing portfolio transactions and selecting brokers or
dealers, the Investment Adviser will use its best efforts to seek on behalf of
the Trust and each Fund the best available price and execution. In assessing the
best overall terms available for any transaction, the Investment Adviser will
consider all factors it deems relevant, including the breadth of the market in
the security, the price of the security, the size of the order, the difficulty
and risk of execution, the financial condition and execution capability of the
broker or dealer, and the reasonableness of the commission, if any, both for the
specific transaction and on a continuing basis.
In evaluating the best overall terms available, and in selecting the
broker or dealer to execute a particular transaction, the Investment Adviser may
also consider the brokerage and research services (as those terms are defined in
Section 28(e) of the Securities Exchange Act of 1534, as amended) provided to
any Fund and/or other accounts over which the Investment Adviser or any
affiliate of the Investment Adviser exercises investment discretion. The
Investment Adviser is authorized to pay to a broker or dealer who provides such
brokerage and research services a commission or spread for executing a portfolio
transaction for any Fund which is in excess of the amount of commission or
spread another broker or dealer would have charged for effecting that
transaction if, but only if, the Investment Adviser determines in good faith
that such commission was reasonable in relation to the value of the brokerage
and research services provided by such broker or dealer viewed in terms of that
particular transaction or in terms of the overall responsibilities of the
Investment Adviser to the particular Fund and to the Trust. The Investment
Adviser may also select brokers who sell shares of the various series of
Nicholas-Applegate Mutual Funds to execute portfolio transactions. The extent
and continuation of these practices will be subject to periodic review by the
Board.
In executing portfolio transactions for any Fund, the Investment
Adviser may, but will not be obligated to, aggregate the securities to be sold
or purchased with those of other Funds and its other clients where such
aggregation is not inconsistent with the policies set forth in the Prospectus,
to the extent permitted by applicable laws and regulations. In such event, the
Investment Adviser will allocate the securities so purchased or sold, and the
expenses incurred in the transaction, in the manner it considers to be the most
equitable and consistent with its fiduciary obligations to the Funds and such
other clients.
(d) Will maintain all books and records with respect to the securities
transactions of the Funds, keep books of account with respect to the Funds and
furnish the Board with such periodic and special reports as the Board may
request.
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(e) Will treat confidentially and as proprietary information of the Trust
all records and other information relative to the Trust and shareholders of the
Trust ("Investors") or those persons or entities who respond to inquiries
concerning investment in the Trust, and will not use such records and
information for any purpose other than performance of its responsibilities and
duties hereunder or under any other agreement with the Trust except after prior
notification to and approval in writing by the Trust, which approval will not be
unreasonably withheld and may not be withheld where the Investment Adviser may
be exposed to civil or criminal contempt proceedings for failure to comply, when
requested to divulge such information by duly constituted authorities, or when
so requested by the Trust. Nothing contained herein, however, will prohibit the
Investment Adviser from advertising to or soliciting the public generally with
respect to other products or services, including, but not limited to, any
advertising or marketing via radio, television, newspapers, magazines or direct
mail solicitation, regardless of whether such advertisement or solicitation may
coincidentally include prior or present Investors or those persons or entities
who have responded to inquiries regarding the Trust.
(f) Will obtain the prior written approval of the Board before retaining
the services of any subadviser to manage the assets and portfolio investments of
any Fund
3. SERVICES NOT EXCLUSIVE. The Investment Adviser will for all purposes
herein be deemed to be an independent contractor and will, unless otherwise
expressly provided herein or authorized by the Board from time to time, have no
authority to act for or represent the Trust in any way or otherwise be deemed
its agent. The investment management services furnished by the Investment
Adviser hereunder are not deemed exclusive, and the Investment Adviser will be
free to furnish similar services to others so long as its services under this
Agreement are not impaired thereby.
4. BOOKS AND RECORDS. In compliance with the requirements of Rule
31a-3 under the 1940 Act, the Investment Adviser agrees that all records which
it maintains for the Trust are the property of the Trust and further agrees to
surrender promptly to the Trust any such records upon the Trust's request. In
addition, the Investment Adviser agrees to preserve for the periods prescribed
by Rule 31a-2 under the 1940 Act the records required to be maintained by Rule
31a-1 under the 1940 Act.
5. EXPENSES. During the term of this Agreement, the Investment Adviser
will pay all expenses incurred by it in connection with its activities under
this Agreement other than the cost of securities (including brokerage
commissions, if any) purchased for the Trust.
6. COMPENSATION. For the services provided and the expenses assumed
pursuant to this Agreement, the Trust will pay the Investment Adviser and the
Investment Adviser will accept as full compensation therefor a fee, computed
daily and paid monthly (in arrears), at the annual rates set forth in Schedule A
hereto. Such fee as is attributable to each Fund will be a separate charge to
each such Fund and will be the several (and not joint or joint and several)
obligation of each such Fund. The Investment Adviser may also from time to time
agree to reduce its fees or absorb other operating expenses to
<PAGE>
ensure that the expenses of an Investor do not exceed certain limitations
imposed by the Investor.
7. REPRESENTATIONS AND WARRANTIES.
(a) The Trust represents and warrants to the Investment Adviser that: (i)
it is a business trust duly organized and existing and in good standing under
the laws of the State of Delaware and is duly qualified to conduct its business
in the State of Delaware and in such other jurisdictions wherein the nature of
its activities or its properties owned or leased makes such qualification
necessary; (ii) it is a registered open-end management investment company under
the 1940 Act; (iii) a registration statement on Form N-lA under the Securities
Act of 1933, as amended, on behalf of the Funds is currently effective and will
remain effective, and appropriate state securities law filings have been made
and will continue to be made, with respect to all shares of the Funds being
offered for sale; (iv) it is empowered under applicable laws and by its
Declaration of Trust and Bylaws to enter into and perform this Agreement; and
(v) all requisite trust proceedings have been taken to authorize it to enter
into and perform this Agreement.
(b) The Investment Adviser represents and warrants to the Trust that: (i)
it is a limited partnership duly organized and existing and in good standing
under the laws of the State of California and is duly qualified to conduct its
business in the State of California and in such other jurisdictions wherein the
nature of its activities or its properties owned or leased makes such
qualification necessary; (ii) it is empowered under applicable laws and by its
partnership agreement to enter into and perform this Agreement; (iii) all
requisite partnership proceedings have been taken to authorize it to enter into
and perform this Agreement; and (iv) it is a registered investment adviser under
the Investment Advisers Act of 1940 and applicable state laws.
8. LIMITATION OF LIABILITY; INDEMNIFICATION.
(a) The Investment Adviser will not be liable for any error of judgment or
mistake of law or for any loss suffered by a Fund or the Trust in connection
with the matters to which this Agreement relates, except for liability resulting
from willful misfeasance, bad faith or gross negligence on the part of the
Investment Adviser in the performance of its duties, or by reason of the
Investment Adviser's reckless disregard of its obligations and duties under this
Agreement.
The Trust will indemnify and hold harmless the Investment Adviser from
and against all liabilities, damages, costs and expenses that the Investment
Adviser may incur in connection with any action, suit, investigation or
proceeding arising out of or otherwise based on any action actually or allegedly
taken or omitted to be taken by the Investment Adviser with respect to the
performance of its duties or obligations hereunder or otherwise as an investment
adviser of the Trust and the Funds; provided, however, that the Investment
Adviser will not be entitled to indemnification with respect to any liability to
the Trust or the Investors by reason of willful misfeasance, bad faith or gross
negligence on the part of the Investment Adviser in the performance of its
duties, or by reason of the Investment Adviser's reckless disregard of its
obligations and duties under this Agreement.
<PAGE>
(b) No trustee, officer, employee or agent of the Trust shall be subject
to any personal liability whatsoever, in his or her official or individual
capacity, to any person, including the Investment Adviser, other than the Trust
or its shareholders, in connection with Trust property or the affairs of the
Trust, save only that arising from his or her bad faith, willful misfeasance,
gross negligence or reckless disregard of his or her duty to such person; and
all such persons shall look solely to the Trust property for satisfaction of
claims of any nature against a trustee, officer, employee or agent of the Trust
arising in connection with the affairs of the Trust. Moreover, the debts,
liabilities, obligations and expenses incurred, contracted for or otherwise
existing with respect to a Fund shall be enforceable against the assets and
property of the Fund only, and not against the assets and property of any other
series of the Trust.
9. DURATION AND TERMINATION. This Agreement will become effective with
respect to each Fund (currently in existence) on the date first written above.
This Agreement will become effective with respect to any additional Fund on the
date of receipt by the Trust of notice from the Investment Adviser in accordance
with Section l(b) hereof that the Investment Adviser is willing to serve as
investment adviser with respect to such Fund.
Unless sooner terminated as provided herein, this Agreement will continue
in effect for a period of two years from the date hereof. Thereafter, if not
terminated, this Agreement will continue in effect as to a particular Fund for
successive annual periods, provided such continuance is specifically approved at
least annually (a) by the vote of a majority of those members of the Board who
are not interested persons of any party to this Agreement, cast in person at a
meeting called for the purpose of voting on such approval, and (b) by the Board
or by vote of a majority of the outstanding voting securities of such Fund.
Notwithstanding the foregoing, this Agreement may be
terminated as to any Fund at any time, without the payment of any penalty, by
the Trust (by vote of the Board or by vote of a majority of the outstanding
voting securities of such Fund), or by the Investment Adviser, upon not less
than 60 days' written notice. This Agreement will immediately terminate in the
event of its assignment. (As used in this Agreement, the terms "majority of the
outstanding voting securities," "interested persons" and "assignment" have the
same meaning as the meaning of such terms in the 1940 Act.)
10. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. No amendment of this Agreement will be
effective as to a particular Fund until approved by vote of a majority of the
outstanding voting securities of such Fund.
11. NOTIFICATION OF CHANGE OF PARTNERS. During the term of this
Agreement, the Investment Adviser will notify the Trust of any change in the
membership of the Investment Adviser's partnership within a reasonable time
after such change.
<PAGE>
12. NOTICES. Notices of any kind to be given to the Investment Adviser
hereunder by the Trust will be in writing and will be duly given if mailed,
delivered or communicated by answer back facsimile transmission to the
Investment Adviser at 600 West Broadway, 30th Floor, San Diego, California
92101, Facsimile: (619) 687-8138, Attention: General Counsel, or at such other
address or to such individual as will be so specified by the Investment Adviser.
Notices of any kind to be given to the Trust hereunder by the Investment Adviser
will be in writing and will be duly given if mailed or delivered to the Trust at
600 West Broadway, 30th Floor, San Diego, California 92101, Facsimile: (619)
687-8138, Attention: Secretary, or at such other address or to such individual
as will be so specified by the Trust to the Investment Adviser.
13. MISCELLANEOUS.
(a) This Agreement constitutes the entire agreement and understanding
between the parties hereto, and supersedes all prior agreements and
understandings relating to the subject matter hereof.
(b) The captions in this Agreement are included for convenience of
reference only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
(c) If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
(d) This Agreement will be binding upon and will inure to the benefit of
the parties hereto and their respective successors and will be governed by the
internal laws, and not the law of conflicts of laws, of the state of California;
provided that nothing herein will be construed in a manner inconsistent with the
1940 Act, the Investment Advisers Act of 1940, as amended, or any rule or
regulation of the Securities and Exchange Commission thereunder.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the date first above written.
NICHOLAS-APPLEGATE NICHOLAS-APPLEGATE
INSTITUTIONAL FUND CAPITAL MANAGEMENT
By: By:
------------------------- --------------------------
E. Blake Moore, Jr. E. Blake Moore, Jr.
Its Secretary Its General Counsel
<PAGE>
SCHEDULE A
INVESTMENT ADVISORY FEES
The Investment Adviser will be compensated for its services under the Agreement
with respect to the Funds at the following annual rates:
1. For the WORLDWIDE GROWTH FUND, INTERNATIONAL SMALL CAP FUND AND
INTERNATIONAL CORE GROWTH FUND, 1.00% of the first $500 million of the Fund's
average daily net assets, 0.90% of the next $500 million and 0.85% of the Fund's
average daily net assets in excess of $1 billion.
2. For the CORE GROWTH FUND AND INCOME & GROWTH FUND, 0.75% of the first
$500 million of each such Fund's average daily net assets, 0.675% of the next
$500 million and 0.65% of the each such Fund's average daily net assets in
excess of $1 billion.
3. For the FULLY DISCRETIONARY FUND, 0.45% of the Fund's average daily
net assets in excess of $500 million.
4. For the SHORT INTERMEDIATE FUND, 0.30% of the Fund's average daily net
assets in excess of $500 million.
5. For the HIGH YIELD BOND FUND, .60% of the Fund's average daily net
asset value.
6. For the LARGE CAP FUND AND VALUE FUND, .75% of each Fund's average
daily net assets.
7. For the GLOBAL BLUE CHIP FUND, .80% of the Fund's average daily net
assets.
8. For the GLOBAL GROWTH & INCOME FUND, .85% of the Fund's average net
assets.
9. For the PACIFIC RIM FUND, GLOBAL TECHNOLOGY FUND AND GREATER CHINA
FUND, 1.00% of each Fund's average daily net assets.
10. For MINI CAP GROWTH AND EMERGING COUNTRIES FUND, 1.25% of each Fund's
average net assets.
<PAGE>
Exhibit (e)
NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS
DISTRIBUTION AGREEMENT
This DISTRIBUTION AGREEMENT (this "Agreement") is made as of this
__ day of _______, 1999 by and between Nicholas-Applegate Institutional Funds, a
Delaware business trust (the "Trust"), and Nicholas-Applegate Securities, a
California limited partnership (the "Distributor").
WHEREAS, the Trust is a diversified, open-end management
investment company registered under the Investment Company Act of 1940, as
amended (the "1940 Act");
WHEREAS, the Trust will consist of various series of shares of
beneficial interest created by its Board of Trustees from time to time (each a
"Fund" and collectively the "Funds") and various classes thereof;
WHEREAS, the Distributor is a broker-dealer registered under the
Securities Exchange Act of 1934, as amended, and a member of the National
Association of Securities Dealers, Inc. (the "NASD");
WHEREAS, the Trust desires to retain the Distributor as its agent
to provide services in connection with the distribution of shares of beneficial
interest ("shares") of each of the Funds and the Distributor is willing to
provide such services upon the terms set forth herein; and
WHEREAS, the Trust has adopted a Distribution Plan (the "Plan")
pursuant to Rule 12b-1 under the 1940 Act, whereby the Trust will compensate the
Distributor for certain services rendered and costs incurred by the Distributor
in connection with distributing certain classes of shares of the Funds;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein set forth, the parties hereto agree as follows:
Section 1. APPOINTMENT OF DISTRIBUTOR.
The Trust hereby appoints the Distributor as its agent to act as
the principal underwriter and distributor of shares of the Funds, and the
Distributor hereby accepts such appointment and agrees to act hereunder. The
Trust hereby agrees during the term of this Agreement to sell shares of the
Funds exclusively to or through the Distributor on the terms and conditions set
forth below.
Section 2. PURCHASE OF SHARES FROM THE TRUST.
2.1 The Distributor shall have the right to sell as agent for
the Trust the
<PAGE>
shares of a Fund needed, but not more than the shares needed, to fill
unconditional orders for shares placed with the Distributor by investors or
registered and qualified securities dealers and others ("selected dealers").
2.2 The shares of the Funds are to be sold by the Distributor or
selected dealers, as described in Section 5.4 hereof, to investors at the
offering price as set forth in the applicable prospectus and statement of
additional information for the Fund then in effect (the "Prospectus").
2.3 The Trust shall have the right to suspend the sale of its
shares at times when redemption is suspended pursuant to the conditions in
Section 3.3 hereof or at such other times as may be determined by the Trust's
Board of Trustees (the "Board").
2.4 The Trust, or any agent of the Trust designated in writing
by the Board, shall be promptly advised of all purchase orders for shares of the
Funds received by the Distributor or selected dealer. Any order may be rejected
by the Trust or the Distributor; provided, however, that the Trust and the
Distributor will not arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of shares of a Fund. The Trust (or its agent)
will confirm orders upon their receipt, will make appropriate book entries and,
upon receipt by the Trust (or its agent) of payment therefor, will deliver
deposit receipts for the shares pursuant to the instructions of the Distributor
or selected dealer. Payment shall be made to the Trust (or its agent) in New
York Clearing House funds or federal funds. The Distributor agrees, and selected
dealers shall agree, to cause such payment and such instructions to be delivered
promptly to the Trust (or its agent).
Section 3. REDEMPTION OF SHARES BY THE TRUST.
3.1 Any of the outstanding shares of a Fund may be tendered for
redemption at any time, and the Trust agrees to repurchase or redeem the shares
so tendered in accordance with the Trust's Declaration of Trust and Bylaws and
the applicable provisions of the respective Fund's Prospectus. The price to be
paid to redeem or repurchase the shares shall be equal to the net asset value,
less a contingent deferred sales charge, if any, determined as set forth in the
applicable Prospectus (the "redemption price"). All payments by the Trust
hereunder shall be made in the manner set forth in Section 3.2 below.
3.2 The Trust (or its agent) shall pay the total amount of the
redemption price pursuant to the instructions of the Distributor or selected
dealer on or before the seventh calendar day subsequent to the Trust (or its
agent) having received the notice of redemption in proper form. The proceeds of
any redemption of shares shall be paid by the Trust (or its agent) to or for the
account of the redeeming shareholder, in each case in accordance with the
applicable provisions of the respective Fund's Prospectus.
3.3 Redemption of shares or payment therefor may be suspended
at times when the New York Stock Exchange is closed for other than customary
weekends and holidays, when trading on the Exchange is restricted, when an
emergency exists as a
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<PAGE>
result of which disposal by the Funds of securities owned by it is not
reasonably practicable or when it is not reasonably practicable for the Funds
fairly to determine the value of its net assets, or during any other period when
the Securities and Exchange Commission, by order, so permits.
Section 4. DUTIES OF THE TRUST.
4.1 Subject to the possible suspension of the sale of shares of
a Fund, and the right to reject orders, as provided herein, the Trust agrees to
sell shares of the Funds so long as shares are available for sale.
4.2 The Trust (or its agent) shall furnish the Distributor
copies of all information, financial statements and other documents which the
Distributor may reasonably request for use in connection with the distribution
of shares, which information shall include one certified copy, upon request by
the Distributor, of all financial statements prepared for the Trust by its
independent public accountants. The Trust (or its agent) shall make available to
the Distributor such number of copies of the Prospectuses for each Fund and
annual and interim reports as the Distributor shall reasonably request.
4.3 The Trust shall use its best efforts to take from time to
time, but subject to the necessary approval of the Board and the shareholders,
all necessary action to register authorized shares under the Securities Act of
1933, as amended (the "1933 Act"), so that there will be available for sale such
number of shares of the Funds as the Distributor and the selected dealers
reasonably may expect to sell. The Trust shall file from time to time such
amendments, reports and other documents as may be necessary in order that there
will be no untrue statement of a material fact in the Trust's Registration
Statement on Form N-1A covering the shares of the Funds (the "Registration
Statement"), or necessary in order that there will be no omission to state a
material fact in the Registration Statement which omission would make the
statements therein misleading. The Distributor shall furnish such information
and other material relating to its affairs and activities as may be required by
the Trust in connection with such Registration Statement.
4.4 The Trust shall use its best efforts to qualify and maintain
the qualification of an appropriate number of shares of the Funds for sale under
the securities laws of such states as the Distributor and the Trust may approve;
provided that the Trust shall not be required to amend its Declaration of Trust
or Bylaws to comply with the laws of any state, to maintain an office in any
state, to change the terms of the offering of its shares in any state from the
terms set forth in its Registration Statement, to qualify as a foreign
corporation in any state or to consent to service of process in any state other
than with respect to claims arising out of the offering of its shares. Any such
qualification may be withheld, terminated or withdrawn by the Trust at any time
in its discretion. As provided in Section 8.1 hereof, the expense of
qualification and maintenance of qualification shall be borne by the Trust. The
Distributor shall furnish such information and other material relating to its
affairs and activities as may be required by the Trust in connection with such
qualifications.
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<PAGE>
Section 5. DUTIES OF THE DISTRIBUTOR.
5.1 The Distributor shall devote reasonable time and effort to
effect sales of shares of the Funds, but shall not be obligated to sell any
specific number of shares. Sales of shares of a Fund shall be on the terms
described in its Prospectus. The Distributor shall compensate the selected
dealers as set forth in the Prospectus. To the extent not otherwise provided
herein, the Distributor shall bear all of the costs and expenses it incurs in
fulfilling its obligations hereunder.
5.2 In selling shares of the Funds, the Distributor shall use
its best efforts in all respects duly to conform with the requirements of all
federal and state laws relating to the sale of such securities. Neither the
Distributor nor any selected dealer nor any other person is authorized by the
Trust to give any information or to make any representations, other than those
contained in the Registration Statement or applicable Prospectus for the
respective Fund and any sales literature approved by appropriate officers of the
Trust.
5.3 The Distributor shall adopt and follow procedures for the
confirmation of sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements established by the NASD.
5.4 The Distributor shall have the right to enter into selling
group agreements with registered and qualified securities dealers and other
persons of its choice for the sale to the public of shares of the Funds,
provided that the Trust shall approve the form of such agreements. The
Distributor shall offer and sell shares only through such selected dealers as
are members in good standing of the NASD. Shares sold through selected dealers
shall be for sale by such dealers only at the offering price determined as set
forth in the Prospectus. The Distributor and selected dealers may repurchase
shares from an investor seeking to redeem such shares, for a fee, and, in turn,
redeem such shares with the applicable Fund.
5.5 The Distributor shall be the exclusive distributor of shares
of the Funds appointed by the Trust; however, the Distributor is an independent
contractor and may enter into like arrangements with other investment companies.
Section 6. PAYMENTS TO THE DISTRIBUTOR.
The Distributor shall receive and may retain any portion of any
front-end or contingent deferred sales charge which is imposed on sales and
redemptions of shares of the Funds and not reallowed to selected dealers as set
forth in the applicable Prospectus. Upon termination of this Agreement for any
reason, the obligation to pay any such contingent deferred sales charge on
shares sold prior to the date of termination shall survive the termination, and
the Trust (or its agent) shall collect and pay any such charges thereafter
imposed on such shares to the Distributor.
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<PAGE>
Section 7. COMPENSATION OF THE DISTRIBUTOR UNDER THE PLAN.
7.1 The Trust shall compensate the Distributor for costs it
incurs, and the services and facilities it provides, under this Agreement
pursuant to the terms of the Plan, including amounts paid to securities dealers
or others under selling group agreements between the Distributor and such
dealers and others. Amounts payable under the Plan shall be determined by the
Board from time to time and shall be accrued daily and paid monthly or at such
other intervals as the Board may determine.
7.2 So long as the Plan or any amendment thereto is in effect,
the Distributor shall inform the Board of the commissions and other fees to be
paid by the Distributor to broker-dealers and others which have selling group
agreements with the Distributor. So long as the Plan (or any amendment thereto)
is in effect, at the request of the Board or any agent or representative of the
Trust, the Distributor shall provide such additional information as may
reasonably be requested concerning the activities of the Distributor hereunder
and the costs incurred in performing such activities.
7.3 Costs of the Distributor subject to compensation hereunder
are costs of performing distribution activities with respect to the shares of
the Funds and may include, among others:
(a) advertising for the Funds in various forms through any available
medium, including the cost of printing and mailing Prospectuses, and
periodic financial reports and sales literature to persons other than
current shareholders of the Trust;
(b) sales commissions and other fees paid to, or on account of,
broker-dealers and others which have entered into selling group
agreements with the Distributor with respect to shares of the Funds;
and
(c) indirect and overhead costs including (i) lease expenses, (ii)
salaries and benefits of personnel including operations and sales
support personnel, (iii) utility expenses, (iv) communications
expenses, (v) sales promotion expenses, (vi) expenses of postage,
stationery and supplies and (vii) general overhead.
Section 8. ALLOCATION OF EXPENSES.
8.1 The Trust shall bear all costs and expenses of the
continuous offering of shares of the Funds, including fees and disbursements of
its counsel and auditors, in connection with the preparation and filing of any
required registration statements and/or prospectuses under the 1940 Act or the
1933 Act, and preparing and mailing annual and periodic reports and proxy
materials to shareholders (including but not limited to the expense of
typesetting any such registration statements, prospectuses, annual or periodic
reports or proxy materials). The Trust shall also bear the costs and expenses of
qualifying the shares for sale, and, if necessary or advisable in connection
therewith, of qualifying the Trust as a broker or dealer, in such states or
other jurisdictions as shall be selected by the Trust and the Distributor
pursuant to Section 4.4 hereof, and the cost and expense payable to each such
state for continuing qualification therein until the Trust decides to
discontinue such qualification pursuant to Section 4.4
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<PAGE>
hereof.
8.2 As set forth in Section 7 above, the Trust shall also bear
the expenses it assumes pursuant to the Plan with respect to shares, so long as
the Plan is in effect. If the Plan is terminated or discontinued, the costs
previously incurred by the Distributor in performing the duties set forth in
Section 5 hereof shall be borne by the Distributor and shall not be subject to
reimbursement by the Trust; provided, however, that the Distributor shall have
the continued right to receive all contingent deferred sales charges, if any, on
redemptions of shares of the Funds following the termination or discontinuation
of the Plan, as set forth in Section 6.
Section 9. INDEMNIFICATION.
9.1 The Trust agrees to indemnify, defend and hold the
Distributor, its partners and officers, and any person who controls the
Distributor within the meaning of Section 15 of the 1933 Act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Distributor, its partners and officers or any such controlling person may incur
under the 1933 Act, or under common law or otherwise, arising out of or based
upon any untrue statement of a material fact contained in the Registration
Statement or Prospectuses for any of the Funds or arising out of or based upon
any alleged omission to state a material fact required to be stated in the
Registration Statement or Prospectuses or necessary to make the statements
therein not misleading, except insofar as such claims, demands, liabilities or
expenses arise out of or are based upon any such untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with information furnished in writing by the Distributor to the Trust for use in
the Registration Statement or Prospectuses; provided, however, that this
indemnity agreement shall not inure to the benefit of any such partner, officer
or controlling person unless a court of competent jurisdiction shall determine,
in a final decision on the merits, that the person to be indemnified was not
liable by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations under this Agreement ("disabling conduct"), or, in the absence of
such a decision, a reasonable determination, based upon a review of the facts,
that the indemnified person was not liable by reason of disabling conduct by (a)
a vote of a majority of a quorum of Trustees of the Trust who are neither
"interested persons" of the Trust as defined in Section 2(a)(19) of the 1940 Act
nor parties to the proceeding, or (b) an independent legal counsel in a written
opinion. The Trust's agreement to indemnify the Distributor, its partners and
officers and any such controlling person as aforesaid is expressly conditioned
upon the Trust's being promptly notified of any action brought against the
Distributor, its partners, officers or any such controlling person. The Trust
agrees promptly to notify the Distributor of the commencement of any litigation
or proceedings against it or any of its officers or Trustees in connection with
the issue and sale of any shares.
9.2 The Distributor agrees to indemnify, defend and hold the
Fund, its officers and Trustees and any person who controls the Trust, if any,
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims,
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<PAGE>
demands, liabilities and expenses (including the cost of investigating or
defending against such claims, demands or liabilities and any counsel fees
incurred in connection therewith) which the Trust, its officers and Trustees or
any such controlling person may incur under the 1933 Act or under common law or
otherwise, but only to the extent that such liability or expense incurred by the
Trust, its Trustees or officers or such controlling person resulting from such
claims or demands shall arise out of or be based upon any alleged untrue
statement of a material fact contained in information furnished in writing by
the Distributor to the Trust for use in the Registration Statement or
Prospectuses for any of the Funds or shall arise out of or be based upon any
alleged omission to state a material fact in connection with such information
required to be stated in the Registration Statement or Prospectuses or necessary
to make such information not misleading. The Distributor's agreement to
indemnify the Trust, its officers and Trustees and any such controlling person
as aforesaid, is expressly conditioned upon the Distributor's being promptly
notified of any action brought against the Trust, its officers and Trustees or
any such controlling person.
9.3 No Trustee, officer, employee or agent of the Trust shall be
subject to any personal liability whatsoever, in his or her official or
individual capacity, to any person, including the Distributor, other than the
Trust or its shareholders, in connection with the property or affairs of the
Trust, save only that arising from his or her bad faith, willful misfeasance,
gross negligence or reckless disregard of his or her duty to such person; and
all such persons shall look solely to the Trust property for satisfaction of
claims of any nature against a Trustee, officer, employee or agent of the Trust
arising in connection with the affairs of the Trust. Moreover, the debts,
liabilities, obligations and expenses incurred, contracted for or otherwise
existing with respect to a Fund shall be enforceable against the assets and
property of such Fund only, and not against the assets and property of any other
series of the Trust.
Section 10. DURATION AND TERMINATION OF THIS AGREEMENT.
10.1 This Agreement shall become effective as of the date first
above written and, except as set forth in Section 6, shall remain in force with
respect to each Fund for two years from the date hereof and thereafter, but only
so long as such continuance is specifically approved at least annually by (a)
the Board, or by the vote of a majority of the outstanding voting securities of
the shares of the Fund, and (b) by the vote of a majority of those Trustees of
the Trust who are not parties to this Agreement or interested persons of any
such parties and who have no direct or indirect financial interest in this
Agreement or in the operation of the Plan or in any agreement related thereto
(the "Disinterested Trustees"), cast in person at a meeting called for the
purpose of voting upon such approval.
10.2 Except as set forth in Section 6, this Agreement may be
terminated with respect to a Fund at any time, without the payment of any
penalty, by a majority of the Disinterested Trustees or by vote of a majority of
the outstanding voting securities of the Fund, or by the Distributor, on not
less than sixty (60) days' written notice to the other party. Except as set
forth in Section 6, this Agreement shall automatically terminate in the event of
its assignment.
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10.3 The terms "affiliated person," "assignment," "interested
person" and "vote of a majority of the outstanding voting securities," when used
in this Agreement, shall have the respective meanings specified in the 1940 Act.
Section 11. AMENDMENTS TO THIS AGREEMENTS.
This Agreement may be amended with respect to a Fund by the
parties only if such amendment is specifically approved by (a) the Board, or by
the vote of a majority of the outstanding voting securities of the Fund and (b)
by the vote of a majority of the Disinterested Trustees cast in person at a
meeting called for the purpose of voting on such amendment.
Section 12. GOVERNING LAW.
The provisions of this Agreement shall be construed and
interpreted in accordance with the internal laws (and not the laws of conflicts
of law) of the State of California as at the time in effect and the applicable
provisions of the 1940 Act. To the extent that the applicable law of the State
of California, or any of the provisions herein, conflict with the applicable
provisions of the 1940 Act, the latter shall control.
Section 13. MISCELLANEOUS.
(a) Notices of any kind to be given to the Distributor by the
Trust shall be in writing and shall be duly given if mailed, delivered or
communicated by answer back facsimile transmission to the Distributor at 600
West Broadway, 30th Floor, San Diego, California 92101, Facsimile: (619)
687-8138, Attention: President, or at such other address or to such individual
as shall be so specified by the Distributor. Notices of any kind to be given to
the Trust hereunder by the Distributor shall be in writing and will be duly
given if mailed or delivered to the Trust at 600 West Broadway, 30th Floor, San
Diego, California 92101, Facsimile: (619) 687-8138, Attention: President, or at
such other address or to such individual as shall be so specified by the Trust
to the Distributor.
(b) This Agreement constitutes the entire agreement and
understanding between the parties hereto, and supersedes all prior agreements
and understandings relating to the subject matter hereof.
(c) The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect.
(d) If any provision of this Agreement is held or made invalid
by a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year above written.
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NICHOLAS-APPLEGATE INSTITUTIONAL
FUNDS
By:
-----------------------------
E. Blake Moore, Jr.
Secretary
NICHOLAS-APPLEGATE SECURITIES
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
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Exhibit (1)(g)
CUSTODIAN AGREEMENT
THIS AGREEMENT, dated as of ______________________, 1999 between NICHOLAS
APPLEGATE INSTITUTIONAL FUNDS, an open-end management investment company
organized under the laws of the State of Delaware and registered with the
Securities and Exchange Commission under the 1940 Act (the FUND) on behalf of
each of the portfolios listed on the attached Appendix "C" as the same may be
amended from time to time (each a PORTFOLIO and collectively the PORTFOLIOS),
and BROWN BROTHERS HARRIMAN & CO., a limited partnership formed under the laws
of the State of New York (BBH&CO. or the CUSTODIAN),
W I T N E S S E T H:
WHEREAS, the Fund wishes to employ BBH&Co. to act as custodian for the Fund
and to provide related services, all as provided herein, and BBH&Co. is willing
to accept such employment, subject to the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the Fund and BBH&Co. hereby agree, as follows:
1. APPOINTMENT OF CUSTODIAN. The Fund hereby appoints BBH&Co. as the Fund's
custodian, and BBH&Co. hereby accepts such appointment. All Investments of the
Fund delivered to the Custodian or its agents or Subcustodians shall be dealt
with as provided in this Agreement. The duties of the Custodian with respect
to the Fund's Investments shall be only as set forth expressly in this Agreement
which duties are generally comprised of safekeeping and various administrative
duties that will be performed in accordance with Instructions and as reasonably
required to effect Instructions.
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2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE FUND. The Fund hereby
represents, warrants and covenants each of the following:
2.1 This Agreement has been, and at the time of delivery of each
Instruction such Instruction will have been, duly authorized, executed
and delivered by the Fund. This Agreement does not violate any
Applicable Law or conflict with or constitute a default under the Fund's
prospectus or other organic document, agreement, judgment, order or
decree to which the Fund is a party or by which it or its Investments
is bound.
2.2 By providing an Instruction with respect to the first acquisition
of an Investment in a jurisdiction other than the United States of America,
the Fund shall be deemed to have confirmed to the Custodian that the Fund
has (a) assessed and accepted all material Country or Sovereign Risks and
accepted responsibility for their occurrence, (b) made all determinations
required to be made by the Fund under the 1940 Act, and (iii) appropriately
and adequately disclosed to its shareholders, all material investment
risks, including those relating to the custody and settlement
infrastructure or the servicing of securities in such jurisdictions.
2.3 The Fund shall safeguard and shall solely be responsible for the
safekeeping of any testkeys, identification codes, passwords, other
security devices or statements of account with which the Custodian provides
it. In furtherance and not limitation of the foregoing, in the event the
Fund utilizes any on-line service offered by the Custodian, the Fund and
the Custodian shall be fully responsible for the security of its respective
connecting terminal, access thereto and the proper and authorized use
thereof and the initiation and application of continuing effective
safeguards in respect thereof.
3. REPRESENTATION AND WARRANTY OF BBH&CO. BBH&Co. hereby represents and
warrants that this Agreement has been duly authorized, executed and delivered by
BBH&Co. and does not and will not violate any Applicable Law or conflict with or
constitute a default under BBH&Co.'s limited partnership agreement or any
agreement, instrument, judgment, order or decree to which BBH&Co. is a party or
by which it is bound.
BBH&Co. hereby further warrants to the Fund that as of the date of this
Agreement it is maintaining a sufficient bankers blanket bond and hereby agrees
to notify the Fund in the event its bankers blanket bond is canceled or
otherwise lapses.
4. INSTRUCTIONS. Unless otherwise explicitly indicated herein, the Custodian
shall perform its duties
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pursuant to Instructions. As used herein, the term INSTRUCTION shall mean a
directive initiated by the Fund, acting directly or through its board of
directors, officers or other Authorized Persons, which directive shall conform
to the requirements of this Section 4.
4.1 AUTHORIZED PERSONS. For purposes hereof, an AUTHORIZED PERSON shall
be a person or entity authorized to give Instructions for or on behalf of the
Fund by written notices to the Custodian or otherwise in accordance with
procedures delivered to and acknowledged by the Custodian, including without
limitation the Fund's Investment Adviser or Foreign Custody Manager. The
Custodian may treat any Authorized Person as having full authority of the Fund
to issue Instructions hereunder unless the notice of authorization contains
explicit limitations as to said authority. The Custodian shall be entitled to
rely upon the authority of Authorized Persons until it receives appropriate
written notice from the Fund to the contrary.
4.2 FORM OF INSTRUCTION. Each Instruction shall be transmitted by such
secured or authenticated electro-mechanical means as the Custodian shall make
available to the Fund from time to time unless the Fund shall elect to transmit
such Instruction in accordance with Subsections 4.2.1 through 4.2.3 of this
Section.
4.2.1 FUND DESIGNATED SECURED-TRANSMISSION METHOD. Instructions may
be transmitted through a secured or tested electro-mechanical means
identified by the Fund or by an Authorized Person entitled to give
Instruction and acknowledged and accepted by the Custodian; it being
understood that such acknowledgment shall authorize the Custodian to
receive and process instructions received by such means of delivery but
shall not represent a judgment by the Custodian as to the reasonableness or
security of the method determined by the Authorized Person.
4.2.2 WRITTEN INSTRUCTIONS. Instructions may be transmitted in a
writing that bears the manual signature of Authorized Persons.
4.2.3 OTHER FORMS OF INSTRUCTION. Instructions may also be
transmitted by another means determined by the Fund or Authorized Persons
and acknowledged and accepted by the Custodian (subject to the same limits
as to acknowledgements as is contained in Subsection 4.2.1,
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above) including Instructions given orally or by SWIFT, telex or telefax
(whether tested or untested).
When an Instruction is given by means established under this Subsection 4.2, it
shall be the responsibility of the Custodian to use reasonable care to adhere to
any security or other procedures established in writing between the Custodian
and the Authorized Person with respect to such means of Instruction. When an
Instruction is given by means established under Subsections 4.2.1 through 4.2.3,
it shall be the responsibility of such Authorized Person for determining that
the particular means chosen is reasonable under the circumstances. Oral
Instructions shall be binding upon the Custodian only if and when the Custodian
takes action with respect thereto. With respect to telefax instructions, the
parties agree and acknowledge that receipt of legible Instructions cannot be
assured, that the Custodian cannot verify that authorized signatures on telefax
Instructions are original or properly affixed, and that the Custodian shall not
be liable for losses or expenses incurred through actions taken in reliance on
inaccurately stated, illegible or unauthorized telefax Instructions. The
provisions of Section 4A of the Uniform Commercial Code shall apply to funds
transfers performed in accordance with Instructions. In the event that a Fund's
Transfer Services Agreement is executed between the Fund or an Authorized Person
and the Custodian, such an agreement shall comprise a designation of form of a
means of delivering Instructions for purposes of this Section 4.2.
4.3 COMPLETENESS AND CONTENTS OF INSTRUCTIONS. The Authorized Person shall
be responsible for assuring the adequacy and accuracy of Instructions.
Particularly, upon any acquisition or disposition or other dealing in the
Fund's Investments and upon any delivery and transfer of any Investment or
moneys, the person initiating such Instruction shall give the Custodian an
Instruction with appropriate detail, including, without limitation:
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4.3.1 The transaction date and the date and location of settlement;
4.3.2 The specification of the type of transaction;
4.3.4 A description of the Investments or moneys in question,
including, as appropriate, quantity, price per unit, amount of money to be
received or delivered and currency information. Where an Instruction is
communicated by electronic means, or otherwise where an Instruction
contains an identifying number such as a CUSIP, SEDOL or ISIN number, the
Custodian shall be entitled to rely on such number as controlling
notwithstanding any inconsistency contained in such Instruction,
particularly with respect to Investment description;
4.3.5 The name of the broker or similar entity concerned with
execution of the transaction.
If the Custodian shall determine that an Instruction is either unclear or
incomplete, the Custodian may give prompt notice of such determination to the
Fund, and the Fund shall thereupon amend or otherwise reform such Instruction.
In such event, the Custodian shall have no obligation to take any action in
response to the Instruction initially delivered until the redelivery of an
amended or reformed Instruction.
4.4 TIMELINESS OF INSTRUCTIONS. In giving an Instruction, the Fund shall
take into consideration delays which may occur due to the involvement of a
Subcustodian or agent, differences in time zones, and other factors particular
to a given market, exchange or issuer. When the Custodian has established
specific timing requirements or deadlines with respect to particular classes of
Instruction, or when an Instruction is received by the Custodian at such a time
that it could not reasonably be expected to have acted on such Instruction due
to time zone differences or other factors beyond its reasonable control, the
execution of any Instruction received by the Custodian after such deadline or at
such time (including any modification or revocation of a previous Instruction)
shall be at the risk of the Fund.
5. SAFEKEEPING OF FUND ASSETS. The Custodian shall hold Investments delivered
to it or
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Subcustodians for the Fund in accordance with the provisions of this Section.
The Custodian shall not be responsible for (a) the safekeeping of Investments
not delivered or that are not caused to be issued to it or its Subcustodians; or
(b) pre-existing faults or defects in Investments that are delivered to the
Custodian, or its Subcustodians. The Custodian is hereby authorized to hold
with itself or a Subcustodian, and to record in one or more accounts, all
Investments delivered to and accepted by the Custodian, any Subcustodian or
their respective agents pursuant to an Instruction or in consequence of any
corporate action. The Custodian shall hold Investments for the account of the
Fund and shall segregate Investments from assets belonging to the Custodian and
shall cause its Subcustodians to segregate Investments from assets belonging to
the Subcustodian in an account held for the Fund or in an account maintained by
the Subcustodian generally for non-proprietary assets of the Custodian.
5.1 USE OF SECURITIES DEPOSITORIES. The Custodian may deposit and
maintain Investments in any Securities Depository, either directly or through
one or more Subcustodians appointed by the Custodian. Investments held in a
Securities Depository shall be held (a) subject to the agreement, rules,
statement of terms and conditions or other document or conditions effective
between the Securities Depository and the Custodian or the Subcustodian, as the
case may be, and (b) in an account for the Fund or in bulk segregation in an
account maintained for the non-proprietary assets of the entity holding such
Investments in the Depository. If market practice or the rules and regulations
of the Securities Depository prevent the Custodian, the Subcustodian or (any
agent of either) from holding its client assets in such a separate account, the
Custodian, the Subcustodian or other agent shall as appropriate segregate such
Investments for benefit of the Fund or for benefit of clients of the Custodian
generally on its own books.
5.2 CERTIFICATED ASSETS. Investments which are certificated may be held
in registered or bearer
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form: (a) in the Custodian's vault; (b) in the vault of a Subcustodian or agent
of the Custodian or a Subcustodian; or (c) in an account maintained by the
Custodian, Subcustodian or agent at a Securities Depository; all in accordance
with customary market practice in the jurisdiction in which any Investments are
held.
5.3 REGISTERED ASSETS. Investments which are registered may be registered
in the name of the Custodian, a Subcustodian, or in the name of the Fund or a
nominee for any of the foregoing, and may be held in any manner set forth in
paragraph 5.2 above with or without any identification of fiduciary capacity in
such registration.
5.4 BOOK ENTRY ASSETS. Investments which are represented by book-entry
may be so held in an account maintained by the Book-Entry Agent on behalf of the
Custodian, a Subcustodian or another agent of the Custodian, or a Securities
Depository.
5.5 REPLACEMENT OF LOST INVESTMENTS. In the event of a loss of
Investments for which the Custodian is responsible under the terms of this
Agreement, the Custodian shall replace such Investment, or in the event that
such replacement cannot be effected, the Custodian shall pay to the Fund the
fair market value of such Investment based on the last available price as of the
close of business in the relevant market on the date that a claim was first made
to the Custodian with respect to such loss, or, if less, such other amount as
shall be agreed by the parties as the date for settlement.
6. ADMINISTRATIVE DUTIES OF THE CUSTODIAN. The Custodian shall perform the
following administrative duties with respect to Investments of the Fund.
6.1 PURCHASE OF INVESTMENTS. Pursuant to Instruction, Investments
purchased for the account of
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the Fund shall be paid for (a) against delivery thereof to the Custodian or a
Subcustodian, as the case may be, either directly or through a Clearing
Corporation or a Securities Depository (in accordance with the rules of such
Securities Depository or such Clearing Corporation), or (b) otherwise in
accordance with an Instruction, Applicable Law, generally accepted trade
practices, or the terms of the instrument representing such Investment.
6.2 SALE OF INVESTMENTS. Pursuant to Instruction, Investments sold for
the account of the Fund shall be delivered (a) against payment therefor in cash,
by check or by bank wire transfer, (b) by credit to the account of the Custodian
or the applicable Subcustodian, as the case may be, with a Clearing Corporation
or a Securities Depository (in accordance with the rules of such Securities
Depository or such Clearing Corporation), or (c) otherwise in accordance with an
Instruction, Applicable Law, generally accepted trade practices, or the terms of
the instrument representing such Investment.
6.3 DELIVERY IN CONNECTION WITH BORROWINGS OF THE FUND OR OTHER COLLATERAL
AND MARGIN REQUIREMENTS. Pursuant to Instruction, the Custodian may deliver
Investments or cash of the Fund in connection with borrowings and other
collateral and margin requirements.
6.4 FUTURES AND OPTIONS. If, pursuant to an Instruction, the Custodian
shall become a party to an agreement with the Fund and a futures commission
merchant regarding margin (TRI-PARTY AGREEMENT), the Custodian shall (a) receive
and retain, to the extent the same are provided to the Custodian, confirmations
or other documents evidencing the purchase or sale by the Fund of
exchange-traded futures contracts and commodity options, (b) when required by
such Tri-Party Agreement, deposit and maintain in an account opened pursuant to
such Agreement (MARGIN ACCOUNT), segregated either physically or by book-entry
in a Securities Depository for the benefit of any futures commission merchant,
such Investments as the Fund shall have designated as initial, maintenance or
variation "margin" deposits or other collateral intended to secure the Fund's
performance of its obligations under the terms of any exchange-traded futures
contracts and commodity options; and (c) thereafter pay, release or transfer
Investments into or out of the margin account in accordance with the provisions
of the such Agreement. Alternatively, the Custodian may deliver Investments, in
accordance with an Instruction, to a futures commission merchant for purposes of
margin requirements in accordance with Rule 17f-6 under the 1940
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Act. The Custodian shall in no event be responsible for the acts and omissions
of any futures commission merchant to whom Investments are delivered pursuant to
this Section; for the sufficiency of Investments held in any Margin Account; or,
for the performance of any terms of any exchange-traded futures contracts and
commodity options.
6.5 CONTRACTUAL OBLIGATIONS AND SIMILAR INVESTMENTS. From time to time,
the Fund's Investments may include Investments that are not ownership interests
as may be represented by certificate (whether registered or bearer), by entry in
a Securities Depository or by book entry agent, registrar or similar agent for
recording ownership interests in the relevant Investment. If the Fund shall at
any time acquire such Investments, including without limitation deposit
obligations, loan participations, repurchase agreements and derivative
arrangements, the Custodian shall (a) receive and retain, to the extent the same
are provided to the Custodian, confirmations or other documents evidencing the
arrangement; and (b) perform on the Fund's account in accordance with the terms
of the applicable arrangement, but only to the extent directed to do so by
Instruction. The Custodian shall have no responsibility for agreements running
to the Fund as to which it is not a party other than to retain, to the extent
the same are provided to the Custodian, documents or copies of documents
evidencing the arrangement and, in accordance with Instruction, to include such
arrangements in reports made to the Fund.
6.6 EXCHANGE OF SECURITIES. Unless otherwise directed by Instruction,
the Custodian shall: (a) exchange securities held for the account of the Fund
for other securities in connection with any reorganization, recapitalization,
conversion, split-up, change of par value of shares or similar event, and (b)
deposit any such securities in accordance with the terms of any reorganization
or protective plan.
6.7 SURRENDER OF SECURITIES. Unless otherwise directed by Instruction,
the Custodian may surrender securities: (a) in temporary form for definitive
securities; (b) for transfer into the name of an entity allowable under Section
5.3; and (c) for a different number of certificates or instruments representing
the same number of shares or the same principal amount of indebtedness.
6.8 RIGHTS, WARRANTS, ETC. Pursuant to Instruction, the Custodian shall
(a) deliver warrants, puts, calls, rights or similar securities to the issuer or
trustee thereof, or to any agent of such issuer or trustee, for purposes of
exercising such rights or selling such securities, and (b) deposit securities in
response to any
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invitation for the tender thereof.
6.9 MANDATORY CORPORATE ACTIONS. Unless otherwise directed by
Instruction, the Custodian shall: (a) comply with the terms of all mandatory or
compulsory exchanges, calls, tenders, redemptions or similar rights of
securities ownership affecting securities held on the Fund's account and
promptly notify the Fund of such action, and (b) collect all stock dividends,
rights and other items of like nature with respect to such securities.
6.10 INCOME COLLECTION. Unless otherwise directed by Instruction, the
Custodian shall collect any amount due and payable to the Fund with respect to
Investments and promptly credit the amount collected to a Principal or Agency
Account; provided, however, that the Custodian shall not be responsible for: (a)
the collection of amounts due and payable with respect to Investments that are
in default, or (b) the collection of cash or share entitlements with respect to
Investments that are not registered in the name of the Custodian or its
Subcustodians. The Custodian is hereby authorized to endorse and deliver any
instrument required to be so endorsed and delivered to effect collection of any
amount due and payable to the Fund with respect to Investments.
6.11 OWNERSHIP CERTIFICATES AND DISCLOSURE OF THE FUND'S INTEREST. The
Custodian is hereby authorized to execute on behalf of the Fund ownership
certificates, affidavits or other disclosure required under Applicable Law or
established market practice in connection with the receipt of income, capital
gains or other payments by the Fund with respect to Investments, or in
connection with the sale, purchase or ownership of Investments.
6.12 PROXY MATERIALS. The Custodian shall deliver, or cause to be
delivered, to the Fund proxy forms, notices of meeting, and any other notices
or announcements materially affecting or relating to Investments received by the
Custodian or any nominee.
6.13. TAXES. The Custodian shall, where applicable, assist the Fund in
the reclamation of taxes withheld on dividends and interest payments received by
the Fund. In the performance of its duties with respect to tax withholding and
reclamation, the Custodian shall be entitled to rely on the advice of counsel
and upon information and advice regarding the Fund's tax status that is received
from or on behalf of the Fund without duty of separate inquiry.
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6.14 OTHER DEALINGS. The Custodian shall otherwise act as directed by
Instruction, including without limitation effecting the free payments of moneys
or the free delivery of securities, provided that such Instruction shall
indicate the purpose of such payment or delivery and that the Custodian shall
record the party to whom such payment or delivery is made.
The Custodian shall attend to all nondiscretionary details in connection
with the sale or purchase or other administration of Investments, except as
otherwise directed by an Instruction, and may make payments to itself or others
for minor expenses of administering Investments under this Agreement; provided
that the Fund shall have the right to request an accounting with respect to such
expenses.
In fulfilling the duties set forth in Sections 6.6 through 6.10 above, the
Custodian shall provide to the Fund all material information pertaining to a
corporate action which the Custodian actually receives; provided that the
Custodian shall not be responsible for the completeness or accuracy of such
information. Any advance credit of cash or shares expected to be received as a
result of any corporate action shall be subject to actual collection and may,
when the Custodian deems collection unlikely, be reversed by the Custodian.
The Custodian may at any time or times in its discretion appoint (and may
at any time remove) agents (other than Subcustodians) to carry out some or all
of the administrative provisions of this Agreement (AGENTS), provided, however,
that the appointment of such agent shall not relieve the Custodian of its
administrative obligations under this Agreement.
7. CASH ACCOUNTS, DEPOSITS AND MONEY MOVEMENTS. Subject to the terms and
conditions set forth in this Section 7, the Fund hereby authorizes the Custodian
to open and maintain, with itself or with Subcustodians, cash accounts in United
States Dollars, in such other currencies as are the currencies of the
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countries in which the Fund maintains Investments or in such other currencies as
the Fund shall from time to time request by Instruction.
7.1 TYPES OF CASH ACCOUNTS. Cash accounts opened on the books of the
Custodian (PRINCIPAL ACCOUNTS) shall be opened in the name of the Fund. Such
accounts collectively shall be a deposit obligation of the Custodian and shall
be subject to the terms of this Section 7 and the general liability provisions
contained in Section 9. Cash accounts opened on the books of a Subcustodian may
be opened in the name of the Fund or the Custodian or in the name of the
Custodian for its customers generally (AGENCY ACCOUNTS). Such deposits shall be
obligations of the Subcustodian and shall be treated as an Investment of the
Fund. Accordingly, the Custodian shall be responsible for exercising reasonable
care in the administration of such accounts but shall not otherwise be liable
for their repayment in the event such Subcustodian, by reason of its bankruptcy,
insolvency or otherwise, fails to make repayment.
7.2 PAYMENTS AND CREDITS WITH RESPECT TO THE CASH ACCOUNTS. The Custodian
shall make payments from or deposits to any of said accounts in the course of
carrying out its administrative duties, including but not limited to income
collection with respect to the Fund's Investments, and otherwise in accordance
with Instructions. The Custodian and its Subcustodians shall be required to
credit amounts to the cash accounts only when moneys are actually received in
cleared funds in accordance with banking practice in the country and currency of
deposit. Any credit made to any Principal or Agency Account before actual
receipt of cleared funds shall be provisional and may be reversed by the
Custodian in the event such payment is not actually collected. Unless otherwise
specifically agreed in writing by the Custodian or any Subcustodian, all
deposits shall be payable only at the branch of the Custodian or Subcustodian
where the deposit is made or carried.
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7.3 CURRENCY AND RELATED RISKS. The Fund bears risks of holding or
transacting in any currency. The Custodian shall not be liable for any loss or
damage arising from the applicability of any law or regulation now or hereafter
in effect, or from the occurrence of any event, which may delay or affect the
transferability, convertibility or availability of any currency in the country
(a) in which such Principal or Agency Accounts are maintained or (b) in which
such currency is issued, and in no event shall the Custodian be obligated to
make payment of a deposit denominated in a currency during the period during
which its transferability, convertibility or availability has been affected by
any such law, regulation or event. Without limiting the generality of the
foregoing, neither the Custodian nor any Subcustodian shall be required to repay
any deposit made at a foreign branch of either the Custodian or Subcustodian if
such branch cannot repay the deposit due to a cause for which the Custodian
would not be responsible in accordance with the terms of Section 9 of this
Agreement unless the Custodian or such Subcustodian expressly agrees in writing
to repay the deposit under such circumstances. All currency transactions in any
account opened pursuant to this Agreement are subject to exchange control
regulations of the United States and of the country where such currency is the
lawful currency or where the account is maintained. Any taxes, costs, charges or
fees imposed on the convertibility of a currency held by the Fund shall be for
the account of the Fund.
7.4 FOREIGN EXCHANGE TRANSACTIONS. The Custodian shall, subject to the
terms of this Section, settle foreign exchange transactions (including
contracts, futures, options and options on futures) on behalf and for the
account of the Fund with such currency brokers or banking institutions,
including Subcustodians, as the Fund may direct pursuant to Instructions. The
Custodian may act as principal in any foreign exchange transaction with the
Fund in accordance with Section 7.4.2 of this Agreement. The
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obligations of the Custodian in respect of all foreign exchange transactions
(whether or not the Custodian shall act as principal in such transaction) shall
be contingent on the free, unencumbered transferability of the currency
transacted on the actual settlement date of the transaction.
7.4.1 THIRD PARTY FOREIGN EXCHANGE TRANSACTIONS. The Custodian
shall process foreign exchange transactions (including without
limitation contracts, futures, options, and options on futures),
where any third party acts as principal counterparty to the Fund on
the same basis it performs duties as agent for the Fund with respect
to any other of the Fund's Investments. Accordingly the Custodian
shall only be responsible for delivering or receiving currency on
behalf of the Fund in respect of such contracts pursuant to
Instructions. The Custodian shall not be responsible for the failure
of any counterparty (including any Subcustodian) in such agency
transaction to perform its obligations thereunder. The Custodian (a)
shall transmit cash and Instructions to and from the currency broker
or banking institution with which a foreign exchange contract or
option has been executed pursuant hereto, (b) may make free outgoing
payments of cash in the form of United States Dollars or foreign
currency without receiving confirmation of a foreign exchange contract
or option or confirmation that the countervalue currency completing
the foreign exchange contract has been delivered or received or that
the option has been delivered or received, and (c) shall hold all
confirmations, certificates and other documents and agreements
received by the Custodian and evidencing or relating to such foreign
exchange transactions in safekeeping. The Fund accepts full
responsibility for its use of third-party foreign exchange dealers and
for execution of said foreign exchange contracts and options and
understands that the Fund shall be responsible for any and all costs
and interest charges which may be incurred by the Fund or the
Custodian as a result of the failure or delay of third parties to
deliver foreign exchange.
7.4.2 FOREIGN EXCHANGE WITH THE CUSTODIAN AS PRINCIPAL. The
Custodian may undertake foreign exchange transactions with the Fund as
principal as the Custodian and the Fund may agree from time to time.
In such event, the foreign exchange transaction will be performed in
accordance with the particular agreement of the parties, or in the
event a principal foreign exchange transaction is initiated by
Instruction in the absence of specific agreement, such transaction
will be performed in accordance with the usual commercial terms of the
Custodian.
7.5 DELAYS. If no event of Force Majeure shall have occurred and be
continuing and in the event that a delay shall have been caused by the
negligence or willful misconduct of the Custodian in carrying out an Instruction
to credit or transfer cash, the Custodian shall be liable to the Fund: (a) with
respect to Principal Accounts, for interest to be calculated at the rate
customarily paid on such deposit and currency by the Custodian on overnight
deposits at the time the delay occurs for the period from the day when the
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transfer should have been effected until the day it is in fact effected; and,
(b) with respect to Agency Accounts, for interest to be calculated at the rate
customarily paid on such deposit and currency by the Subcustodian on overnight
deposits at the time the delay occurs for the period from the day when the
transfer should have been effected until the day it is in fact effected. Except
is set forth in Section 8.3, the Custodian shall not be liable for delays in
carrying out such Instructions to transfer cash which are not due to the
Custodian's own negligence or willful misconduct.
7.6 ADVANCES. If, for any reason in the conduct of its safekeeping duties
pursuant to Section 5 hereof or its administration of the Fund's assets pursuant
to Section 6 hereof, the Custodian or any Subcustodian advances monies to
facilitate settlement or otherwise for benefit of the Fund (whether or not any
Principal or Agency Account shall be overdrawn either during, or at the end of,
any Business Day), the Fund hereby does:
7.6.1 acknowledge that the Fund shall have no right or title to any
Investments purchased with such Advance save a right to receive such
Investments upon: (a) the debit of the Principal or Agency Account; or, (b)
if such debit would produce an overdraft in such account, other
reimbursement of the associated Advance;
7.6.2 grant to the Custodian a security interest in all Investments; and,
7.6.3 agree that the Custodian may secure the resulting Advance by
perfecting a security interest in all Investments under Applicable Law.
Neither the Custodian nor any Subcustodian shall be obligated to advance monies
to the Fund, and in the event that such Advance occurs, any transaction giving
rise to an Advance shall be for the account and risk of the Fund and shall not
be deemed to be a transaction undertaken by the Custodian for its own account
and risk. If such Advance shall have been made by a Subcustodian or any other
person, the Custodian may assign the security interest and any other rights
granted to the Custodian hereunder to such Subcustodian or
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other person. If the Fund shall fail to repay when due the principal balance of
an Advance and accrued and unpaid interest thereon, the Custodian or its
assignee, as the case may be, shall be entitled to utilize the available cash
balance in any Agency or Principal Account and to dispose of any Property to the
extent necessary to recover payment of all principal of, and interest on, such
Advance in full. The Custodian may assign any rights it has hereunder to a
Subcustodian or third party. Any security interest in Investments taken
hereunder shall be treated as financial assets credited to securities accounts
under Articles 8 and 9 of the Uniform Commercial Code as adopted in New York.
Accordingly, the Custodian shall have the rights and benefits of a secured
creditor that is a securities intermediary under such Articles 8 and 9.
7.7 INTEGRATED ACCOUNT. Subject to Section 16 hereof, for purposes
hereof, deposits maintained in all Principal Accounts (whether or not
denominated in United States Dollars) shall collectively constitute a single and
indivisible current account with respect to the Fund's obligations to the
Custodian, or its assignee, and balances in such Principal Accounts shall be
available for satisfaction of the Fund's obligations under this Section 7. The
Custodian shall further have a right of offset against the balances in any
Agency Account maintained hereunder to the extent that the aggregate of all
Principal Accounts is overdrawn.
8. SUBCUSTODIANS AND SECURITIES DEPOSITORIES. Subject to the provisions
hereinafter set forth in this Section 8, the Fund hereby authorizes the
Custodian to utilize Securities Depositories to act on behalf of the Fund and to
appoint from time to time and to utilize Subcustodians. With respect to
securities and funds held by a Subcustodian, either directly or indirectly
(including by a Securities Depository or Clearing Corporation), notwithstanding
any provisions of this Agreement to the contrary, payment for securities
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purchased and delivery of securities sold may be made prior to receipt of
securities or payment, respectively, and securities or payment may be received
in a form, in accordance with (a) governmental regulations, (b) rules of
Securities Depositories and clearing agencies, (c) generally accepted trade
practice in the applicable local market, (d) the terms and characteristics of
the particular Investment, or (e) the terms of Instructions.
8.1 DOMESTIC SUBCUSTODIANS AND SECURITIES DEPOSITORIES. The Custodian may
deposit and/or maintain, either directly or through one or more agents appointed
by the Custodian, Investments of the Fund in any Securities Depository in the
United States, including The Depository Trust Company, The Participants Trust
Company and the Federal Reserve Book-Entry System provided such Depository meets
applicable requirements of the Federal Reserve Bank or of the Securities and
Exchange Commission. With the prior approval of Fund which shall not be
unreasonably withheld, the Custodian may, appoint any bank as defined in
Section 2(a)(5) of the 1940 Act meeting the requirements of a custodian under
Section 17(f) of the 1940 Act and the rules and regulations thereunder, to act
on behalf of the Fund as a Subcustodian for purposes of holding Investments of
the Fund in the United States. Such appointment of domestic Subcustodians shall
be subject to approval of the Fund in accordance with Section 8.2.1.
8.2 FOREIGN SUBCUSTODIANS AND SECURITIES DEPOSITORIES. The Custodian may
deposit and/or maintain Investments of the Fund for which the primary market is
outside the United States, and such cash and cash equivalents as are reasonably
necessary, (at the direction of the Fund) to effect the Fund's transactions in
such Investments, in any non-U.S. Securities Depository provided such Securities
Depository meets the requirements of an "eligible foreign custodian" under Rule
17f-5 promulgated under the 1940 Act, or any successor rule or regulation ("Rule
17f-5") or which by order of the Securities and
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Exchange Commission is exempted therefrom. Additionally, the Custodian may,
at any time and from time to time, appoint (a) any bank, trust company or
other entity meeting the requirements of an eligible foreign custodian under
Rule 17f-5 or which by order of the Securities and Exchange Commission is
exempted therefrom, or (b) any bank as defined in Section 2(a)(5) of the 1940
Act meeting the requirements of a custodian under Section 17(f) of the 1940
Act and the rules and regulations thereunder, to act on behalf of the Fund as
a Subcustodian for purposes of holding Investments of the Fund (including
foreign currencies) of the Fund for which the primary market is outside the
United States, and such cash and cash equivalents as are reasonably
necessary, (at the direction of the Fund) to effect the Fund's transactions
in such Investments. Such appointment of foreign Subcustodians shall be
subject to approval of the Fund in accordance with Subsections 8.2.1 and
8.2.2.
8.2.1 BOARD APPROVAL OF SUBCUSTODIANS. Unless and except to the
extent that review of certain matters concerning the appointment of
Subcustodians shall have been delegated to the Custodian pursuant to
Subsection 8.2.2, the Custodian shall, prior to the appointment of any
Subcustodian for purposes of holding Investments of the Fund obtain written
confirmation of the approval of the Board of Trustees of the Fund with
respect to (a) the identity of a Subcustodian, (b) the country or countries
in which, and the Securities Depositories, if any, through which, any
proposed Subcustodian is authorized to hold Investments of the Fund, and
(c) the Subcustodian agreement which shall govern such appointment. Each
such duly approved country, Subcustodian and Securities Depository shall be
listed on Appendix A attached hereto as the same may from time to time be
amended.
8.2.2 DELEGATION OF BOARD REVIEW OF SUBCUSTODIANS. From time to
time, the Custodian may offer to perform, and the Fund may accept such
offer to perform, that the Custodian perform certain reviews of
Subcustodians and of Subcustodian contracts as delegate of the Fund's
Board. In such event, the Custodian's duties and obligations with respect
to this delegated review will be performed in accordance with the terms of
SCHEDULE "1" (Foreign Custody Manager Delegation Agreement) of this
Agreement/the separate delegation agreement between the Fund and the
Custodian.
8.3 RESPONSIBILITY FOR SUBCUSTODIANS. With respect to those Subcustodians
listed on Appendix "A" hereto, the Custodian shall be liable to the Fund for any
loss or damage to the Fund caused by or resulting from the acts omissions of any
Subcustodian to the extent that such acts or omissions would
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be deemed to be negligence, gross negligence or willful misconduct in accordance
with the terms of the relevant subcustodian agreement under the laws,
circumstances and practices prevailing in the place where the act or omission
occurred. In the countries indicated in Appendix "B" to this Agreement, the
liability of the Custodian shall be subject to the additional condition that the
Custodian actually recovers such loss or damage from the Subcustodian.
8.4 NEW COUNTRIES. The Fund shall be responsible for informing the
Custodian sufficiently in advance of a proposed Investment which is to be held
in a country in which no Subcustodian is authorized to act in order that the
Custodian shall, if it deems appropriate to do so, have sufficient time to
establish a subcustodial arrangement in accordance herewith. In the event,
however, the Custodian is unable to establish such arrangements prior to the
time such Investment is to be acquired, the Custodian is authorized to designate
at its discretion a local safekeeping agent, and the use of such local
safekeeping agent with respect to such Investment shall be at the sole risk of
the Fund, and accordingly the Custodian shall be responsible to the Fund for the
actions of such agent if and only to the extent the Custodian shall have
recovered from such agent for any damages caused the Fund by such agent.
9. RESPONSIBILITY OF THE CUSTODIAN. In performing its duties and obligations
hereunder, the Custodian shall comply with all requirements of applicable law
and shall use reasonable care under the facts and circumstances prevailing in
the market where performance is effected. Subject to the specific provisions of
this Section, the Custodian shall be liable for any direct damage incurred by
the Fund in consequence of the Custodian's negligence, bad faith or willful
misconduct. In no event shall the Custodian be liable hereunder for any
special, indirect, punitive or consequential damages arising out of,
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pursuant to or in connection with this Agreement even if the Custodian has been
advised of the possibility of such damages. It is agreed that the Custodian
shall have no duty to assess the risks inherent in the Fund's Investments or to
provide investment advice with respect to such Investments and that the Fund as
principal shall bear any risks attendant to particular Investments such as
failure of counterparty or issuer.
9.1 LIMITATIONS OF PERFORMANCE. The Custodian shall not be responsible
under this Agreement for any failure to perform its duties, and shall not liable
hereunder for any loss or damage in association with such failure to perform,
for or in consequence of the following causes:
9.1.1 FORCE MAJEURE. FORCE MAJEURE shall mean any circumstance or
event which is beyond the reasonable control of the Custodian, a
Subcustodian or any agent of the Custodian or a Subcustodian and which
adversely affects the performance by the Custodian of its obligations
hereunder, by the Subcustodian of its obligations under its Subcustody
Agreement or by any other agent of the Custodian or the Subcustodian,
including any event caused by, arising out of or involving (a) an act of
God, (b) accident, fire, water damage or explosion, (c) any computer,
system or other equipment failure or malfunction caused by any computer
virus or the malfunction or failure of any communications medium, (d) any
interruption of the power supply or other utility service, (e) any strike
or other work stoppage, whether partial or total, (f) any delay or
disruption resulting from or reflecting the occurrence of any Sovereign
Risk, (g) any disruption of, or suspension of trading in, the securities,
commodities or foreign exchange markets, whether or not resulting from or
reflecting the occurrence of any Sovereign Risk, (h) any encumbrance on the
transferability of a currency or a currency position on the actual
settlement date of a foreign exchange transaction, whether or not resulting
from or reflecting the occurrence of any Sovereign Risk, or (i) any other
cause similarly beyond the reasonable control of the Custodian.
9.1.2 COUNTRY RISK. COUNTRY RISK shall mean, with respect to the
acquisition, ownership, settlement or custody of Investments in a
jurisdiction, all risks relating to, or arising in consequence of, systemic
and market factors affecting the acquisition, payment for or ownership of
Investments including (a) the prevalence of crime and corruption, (b) the
inaccuracy or unreliability of business and financial information, (c) the
instability or volatility of banking and financial systems, or the absence
or inadequacy of an infrastructure to support such systems, (d) custody and
settlement infrastructure of the market in which such Investments are held
and transactions in such Investment take place, (e) the acts, omissions and
operation of any Securities Depository, (f) the risk of the bankruptcy or
insolvency of banking agents, counterparties to cash and securities
transactions, registrars or transfer agents, and (g) the existence of
market conditions which prevent the orderly execution or settlement of
transactions or which affect the value of assets.
9.1.3 SOVEREIGN RISK. SOVEREIGN RISK shall mean, in respect of any
jurisdiction, including the United States of America, where Investments are
acquired or held hereunder or under a Subcustody Agreement, (a) any act of
war, terrorism, riot, insurrection or civil commotion, (b) the imposition
of any investment, repatriation or exchange control restrictions by any
Governmental Authority, (c) the confiscation, expropriation or
nationalization of any
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Investment by any Governmental Authority, whether de facto or de jure, (iv)
any devaluation or revaluation of the currency, (d) the imposition of
taxes, levies or other charges affecting Investments, (vi) any change in
the Applicable Law, or (e) any other economic or political risk incurred or
experienced.
9.2. LIMITATIONS ON LIABILITY. The Custodian shall not be liable for any
loss, claim, damage or other liability arising from the following causes:
9.2.1 FAILURE OF THIRD PARTIES. The failure of any third party
including: (a) any issuer of Investments or book-entry or other agent of
any issuer; (b) any counterparty with respect to any Investment, including
any issuer of exchange-traded or other futures, option, derivative or
commodities contract; (c) failure of an Investment Advisor, Foreign Custody
Manager or other agent of the Fund; or (d) failure of other third parties
similarly beyond the control or choice of the Custodian.
9.2.2 INFORMATION SOURCES. The Custodian may rely upon information
received from issuers of Investments or agents of such issuers,
information received from Subcustodians and from other commercially
reasonable sources such as commercial data bases and the like, but shall
not be responsible for specific inaccuracies in such information, provided
that the Custodian has relied upon such information in good faith, or for
the failure of any commercially reasonable information provider.
9.2.3 RELIANCE ON INSTRUCTION. Action by the Custodian or the
Subcustodian in accordance with an Instruction, even when such action
conflicts with, or is contrary to any provision of, the Fund's declaration
of trust or by-laws, Applicable Law, or actions by the trustees, or
shareholders of the Fund.
9.2.4 RESTRICTED SECURITIES. The limitations inherent in the rights,
transferability or similar investment characteristics of a given Investment
of the Fund.
10. INDEMNIFICATION. The Fund hereby indemnifies the Custodian and each
Subcustodian, and their respective agents, nominees and their partners,
employees, officers and directors, and agrees to hold each of them harmless from
and against all claims and liabilities, including counsel fees and taxes,
incurred or assessed against any of them in connection with the performance of
this Agreement and any Instruction, provided that such performance was without
negligence, bad faith or willful misconduct on the part of the Custodian or
Subcustodian. If a Subcustodian or any other person indemnified under the
preceding sentence, gives written notice of claim to the Custodian, the
Custodian shall promptly give written notice to
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the Fund.
11. REPORTS AND RECORDS. The Custodian shall:
11.1 create and maintain records relating to the performance of
its obligations under this Agreement;
11.2 make available to the Fund, its auditors, agents and
employees, during regular business hours of the Custodian, upon reasonable
request, all records maintained by the Custodian pursuant to Subsection
11.1 above, subject, however, to all reasonable security requirements of
the Custodian then applicable to the records of its custody customers
generally; and
11.3 make available to the Fund all electronic reports; it being
understood that the Custodian shall not be liable hereunder for the
inaccuracy or incompleteness thereof or for errors in any information
included therein.
The Fund shall examine all records, howsoever produced or transmitted,
promptly upon receipt thereof and notify the Custodian promptly of any
discrepancy or error therein. Unless the Fund delivers written notice of any
such discrepancy or error within 60 days after its receipt thereof, such records
shall be deemed to be true and accurate. It is understood that the Custodian
now obtains and will in the future obtain information on the value of assets
from outside sources which may be utilized in certain reports made available to
the Fund. The Custodian deems such sources to be reliable but it is acknowledged
and agreed that the Custodian does not verify nor represent nor warrant as to
the accuracy or completeness of such information and accordingly shall be
without liability in selecting and using such sources and furnishing such
information, provided such sources are selected and information is utilized with
reasonable care.
The books and records pertaining to the Fund and each designated series or
portfolio of the Fund, which are in the possession of the Custodian shall be the
property of the Fund. Such books and records
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shall be prepared and maintained as required by the 1940 Act and other
applicable securities laws, rules and regulations. The Custodian shall, send
copies of statements of custodial activity to the Fund and to its recordkeeping
agent. Such statements shall include; statement of cash account(s) including
transfers to and from such account(s), statements regarding receipt and delivery
of securities and statements reflecting month end activity, such statements may
also be available through BBH&Co.'s BIDS system.
The Custodian shall enter into and shall maintain in effect, at no
additional expense to the Fund, with appropriate parties one or more agreements
making reasonable provision for emergency use of electronic data processing
equipment to the extent appropriate equipment is available. In the event of
equipment failures, the Custodian shall, at no additional expense to the Fund,
take reasonable steps to minimize service interruptions but shall have no
liability with respect thereto.
12. MISCELLANEOUS.
12.1 PROXIES, ETC. The Fund will promptly execute and deliver, upon
request, such proxies, powers of attorney or other instruments as may be
reasonably necessary or desirable for the Custodian to provide, or to cause any
Subcustodian to provide, custody services to the Fund hereunder.
12.2 ENTIRE AGREEMENT. Except as specifically provided herein, this
Agreement constitutes the entire agreement between the Fund and the Custodian
with respect to the subject matter hereof. Accordingly, this Agreement
supersedes any custody agreement or other oral or written agreements heretofore
in effect between the Fund and the Custodian with respect to the custody of the
Fund's Investments.
12.3 WAIVER AND AMENDMENT. No provision of this Agreement may be
waived,
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amended or modified, and no addendum to this Agreement shall be or become
effective, or be waived, amended or modified, except by an instrument in writing
executed by the party against which enforcement of such waiver, amendment or
modification is sought; provided, however, that an Instruction, whether or not
such Instruction shall constitute a waiver, amendment or modification for
purposes hereof, shall be deemed to have been accepted by the Custodian when it
commences actions pursuant thereto or in accordance therewith.
12.4 GOVERNING LAW AND JURISDICTION. THIS AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH, AND BE GOVERNED BY THE LAWS OF, THE STATE OF NEW
YORK, WITHOUT GIVING EFFECT TO THE LAWS OF CONFLICTS OF LAW OF SUCH STATE. THE
PARTIES HERETO IRREVOCABLY CONSENT TO THE EXCLUSIVE JURISDICTION OF THE COURTS
OF THE STATE OF NEW YORK AND THE FEDERAL COURTS LOCATED IN NEW YORK CITY IN THE
BOROUGH OF MANHATTAN WITH RESPECT TO MATTERS RESULTING FROM THIS AGREEMENT.
12.5 NOTICES. Notices and other writings contemplated by this
Agreement, other than Instructions, shall be delivered (a) by hand, (b) by first
class registered or certified mail, postage prepaid, return receipt requested,
(c) by a nationally recognized overnight courier or (d) by facsimile
transmission, provided that any notice or other writing sent by facsimile
transmission shall also be mailed, postage prepaid, to the party to whom such
notice is addressed. All such notices shall be addressed, as follows:
If to the Fund:
Attn: Global Operations
Nicholas Applegate Institutional Funds
600 West Broadway San Diego, California 92101
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Telephone: 800-551-8045
Facsimile: 619-645-4078
If to the Custodian:
Brown Brothers Harriman & Co.
40 Water Street
Boston, Massachusetts 02109
Attn: Manager, Securities Department
Telephone: (617) 772-1818
Facsimile: (617) 772-2263,
or such other address as the Fund or the Custodian may from time to time
designate in writing to the other.
12.6 HEADINGS. Paragraph headings included herein are for
convenience of reference only and shall not modify, define, expand or limit any
of the terms or provisions hereof.
12.7 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original. This Agreement shall
become effective when one or more counterparts have been signed and delivered by
the Fund and the Custodian.
12.8 CONFIDENTIALITY. The parties hereto agree that each shall treat
confidentially the terms and conditions of this Agreement and all information
provided by each party to the other regarding its business and operations. All
confidential information provided by a party hereto shall be used by any other
party hereto solely for the purpose of rendering or obtaining services pursuant
to this Agreement and, except as may be required in carrying out this Agreement,
shall not be disclosed to any third party without the prior consent of such
providing party. The foregoing shall not be applicable to any information that
is publicly available when provided or thereafter becomes publicly available
other than through a breach of
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this Agreement, or that is required to be disclosed by or to any bank examiner
of the Custodian or any Subcustodian, any regulatory authority, any auditor of
the parties hereto, or by judicial or administrative process or otherwise by
Applicable Law.
13. DEFINITIONS. For the purpose of this Agreement, the following defined
terms will have the respective meanings set forth below.
13.1 ADVANCE shall mean any extension of credit by or through the
Custodian or by or through any Subcustodian and shall include amounts paid to
third parties for account of the Fund or in discharge of any expense, tax or
other item payable by the Fund.
13.2 AGENCY ACCOUNT shall mean any deposit account opened on the books of
a Subcustodian or other banking institution in accordance with Section 7.1.
13.3 AGENT shall have the meaning set forth in the last system of Section
6.
13.4 APPLICABLE LAW shall mean with respect to each jurisdiction, all (a)
laws, statutes, treaties, regulations, guidelines (or their equivalents); (b)
orders, interpretations licenses and permits; and (c) judgments, decrees,
injunctions writs, orders and similar actions by a court of competent
jurisdiction; compliance with which is required or customarily observed in such
jurisdiction.
13.5 AUTHORIZED PERSON shall mean any person or entity authorized to give
Instructions on behalf of the Fund in accordance with Section 4.1.
13.6 BOOK-ENTRY AGENT shall mean an entity acting as agent for the issuer
of Investments for purposes of recording ownership or similar entitlement to
Investments, including without limitation a transfer agent or registrar.
13.7 CLEARING CORPORATION shall mean any entity or system established for
purposes of providing securities settlement and movement and associated
functions for a given market.
13.8 DELEGATION AGREEMENT shall mean any separate agreement entered into
between the Custodian and the Fund or its authorized representative with respect
to certain matters concerning the appointment and administration of
Subcustodians delegated to the Custodian pursuant to Rule 17f-5.
13.9 FOREIGN CUSTODY MANAGER shall mean the Fund's foreign custody
manager appointed pursuant to Rule 17f-5.
13.10 FUNDS TRANSFER SERVICES AGREEMENT shall mean any separate agreement
entered into between the Custodian and the Fund or its authorized representative
with respect to certain matters concerning the processing of payment orders from
Principal Accounts of the Fund.
13.11 INSTRUCTION(S) shall have the meaning assigned in Section 4.
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13.12 INVESTMENT ADVISOR shall mean any person or entity who is an
Authorized Person to give Instructions with respect to the investment and
reinvestment of the Fund's Investments.
13.13 INVESTMENTS shall mean any investment asset of the Fund, including
without limitation securities, bonds, notes, and debentures as well as
receivables, derivatives, contractual rights or entitlements and other
intangible assets.
13.14 MARGIN ACCOUNT shall have the meaning set forth in Section 6.4
hereof.
13.15 PRINCIPAL ACCOUNT shall mean deposit accounts of the Fund carried
on the books of BBH&Co. as principal in accordance with Section 7.
13.16 SAFEKEEPING ACCOUNT shall mean an account established on the books
of the Custodian or any Subcustodian for purposes of segregating the interests
of the Fund (or clients of the Custodian or Subcustodian) from the assets of the
Custodian or any Subcustodian.
13.17 SECURITIES DEPOSITORY shall mean a central or book entry system or
agency established under Applicable Law for purposes of recording the ownership
and/or entitlement to investment securities for a given market.
13.18 SUBCUSTODIAN shall mean each foreign bank appointed by the Custodian
pursuant to Section 8, but shall not include Securities Depositories.
13.19 TRI-PARTY AGREEMENT shall have the meaning set forth in Section 6.4
hereof.
13.20 1940 ACT shall mean the Investment Company Act of 1940, as amended.
14. COMPENSATION. The Fund agrees to pay to the Custodian (a) a fee in an
amount set forth in the fee letter between the Fund and the Custodian in effect
on the date hereof or as amended from time to time, and (b) all reasonable
out-of-pocket expenses incurred by the Custodian, including the fees and
expenses of all Subcustodians, and payable from time to time. Amounts payable
by the Fund under and pursuant to this Section 14 shall be payable by wire
transfer to the Custodian at BBH&Co. in New York, New York.
15. TERMINATION. This Agreement may be terminated by either party in
accordance with the provisions of this Section. The provisions of this
Agreement and any other rights or obligations incurred or accrued by any party
hereto prior to termination of this Agreement shall survive any termination of
this Agreement.
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15.1 NOTICE AND EFFECT. This Agreement may be terminated by either
party by written notice effective no sooner than seventy-five days
following the date that notice to such effect shall be delivered to other
party at its address set forth in paragraph 12.5 hereof.
15.2 SUCCESSOR CUSTODIAN. In the event of the appointment of a
successor custodian, it is agreed that the Investments of the Fund held by
the Custodian or any Subcustodian shall be delivered to the successor
custodian in accordance with reasonable Instructions. The Custodian agrees
to cooperate with the Fund in the execution of documents and performance of
other actions necessary or desirable in order to facilitate the succession
of the new custodian. If no successor custodian shall be appointed, the
Custodian shall in like manner transfer the Fund's Investments in
accordance with Instructions.
15.3 DELAYED SUCCESSION. If no Instruction has been given as of the
effective date of termination, Custodian may at any time on or after such
termination date and upon ten days written notice to the Fund either (a)
deliver the Investments of the Fund held hereunder to the Fund at the
address designated for receipt of notices hereunder; or (b) deliver any
investments held hereunder to a bank or trust company having a
capitalization of $2 million United States Dollars or equivalent and
operating under the Applicable law of the jurisdiction where such
Investments are located and qualified to act as a Custodian or Subcustodian
of the Funds' Investments under the 1940 Act, such delivery to be at the
risk of the Fund. In the event that Investments or moneys of the Fund
remain in the custody of the Custodian or its Subcustodians after the date
of termination owing to the failure of the Fund to issue Instructions with
respect to their disposition or owing to the fact that such disposition
could not be accomplished in accordance with such Instructions despite
diligent efforts of the Custodian, the Custodian shall be entitled to
compensation for its services with respect to such Investments and moneys
during such period as the Custodian or its Subcustodians retain possession
of such items and the provisions of this Agreement shall remain in full
force and effect until disposition in accordance with this Section is
accomplished.
16. LIMITATIONS ON LIABILITY. Pursuant to the Fund's Declaration of Trust, no
trustee, officer, employee or agent of the Fund shall be subject to any personal
liability whatsoever, in his or her official or individual capacity, to any
person, including the Custodian or any Subcustodian, other than to the Fund or
its shareholders, in connection with Fund property or the affairs of the Fund,
save only that arising from his or her bad faith, willful misfeasance, gross
negligence or reckless disregard of his or her duty to such person; and all
persons shall look solely to the Fund property for satisfaction of claims of any
nature against a trustee, officer, employee or agent of the Fund arising in
connection with the affairs of the Fund. Moreover, notwithstanding any other
provision of this Agreement to the contrary, the debts, liabilities,
28
<PAGE>
obligations and expenses incurred, contracted for or otherwise existing with
respect to a designated series or Portfolio of the Fund shall be enforceable
against the assets and property of such series or Portfolio only, and not
against the assets and property of any other series or Portfolio.
29
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
duly executed as of the date first above written.
NICHOLAS APPLEGATE INSTITUTIONAL FUNDS
on behalf of each of the portfolios listed on the attached Appendix "C"
By:
-------------------------------
By: BROWN BROTHERS HARRIMAN & CO.
By:
-------------------------------
30
<PAGE>
Exhibit (1)(g)
BROWN BROTHERS HARRIMAN & CO. - GLOBAL CUSTODY NETWORK
NICHOLAS APPLEGATE INSTITUTIONAL FUNDS
APPENDIX A
<TABLE>
<CAPTION>
COUNTRY SUBCUSTODIAN DEPOSITORIES
- ------- ------------ ------------
<S> <C> <C>
ARGENTINA BANKBOSTON, N.A., BUENOS AIRES Caja de Valores
CRYL
The First National Bank of Boston Agreement 1/5/88
Omnibus Amendment 2/22/94
Amendment 7/29/96
AUSTRALIA NATIONAL AUSTRALIA BANK LTD., MELBOURNE Austraclear Ltd.
CHESS
National Australia Bank Agt. 5/1/85 Reserve Bank of Australia
Agreement Amendment 2/13/92
Omnibus Amendment 11/22/93
AUSTRIA BANK AUSTRIA AG OeKB
Creditanstalt Bankverein Agreement 12/18/89
Omnibus Amendment 1/17/94
BAHRAIN BRITISH BANK OF THE MIDDLE EAST, BAHRAIN FOR HONGKONG & None
SHANGHAI BANKING CORP. LTD.
Hongkong & Shanghai Banking Corp. Agt. 4/19/91
Omnibus Supplement 12/29/93
Schedule 5/14/96
BBME Supplement 5/14/96
Side Letter Agreement dated 7/28/97
BANGLADESH STANDARD CHARTERED BANK, DHAKA None
Standard Chartered Bank Agreement 2/18/92
Omnibus Amendment 6/13/94
Appendix 4/8/96
BELGIUM BANQUE BRUXELLES LAMBERT CIK
National Bank of Belgium
Banque Bruxelles Lambert Agt. 11/15/90
Omnibus Amendment 3/1/94
BERMUDA THE BANK OF N.T. BUTTERFIELD & SON LTD., BERMUDA None
The Bank of N.T. Butterfield & Son Ltd.
Agreement 5/27/97
BOLIVIA CITIBANK, N.A., LA PAZ, BOLIVIA BCB
***REQUIRES ADDITIONAL DOCUMENTATION PRIOR TO
INVESTMENT.*** BBV
Citibank, N.A., New York Agt. 7/16/81
New York Agreement Amendment 8/31/90
New York Agreement Amendment 7/26/96
Citibank N.A. Appointment Letter 4/13/98
BOTSWANA STANBIC BANK BOTSWANA LIMITED FOR STANDARD BANK OF None
SOUTH AFRICA
Standard Bank of South Africa Agreement 3/11/94
Subsidiary Amendment 9/29/97
PAGE 1 OF 9
<PAGE>
<CAPTION>
COUNTRY SUBCUSTODIAN DEPOSITORIES
- ------- ------------ ------------
<S> <C> <C>
BRAZIL BANKBOSTON, N.A., SAO PAULO BOVESPA
CLC
The First National Bank of Boston Agreement 1/5/88
Omnibus Amendment 2/22/94
Amendment 7/29/96
BULGARIA ING BANK, N.V., BULGARIA CDAD
BNB
ING Bank N.V. Agreement 9/15/97
CANADA ROYAL BANK OF CANADA Bank of Canada
CDS
The Royal Bank of Canada Agreement 2/23/96
CHILE CITIBANK, N.A., SANTIAGO DCV
Citibank, N.A., New York Agt. 7/16/81
New York Agreement Amendment 8/31/90
New York Agreement Amendment 7/26/96
CHINA STANDARD CHARTERED BANK, SHANGHAI SSCCRC
Standard Chartered Bank Agreement 2/18/92
Omnibus Amendment 6/13/94
Appendix 4/8/96
CHINA STANDARD CHARTERED BANK, SHENZHEN SSCC
Standard Chartered Bank Agreement 2/18/92
Omnibus Amendment 6/13/94
Appendix 4/8/96
COLOMBIA CITITRUST COLOMBIA, S.A. SOCIEDAD FIDUCIARIA FOR
CITIBANK, N.A. DCV
Citibank, N.A., New York Agt. 7/16/81 Deceval
New York Agreement Amendment 8/31/90
New York Agreement Amendment 7/26/96
Citibank, N.A./Cititrust Colombia Agreement 12/2/91
Citibank, N.A. Subsidiary Amendment 10/19/95
COSTA RICA BANCO BCT S.A. CEVAL
***REQUIRES ADDITIONAL DOCUMENTATION PRIOR TO
INVESTMENT.***
Master Subcustodian Agreement 8/10/98
CROATIA BANK AUSTRIA CREDITANSTALT CROATIA DD FOR BANK AUSTRIA SDA
AG
Creditanstalt AG / Bank Austria Creditanstalt
Croatia d.d. Agt. 9/1/98
CYPRUS CYPRUS POPULAR BANK LTD. None
***REQUIRES ADDITIONAL DOCUMENTATION PRIOR TO
INVESTMENT.***
Cyprus Popular Bank Ltd. Agt. 2/18/98
CZECH REPUBLIC CITIBANK A.S. FOR CITIBANK N.A. SCP
Czech National Bank
Citibank, N.A., New York Agt. 7/16/81
New York Agreement Amendment 8/31/90
New York Agreement Amendment 7/26/96
Citibank N.A. / Citibank A.S. Agreement 6/24/96
DENMARK DEN DANSKE BANK VP
Den Danske Bank Agreement 1/1/89
Omnibus Amendment 12/1/93
PAGE 2 OF 9
<PAGE>
<CAPTION>
COUNTRY SUBCUSTODIAN DEPOSITORIES
- ------- ------------ ------------
<S> <C> <C>
ECUADOR CITIBANK, N.A., QUITO Decevale
Citibank, N.A., New York Agt. 7/16/81
New York Agreement Amendment 8/31/90
New York Agreement Amendment 7/26/96
Citibank, Quito Side Letter 7/3/95
EGYPT CITIBANK, N.A., CAIRO MCSD
Citibank, N.A., New York Agt. 7/16/81
New York Agreement Amendment 8/31/90
New York Agreement Amendment 7/26/96
ESTONIA HANSABANK, TALLIN FOR MERITA BANK ECDSL
***REQUIRES ADDITIONAL DOCUMENTATION PRIOR TO
INVESTMENT.***
Merita Bank Agreement 12/1/97
FINLAND MERITA BANK FCSD
Union Bank of Finland Agreement 2/27/89
Omnibus Amendment 4/6/94
FRANCE CREDIT AGRICOLE INDOSUEZ SICOVAM
Banque de France
Banque Indosuez Agreement 7/19/90
Omnibus Amendment 3/10/94
GERMANY DRESDNER BANK DBC
Dresdner Bank Agreement 10/6/95
GHANA MERCHANT BANK (GHANA) LIMITED FOR STANDARD BANK OF None
SOUTH AFRICA
***REQUIRES ADDITIONAL DOCUMENTATION PRIOR TO
INVESTMENT.***
Standard Bank of South Africa Agreement 3/11/94
Subsidiary Amendment 9/29/97
GREECE CITIBANK, N.A., ATHENS Apothetirion Titlon A.E.
Bank of Greece
Citibank, N.A., New York Agt. 7/16/81
New York Agreement Amendment 8/31/90
New York Agreement Amendment 7/26/96
HONG KONG STANDARD CHARTERED BANK, HONG KONG HKSCC
CMU
Standard Chartered Bank Agreement 2/18/92
Omnibus Amendment 6/13/94
Appendix 4/8/96
HUNGARY CITIBANK BUDAPEST RT. FOR CITIBANK, N.A. KELER Ltd.
Citibank, N.A., New York Agt. 7/16/81
New York Agreement Amendment 8/31/90
New York Agreement Amendment 7/26/96
Citibank, N.A. Subsidiary Amendment 10/19/95
Citibank, N.A. / Citibank Budapest Agreement 6/23/92
Citibank, N.A. / Citibank Budapest Amendment 9/29/92
INDIA DEUTSCHE BANK, MUMBAI NSDL
Deutsche Bank Agreement 2/19/96
PAGE 3 OF 9
<PAGE>
<CAPTION>
COUNTRY SUBCUSTODIAN DEPOSITORIES
- ------- ------------ ------------
<S> <C> <C>
INDONESIA CITIBANK, N.A., JAKARTA None
Citibank, N.A., New York Agt. 7/16/81
New York Agreement Amendment 8/31/90
New York Agreement Amendment 7/26/96
IRELAND ALLIED IRISH BANKS PLC CrestCo.
Gilt Settlement Office
Allied Irish Banks Agreement 1/10/89
Omnibus Amendment 4/8/94
ISRAEL BANK HAPOALIM B.M. TASE Clearinghouse Ltd.
Bank Hapoalim Agreement 8/27/92
ITALY BANCA COMMERCIALE ITALIANA Monte Titoli
Banca D'Italia
Banca Commerciale Italiana Agreement 5/8/89
Agreement Amendment 10/8/93
Omnibus Amendment 12/14/93
IVORY COAST SOCIETE GENERALE DE BANQUES EN COTE D'IVOIRE FOR SOCIETE DCBR
GENERALE
Societe General Agreement 10/6/98
JAPAN SUMITOMO BANK, LIMITED JASDEC
Bank of Japan
Sumitomo Bank Limited Agreement 3/16/98
JORDAN ARAB BANK PLC None
Arab Bank PLC Agreement 4/5/95
JORDAN BRITISH BANK OF THE MIDDLE EAST, JORDAN FOR HONGKONG & None
SHANGHAI BANKING CORP.
Hongkong & Shanghai Banking Corp. Agt. 4/19/91
Omnibus Supplement 12/29/93
Schedule 5/14/96
BBME Supplement 5/14/96
Side letter Agreement dated 7/28/97
KENYA STANBIC BANK KENYA LIMITED FOR STANDARD BANK OF SOUTH None
AFRICA
Standard Bank of South Africa Agreement 3/11/94
Subsidiary Amendment 9/29/97
KOREA CITIBANK, N.A., SEOUL KSD
Citibank, N.A., New York Agt. 7/16/81
New York Agreement Amendment 8/31/90
New York Agreement Amendment 7/26/96
Citibank, Seoul Agreement Supplement 10/28/94
LATVIA SOCIETE GENERALE, RIGA BRANCH Bank of Latvia
LCD
Societe Generale, Riga Branch Agreement 5/12/98
PAGE 4 OF 9
<PAGE>
<CAPTION>
COUNTRY SUBCUSTODIAN DEPOSITORIES
- ------- ------------ ------------
<S> <C> <C>
LEBANON BRITISH BANK OF THE MIDDLE EAST, LEBANON FOR HONGKONG & Midclear
SHANGHAI BANKING CORP.
Hongkong & Shanghai Banking Corp. Agt. 4/19/91
Omnibus Supplement 12/29/93
Schedule 5/14/96
BBME Supplement 5/14/96
Side letter Agreement dated 7/28/97
LITHUANIA VILNIAUS BANKAS, VILNIUS FOR MERITA BANK CSDL
***REQUIRES ADDITIONAL DOCUMENTATION PRIOR TO
INVESTMENT.***
Merita Bank Agreement 12/1/97
LUXEMBOURG KREDIETBANK LUXEMBOURG Cedel
Kredietbank Luxembourg Agt. 4/7/98
MALAYSIA HONGKONG BANK MALAYSIA BERHAD FOR HONGKONG SHANGHAI Bank Negara Malaysia
BANKING CORP. MCD
Hongkong & Shanghai Banking Corp. Agt. 4/19/91
Omnibus Supplement 12/29/93
Schedule 5/14/96
Malaysia Subsidiary Supplement 5/23/94
Side letter Agreement dated 7/28/97
MAURITIUS HONGKONG & SHANGHAI BANKING CORP. LTD., MAURITIUS CDS
Hongkong & Shanghai Banking Corp. Agt. 4/19/91
Omnibus Supplement 12/29/93
Schedule 5/14/96
MEXICO BANCO SANTANDER DE NEGOCIOS MEXICO, S.A. FOR BANCO Indeval
SANTANDER Banco de Mexico
Banco Santander Agreement 12/14/88
Banco Santander Agreement 12/14/88
Subsidiary Amendment 10/18/96
MOROCCO BANQUE MAROCAINE DU COMMERCE EXTERIEUR MAROCLEAR
BMCE Agreement 7/6/94
MOROCCO CITIBANK MAGHREB, CASABLANCA MAROCLEAR
Citibank, N.A., New York Agt. 7/16/81
New York Agreement Amendment 8/31/90
New York Agreement Amendment 7/26/96
Side Letter Agreement Pending
NAMIBIA STANDARD BANK NAMIBIA FOR STANDARD BANK OF SOUTH None
AFRICA
Standard Bank of South Africa Agreement 3/11/94
Subsidiary Amendment 10/3/96
NETHERLANDS ABN-AMRO BANK NECIGEF
ABN-AMRO Agreement 12/19/88
NEW ZEALAND NATIONAL AUSTRALIA BANK LTD., AUCKLAND NZCSD
National Australia Bank Agt. 5/1/85
Agreement Amendment 2/13/92
Omnibus Amendment 11/22/93
New Zealand Addendum 3/7/89
PAGE 5 OF 9
<PAGE>
<CAPTION>
COUNTRY SUBCUSTODIAN DEPOSITORIES
- ------- ------------ ------------
<S> <C> <C>
NIGERIA STANBIC MERCHANT BANK NIGERIA LIMITED FOR STANDARD BANK None
OF SOUTH AFRICA
Standard Bank of South Africa Agreement 3/11/94
Subsidiary Amendment Pending
NORWAY DEN NORSKE BANK VPS
Den norske Bank Agreement 11/16/94
OMAN BRITISH BANK OF THE MIDDLE EAST, OMAN FOR HONGKONG & Muscat Depository &
SHANGHAI BANKING CORP. LTD. Securities & Registration
Co.
Hongkong & Shanghai Banking Corp. Agt. 4/19/91
Omnibus Supplement 12/29/93
Schedule 5/14/96
BBME Supplement 5/14/96
Side letter Agreement dated 7/28/97
PAKISTAN STANDARD CHARTERED BANK, KARACHI CDC
Standard Chartered Bank Agreement 2/18/92
Omnibus Amendment 6/13/94
Appendix 4/8/96
PANAMA BANKBOSTON, N.A., PANAMA Latinclear
***REQUIRES ADDITIONAL DOCUMENTATION PRIOR TO
INVESTMENT.***
The First National Bank of Boston Agreement 1/5/88
Omnibus Amendment 2/22/94
Amendment 7/29/96
Panama Amendment 10/17/96
PERU CITIBANK N.A., LIMA CAVALI
Citibank, N.A., New York Agt. 7/16/81
New York Agreement Amendment 8/31/90
New York Agreement Amendment 7/26/96
PHILIPPINES CITIBANK, N.A., MANILA PCD
ROSS
Citibank, N.A., New York Agt. 7/16/81
New York Agreement Amendment 8/31/90
New York Agreement Amendment 7/26/96
POLAND CITIBANK (POLAND), S.A. FOR CITIBANK, N.A. NDS
National Bank of Poland
Citibank, N.A., New York Agt. 7/16/81
New York Agreement Amendment 8/31/90
New York Agreement Amendment 7/26/96
Citibank Subsidiary Amendment 10/30/95
Citibank, N.A. / Citibank Poland S.A. Agt. 11/6/92
PORTUGAL BANCO COMERCIAL PORTUGUES CVM
Banco Comercial Portugues 5/18/98
ROMANIA ING BANK N.V., ROMANIA SNCDD
BSE
ING Bank N.V. Agreement 9/29/97 NBR
RUSSIA BANK CREDIT SUISSE FIRST BOSTON AO FOR CREDIT
SUISSE, ZURICH VTB
***REQUIRES SIGNED AMENDMENT TO THE CUSTODIAN AGREEMENT
PRIOR TO INVESTMENT.***
Credit Suisse, Zurich Agreement 4/30/96
PAGE 6 OF 9
<PAGE>
<CAPTION>
COUNTRY SUBCUSTODIAN DEPOSITORIES
- ------- ------------ ------------
<S> <C> <C>
RUSSIA CITIBANK T/O FOR CITIBANK, N.A. VTB
***REQUIRES SIGNED AMENDMENT TO THE CUSTODIAN AGREEMENT
PRIOR TO INVESTMENT.*** NDC
Citibank, N.A., New York Agt. 7/16/81
New York Agreement Amendment 8/31/90
New York Agreement Amendment 7/26/96
Citibank, N.A. Subsidiary Amendment 10/19/95
Citibank N.A. / Citibank T/O Agt. 6/16/97
Side Letter Agt. 8/18/97
SINGAPORE STANDARD CHARTERED BANK, SINGAPORE CDP
Standard Chartered Bank Agreement 2/18/92
Omnibus Amendment 6/13/94
Appendix 4/8/96
SLOVAKIA ING BANK N.V., BRATISLAVA SCP
National Bank of Slovakia
ING Bank N.V. Agreement 9/1/98
SLOVENIA BANKA CREDITANSTALT D.D., LJUBLJANA KDD
Master Subcustodian Agreement 4/17/98
Amendment dated 4/17/98
Amendment dated 10/14/98
SOUTH AFRICA STANDARD BANK OF SOUTH AFRICA CD
Standard Bank of South Africa Agreement 3/11/94
SPAIN BANCO SANTANDER SCLV
Banco de Espana
Banco Santander Agreement 12/14/88
SRI LANKA HONGKONG & SHANGHAI BANKING CORP. LTD., COLOMBO CDS
Hongkong & Shanghai Banking Corp. Agt. 4/19/91
Omnibus Supplement 12/29/93
Schedule 5/14/96
SWAZILAND STANBIC BANK SWAZILAND LIMITED FOR STANDARD BANK OF None
SOUTH AFRICA
Standard Bank of South Africa Agreement 3/11/94
Subsidiary Amendment 9/29/97
SWEDEN SKANDINAVISKA ENSKILDA BANKEN VPC
Skandinaviska Enskilden Banken Agreement 2/20/89
Omnibus Amendment 12/3/93
SWITZERLAND UBS AG SEGA
Union Bank of Switzerland Agreement 12/20/88
Omnibus Amendment 11/29/94
TAIWAN STANDARD CHARTERED BANK, TAIPEI TSCD
Standard Chartered Bank Agreement 2/18/92
Omnibus Amendment 6/13/94
Appendix 4/8/96
PAGE 7 OF 9
<PAGE>
<CAPTION>
COUNTRY SUBCUSTODIAN DEPOSITORIES
- ------- ------------ ------------
<S> <C> <C>
THAILAND HONGKONG & SHANGHAI BANKING CORP. LTD., BANGKOK TSDC
Hongkong & Shanghai Banking Corp. Agt. 4/19/91
Omnibus Supplement 12/29/93
Schedule 5/14/96
TRANSNATIONAL BROWN BROTHERS HARRIMAN & CO. Cedel
Euroclear
TURKEY CITIBANK, N.A., ISTANBUL Takasbank
Central Bank of Turkey
Citibank, N.A., New York Agt. 7/16/81
New York Agreement Amendment 8/31/90
New York Agreement Amendment 7/26/96
UKRAINE ING BANK UKRAINE None
ING Bank Agreement 8/21/98
UNITED KINGDOM RBS TRUST BANK LTD. CGO
CMO
RBS Trust Bank Ltd. Agreement 4/24/98 CrestCo.
URUGUAY BANKBOSTON, N.A., MONTEVIDEO None
The First National Bank of Boston Agreement 1/5/88
Omnibus Amendment 2/22/94
Amendment 7/29/96
VENEZUELA CITIBANK, N.A., CARACAS CVV
Citibank, N.A., New York Agt. 7/16/81
New York Agreement Amendment 8/31/90
New York Agreement Amendment 7/26/96
ZAMBIA STANBIC BANK ZAMBIA LTD. FOR STANDARD BANK OF SOUTH LuSE Central Shares
AFRICA Depository Ltd.
Standard Bank of South Africa Agreement 3/11/94
Subsidiary Amendment 10/3/96
ZIMBABWE STANBIC BANK ZIMBABWE LTD. FOR STANDARD BANK OF SOUTH None
AFRICA
Standard Bank of South Africa Agreement 3/11/94
Subsidiary Amendment 10/3/96
</TABLE>
PAGE 8 OF 9
<PAGE>
NOTES:
1.) THE DEPOSITORIES IN CHILE, COLOMBIA (DECEVAL), COSTA RICA, PANAMA AND
VENEZUELA ARE PRESENTLY ELECTIVE. IT IS NOT THE CURRENT INTENTION OF BROWN
BROTHERS HARRIMAN && CO. TO USE SUCH DEPOSITORIES UNLESS THEIR USE BECOMES
COMPULSORY. EUROCLEAR IS COMPULSORY FOR FIXED INCOME OBLIGATIONS AND
ELECTIVE FOR EQUITIES. CURRENTLY, BROWN BROTHERS HARRIMAN & CO. USES
EUROCLEAR FOR SETTLEMENT OF EQUITIES WHERE WE ARE INSTRUCTED TO DO SO. WE
DO NOT USE EUROCLEAR FOR THE ONGOING SAFEKEEPING OF EQUITIES.
2.) IF YOU ARE AUTHORIZING INVESTMENT IN COSTA RICA, CYPRUS, ESTONIA,
GHANA, LITHUANIA, MOROCCO, OR NIGERIA, THESE ARRANGEMENTS ARE THE SUBJECT
OF ADDITIONAL INFORMATION IN SCHEDULE A TO THE FCM REPORT..
I HEREBY CERTIFY THAT AT ITS MEETING ON _____________________ THE BOARD APPROVED
THE COUNTRIES AND CENTRAL DEPOSITORIES LISTED ON THIS APPENDIX
_________________________________
SIGNATURE
NAME:
TITLE:
DATE:
PAGE 9 OF 9
<PAGE>
APPENDIX "C"
TO
THE CUSTODIAN AGREEMENT
BETWEEN
NICHOLAS APPLEGATE INSTITUTIONAL FUNDS
AND
BROWN BROTHERS HARRIMAN & CO.
DATED AS OF _____________________,1999
THE FOLLOWING IS A LIST OF FUNDS FOR WHICH THE CUSTODIAN SHALL SERVE UNDER A
CUSTODIAN AGREEMENT DATED AS OF _______________________ TO PROVIDE CUSTODIAL
SERVICES TO THE FUNDS. (THE "AGREEMENT"):
Nicholas Applegate Worldwide Growth Fund
Nicholas Applegate Global Blue Chip Fund
Nicholas Applegate Global Growth & Income Fund
Nicholas Applegate Global Technology Fund
Nicholas Applegate International Core Growth Fund
Nicholas Applegate International Small Cap Growth Fund
Nicholas Applegate Emerging Countries Fund
Nicholas Applegate Pacific Rim Fund
Nicholas Applegate Latin America Fund
Nicholas Applegate Greater China Fund
Nicholas Applegate Large Cap Growth Fund
Nicholas Applegate Mid Cap Growth Fund
Nicholas Applegate Small Cap Growth Fund
Nicholas Applegate Mini Cap Growth Fund
Nicholas Applegate Value Fund
Nicholas Applegate Convertible Fund
Nicholas Applegate Short-Intermediate Fund
Nicholas Applegate High Quality Bond Fund
Nicholas Applegate High Yield Bond Fund
31
<PAGE>
IN WITNESS WHEREOF, EACH OF THE PARTIES HERETO HAVE CAUSED THIS APPENDIX TO BE
EXECUTED IN ITS NAME AND ON BEHALF OF EACH SUCH FUND.
NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS
ON BEHALF OF EACH FUND
LISTED ABOVE BROWN BROTHERS HARRIMAN & CO.
BY: BY:
---------------------------- ---------------------------------
NAME: NAME:
TITLE:
32
<PAGE>
Exhibit (2)(g)
FOREIGN CUSTODY MANAGER DELEGATION AGREEMENT
AGREEMENT made as of this ____ day of ________________, 1999 between
Nicholas Applegate Institutional Funds, a management investment company
registered with the Securities and Exchange Commission (the "Commission") under
the Investment Company Act of 1940, as amended (the "Act"), acting through its
Board of Trustees or its duly appointed representative on behalf of the
portfolios listed on the attached Appendix "C" as the same may be amended from
time to time (the "Fund"), and BROWN BROTHERS HARRIMAN & CO., a New York limited
partnership with an office in Boston, Massachusetts (the "Delegate").
WITNESSETH
WHEREAS the Fund has appointed the Delegate as custodian (the "Custodian")
of certain of the Fund's Assets pursuant to a Custodian Agreement dated
_____________, 1999 (the "Custodian Agreement");
WHEREAS the Fund may, from time to time, determine to invest and maintain
some or all of the Fund's Assets outside the United States;
WHEREAS the Board of Trustees of the Fund (the "Board") wishes to delegate
to the Delegate certain functions with respect to the custody of Fund's Assets
outside the United States;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the Fund and the Delegate agree as follows. Capitalized
terms shall have the meaning indicated in Section 12 unless otherwise indicated.
1. MAINTENANCE OF FUND'S ASSETS ABROAD. The Fund, acting through its
Board or its duly authorized representative, hereby instructs Delegate pursuant
to the terms of the Custodian Agreement to place and maintain the Fund's Assets
within the countries listed in Schedule 1 attached hereto (as such Schedule may
be amended from time to time in accordance herewith). Such instruction shall be
deemed to include an instruction to use any Compulsory Securities Depository in
any such country and shall represent on instruction under the terms of the
Page 1
<PAGE>
Custodian Agreement. Countries may be added to Schedule 1 by written
instruction of the Fund that is accepted in writing by the Delegate as an
amendment to Schedule 1. With respect to amendments adding countries to
Schedule 1, the Fund acknowledges that - (a) the Delegate shall perform services
hereunder only with respect to the countries where it provides custodial
services to the Fund under the Custodian Agreement; (b) depending on conditions
in the particular country, advance notice may be required before the Delegate
shall be able to perform its duties hereunder in or with respect to such country
(such advance notice to be reasonable in light of the specific facts and
circumstances attendant to performance of duties in such country); and (c)
nothing in this Agreement shall require the Delegate to provide delegated or
custodial services in any country not listed in Schedule 1 until such amended
Schedule 1 has been accepted by the Delegate in accordance herewith.
2. DELEGATION. Pursuant to the provisions of Rule 17f-5 under the Act as
amended, the Board hereby delegates to the Delegate, and the Delegate hereby
accepts such delegation and agrees to perform, only those duties set forth in
this Agreement concerning the safekeeping of the Fund's Assets in each of the
countries set forth in Schedule 1 hereto as amended from time to time. The
Delegate is hereby authorized to take such actions on behalf of or in the name
of the Fund as are reasonably required to discharge its duties under this
Agreement, including, without limitation, to cause the Fund's Assets to be
placed with a particular Eligible Foreign Custodian in accordance herewith. The
Fund confirms to the Delegate that the Fund or its investment adviser has
considered the Sovereign Risk and Country Risk as part of its continuing
investment decision process, including such factors as may be reasonably related
to the systemic risk of maintaining the Fund's Assets in a particular country,
including, but not limited to, financial infrastructure, prevailing custody and
settlement systems and practices (including the use of any Compulsory Securities
Depository), and the laws relating to the safekeeping and recovery of the Fund's
Assets held in custody pursuant to the terms of the Custodian Agreement.
3. SELECTION OF ELIGIBLE FOREIGN CUSTODIAN AND CONTRACT ADMINISTRATION.
The Delegate shall perform the following duties with respect to the selection of
Eligible Foreign Custodians and administration of certain contracts governing
the Fund's foreign custodial arrangements:
Page 2
<PAGE>
(a) SELECTION OF ELIGIBLE FOREIGN CUSTODIAN. The Delegate shall place
and maintain the Fund's Assets with an Eligible Foreign Custodian; PROVIDED
that the Delegate shall have determined that the Fund's Assets will be subject
to reasonable care based on the standards applicable to custodians in the
relevant market after considering all factors relevant to the safekeeping of
such assets including without limitation:
(i) The Eligible Foreign Custodian's practices, procedures, and
internal controls, including, but not limited to, the physical protections
available for certificated securities (if applicable), the controls and
procedures for dealing with any Securities Depository, the method of
keeping custodial records, and the security and data protection practices;
(ii) Whether the Eligible Foreign Custodian has the requisite financial
strength to provide reasonable care for the Fund's Assets;
(iii) The Eligible Foreign Custodian's general reputation and standing
and, in the case of a Securities Depository, the depository's operating
history and number of participants; and
(iv) Whether the Fund will have jurisdiction over and be able to
enforce judgments against the Eligible Foreign Custodian, such as by virtue
of the existence of any offices of such Eligible Foreign Custodian in the
United States or such Eligible Foreign Custodian's appointment of an agent
for service of process in the United States or consent to jurisdiction in
the United States.
The Delegate shall be required to make the foregoing determination to the best
of its knowledge and belief based only on information reasonably available to
it.
(b) CONTRACT ADMINISTRATION. In the case of an Eligible Foreign
Custodian that is not a Securities Depository or a U.S. Bank, the Delegate shall
cause that the foreign custody arrangements shall be governed by a written
contract that the Delegate has determined will provide reasonable care for Fund
assets based on the standards applicable to custodians in the relevant market.
Each such contract shall, except as set forth in the last paragraph of this
subsection (b), include provisions that provide:
(i) For indemnification or insurance arrangements (or any combination
of the foregoing) such that the Fund will be adequately protected against
the risk of loss of
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<PAGE>
assets held in accordance with such contract;
(ii) That the Fund's Assets will not be subject to any right, charge,
security interest, lien or claim of any kind in favor of the Eligible
Foreign Custodian or its creditors except a claim of payment for their safe
custody or administration or, in the case of cash deposits, liens or rights
in favor of creditors of such Custodian arising under bankruptcy,
insolvency or similar laws;
(iii) That beneficial ownership of the Fund's Assets will be freely
transferable without the payment of money or value other than for safe
custody or administration;
(iv) That adequate records will be maintained identifying the Fund's
Assets as belonging to the Fund or as being held by a third party for the
benefit of the Fund;
(v) That the Fund's independent public accountants will be given
access to those records described in (iv) above or confirmation of the
contents of such records; and
(vi) That the Delegate will receive sufficient and timely periodic
reports with respect to the safekeeping of the Fund's Assets, including,
but not limited to, notification of any transfer to or from the Fund's
account or a third party account containing the Fund's Assets.
Such contract may contain, in lieu of any or all of the provisions
specified in this Section 3 (b), such other provisions that the Delegate
determines will provide, in their entirety, the same or a greater level of
care and protection for the Fund's Assets as the specified provisions, in
their entirety.
(c) LIMITATION TO DELEGATED SELECTION. Notwithstanding anything in this
Agreement to the contrary, the duties of Delegate under this Section 3 shall
apply only to Eligible Foreign Custodians selected by the Delegate and shall not
apply to Compulsory Securities Depositories or to any Eligible Foreign Custodian
that the Delegate is directed to use pursuant to Section 7.
4. MONITORING. The Delegate shall establish a system to monitor at
reasonable intervals (but at least annually) the appropriateness of maintaining
the Fund's Assets with each Eligible Foreign Custodian that has been selected by
the Delegate pursuant to Section 3 of this Agreement. The Delegate shall
monitor the continuing appropriateness of placement of the Fund's Assets in
accordance with the criteria established under Section 3(a) of this
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<PAGE>
Agreement. The Delegate shall monitor the continuing appropriateness of the
contract governing the Fund's arrangements in accordance with the criteria
established under Section 3(b) of this Agreement.
5. REPORTING. At least annually and more frequently as mutually agreed
between the parties, the Delegate shall provide to the Board and the Investment
Advisor written reports specifying placement of the Fund's Assets with each
Eligible Foreign Custodian selected by the Delegate pursuant to Section 3 of
this Agreement and shall promptly report as to any material changes to such
foreign custody arrangements. Delegate will prepare such a report with respect
to any Eligible Foreign Custodian that the Delegate has been instructed to use
pursuant to Section 7 only to the extent specifically agreed with respect to the
particular situation.
6. WITHDRAWAL OF FUND'S ASSETS. If the Delegate determines that an
arrangement with a specific Eligible Foreign Custodian selected by the Delegate
under Section 3 of this Agreement no longer meets the requirements of said
Section, Delegate shall withdraw the Fund's Assets from the non-complying
arrangement as soon as reasonably practicable; PROVIDED, however, that if in the
reasonable judgment of the Delegate, such withdrawal would require liquidation
of any of the Fund's Assets or would materially impair the liquidity, value or
other investment characteristics of the Fund's Assets, it shall be the duty of
the Delegate to provide information regarding the particular circumstances and
to act only in accordance with Instructions of the Fund with respect to such
liquidation or other withdrawal.
7. DIRECTION AS TO ELIGIBLE FOREIGN CUSTODIAN. Notwithstanding this
Delegation Agreement, the Fund, acting through its Board, its Investment Adviser
or its other authorized representative, may direct the Delegate to place and
maintain the Fund's Assets with a particular Eligible Foreign Custodian. In
such event, the Delegate shall be entitled to rely on any such instruction as a
Proper Instruction under the terms of the Custodian Agreement and shall have no
duties under this Delegation Agreement with respect to such arrangement save
those that it may undertake specifically in writing with respect to each
particular instance.
8. STANDARD OF CARE. In carrying out its duties under this Agreement,
the Delegate agrees to exercise reasonable care, prudence and diligence such as
a person having
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<PAGE>
responsibility for safekeeping the Fund's Assets would exercise.
9. REPRESENTATIONS. The Delegate hereby represents and warrants that
it is a U.S. Bank and that this Agreement has been duly authorized, executed and
delivered by the Delegate and is a legal, valid and binding agreement of the
Delegate.
The Fund hereby represents and warrants that its Board has determined
that it is reasonable to rely on the Delegate to perform the delegated
responsibilities provided for herein and that this Agreement has been duly
authorized, executed and delivered by the Fund and is a legal, valid and binding
agreement of the Fund.
10. EFFECTIVENESS; TERMINATION. This Agreement shall be effective as
of the date on which this Agreement shall have been accepted by the Delegate, as
indicated by the date set forth below the Delegate's signature. This Agreement
may be terminated at any time, without penalty, by written notice from the
terminating party to the non-terminating party. Such termination shall be
effective on the 30th day following the date on which the non-terminating party
shall receive the foregoing notice. The foregoing to the contrary
notwithstanding, this Agreement shall be deemed to have been terminated
concurrently with the termination of the Custodian Agreement.
11. NOTICES. Notices and other communications under this Agreement are
to be made in accordance with the arrangements designated for such purpose under
the Custodian Agreement unless otherwise indicated in a writing referencing this
Agreement and executed by both parties.
12. DEFINITIONS. Capitalized terms in this agreement have the
following meanings:
a. COMPULSORY SECURITIES DEPOSITORY - shall mean a Securities
Depository the use of which is mandatory (i) under applicable law or
regulation; (ii) because securities cannot be withdrawn from the
depository; or, (iii) because maintaining securities outside the
Securities Depository is not consistent with prevailing custodial
practices.
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<PAGE>
b. COUNTRY RISK - shall have the meaning set-forth in Section 9.1.2
of the Custodian Agreement.
c. ELIGIBLE FOREIGN CUSTODIAN - shall have the meaning set forth in
Rule 17f-5(a)(1) and shall also include a U.S. Bank.
d. FUND'S ASSETS - shall mean any of the Fund's investments
(including foreign currencies) for which the primary market is outside
the United States, and such cash and cash equivalents as are reasonably
necessary to effect the Fund's transactions in such investments.
e. PROPER INSTRUCTIONS - shall have the meaning set forth in the
Custodian Agreement.
f. SECURITIES DEPOSITORY - shall have the meaning set forth in Rule
17f-5(a)(6).
g. SOVEREIGN RISK - shall have the meaning set forth in Section
9.1.3 of the Custodian Agreement.
h. U.S. BANK - shall mean a bank which qualifies to serve as a
custodian of assets of investment companies under Section 17(f) of the
Act.
13. GOVERNING LAW AND JURISDICTION. This Agreement shall be
construed in accordance with the laws of the State of New York. The parties
hereby submit to the exclusive jurisdiction of the Federal courts sitting in
the State of New York or of the state courts of such State.
14. FEES. Delegate shall perform its functions under this agreement
for the compensation determined under the Custodian Agreement.
15. INTEGRATION. This Agreement sets forth all of the Delegate's
duties with respect to the selection and monitoring of Eligible Foreign
Custodians, the administration of contracts with Eligible Foreign Custodians,
the withdrawal of assets from Eligible Foreign Custodians and the issuance of
reports in connection with such duties. The terms of the
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<PAGE>
Custodian Agreement (including without limitation the provisions of Section 8.2
thereof) shall apply generally as to matters not expressly covered in this
Agreement, including dealings with the Eligible Foreign Custodians in the course
of discharge of the Delegate's obligations under the Custodian Agreement.
Page 8
<PAGE>
NOW THEREFORE, the parties have caused this Agreement to be executed by its duly
authorized representatives, effective as of the date first above written.
BROWN BROTHERS HARRIMAN & CO. Nicholas Applegate Institutional Funds
on behalf of the Portfolios listed on
the attached Appendix "C"
By: By:
------------------------------- --------------------------------
Name: Name:
--------------------- ----------------------
Title: Title:
--------------------- ----------------------
Date: Date:
--------------------- ----------------------
Page 9
<PAGE>
APPENDIX "C"
TO
THE FOREIGN CUSTODY MANAGER DELEGATION AGREEMENT
BETWEEN
NICHOLAS APPLEGATE INSTITUTIONAL FUNDS
AND
BROWN BROTHERS HARRIMAN & CO.
DATED AS OF _______________________,1999
THE FOLLOWING IS A LIST OF FUNDS FOR WHICH THE DELEGATE SHALL ACT AS FOREIGN
CUSTODY MANAGER PURSUANT A FOREIGN CUSTODY MANAGER DELEGATION AGREEMENT DATED AS
OF ________________________, 1999 (THE "AGREEMENT"):
Nicholas Applegate Worldwide Growth Fund
Nicholas Applegate Global Blue Chip Fund
Nicholas Applegate Global Growth & Income Fund
Nicholas Applegate Global Technology Fund
Nicholas Applegate International Core Growth Fund
Nicholas Applegate International Small Cap Growth Fund
Nicholas Applegate Emerging Countries Fund
Nicholas Applegate Pacific Rim Fund
Nicholas Applegate Latin America Fund
Nicholas Applegate Greater China Fund
Nicholas Applegate Large Cap Growth Fund
Nicholas Applegate Mid Cap Growth Fund
Nicholas Applegate Small Cap Growth Fund
Nicholas Applegate Mini Cap Growth Fund
Nicholas Applegate Value Fund
Nicholas Applegate Convertible Fund
Nicholas Applegate Short-Intermediate Fund
Nicholas Applegate High Quality Bond Fund
Nicholas Applegate High Yield Bond Fund
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<PAGE>
IN WITNESS WHEREOF, EACH OF THE PARTIES HERETO HAVE CAUSED THIS APPENDIX TO BE
EXECUTED IN ITS NAME AND ON BEHALF OF EACH SUCH FUND.
NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS
ON BEHALF OF EACH FUND
LISTED ABOVE BROWN BROTHERS HARRIMAN & CO.
BY: BY:
--------------------------------- -------------------------------
NAME: NAME:
TITLE: TITLE:
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<PAGE>
SCHEDULE 1
TO NICHOLAS APPLEGATE INSTITUTIONAL FUNDS
DELEGATION AGREEMENT
AS OF ______________________, 1999
ARGENTINA
AUSTRALIA
AUSTRIA
BAHRAIN
BANGLADESH
BELGIUM
BERMUDA
BOLIVIA
BOTSWANA
BRAZIL
BULGARIA
CANADA
CHILE
CHINA
COLOMBIA
CROATIA
CZECH REPUBLIC
DENMARK
ECUADOR
EGYPT
FINLAND
FRANCE
GERMANY
GHANA
GREECE
HONG KONG
HUNGARY
INDIA
INDONESIA
IRELAND
ISRAEL
ITALY
IVORY COAST
JAPAN
JORDAN
KENYA
KOREA
LATVIA
LEBANON
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<PAGE>
LUXEMBOURG
MALAYSIA
MAURITIUS
MEXICO
NAMIBIA
NETHERLANDS
NEW ZEALAND
NIGERIA
NORWAY
OMAN
PAKISTAN
PANAMA
PERU
PHILIPPINES
POLAND
PORTUGAL
ROMANIA
RUSSIA
SINGAPORE
SLOVAKIA
SLOVENIA
SOUTH AFRICA
SPAIN
SRI LANKA
SWAZILAND
SWEDEN
SWITZERLAND
TAIWAN
THAILAND
TURKEY
UKRAINE
UNITED KINGDOM
URUGUAY
VENEZUELA
ZAMBIA
ZIMBABWE
Page 13
<PAGE>
Exhibit (3)(g)
AMENDMENT TO THE CUSTODIAN AGREEMENT
AMENDMENT entered into as of this _____ day of ____________, 1999 to the
Custodian Agreement between Nicholas Applegate Institutional Funds (the "Fund")
on behalf of each of the portfolios listed on the attached Appendix "C" as the
same may be amended from time to time (each a Portfolio and collectively the
Portfolios) and BROWN BROTHERS HARRIMAN & CO. (the "Custodian") dated as of
____________________(the "Agreement").
In consideration of the Custodian's offering subcustodial services to the
Portfolios in Russia, the Fund and the Custodian agree that the Agreement is
hereby amended as follows:
1. Section 5. SAFEKEEPING OF FUND ASSETS is amended by the addition of
the following phrase at the end of said Section:
"The Custodian's responsibility for safekeeping equity securities of
Russian issuers ("Russian Equities") hereunder shall be limited to the
safekeeping of relevant share extracts from the share registration books
maintained by the entities providing share registration services to issuers
of Russian Equities (each a "Registrar") indicating an investor's ownership
of such securities (each a "Share Extract")."
2. Section 5.4 BOOK ENTRY ASSETS, is amended by the addition of the
following at the end of said Section:
"With respect to Russian Equities, the Custodian shall instruct a
Subcustodian to endeavor to assure that registration thereof shall be
reflected on the books of the issuer's Registrar, subject to the following
conditions, but shall in no event be liable for losses or costs incurred as
a result of delays or failures in the registration process, including
without limitation the inability to obtain or enforce relevant Share
Extracts. Such registration may be in the name of a nominee of a
Subcustodian. In the event registration is in the name of a Portfolio, the
Fund hereby acknowledges that only the Custodian or Subcustodian may give
instructions to the Registrar to transfer or engage in other transactions
involving the Russian Equities so registered.
1
<PAGE>
A Subcustodian may from time to time enter into contracts with
Registrars with respect to the registration of Russian Equities ("Registrar
Contracts"). Such Registrar Contracts may provide for (i) regular share
confirmations by the Subcustodian, (ii) reregistrations within set
timeframes, (iii) use of a Subcustodian's nominee name, (iv) direct access
by auditors of the Subcustodian or its clients to share registers, and (v)
specification of the Registrar's responsibilities and liabilities. It is
hereby acknowledged and agreed that the Custodian does not represent or
warrant that such Registrar Contracts are enforceable.
If the Fund instructs the Custodian to settle a purchase of a Russian
Equity, the Custodian will instruct a Subcustodian to endeavor on a best
efforts basis to reregister the Russian Equity and obtain a Share Extract
in a timely manner.
After completion of reregistration of a Russian Equity in respect of
which a Subcustodian has entered into a Registrar Contract, the Custodian
shall instruct the Subcustodian to monitor such registrar on a best efforts
basis and to notify the Custodian upon the Subcustodian's obtaining
knowledge of the occurrence of any of the following events ("Registrar
Events"): (i) a Registrar has eliminated a shareholder from the register or
has altered registration records; (ii) a Registrar has refused to register
securities in the name of a particular purchaser and the purchaser or
seller has alleged that the registrar's refusal to so register was
unlawful; (iii) a Registrar holds for its own account shares of an issuer
for which it serves as registrar; (iv) if a Registrar Contract is in effect
with a Registrar, the Registrar notifies the Subcustodian that it will no
longer be able materially to comply with the terms of the Registrar
Contract; or (v) if a Registrar Contract is in effect with a Registrar,
the Registrar has materially breached such Contract. The Custodian shall
inform the Fund of the occurrence of a Registrar Event provided the
Custodian has in fact received actual notice thereof from the Subcustodian.
It shall be the sole responsibility of the Fund to contact the
Custodian prior to executing any transaction in a Russian Equity to
determine whether a Registrar Contract exists in respect of such issuer.
If the Fund instructs the Custodian by Proper Instruction to settle a
purchase of a Russian Equity in respect of which the Subcustodian has not
entered into a Registrar Contract, then the Custodian shall instruct the
Subcustodian to endeavor to settle such transaction in accordance with the
Proper Instruction and with the provisions of Section 6.1 of this
Agreement, notwithstanding the absence of any such Registrar Contract and
without the Custodian being required to notify the Fund that no such
Registrar Contract is then in effect, and it being understood that neither
the Custodian nor the Subcustodian shall be required to follow the
procedure set forth in the second preceding paragraph."
3. Section 6.1 PURCHASE OF INVESTMENTS, is amended by the addition of the
following at the end of said Section:
"Without limiting the generality of the foregoing, the following
provisions shall apply with respect to settlement of purchases of
securities in Russia. Unless otherwise instructed by Proper Instructions
acceptable to the Custodian, the Custodian shall only
2
<PAGE>
authorize a Subcustodian to make payment for purchases of Russian Equities
upon receipt of the relevant Share Extract in respect of the Portfolio's
purchases. With respect to securities other than Russian Equities,
settlement of purchases shall be made in accordance with securities
processing or settlement practices which the Custodian in its discretion
determines to be a market practice. The Custodian shall only be responsible
for securities purchased upon actual receipt of such securities at the
premises of its Subcustodian, provided that the Custodian's responsibility
for securities represented by Share Extracts shall be limited to the
safekeeping of the relevant Share Extract upon actual receipt of such Share
Extract at the premises of the Subcustodian."
4. Section 6.2 SALE OF INVESTMENTS is amended by the addition of the
following at the end of said Section:
"Without limiting the generality of the foregoing, the following
provisions shall apply with respect to settlement of sales of securities in
Russia. Unless otherwise expressly instructed by Proper Instructions
acceptable to the Custodian, settlement of sales of securities shall be
made in accordance with securities processing or settlement practices which
the Custodian in its discretion determines to be a market practice. The
Fund hereby expressly acknowledges that such market practice might require
delivery of securities prior to receipt of payment and that the Fund bears
the risk of payment in instances where delivery of securities is made prior
to receipt of payment therefor in accordance with Proper Instructions
received by the Custodian or pursuant to the Custodian's determination in
its discretion that such delivery is in accordance with market practice.
The Custodian shall not be responsible for any securities delivered from
the premises of the Subcustodian from the time they leave such premises."
5. Section 5.1 USE OF SECURITIES DEPOSITORIES is amended by the addition
of the following at the end of said Section:
"With respect to Russia, the Fund hereby expressly acknowledges that a
Subcustodian for Russian securities may from time to time delegate any of
its duties and responsibilities to any securities depository, clearing
agency, share registration agent or sub-subcustodian (collectively,
"Russian Agent") in Russia, including without limitation Rosvneshtorgbank
(also called Vneshtorgbank RF) ("VTB"). The Fund acknowledges that the
rights of the Subcustodian against any such Russian Agent may consist only
of a contractual claim against the Russian Agent.
Notwithstanding any provision of this Agreement to the contrary,
neither the Custodian nor the Subcustodian shall be responsible or liable
to the Fund or its shareholders for the acts or omissions of any such
Russian Agent. In the event of a loss of securities or cash held on behalf
of a Portfolio through any Russian Agent, the Custodian
3
<PAGE>
shall not be responsible to the Fund or its shareholders unless and to the
extent it in fact recovers from the Subcustodian."
6. Section 6.13 TAXES is amended by the insertion of the following at the
end of said Section:
"It is agreed that the Fund shall be responsible for preparation and
filing of tax returns, reports and other documents on any activities it
undertakes in Russia which are to be filed with any relevant governmental
or other authority and for the payment of any taxes, levies, duties or
similar liability the Fund incurs in respect of property held or sold in
Russia or of payments or distributions received in respect thereof in
Russia. Accordingly, the Fund hereby agrees to indemnify and hold harmless
the Custodian from any loss, cost or expense resulting from the imposition
or assessment of any such tax, duty, levy or liability or any expenses
related thereto."
7. A new Section 15 RISK DISCLOSURE ACKNOWLEDGMENT, is added at the end
of the present Section 15.3:
"The Fund hereby acknowledges that it has received, has read and has
understood the Custodian's Risk Disclosure Statement, a copy of which is
attached hereto and is incorporated herein by reference. The Fund further
acknowledges that the Risk Disclosure Statement is not comprehensive, and
warrants and represents to the Custodian that it has undertaken its own
review of the risks associated with investment in Russia and has concluded
that such investment is appropriate for the Fund and in no way conflicts
with the Fund's constitutive documents, investment objective, duties to its
shareholders or with any regulatory requirements applicable to the Fund."
4
<PAGE>
Except as amended above, all the provisions of the Agreement as heretofore
in effect shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
first set forth above.
Nicholas Applegate Institutional Funds (the "Fund")
on behalf of each of the portfolios listed on
the attached Appendix "C" as the same may be
amended from time to time (each a Portfolio
and collectively the Portfolios) BROWN BROTHERS HARRIMAN & CO.
- -------------------------------- -----------------------------------
Name: Name:
Title: Title:
5
<PAGE>
EXHIBIT (4)(g)
CLIENT LETTERHEAD
CMS AUTHORIZATION LETTER
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
Dear Sirs:
We, Nicholas Applegate Institutional Funds, on behalf of the portfolios
listed on the attached "Appendix", agree to subscribe to the Brown Brothers
Harriman & Co. (BBH&Co.) Cash Management Service (CMS). As such we hereby
instruct BBH&Co. to invest idle US dollar demand deposit balances as outlined
below. This authorization shall constitute proper standing instructions to
BBH&Co. until amended or terminated upon written notice between the Account and
BBH&Co. and agreed upon by each.
The Funds accept and agree to BBH&Co.'s practice of investing the Funds'
excess demand deposit balances in unrestricted overnight deposit instruments of
BBH&Co.'s Grand Cayman branch or unrestricted overnight deposit instruments of
branches of the U.S.-licensed commercial banks noted within the attached Exhibit
A.
The Funds understand that excess cash invested with deposit institutions
domiciled offshore the continental United States, as with any offshore deposits,
will be subject to both sovereign actions in the jurisdiction of the deposit
institution and sovereign actions in the jurisdiction of the currency, including
but not limited to freeze, seizure, or diminution. In any case, the risk
associated with the repayment of principal and payment of interest on such
instruments by the institution with whom the deposit is ultimately placed will
be exclusively for the Funds' accounts.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
Date:
---------------------------
<PAGE>
APPENDIX
Nicholas Applegate Worldwide Growth Fund
Nicholas Applegate Global Blue Chip Fund
Nicholas Applegate Global Growth & Income Fund
Nicholas Applegate Global Technology Fund
Nicholas Applegate International Core Growth Fund
Nicholas Applegate International Small Cap Growth Fund
Nicholas Applegate Emerging Countries Fund
Nicholas Applegate Pacific Rim Fund
Nicholas Applegate Latin America Fund
Nicholas Applegate Greater China Fund
Nicholas Applegate Large Cap Growth Fund
Nicholas Applegate Mid Cap Growth Fund
Nicholas Applegate Small Cap Growth Fund
Nicholas Applegate Mini Cap Growth Fund
Nicholas Applegate Value Fund
Nicholas Applegate Convertible Fund
Nicholas Applegate Short-Intermediate Fund
Nicholas Applegate High Quality Bond Fund
Nicholas Applegate High Yield Bond Fund
<PAGE>
EXHIBIT A
---------
Bank of America NT & SA
Bank of New York
BankBoston N.A.
Bankers Trust
Chase Manhattan Bank
Citibank N.A.
First Chicago NBD Corp
Harris Trust and Savings Bank
Morgan Guaranty Trust Co. of NY
NationsBank Corp.
Republic National Bank of New York
Wachovia Bank N.A.
Wells Fargo Bank N.A.
<PAGE>
Exhibit (1)(h)
ADMINISTRATION AND FUND ACCOUNTING AGENCY AGREEMENT
THIS AGREEMENT is made as of , 1999 between NICHOLAS APPLEGATE
INSTITUTIONAL FUNDS, an open-end management investment company organized under
the laws of the State of Delaware and registered with the Securities and
Exchange Commission under the 1940 Act (the "FUND") on behalf of each of the
portfolios listed on the attached Appendix "C" as the same may be amended from
time to time (each a "PORTFOLIO" and collectively the "PORTFOLIOS") and BROWN
BROTHERS HARRIMAN & CO., a limited partnership organized under the laws of the
State of New York (the "ADMINISTRATOR").
WITNESSETH:
WHEREAS, the Fund is registered with the United States Securities and
Exchange Commission as a management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Fund desires to retain the Adminisrator to render certain
services to the Fund, and the Administrator is willing to render such services.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree as follows:
1. APPOINTMENT OF ADMINISTRATOR. The Fund hereby employs and appoints the
Administrator to act as its administration and fund accounting agent on the
terms set forth in this Agreement, and the Administrator accepts such
appointment.
2. DELIVERY OF DOCUMENTS. The Fund will:
7.1 Furnish the Administrator with properly certified or authenticated
copies of
1
<PAGE>
resolutions of the Fund's Board of Directors or Trustees authorizing the
appointment of the Administrator as administration and fund accounting
agent of the Fund and approving this Agreement.
7.2 Provide the Administrator with any other documents or resolutions
(including but not limited to directions or resolutions of the Fund's Board
of Directors or Trustees) which relate to or affect the Administrator's
performance of its duties hereunder or which the Administrator may at any
time reasonably request.
7.3 Notify the Administrator promptly of any matter affecting the
performance by the Administrator of its services under this Agreement.
3. DUTIES AS ADMINISTRATOR. Subject to the supervision and direction of the
Fund's Board of Directors or Trustees and officers, the Administrator will
perform the following administration services:
7.1 Maintain office facilities for the Fund, which may be in the offices
of the Administrator or a corporate affiliate of the Administrator;
7.2 Perform all functions ordinarily performed by the office of a fund
treasurer, and furnish the services and facilities ordinarily incident
thereto as described in Appendix B to this Agreement;
7.3 Perform the functions ordinarily performed by a mutual fund group's
internal legal department as described in Appendix B to this Agreement,
furnishing data processing services, clerical services and executive and
administration services in connection with the foregoing;
7.4 Assist the Fund's officers and Adviser in such other matters as the
Funds and the Administrator shall from time to time agree.
In performing its duties and obligations hereunder, the Administrator will
act in accordance with the Fund's Articles of Incorporation or Declaration of
Trust, By-laws and Prospectus and Proper Instructions. It is agreed and
understood, however, that the Administrator shall not be responsible for
compliance of the Fund's investments with any applicable documents, laws or
regulations, or for losses, costs or expenses arising out of the Fund's failure
2
<PAGE>
to comply with said documents, laws or regulations or the Fund's failure or
inability to correct any non-compliance therewith.
4. DUTIES AS FUND ACCOUNTING AGENT. Subject to the supervision and direction
of the Fund's Board of Directors or Trustees, the Administrator will perform the
following fund accounting services:
4.1 Compute and determine the net asset value per share of the Fund as of
the close of business on the New York Stock Exchange on each day on which
such Exchange is open, unless otherwise directed by Proper Instruction.
Such computation and determination shall be made in accordance with the
provisions of the Fund's Declaration of Trust or Certificate of
Incorporation and By-Laws, as they may from time to time be amended and
delivered to the Administrator, the votes of the Fund's Board of Directors
or Trustees at the time in force and applicable, as they may from time to
time be delivered to the Administrator, the Fund's current prospectus and
statement of additional information or proper Instructions, including
without limitation any information:
7.1.1 as to accrual of liabilities of the Fund and as to
liabilities of the Fund not appearing on the books of account kept by
the Administrator
7.1.2 as to the existence, status and proper treatment of
reserves, if any, authorized by the Fund
7.1.3 as to the sources of quotations to be used in computing the
net asset value, including those listed in Appendix A hereto
7.1.4 as to the fair value to be assigned to any securities or
other property for which price quotations are not readily available
7.1.5 as to the sources of information with respect to "corporate
actions" affecting portfolio securities of the Fund, including those
listed in Appendix A. (Information as to "corporate actions" shall
include information as to dividends, distributions, stock splits,
stock dividends, rights offerings, conversions, exchanges,
recapitalizations, mergers, redemptions, calls, maturity dates and
similar transactions, including the ex- and record dates and the
amounts or other terms thereof.)
7.1.6 as to the use a particular source for the valuation of a
specific Security or other Property of the Fund.
7.2 Compute and determine the net asset value as of such other times as
the Fund's Board of Directors or Trustees from time to time may reasonably
request.
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7.3 Create, maintain and retain such records relating to its obligations
under this Agreement as are required under the 1940 Act (including Section
31 thereof and Rules 31a-1 and 31a-2 thereunder).
4.4 Provide the Adviser with written reports which the Adviser will use to
verify that portfolio transactions have been recorded in accordance with
the Fund's instructions and reconcile with the Fund's trading records on
each day that the Administrator shall compute the net asset value per share
of the Fund.
Notwithstanding anything in this Agreement to the Contrary, the
Administrator shall not be responsible for the failure of the Fund or its
Adviser to provide the Administrator with Proper Instructions regarding
liabilities which ought to be included in the calculation of the Fund's net
asset value.
5. EXPENSES AND COMPENSATION. For the services to be rendered and the
facilities to be furnished by the Administrator as provided for in this
Agreement, the Fund shall pay the Administrator for its services rendered
pursuant to this Agreement a fee based on such fee schedule as may from time to
time be agreed upon in writing by the Fund and the Administrator. In addition
to such fee, the Administrator shall bill the Fund separately for any
out-of-pocket disbursements of the Administrator based on an out-of-pocket
schedule as may from time to time be agreed upon in writing by the Fund and the
Administrator. The foregoing fees and disbursements shall be billed to the Fund
by the Administrator and shall be paid promptly by wire transfer or other
appropriate means to the Administrator.
6. STANDARD OF CARE. The Administrator shall be held only to the exercise of
reasonable care and diligence in carrying out the provisions of this Agreement,
provided that the Administrator shall not thereby be required to take any action
which is in contravention of any applicable law, rule or regulation or any order
or judgment of any court of competent jurisdiction.
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7. LIMITATION OF LIABILITY. The Administrator shall incur no liability with
respect to any telecommunications, equipment or power failures, or any failures
to perform or delays in performance by postal or courier services or third-party
information providers (including without limitation those listed on Appendix A).
The Administrator shall also incur no liability under this Agreement if the
Administrator or any agent or entity utilized by the Administrator shall be
prevented, forbidden or delayed from performing, or omits to perform, any act or
thing which this Agreement provides shall be performed or omitted to be
performed, by reason of causes or events beyond its control, including but not
limited to:
7.1 any Sovereign Event. A "Sovereign Event" shall mean any
nationalization, expropriation, devaluation, revaluation, confiscation,
seizure, cancellation, destruction, strike, act of war, terrorism,
insurrection or revolution, or any other act or event beyond the
Administrator's control;
7.2 any provision of any present or future law, regulation or order of the
United States or any state thereof, or of any foreign country or political
subdivision thereof, or of any securities depository or clearing agency;
7.3 any provision of any order or judgment of any court of competent
jurisdiction.
Notwithstanding any other provision of this Agreement, the Administrator
shall not be held accountable or liable for any losses, damages or expenses the
Fund or any shareholder or former shareholder of the Fund or any other person
may suffer or incur arising from acts, omissions, errors or delays of the
Administrator in the performance of its obligations and duties hereunder,
including without limitation any error of judgment or mistake of law, except a
damage, loss or expense resulting from the Administrator's willful malfeasance,
bad faith or negligence in the performance of such obligations and duties. The
parties hereto acknowledge, however, that the Administrator's causing an error
or delay in the determination of net asset value may, but does not in and of
itself, constitute negligence or reckless or willful misconduct. The
Administrator shall in no event be required to take any action, which is in
contravention of any applicable law, rule or regulation or any order or judgment
of any court of competent jurisdiction.
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In no event shall the Administrator be liable or responsible to the Fund,
any present or former shareholder of the Fund, or any other person for any error
or delay which continued or was undetected after the date of an audit performed
by the certified public accountants employed by the Fund if, in the exercise of
reasonable care in accordance with generally accepted accounting standards, such
accountants should have become aware of such error or delay in the course of
performing such audit. The Administrator's liability for any such negligence or
reckless or willful misconduct which results in an error in determination of
such net asset value shall be limited exclusively to the direct, out-of-pocket
loss the Fund shall actually incur, measured by the difference between the
actual and the erroneously computed net asset value, and any expenses the Fund
shall incur in connection with correcting the records of the Fund affected by
such error (including charges made by the Fund's registrar and transfer agent
for making such corrections) or communicating with shareholders or former
shareholders of the Fund affected by such error.
Without limiting the foregoing, the Administrator shall not be held
accountable or liable to the Fund, any shareholder or former shareholder thereof
or any other person for any delays or losses, damages or expenses any of them
may suffer or incur resulting from (i) the Administrator's failure to receive
timely and suitable notification concerning quotations or corporate actions
relating to or affecting portfolio securities of the Fund or (ii) any errors in
the computation of the net asset value based upon or arising out of quotations
or information as to corporate actions if received by the Administrator either
(a) from a source which the Administrator was authorized to rely upon (including
those sources listed on Appendix A), (b) from a source which in the
Administrator's reasonable judgment was as reliable a source for such quotations
or information as such authorized sources, or (c) relevant information known to
the Fund or the Adviser which would impact the calculation of net asset value
but which is not communicated by the Fund or the Adviser to the Administrator.
In the event of any error or delay in the determination of such net asset
value for which the Administrator may be liable, the Funds and the Administrator
will consult and make good faith efforts to reach agreement on what actions
should be taken in order to mitigate any loss suffered by the Fund or its
present or former shareholders, in order that the Administrator's exposure to
6
<PAGE>
liability shall be reduced to the extent possible after taking into account all
relevant factors and alternatives. It is understood that in attempting to reach
agreement on the actions to be taken or the amount of the loss which should
appropriately be borne by the Administrator, the Fund and the Administrator will
consider such relevant factors as the amount of the loss involved, the Fund's
desire to avoid loss of shareholder good will, the fact that other persons or
entities could have been reasonably expected to have detected the error sooner
than the time it was actually discovered, the appropriateness of limiting or
eliminating the benefit which shareholders or former shareholders might have
obtained by reason of the error, and the possibility that other parties
providing services to the Fund might be induced to absorb a portion of the loss
incurred.
Notwithstanding anything else in this Agreement to the contrary, the
Administrator's entire liability to the Fund for any loss or damage arising or
resulting from its performance hereunder or for any other cause whatsoever, and
regardless of the form of action, shall be limited to the Fund's actual and
direct out-of-pocket expenses and losses which are reasonably incurred by the
Fund. In no event and under no circumstances shall the Administrator or a Fund
be held liable to the other party for consequential or indirect damages, loss of
profits, damage to reputation or business or any other special damages arising
under or by reason of any provision of this Agreement or for any act or omission
hereunder.
The Fund hereby agrees to indemnify the Administrator against and hold it
harmless from any and all losses, claims, damages, liabilities or expenses
(including reasonable counsel fees and expenses) resulting from any act,
omission, error or delay or any claim, demand, action or suit, in connection
with or arising out of performance of its obligations and duties under this
Agreement, not resulting from the willful malfeasance, bad faith or negligence
of the Administrator in the performance of such obligations and duties.
8. RELIANCE BY THE ADMINISTRATOR ON PROPER INSTRUCTIONS AND OPINIONS OF
COUNSEL AND OPINIONS OF CERTIFIED PUBLIC ACCOUNTANTS. The Administrator shall
not be liable for, and shall be indemnified by the Fund against any and all
losses, costs, damages or expenses arising from or as a result of, any action
taken or omitted in reliance upon Proper Instructions or upon any other written
notice, request, direction, instruction, certificate or other instrument
believed by it
7
<PAGE>
to be genuine and signed or authorized by the proper party or parties.
Proper Instructions shall include a written request, direction, instruction
or certification signed or initialed on behalf of the Fund by one or more
persons as the Board of Directors or Trustees of the Fund shall have from time
to time authorized. Those persons authorized to give Proper Instructions may be
identified by the Board of Directors or Trustees by name, title or position
and will include at least one officer empowered by the Board to name other
individuals who are authorized to give Proper Instructions on behalf of the
Fund.
Telephonic or other oral instructions or instructions given by telefax
transmission may be given by any one of the above persons and will also be
considered Proper Instructions if the Administrator believes them to have been
given by a person authorized to give such instructions with respect to the
transaction involved.
With respect to telefax transmissions, the Fund hereby acknowledges that
(i) receipt of legible instructions cannot be assured, (ii) the Administrator
cannot verify that authorized signatures on telefax instructions are original,
and (iii) the Administrator shall not be responsible for losses or expenses
incurred through actions taken in reliance on such telefax instructions. The
Fund agrees that such telefax instructions shall be conclusive evidence of the
Fund's Proper Instruction to the Administrator to act or to omit to act.
Proper Instructions given orally will be confirmed by written instructions
in the manner set forth above, including by telefax, but the lack of such
confirmation shall in no way affect any action taken by the Administrator in
reliance upon such oral instructions. The Fund authorizes the Administrator to
tape record any and all telephonic or other oral instructions given to the
Administrator by or on behalf of the Fund (including any of its officers,
Directors, Trustees, employees or agents or any investment manager or adviser or
person or entity with similar responsibilities which is authorized to give
Proper Instructions on behalf of the Fund to the Administrator.)
The Administrator may consult with its counsel or the Fund's counsel in any
case where so doing appears to the Administrator to be necessary or desirable.
The Administrator shall not be considered to have engaged in any misconduct or
to have acted negligently and shall be without liability in acting upon the
advice of its counsel or of the Fund's counsel.
8
<PAGE>
The Administrator may consult with a certified public accountant or the
Fund's Treasurer in any case where so doing appears to the Administrator to be
necessary or desirable. The Administrator shall not be considered to have
engaged in any misconduct or to have acted negligently and shall be without
liability in acting upon the advice of such certified public accountant or of
the Fund's Treasurer.
9. TERMINATION OF AGREEMENT. This Agreement shall continue in full force and
effect until terminated by the Administrator or the Fund by an instrument in
writing delivered or mailed, postage prepaid, to the other party, such
termination to take effect not sooner than ninety (90) days after the date of
such delivery or mailing. In the event a termination notice is given by a party
hereto, all expenses associated with the movement of records and materials and
the conversion thereof shall be paid by the Fund for which services shall cease
to be performed hereunder.
Notwithstanding anything in the foregoing provisions of this clause, if it
appears impracticable in the circumstances to effect an orderly delivery of the
necessary and appropriate records of the Administrator to a successor within the
time specified in the notice of termination as aforesaid, the Administrator and
the Fund agree that this Agreement shall remain in full force and effect for
such reasonable period as may be required to complete necessary arrangements
with a successor.
If a party hereto shall fail to perform its duties and obligations
hereunder (a "Defaulting Party") resulting in material loss to another party
("the "Non-Defaulting Party"), the Non-Defaulting Party may give written notice
thereof to the Defaulting Party, and if such material breach shall not have been
remedied within thirty (30) days after such written notice is given, then the
Non-Defaulting Party may terminate this Agreement by giving thirty (30) days'
written notice of such termination to the Defaulting Party. If the
Administrator is the Non-Defaulting Party, its termination of this Agreement
shall not constitute a waiver of any other rights or remedies of the
Administrator with respect to payment for services performed prior to such
termination or rights of the Administrator to be reimbursed for out-of-pocket
expenses. In all cases, termination by the Non-Defaulting Party shall not
constitute a waiver by the Non-
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<PAGE>
Defaulting Party of any other rights it might have under this Agreement or
otherwise against the Defaulting Party.
This Section 9 shall survive any termination of this Agreement, whether for
cause or not for cause.
10. AMENDMENT OF THIS AGREEMENT. This Agreement constitutes the entire
understanding and agreement of the parties hereto with respect to the subject
matter hereof. No provision of this Agreement may be amended or terminated
except by a statement in writing signed by the party against which enforcement
of the amendment or termination is sought.
In connection with the operation of this Agreement, the Fund and the
Administrator may agree in writing from time to time on such provisions
interpretive of or in addition to the provisions of this Agreement as may in
their joint opinion be consistent with the general tenor of this Agreement. No
interpretive or additional provisions made as provided in the preceding sentence
shall be deemed to be an amendment of this Agreement.
In the event any provision of this Agreement is determined to be void or
unenforceable, such determination shall not affect the remainder of this
Agreement, which shall continue to be in force.
The section headings and the use of defined terms in the singular or plural
tenses in this Agreement are for the convenience of the parties and in no way
alter, amend, limit or restrict the contractual obligations of the parties set
forth in this Agreement.
11. GOVERNING LAW. This Agreement shall be governed by and construed according
to the laws of the Commonwealth of Massachusetts without giving effect to
conflicts of laws principles.
12. NOTICES. Notices and other writings delivered or mailed postage prepaid to
the Fund addressed to the Fund at 600 West Broadway, San Diego, California 92101
or to such other address as the Fund may have designated to the Administrator in
writing, or to the Administrator at 40 Water Street, Boston, MA 02109,
Attention: Manager, Fund Administration Department,
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or to such other address as the Administrator may have designated to the Fund in
writing, shall be deemed to have been properly delivered or given hereunder to
the respective addressee.
13. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the Fund and the Administrator and their respective successors and
assigns, provided that no party hereto may assign this Agreement or any of its
rights or obligations hereunder without the written consent of the other party.
14. COUNTERPARTS. This Agreement may be executed in any number of
counterparts each of which shall be deemed to be an original and which
collectively shall be deemed to constitute only one instrument. This Agreement
shall become effective when one or more counterparts have been signed and
delivered by each of the parties.
15. EXCLUSIVITY. The services furnished by the Administrator hereunder are not
to be deemed exclusive, and the Administrator shall be free to furnish similar
services to others.
16. AUTHORIZATION. The Fund hereby represents and warrants that the Fund's
Board of Directors or Trustees has authorized the execution and delivery of this
Agreement and that an authorized officer of the Fund has signed this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their duly authorized officers as of the date
first written above.
BROWN BROTHERS HARRIMAN & Co. NICHOLAS APPLEGATE INSTITUTIONAL FUNDS
on behalf of each of the portfolios
listed on the attached Appendix "C"
By: By:
------------------------------ ----------------------------------
Name: Name:
------------------- -------------------
Title: Title:
------------------- -------------------
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APPENDIX A
TO
ADMINISTRATION AND FUND ACCOUNTING AGENCY AGREEMENT
[ FUND TO PROVIDE LIST OF SOURCES FOR QUOTATIONS TO BE USED FOR PRICING AND
CORPORATE ACTIONS]
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<PAGE>
APPENDIX B
TO
ADMINISTRATION AND FUND ACCOUNTING AGENCY AGREEMENT
FINANCIAL ADMINISTRATION SERVICES
TREASURER'S SUPPORT SERVICES:
- - Provide an Assistant Treasurer to the Fund
- - Accumulate information for and, subject to approval by the Funds'
Treasurer, prepare reports to the Funds' shareholders of record as set
forth in Rule 30d-1 of the 1940 Act or as agreed upon in writing from time
to time between the parties hereto and file such reports with the
Securities and Exchange Commission.
- - Subject to approval by the Fund's Treasurer, prepare and file the Rule
24f-2 Notice, Form N-SAR and Financial Data Schedules with the Securities
and Exchange Commission.
- - Consult with the Fund's Treasurer on financial matters relating to the
Funds including without limitation dividend distributions, expense
proformas, expense accruals and other matters, including payment of
expenses, as shall from time to time be agreed upon by the parties.
- - Assist the Fund's Treasurer in the preparation of quarterly reporting to
the Fund's Board of Directors or Trustees as required by applicable rules
under the 1940 Act and as agreed between the Administrator and the Fund
from time to time.
- - Report monthly to the Fund's Treasurer on compliance of the Fund's fidelity
bond coverage with Rule 17g-1 of the 1940 Act.
- - Report monthly to Treasurer on comparison of the Fund's actual shares
outstanding with its authorized shares.
TAX SERVICES:
Assist the Fund's Treasurer with the Fund's federal, state and applicable local
tax preparation and reporting requirements, including the following:
- - Preparation of fiscal and excise tax distribution calculations;
- - Preparation and filing of federal, state and any local income tax returns,
including tax return extension requests;
- - Preparation of shareholder year end reporting statements;
- - Provide the Fund's transfer agent the appropriate amounts and
characterization of distributions declared during the calendar year for
Forms 1099 reporting;
- - Periodically review and determine distributions to be paid to shareholders;
- - Consult with the Fund's Treasurer regarding potential passive foreign
investment companies ("PFICs");
- - Consult with the Fund's Treasurer on various tax issues as they arise and
with the Fund's outside auditors when appropriate;
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PERFORMANCE REPORTING:
Assist the Fund's Treasurer in preparing the Fund's performance reports,
including the following:
- - Calculate total returns for periodic reports as well as database company
surveys;
- - Assist in plotting performance graphs for management discussion and
analysis in periodic reports;
- - Coordinate communication of performance information to third party vendors;
- - Monthly SEC yield calculations (for fixed income funds)
CORPORATE SECRETARIAL SERVICES:
- - Maintain corporate documents and files
- - Monitor good standing of the Fund in its state of organization
- - Provide Assistant Secretary for the Fund
- - Maintain corporate calendar for regulatory matters and Board approvals
- - Prepare Board and Shareholder meeting materials, including scripts,
agendas, resolutions, memoranda, minutes
- - Attend Board and Shareholder meetings; take minutes of the meetings; make
presentations as required; follow up on matters raised at the meetings
- - Coordinate and monitor shareholder vote solicitation and tabulation with
the Fund's transfer agent
COMPLIANCE SERVICES:
Assist the Fund's investment adviser in periodic monitoring and developing
compliance procedures for the Fund, including monitoring and reporting the
following:
- - 1940 Act and IRS diversification
- - Prospectus and Statement of Additional Information Limitations
- - Broker commission reporting
- - Dept. of Treasury Form S
- - Form 13f
BLUE SKY SERVICES:
Select and monitor an independent service supplier to provide for reasonable and
necessary monitoring of compliance with the securities regulations of the fifty
states of the United States on such terms as the Fund may direct, or in the
absence of such direction, as the Administrator shall reasonably deem
appropriate, provided however, that such arrangement shall require that such
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<PAGE>
service supplier act with reasonable care in the discharge of its duties. The
Administrator shall deliver to the Fund, or cause to be delivered to the Fund,
regular reports and notices with respect to blue sky compliance and shall be
responsible to use reasonable efforts to enforce the terms of the agreement with
the service supplier on the Fund's behalf. The Fund shall be responsible to
provide copies of its prospectus and other relevant documents and information
relating to the Fund as may be reasonably required for the performance of state
securities law compliance.
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APPENDIX C
TO
ADMINISTRATION AND FUND ACCOUNTING AGENCY AGREEMENT
Dated as of __________________________
The following is a list of Investment Companies for which the Administrator
shall serve under a Administration and Accounting Agency Agreement dated as of
[ ] (the "Agreement"):
Nicholas Applegate Worldwide Growth Fund
Nicholas Applegate Global Blue Chip Fund
Nicholas Applegate Global Growth & Income Fund
Nicholas Applegate Global Technology Fund
Nicholas Applegate International Core Growth Fund
Nicholas Applegate International Small Cap Growth Fund
Nicholas Applegate Emerging Countries Fund
Nicholas Applegate Pacific Rim Fund
Nicholas Applegate Latin America Fund
Nicholas Applegate Greater China Fund
Nicholas Applegate Large Cap Growth Fund
Nicholas Applegate Mid Cap Growth Fund
Nicholas Applegate Small Cap Growth Fund
Nicholas Applegate Mini Cap Growth Fund
Nicholas Applegate Value Fund
Nicholas Applegate Convertible Fund
Nicholas Applegate Short-Intermediate Fund
Nicholas Applegate High Quality Bond Fund
Nicholas Applegate High Yield Bond Fund
16
<PAGE>
EXHIBIT (2)(h)
ADMINISTRATIVE SERVICES AGREEMENT
THIS AGREEMENT made as of May 10, 1999, by and between the
NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS, a Delaware business trust (the "Trust"),
and NICHOLAS-APPLEGATE CAPITAL MANAGEMENT, a California limited partnership (the
"Company").
WHEREAS, the Trust is engaged in business as an open-end management
investment company of the series type and registered as such under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Trust desires to retain the Company to provide certain
administrative services to the Trust and each of its several series, set forth
in Schedule A or hereafter organized (the "Portfolios"), in the manner and on
the terms and conditions hereafter set forth;
NOW THEREFORE, in consideration of the premises and mutual covenants
and agreements hereinafter set forth, the parties intending to be legally bound,
do hereby agree as follows:
1. DUTIES AND RESPONSIBILITIES OF THE COMPANY.
The Company shall oversee the administration of the Trust's and each
Portfolio's business and affairs as set forth herein and shall provide all
administrative services required for effective administration of the Trust and
the Portfolios which are not provided by the Trust's adviser, distributor,
administrator, custodian, transfer agents, accounting agents, independent
accountants and legal counsel. In connection therewith, the Company shall:
1.1 AGENTS. Assist the Trust in selecting, coordinating the
activities of, and negotiating with any person or agent engaged by the Trust,
including the Trust's consultants, transfer agent, sub-transfer agents,
custodians, sub-custodians, dividend disbursing agent, co-administrator,
independent accountants, and independent legal counsel;
1.2 TRUSTEES AND OFFICERS. Authorize and permit the Company's
officers and employees that may be elected or appointed as trustees or officers
of the Trust to serve in such capacities, without remuneration from or
additional cost to the Trust.
1.3 SHAREHOLDER INQUIRIES. Respond to all inquires from Trust
shareholders and/or their representatives, or otherwise answer communications
from Trust shareholders and/or the representatives if such inquiries or
communications are directed to the Company. If any such inquiry or communication
would be more properly answered by one of the agents listed in Section 1.1
above, the Company will coordinate, as needed, the provision of their response.
1.4 PERFORMANCE CALCULATION. Calculate performance data of the
Portfolios
Page 1
<PAGE>
for dissemination to information services covering the investment company
industry, shareholders, and appropriate regulatory agencies.
1.5 REPORTS TO THE TRUST. Furnish to or place at the
disposal of the Trust such information, reports, evaluations, analyses, and
opinions relating to its administrative functions as may be requested by the
Board of Trustees of the Trust or as the Company deems desirable. The Company
also will assist in the preparation of agendas and other materials for
meetings of the Trust's Board of Trustees and will attend such meetings.
1.6 REPORTS AND FILINGS. Provide appropriate assistance in the
development and/or preparation of all routine reports, prospectuses, proxy
statements, and communications by the Trust to Trust shareholders, and
coordinate the layout and printing of publicly disseminated prospectuses and
reports.
1.7 OFFICE AND OTHER FACILITIES. Furnish, without cost to the
Trust, or provide and pay the cost of, such office facilities, furnishings, and
office equipment as are necessary for the performance of the Company's duties to
the Trust under this Agreement.
2. OWNERSHIP AND CONFIDENTIALITY OF RECORDS.
All records required to be maintained and preserved by the Trust,
pursuant to rules or regulations of the Securities and Exchange Commission under
Section 31(a) of the 1940 Act, that are maintained and preserved by the Company
on behalf of the Trust, are the property of the Trust and shall be surrendered
by the Company promptly on request by the Trust. The Company shall not disclose
or use any record or information obtained pursuant to this Agreement in any
manner whatsoever except as expressly authorized by this Agreement and
applicable law. The Company shall keep confidential any information obtained in
connection with its duties hereunder and shall disclose such information only if
the Trust has authorized such disclosure or if such disclosure is expressly
required by applicable law or federal or state regulatory authorities.
3. STANDARD OF CARE; INDEMNIFICATION.
3.1 The Company shall not be liable for any error of judgment
or mistake of law or for any loss suffered by the Trust in connection with
the matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement. The Company shall be entitled to rely on and
may act upon advice of counsel (who may be counsel for the Trusts) on all
matters, and shall be without liability for any action reasonably taken or
omitted pursuant to such advice. Any person, even though also an officer,
partner, employee or agent of the Company, who may be or become an officer,
trustee, employee or agent of the Trust or who may act on any business of the
Trust (other than services or business in connection with the duties of the
Company hereunder or the duties of any affiliate of the Company pursuant to
any other agreement with the Company) shall be considered to be rendering
such services to or acting solely for the Trust and not as an officer,
partner, employee or agent or one under the control or direction of the
Company even though paid by the Company.
Page 2
<PAGE>
3.2 The Trust shall indemnify the Company, its officers,
employees and partners, and hold them harmless from and against any and all
actions, suits and claims, and from and against all losses, damages (excluding
consequential, punitive or other indirect damages), costs, charges, reasonable
counsel fees and disbursements, payments, expenses, and liabilities (including
reasonable investigation expenses) arising out of any action taken or thing done
by them in performing the services in accordance with the above standards.
3.3 In order that the indemnification provisions contained in
this Article 3. shall apply, however, it is understood that if in any case
the Trust may be asked to indemnify or save the Company, its officers,
employees and partners, harmless, the Trust shall be fully and promptly
advised of all pertinent facts concerning the situation in question, and it
is further understood that the Company will use all reasonable care to
identify and notify the Trust promptly concerning any situation which
presents or appears likely to present the probability of such a claim for
indemnification against the Trust. The Trust shall have the option to defend
them against any claim which may be subject to this indemnification. In the
event that the Trust so elects, it will so notify the parties and thereupon
the Trust shall take over complete defense of the claim with counsel
reasonably acceptable to the parties, and the parties shall in such situation
initiate no further legal or other expenses for which they shall seek
indemnification under this Article. An indemnified party shall in no case
confess any claim or make any compromise in any case in which the Trust will
be asked to indemnify the party except with the Trust's prior written consent.
4. INDEMNIFICATION BY THE COMPANY.
4.1 The Company shall indemnify the Trust and the Portfolios,
their officers and trustees and hold them harmless from and against any and all
actions, suits and claims, whether groundless or otherwise, and from and against
any and all losses, damages (excluding consequential, punitive or other indirect
damages), costs, charges, reasonable counsel fees and disbursements, payments,
expenses, and liabilities (including reasonable investigation expenses) arising
directly or indirectly out of the services rendered hereunder and arising or
based upon the willful misfeasance, bad faith, or negligence of the Company, its
partners, officers, employees, and agents in the performance of its or their
duties on behalf of the Trust and the Portfolios.
4.2 In order that the indemnification provision contained
herein shall apply, however, it is understood that if in any case the Company
may be asked to indemnify or hold the Trust and the Portfolios, their
officers, and trustees harmless, the Company shall be fully and promptly
advised of all pertinent facts concerning the situation in question, and it
is further understood that the Trust and the Portfolios will use all
reasonable care to identify and notify the Company promptly concerning any
situation which presents or appears likely to present the probability of such
a claim for indemnification against the Company. The Company shall have the
option to defend the Trust against any claim which may be the subject to this
indemnification. In the event that the Company so elects, it will so notify
the Trust and thereupon the Company shall take over complete defense of the
claim with counsel reasonably acceptable to the parties, and the parties
shall in such situation initiate no further legal or other expenses for which
they shall seek indemnification under this Article. An indemnified party
shall in no case confess any claim or make any compromise in any case in
which the Company will be asked to indemnify the party except with the
Company's prior written consent.
Page 3
<PAGE>
5. COMPENSATION AND EXPENSES.
5.1 The Trust will compensate the Company for the
Administrative Services at the rate of the lesser of (i) 0.10% of the Trust's
net assets, or (ii) the Company's costs for providing the Administrative
Services. Such fees do not include out-of-pocket and other third-party
disbursements of the Company for which the Trusts shall reimburse the Company
separately. The Company may at any time and from time to time waive any part
or all of any fee payable to it pursuant to this Agreement.
5.2 The fee shall accrue daily and the sum of the accruals
shall be paid monthly on or before the fifth (5th) business day of the month.
The fee for the period from the effective date of this Agreement with respect
to a Portfolio to the end of the initial month shall be prorated according to
the proportion that such period bears to the full month period. Upon any
termination of this Agreement before the end of any month, the fee for such
period shall be prorated according to the proportion which such period bears
to the full month period.
5.3 The Company, in its sole discretion, may from time to
time subcontract to, employ or associate with itself such person or persons
as the Company may believe to be particularly suited to assist it in
performing any of the services under this Agreement. Such person or persons
may be affiliates of the Company, third-party service providers, or officers
and employees who are employed by both the Company and the Trust; provided,
however, that the Company shall be as fully responsible to each Trust for the
acts and omissions of any such subcontractor as it is for its own acts and
omissions. Except as herein provided, the compensation of such person or
persons shall be paid by the Company and no obligation shall be incurred on
behalf of the Trust or the Portfolios in such respect.
6. ASSIGNMENT.
Except as provided herein, neither this Agreement nor any of the
rights or obligations under this Agreement may be assigned by either party
without the written consent of the other party.
7. TERM AND TERMINATION OF AGREEMENT.
This Agreement shall be effective on May 10, 1999, and shall
continue until for a two-year period. Thereafter, the Agreement will continue
annually, provided such continuance is specifically approved by a vote of a
majority of those members of the Board who are not "interested persons" of
any party to this Agreement, as such term is defined in the 1940 Act. This
Agreement may be terminated by any of the parties, without the payment of any
penalty, upon sixty (60) days' notice. The termination date for all original
or after-added Portfolios which are or become a party to this Agreement shall
be coterminous, except that Portfolios that merge or dissolve during the term
shall cease to be a party on the effective date of such merger or dissolution.
Should the Trust exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and materials will be borne
by the Trust or the appropriate Portfolios.
Page 4
<PAGE>
8. AMENDMENT.
No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by a written agreement executed by both parties.
9. GOVERNING LAW.
This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of California.
10. NOTICES.
Except as otherwise specifically provided herein, notices and other
writings delivered or mailed postage prepaid to:
THE FUND: Nicholas-Applegate Mutual Trusts
600 West Broadway, 29th Floor
San Diego, CA 92101
THE COMPANY: Nicholas-Applegate Services Company
600 West Broadway, 29th Floor
San Diego, CA 92101
or to such other address as the Trust or the Company may hereafter specify,
shall be deemed to have been properly delivered or given hereunder.
11. COUNTERPARTS.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original.
12. MERGER OF AGREEMENT.
This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject hereof
whether oral or written.
13. FORCE MAJEURE.
The Company shall have no liability for cessation of services
hereunder or any damages resulting therefrom to the Trust as a result of work
stoppage, power or other mechanical failure, natural disaster, governmental
action, communication disruption or other impossibility of performance.
Page 5
<PAGE>
14. ASSIGNMENT; SUCCESSORS.
This Agreement shall not be assigned by either party without the prior
written consent of the other party. Nothing in this Article 14 shall prevent the
Company from delegating its responsibilities to another entity to the extent
provided herein.
15. SEVERABILITY.
In the event any provision of this Agreement is held illegal, void or
unenforceable, the balance shall remain in effect.
16. LIMITATIONS OF LIABILITY OF TRUSTEES AND SHAREHOLDERS OF THE TRUST.
The execution and delivery of this Agreement have been authorized by
the trustees of the Trust and signed by an authorized officer of the Trust,
acting as such, and neither such authorization by such trustees nor such
execution and delivery by such officer shall be deemed to have been made by
any of them individually or to impose any liability on any of them
personally, and the obligations of this Agreement are not binding upon any of
the trustees or shareholders of the Trust, but bind only the appropriate
property of the Trust, or any Portfolio, as provided in the Declaration of
Trust. The debts, liabilities and obligations with respect to each Portfolio
shall be enforceable against the assets and property of such Portfolio only,
and not against the assets and property of any other Portfolio.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and year first above written.
THE TRUST THE COMPANY
NICHOLAS-APPLEGATE NICHOLAS-APPLEGATE
INSTITUTIONAL FUNDS CAPITAL MANAGEMENT
By: By:
Its: Its:
Page 6
<PAGE>
EXHIBIT (3)(h)
LICENSE AGREEMENT
This License Agreement is entered into as of the 10th day of May, 1999, by
and between Nicholas-Applegate Capital Management (the "Adviser") and
Nicholas-Applegate Institutional Funds, formerly Nicholas-Applegate Investment
Trust (the "Funds").
WHEREAS, the Funds have requested the Adviser's consent to use the name
"Nicholas-Applegate" in the name of the Funds and/or one or more of the series
of the Fund, and the Adviser wishes to permit such use; and
WHEREAS, the Funds and the Adviser wish to enter into a written agreement
to set forth the conditions under which the Funds will use such name;
NOW, THEREFORE, in consideration of the covenants contained herein, the
Adviser and the Funds agree as follows:
1. The Funds acknowledges and agrees the name "Nicholas-Applegate" is a
valuable proprietary right of the Adviser and the Funds has no rights to use
such name except as provided in this Agreement. The Funds shall not in any
manner represent that it has any rights of ownership to the name
"Nicholas-Applegate" except as set forth herein.
2. The Adviser hereby grants the Funds a non-exclusive license to use the
name "Nicholas-Applegate" in the names of the Funds and/or any one or more of
its series, so long as the Funds use the name in conjunction with other
descriptive phrases such as "Institutional Funds" or phrases describing the
investment objectives or purposes of a series, such as Nicholas-Applegate
Emerging Countries Fund.
3. The Adviser reserves the right to grant to any other person the right
to use the name "Nicholas-Applegate" and no consent of the Funds shall be
necessary for such use.
4. The Funds shall have no right to grant to any other person a
sublicense to use the name "Nicholas-Applegate". The Funds have no right to
assign its interest in this Agreement without the consent of the Adviser.
5. This license shall terminate upon the termination of the investment
advisory agreement between the Adviser and the Funds. In such event, the Funds
shall as promptly as possible take such actions as may be necessary to change
its name and the names of the series to names that exclude the names "Nicholas"
or "Applegate."
<PAGE>
6. This Agreement contains the entire understanding of the parties with
respect to the subject matter herein and may not be amended except by a writing
signed by the Adviser and the Funds.
IN WITNESS WHEREOF, the Adviser and the Funds have executed this Agreement
as of the day and year first above written.
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
By:
------------------------------------------
E. Blake Moore, Jr., General Counsel
NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS
By:
-------------------------------------------
E. Blake Moore, Jr. Secretary
<PAGE>
Exhibit (4)(h)
Nicholas-Applegate Capital Management
600 West Broadway
San Diego, California 92101
Nicholas-Applegate Mutual Funds
600 West Broadway
San Diego, California 92101
To Whom It May Concern:
This will confirm our agreement pursuant to which Nicholas-Applegate Capital
Management (the "Adviser") will waive its fees and absorb other operating
expenses of various series of the Nicholas-Applegate Institutional Funds, as set
forth on the following page, so that total operating expenses, excluding taxes,
interest, and the costs incurred in connection with the acquisition of
securities, do not exceed the percentages set forth on the following page
through March 31, 2000. In subsequent years, overall operating expenses for
each series will not fall below the applicable percentage limitation until the
Adviser has been fully reimbursed for fees foregone and expenses paid under this
Agreement, as each series will reimburse the Adviser in subsequent years when
operating expenses (before reimbursement) are less than the applicable
percentage limitation.
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
By:
------------------------------------------
E. Blake Moore, Jr., Secretary
Accepted and Agreed to this
9th day of May, 1999
NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS
By:
---------------------------------------
E. Blake Moore, Jr.
<PAGE>
EXPENSE LIMITATIONS
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%
Greater China 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%
<PAGE>
<PAGE>
Exhibit (6)(h)
NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS
SHAREHOLDER SERVICE PLAN
INTRODUCTION
The Board of Trustees (the "Board") of Nicholas-Applegate Institutional
Funds, a Delaware business trust (the "Trust"), has approved this Shareholder
Service Plan (the "Plan"), with respect to the Class R shares ("Shares") of its
various series (each a "Fund").
THE PLAN
The material aspects of the Plan are as follows:
SECTION 1. Each Fund will pay Nicholas-Applegate Securities (the
"Distributor"), the distributor of Shares, for expenses incurred in connection
with non-distribution shareholder services provided by the Distributor to
securities broker-dealers, retirement plan sponsors and administrators, and
other securities professionals ("Service Organizations") and/or beneficial
owners of Shares of the Funds, provided that such shareholder servicing does not
duplicate the servicing otherwise provided on behalf of the Funds.
SECTION 2. Each Fund will also pay the Distributor for expenses
incurred to Service Organizations (which may include the Distributor itself) for
the provision of support services to their clients ("Clients") who are
beneficial owners of Shares of the Fund. Such services may include: (a)
establishing and maintaining accounts and records relating to Clients who invest
in Shares of the Fund; (b) aggregating and processing purchase, exchange and
redemption requests for Shares from Clients and placing net purchase and
redemption orders with respect to the Shares; (c) investing, or causing to be
invested, the assets of Clients' accounts in Shares pursuant to specific or
pre-authorized instructions; (d) processing dividend and distribution payments
with respect to the Fund on behalf of Clients; (e) providing information
periodically to Clients showing their positions in Shares; (f) arranging for
bank wires; (g) responding to Client inquiries relating to the services
performed by Service Organizations; (h) providing subaccounting services with
respect to Shares beneficially owned by Clients or the information to the Trust
necessary for subaccounting services; (i) preparing any necessary tax reports or
forms on behalf of Clients; (j) if required by law, forwarding shareholder
communications from the Funds (such as proxies, shareholder reports, annual and
semi-annual financial statements and dividend, distribution and tax notices) to
Clients; (k) assisting Clients in changing dividend options, account
designations and addresses; and (l) providing such other similar services as the
Trust may reasonably request to the extent the Service Organization is permitted
to do so under applicable statutes, rules or regulations.
<PAGE>
SECTION 3. While this Plan is in effect, the Distributor will be
compensated by each Fund for such shareholder servicing expenses that are
incurred in connection with shares of the Fund on a monthly basis, at the annual
rate of 0.25% of the average daily net assets of the shares of the Fund. These
monthly payments to the Distributor will be made in accordance with and subject
to the conditions set forth below.
The shareholder servicing fees payable to the Distributor are designed
to compensate the Distributor for the expenses it incurs and the services it
renders in providing the services referred to in Sections 1 and 2 to the Funds.
However, because this Plan is a compensation plan, the distribution fees are
payable even if the amount paid exceeds the Distributor's actual expenses. If in
any year the Distributor's expenses incurred in connection with such services
with respect to a Fund exceed the shareholder servicing fees paid by the Fund,
the Distributor will recover such excess only if this Plan with respect to the
shares continues to be in effect in some later year when the shareholder
servicing fees exceed the Distributor's expenses. There is no limit on the
periods during which unreimbursed expenses may be carried forward, although the
Trust is not obligated to repay any unreimbursed expenses for shares of a Fund
that may exist at such time, if any, as this Plan terminates or is not continued
with respect to the shares. No interest, carrying or finance charge will be
imposed on any amounts carried forward.
Payment made out of or charged against the assets of a particular Fund
must be in payment for shareholder servicing expenses incurred on behalf of the
shares of such Fund and which are described herein.
SECTION 4. Payments to a Service Organization under this Plan shall be
subject to compliance by the Service Organization with the terms of a
shareholder service agreement between the Service Organization and the
Distributor. If an investor in a Fund ceases to be a Client of a Service
Organization that has entered into a shareholder services agreement with the
Distributor, but continues to hold Shares of the Fund, the Distributor will be
entitled to receive similar payments in respect of any shareholder servicing
provided with respect to such investor.
SECTION 5. For purposes of determining the amounts payable under this
Plan, the value of a Fund's net assets shall be computed in the manner specified
in the Fund's prospectus and statement of additional information as then in
effect for the computation of the value of the Fund's net assets.
SECTION 6. The Distributor shall provide the Board, at least quarterly,
with a written report of all amounts expended pursuant to this Plan. The report
shall state the purpose for which the amounts were expended.
SECTION 7. This Plan shall continue in full force and effect upon
approval and adoption by the Board and shall continue thereafter automatically
for successive annual periods provided such continuance is approved by a
majority of the Board, including a majority of the Trustees who are not
"interested persons" (as defined in the Investment Company Act of 1940, as
amended) of the Trust and who have no direct or indirect financial interest in
the operation of this Plan or in any agreements
-2-
<PAGE>
entered into in connection with this Plan (the "Disinterested Trustees"),
pursuant to a vote cast in person at a meeting called for the purpose of voting
on the continuance of the Plan. This Plan may be amended at any time by the
Board, provided that any material amendments of the terms of this Plan shall
become effective only upon the approval by a majority of the Board and a
majority of the Disinterested Trustees pursuant to a vote cast in person at a
meeting called for the purpose of voting on the Plan. This Plan is terminable,
as to any Fund, without penalty at any time by the Board.
Dated: February 19, 1999
<PAGE>
Exhibit (m)
NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS
DISTRIBUTION PLAN
INTRODUCTION
The Board of Trustees (the "Board") of Nicholas-Applegate Insitutional
Funds (the "Trust") has approved the adoption of the Distribution Plan (the
"Plan") set forth below with respect to the distribution of Class R shares of
beneficial interest ("shares") of its various series currently and hereafter in
effect (each a "Fund" and collectively the "Funds"). This Plan is designed to
conform to the requirements of Rule 12b-1 promulgated under the Investment
Company Act of 1940, as amended (the "Act").
The Trust on behalf of each Fund has entered into a distribution
agreement with Nicholas-Applegate Securities (the "Distributor") pursuant to
which the Trust will employ the Distributor to distribute shares of the Funds.
Under this Plan, the Trust on behalf of the shares of each Fund intends to
compensate the Distributor for expenses incurred, and services and facilities
provided, by the Distributor in distributing shares of the Fund.
THE PLAN
The material aspects of the Plan are as follows:
SECTION 1. The Funds will pay the Distributor for: (a) expenses
incurred in connection with advertising and marketing shares of the Funds
including but not limited to any advertising or marketing via radio, television,
newspapers, magazines, telemarketing or direct mail solicitations; (b) periodic
payments of fees for distribution assistance made to one or more securities
dealers, or other industry professionals, such as investment advisers,
accountants, estate planning firms and the Distributor itself (collectively
"Service Organizations") in respect of the average daily value of the shares of
each Fund beneficially owned by persons ("Clients") for whom the Service
Organization is the dealer of record or holder of record or with whom the
Service Organization has a servicing relationship, and (c) expenses incurred in
preparing, printing and distributing the Funds' prospectuses and statements of
additional information with respect to shares of the Funds (except those used
for regulatory purposes or for distribution to existing shareholders of the
Funds).
SECTION 2. While this Plan is in effect the Distributor will be
compensated by each Fund for such distribution expenses that are incurred, and
services and facilities that are provided, in connection with shares of the Fund
on a monthly basis, at the annual rate of 0.25% of the average daily net assets
of the shares of the Fund. These monthly payments to the Distributor will be
made in accordance with and subject to the conditions set forth below. For the
purposes of determining the amounts payable under the Plan, the value of a
Class' net assets shall be computed in the manner specified
<PAGE>
in the Fund's prospectus and statement of additional information as then in
effect for the computation of the value of the Fund's net assets.
The distribution fees payable to the Distributor are designed to
compensate the Distributor for the expenses it incurs and the services it
renders in distributing shares of the Funds. However, because this Plan is a
compensation plan, the distribution fees are payable even if the amount paid
exceeds the Distributor's actual expenses. If in any year the Distributor's
expenses incurred in connection with the distribution of shares of a Fund exceed
the distribution fees paid by the Fund, the Distributor will recover such excess
only if this Plan with respect to the shares continues to be in effect in some
later year when the distribution fees exceed the Distributor's expenses. There
is no limit on the periods during which unreimbursed expenses may be carried
forward, although the Trust is not obligated to repay any unreimbursed expenses
for shares of a Fund that may exist at such time, if any, as this Plan
terminates or is not continued with respect to the shares. No interest,
carrying or finance charge will be imposed on any amounts carried forward.
Payment made out of or charged against the assets of a particular Fund
must be in payment for distribution expenses incurred on behalf of the shares of
such Fund and which are described herein.
SECTION 3. Payments by the Distributor to a Service Organization
described in this Plan shall be subject to compliance by the Service
Organization with the terms of a selling group agreement between the Service
Organization and the Distributor. If an investor in a Fund ceases to be a
client of a Service Organization that has entered into a selling group agreement
with the Distributor, but continues to hold shares of the Fund, the Distributor
will be entitled to receive similar payments in respect of the distribution
assistance provided with respect to such investor.
SECTION 4. The Distributor shall provide the Board, at least
quarterly, with a written report of all amounts expended pursuant to this Plan.
The report shall state the purposes for which the amounts were expanded.
SECTION 5. This Plan shall not take effect with respect to a Fund
until it has been approved by a vote of a majority of the outstanding voting
securities (as defined in the Act) of the shares of the Fund; provided, however,
that no such approval shall be required with respect to shares of a Fund if the
Plan takes effect with respect to the shares prior to any public offering of
shares or the sale of such shares to persons who are not affiliated persons of
the Trust, promoters of the Trust or affiliated persons of any such promoter.
If so approved (or if no such approval is required), this Plan, unless earlier
terminated in accordance with its terms, shall continue in full force and effect
thereafter for successive annual periods provided such continuance is approved
by a majority of the Board, including a majority of the Trustees who are not
"interested persons" (as defined in the Act) of the Trust and who have no direct
or indirect financial interest in the operation of this Plan or in any
agreements entered into in connection with this Plan (the "Disinterested
Trustees"), pursuant to a vote cast in person at a meeting called for the
purpose of voting on the continuance of the Plan.
-2-
<PAGE>
SECTION 6. This Plan may be amended at any time by the Board
provided that (i) any amendment to increase materially the costs which the
shares of any Fund may bear for distribution pursuant to this Plan shall be
effective only upon approval by a vote of a majority of the outstanding shares
of the Fund, and (ii) any material amendments of the terms of this Plan shall
become effective only upon approval by a majority of the Board and a majority of
the Disinterested Trustees pursuant to a vote cast in person at a meeting called
for the purpose of voting on the Plan.
SECTION 7. This Plan is terminable, as to the shares of any Fund,
without penalty at any time by (i) vote of the majority of the Disinterested
Trustees, or (ii) vote of a majority of the outstanding shares of such Fund.
SECTION 8. The Board has adopted this Plan as of May 10, 1999.
-3-
<PAGE>
Exhibit (o)
NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS
MULTIPLE CLASS PLAN
This Multiple Class Plan ("Plan") has been prepared, pursuant to the
requirements of rule 18f-3(d) under the Investment Company Act of 1940
("Investment Company Act" or "Act"), in connection with the offer and sale of
shares of the various series of Nicholas-Applegate Institutional Funds (the
"Trust"). Each series (each a "Fund" and collectively the "Funds") of the Trust
is a multiple class fund within the meaning of rule 18f-3.
In accordance with the requirements of rule 18f-3, this Plan describes
the differences among the classes of shares that are issued by the Funds,
including the distribution arrangement that pertains to each class, the methods
of allocating expenses relating to those differences, and the conversion
features or exchange privileges relating to the classes.
I. BACKGROUND
The Trust is an open-end investment company registered under the
Investment Company Act. The Trust currently has 19 series, and may have other
Funds in the future. Each Fund has differing investment objectives and
policies.
Each Fund currently offers Class I shares, and certain Funds also
offer Class R shares. The Classes of each Fund represent interests in the same
portfolio of investments held by the Fund and, except as described below, are
identical in all respects. The Classes differ in the following respects: (1) in
the shareholder service plan attributable to Class R shares but not Class I
shares; (2) in the distribution plan attributable to Class R shares of certain
Funds but not Class I shares of such Funds; (3) in the expenses that may be
incurred by or allocated to one Class as compared to the other, and in the
expense limitations applicable to one Class as compared to the other; (4) in the
types of investors eligible to purchase Class I and R shares; (5) in the
exchange privileges of each Class; and (6) in the voting rights accorded to each
Class. These differences are discussed below in more detail.
II. DISCUSSION OF DIFFERENCES
A. DISTRIBUTION PLAN ARRANGEMENTS
-1-
<PAGE>
Class R shares of certain Funds are subject to a Rule 12b-1
Distribution Plan. Pursuant to the Rule 12b-1 Distribution Plan, Class R shares
of each such Fund pay the Fund's Distributor an annual fee of up to 0.25% of the
average net assets of the Fund attributable to Class R shares.
B. SHAREHOLDER SERVICE PLAN ARRANGEMENTS
Class R shares are subject to a Shareholder Service Plan (the "Service
Plan"). Pursuant to the Service Plan, Class R shares of each Fund pay the
Fund's Distributor an annual fee of up to 0.25% of the average net assets of the
Fund attributable to Class R shares.
C. ELIGIBLE INVESTORS.
Class R shares are offering primarily to qualified retirement plans,
certain financial institutions, and asset allocation programs through the
Distributor and unaffiliated broker-dealers. Class I shares are available only
to institutions and certain asset allocation programs through the Distributor.
D. EXPENSE LIMITATIONS.
The Trust's Adviser has agreed that, until March 31, 2000, it will
reduce its investment advisory fee and pay or reimburse each Fund for other
operating expenses as necessary to ensure that certain expenses of the various
Classes of shares of the Fund will not exceed a specified percentage of the
Class' average daily net assets on an annualized basis. Any such fee reductions
and reimbursements will be allocated among the Classes of a Fund in accordance
with the preferential dividend requirements of Subchapter M of the Internal
Revenue Code of 1986, as amended. A Fund will reimburse the Adviser for fees
foregone or other expenses paid by the Adviser in any fiscal year pursuant to
the expense guarantee at a later date, without interest, so long as such
reimbursement will not cause the annual expense ratio for the year in which it
is made to exceed the amount of the expense guarantee. The reimbursement
obligation will expire on the later of March 31, 2002 and the fifth full fiscal
year after the year in which the fees were waived or expenses paid. No Fund
will be required to repay any unreimbursed amounts to the Adviser upon
termination of its investment management contract with respect to the Fund.
E. ALLOCATION OF EXPENSES
Certain expenses of a Fund will be allocated solely to a particular
Class of shares of the Fund because they relate only to the expenses of that
Class. Such expenses may include:
(a) distribution and shareholder servicing fees pursuant to the
Distribution
-2-
<PAGE>
Plan and the Shareholder Service Plan; and
(b) any other incremental expenses that should be properly allocated to a
particular Class of shares.
Other expenses of each Fund will be allocated to all Classes of shares
of the Fund in accordance with the requirements of rule 18f-3(c). These include
the management fee paid to the Adviser to the Fund; the custodial fee; and
certain other expenses of the Fund. These expenses will be allocated to each
Class of a Fund based on the net asset value of such Class in relation to the
net asset value of the Fund.
F. EXCHANGE PRIVILEGES
Shareholders of either Class of a Fund may exchange their shares only
for shares of the same Class of any of the other Funds, at the respective net
asset values determined after receipt of the request in good order.
J. VOTING OF SHARES
The voting rights of each shareholder of a Fund are the same, except
that Class R shares will have the exclusive right to vote on matters relating to
the Distribution Plan, to the extent that such a shareholder vote is required by
the Investment Company Act or otherwise requested. Rule 12b-1 adopted by the
Securities and Exchange Commission under the Investment Company Act requires
that (i) any amendment of the Distribution Plan to increase materially the costs
which Class R shares of a Fund may bear for distribution services under the Plan
must be approved by a vote of a majority of the outstanding Class R shares of
the Fund; and (ii) the Distribution Plan may be terminated at any time with
respect to Class R shares of a Fund by the vote of a majority of the outstanding
Class R shares of the Fund. Each shareholder is entitled to one vote for each
full share held and fractional votes for fractional shares held. Shareholders
will vote in the aggregate and not by Class or Fund, except as noted above and
where otherwise required by law (or when permitted by the Board of Trustees).
Adopted on February 19, 1999
