<PAGE>
As filed with the Securities and Exchange Commission
on May 25, 2000
1933 Act File No. 333-71469
1940 Act File No. 811-07384
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
PRE-EFFECTIVE AMENDMENT NO. ___ / /
POST-EFFECTIVE AMENDMENT NO. 4 /X/
---
AND/OR
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 22
----------------------------
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)
---------------------------
CHARLES H. FIELD, JR.
C/O NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
600 WEST BROADWAY, 30TH FLOOR
SAN DIEGO, CALIFORNIA 92101
(name and address of agent for service)
COPY TO:
DEBORAH A. WUSSOW
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
600 WEST BROADWAY, SUITE 2900
SAN DIEGO, CALIFORNIA 92101
/ / immediately upon filing pursuant to paragraph (b)
/ / on _________ pursuant to paragraph (b)
/X/ 60 days after filing pursuant to paragraph (a)(i)
/ / on _________ pursuant to paragraph (a)(i)
/ / 75 days after filing pursuant to paragraph (a)(ii) on September 1, 1999
/ / on _________ pursuant to paragraph (a)(ii), of Rule 485
/ / this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
--------------------------------------
<PAGE>
[NICHOLAS APPLEGATE LOGO]
INSTITUTIONAL FUNDS PROSPECTUS
INSTITUTIONAL SHARES
- ------------------------------------
GLOBAL FUNDS
Worldwide Growth
Global Blue Chip
Global Growth & Income
Global Technology
Global Health Care
International Core Growth
International Small Cap Growth
Emerging Countries
Pacific Rim
Latin America
US FUNDS
Large Cap Growth
Mid Cap Growth
Small Cap Growth
Mini Cap Growth
Value
Convertible
FIXED INCOME FUNDS
Short Intermediate
High Quality Bond
High Yield Bond
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
DETERMINED THAT THE INFORMATION IN THIS PROSPECTUS IS ACCURATE OR COMPLETE,
NOR HAS IT APPROVED OR DISAPPROVED THESE SECURITIES. IT IS A CRIMINAL OFFENSE
TO STATE OTHERWISE.
JULY , 2000
- ---------------------------------------
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
A FUND BY FUND LOOK AT GOALS,
STRATEGIES, RISKS AND HISTORICAL
PERFORMANCE.
GLOBAL FUNDS
Worldwide Growth 1
Global Blue Chip 3
Global Growth & Income 5
Global Technology 7
Global Health Care 9
International Core Growth 11
International Small Cap Growth 13
Emerging Countries 15
Pacific Rim 17
Latin America 19
US FUNDS
Large Cap Growth 21
Mid Cap Growth 23
Small Cap Growth 25
Mini Cap Growth 27
Value 29
Convertible 31
FIXED INCOME FUNDS
Short Intermediate 33
High Quality Bond 35
High Yield Bond 37
- --------------------------------------------------------------------------------
POLICIES AND INSTRUCTIONS FOR
OPENING, MAINTAINING AND
CLOSING AN ACCOUNT IN ANY
FUND.
SIMPLIFIED ACCOUNT INFORMATION
Opening an Account 39
Buying Shares 39
Exchanging Shares 40
Selling Shares 40
Signature Guarantees 41
YOUR ACCOUNT
Transaction Policies 42
Features and Account Policies 42
- --------------------------------------------------------------------------------
FURTHER INFORMATION THAT APPLIES
TO THE FUNDS AS A GROUP.
ORGANIZATION AND MANAGEMENT
Investment Adviser 44
Investment Adviser Compensation 44
Expense Waivers 44
Multi Class Structure 45
Shareholder Services 45
Portfolio Trades 45
Portfolio Turnover 46
Portfolio Management 46
- --------------------------------------------------------------------------------
PRINCIPAL STRATEGIES, RISKS AND OTHER
INFORMATION 51
FINANCIAL HIGHLIGHTS 56
PRIOR PERFORMANCE OF CERTAIN FUNDS 60
FOR MORE INFORMATION Back Cover
<PAGE>
1
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. In analyzing
specific companies for possible investment, the Fund's Investment Adviser
ordinarily looks for several of the following characteristics: above-average per
share earnings growth; high return on invested capital; a healthy balance sheet;
sound financial and accounting policies and overall financial strength; strong
competitive advantages; effective research and product development and
marketing; development of new technologies; efficient service; pricing
flexibility; strong management; and general operating characteristics that will
enable the companies to compete successfully in their respective markets. The
Investment Adviser considers whether to sell a particular security when any of
those factors materially changes.
The Investment Adviser allocates the Fund's assets among securities of countries
that are expected to provide the best opportunities for meeting the Fund's
investment objective.
The Fund may also lend portfolio securities on a short-term or long-term basis,
up to 30% of its total assets. The Investment Adviser expects a high portfolio
turnover rate of 200% or more.
[GRAPHIC]PRINCIPAL 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.
[GRAPHIC]PRIMARY RISKS
Because you could lose money by investing in the Fund, be sure to read all risk
disclosures carefully before investing. The Fund is primarily subject to the
following risks:
/ / STOCK MARKET VOLATILITY--The prices of equity securities change in response
to many factors, including the historical and prospective earnings of the
issuer, the value of its assets, general economic conditions, interest
rates, investor perceptions, and market liquidity. Stock prices are
unpredictable, may fall suddenly and may continue to fall for extended
periods.
/ / FOREIGN SECURITIES RISKS--The prices of foreign securities may be further
affected by other factors, including:
CURRENCY EXCHANGE RATES--The dollar value of the Fund's foreign investments
will be affected by changes in the exchange rates between the dollar and
the currencies in which those investments are traded.
POLITICAL AND ECONOMIC CONDITIONS--The value of the Fund's foreign
investments may be adversely affected by political and social instability
in their home countries and by changes in economic or taxation policies in
those countries.
REGULATIONS--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available
information about foreign companies than about U.S. companies.
MARKETS--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and their prices may be more volatile than U.S. securities.
EMERGING SECURITIES MARKETS--To the extent that the Fund invests in
countries with emerging markets, the foreign securities risks are magnified
since these countries may have unstable governments and less established
markets.
/ / SMALLER ISSUERS--Investments in small-capitalization companies entail
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. Information regarding
smaller companies may be less available, incomplete or inaccurate, and their
securities may trade less frequently than those of larger companies.
/ / SECURITIES LENDING--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.
/ / ACTIVE PORTFOLIO TRADING--A high portfolio turnover rate is likely to
generate more taxable short-term gains for shareholders and may have an
adverse effect on the Fund's performance.
See "Principal Strategies, Risks and Other Information" starting on page 51.
<PAGE>
2
WORLDWIDE GROWTH FUND
[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
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<TABLE>
<S> <C>
94 2.99
95 15.35
96 18.51
97 17.93
98 37.98
99 86.77
</TABLE>
<TABLE>
<S> <C> <C>
BEST QUARTER: Q4 '98 +28.34%
WORST QUARTER: Q3 '98 -13.27%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 3/31/00
SINCE INCEPTION
1 YEAR 5 YEARS (4/19/93)
<S> <C> <C> <C>
- ------------------------------------------------------------------
FUND 73.81 33.84 26.57
MSCI WORLD INDEX 21.86 18.88 16.28
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 6/30/00 WAS %.
INDEX: MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) WORLD INDEX IS
AN UNMANAGED TOTAL RETURN PERFORMANCE BENCHMARK. IT CONSISTS OF
MORE THAN 1,400 SECURITIES LISTED ON EXCHANGES IN THE U.S.,
EUROPE, CANADA, AUSTRALIA, NEW ZEALAND, AND THE FAR EAST. THE
INDEX IS UNMANAGED.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER
IF THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S
EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
[GRAPHIC]INVESTOR FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
<S> <C>
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) 0.52%
- ---------------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.42%
- ---------------------------------------------------------------------------------
Waiver of fund expenses (0.05%)
- ---------------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.37%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2001, the Investment
Adviser has contractually agreed to waive or defer its management fees and to pay
other operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a three year period. The Investment Adviser may not amend
the fee waiver agreement without the consent of the Fund. See "Expense Waivers"
on page 44.
</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 FOR THE 1 YEAR PERIOD AND BEFORE WAIVERS
FOR THE OTHER PERIODS SHOWN. ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER,
BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year 1 Year 3 Year 5 Year 10
$137 $464 $813 $1,614
</TABLE>
<PAGE>
3
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 analyzing specific companies for possible investment, the Fund's Investment
Adviser ordinarily looks for several of the following characteristics: above-
average per share earnings growth; high return on invested capital; a healthy
balance sheet; sound financial and accounting policies and overall financial
strength; strong competitive advantages; effective research and product
development and marketing; development of new technologies; efficient service;
pricing flexibility; strong management; and general operating characteristics
that will enable the companies to compete successfully in their respective
markets. The Investment Adviser considers whether to sell a particular security
when any of those factors materially changes.
The Investment Adviser allocates the Fund's assets among securities of countries
that are expected to provide the best opportunities for meeting the Fund's
investment objective.
The Fund may also lend portfolio securities on a short-term or long-term basis,
up to 30% of its total assets. The Investment Adviser expects a high portfolio
turnover rate of 300% or more.
[GRAPHIC]PRINCIPAL 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.
When in the opinion of the Investment Adviser, greater investment opportunities
exist, the Fund may also invest in companies located in countries with emerging
securities markets.
[GRAPHIC]PRIMARY RISKS
Because you could lose money by investing in the Fund, be sure to read all risk
disclosures carefully before investing. The Fund is primarily subject to the
following risks:
/ / STOCK MARKET VOLATILITY--The prices of equity securities change in response
to many factors, including the historical and prospective earnings of the
issuer, the value of its assets, general economic conditions, interest
rates, investor perceptions, and market liquidity. Stock prices are
unpredictable, may fall suddenly and may continue to fall for extended
periods.
/ / FOREIGN SECURITIES RISKS--The prices of foreign securities may be further
affected by other factors, including:
CURRENCY EXCHANGE RATES--The dollar value of the Fund's foreign investments
will be affected by changes in the exchange rates between the dollar and
the currencies in which those investments are traded.
POLITICAL AND ECONOMIC CONDITIONS--The value of the Fund's foreign
investments may be adversely affected by political and social instability
in their home countries and by changes in economic or taxation policies in
those countries.
REGULATIONS--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available
information about foreign companies than about U.S. companies.
MARKETS--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and their prices may be more volatile than U.S. securities.
EMERGING SECURITIES MARKETS--To the extent that the Fund invests in
countries with emerging markets, the foreign securities risks are magnified
since these countries may have unstable governments and less established
markets.
/ / SECURITIES LENDING--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.
/ / ACTIVE PORTFOLIO TRADING--A high portfolio turnover rate is likely to
generate more taxable short-term gains for shareholders and may have an
adverse effect on the Fund's performance.
See "Principal Strategies, Risks and Other Information" starting on page 51.
<PAGE>
4
GLOBAL BLUE CHIP FUND
[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
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<TABLE>
<S> <C>
98 46.18
99 129.35
</TABLE>
<TABLE>
<S> <C> <C>
BEST QUARTER: Q4 '98 +63.06%
WORST QUARTER: Q3 '98 -11.97%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 3/31/00
SINCE INCEPTION
1 YEAR (9/30/97)
<S> <C> <C>
- --------------------------------------------------------------
FUND 110.64 64.68
MSCI WORLD INDEX 21.86 18.56
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 6/30/00 WAS %.
INDEX: THE MSCI WORLD INDEX CONSISTS OF MORE THAN 1,400
SECURITIES LISTED ON EXCHANGES IN THE U.S., EUROPE, CANADA,
AUSTRALIA, NEW ZEALAND, AND THE FAR EAST. THE INDEX IS
UNMANAGED.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN
LOWER IF THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF
THE FUND'S EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL
INFORMATION.
</TABLE>
[GRAPHIC]INVESTOR FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
<S> <C>
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) 2.34%
- ---------------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.82%
- ---------------------------------------------------------------------------------
Waiver of fund expenses (0.49%)
- ---------------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.33%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2001, the Investment
Adviser has contractually agreed to waive or defer its management fees and to pay
other operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a three year period. The Investment Adviser may not amend
the fee waiver agreement without the consent of the Fund. See "Expense Waivers"
on page 44.
</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 FOR THE 1 YEAR PERIOD, AND BEFORE WAIVERS
FOR THE OTHER PERIODS SHOWN. ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER,
BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year 1 Year 3 Year 5 Year 10
$135 $798 $1,487 $3,322
</TABLE>
<PAGE>
5
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.
In analyzing specific companies for possible investment, the Fund's Investment
Adviser ordinarily looks for several of the following characteristics: above-
average per share earnings growth; high return on invested capital; a healthy
balance sheet; sound financial and accounting policies and overall financial
strength; strong competitive advantages; effective research and product
development and marketing; development of new technologies; efficient service;
pricing flexibility; strong management; and general operating characteristics
that will enable the companies to compete successfully in their respective
markets. The Investment Adviser considers whether to sell a particular security
when any of those factors materially changes.
The Investment Adviser 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.
The Investment Adviser allocates the Fund's assets among securities of countries
that are expected to provide the best opportunities for meeting the Fund's
investment objective.
The Fund may also lend portfolio securities on a short-term or long-term basis,
up to 30% of its total assets. The Investment Adviser expects a high portfolio
turnover rate of 300% or more.
[GRAPHIC]PRINCIPAL INVESTMENTS
The Fund normally invests at least 60% of its assets in equity securities. The
Fund will invest the remainder in debt securities of any maturity issued by
foreign companies, foreign governments and their agencies and instrumentalities.
When in the opinion of the Investment Adviser, greater investment opportunities
exist, the Fund may also invest in companies located in countries with emerging
securities markets.
[GRAPHIC]PRIMARY RISKS
Because you could lose money by investing in the Fund, be sure to read all risk
disclosures carefully before investing. The Fund is primarily subject to the
following risks:
/ / STOCK MARKET VOLATILITY--The prices of equity securities change in response
to many factors, including the historical and prospective earnings of the
issuer, the value of its assets, general economic conditions, interest
rates, investor perceptions, and market liquidity. Stock prices are
unpredictable, may fall suddenly and may continue to fall for extended
periods.
/ / FOREIGN SECURITIES RISKS--The prices of foreign securities may be further
affected by other factors, including:
CURRENCY EXCHANGE RATES--The dollar value of the Fund's foreign investments
will be affected by changes in the exchange rates between the dollar and
the currencies in which those investments are traded.
POLITICAL AND ECONOMIC CONDITIONS--The value of the Fund's foreign
investments may be adversely affected by political and social instability
in their home countries and by changes in economic or taxation policies in
those countries.
REGULATIONS--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available
information about foreign companies than about U.S. companies.
MARKETS--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and their prices may be more volatile than U.S. securities.
EMERGING SECURITIES MARKETS--To the extent that the Fund invests in
countries with emerging markets, the foreign securities risks are magnified
since these countries may have unstable governments and less established
markets.
/ / FIXED INCOME SECURITIES--The value of bonds changes as interest rates
fluctuate: if rates rise, the prices of bonds fall; if rates fall, their
prices rise.
<PAGE>
6
GLOBAL GROWTH & INCOME FUND
/ / ISSUER-SPECIFIC RISKS--The value of an individual security or particular
type of security can be more volatile than the market as a whole and can
perform differently than the value of the market as a whole.
/ / SECURITIES LENDING--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.
/ / ACTIVE PORTFOLIO TRADING--A high portfolio turnover rate is likely to
generate more taxable short-term gains for shareholders and may have an
adverse effect on the Fund's performance.
See "Principal Strategies, Risks and Other Information" starting on page 51.
[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
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<TABLE>
<S> <C>
98 14.13
99 71.65
</TABLE>
<TABLE>
<S> <C> <C>
BEST QUARTER: Q4 '99 +42.82%
WORST QUARTER: Q3 '98 -12.35%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 3/31/00
SINCE INCEPTION
1 YEAR (6/30/97)
<S> <C> <C>
- --------------------------------------------------------------
FUND 55.69 37.47
MSCI WORLD INDEX 21.86 17.95
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 6/30/00 WAS %.
INDEX: THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) WORLD
INDEX IS AN UNMANAGED TOTAL-RETURN PERFORMANCE BENCHMARK. IT
CONSISTS OF MORE THAN 1,400 SECURITIES LISTED ON EXCHANGES IN
THE U.S., EUROPE, CANADA, AUSTRALIA, NEW ZEALAND, AND THE FAR
EAST. THE INDEX IS UNMANAGED.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN
LOWER IF THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF
THE FUND'S EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL
INFORMATION.
</TABLE>
[GRAPHIC]INVESTOR FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
<S> <C>
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) 3.52%
- ---------------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 3.06%
- ---------------------------------------------------------------------------------
Waiver of fund expenses (1.68%)
- ---------------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.38%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2001, the Investment
Adviser has contractually agreed to waive or defer its management fees and to pay
other operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a three year period. The Investment Adviser may not amend
the fee waiver agreement without the consent of the Fund. See "Expense Waivers"
on page 44.
</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 FOR THE 1 YEAR PERIOD, AND BEFORE WAIVERS
FOR THE OTHER PERIODS SHOWN. ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER,
BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year 1 Year 3 Year 5 Year 10
$144 $1,055 $1,977 $4,335
</TABLE>
<PAGE>
7
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. From time
to time the Fund may invest in shares of companies through initial public
offerings ("IPOs").
In analyzing specific companies for possible investment, the Fund's Investment
Adviser ordinarily looks for several of the following characteristics: above-
average per share earnings growth; high return on invested capital; a healthy
balance sheet; sound financial and accounting policies and overall financial
strength; strong competitive advantages; effective research and product
development and marketing; development of new technologies; efficient service;
pricing flexibility; strong management; and general operating characteristics
that will enable the companies to compete successfully in their respective
markets. The Investment Adviser considers whether to sell a particular security
when any of those factors materially changes.
The Investment Adviser allocates the Fund's assets among securities of countries
that are expected to provide the best opportunities for meeting the Fund's
investment objective.
The Fund may also lend portfolio securities on a short-term or long-term basis,
up to 30% of its total assets. The Investment Adviser expects a high portfolio
turnover rate of 300% or more.
[GRAPHIC]PRINCIPAL INVESTMENTS
The Fund normally invests at least 75% of its assets in technology related
equity securities. 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 companies located in countries
with emerging securities markets.
[GRAPHIC]PRIMARY RISKS
Because you could lose money by investing in the Fund, be sure to read all risk
disclosures carefully before investing. The Fund is primarily subject to the
following risks:
/ / STOCK MARKET VOLATILITY--The prices of equity securities change in response
to many factors, including the historical and prospective earnings of the
issuer, the value of its assets, general economic conditions, interest
rates, investor perceptions, and market liquidity. Stock prices are
unpredictable, may fall suddenly and may continue to fall for extended
periods.
/ / SECTOR RISK--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 the technology sector.
/ / SMALLER ISSUERS--Investments 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. Information regarding
smaller companies may be less available, incomplete or inaccurate, and their
securities may trades less frequently than those of larger companies.
/ / FOREIGN SECURITIES RISKS--The prices of foreign securities may be further
affected by other factors, including:
CURRENCY EXCHANGE RATES--The dollar value of the Fund's foreign investments
will be affected by changes in the exchange rates between the dollar and
the currencies in which those investments are traded.
POLITICAL AND ECONOMIC CONDITIONS--The value of the Fund's foreign
investments may be adversely affected by political and social instability
in their home countries and by changes in economic or taxation policies in
those countries.
REGULATIONS--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available
information about foreign companies than about U.S. companies.
MARKETS--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and their prices may be more volatile than U.S. securities.
EMERGING SECURITIES MARKETS--To the extent that the Fund invests in
countries with emerging markets, the foreign securities risks are magnified
since these countries may have unstable governments and less established
markets.
/ / IPOS--have the potential to produce, and have in fact produced, substantial
gains for the Fund. There is no assurance that the Fund will have continued
access to profitable IPOs or that IPOs will continue to have the same effect
on performance as Fund assets grow. Therefore investors should not rely on
these past gains as an indication of future performance.
<PAGE>
8
GLOBAL TECHNOLOGY FUND
/ / SECURITIES LENDING--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.
/ / ACTIVE PORTFOLIO TRADING--A high portfolio turnover rate is likely to
generate more taxable short-term gains for shareholders and may have an
adverse effect on the Fund's performance.
For further explanation, see "Principal Strategies, Risks and Other Information"
starting on page 51.
[GRAPHIC]PAST PERFORMANCE
The two tables below provide 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
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<TABLE>
<S> <C>
99 493.73
</TABLE>
<TABLE>
<S> <C> <C>
BEST QUARTER: Q4 '99 +97.59%
WORST QUARTER: Q1 '00 +19.14%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 3/31/00
SINCE INCEPTION
1 YEAR (7/31/98)
<S> <C> <C>
- --------------------------------------------------------------
FUND 259.92 362.11
MERRILL LYNCH GLOBAL TECHNOLOGY
100 INDEX 160.05 125.07
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 6/30/00 WAS %.
INDEX: THE UNMANAGED MERRILL LYNCH GLOBAL TECHNOLOGY INDEX
TRACKS THE PERFORMANCE OF THE 100TH LARGEST SECURITIES IN THE
GLOBAL TECHNOLOGY SECTOR.
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>
[GRAPHIC]INVESTOR FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
<S> <C>
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) 3.12%
- ---------------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.42%
- ---------------------------------------------------------------------------------
Waiver of fund expenses 0.00%
- ---------------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.42%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2001, the Investment
Adviser has contractually agreed to waive or defer its management fees and to pay
other operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a three year period. The Investment Adviser may not amend
the fee waiver agreement without the consent of the Fund. See "Expense Waivers"
on page 44.
</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 FOR THE 1 YEAR PERIOD, AND BEFORE WAIVERS
FOR THE OTHER PERIODS SHOWN. ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER,
BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year 1 Year 3 Year 5 Year 10
$145 $1,006 $1,883 $4,141
</TABLE>
<PAGE>
9
GLOBAL HEALTH CARE 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 the health care and
health care-related industries. The Fund considers the health care sector to
include any company tha designs, manufactures, or sells products or services
used for or in connection with health care or medicine (such as pharmaceutical
companies, biotechnology research firms, companies that sell medical products
and companies that own or operate health care facilities). Such companies derive
at least 50 percent of their revenues or profits from goods produced or sold,
investments made, or services performed in the health care sector. Because the
Fund is non-diversified, it may invest a significant portion of its assets in
the securities of a single issuer.
In analyzing specific companies for possible investment, the Fund's Investment
Adviser ordinarily looks for several of the following characteristics: above-
average per share earnings growth; high return on invested capital; a healthy
balance sheet; sound financial and accounting policies and overall financial
strength; strong competitive advantages; effective research and product
development and marketing; development of new technologies; efficient service;
pricing flexibility; strong management; and general operating characteristics
that will enable the companies to compete successfully in their respective
markets. The Investment Adviser considers whether to sell a particular security
when any of those factors materially changes.
The Investment Adviser allocates the Fund's assets among securities of countries
that are expected to provide the best opportunities for meeting the Fund's
investment objective.
The Fund may also lend portfolio securities on a short-term or long-term basis,
up to 30% of its total assets. The Investment Adviser expects a high portfolio
turnover rate of 300% or more.
[GRAPHIC]PRINCIPAL INVESTMENTS
The Fund will normally invest at least 75% of its assets in health care sector
equity securities. Normally, the Fund will invest at least 65% of its assets in
the equity securities of companies located in at least three different
countries, including the United States, and may invest a significant portion of
its assets in the securities of U.S. issuers. The Fund may invest up to 35% of
its total assets in equity securities of other companies the Investment Adviser
believes will benefit from developments in the health care industry. When in the
opinion of the Investment Adviser greater investment opportunities exist, the
Fund may also invest in companies located in countries with emerging securities
markets.
[GRAPHIC]PRIMARY RISKS
Because you could lose money by investing in the Fund, be sure to read all risk
disclosures carefully before investing. The Fund is primarily subject to the
following risks:
/ / NON-DIVERSIFICATION--Because the Fund will be able to invest its assets in a
small number of issuers, the Fund is more susceptible to any single
economic, political or regulatory event affecting those issuers than is a
diversified fund.
/ / STOCK MARKET VOLATILITY--The prices of equity securities change in response
to many factors, including the historical and prospective earnings of the
issuer, the value of its assets, general economic conditions, interest
rates, investor perceptions, and market liquidity. Stock prices are
unpredictable, may fall suddenly and may continue to fall for extended
periods.
/ / SECTOR RISK--The value of the Funds shares is particularly vulnerable to
factors affecting the health care industry, such as substantial government
regulation. Government regulation may impact the demand for products and
services offered by health care companies. Also, the products and services
offered by the health care companies may be subject to rapid obsolescence
caused by scientific advances and technological innovations. Because the
Fund focuses its investments in the health care industry, the value of your
shares may rise and fall more than the value of shares of a fund that
invests more broadly.
/ / ISSUER-SPECIFIC RISKS--The value of an individual security or particular
type of security can be more volatile than the market as a whole and can
perform differently than the value of the market as a whole. The value of
securities of smaller issuers can be more volatile than that of larger
issuers.
/ / ACTIVE PORTFOLIO TRADING--A high portfolio turnover rate is likely to
generate more taxable short-term gains for shareholders and may have an
adverse effect on the Fund's performance.
/ / SECURITIES LENDING--There is the risk that when lending portfolio
securities, the securities may not
<PAGE>
10
GLOBAL HEALTH CARE FUND
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.
/ / FOREIGN SECURITIES RISKS--The prices of foreign securities may be further
affected by other factors, including:
CURRENCY EXCHANGE RATES--The dollar value of the Fund's foreign investments
will be affected by changes in the exchange rates between the dollar and the
currencies in which those investments are traded.
POLITICAL AND ECONOMIC CONDITIONS--The value of the Fund's foreign
investments may be adversely affected by political and social instability in
their home countries and by changes in economic or taxation policies in those
countries.
REGULATIONS--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available
information about foreign companies than about U.S. companies.
MARKETS--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and their prices may be more volatile than U.S. securities.
EMERGING SECURITIES MARKETS--To the extent that the Fund invests in countries
with emerging markets, the foreign securities risks are magnified since these
countries may have unstable governments and less established markets.
[GRAPHIC]PAST PERFORMANCE
The Global Health Care Fund is a new Fund for which there is no past
performance.
[GRAPHIC]INVESTOR FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
<S> <C>
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)
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 4.60%
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (BEFORE WAIVERS) 1.45%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.04%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.41%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2001, the
Investment Adviser has contractually agreed to waive or defer its management
fees and to pay other operating expenses otherwise payable by the Fund,
subject to possible later reimbursement during a three year period. The
Investment Adviser may not amend the fee waiver agreement without the
consent of the Fund. See "Expense Waivers" on page 44.
</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 for the 1 year period, and
before waivers for the 3 year period. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year
1 Year 3 Year 5 Year 10
$143 $1,638
</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 large capitalized companies ("large cap stocks")
located in over 50 countries worldwide. In opinion of the Fund's Investment
Adviser large cap stocks are those whose stock market capitalization's are
predominantly in the top 75% of publicly traded companies as measured by stock
market capitalizations in each country. Generally this means those with market
capitalizations greater than U.S. $5 billion.
The Investment Adviser focuses on a "bottom-up" analysis on the financial
conditions and competitiveness of individual companies worldwide. In analyzing
specific companies for possible investment, the Fund's Investment Adviser
ordinarily looks for several of the following characteristics: above-average per
share earnings growth; high return on invested capital; a healthy balance sheet;
sound financial and accounting policies and overall financial strength; strong
competitive advantages; effective research and product development and
marketing; development of new technologies; efficient service; pricing
flexibility; strong management; and general operating characteristics that will
enable the companies to compete successfully in their respective markets. The
Investment Adviser considers whether to sell a particular security when any of
those factors materially changes.
The Investment Adviser allocates the Fund's assets among securities of countries
that are expected to provide the best opportunities for meeting the Fund's
investment objective.
The Fund may also lend portfolio securities on a short-term or long-term basis,
up to 30% of its total assets. The Investment Adviser expects a high portfolio
turnover rate of 200% or more.
[GRAPHIC]PRINCIPAL INVESTMENTS
The Fund normally invests at least 75% of its assets in equity 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 companies located in countries with emerging
securities markets. The Fund may invest at least 35% of its assets in U.S.
companies.
The market capitalization ranges of the large cap stocks in which the Fund
invests may fluctuate greatly due to changing currency values, differences in
the size of the respective economies, and movements in the local stock markets.
[GRAPHIC]PRIMARY RISKS
Because you could lose money by investing in the Fund, be sure to read all risk
disclosures carefully before investing. The Fund is primarily subject to the
following risks:
/ / STOCK MARKET VOLATILITY--The prices of equity securities change in response
to many factors, including the historical and prospective earnings of the
issuer, the value of its assets, general economic conditions, interest
rates, investor perceptions, and market liquidity. Stock prices are
unpredictable, may fall suddenly and may continue to fall for extended
periods.
/ / FOREIGN SECURITIES RISKS--The prices of foreign securities may be further
affected by other factors, including:
CURRENCY EXCHANGE RATES--The dollar value of the Fund's foreign investments
will be affected by changes in the exchange rates between the dollar and
the currencies in which those investments are traded.
POLITICAL AND ECONOMIC CONDITIONS--The value of the Fund's foreign
investments may be adversely affected by political and social instability
in their home countries and by changes in economic or taxation policies in
those countries.
REGULATIONS--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available
information about foreign companies than about U.S. companies.
MARKETS--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and their prices may be more volatile than U.S. securities.
EMERGING SECURITIES MARKETS--To the extent that the Fund invests in
countries with emerging markets, the foreign securities risks are magnified
since these countries may have unstable governments and less established
markets.
/ / ACTIVE PORTFOLIO TRADING--A high portfolio turnover rate is likely to
generate more stable short-term gains for shareholders and may have an
adverse effect on the Fund's performance.
/ / SECURITIES LENDING--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.
See "Principal Strategies, Risks and Other Information" starting on page 51.
<PAGE>
12
INTERNATIONAL CORE GROWTH FUND
[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
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<TABLE>
<S> <C>
97 30.63
98 21.54
99 69.07
</TABLE>
<TABLE>
<S> <C> <C>
BEST QUARTER: Q4 '99 +43.70%
WORST QUARTER: Q3 '98 -14.76%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 3/31/00
SINCE INCEPTION
1 YEAR (12/27/96)
<S> <C> <C>
- --------------------------------------------------------------
FUND 61.69 35.08
MSCI EAFE 13.90 12.09
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 6/30/00 WAS %.
INDEX: MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALIA,
FAR EAST INDEX (MSCI EAFE) IS AN UNMANAGED TOTAL-RETURN
PERFORMANCE BENCHMARK. IT IS A CAPITALIZATION-WEIGHTED INDEX
REPRESENTATIVE OF THE STOCK MARKET STRUCTURE OF EUROPE AND THE
PACIFIC BASIN. THE INDEX IS UNMANAGED.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN
LOWER IF THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF
THE FUND'S EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL
INFORMATION.
</TABLE>
[GRAPHIC]INVESTOR FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
<S> <C>
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) 0.64%
- ---------------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.38%
- ---------------------------------------------------------------------------------
Waiver of fund expenses 0.02%
- ---------------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.40%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2001, the Investment
Adviser has contractually agreed to waive or defer its management fees and to pay
other operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a three year period. The Investment Adviser may not amend
the fee waiver agreement without the consent of the Fund. See "Expense Waivers"
on page 44.
</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 FOR THE 1 YEAR PERIOD, AND BEFORE WAIVERS
FOR THE OTHER PERIODS SHOWN. ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER,
BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year 1 Year 3 Year 5 Year 10
$143 $494 $827 $1,726
</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 ("small cap stocks")
located in over 50 countries worldwide. In the opinion of the Fund's Investment
Adviser small cap stocks are those whose stock market capitalization's are
predominantly in the bottom 25% of publicly traded companies as measure by stock
market capitalizations in each country. Generally, this means those companies
with stock market capitalizations of U.S. $5 billion and less.
In analyzing specific companies for possible investment, the Fund's Investment
Adviser ordinarily looks for several of the following characteristics: above-
average per share earnings growth; high return on invested capital; a healthy
balance sheet; sound financial and accounting policies and overall financial
strength; strong competitive advantages; effective research and product
development and marketing; development of new technologies; efficient service;
pricing flexibility; strong management; and general operating characteristics
that will enable the companies to compete successfully in their respective
markets. The Investment Adviser considers whether to sell a particular security
when any of those factors materially changes.
The Investment Adviser allocates the Fund's assets among securities of countries
that are expected to provide the best opportunities for meeting the Fund's
investment objective.
The Fund may also lend portfolio securities on a short-term or long-term basis,
up to 30% of its total assets. The Investment Adviser expects a high portfolio
turnover rate of 200% or more.
[GRAPHIC]PRINCIPAL INVESTMENTS
The Fund normally invests 75% of its assets in equity securities. 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.
The market capitalization ranges of small cap stocks in which the Fund invests
may fluctuate greatly due to changing currency values, differences in the size
of the respective economies, and movements in the local stock markets.
[GRAPHIC]PRIMARY RISKS
Because you could lose money by investing in the Fund, be sure to read all risk
disclosures carefully before investing. The Fund is primarily subject to the
following risks:
/ / STOCK MARKET VOLATILITY--The prices of equity securities change in response
to many factors, including the historical and prospective earnings of the
issuer, the value of its assets, general economic conditions, interest
rates, investor perceptions, and market liquidity. Stock prices are
unpredictable, may fall suddenly and may continue to fall for extended
periods.
/ / SMALLER ISSUERS--Investments 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. Information regarding
smaller companies may be less available, incomplete or inaccurate, and their
securities may trades less frequently than those of larger companies.
/ / FOREIGN SECURITIES RISKS--The prices of foreign securities may be further
affected by other factors, including:
CURRENCY EXCHANGE RATES--The dollar value of the Fund's foreign investments
will be affected by changes in the exchange rates between the dollar and
the currencies in which those investments are traded.
POLITICAL AND ECONOMIC CONDITIONS--The value of the Fund's foreign
investments may be adversely affected by political and social instability
in their home countries and by changes in economic or taxation policies in
those countries.
REGULATIONS--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available
information about foreign companies than about U.S. companies.
MARKETS--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and their prices may be more volatile than U.S. securities.
EMERGING SECURITIES MARKETS--To the extent that the Fund invests in
countries with emerging markets, the foreign securities risks are magnified
since these countries may have unstable governments and less established
markets.
/ / ACTIVE PORTFOLIO TRADING--A high portfolio turnover rate is likely to
generate more stable short-term gains for shareholders and may have an
adverse effect on the Fund's performance.
/ / SECURITIES LENDING--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.
See "Principal Strategies, Risks and Other Information" starting on page 51.
<PAGE>
14
INTERNATIONAL SMALL CAP GROWTH FUND
[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
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<TABLE>
<S> <C>
94 8.61
95 6.00
96 18.27
97 14.09
98 36.34
99 128.11
</TABLE>
<TABLE>
<S> <C> <C>
BEST QUARTER: Q4 '99 +56.30%
WORST QUARTER: Q3 '98 -15.22%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 3/31/00
SINCE INCEPTION
1 YEAR 5 YEARS (1/3/94)
<S> <C> <C> <C>
- ----------------------------------------------------------------
FUND 143.81 34.99 31.76
SALOMON EPAC/
EMI 23.58 7.58 4.41
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 6/30/00 WAS %.
INDEX: SOLOMON EPAC EMI IS AN UNMANAGED TOTAL-RETURN PERFORMANCE
BENCHMARK. THE INDEX THAT INCLUDES SHARES OF ABOUT 2,821
COMPANIES IN 22 COUNTRIES EXCLUDING CANADA AND THE U.S.
COMPANIES WITHIN THE INDEX ARE SMALLER CAPITALIZATION COMPANIES
DEFINED AS THE BOTTOM 20% OF THE UNIVERSE.
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>
[GRAPHIC]INVESTOR FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
<S> <C>
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) 0.55%
- ---------------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.45%
- ---------------------------------------------------------------------------------
Waiver of fund expenses (0.04%)
- ---------------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.41%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2001, the Investment
Adviser has contractually agreed to waive or defer its management fees and to pay
other operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a three year period. The Investment Adviser may not amend
the fee waiver agreement without the consent of the Fund. See "Expense Waivers"
on page 44.
</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 FOR THE 1 YEAR PERIOD, AND BEFORE WAIVERS
FOR THE OTHER PERIODS SHOWN. ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER,
BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year 1 Year 3 Year 5 Year 10
$143 $475 $830 $1,833
</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.
In analyzing specific companies for possible investment, the Fund's Investment
Adviser ordinarily looks for several of the following characteristics: above-
average per share earnings growth; high return on invested capital; a healthy
balance sheet; sound financial and accounting policies and overall financial
strength; strong competitive advantages; effective research and product
development and marketing; development of new technologies; efficient service;
pricing flexibility; strong management; and general operating characteristics
that will enable the companies to compete successfully in their respective
markets. The Investment Adviser considers whether to sell a particular security
when any of those factors materially changes.
The Investment Adviser allocates the Fund's assets among securities of countries
that are expected to provide the best opportunities for meeting the Fund's
investment objective. The Fund may also lend portfolio securities on a
short-term basis, up to 30% of its total assets. The Investment Adviser expects
a high portfolio turnover rate of 200% or more.
[GRAPHIC]PRINCIPAL INVESTMENTS
The Fund normally invests at least 75% of its assets in equity securities. 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.
[GRAPHIC]PRIMARY RISKS
Because you could lose money by investing in the Fund, be sure to read all risk
disclosures carefully before investing. The Fund is primarily subject to the
following risks:
/ / STOCK MARKET VOLATILITY--The prices of equity securities change in response
to many factors, including the historical and prospective earnings of the
issuer, the value of its assets, general economic conditions, interest
rates, investor perceptions, and market liquidity. Stock prices are
unpredictable, may fall suddenly and may continue to fall for extended
periods.
/ / SMALLER ISSUERS--Investments 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. Information regarding
smaller companies may be less available, incomplete or inaccurate, and their
securities may trades less frequently than those of larger companies.
/ / FOREIGN SECURITIES RISKS--The prices of foreign securities may be further
affected by other factors, including:
CURRENCY EXCHANGE RATES--The dollar value of the Fund's foreign investments
will be affected by changes in the exchange rates between the dollar and
the currencies in which those investments are traded.
POLITICAL AND ECONOMIC CONDITIONS--The value of the Fund's foreign
investments may be adversely affected by political and social instability
in their home countries and by changes in economic or taxation policies in
those countries.
REGULATIONS--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available
information about foreign companies than about U.S. companies.
MARKETS--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and their prices may be more volatile than U.S. securities.
EMERGING SECURITIES MARKETS--Foreign securities risks are magnified in
countries with emerging securities markets since these countries may have
unstable governments and less established markets. These 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.
/ / SECURITIES LENDING--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.
<PAGE>
16
EMERGING COUNTRIES FUND
/ / ACTIVE PORTFOLIO TRADING--A high portfolio turnover rate is likely to
generate more taxable short-term gains for shareholders and may have an
adverse effect on the Fund's performance.
See "Principal Strategies, Risks and Other Information" starting on page 51.
[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
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<TABLE>
<S> <C>
95 6.96
96 28.08
97 10.12
98 -21.22
99 78.96
</TABLE>
<TABLE>
<S> <C> <C>
BEST QUARTER: Q4 '99 +38.17%
WORST QUARTER: Q3 '98 -25.93%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 3/31/00
SINCE INCEPTION
1 YEAR 5 YEAR (11/28/94)
<S> <C> <C> <C>
- ---------------------------------------------------------------
FUND 76.13 19.57 15.27
MSCI EMF FREE 51.07 28.63 1.03
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 6/30/00 WAS %.
INDEX: THE MORGAN STANLEY CAPITAL INTERNATIONAL EMERGING
MARKETS FREE INDEX (MSCI EMF) IS COMPOSED OF COMPANIES
REPRESENTATIVE OF THE MARKET STRUCTURE OF 22 EMERGING MARKET
COUNTRIES IN EUROPE, LATIN AMERICA, AND THE PACIFIC BASIN. THE
INDEX EXCLUDES CLOSED MARKETS AND THOSE SHARES IN OTHERWISE
FREE MARKETS WHICH ARE NOT PURCHASABLE BY FOREIGNERS. THE INDEX
IS UNMANAGED.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN
LOWER IF THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF
THE FUND'S EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL
INFORMATION.
</TABLE>
[GRAPHIC]INVESTOR FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
<S> <C>
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) 1.77%
- ---------------------------------------------------------------------------------
Waiver of fund expenses (0.10%)
- ---------------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.67%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2001, the Investment
Adviser has contractually agreed to waive or defer its management fees and to pay
other operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a three year period. The Investment Adviser may not amend
the fee waiver agreement without the consent of the Fund. See "Expense Waivers"
on page 44.
</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 FOR THE 1 YEAR PERIOD AND BEFORE WAIVERS
FOR THE OTHER PERIODS SHOWN. ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER,
BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year 1 Year 3 Year 5 Year 10
$170 $589 $1,035 $2,272
</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. The
Investment Adviser considers the following Pacific Rim countries: Australia,
China, Japan, India, Indonesia, South Korea, Malaysia, New Zealand, the
Phillippines, Singapore and Taiwan.
In analyzing specific companies for possible investment, the Fund's Investment
Adviser ordinarily looks for several of the following characteristics: above-
average per share earnings growth; high return on invested capital; a healthy
balance sheet; sound financial and accounting policies and overall financial
strength; strong competitive advantages; effective research and product
development and marketing; development of new technologies; efficient service;
pricing flexibility; strong management; and general operating characteristics
that will enable the companies to compete successfully in their respective
markets. The Investment Adviser considers whether to sell a particular security
when any of those factors materially changes.
The Investment Adviser allocates the Fund's assets among securities of countries
that are expected to provide the best opportunities for meeting the Fund's
investment objective.
The Fund may also lend portfolio securities on a short-term or long-term basis,
up to 30% of its total assets. The Investment Adviser expects a high portfolio
turnover rate of 400% or more.
[GRAPHIC]PRINCIPAL 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. 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.
[GRAPHIC]PRIMARY RISKS
Because you could lose money by investing in the Fund, be sure to read all risk
disclosures carefully before investing. The Fund is primarily subject to the
following risks:
/ / STOCK MARKET VOLATILITY--The prices of equity securities change in response
to many factors, including the historical and prospective earnings of the
issuer, the value of its assets, general economic conditions, interest
rates, investor perceptions, and market liquidity. Stock prices are
unpredictable, may fall suddenly and may continue to fall for extended
periods.
/ / SMALLER ISSUERS--Investments in small-capitalization companies entail
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. Information regarding
smaller companies may be less available, incomplete or inaccurate, and their
securities may trade less frequently than those of larger companies.
/ / FOREIGN SECURITIES RISKS--The prices of foreign securities may be further
affected by other factors, including:
CURRENCY EXCHANGE RATES--The dollar value of the Fund's foreign investments
will be affected by changes in the exchange rates between the dollar and
the currencies in which those investments are traded.
POLITICAL AND ECONOMIC CONDITIONS--The value of the Fund's foreign
investments may be adversely affected by political and social instability
in their home countries and by changes in economic or taxation policies in
those countries.
REGULATIONS--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available
information about foreign companies than about U.S. companies.
MARKETS--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and their prices may be more volatile than U.S. securities.
EMERGING SECURITIES MARKETS--To the extent that the Fund invests in
countries with emerging markets, the foreign securities risks are magnified
since these countries may have unstable governments and less established
markets. These 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.
REGION SPECIFIC RISKS--The Fund's performance is expected to be closely
tied to economic and political conditions in Asia and the Pacific Rim. A
number of countries through out the region are currently experiencing
economic difficulties and significant declines in values in their financial
markets. The unsettled conditions of several Asian and Pacific Rim
financial markets has also affected emerging markets in other countries and
regions. These conditions could continue to deteriorate further in the
future.
<PAGE>
18
PACIFIC RIM FUND
/ / SECURITIES LENDING--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.
/ / ACTIVE PORTFOLIO TRADING--A high portfolio turnover rate is likely to
generate more taxable short-term gains for shareholders and may have an
adverse effect on the Fund's performance.
See "Principal Strategies, Risks and Other Information" starting on page 51.
[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
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<TABLE>
<S> <C>
98 -6.56
99 142.44
</TABLE>
<TABLE>
<S> <C> <C>
BEST QUARTER: Q2 '99 +44.16%
WORST QUARTER: Q2 '98 -23.54%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 3/31/00
SINCE INCEPTION
1 YEAR (12/31/97)
<S> <C> <C>
- --------------------------------------------------------------
FUND 136.92 45.79
MSCI PACIFIC 41.47 23.08
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 6/30/00 WAS %.
INDEX: THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) PACIFIC
INDEX (MSCI PACIFIC) IS COMPOSED OF COMPANIES REPRESENTATIVE
OF THE MARKET STRUCTURE OF 6 DEVELOPED MARKET COUNTRIES IN THE
PACIFIC BASIN, INCLUDING, AUSTRALIA, HONG KONG, JAPAN,
MALAYSIA, NEW ZEALAND, AND SINGAPORE. THE INDEX IS CALCULATED
WITHOUT DIVIDENDS OR WITH GROSS DIVIDENDS REINVESTED IN BOTH
U.S DOLLARS AND LOCAL CURRENCY. THE INDEX IS UNMANAGED.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN
LOWER IF THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF
THE FUND'S EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL
INFORMATION.
</TABLE>
[GRAPHIC]INVESTOR FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
<S> <C>
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) 13.68%
- ----------------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 6.25%
- ----------------------------------------------------------------------------------
Waiver of fund expenses (4.63%)
- ----------------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.62%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2001, the Investment
Adviser has contractually agreed to waive or defer its management fees and to pay
other operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a three year period. The Investment Adviser may not amend the
fee waiver agreement without the consent of the Fund. See "Expense Waivers" on
page 44.
</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 FOR THE 1 YEAR PERIOD, AND BEFORE WAIVERS
FOR THE OTHER PERIODS SHOWN. ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER,
BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year 1 Year 3 Year 5 Year 10
$159 $2,909 $5,153 $9,116
</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 the Latin American countries
of South America, Central America and Mexico. Because the Fund is
non-diversified, it may invest a significant portion of its assets in the
securities of a single issuer.
In analyzing specific companies throughout Latin America for possible
investment, the Fund's Investment Adviser ordinarily looks for several of the
following characteristics: above-average per share earnings growth; high return
on invested capital; a healthy balance sheet; sound financial and accounting
policies and overall financial strength; strong competitive advantages;
effective research and product development and marketing; development of new
technologies; efficient service; pricing flexibility; strong management; and
general operating characteristics that will enable the companies to compete
successfully in their respective markets. The Investment Adviser considers
whether to sell a particular security when any of those factors materially
changes.
The Investment Adviser allocates the Fund's assets among securities of countries
that are expected to provide the best opportunities for meeting the Fund's
investment objective. The Fund may also lend portfolio securities on a
short-term or long-term basis, up to 30% of its total assets. The Investment
Adviser expects a high portfolio turnover rate of 400% or more.
[GRAPHIC]PRINCIPAL 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.
[GRAPHIC]PRIMARY RISKS
Because you could lose money by investing in the Fund, be sure to read all risk
disclosures carefully before investing. The Fund is primarily subject to the
following risks:
/ / STOCK MARKET VOLATILITY--The prices of equity securities change in response
to many factors, including the historical and prospective earnings of the
issuer, the value of its assets, general economic conditions, interest
rates, investor perceptions, and market liquidity. Stock prices are
unpredictable, may fall suddenly and may continue to fall for extended
periods.
/ / NON-DIVERSIFICATION--Because the Fund will be able to invest its assets in a
small number of issuers, the Fund is more susceptible to any single
economic, political or regulatory event affecting those issuers than is a
diversified fund.
/ / SMALLER ISSUERS--Investments in small-capitalization companies entail
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. Information regarding
smaller companies may be less available, incomplete or inaccurate, and their
securities may trades less frequently than those of larger companies.
/ / FOREIGN SECURITIES RISKS--The prices of foreign securities may be further
affected by other factors, including:
CURRENCY EXCHANGE RATES--The dollar value of the Fund's foreign investments
will be affected by changes in the exchange rates between the dollar and
the currencies in which those investments are traded.
POLITICAL AND ECONOMIC CONDITIONS--The value of the Fund's foreign
investments may be adversely affected by political and social instability
in their home countries and by changes in economic or taxation policies in
those countries.
REGULATIONS--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available
information about foreign companies than about U.S. companies.
MARKETS--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and their prices may be more volatile than U.S. securities.
EMERGING SECURITIES MARKETS--The foreign securities risks are magnified in
countries with emerging securities markets since these countries may have
unstable governments and less established markets. These 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.
REGION SPECIFIC RISKS--The Fund's performance is expected to be closely
tied to economic and political conditions in Latin America. A number of
Latin American countries 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.
/ / SECURITIES LENDING--There is the risk that when lending portfolio
securities, the securities may not
<PAGE>
20
LATIN AMERICA FUND
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.
/ / ACTIVE PORTFOLIO TRADING--A high portfolio turnover rate is likely to
generate more taxable short-term gains for shareholders and may have an
adverse effect on the Fund's performance.
See "Principal Strategies, Risks and Other Information" starting on page 51.
[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
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<TABLE>
<S> <C>
98 -28.46
99 97.03
</TABLE>
<TABLE>
<S> <C> <C>
BEST QUARTER: Q4 '99 +62.16%
WORST QUARTER: Q3 '98 -27.70%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 3/31/00
SINCE INCEPTION
1 YEAR (11/28/97)
<S> <C> <C>
- -------------------------------------------------------------------
FUND 78.67 24.91
MSCI LATIN
AMERICA 44.40 5.28
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 6/30/00 WAS %.
INDEX: THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) LATIN
AMERICA INDEX IS COMPOSED OF COMPANIES REPRESENTATIVE OF THE MARKET
STRUCTURE OF 7 EMERGING MARKET COUNTRIES IN LATIN AMERICA,
INCLUDING ARGENTINA, CHILE, COLUMBIA, BRAZIL, MEXICO FREE, PERU AND
VENEZUELA. THE INDEX IS UNMANAGED.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER
IF THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S
EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
[GRAPHIC]INVESTOR FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
<S> <C>
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) 13.36%
- ----------------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 3.93%
- ----------------------------------------------------------------------------------
Waiver of fund expenses (2.17%)
- ----------------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.76%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2001, the Investment
Adviser has contractually agreed to waive or defer its management fees and to pay
other operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a three year period. The Investment Adviser may not amend the
fee waiver agreement without the consent of the Fund. See "Expense Waivers" on
page 44.
</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 FOR THE 1 YEAR PERIOD, AND BEFORE WAIVERS
FOR THE OTHER PERIODS SHOWN. ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER,
BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year 1 Year 3 Year 5 Year 10
$167 $2,904 $5,139 $9,100
</TABLE>
<PAGE>
21
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 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").
In analyzing specific companies for possible investment, the Fund's Investment
Adviser ordinarily looks for several of the following characteristics: above-
average per share earnings growth; high return on invested capital; a healthy
balance sheet; sound financial and accounting policies and overall financial
strength; strong competitive advantages; effective research and product
development and marketing; development of new technologies; efficient service;
pricing flexibility; strong management; and general operating characteristics
that will enable the companies to compete successfully in their respective
markets. The Investment Adviser considers whether to sell a particular security
when any of those factors materially changes.
The Investment Adviser expects a high portfolio turnover rate of 200% or more.
The Fund may also lend portfolio securities on a short-term or long-term basis,
up to 30% of its total assets.
[GRAPHIC]PRINCIPAL INVESTMENTS
Normally, the Fund invests at least 65% of its total assets in large cap equity
securities. Generally, large cap companies are those with market capitalizations
corresponding to the upper 90% of the Russell 1000 Growth Index at time of
purchase. The market capitalization of companies held by the Fund as of March
31, 2000 ranged from $2.7 billion to $507.3 billion. Capitalization of companies
held by the Fund may fluctuate greatly as the market moves upwards or downwards.
[GRAPHIC]PRIMARY RISKS
Because you could lose money by investing in the Fund, be sure to read all risk
disclosures carefully before investing. The Fund is primarily subject to the
following risks:
/ / STOCK MARKET VOLATILITY--The prices of equity securities change in response
to many factors, including the historical and prospective earnings of the
issuer, the value of its assets, general economic conditions, interest
rates, investor perceptions, and market liquidity. Stock prices are
unpredictable, may fall suddenly and may continue to fall for extended
periods.
/ / ISSUER-SPECIFIC RISKS--The value of an individual security or particular
type of security can be more volatile than the market as a whole and can
perform differently than the value of the market as a whole.
/ / ACTIVE PORTFOLIO TRADING--A high portfolio turnover rate is likely to
generate more stable short-term gains for shareholders and may have an
adverse effect on the Fund's performance.
/ / SECURITIES LENDING--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.
For further explanation, see "Principal Strategies, Risks and Other Information"
starting on page 51.
[GRAPHIC]PAST PERFORMANCE
The following 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.
<PAGE>
22
LARGE CAP GROWTH FUND
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<TABLE>
<S> <C>
97 46.07
98 60.80
99 96.11
</TABLE>
<TABLE>
<S> <C> <C>
BEST QUARTER: Q4 '99 +47.88%
WORST QUARTER: Q3 '98 -8.31%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 3/31/00
SINCE INCEPTION
1 YEAR (12/27/96)
<S> <C> <C>
- -----------------------------------------------------------------
FUND 85.42 65.55
RUSSELL 1000 GROWTH 33.98 33.12
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 6/30/00 WAS %.
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>
[GRAPHIC]INVESTOR FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
<S> <C>
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) 0.90%
- ---------------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.20%
- ---------------------------------------------------------------------------------
Waiver of fund expenses (0.19%)
- ---------------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.01%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2001, the Investment
Adviser has contractually agreed to waive or defer its management fees and to pay
other operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a three year period. The Investment Adviser may not amend
the fee waiver agreement without the consent of the Fund. See "Expense Waivers"
on page 44.
</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 FOR THE 1 YEAR PERIOD AND BEFORE WAIVERS
FOR THE OTHER PERIODS SHOWN. ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER,
BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year 1 Year 3 Year 5 Year 10
$102 $457 $836 $1,900
</TABLE>
<PAGE>
23
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 ("midcap companies").
In analyzing specific companies for possible investment, the Fund's Investment
Adviser ordinarily looks for several of the following characteristics: above-
average per share earnings growth; high return on invested capital; a healthy
balance sheet; sound financial and accounting policies and overall financial
strength; strong competitive advantages; effective research and product
development and marketing; development of new technologies; efficient service;
pricing flexibility; strong management; and general operating characteristics
that will enable the companies to compete successfully in their respective
markets. The Investment Adviser considers whether to sell a particular security
when any of those factors materially changes.
The Investment Adviser expects a high portfolio turnover rate of 200% or more.
The Fund may also lend portfolio securities on a short-term or long-term basis,
up to 30% of its total assets.
[GRAPHIC]PRINCIPAL INVESTMENTS
Normally, the Fund invests at least 75% of its total assets in common stocks of
U.S. midcap companies. In the Investment Adviser's opinion, the middle 90%
includes companies with capitalizations between $1.6 billion and $10.7 billion.
Capitalization of companies held by the Fund may fluctuate greatly as the market
moves upwards or downwards.
[GRAPHIC]PRIMARY RISKS
Because you could lose money by investing in the Fund, be sure to read all risk
disclosures carefully before investing. The Fund is primarily subject to the
following risks:
/ / STOCK MARKET VOLATILITY--The prices of equity securities change in response
to many factors, including the historical and prospective earnings of the
issuer, the value of its assets, general economic conditions, interest
rates, investor perceptions, and market liquidity. Stock prices are
unpredictable, may fall suddenly and may continue to fall for extended
periods.
/ / ISSUER-SPECIFIC RISKS--The value of an individual security or particular
type of security can be more volatile than the market as a whole and can
perform differently than the value of the market as a whole.
/ / SMALLER ISSUERS--Investments in small-capitalization companies entail
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. Information regarding
smaller companies may be less available, incomplete or inaccurate, and their
securities may trade less frequently than those of larger companies.
/ / ACTIVE PORTFOLIO TRADING--A high portfolio turnover rate is likely to
generate more stable short-term gains for shareholders and may have an
adverse effect on the Fund's performance.
/ / SECURITIES LENDING--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.
See "Principal Strategies, Risks and Other Information" starting on page 51.
[GRAPHIC]PAST PERFORMANCE
The following 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.
<PAGE>
24
MID CAP GROWTH FUND
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<TABLE>
<S> <C>
94 -10.52
95 38.57
96 16.46
97 16.16
98 14.65
99 99.11
</TABLE>
<TABLE>
<S> <C> <C>
BEST QUARTER: Q4 '99 +63.45%
WORST QUARTER: Q3 '98 -17.58%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 3/31/00
SINCE INCEPTION
1 YEAR 5 YEARS (4/19/93)
<S> <C> <C> <C>
- ----------------------------------------------------------------
FUND 116.48 37.69 29.68
RUSSELL MIDCAP
GROWTH 77.20 30.33 27.05
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 6/30/00 WAS %.
INDEX: THE RUSSELL MIDCAP 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 MIDCAP 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>
[GRAPHIC]INVESTOR FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
<S> <C>
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) 0.33%
- ---------------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.09%
- ---------------------------------------------------------------------------------
Waiver of fund expenses (0.08%)
- ---------------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.01%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2001, the Investment
Adviser has contractually agreed to waive or defer its management fees and to pay
other operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a three year period. The Investment Adviser may not amend
the fee waiver agreement without the consent of the Fund. See "Expense Waivers"
on page 44.
</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 FOR THE 1 YEAR PERIOD AND BEFORE WAIVERS
FOR THE OTHER PERIODS SHOWN. ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER,
BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year 1 Year 3 Year 5 Year 10
$102 $336 $588 $1,176
</TABLE>
<PAGE>
25
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
("small capitalization").
In analyzing specific companies for possible investment, the Fund's Investment
Adviser ordinarily looks for several of the following characteristics: above-
average per share earnings growth; high return on invested capital; a healthy
balance sheet; sound financial and accounting policies and overall financial
strength; strong competitive advantages; effective research and product
development and marketing; development of new technologies; efficient service;
pricing flexibility; strong management; and general operating characteristics
that will enable the companies to compete successfully in their respective
markets. The Investment Adviser considers whether to sell a particular security
when any of those factors materially changes.
The Fund may also lend portfolio securities on a short-term or long-term basis,
up to 30% of its total assets.
[GRAPHIC]PRINCIPAL INVESTMENTS
Normally, the Fund invests at least 75% of its total assets in common stocks of
small capitalization U.S. companies. As of March 31, 2000, the market
capitalization of companies held by the Fund ranged from $0.5 billion to $75.8
billion. Capitalization of companies held by the Fund may fluctuate greatly as
the market moves upwards or downwards.
[GRAPHIC]PRIMARY RISKS
Because you could lose money by investing in the Fund, be sure to read all risk
disclosures carefully before investing. The Fund is primarily subject to the
following risks:
/ / STOCK MARKET VOLATILITY--The prices of equity securities change in response
to many factors, including the historical and prospective earnings of the
issuer, the value of its assets, general economic conditions, interest
rates, investor perceptions, and market liquidity. Stock prices are
unpredictable, may fall suddenly and may continue to fall for extended
periods.
/ / ISSUER-SPECIFIC RISKS--The value of an individual security or particular
type of security can be more volatile than the market as a whole and can
perform differently than the value of the market as a whole. The value of
securities of smaller issuers can be more volatile than that of larger
issuers.
/ / SMALLER ISSUERS--Investments in small-capitalization companies entail
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. Information regarding
smaller companies may be less available, incomplete or inaccurate, and their
securities may trade less frequently than those of larger companies.
/ / SECURITIES LENDING--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.
See "Principal Strategies, Risks and Other Information" starting on page 51.
[GRAPHIC]PAST PERFORMANCE
The following 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
<PAGE>
26
SMALL CAP GROWTH FUND
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<TABLE>
<S> <C>
94 -3.51
95 35.90
96 18.88
97 12.10
98 4.37
99 93.66
</TABLE>
<TABLE>
<S> <C> <C>
BEST QUARTER: Q4 '99 +51.78%
WORST QUARTER: Q3 '98 -23.46%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 3/31/00
SINCE INCEPTION
1 YEAR 5 YEARS (10/1/93)
<S> <C> <C> <C>
- ------------------------------------------------------------------------
FUND 103.75 31.67 23.98
RUSSELL 2000 GROWTH 59.06 19.86 15.90
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 6/30/00 WAS %.
INDEX: THE RUSSELL 2000 GROWTH INDEX IS AN UNMANAGED INDEX CONTAINING
THOSE SECURITIES IN THE RUSSELL 2000 INDEX WITH A GREATER-THAN-AVERAGE
GROWTH ORIENTATION. COMPANIES IN THIS INDEX GENERALLY HAVE HIGHER
PRICE-TO-BOOK AND PRICE-EARNINGS RATIOS. THE RUSSELL 2000 INDEX IN AN
UNMANAGED INDEX AND IS A WIDELY REGARDED SMALL-CAP INDEX OF THE 2,000
SMALLEST SECURITIES IN THE RUSSELL 3000 INDEX WHICH COMPRISES THE 3,000
LARGEST U.S. SECURITIES AS DETERMINED BY TOTAL MARKET CAPITALIZATION.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF THE
INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S EXPENSES. SEE
"EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
[GRAPHIC]INVESTOR FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
<S> <C>
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) 0.27%
- ---------------------------------------------------------------------------------
Total annual fund operating expenses (before waivers)+ 1.38%
- ---------------------------------------------------------------------------------
Waiver of fund expenses (0.19%)
- ---------------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.19%
+ The numbers shown are estimates and reflect a restatement of expenses due to a
conversion from a "Master-Feeder" structure and reduced custody and
administration costs.
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2001, the Investment
Adviser has contractually agreed to waive or defer its management fees and to pay
other operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a three year period. The Investment Adviser may not amend
the fee waiver agreement without the consent of the Fund. See "Expense Waivers"
on page 44.
</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 FOR THE 1 YEAR PERIOD, AND BEFORE WAIVERS
FOR THE OTHER PERIODS SHOWN. ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER,
BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year 1 Year 3 Year 5 Year 10
$119 $460 $826 $1,662
</TABLE>
<PAGE>
27
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.
In analyzing specific companies for possible investment, the Fund's Investment
Adviser ordinarily looks for several of the following characteristics: above-
average per share earnings growth; high return on invested capital; a healthy
balance sheet; sound financial and accounting policies and overall financial
strength; strong competitive advantages; effective research and product
development and marketing; development of new technologies; efficient service;
pricing flexibility; strong management; and general operating characteristics
that will enable the companies to compete successfully in their respective
markets. The Investment Adviser considers whether to sell a particular security
when any of those factors materially changes. The Fund may also lend portfolio
securities on a short-term or long-term basis, up to 30% of its total assets.
The Investment Adviser expects a high portfolio turnover rate of 200% or more.
[GRAPHIC]PRINCIPAL INVESTMENTS
Normally, the Fund invests at least 75% of its total assets in common stocks of
companies with market capitalizations corresponding to the bottom 5% of the
Russell 2000 Growth Index at time of purchase. In the Investment Adviser's
opinion, the bottom 5% of the Index includes companies with market
capitalizations less than $300 million. Capitalization of companies held by the
Fund may fluctuate greatly as the market moves upwards or downwards.
The Fund may also lend portfolio securities on a short-term or long-term basis,
up to 30% of its total assets.
[GRAPHIC]PRIMARY RISKS
Because you could lose money by investing in the Fund, be sure to read all risk
disclosures carefully before investing. The Fund is primarily subject to the
following risks:
/ / STOCK MARKET VOLATILITY--The prices of equity securities change in response
to many factors, including the historical and prospective earnings of the
issuer, the value of its assets, general economic conditions, interest
rates, investor perceptions, and market liquidity. Stock prices are
unpredictable, may fall suddenly and may continue to fall for extended
periods.
/ / ISSUER-SPECIFIC RISKS--The value of an individual security or particular
type of security can be more volatile than the market as a whole and can
perform differently than the value of the market as a whole.
/ / SMALLER ISSUERS--Investments in small-capitalization companies entail
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. Information regarding
smaller companies may be less available, incomplete or inaccurate, and their
securities may trade less frequently than those of larger companies.
/ / ACTIVE PORTFOLIO TRADING--A high portfolio turnover rate is likely to
generate more stable short-term gains for shareholders and may have an
adverse effect on the Fund's performance.
/ / SECURITIES LENDING--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.
For further explanation, see "Principal Strategies, Risks and Other Information"
starting on page 51.
[GRAPHIC]PAST PERFORMANCE
The following 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.
<PAGE>
28
MINI CAP GROWTH FUND
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<TABLE>
<S> <C>
96 28.73
97 30.19
98 8.43
99 84.82
</TABLE>
<TABLE>
<S> <C> <C>
BEST QUARTER: Q4 '99 +65.50%
WORST QUARTER: Q3 '98 -25.67%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 3/31/00
SINCE INCEPTION
1 YEAR (7/12/95)
<S> <C> <C>
- -------------------------------------------------------------------
FUND 151.76 39.60
RUSSELL 2000 GROWTH 59.06 17.79
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 6/30/00 WAS %.
INDEX: THE RUSSELL 2000 GROWTH INDEX IS AN UNMANAGED INDEX
CONTAINING THOSE SECURITIES IN THE RUSSELL 2000 INDEX WITH A
GREATER-THAN-AVERAGE GROWTH ORIENTATION. COMPANIES IN THIS INDEX
GENERALLY HAVE HIGHER PRICE-TO-BOOK AND PRICE-EARNINGS RATIOS. THE
RUSSELL 2000 INDEX 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>
[GRAPHIC]INVESTOR FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
<S> <C>
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) 0.45%
- ---------------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.76%
- ---------------------------------------------------------------------------------
Waiver of fund expenses (0.19%)
- ---------------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.57%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2001, the Investment
Adviser has contractually agreed to waive or defer its management fees and to pay
other operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a three year period. The Investment Adviser may not amend
the fee waiver agreement without the consent of the Fund. See "Expense Waivers"
on page 44.
</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 FOR THE 1 YEAR PERIOD AND BEFORE WAIVERS
FOR THE OTHER PERIODS SHOWN. ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER,
BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year 1 Year 3 Year 5 Year 10
$173 $513 $877 $1,707
</TABLE>
<PAGE>
29
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.
In analyzing specific companies for possible investment, the Fund's Investment
Adviser ordinarily looks for several of the following characteristics: above-
average per share earnings growth; high return on invested capital; a healthy
balance sheet; sound financial and accounting policies and overall financial
strength; strong competitive advantages; effective research and product
development and marketing; development of new technologies; efficient service;
pricing flexibility; strong management; and general operating characteristics
that will enable the companies to compete successfully in their respective
markets. The Investment Adviser considers whether to sell a particular security
when any of those factors materially changes. The Investment Adviser expects a
high portfolio turnover rate of 200% or more.
[GRAPHIC]PRINCIPAL INVESTMENTS
Normally, the Fund invests at least 80% of its total assets in common stocks of
large U.S. companies.
[GRAPHIC]PRIMARY RISKS
Because you could lose money by investing in the Fund, be sure to read all risk
disclosures carefully before investing. The Fund is primarily subject to the
following risks:
/ / VALUE INVESTING--The determination that a stock is undervalued is
subjective; the market may not agree, and the stock's price may not rise to
what the Investment Adviser believes is its full value. It may even decrease
in value. However, because the Fund's focus on undervalued stocks, the
Fund's downside risk may be less than with small company stocks since value
stocks are in theory already underpriced.
/ / STOCK MARKET VOLATILITY--The prices of equity securities change in response
to many factors, including the historical and prospective earnings of the
issuer, the value of its assets, general economic conditions, interest
rates, investor perceptions, and market liquidity. Stock prices are
unpredictable, may fall suddenly and may continue to fall for extended
periods.
/ / ISSUER-SPECIFIC RISKS--The value of an individual security or particular
type of security can be more volatile than the market as a whole and can
perform differently than the value of the market as a whole.
/ / ACTIVE PORTFOLIO TRADING--A high portfolio turnover rate is likely to
generate more taxable short-term gains for shareholders and may have an
adverse effect on the Fund's performance.
See "Principal Strategies, Risks and Other Information" starting on page 51.
[GRAPHIC]PAST PERFORMANCE
The following 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.
<PAGE>
30
VALUE FUND
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<TABLE>
<S> <C>
97 40.55
98 20.13
99 8.88
</TABLE>
<TABLE>
<S> <C> <C>
BEST QUARTER: Q4 '98 +16.99%
WORST QUARTER: Q3 '98 -12.43%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 3/31/00
SINCE INCEPTION
1 YEAR (4/30/96)
<S> <C> <C>
- --------------------------------------------------------------
FUND 4.68 22.10
S&P 500 17.94 25.60
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 6/30/00 WAS %.
INDEX: THE STANDARD AND POOR'S 500 INDEX (S&P 500) IS AN
UNMANAGED INDEX COMPRISED OF 500 U.S. INDUSTRIAL,
TRANSPORTATION, UTILITY AND FINANCIAL COMPANIES AND IS
CONSIDERED TO BE GENERALLY REPRESENTATIVE OF THE U.S. STOCK
MARKET.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN
LOWER IF THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF
THE FUND'S EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL
INFORMATION.
</TABLE>
[GRAPHIC]INVESTOR FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
<S> <C>
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) 1.37%
- ---------------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.26%
- ---------------------------------------------------------------------------------
Waiver of fund expenses (0.24%)
- ---------------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.02%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2001, the Investment
Adviser has contractually agreed to waive or defer its management fees and to pay
other operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a three year period. The Investment Adviser may not amend
the fee waiver agreement without the consent of the Fund. See "Expense Waivers"
on page 44.
</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 FOR THE 1 YEAR PERIOD AND BEFORE WAIVERS
FOR THE OTHER PERIODS SHOWN. ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER,
BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year 1 Year 3 Year 5 Year 10
$102 $555 $1,036 $2,363
</TABLE>
<PAGE>
31
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 analyzing specific companies for possible investment, the Fund's Investment
Adviser ordinarily looks for several of the following characteristics: above-
average per share earnings growth; high return on invested capital; a healthy
balance sheet; sound financial and accounting policies and overall financial
strenght; strong competitive advantages; effective research and product
development and marketing; development of new technologies; efficent service;
pricing flexibility; strong management; and gerneral operating characteristics
that will enable the companies to compete successfully in their respective
markets. The Investment Adviser considers whether to sell a particular security
when any of those factors materially changes.
The Fund may also lend portfolio securities on a short-term or long-term basis,
up to 30% of its total assets. The Investment Adviser expects a high portfolio
turnover rate of 200% or more.
[GRAPHIC]PRINCIPAL 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 54.
[GRAPHIC]PRIMARY RISKS
Because you could lose money by investing in the Fund, be sure to read all risk
disclosures carefully before investing. The Fund is primarily subject to the
following risks:
/ / CONVERTIBLE SECURITIES RISKS--Convertible securities have the investment
characteristics of both equity and debt securities. These 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.
/ / FIXED INCOME SECURITIES RISKS--The value of bonds changes as interest rates
fluctuate: if rates rise, the prices of bonds fall; if rates fall, their
prices rise.
HIGH RISK BONDS--usually offer higher yields and generally have more risk
and volatility than higher-rated securities because of reduced
creditworthiness and greater chance of default by the issuer. Convertible
securities rated below investment grade and other bonds may be subject to
some of the same risks as those inherent in below investment grade debt.
Accordingly, these high risk bonds and bonds rated in the lowest category
of investment grade are considered predominantly speculative and are
subject to greater volatility and risk of loss than investment grade
securities, particularly in deteriorating economic periods.
/ / STOCK MARKET VOLATILITY--The prices of securities change in response to many
factors, including the historical and prospective earnings of the issuer,
the value of its assets, general economic conditions, interest rates,
investor perceptions, and market liquidity. Stock prices are unpredictable,
may fall suddenly and may continue to fall for extended periods.
/ / ACTIVE PORTFOLIO TRADING--A high portfolio turnover rate is likely to
generate more stable short-term gains for shareholders and may have an
adverse effect on the Fund's performance.
/ / ISSUER-SPECIFIC RISKS--The value of an individual security or particular
type of security can be more volatile than the market as a whole and can
perform differently than the value of the market as a whole.
/ / SMALLER ISSUERS--Investments in small-capitalization companies entail
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. Information regarding
smaller companies may be less available, incomplete or inaccurate, and their
securities may trade less frequently than those of larger companies.
/ / SECURITIES LENDING--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.
<PAGE>
32
CONVERTIBLE FUND
See "Principal Strategies, Risks and Other Information" starting on page 51.
[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
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<TABLE>
<S> <C>
94 -7.59
95 22.26
96 21.02
97 23.3
98 21.54
99 51.51
</TABLE>
<TABLE>
<S> <C> <C>
BEST QUARTER: Q4 '99 +35.64%
WORST QUARTER: Q3 '98 -8.98%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 3/31/00
SINCE INCEPTION
1 YEAR 5 YEARS (4/19/93)
<S> <C> <C> <C>
- ----------------------------------------------------------------------
FUND 59.19 29.52 23.33
FIRST BOSTON CONVERTIBLE 45.84 20.22 13.67
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 6/30/00 WAS %.
INDEX: THE FIRST BOSTON CONVERTIBLE INDEX IS AN UNMANAGED MARKET
WEIGHTED INDEX REPRESENTING THE UNIVERSE OF CONVERTIBLE SECURITIES
WHETHER THEY ARE CONVERTIBLE PREFERRED STOCKS OR CONVERTIBLE BONDS.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER IF
THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S
EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
[GRAPHIC]INVESTOR FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
<S> <C>
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) 0.36%
- ---------------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.27%
- ---------------------------------------------------------------------------------
Waiver of fund expenses (0.24%)
- ---------------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.03%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2001, the Investment
Adviser has contractually agreed to waive or defer its management fees and to pay
other operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a three year period. The Investment Adviser may not amend
the fee waiver agreement without the consent of the Fund. See "Expense Waivers"
on page 44.
</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 FOR THE 1 YEAR PERIOD AND BEFORE WAIVERS
FOR THE OTHER PERIODS SHOWN. ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER,
BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year 1 Year 3 Year 5 Year 10
$102 $342 $601 $1,342
</TABLE>
<PAGE>
33
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. The Investment Adviser
expects a high portfolio turnover rate of 200% or more.
[GRAPHIC]PRINCIPAL 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. The duration of the Fund will be between one and
four years.
[GRAPHIC]PRIMARY RISKS
Because you could lose money by investing in the Fund, be sure to read all risk
disclosures carefully before investing. The Fund is primarily subject to the
following risks:
/ / INTEREST RATES--Interest rate risk is the risk that the value of the Fund's
investments will go down when interest rates rise. Normally the value of the
Fund's investments varies inversely with changes in interest rates so that
in periods of rising interest rates, the value of the Fund's portfolio
declines.
/ / MATURITY--Generally, longer-term securities are more susceptible to changes
in value as a result of interest rate changes than are shorter-term
securities.
/ / CREDIT RISK--Credit risk refers to the risk that an issuer of a bond may
default with respect to the payment of principal and interest. The lower a
bond is rated, the more it is considered to be a speculative or risky
investment.
/ / PREPAYMENT RISK--Prepayment risk is commonly associated with pooled debt
securities, such as mortgage-backed securities and asset-backed securities,
but may affect other debt securities as well. When the underlying debt
obligations are prepaid ahead of schedule, the return on the security will
be lower than expected. Prepayment rates usually increase when interest
rates are falling.
/ / INFLATION RISK--There is a possibility that the rising prices of goods and
services may have the effect of offsetting the Fund's real return. This is
likely to have a greater impact on the returns of bond funds, which
historically have had more modest returns in comparison to equity funds.
/ / FOREIGN EXPOSURE--Foreign securities and securities issued by U.S. entities
with substantial foreign operations can involve additional risks relating to
political, economic or regulatory conditions in foreign countries. All of
these factors can make foreign investments more volatile than U.S.
investments.
/ / ACTIVE PORTFOLIO TRADING--A high portfolio turnover rate is likely to
generate more stable short-term gains for shareholders and may have an
adverse effect on the Fund's performance.
See "Principal Strategies, Risks and Other Information" starting on page 51.
<PAGE>
34
SHORT INTERMEDIATE FIXED INCOME FUND
[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
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<TABLE>
<S> <C>
96 4.85
97 6.67
98 6.85
99 3.20
</TABLE>
<TABLE>
<S> <C> <C>
BEST QUARTER: Q3 '98 +2.62%
WORST QUARTER: Q1 '96 +0.36%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 3/31/00
SINCE INCEPTION
1 YEAR (8/31/95)
<S> <C> <C>
- -----------------------------------------------------------------
FUND 3.80 6.11
MERRILL LYNCH
1-3 YEAR TREASURY 3.74 5.68
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 6/30/00 WAS %.
INDEX: THE MERRILL LYNCH 1-3 YEAR TREASURY IS AN UNMANAGED INDEX
CONSISTING OF ALL PUBLIC U.S. TREASURY OBLIGATIONS HAVING
MATURITIES FROM ONE TO 2.99 YEARS. THE INDEX IS UNMANAGED AND
CONSIDERED GENERALLY REPRESENTATIVE OF THE MARKET FOR
INTERMEDIATE GOVERNMENT BOND SECURITIES
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN LOWER
IF THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF THE FUND'S
EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL INFORMATION.
</TABLE>
[GRAPHIC]INVESTOR FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
<S> <C>
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) 1.05%
- ---------------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 0.95%
- ---------------------------------------------------------------------------------
Waiver of fund expenses (0.61%)
- ---------------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 0.34%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2001, the Investment
Adviser has contractually agreed to waive or defer its management fees and to pay
other operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a three year period. The Investment Adviser may not amend
the fee waiver agreement without the consent of the Fund. See "Expense Waivers"
on page 44.
</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 FOR THE 1 YEAR PERIOD AND BEFORE WAIVERS
FOR THE OTHER PERIODS SHOWN. ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER,
BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year 1 Year 3 Year 5 Year 10
$36 $329 $644 $1,537
</TABLE>
<PAGE>
35
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. The Investment Adviser expects a high
portfolio turnover rate of 200% or more.
[GRAPHIC]PRINCIPAL INVESTMENTS
Normally, the Fund invests at least 65% of its net assets in bonds of U.S. and
foreign corporations and governments. These bonds are rated in the top two
investment grades, or are of comparable quality if unrated. They include bonds,
notes, mortgage-backed and asset-backed securities with rates that are fixed,
variable or floating. The dollar weighted 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 54. The Fund may also use options, futures
contracts and interest rate and currency swaps as hedging techniques.
[GRAPHIC]PRIMARY RISKS
Because you could lose money by investing in the Fund, be sure to read all risk
disclosures carefully before investing. The Fund is primarily subject to the
following risks:
/ / INTEREST RATES--Interest rate risk is the risk that the value of the Fund's
investments will go down when interest rates rise. Normally the value of the
Fund's investments varies inversely with changes in interest rates so that
in periods of rising interest rates, the value of the Fund's portfolio
declines.
/ / MATURITY--Generally, longer-term securities are more susceptible to changes
in value as a result of interest-rate changes than are shorter-term
securities.
/ / CREDIT RISK--Credit risk refers to the risk that an issuer of a bond may
default with respect to the payment of principal and interest. The lower a
bond is rated, the more it is considered to be a speculative or risky
investment.
/ / HIGH RISK BONDS--Generally lower grade securities offer higher yields and
have more risk and volatility than higher-rated securities because of
reduced creditworthiness and greater chance of default by the issuer.
securities rated below investment grade and other bonds may be subject to
some of the same risks as those inherent in below investment grade debt.
Accordingly, these high risk bonds and bonds rated in the lowest category of
investment grade are considered predominantly speculative and are subject to
greater volatility and risk of loss than investment grade securities,
particularly in deteriorating economic periods.
/ / PREPAYMENT RISK--Prepayment risk is commonly associated with pooled debt
securities, such as mortgage-backed securities and asset-backed securities,
but may affect other debt securities as well. When the underlying debt
obligations are prepaid ahead of schedule, the return on the security will
be lower than expected. Prepayment rates usually increase when interest
rates are falling.
/ / INFLATION RISK--There is a possibility that the rising prices of goods and
services may have the effect of offsetting the Fund's real return. This is
likely to have a greater impact on the returns of bond funds, which
historically have had more modest returns in comparison to equity funds.
/ / FOREIGN EXPOSURE--Foreign securities and securities issued by U.S. entities
with substantial foreign operations can involve additional risks relating to
political, economic or regulatory conditions in foreign countries. All of
these factors can make foreign investments more volatile than U.S.
investments.
/ / ACTIVE PORTFOLIO TRADING--A high portfolio turnover rate is likely to
generate more stable short-term gains for shareholders and may have an
adverse effect on the Fund's performance.
See "Principal Strategies, Risks and Other Information" starting on page 51.
<PAGE>
36
HIGH QUALITY BOND FUND
[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
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<TABLE>
<S> <C>
96 2.29
97 9.52
98 8.54
99 -0.29
</TABLE>
<TABLE>
<S> <C> <C>
BEST QUARTER: Q4 '95 +5.50%
WORST QUARTER: Q1 '96 -3.04%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 3/31/00
SINCE INCEPTION
1 YEAR (8/31/95)
<S> <C> <C>
- --------------------------------------------------------------
FUND 1.62 6.68
LEHMAN AGGREGATE BOND 1.88 6.21
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 6/30/00 WAS .
INDEX: THE LEHMAN BROTHERS AGGREGATE BOND INDEX (LEHMAN
AGGREGATE BOND) IS COMPOSED OF SECURITIES FROM LEHMAN BROTHERS
GOVERNMENT/CORPORATE BOND INDEX, MORTGAGE-BACKED SECURITIES
INDEX, AND ASSET-BACKED SECURITIES INDEX. THE INDEX IS
UNMANAGED.
THE RETURNS IN BOTH THE CHART AND THE TABLE WOULD HAVE BEEN
LOWER IF THE INVESTMENT ADVISER HAD NOT REDUCED A PORTION OF
THE FUND'S EXPENSES. SEE "EXPENSE WAIVERS" FOR ADDITIONAL
INFORMATION.
</TABLE>
[GRAPHIC]INVESTOR FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
<S> <C>
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) 0.72%
- ---------------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.14%
- ---------------------------------------------------------------------------------
Waiver of fund expenses (0.67%)
- ---------------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 0.47%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2001, the Investment
Adviser has contractually agreed to waive or defer its management fees and to pay
other operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a three year period. The Investment Adviser may not amend
the fee waiver agreement without the consent of the Fund. See "Expense Waivers"
on page 44.
</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 FOR THE 1 YEAR PERIOD AND BEFORE WAIVERS
FOR THE OTHER PERIODS SHOWN. ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER,
BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year 1 Year 3 Year 5 Year 10
$46 $300 $547 $1,356
</TABLE>
<PAGE>
37
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 "high risk 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. The Investment Adviser expects a high portfolio
turnover rate of 200% or more.
[GRAPHIC]PRINCIPAL INVESTMENTS
Normally, the Fund invests at least 65% of its total assets in high risk bonds
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 54. Securities may bear rates that
are fixed, variable or floating.
The Fund invests in companies of all sizes, 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]PRIMARY RISKS
Because you could lose money by investing in the Fund, be sure to read all risk
disclosures carefully before investing. The Fund is primarily subject to the
following risks:
/ / HIGH RISK BONDS--The high risk bonds in which the Fund invests have a higher
default risk than investment grade bonds. High risk bonds are almost always
uncollateralized and subordinated to other debt that an issuer has
outstanding.
/ / LIQUIDITY--The liquidity of individual corporate bonds varies considerabley.
High risk and low-grade corporate bonds have less liquidity than higher
rataed investment grade bonds, which may make it more difficult for the Fund
to sell or buy at a favorable price and time.
/ / ECONOMIC--High risk and low-grade corporate bond returns are sensitive to
changes in the economy. The value of the Fund's portfolio may decline in
tandem with a drop in the overall value of the stock market based on
negative developments in the U.S. and global economies.
/ / INTEREST RATES--The returns of high risk low-grade bonds are sensitive to
changes in prevailing interest rates. An increase in interest rates may
result in a decrease in the value of the Fund's shares. Accordingly, high
risk bonds and bonds rated in the lowest category of investment grade are
considered predominantly speculative.
/ / STOCK MARKET VOLATILITY--The prices of securities change in response to many
factors, including the historical and prospective earnings of the issuer,
the value of its assets, general economic conditions, interest rates,
investor perceptions, and market liquidity. Stock prices are unpredictable,
may fall suddenly and may continue to fall for extended periods.
/ / SMALLER ISSUERS--Investments in small-capitalization companies entail
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. Information regarding
smaller companies may be less available, incomplete or inaccurate, and their
securities may trade less frequently than those of larger companies.
/ / FOREIGN EXPOSURE--Foreign securities and securities issued by U.S. entities
with substantial foreign operations can involve additional risks relating to
political, economic or regulatory conditions in foreign countries. All of
these factors can make foreign investments more volatile than U.S.
investments.
/ / ACTIVE PORTFOLIO TRADING--A high portfolio turnover rate is likely to
generate more stable short-term gains for shareholders and may have an
adverse effect on the Fund's performance.
For further explanation, see "Principal Strategies, Risks and Other Information"
starting on page 51.
[GRAPHIC]PAST PERFORMANCE
The following 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
<PAGE>
38
HIGH YIELD BOND FUND
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
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<TABLE>
<S> <C>
97 21.40
98 4.52
99 9.55
</TABLE>
<TABLE>
<S> <C> <C>
BEST QUARTER: Q3 '97 +8.42%
WORST QUARTER: Q3 '98 -6.95%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 3/31/00
SINCE INCEPTION
1 YEAR (7/31/96)
<S> <C> <C>
- -------------------------------------------------------------------
FUND 5.99 12.50
FIRST BOSTON HIGH
YIELD BOND 0.30 6.04
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 6/30/00 WAS %.
INDEX: THE CREDIT SUISSE 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>
[GRAPHIC]INVESTOR FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
<S> <C>
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) 0.56%
- ---------------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.31%
- ---------------------------------------------------------------------------------
Waiver of fund expenses (0.56%)
- ---------------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 0.75%
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2001, the Investment
Adviser has contractually agreed to waive or defer its management fees and to pay
other operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a three year period. The Investment Adviser may not amend
the fee waiver agreement without the consent of the Fund. See "Expense Waivers"
on page 44.
</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 FOR THE 1 YEAR PERIOD, AND BEFORE WAIVERS
FOR THE OTHER PERIODS SHOWN. ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER,
BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year 1 Year 3 Year 5 Year 10
$77 $327 $599 $1,372
</TABLE>
<PAGE>
39
SIMPLIFIED ACCOUNT INFORMATION
<TABLE>
<CAPTION>
<S> <C>
OPENING AN ACCOUNT
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 If you need assistance, contact your financial representative,
application or call us at (800) 551-8043.
- -----------------------------------------------------------------------------------------------------------------------------------
Mail application and check, payable to: NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS,
If you are sending money PO BOX 8326, BOSTON, MA 02266-8326. Send private courier or overnight delivery service to: Boston
by CHECK Financial Services, c/o Nicholas-Applegate, 66 Brocks Drive, Braintree, MA 02184. The Trust will not
accept third-party checks.
- -----------------------------------------------------------------------------------------------------------------------------------
Please read the bank wire or ACH section under the "Buying Shares" section below. You will need to
If you are sending money obtain an account number with the Trust by sending a completed application to: NICHOLAS-APPLEGATE
by BANK WIRE or ACH 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 price you will The Trust is generally open on days that the New York Stock Exchange is open. All transactions received
receive in good order before the market closes (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
account. To establish this option, either complete the appropriate sections when opening an account,
If you are sending money contact your financial representative, or call us at (800) 551-8043 for further information. To initiate
by ACH an ACH purchase,
call the Trust at (800) 551-8043.
</TABLE>
<PAGE>
40
SIMPLIFIED ACCOUNT INFORMATION
<TABLE>
This is the minimum
exchange amount to open a $250,000
new account
<CAPTION>
EXCHANGING SHARES
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
The Trust is open on days that the New York Stock Exchange is open. All transactions received in good
The price you will order before the market closes (normally 4:00 p.m. Eastern time) receive that day's NAV. Redemption
receive proceeds normally are wired or mailed within one business day after receiving a request in proper form.
Payment may be delayed up to seven days.
- -----------------------------------------------------------------------------------------------------------------------------------
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 equal to or greater than the Fund's minimum
Things you should know 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. The Trust will accept a request by
How to request an phone if this feature was previously established on your account. See the "Your Account" section for
exchange by PHONE further information.
- -----------------------------------------------------------------------------------------------------------------------------------
Please put your exchange request in writing, including: the name on the account, the name of the Fund
and the account number you are exchanging from, the shares or dollar amount you wish to exchange, and
How to request an the Fund you wish to exchange to.
exchange by MAIL Mail this request to: Nicholas-Applegate Institutional Funds,
PO BOX 8326, BOSTON, MA 02266-8326.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
SELLING OR REDEEMING SHARES
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.
</TABLE>
<PAGE>
41
<TABLE>
<CAPTION>
SELLING OR REDEEMING SHARES
IN WRITING BY PHONE
<S> <C> <C>
-----------------------------------------------------------------------------
The Trust is open on days that the New York Stock Exchange is open. All transactions received in good
The price you will
receive order before the market closes (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, or call us
If you want to receive account owners. Mail this request to: at (800) 551-8043. The proceeds will be sent to
your monies by BANK WIRE NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS, PO BOX the existing bank wire address listed on the
8326, BOSTON, MA 02266-8326. The check will be account.
sent to the existing bank wire address listed on
the account.
- ---------------------------------------------------------------------------------------------------------------------------------
Contact your financial representative, or call us
at (800) 551-8043. The proceeds will be sent in
If you want to receive accordance with the existing ACH instructions on
your monies by ACH Please call us at (800) 551-8043. 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. When the Trust
makes a redemption in kind, a shareholder may incur brokerage costs in converting such securities to
cash and assumes the market risk during the time required to convert the securities to cash. The Trust
Redemption in Kind has elected to be governed by the provisions of Rule 18f-1 under the Investment Company Act, pursuant
to which it is obligated to pay in cash all requests for redemptions by any shareholder of record,
limited in amount with respect to each shareholder during any 90-day period to the lesser of $250,000
or 1% of the net asset value of the Trust at the beginning of such period.
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
SIGNATURE GUARANTEES
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>
42
YOUR ACCOUNT
[GRAPHIC]TRANSACTION POLICIES
PURCHASE OF SHARES. Shares are offered at net asset value without a sales
charge. The minimum initial investment is $250,000, and the minimum subsequent
investment is $10,000. The minimum investment may be waived for purchases of
shares made by current or retired directors, trustees, partners, officers and
employees of the Trust, the Distributor, the Investment Adviser and its general
partner, certain family members of the above persons, and trusts or plans
primarily for such persons, or, at the discretion of the Distributor.
PRICING OF 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.
Securities traded in foreign countries may not take place on all business days
of the New York Stock Exchange, and may occur in various foreign markets on days
which are not business days of the New York Stock Exchange. Accordingly, a
Fund's NAV may change on days when the U.S. markets are closed whereby a
shareholder of the Fund will not be able to sell their shares.
BUY AND SELL PRICES. When you buy shares, you pay the NAV, as described earlier.
When you sell shares, you receive the NAV. Your financial institution may charge
you a fee to execute orders on your behalf.
EXECUTION OF REQUESTS. 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.
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 seven business days
or longer, as allowed by federal securities laws.
PURCHASE OF SHARES JUST BEFORE RECORD DATE. If you buy shares of the Funds just
before the record date for a distribution (the date that determines who receives
the distribution), we will pay that distribution to you. When a distribution is
paid out of the value of each share of the Fund decreases by the amount of the
distribution to reflect the payout. The distribution you receive makes up the
decrease in share value. As explained under the Taxability of Dividends section,
the distribution may be subject to income or capital gains taxes. The timing of
your purchase means that part of your investment came back to you as taxable
income.
REDEMPTIONS IN KIND. When a Fund elects to satisfy a redemption request with
securities, the shareholder assumes the market risk of an unfavorable market
movement during the time required to convert the securities to cash.
TELEPHONE TRANSACTIONS. For your protection, telephone requests may be recorded
in order to verify their accuracy. In addition the Trust will take measures to
verify the identity of the caller, such as asking for name, account number,
Social Security or taxpayer ID number and other relevant information. If these
measures are not taken, your Fund may be responsible for any losses that may
occur in your account due to an unauthorized telephone call.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider sending your request in writing.
CERTIFICATED SHARES. Shares of the Trust are electronically recorded. The Trust
does not issue certificated shares.
SALES IN ADVANCE OF PURCHASE PAYMENTS. When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but the Fund will not release the proceeds to you
until your purchase payment clears. This may take up to fifteen calendar days
after the purchase.
[GRAPHIC]FEATURES AND ACCOUNT POLICIES
The services referred to in this section may be terminated or modified at any
time upon 60 days' written notice to shareholders. Shareholders seeking to add
to, change or cancel their selection of available services should contact the
transfer agent.
RETIREMENT PLANS. You may invest in 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.
<PAGE>
43
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>
<S> <C> <C>
ANNUALLY QUARTERLY MONTHLY
Worldwide Growth Global Growth & High Yield Bond
Global Blue Chip Income
Global Technology Convertible
Global Health Care High Quality Bond
International Core Growth Short Intermediate
International Small Cap
Emerging Countries
Pacific Rim
Latin America
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.
Federal tax law requires you to provide the Fund with your taxpayer
identification number and certifications as to your tax status. If you fail to
do this, or if you are otherwise subject to backup withholding, the Fund will
withhold and pay to the U.S. Treasury 31% of your distributions and sale
proceeds. Dividends of net investment income and short-term capital gains paid
to a nonresident foreign shareholder generally will be subject to a U.S.
withholding tax of 30%. This rate may be lower, depending on any tax treaty the
U.S. may have with the shareholder's country.
SMALL ACCOUNTS (NON-RETIREMENT ONLY). If you draw down a non-retirement account
so that its total value is less than $250,000, you may be asked to purchase more
shares within 60 days. If you do not take action, the Fund may close out your
account and mail you the proceeds. Your account will not be closed if its drop
in value is due to Fund performance.
AUTOMATIC INVESTMENT PLAN. You may make regular monthly or quarterly investments
in 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.
<PAGE>
44
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 each Fund and is responsible for the
purchase or sale of portfolio instruments, for which it receives an annual fee
from the Fund.
Founded in 1984, the Investment Adviser currently manages over $24 billion of
discretionary assets for numerous clients, including employee benefit plans,
corporations, public retirement systems and unions, university endowments,
foundations, and other institutional investors and individuals. The Investment
Adviser's address is 600 West Broadway, Suite 2900, San Diego, California 92101.
Criterion Investment Management LLC ("Criterion") serves as sub-adviser to the
High Quality Bond and Short Intermediate Funds. Organized in April 1999,
Criterion is registered under the Investment Advisers Act of 1940 and is a
wholly owned subsidiary of Westdeutsche Landesbank Girzozentrale. Its principal
address is 1990 Post Oak Boulevard, Houston, Texas 77056. Criterion previously
was the fixed income asset management division of the Investment Adviser and now
provides investment advice to the Fund and approximately 80 other separate
institutional clients with approximately $9 billion in assets under management.
As compensation for Criterion's services under the subadvisory agreement, the
Investment Adviser pays Criterion a monthly subadvisory fee at an annual rate of
.25% of each the High Quality Bond Fund's average daily net assets.
The International Small Cap and Emerging Countries Funds, invest in the Indian
stock markets through Nicholas-Applegate Southeast Asia Fund, Ltd a subsidiary
company of each of the Funds and incorporated under the laws of Mauritius (the
"Mauritius Subsidiary"). The Mauritius Subsidiary is entitled to benefit from
the double taxation treaty between India and Mauritius and invest in India in
what the Investment Adviser considers to be the most efficient way currently
available. The Fund and Mauritius Subsidiary will be treated as one entity, and
their holdings of investments are aggregated, for the purposes of applying the
investment and borrowing restrictions. All investments made by the Mauritius
Subsidiary will form part of the assets of the Fund and will be disclosed in the
schedule of investments of the Fund.
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%
Global Technology Fund 1.00%
Global Health Care Fund 1.00%
Mini Cap Growth Fund 1.25%
Pacific Rim 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
EXPENSE WAIVERS
The Investment Adviser has agreed to waive its fees and absorb other operating
expenses of the Funds so that total operating expenses, excluding taxes,
interest, brokerage and the expenses incurred from the creation and operation of
the Mauritius entity, do not exceed the percentages, as set forth below, for the
Class I shares of each Fund through March 31, 2001. In subsequent years, overall
operating expenses for each Fund will not fall below the applicable percentage
limitation until the Investment Adviser has been fully reimbursed for fees
foregone and expenses paid under the expense limitation agreement, as each Fund
will reimburse the Investment Adviser in subsequent years when operating
expenses (before reimbursement) are less than the applicable percentage
limitation.
Small Cap Growth Fund 1.17%
Mid Cap Growth Fund 1.00%
Large Cap Growth Fund 1.00%
Value Fund 1.00%
Emerging Countries Fund 1.65%
International Core Growth Fund 1.40%
High Quality Bond Fund 0.45%
<PAGE>
45
Mini Cap Growth Fund 1.56%
Global Technology 1.40%
International Small Cap Growth Fund 1.40%
Worldwide Growth Fund 1.35%
Global Growth & Income Fund 1.35%
Latin America Fund 1.65%
Pacific Rim Fund 1.40%
Convertible Fund 1.00%
Global Blue Chip Fund 1.20%
High Yield Bond Fund 0.75%
Short Intermediate Fund 0.35%
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.
SHAREHOLDER SERVICES
The Investment Adviser may make additional payments from its own resources to
intermediaries for providing certain services for shareholders and for the
maintenance of shareholder accounts. This in no way affects the advisory fee
paid by each of the Funds. Contact the Investment Adviser for more information.
PORTFOLIO TRADES
The Investment Adviser is responsible for the Fund's portfolio transactions. In
placing portfolio trades, the Investment Adviser may use brokerage firms that
provide research services to the Fund, or that sell shares of the Fund but only
when the Investment Adviser believes no other firm offers a better combination
of quality execution (e.g., timeliness and completeness) and favorable price.
<PAGE>
46
ORGANIZATION AND MANAGEMENT
PORTFOLIO TURNOVER
To the extent that the Investment Adviser actively trades the Fund's portfolio
securities in an attempt to achieve the Fund's investment goal, such trading may
cause the Fund to have an increased portfolio turnover rate of 300% or more,
which is likely to generate shorter-term gains (losses) for its shareholders,
which are taxed at a higher rate than longer-term gains (losses). Actively
trading portfolio securities may have an adverse impact on the Fund's
performance.
PORTFOLIO MANAGEMENT
The Investment Adviser emphasizes a team approach to portfolio management.
[GRAPHIC]PORTFOLIO TEAMS
EQUITY MANAGEMENT--INTERNATIONAL/GLOBAL
ARTHUR E. NICHOLAS, MANAGING PARTNER
CHIEF EXECUTIVE OFFICER
Since 1984; prior investment management experience with Pacific Century
Advisers, Security Pacific Bank and San Diego Trust & Savings Bank
B.S.--San Diego State University
CATHERINE SOMHEGYI, PARTNER
CHIEF INVESTMENT OFFICER--GLOBAL EQUITY MANAGEMENT
Since 1987; prior investment management experience with Professional Asset
Securities, Inc. and Pacific Century Advisers
M.B.A and B.S.--University of Southern California
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, INTERNATIONAL SMALL CAP GROWTH,
EMERGING COUNTRIES, GLOBAL GROWTH & INCOME, GLOBAL TECHNOLOGY, GLOBAL HEALTH
CARE, GLOBAL BLUE CHIP, LATIN AMERICA AND PACIFIC RIM
LARRY SPEIDELL, CFA, PARTNER
DIRECTOR OF GLOBAL/SYSTEMATIC PORTFOLIO MANAGEMENT AND RESEARCH
Since 1994; 23 years prior investment management experience with Batterymarch
Financial Management and Putnam Management Company
M.B.A.--Harvard University; B.E.--Yale University
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, GLOBAL GROWTH & INCOME,
INTERNATIONAL SMALL CAP GROWTH, EMERGING COUNTRIES, GLOBAL BLUE CHIP, LATIN
AMERICA AND PACIFIC RIM
ANDREW B. GALLAGHER, PARTNER
PORTFOLIO MANAGER
Since 1992; 7 years prior investment management experience with Pacific Century
Advisors and Sentinel Asset Management
M.B.A.--San Diego State University; B.A.--University of California, Irvine
WORLDWIDE GROWTH, GLOBAL TECHNOLOGY
PEDRO V. MARCAL, PARTNER
PORTFOLIO MANAGER
Since 1996; Assistant Portfolio Manager 1994-1996; 5 years prior investment
management experience with A.B. Laffer, V.A. Canto & Associates, and A-Mark
Precious Metals
B.A.--University of California, San Diego
EMERGING COUNTRIES, WORLDWIDE GROWTH, GLOBAL BLUE CHIP, GLOBAL GROWTH & INCOME,
INTERNATIONAL CORE GROWTH, PACIFIC RIM AND GLOBAL TECHNOLOGY
LORETTA J. MORRIS, PARTNER
PORTFOLIO MANAGER
Since 1990; 10 years prior investment management experience with Collins
Associates
Attended California State University, Long Beach
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, INTERNATIONAL SMALL CAP GROWTH,
GLOBAL TECHNOLOGY, GLOBAL BLUE CHIP, AND GLOBAL GROWTH & INCOME
ERNESTO RAMOS, PH.D.
PORTFOLIO MANAGER
Since 1995; 1994-1995 Research Manager; 14 years prior investment management and
quantitative research experience with Batterymarch Financial Management;
Bolt Beranek & Newman Inc.; and Harvard University
PH.D. Harvard University; B.S.--Massachusetts Institute of Technology
WORLDWIDE GROWTH, GLOBAL GROWTH & INCOME, INTERNATIONAL CORE GROWTH,
INTERNATIONAL SMALL CAP GROWTH, GLOBAL BLUE CHIP, EMERGING COUNTRIES AND LATIN
AMERICA
MELISA A. GRIGOLITE
PORTFOLIO MANAGER
Since 1996; 1993-1996 International Analyst; 1991-1993 Account Administrator;
prior experience with SGPA Architecture and Planning
M.S.--San Diego State University; B.S.--Southwest Missouri State University
WORLDWIDE GROWTH, INTERNATIONAL CORE GROWTH, INTERNATIONAL SMALL CAP GROWTH,
GLOBAL HEALTH CARE, GLOBAL BLUE CHIP, AND GLOBAL GROWTH & INCOME
<PAGE>
47
RANDALL S. KAHN, CFA
PORTFOLIO MANAGER
Since 1999; 12 years prior investment experience with American Century
Investments, Daiwa Securities America, Inc. and Daiwa Securities Co., LTD.
B.A.--University of California, Berkley; M.B.A.--University of Chicago
INTERNATIONAL CORE GROWTH, GLOBAL TECHNOLOGY, GLOBAL GROWTH & INCOME,
INTERNATIONAL SMALL CAP GROWTH, WORLDWIDE GROWTH, PACIFIC RIM AND GLOBAL BLUE
CHIP
CHRISTOPHER ANGIOLETTI
INVESTMENT ANALYST
Since 1999; 3 years prior investment experience with Sterling Johnston Capital
Management, Inc.; Volpe, Brown, Whelan & Co., LLC; and Oppenheimer & Co.
Inc.
B.A.--University of California, Los Angeles; J.D.--Vanderbilt University School
of Law
INTERNATIONAL CORE GROWTH, INTERNATIONAL SMALL CAP GROWTH, WORLDWIDE GROWTH AND
GLOBAL TECHNOLOGY
JOHN L. BRACKEN, JR.,
INVESTMENT ANALYST
Since 1999; 2 years prior investment experience with Ashworth, Inc.
B.S.--Wake Forest University; M.B.A.--Pepperdine University
INTERNATIONAL CORE GROWTH AND PACIFIC RIM
JASON CAMPBELL
PORTFOLIO MANAGER
Since 1998; prior experience with San Diego State University Economics
Department
M.A. and B.A.--San Diego State University; Pontificia Universidade Catolica do
Rio de Janeiro
EMERGING COUNTRIES, LATIN AMERICA AND GLOBAL TECHNOLOGY
CHARLES COSMO D'AGOSTINO
INTERNATIONAL TRADER
Since 1999; 7 years prior investment experience with Credit Lyonnaise Securities
Asia, Asian Hedge Fund Sales in Hong Kong, Credit Lyonnais Securities
Philippines and CACI International
B.A.--University of Virginia
PACIFIC RIM
THEODORA JAMISON
INVESTMENT ANALYST
Since 1999; 2 years prior investment experience with Donaldson, Lufkin &
Jenrette and A.G. Edwards & Sons Inc.
B.S.--Menlo College
LATIN AMERICA
EVAN C. LUNDQUIST
INVESTMENT ANALYST
Since 2000; 7 years prior experience with First American Asset Management, First
American Technology Fund team
B.A.--Saint Mary's College
GLOBAL TECHNOLOGY
DAVID LOPEZ
INVESTMENT ANALYST
Joined firm in 1996; 1999 responsible for research and portfolio analysis
B.A.--San Diego State University
INTERNATIONAL CORE GROWTH AND PACIFIC RIM
JOHN MAZUR
INVESTMENT ANALYST
Since 1999; 1 year prior investment experience and 7 years of experience in the
Biotech industry
M.B.A.--The Wharton School, University of Pennsylvania; B.S.--University of
Southern California; attended Texas A&M University
EMERGING COUNTRIES
JACOB POZHARNY, PH.D.
SENIOR QUANTITATIVE ANALYST
Since 1999; 3 years prior experience with Bank Credit Analyst research group and
the Federal Reserve Bank of San Francisco
Ph.D. and M.S.--University of California at Riverside; M.S. and B.A.--University
of California at Santa Cruz
INTERNATIONAL CORE GROWTH
ROLF SCHILD
INVESTMENT ANALYST
Since 1997; previous investment experience with Raiffeisen Bank, Switzerland
M.B.A. and B.S.--Basel University, Switzerland
INTERNATIONAL CORE GROWTH
<PAGE>
48
ORGANIZATION AND MANAGEMENT
ANDREW C. PARMET
INVESTMENT ANALYST
Since 1999, 6 years prior investment experience with Indosuez W.I. Carr
Securities; Natwest Securities Corp.; United Malayan Banking Corporation
Securities Ltd.; and Jardine Fleming Securities Ltd.
A.B.--Harvard University
EMERGING COUNTRIES AND PACIFIC RIM
JESSICA GONCALVES
PORTFOLIO MANAGER
Since 1999; 1997-1999 Assistant Portfolio Manager; 1996-1997 Investment Analyst;
1995-1996 Investment Assistant; 3 years prior experience with Eaton Vance
Management and Union Capital Advisors
Attended University of Pennsylvania
EMERGING COUNTRIES
JOHN BORCHARDT
INVESTMENT ANALYST
Since 1996; 1994-1996 Senior Account Administrator; 5 years prior investment
management experience with Union Bank
B.A. University of San Francisco
INTERNATIONAL CORE GROWTH AND INTERNATIONAL SMALL CAP GROWTH
EQUITY MANAGEMENT--U.S.
ARTHUR E. NICHOLAS, MANAGING PARTNER
CHIEF EXECUTIVE OFFICER
Since 1984; prior investment management experience with Pacific Century
Advisers, Security Pacific Bank and San Diego Trust & Savings Bank
B.S.--San Diego State University
CATHERINE SOMHEGYI, PARTNER
CHIEF INVESTMENT OFFICER--GLOBAL EQUITY MANAGEMENT
Since 1987; prior investment management experience with Professional Asset
Securities, Inc. and Pacific Century Advisers
M.B.A and B.S.--University of Southern California
LARGE CAP GROWTH, LARGE CAP VALUE, VALUE, SMALL CAP GROWTH, MINI CAP GROWTH,
CONVERTIBLE AND MID CAP GROWTH
THOMAS BLEAKLEY, PARTNER
PORTFOLIO MANAGER
Since 1995; 3 years prior investment management experience with Twentieth
Century Investors and Dell Computer Corporation
M.B.A.--University of Texas--Boston University;
SMALL CAP GROWTH AND MINI CAP GROWTH
WILLIAM H. CHENOWETH, CFA, PARTNER
PORTFOLIO MANAGER
Since 1998; 12 years prior investment experience with Turner Investment
Partners, Inc., and Jefferson-Pilot Corporation
M.B.A. and B.B.A.--Emory University
MID CAP GROWTH, LARGE CAP GROWTH AND GLOBAL TECHNOLOGY
ANDREW B. GALLAGHER, PARTNER
PORTFOLIO MANAGER
Since 1992; 7 years prior investment management experience with Pacific Century
Advisors and Sentinel Asset Management
M.B.A.--San Diego State University; B.A.--University of California, Irvine
MID CAP GROWTH AND LARGE CAP GROWTH
JOHN J. KANE, PARTNER
PORTFOLIO MANAGER--U.S. SYSTEMATIC
Since 1994; 25 years prior investment management and economics experience with
ARCO Investment Management Company and General Electric Company
M.A. and B.A.--Columbia University; M.B.A.--University of California, Los
Angeles
VALUE
LARRY SPEIDELL, CFA, PARTNER
DIRECTOR OF GLOBAL/SYSTEMATIC PORTFOLIO MANAGEMENT AND RESEARCH
Since 1994; 23 years prior investment management experience with Batterymarch
Financial Management and Putnam Management Company
M.B.A.--Harvard University; B.E.--Yale University
VALUE
DOUGLAS FORSYTH, CFA, PARTNER
PORTFOLIO MANAGER
Since 1994; 3 years prior investment management experience with AEGON USA
B.B.A.--University of Iowa
CONVERTIBLE AND HIGH YIELD BOND
<PAGE>
49
JOHN C. MCCRAW, PARTNER
PORTFOLIO MANAGER
Since 1995; 1992-1995 Assistant Portfolio Manager, prior investment management
experience with Nations Bank
M.B.A.--University of California, Irvine; B.A.--Flagler College
SMALL CAP GROWTH AND MINI CAP GROWTH
TRISHA C. SCHUSTER, CFA
PORTFOLIO MANAGER
Since 1998; 4 years prior investment experience with Bel Air Advisors/Bear
Stearns and Farmers
Insurance Company
B.A.--University of California, Los Angeles; M.B.A.--University of California,
Irvine
MID CAP GROWTH, LARGE CAP GROWTH AND GLOBAL HEALTH CARE
MARK STUCKELMAN
PORTFOLIO MANAGER
Since 1995; 5 years prior investment management experience with Wells Fargo Bank
Investment Management Group; Fidelity Management Trust Co.; and BARRA
M.B.A.--University of Pennsylvania/Wharton School; B.A.--University of
California, Berkeley
VALUE
PAUL E. CLUSKEY
PORTFOLIO MANAGER
Since 1998; 4 years prior investment experience at SEI Investments and Piper
Jaffray, Inc.
B.S.--New York University
MINI CAP GROWTH, SMALL CAP GROWTH AND GLOBAL HEALTH CARE
THOMAS J. SMITH, CFA
INVESTMENT ANALYST
Since 1998; 1995-1998 Account Administrator; 4 years prior investment experience
with Wells Fargo Bank and Dean Witter Reynolds
B.A.--San Diego State University
MID CAP GROWTH AND LARGE CAP GROWTH
WILLIAM BRETT STICKNEY
PORTFOLIO MANAGER
Since June 1999; 10 years prior investment experience with ABN AMRO, Inc.; Cowen
& Company and Wayne Hummer & Company
M.M. Candidate--Northwestern University, J.L. Kellogg School of Management;
B.S.--Miami University
HIGH YIELD BOND, CONVERTIBLE
MICHAEL E. YEE
PORTFOLIO MANAGER
Since 1998; 1996-1998 Domestic & Global Portfolio Account Administrator;
1995-1996 Client Service Representative
M.B.A.--San Diego State Univesity; B.S.--University of California, San Diego
CONVERTIBLES AND HIGH YIELD BOND
MICHAEL P. CARROLL
PORTFOLIO MANAGER
Since 1998; 3 years prior investment experience with Morgan Stanley Dean Witter
and the University of Notre Dame Investment Office
B.B.A.--University of Notre Dame
CONVERTIBLE
JOHN GRAVES
INVESTMENT ANALYST
Since 1997; 9 years previous experience with San Diego County District
Attorney's Office and
Imperial Savings
M.B.A.--San Diego State University; B.A.--Hunter College
VALUE
KENNETH H. LEE
PORTFOLIO MANAGER
Since 1999; 9 years prior investment experience with Wells Fargo Bank and Dean
Witter Reynolds/ Lederer Quantitative Research
B.A.--University of California, Davis; attended Yonsei University, South Korea
LARGE CAP GROWTH AND MID CAP GROWTH,
EVAN C. LUNDQUIST
INVESTMENT ANALYST
Since 2000; 7 years prior experience with First American Asset Management, First
American Technology Fund team
B.A.--Saint Mary's College
LARGE CAP GROWTH AND MID CAP GROWTH,
SUB-ADVISORY FIXED INCOME TEAM
FRED S. ROBERTSON, III, PARTNER
CHIEF INVESTMENT OFFICER--FIXED INCOME
Since 1995; 22 years prior investment management experience with Criterion
Investment Management Company and DuPont Chemical Pension Fund
M.B.A.--College of William and Mary; B.S.--Cornell University
HIGH QUALITY BOND AND SHORT INTERMEDIATE
<PAGE>
50
ORGANIZATION AND MANAGEMENT
JAMES E. KELLERMAN, PARTNER
PORTFOLIO MANAGER
Since 1995; 20 years prior investment management experience with Criterion
Investment Management Company and Brown Brothers Harriman and Equitable Life
Insurance Co.
M.B.A.--St. John's University; B.B.A.--Susquehanna University
HIGH QUALITY BOND AND SHORT INTERMEDIATE
MALCOM S. DAY, CFA
PORTFOLIO MANAGER
Since 1995; 3 years prior investment management experience with Payden & Rygel
M.B.A.--University of California, Los Angeles; B.S.--Northern University
HIGH QUALITY BOND
SUSAN MALONE
PORTFOLIO MANAGER
Since 1996; 7 years prior investment management experience with BEA Associates
M.B.A.--New York University; B.S.--Carnegie Mellon University
SHORT INTERMEDIATE AND HIGH QUALITY BOND
WILLIAM BRETT STICKNEY
PORTFOLIO MANAGER
Since June 1999; 10 years prior investment experience with ABN AMRO, Inc.; Cowen
& Company and Wayne Hummer & Company
M.M. Candidate--Northwestern University, J.L. Kellogg School of Management;
B.S.--Miami University
HIGH YIELD BOND AND CONVERTIBLE
<PAGE>
51
PRINCIPAL STRATEGIES, RISKS AND OTHER INFORMATION
INTERNATIONAL INVESTMENT RISKS AND CONSIDERATIONS
FOREIGN SECURITIES. The Worldwide Growth, Global Blue Chip, Global Growth &
Income, Global Technology, Global Health Care, International Core Growth,
International Small Cap Growth, Emerging Countries, Pacific Rim and Latin
America invest in foreign securities as a principal strategy. The remainder of
the Funds may invest in foreign securities as a non-principal strategy. 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.
For example, with respect to the Mauritius Subsidiary, the Indian Revenue
authorities from time to time re-examine the eligibility of Mauritius entities
to tax relief granted under treaty between India and Mauritius. Under the terms
of the treaty, entities such as the Mauritius Subsidiary are not taxed on income
from capital gains arising in India on the sale of Indian securities, a rate
which can be as high as 30%. While the Funds expect to continue to utilize the
Mauritius Subsidiary and rely on the treaty and its benefits, there is no
guarantee that Indian Revenue authorities will continue to allow treaty
benefits. In that instance, those Funds could be liable for Indian taxes for the
entire period during which the Mauritius Subsidiary held Indian securities.
INFLATION. Certain foreign countries, especially many emerging countries, have
experienced substantial, and in some periods extremely high and volatile, rates
of inflation. Rapid fluctuations in inflation rates and wage and price controls
may continue to have unpredictable effects on the economies, companies and
securities markets of these countries.
DIFFERENCES IN SECURITIES MARKETS. The securities markets in foreign countries
have substantially less trading volume than the markets in the United States and
debt and equity securities of many companies listed on such markets may be less
liquid and more volatile than comparable securities in the United States. Some
of the stock exchanges in foreign countries, to the extent that established
markets exist, are in the earlier stages of their development. The limited
liquidity of certain securities markets may affect the ability of each Fund to
buy and sell securities at the desired price and time.
Trading practices in certain foreign countries are also significantly different
from those in the United States. Although brokerage commissions are generally
higher than those in the U.S., the Investment Adviser will seek to achieve the
most favorable net results. In addition, securities settlements and clearance
procedures may be less developed and less reliable than those in the United
States. Delays in settlement could result in temporary periods in which the
assets of the Funds are not fully invested, or could result in a Fund being
unable to sell a security in a falling market.
CUSTODIAL AND REGISTRATION PROCEDURES. Systems for the registration and transfer
of securities in foreign markets can be less developed than similar systems in
the United States. There may be no standardized process for registration of
securities or a central registration system to track share ownership. The
process for transferring shares may be cumbersome, costly, time-consuming and
uncertain.
GOVERNMENT SUPERVISION OF SECURITIES MARKETS. Disclosure and regulatory
standards in many foreign countries are, in many respects, less stringent than
those in the United States. There may be less government supervision and
regulation of securities exchanges, listed companies, investors, and brokers in
foreign countries than in the United States, and enforcement of existing
regulations may be extremely limited.
<PAGE>
52
PRINCIPAL STRATEGIES, RISKS AND OTHER INFORMATION
FINANCIAL INFORMATION AND REPORTING STANDARDS. Issuers in foreign countries are
generally subject to accounting, auditing, and financial standards and
requirements that differ, in some cases materially, from those in the United
States. In particular, the assets and profits appearing in financial statements
may not reflect their financial position or results in the way they would be
reflected had the statements been prepared in accordance with U.S. generally
accepted accounting principles. Consequently, financial data may not reflect the
true condition of those issuers and securities markets.
GENERAL FIXED INCOME SECURITIES RISKS
The Global Growth & Income, Convertible, Short-Intermediate, High Quality Bond
and High Yield Bond Funds invest in debt securities as a principal strategy. The
remainder of the Funds may invest in debt securities as a non-principal
strategy. The debt securities in which the Funds invest may be of any maturity.
Fixed income securities are subject to the following risks:
MARKET RISK. Prices of fixed income securities rise and fall in response to
interest rate changes for similar securities. Generally, when interest rates
rise, prices of fixed income securities fall. Interest rate changes have a
greater affect on fixed income securities with longer durations.
CREDIT RISK. Credit risk is the possibility that an issuer will default (the
issuer fails to repay interest and principal when due). If an issuer defaults,
the Fund will lose money.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities receive
different credit ratings depending on the rating company's assessment of the
likelihood of default by the issuer. The lower the rating of the fixed income
security, the greater the credit risk.
Lower rated fixed income securities generally compensate for greater credit risk
by paying interest at a higher rate. The difference between the yield of the
security and the yield of a U.S. Treasury security with a comparable maturity
(the "spread") measures the additional interest received for taking risk.
Spreads may increase generally in response to adverse economic or market
conditions. A security's spread may also increase if the security's rating is
lowered, or the security is perceived to have an increased credit risk. An
increase in the spread will cause the price of the security to decline.
CALL RISK. Call risk is the possibility that an issuer may redeem a fixed income
security before maturity ("call") at a price below it's current market price. An
increase in the likelihood of a call may reduce the security's price. If a fixed
income security is called, the Fund may have to reinvest the proceeds in other
fixed income securities with lower interest rates, higher credit risks, or other
less favorable characteristics.
LIQUIDITY RISKS. Fixed income securities that have noninvestment grade credit
ratings, have not been rated or that are not widely held may trade less
frequently than other securities. This may increase the price volatility of
these securities.
FOREIGN RISKS. Foreign debt securities pose additional risks because foreign
economic or political conditions may be less favorable than those of the United
States. Foreign financial markets may also have fewer investor protections. Debt
securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors. Due to these risk factors, foreign debt
securities may be more volatile and less liquid than similar securities traded
in the U.S.
INVESTMENT GRADE BOND RISK. The debt securities in which the High Quality Bond
Fund invests as a principal strategy 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.
LOWER RATED SECURITIES ("HIGH RISK BONDS") RISKS
The Global Growth & Income, Convertible, High Quality Bond and High Yield Funds
invest in debt securities rated below investment grade ("high risk bonds") as a
principal strategy. The remainder of the Funds may invest in debt securities
rated below investment grade as a non-principal strategy. 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.
<PAGE>
53
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.
REPURCHASE AGREEMENTS AND RISKS
Each Fund may enter into repurchase agreements as a non-principal investment
strategy that is, the purchase by the Fund of a security that a seller has
agreed to buy back, usually within one to seven days. The seller's promise to
repurchase the security is fully collateralized by securities equal in value to
102% of the purchase price, including accrued interest. If the seller defaults
and the collateral value declines, the Fund might incur a loss. If the seller
declares bankruptcy, the Fund may not be able to sell the collateral at the
desired time. The Funds enter into these agreements only with brokers, dealers,
or banks that meet credit quality standards established by the Board of
Trustees.
SHORT SALES AND RISKS
A "short sale" is the sale by the Fund of a security which has been borrowed
from a third party on the expectation that the market price will drop. If the
price of the security drops, the Fund will make a profit by purchasing the
security in the open market at a lower price than at which it sold the security.
If the price of the security rises, the Fund may have to cover its short
position at a higher price than the short sale price, resulting in a loss. A
short sale can be covered or uncovered. In a covered short sale, the Fund either
(1) borrows and sells securities it already owns (also known as a short sale
"against the box"), or (2) deposits in a segregated account cash, U.S.
government securities, or other liquid securities in an amount equal to the
difference between the market value of the securities and the short sale price.
Use of uncovered short sales is a speculative investment technique and has
potentially unlimited risk of loss. Accordingly, a Fund will not make uncovered
short sales in an amount exceeding the lesser of 2% of the Fund's net assets or
2% of the securities of such class of the issuer. The Board of Trustees has
determined that 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 AND RISKS
Each Fund may, from time to time, invest all of its assets in short-term
instruments when the Investment Adviser determines that adverse market,
economic, political or other conditions call for a temporary 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 and under
guidelines established by the Directors and will receive collateral in the form
of cash or U.S. government securities equal to least 102% 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
on a non-principal basis. 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
<PAGE>
54
PRINCIPAL STRATEGIES, RISKS AND OTHER INFORMATION
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.
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
<PAGE>
55
in its corporate bond rating system. The modified 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates that the issue ranks in the
lower end of its generic rating category.
DESCRIPTION OF S&P'S CORPORATE BOND RATINGS
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
BB - Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet 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>
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, 2000 and March 31, 1999 and the prior
three 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 1999 Semi Annual and Annual Reports which are available upon
request.
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS FROM:
NET -------------------------------- -----------------------------
ASSET NET NET REALIZED TOTAL FROM DIVIDENDS FROM NET
VALUE INVESTMENT AND UNREALIZED INVESTMENT NET INVESTMENT REALIZED
BEGINNING INCOME (LOSS)(1) GAINS (LOSSES) OPERATIONS INCOME CAPITAL GAINS
<S> <C> <C> <C> <C> <C> <C>
US EQUITY FUNDS
LARGE CAP GROWTH
For the period 5/7/99 through 3/31/00 $29.18 $(0.14) $20.82 $20.68 $ -- $ --
For the period 4/1/99 through
5/7/99 (4) 26.89 (0.01) 2.30 2.29 -- --
For the year ended 3/31/99 16.50 0.01 10.53 10.54 -- (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 5/7/99 through 3/31/00 $19.44 $(0.15) $22.22 $22.07 $ -- $ --
For the period 4/1/99 through
5/7/99 (4) 19.17 (0.01) 0.28 0.27 -- --
For the year ended 3/31/99 17.16 (0.10) 2.76 2.66 -- (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)
SMALL CAP GROWTH
For the period 5/7/99 through 3/31/00 $14.02 $(0.12) $13.51 $13.39 $ -- $(0.38)
For the period 4/1/99 through
5/7/99 (4) 13.53 (0.01) 0.50 0.49 -- --
For the year ended 3/31/99 14.17 (0.14) 0.17 0.03 -- (0.67)
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)
MINI CAP GROWTH
For the year ended 3/31/00 $20.24 $(0.35) $27.92 $27.57 $ -- $(5.27)
For the year ended 3/31/99 25.05 (0.42) (3.05) (3.47) -- (1.34)
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 5/7/99 through 3/31/00 $22.99 $ 0.18 $(1.30) $(1.12) $(0.13) $ --
For the period 4/1/99 through
5/7/99 (4) 20.90 (0.01) 2.10 2.09 -- --
For the year ended 3/31/99 21.90 0.13 0.80 0.93 (0.12) (1.81)
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 5/7/99 through 3/31/00 $22.21 $ 0.49 $11.44 $11.93 $(0.47) $ --
For the period 4/1/99 through
5/7/99 (4) 21.53 0.05 0.63 0.68 -- --
For the year ended 3/31/99 18.64 0.50 3.11 3.61 (0.54) (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) --
US FIXED INCOME FUNDS
SHORT INTERMEDIATE
For the year ended 3/31/00 $12.72 $ 0.76 $(0.29) $ 0.47 $(0.75) $ --
For the year ended 3/31/99 12.76 0.79 (0.04) 0.75 (0.79) --
For the year ended 3/31/98 12.66 0.83 0.10 0.73 (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 5/8/99 through 3/31/00 $12.66 $ 0.73 $(0.56) $ 0.17 $(0.72) $ --
For the period 4/1/99 through
5/7/99 (4) 12.71 0.08 (0.05) 0.03 (0.08) --
For the year ended 3/31/99 13.10 0.83 (0.05) 0.78 (0.78) (0.39)
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 5/7/99 through
3/31/00 $12.58 $ 1.05 ($0.64) $ 0.41 ($1.04) $ --
For the period 4/1/99 through
5/7/99 (4) 12.37 0.13 0.18 0.31 (0.10) --
For the year ended 3/31/99 13.46 1.25 (1.06) 0.50 (1.28) --
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>
- ----------------------------------------
(1) Prior to April 1, 1999, net investment income per share was calculated by
taking the difference in undistributed net investment income per share at
the beginning and end of the period, adjusted for per share distributions.
Beginning April 1, 1999 net investment income per share is calculated by
dividing net investment income for the period by the average shares
outstanding during the period.
(4) Unaudited.
<PAGE>
57
<TABLE>
<CAPTION>
NET ASSET NET ASSETS,
VALUE TOTAL ENDING
END OF PERIOD RETURN(2) (IN 000S)
<S> <C> <C> <C>
US EQUITY FUNDS
LARGE CAP GROWTH
For the period 5/7/99 through 3/31/00 $49.86 70.86% $ 37,982
For the period 4/1/99 through 5/7/99 (4) 29.18 8.52% 6,043
For the year ended 3/31/99 26.89 64.28% 5,940
For the year ended 3/31/98 16.50 63.32% 2,556
12/27/96 (commenced) to 3/31/97 13.00 4.00% 1,293
MID CAP GROWTH
For the period 5/7/99 through 3/31/00 $41.51 113.48% $252,377
For the period 4/1/99 through 5/7/99 (4) 19.44 1.41% 128,710
For the year ended 3/31/99 19.17 16.09% 165,014
For the year ended 3/31/98 17.16 42.49% 169,412
For the year ended 3/31/97 15.39 1.74% 156,443
For the year ended 3/31/96 16.26 35.81% 149,969
SMALL CAP GROWTH
For the period 5/7/99 through 3/31/00 $27.03 96.49% $276,556
For the period 4/1/99 through 5/7/99 (4) 14.02 3.70% 197,120
For the year ended 3/31/99 13.53 1.03% 213,149
For the year ended 3/31/98 14.17 47.38% 257,599
For the year ended 3/31/97 11.06 (5.66%) 167,230
For the year ended 3/31/96 15.10 38.27% 224,077
MINI CAP GROWTH
For the year ended 3/31/00 $42.54 151.76% $ 92,221
For the year ended 3/31/99 20.24 (13.78%) 53,593
For the year ended 3/31/98 25.05 68.89% 82,122
For the year ended 3/31/97 15.94 3.90% 28,712
7/12/95 (commenced) to 3/31/96 15.85 26.80% 25,237
VALUE
For the period 5/7/99 through 3/31/00 $21.74 (4.87%) $ 23,185
For the period 4/1/99 through 5/7/99 (4) 22.99 10.00% 27,818
For the year ended 3/31/99 20.90 4.43% 15,322
For the year ended 3/31/98 21.90 57.78% 10,260
4/30/96 (commenced) to 3/31/97 15.06 26.77% 3,062
CONVERTIBLE
For the period 5/7/99 through 3/31/00 $33.67 54.31% $114,655
For the period 4/1/99 through 5/7/99 (4) 22.21 3.16% 90,843
For the year ended 3/31/99 21.53 19.93% 88,590
For the year ended 3/31/98 18.64 31.78% 80,084
For the year ended 3/31/97 14.97 14.37% 18,344
For the year ended 3/31/96 14.45 26.69% 17,239
US FIXED INCOME FUNDS
SHORT INTERMEDIATE
For the year ended 3/31/00 $12.44 3.80% $ 21,136
For the year ended 3/31/99 12.72 6.02% 18,467
For the year ended 3/31/98 12.76 7.50% 13,535
For the year ended 3/31/97 12.66 5.30% 5,364
8/31/95 (commenced) to 3/31/96 12.79 5.33% 4,726
HIGH QUALITY BOND
For the period 5/8/99 through 3/31/00 $12.11 1.41% $ 19,909
For the period 4/1/99 through 5/7/99 (4) 12.66 0.26% 18,187
For the year ended 3/31/99 12.71 6.14% 15,735
For the year ended 3/31/98 13.10 12.60% 15,759
For the year ended 3/31/97 12.54 4.98% 15,865
8/31/95 (commenced) to 3/31/96 12.72 5.49% 4,413
HIGH YIELD BOND
For the period 5/7/99 through 3/31/00 $11.95 3.39% $ 21,552
For the period 4/1/99 through 5/7/99 (4) 12.58 2.52% 11,412
For the year ended 3/31/99 12.37 1.69% 11,319
For the year ended 3/31/98 13.46 25.49% 10,771
7/31/96 (commenced) to 3/31/97 13.20 13.90% 4,608
<CAPTION>
RATIOS TO AVERAGE NET ASSETS (3)
-------------------------------------------------------------- PORTFOLIO
TOTAL EXPENSE TURNOVER
NET INVESTMENT INCOME EXPENSES REIMBURSEMENTS NET EXPENSES RATE
<S> <C> <C> <C> <C> <C>
US EQUITY FUNDS
LARGE CAP GROWTH
For the period 5/7/99 through 3/31/00 (0.44%) 1.20% (0.19%) 1.01% 154%
For the period 4/1/99 through 5/7/99 (4) (0.40%) 0.98% -- 0.98% 18%
For the year ended 3/31/99 (0.01%) 1.63% (0.65%) 0.98% 253%
For the year ended 3/31/98 (0.17%) 3.67% (2.66%) 1.01% 306%
12/27/96 (commenced) to 3/31/97 (0.06%) 4.99% (3.99%) 1.00% 321%
MID CAP GROWTH
For the period 5/7/99 through 3/31/00 (0.60%) 1.09% (0.08%) 1.01% 110%
For the period 4/1/99 through 5/7/99 (4) (0.70%) 0.99% -- 0.99% 25%
For the year ended 3/31/99 (0.44%) 1.04% (0.08%) 0.96% 154%
For the year ended 3/31/98 (0.72%) 1.19% (0.22%) 0.97% 200%
For the year ended 3/31/97 (0.45%) 1.02% (0.02%) 1.00% 153%
For the year ended 3/31/96 (0.32%) 1.06% (0.08%) 0.98% 114%
SMALL CAP GROWTH
For the period 5/7/99 through 3/31/00 (0.68%) 1.38% (0.19%) 1.19% 84%
For the period 4/1/99 through 5/7/99 (4) (0.87%) 1.17% -- 1.17% 18%
For the year ended 3/31/99 (0.71%) 1.35% (0.10%) 1.25% 90%
For the year ended 3/31/98 (1.16%) 1.44% (0.25%) 1.19% 92%
For the year ended 3/31/97 (0.72%) 1.26% (0.09%) 1.17% 113%
For the year ended 3/31/96 (0.62%) 1.20% (0.04%) 1.16% 130%
MINI CAP GROWTH
For the year ended 3/31/00 (1.32%) 1.76% (0.19%) 1.57% 141%
For the year ended 3/31/99 (1.18%) 1.70% (0.11%) 1.59% 115%
For the year ended 3/31/98 (2.51%) 1.83% (0.26%) 1.57% 113%
For the year ended 3/31/97 (1.08%) 1.99% (0.43%) 1.56% 164%
7/12/95 (commenced) to 3/31/96 (0.98%) 2.46% (0.91%) 1.55% 107%
VALUE
For the period 5/7/99 through 3/31/00 0.97% 1.26% (0.24%) 1.02% 143%
For the period 4/1/99 through 5/7/99 (4) 0.45% 2.48% (1.50%) 0.98% 7%
For the year ended 3/31/99 0.87% 2.11% (1.12%) 0.99% 147%
For the year ended 3/31/98 2.33% 2.46% (1.45%) 1.01% 55%
4/30/96 (commenced) to 3/31/97 1.64% 3.34% (2.34%) 1.00% 139%
CONVERTIBLE
For the period 5/7/99 through 3/31/00 2.02% 1.27% (0.24%) 1.03% 149%
For the period 4/1/99 through 5/7/99 (4) 2.15% 0.99% -- 0.99% 11%
For the year ended 3/31/99 2.67% 1.07% (0.11%) 0.96% 138%
For the year ended 3/31/98 6.25% 1.20% (0.23%) 0.97% 160%
For the year ended 3/31/97 3.43% 1.37% (0.37%) 1.00% 167%
For the year ended 3/31/96 3.88% 1.53% (0.53%) 1.00% 145%
US FIXED INCOME FUNDS
SHORT INTERMEDIATE
For the year ended 3/31/00 6.03% 0.95% (0.61%) 0.34% 162%
For the year ended 3/31/99 6.11% 1.34% (1.00%) 0.34% 104%
For the year ended 3/31/98 13.03% 1.51% (1.15%) 0.36% 197%
For the year ended 3/31/97 6.18% 2.86% (2.51%) 0.35% 132%
8/31/95 (commenced) to 3/31/96 5.81% 3.17% (2.82%) 0.35% 114%
HIGH QUALITY BOND
For the period 5/8/99 through 3/31/00 6.67% 1.14% (0.67%) 0.47% 161%
For the period 4/1/99 through 5/7/99 (4) 6.45% 0.39% -- 0.39% 22%
For the year ended 3/31/99 6.41% 1.15% (0.72%) 0.43% 274%
For the year ended 3/31/98 12.80% 1.64% (1.18%) 0.46% 407%
For the year ended 3/31/97 6.12% 3.74% (3.29%) 0.45% 190%
8/31/95 (commenced) to 3/31/96 6.39% 6.45% (6.00%) 0.45% 60%
HIGH YIELD BOND
For the period 5/7/99 through 3/31/00 9.97% 1.31% (0.50%) 0.81% 113%
For the period 4/1/99 through 5/7/99 (4) 10.66% 0.58% (0.02%) 0.56% 25%
For the year ended 3/31/99 9.79% 1.09% (0.41%) 0.68% 242%
For the year ended 3/31/98 8.28% 2.66% (1.90%) 0.76% 484%
7/31/96 (commenced) to 3/31/97 8.47% 1.95% (1.20%) 0.75% 465%
</TABLE>
- ----------------------------------------
(2) Total returns are not annualized for periods less than one year.
(3) 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. Such amounts would decrease net
investment income (loss) ratios had such reductions not occurred.
<PAGE>
58
FINANCIAL HIGHLIGHTS -- CONTINUED
<TABLE>
<CAPTION>
INCOME FROM
INVESTMENT OPERATIONS LESS DISTRIBUTIONS FROM:
--------------------------------- -----------------------------
NET ASSET NET NET REALIZED TOTAL FROM DIVIDENDS FROM NET
VALUE INVESTMENT AND UNREALIZED INVESTMENT NET INVESTMENT REALIZED
BEGINNING INCOME (LOSS) (1) GAINS (LOSSES) OPERATIONS INCOME CAPITAL GAINS
<S> <C> <C> <C> <C> <C> <C>
INTERNATIONAL EQUITY FUNDS
INTERNATIONAL CORE GROWTH
For the period 5/7/99 through
3/31/00 $20.61 $(0.09) $ 11.38 $ 11.29 $(0.02) $ --
For the period 4/1/99 through
5/7/99 (4) 19.73 (0.02) 0.90 0.88 -- --
For the year ended 3/31/99 18.55 -- 1.18 1.18 -- --
For the year ended 3/31/98 14.13 (0.02) 5.12 5.10 -- (0.68)
12/27/96 (commenced) to 3/31/97 12.50 -- 1.63 1.63 -- --
INTERNATIONAL SMALL CAP GROWTH
For the period 5/7/99 through
3/31/00 $22.38 $(0.24) $ 29.26 $ 29.02 $ -- $ (0.21)
For the period 4/1/99 through
5/7/99 (4) 21.12 (0.01) 1.27 1.26 -- --
For the year ended 3/31/99 18.45 0.03 3.22 3.25 -- (0.58)
For the year ended 3/31/98 17.02 (0.13) 5.50 5.37 -- (3.94)
For the year ended 3/31/97 15.05 -- 2.28 2.28 (0.08) (0.23)
For the year ended 3/31/96 13.09 0.06 2.02 2.08 (0.12) --
EMERGING COUNTRIES
For the period 5/7/99 through
3/31/00 $15.88 $(0.10) $ 7.91 $ 7.81 $ -- $ --
For the period 4/1/99 through
5/7/99 (4) 13.44 (0.02) 2.46 2.44 -- --
For the year ended 3/31/99 17.15 (0.01) (3.63) (3.64) -- (0.07)
For the year ended 3/31/98 17.45 0.09 1.23 1.32 -- (1.62)
For the year ended 3/31/97 14.02 (0.06) 3.67 3.61 (0.05) (0.13)
For the year ended 3/31/96 10.91 -- 3.16 3.16 (0.05) --
PACIFIC RIM
For the year ended 3/31/00 $12.33 $(0.11) $ 16.15 $ 16.04 $ -- $ (2.92)
For the year ended 3/31/99 12.66 (0.07) (0.26) (0.33) -- --
12/31/97 (commenced) to 3/31/98 12.50 0.02 0.14 0.16 -- --
LATIN AMERICA
For the year ended 3/31/00 $11.56 $ 0.03 $ 9.06 $ 9.09 $ -- $ --
For the year ended 3/31/99 13.92 0.06 (2.27) (2.21) (0.15) --
11/28/97 (commenced) to 3/31/98 12.50 0.15 1.27 1.42 -- --
GLOBAL EQUITY FUNDS
WORLDWIDE GROWTH
For the period 5/7/99 through
3/31/00 $23.77 $(0.14) $ 15.07 $ 14.93 $ -- $ --
For the period 4/1/99 through
5/7/99 (4) 22.26 (0.02) 1.53 1.51 -- --
For the year ended 3/31/99 17.90 0.67 5.16 5.83 (0.64) (0.83)
For the year ended 3/31/98 14.21 0.25 4.56 4.81 -- (1.12)
For the year ended 3/31/97 15.42 (0.12) 2.08 1.96 -- (3.17)
For the year ended 3/31/96 13.06 0.06 2.58 2.64 (0.28) --
GLOBAL BLUE CHIP
For the year ended 3/31/00 $20.48 $(0.21) $ 19.90 $ 18.69 $ -- $ (8.26)
For the year ended 3/31/99 14.81 (0.05) 5.86 5.81 -- (0.14)
9/30/97 (commenced) to 3/31/98 12.50 -- 2.31 2.31 -- --
GLOBAL GROWTH & INCOME
For the year ended 3/31/00 $15.21 $ 0.07 $ 7.66 $ 7.73 $(0.12) $ (3.67)
For the year ended 3/31/99 14.25 0.22 1.55 1.77 (0.13) (0.68)
6/30/97 (commenced) to 3/31/98 12.50 0.34 3.86 4.20 (0.34) (2.11)
GLOBAL TECHNOLOGY
For the year ended 3/31/00 $44.64 $(1.09) $108.81 $107.72 $ -- $(13.41)
7/31/98 (commenced) to 3/31/99 12.50 (0.05) 32.19 32.14 -- --
GLOBAL HEALTH CARE
9/1/99 (commenced) to 3/31/00 $12.50 $(0.10) $ 18.52 $ 18.42 $(0.01) $ --
</TABLE>
- ----------------------------------------
(1) Prior to April 1, 1999, net investment income per share was calculated by
taking the difference in undistributed net investment income per share at
the beginning and end of the period, adjusted for per share distributions.
Beginning April 1, 1999, net investment income per share is calculated by
dividing net investment income for the period by the average shares
outstanding during the period.
(4) Unaudited.
<PAGE>
59
<TABLE>
<CAPTION>
NET ASSET NET ASSETS,
VALUE TOTAL ENDING
END OF PERIOD RETURN (2) (IN 000S)
<S> <C> <C> <C>
INTERNATIONAL EQUITY FUNDS
INTERNATIONAL CORE GROWTH
For the period 5/7/99 through
3/31/00 $ 31.88 54.78% $303,536
For the period 4/1/99 through
5/7/99 (4) 20.61 4.46% 117,365
For the year ended 3/31/99 19.73 6.43% 107,890
For the year ended 3/31/98 18.55 36.91% 32,305
12/27/96 (commenced) to 3/31/97 14.13 13.04% 4,593
INTERNATIONAL SMALL CAP GROWTH
For the period 5/7/99 through
3/31/00 $ 51.19 130.09% $270,159
For the period 4/1/99 through
5/7/99 (4) 22.38 5.97% 71,738
For the year ended 3/31/99 21.12 17.97% 69,077
For the year ended 3/31/98 18.45 37.02% 42,851
For the year ended 3/31/97 17.02 15.25% 48,505
For the year ended 3/31/96 15.05 15.99% 20,245
EMERGING COUNTRIES
For the period 5/7/99 through
3/31/00 $ 23.69 49.18% $300,085
For the period 4/1/99 through
5/7/99 (4) 15.88 18.07% 178,902
For the year ended 3/31/99 13.44 (21.22%) 140,318
For the year ended 3/31/98 17.15 8.77% 88,063
For the year ended 3/31/97 17.45 25.48% 56,918
For the year ended 3/31/96 14.02 29.06% 6,878
PACIFIC RIM
For the year ended 3/31/00 $ 25.45 136.92% $ 3,821
For the year ended 3/31/99 12.33 (2.69%) 1,099
12/31/97 (commenced) to 3/31/98 12.66 1.28% 1,197
LATIN AMERICA
For the year ended 3/31/00 $ 20.65 78.67% $ 5,277
For the year ended 3/31/99 11.56 (15.78%) 1,774
11/28/97 (commenced) to 3/31/98 13.92 11.14% 1,184
GLOBAL EQUITY FUNDS
WORLDWIDE GROWTH
For the period 5/7/99 through
3/31/00 $ 38.70 62.81% $188,731
For the period 4/1/99 through
5/7/99 (4) 23.77 6.78% 108,457
For the year ended 3/31/99 22.26 34.28% 74,523
For the year ended 3/31/98 17.90 35.08% 11,686
For the year ended 3/31/97 14.21 13.18% 2,656
For the year ended 3/31/96 15.42 20.37% 3,613
GLOBAL BLUE CHIP
For the year ended 3/31/00 $ 31.91 110.64% $ 24,742
For the year ended 3/31/99 20.48 39.55% 10,414
9/30/97 (commenced) to 3/31/98 14.81 18.48% 7,320
GLOBAL GROWTH & INCOME
For the year ended 3/31/00 $ 19.15 55.69% $ 8,202
For the year ended 3/31/99 15.21 13.13% 5,589
6/30/97 (commenced) to 3/31/98 14.25 36.25% 6,065
GLOBAL TECHNOLOGY
For the year ended 3/31/00 $138.95 259.92% $405,318
7/31/98 (commenced) to 3/31/99 44.64 257.20% 24,094
GLOBAL HEALTH CARE
9/1/99 (commenced) to 3/31/00 $ 30.91 147.42% $125,355
<CAPTION>
RATIOS TO AVERAGE NET ASSETS (3)
-------------------------------------------------------------- PORTFOLIO
TOTAL EXPENSE NET TURNOVER
NET INVESTMENT INCOME EXPENSES REIMBURSEMENTS EXPENSES RATE
<S> <C> <C> <C> <C> <C>
INTERNATIONAL EQUITY FUNDS
INTERNATIONAL CORE GROWTH
For the period 5/7/99 through
3/31/00 (0.36%) 1.38% 0.02% 1.40% 171%
For the period 4/1/99 through
5/7/99 (4) (0.97%) 1.39% -- 1.39% 30%
For the year ended 3/31/99 (0.01%) 1.59% (0.24%) 1.35% 214%
For the year ended 3/31/98 (0.12%) 1.92% (0.51%) 1.41% 274%
12/27/96 (commenced) to 3/31/97 0.43% 3.14% (1.74%) 1.40% 76%
INTERNATIONAL SMALL CAP GROWTH
For the period 5/7/99 through
3/31/00 (0.73%) 1.45% (0.04%) 1.41% 151%
For the period 4/1/99 through
5/7/99 (4) (0.37%) 1.39% -- 1.39% 23%
For the year ended 3/31/99 (0.30%) 1.53% (0.15%) 1.38% 146%
For the year ended 3/31/98 (0.91%) 1.94% (0.53%) 1.41% 198%
For the year ended 3/31/97 (0.38%) 1.68% (0.28%) 1.40% 206%
For the year ended 3/31/96 0.34% 2.44% (1.04%) 1.40% 141%
EMERGING COUNTRIES
For the period 5/7/99 through
3/31/00 (0.62%) 1.77% (0.10%) 1.67% 180%
For the period 4/1/99 through
5/7/99 (4) (1.22%) 1.64% -- 1.64% 34%
For the year ended 3/31/99 0.11% 1.97% (0.30%) 1.67% 213%
For the year ended 3/31/98 1.15% 2.02% (0.36%) 1.66% 243%
For the year ended 3/31/97 (0.52%) 1.87% (0.22%) 1.65% 176%
For the year ended 3/31/96 0.29% 3.59% (1.94%) 1.65% 118%
PACIFIC RIM
For the year ended 3/31/00 (0.55%) 6.25% (4.63%) 1.62% 424%
For the year ended 3/31/99 (0.67%) 14.68% (13.11%) 1.57% 450%
12/31/97 (commenced) to 3/31/98 0.74% 4.50% (3.10%) 1.40% 86%
LATIN AMERICA
For the year ended 3/31/00 0.20% 3.93% (2.17%) 1.76% 463%
For the year ended 3/31/99 0.95% 14.61% (12.97%) 1.64% 575%
11/28/97 (commenced) to 3/31/98 3.33% 5.20% (3.55%) 1.65% 188%
GLOBAL EQUITY FUNDS
WORLDWIDE GROWTH
For the period 5/7/99 through
3/31/00 (0.54%) 1.42% (0.05%) 1.37% 168%
For the period 4/1/99 through
5/7/99 (4) (0.84%) 1.29% -- 1.29% 21%
For the year ended 3/31/99 0.19% 1.51% (0.17%) 1.34% 247%
For the year ended 3/31/98 (0.31%) 1.87% (0.51%) 1.36% 202%
For the year ended 3/31/97 (0.43%) 3.05% (1.70%) 1.35% 182%
For the year ended 3/31/96 0.20% 2.60% (1.25%) 1.35% 132%
GLOBAL BLUE CHIP
For the year ended 3/31/00 (0.81%) 1.82% (0.49%) 1.33% 348%
For the year ended 3/31/99 (0.31%) 3.14% (1.81%) 1.33% 419%
9/30/97 (commenced) to 3/31/98 (0.06%) 2.14% (0.94%) 1.20% 238%
GLOBAL GROWTH & INCOME
For the year ended 3/31/00 0.42% 3.06% (1.68%) 1.38% 295%
For the year ended 3/31/99 1.64% 4.37% (2.96%) 1.41% 328%
6/30/97 (commenced) to 3/31/98 7.13% 2.45% (1.09%) 1.36% 413%
GLOBAL TECHNOLOGY
For the year ended 3/31/00 (1.06%) 1.42% -- 1.42% 357%
7/31/98 (commenced) to 3/31/99 (0.84%) 4.12% (2.69%) 1.43% 254%
GLOBAL HEALTH CARE
9/1/99 (commenced) to 3/31/00 (0.69%) 1.45% (0.04%) 1.41% 327%
</TABLE>
- ----------------------------------------
(2) Total returns are not annualized for periods less than one year.
(3) 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. Such amounts would decrease net
investment income (loss) ratios 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
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)
<S> <C> <C> <C> <C> <C> <C>
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 47.03 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) 38.57 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 22.54 23.30 16.92 14.09 (10.27)
1998 14.65 17.86 21.54 6.55 36.34 14.14
1999 99.11 51.31 51.50 42.28 128.11 42.28
Last year(5) 16.48 77.20 59.17 45.84 143.81 23.58
Last 5 years(5) 37.69 30.33 37.69 20.22 39.44 5.56
Last 10 years(5) 25.89 21.69 25.59 15.70 n/a n/a
Since inception(5) 25.27 19.28 25.27 13.67 19.40 3.69
</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 March 31, 2000.
<PAGE>
NEW ACCOUNT FORM (NON-IRA)
INSTITUTIONAL SHARES
FOR AN IRA ACCOUNT APPLICATION, CALL 800 - 551-8643.
N I C H O L A S-A P P L E G A T E-REGISTERED TRADEMARK-
MAIL TO:
Nicholas-Applegate Institutional Funds
PO Box 8326
Boston, MA 02266-8326
800 - 551-8043
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>
- ---------------------------------------------------------
Convertible I(1204) / / $
- ---------------------------------------------------------
Emerging Countries I(1205) / / $
- ---------------------------------------------------------
Global Blue Chip I(943) / / $
- ---------------------------------------------------------
Global Growth & Income I(970) / / $
- ---------------------------------------------------------
Global Health Care I(1256) / / $
- ---------------------------------------------------------
Global Technology I(437) / / $
- ---------------------------------------------------------
High Quality Bond I(1207) / / $
- ---------------------------------------------------------
High Yield Bond I(1206) / / $
- ---------------------------------------------------------
International Core Growth I(1208) / / $
- ---------------------------------------------------------
International Small Cap Growth I(1209) / / $
- ---------------------------------------------------------
Large Cap Growth I(1210) / / $
- ---------------------------------------------------------
Latin America I(787) / / $
- ---------------------------------------------------------
Mid Cap Growth I(1211) / / $
- ---------------------------------------------------------
Mini Cap Growth I(753) / / $
- ---------------------------------------------------------
Pacific Rim I(789) / / $
- ---------------------------------------------------------
Short Intermediate I(182) / / $
- ---------------------------------------------------------
Small Cap Growth I(1212) / / $
- ---------------------------------------------------------
Value I(1213) / / $
- ---------------------------------------------------------
Worldwide Growth I(1214) / / $
- ---------------------------------------------------------
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.
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 Day* Monthly Quarterly (JAN/APRIL/JULY/OCT)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ $_ _ ,_ _ _ ._ _ _ _ _ _
Fund Name Amount 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 Amount Day* Monthly Quarterly (JAN/APRIL/JULY/OCT)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Account Number (IF KNOWN)
TO:
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ $_ _ ,_ _ _ ._ _ _ _ _ _
Fund Name Amount Day* Monthly Quarterly (JAN/APRIL/JULY/OCT)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
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 Amount Day* Monthly Quarterly (JAN/APRIL/JULY/OCT)
BY CHECK (DO NOT NEED TO COMPLETE
SECTION 10)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ $_ _ ,_ _ _ ._ _ _ _ _ _
1 5
Fund Name Amount Day* Monthly Quarterly (JAN/APRIL/JULY/OCT)
</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 the Investment Adviser may pay a service fee of up to .25%
from its own resources to intermediaries for their shareholder service
efforts and commitment to the Nicholas-Applegate Institutional Funds.
/ / I understand that mutual funds involve risks, including possible loss of
principal.
I CERTIFY, UNDER PENALTIES OF PERJURY, THAT:
1. The Social Security or Taxpayer Identification Number shown on this form is
correct. (If I fail to give the correct number or to sign this form,
Nicholas-Applegate Institutional Funds may reject or redeem my investment. I
may also be subject to any applicable IRS Backup Withholding for all
distributions and redemptions.)
2. / / I am NOT currently subject to IRS Backup Withholding because (a) I have
not been notified of it or (b) notification has been revoked.
/ / I am currently subject to IRS Backup Withholding.
I agree that neither Nicholas-Applegate Securities, the Trust, nor any of their
affiliates will be responsible for the authenticity of any instructions given
and shall be fully indemnified as to and held harmless from any and all direct
and indirect liabilities, losses, or costs resulting from acting upon such
transactions.
<TABLE>
<S> <C>
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ - _ _ _ _
Shareowner, Custodian, Trustee or Authorized Officer Date
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ - _ _ _ _
Joint Owner, Custodian, Trustee or Authorized Officer Date
</TABLE>
<PAGE>
F O R M O R E I N F O R M A T I O N
More information on these Funds is available
free upon request, including the following:
ANNUAL/SEMI-ANNUAL 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, Suite 3000
San Diego, CA 92101
BY E-MAIL Send your request to www.nacm.com
ON THE INTERNET Text versions of the Funds'
documents can be viewed online or downloaded from:
SEC
http://www.sec.gov
You can also obtain copies by visiting the SEC's
Public Reference Room in Washington, DC
(phone 1-800-SEC-0330) or sending your request
and a duplicating fee to the SEC's Public
Reference Section, Washington, DC 20549-6009
N I C H O L A S-A P P L E G A T E-REGISTERED
TRADEMARK-
600 West Broadway
San Diego, CA 92101
800-551-8643
Nicholas-Applegate Securities, Distributor
Visit us at www.nacm.com
Nicholas-Applegate Institutional Funds
SEC file number: 333-71469
MFIPROI700
<PAGE>
[NICHOLAS APPLEGATE LOGO]
INSTITUTIONAL FUNDS PROSPECTUS
RETIREMENT SHARES
- ------------------------------------
GLOBAL FUNDS
International Core Growth
Emerging Countries
US FUNDS
Large Cap Growth
Mid Cap Growth
Small Cap Growth
Value
FIXED INCOME FUNDS
High Quality Bond
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
DETERMINED THAT THE INFORMATION IN THIS PROSPECTUS IS ACCURATE OR COMPLETE,
NOR HAS IT APPROVED OR DISAPPROVED THESE SECURITIES. IT IS A CRIMINAL OFFENSE
TO STATE OTHERWISE.
JULY , 2000
- ---------------------------------------
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
A FUND BY FUND LOOK AT GOALS,
STRATEGIES, RISKS AND HISTORICAL
PERFORMANCE.
GLOBAL FUNDS
International Core Growth 1
Emerging Countries 3
US FUNDS
Large Cap Growth 5
Mid Cap Growth 7
Small Cap Growth 9
Value 11
FIXED INCOME FUNDS
High Quality Bond 13
- --------------------------------------------------------------------------------
POLICIES AND INSTRUCTIONS FOR
OPENING, MAINTAINING AND
CLOSING AN ACCOUNT IN ANY
FUND.
SIMPLIFIED ACCOUNT INFORMATION
Opening an Account 15
Buying Shares 15
Exchanging Shares 16
Selling Shares 16
Signature Guarantees 17
YOUR ACCOUNT
Transaction Policies 18
Features and Account Policies 18
- --------------------------------------------------------------------------------
FURTHER INFORMATION THAT APPLIES
TO THE FUNDS AS A GROUP.
ORGANIZATION AND MANAGEMENT
Investment Adviser 20
Investment Adviser Compensation 20
Expense Waivers 20
Multi Class Structure 21
Shareholder Services and
Distribution Plans 21
Portfolio Turnover 21
Portfolio Trades 21
Portfolio Management 21
- --------------------------------------------------------------------------------
PRINCIPAL STRATEGIES, RISKS AND OTHER
INFORMATION 25
FINANCIAL HIGHLIGHTS 30
PRIOR PERFORMANCE OF CERTAIN FUNDS 32
FOR MORE INFORMATION Back Cover
<PAGE>
1
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 large capitalized companies ("large cap stocks")
located in over 50 countries worldwide. In opinion of the Fund's Investment
Adviser large cap stocks are those whose stock market capitalization's are
predominantly in the top 75% of publicly traded companies as measured by stock
market capitalizations in each country. Generally this means those with market
capitalizations greater than U.S. $5 billion.
The Investment Adviser focuses on a "bottom-up" analysis on the financial
conditions and competitiveness of individual companies worldwide. In analyzing
specific companies for possible investment, the Fund's Investment Adviser
ordinarily looks for several of the following characteristics: above-average per
share earnings growth; high return on invested capital; a healthy balance sheet;
sound financial and accounting policies and overall financial strength; strong
competitive advantages; effective research and product development and
marketing; development of new technologies; efficient service; pricing
flexibility; strong management; and general operating characteristics that will
enable the companies to compete successfully in their respective markets. The
Investment Adviser considers whether to sell a particular security when any of
those factors materially changes.
The Investment Adviser allocates the Fund's assets among securities of countries
that are expected to provide the best opportunities for meeting the Fund's
investment objective.
The Fund may also lend portfolio securities on a short-term or long-term basis,
up to 30% of its total assets. The Investment Adviser expects a high portfolio
turnover rate of 200% or more.
[GRAPHIC]PRINCIPAL INVESTMENTS
The Fund normally invests at least 75% of its assets in equity 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 companies located in countries with emerging
securities markets. The Fund may invest at least 35% of its assets in U.S.
companies.
The market capitalization ranges of the large cap stocks in which the Fund
invests may fluctuate greatly due to changing currency values, differences in
the size of the respective economies, and movements in the local stock markets.
[GRAPHIC]PRIMARY RISKS
Because you could lose money by investing in the Fund, be sure to read all risk
disclosures carefully before investing. The Fund is primarily subject to the
following risks:
/ / STOCK MARKET VOLATILITY--The prices of equity securities change in response
to many factors, including the historical and prospective earnings of the
issuer, the value of its assets, general economic conditions, interest
rates, investor perceptions, and market liquidity. Stock prices are
unpredictable, may fall suddenly and may continue to fall for extended
periods.
/ / FOREIGN SECURITIES RISKS--The prices of foreign securities may be further
affected by other factors, including:
CURRENCY EXCHANGE RATES--The dollar value of the Fund's foreign investments
will be affected by changes in the exchange rates between the dollar and
the currencies in which those investments are traded.
POLITICAL AND ECONOMIC CONDITIONS--The value of the Fund's foreign
investments may be adversely affected by political and social instability
in their home countries and by changes in economic or taxation policies in
those countries.
REGULATIONS--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available
information about foreign companies than about U.S. companies.
MARKETS--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and their prices may be more volatile than U.S. securities.
EMERGING SECURITIES MARKETS--To the extent that the Fund invests in
countries with emerging markets, the foreign securities risks are magnified
since these countries may have unstable governments and less established
markets.
/ / SECURITIES LENDING--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.
/ / ACTIVE PORTFOLIO TRADING--A high portfolio turnover rate is likely to
generate more taxable short-term gains for shareholders and may have an
adverse effect on the Fund's performance.
See "Principal Strategies, Risks and Other Information" starting on page 24.
<PAGE>
2
INTERNATIONAL CORE GROWTH FUND
[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
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<TABLE>
<S> <C>
97 30.24
98 21.26
99 68.65
</TABLE>
<TABLE>
<S> <C> <C>
BEST QUARTER: Q4 '99 +43.61%
WORST QUARTER: Q3 '98 -14.83%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 3/31/00
SINCE INCEPTION
1 YEAR (12/27/96)
<S> <C> <C>
- --------------------------------------------------------------
FUND 61.32 34.76
MSCI EAFE 25.10 14.29
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 6/30/00 WAS .
INDEX: MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALIA,
FAR EAST INDEX (MSCI EAFE) IS AN UNMANAGED TOTAL-RETURN
PERFORMANCE BENCHMARK. IT IS A CAPITALIZATION-WEIGHTED INDEX
REPRESENTATIVE OF THE STOCK MARKET STRUCTURE OF EUROPE AND THE
PACIFIC BASIN.
CLASS 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>
[GRAPHIC]INVESTOR FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
<S> <C>
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+ 0.00%
- --------------------------------------------------------------------------------------
Other expenses (before waivers) 0.89%
- --------------------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.61%
- --------------------------------------------------------------------------------------
Waiver of fund expenses 0.04%
- --------------------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.65%
+ Class R Shares have adopted a 12b-1 Plan that may pay a fee to the Distributor at an
annual rate of up to 0.25% of their average daily net assets. The Fund has no
current intention of activating the Plan and will give shareholders 60-days notice
prior to activation of the Plan. See "Shareholder Services and Distribution Plans."
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2001, the Investment Adviser
has contractually agreed to waive or defer its management fees and to pay other
operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a three year period. The Investment Adviser may not amend the fee
waiver agreement without the consent of the Fund. See "Expense Waivers" on page 20.
</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 FOR THE 1 YEAR PERIOD, AND BEFORE WAIVERS
FOR THE OTHER PERIODS SHOWN. ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER,
BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year 1 Year 3 Year 5 Year 10
$168 $570 $1,999 $1,969
</TABLE>
<PAGE>
3
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
selects portfolio securities from an investment universe of approximately 6,000
foreign companies in over 35 emerging markets.
In analyzing specific companies for possible investment, the Fund's Investment
Adviser ordinarily looks for several of the following characteristics: above-
average per share earnings growth; high return on invested capital; a healthy
balance sheet; sound financial and accounting policies and overall financial
strength; strong competitive advantages; effective research and product
development and marketing; development of new technologies; efficient service;
pricing flexibility; strong management; and general operating characteristics
that will enable the companies to compete successfully in their respective
markets. The Investment Adviser considers whether to sell a particular security
when any of those factors materially changes.
The Investment Adviser allocates the Fund's assets among securities of countries
that are expected to provide the best opportunities for meeting the Fund's
investment objective. The Fund may also lend portfolio securities on a
short-term or long-term basis, up to 30% of its total assets. The Investment
Adviser expects a high portfolio turnover rate of 200% or more.
[GRAPHIC]PRINCIPAL INVESTMENTS
The Fund normally invests 75% of its assets in equity securities. 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.
[GRAPHIC]PRIMARY RISKS
Because you could lose money by investing in the Fund, be sure to read all risk
disclosures carefully before investing. The Fund is primarily subject to the
following risks:
/ / STOCK MARKET VOLATILITY--The prices of equity securities change in response
to many factors, including the historical and prospective earnings of the
issuer, the value of its assets, general economic conditions, interest
rates, investor perceptions, and market liquidity. Stock prices are
unpredictable, may fall suddenly and may continue to fall for extended
periods.
/ / SMALLER ISSUERS--Investments in small-capitalization companies entail
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. Information regarding
smaller companies may be less available, incomplete or inaccurate, and their
securities may trade less frequently than those of larger companies.
/ / FOREIGN SECURITIES RISKS--The prices of foreign securities may be further
affected by other factors, including:
CURRENCY EXCHANGE RATES--The dollar value of the Fund's foreign investments
will be affected by changes in the exchange rates between the dollar and
the currencies in which those investments are traded.
POLITICAL AND ECONOMIC CONDITIONS--The value of the Fund's foreign
investments may be adversely affected by political and social instability
in their home countries and by changes in economic or taxation policies in
those countries.
REGULATIONS--Foreign companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available
information about foreign companies than about U.S. companies.
MARKETS--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many foreign securities may be less liquid
and their prices may be more volatile than U.S. securities.
EMERGING SECURITIES MARKETS--The foreign securities risks are magnified in
countries with emerging securities markets since these countries may have
unstable governments and less established markets. These 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.
/ / SECURITIES LENDING--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.
/ / ACTIVE PORTFOLIO TRADING--A high portfolio turnover rate is likely to
generate more taxable short-term gains for shareholders and may have an
adverse effect on the Fund's performance.
See "Principal Strategies, Risks and Other Information" starting on page 24.
<PAGE>
4
EMERGING COUNTRIES FUND
[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
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<TABLE>
<S> <C>
95 6.77
96 27.75
97 9.79
98 -21.42
99 79.06
</TABLE>
<TABLE>
<S> <C> <C>
BEST QUARTER: Q4 '99 +38.27%
WORST QUARTER: Q3 '98 -25.98%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 3/31/00
SINCE INCEPTION
1 YEAR (11/28/94)
<S> <C> <C>
- -------------------------------------------------------------------
FUND 78.85 15.01
MSCI EMF FREE 51.07 1.03
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 6/30/00 WAS .
INDEX: THE MORGAN STANLEY CAPITAL INTERNATIONAL EMERGING MARKETS
FREE INDEX (MSCI EMF) IS COMPOSED OF COMPANIES REPRESENTATIVE OF
THE MARKET STRUCTURE OF 22 EMERGING MARKET COUNTRIES IN EUROPE,
LATIN AMERICA, AND THE PACIFIC BASIN. THE INDEX EXCLUDES CLOSED
MARKETS AND THOSE SHARES IN OTHERWISE FREE MARKETS WHICH ARE NOT
PURCHASABLE BY FOREIGNERS. THE INDEX IS UNMANAGED.
CLASS 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>
[GRAPHIC]INVESTOR FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
<S> <C>
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+ 0.00%
- ---------------------------------------------------------------------------------
Other expenses (before waivers) 0.97%
- ---------------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.99%
- ---------------------------------------------------------------------------------
Waiver of fund expenses (0.05%)
- ---------------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.94%
+ Class R Shares have adopted a 12b-1 Plan that may pay a fee to the Distributor
at an annual rate of up to 0.25% of their average daily net assets. The Fund
has no current intention of activating the Plan and will give shareholders
60-days notice prior to activation of the Plan. See "Shareholder Services and
Distribution Plans."
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2001, the Investment
Adviser has contractually agreed to waive or defer its management fees and to pay
other operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a three year period. The Investment Adviser may not amend
the fee waiver agreement without the consent of the Fund. See "Expense Waivers"
on page 20.
</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 FOR THE 1 YEAR PERIOD, AND BEFORE WAIVERS
FOR THE OTHER PERIODS SHOWN. ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER,
BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year 1 Year 3 Year 5 Year 10
$193 $664 $1,160 $2,270
</TABLE>
<PAGE>
5
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 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").
In analyzing specific companies for possible investment, the Fund's Investment
Adviser ordinarily looks for several of the following characteristics: above-
average per share earnings growth; high return on invested capital; a healthy
balance sheet; sound financial and accounting policies and overall financial
strength; strong competitive advantages; effective research and product
development and marketing; development of new technologies; efficient service;
pricing flexibility; strong management; and general operating characteristics
that will enable the companies to compete successfully in their respective
markets. The Investment Adviser considers whether to sell a particular security
when any of those factors materially changes.
The Investment Adviser expects a high portfolio turnover rate of 200% or more.
The Fund may also lend portfolio securities on a short-term or long-term basis,
up to 30% of its total assets.
[GRAPHIC]PRINCIPAL INVESTMENTS
Normally, the Fund invests at least 65% of its total assets in large cap equity
securities. Generally, large cap companies are those with market capitalizations
corresponding to the upper 90% of the Russell 1000 Growth Index at time of
purchase. The market capitalization of companies held by the Fund as of
March 31, 2000 ranged from $2.7 billion to $507.3 billion. Capitalization of
companies held by the Fund may fluctuate greatly as the market moves upwards or
downwards change with market conditions.
[GRAPHIC]PRIMARY RISKS
Because you could lose money by investing in the Fund, be sure to read all risk
disclosures carefully before investing. The Fund is primarily subject to the
following risks:
/ / STOCK MARKET VOLATILITY--The prices of equity securities change in response
to many factors, including the historical and prospective earnings of the
issuer, the value of its assets, general economic conditions, interest
rates, investor perceptions, and market liquidity. Stock prices are
unpredictable, may fall suddenly and may continue to fall for extended
periods.
To the extent the Fund is overweighted in certain market sectors compared to
the Russell 1000 Growth Index, the Fund may be more volatile than the Index.
/ / ISSUER-SPECIFIC RISKS--The value of an individual security or particular
type of security can be more volatile than the market as a whole and can
perform differently than the value of the market as a whole.
/ / ACTIVE PORTFOLIO TRADING--A high portfolio turnover rate is likely to
generate more table short-term gains for shareholders and may have an
adverse effect on the Fund's performance.
/ / SECURITIES LENDING--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.
For further explanation, see "Principal Strategies, Risks and Other Information"
starting on page 24.
[GRAPHIC]PAST PERFORMANCE
The following 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
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<TABLE>
<S> <C>
97 45.67
98 60.34
99 29.51
</TABLE>
<TABLE>
<S> <C> <C>
BEST QUARTER: Q4 '98 +37.95%
WORST QUARTER: Q3 '98 -8.44%
</TABLE>
<PAGE>
6
LARGE CAP GROWTH FUND
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 12/31/00
SINCE INCEPTION
1 YEAR (12/27/96)
<S> <C> <C>
- -----------------------------------------------------------------
FUND 85.04 65.19
RUSSELL 1000 GROWTH 33.98 33.12
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 6/30/00 WAS .
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.
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>
[GRAPHIC]INVESTOR FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
<S> <C>
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+ 0.00%
- ---------------------------------------------------------------------------------
Other expenses (before waivers) 1.15%
- ---------------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.42%
- ---------------------------------------------------------------------------------
Waiver of fund expenses (0.15%)
- ---------------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.27%
+ Class R Shares have adopted a 12b-1 Plan that may pay a fee to the Distributor
at an annual rate of up to 0.25% of their average daily net assets. The Fund
has no current intention of activating the Plan and will give shareholders
60-days notice prior to activation of the Plan. See "Shareholder Services and
Distribution Plans."
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2001, the Investment
Adviser has contractually agreed to waive or defer its management fees and to pay
other operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a three year period. The Investment Adviser may not amend
the fee waiver agreement without the consent of the Fund. See "Expense Waivers"
on page 20.
</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 FOR THE 1 YEAR PERIOD, AND BEFORE WAIVERS
FOR THE OTHER PERIODS SHOWN. ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER,
BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year 1 Year 3 Year 5 Year 10
$127 $534 $966 $2,169
</TABLE>
<PAGE>
7
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 ("mid cap companies").
In analyzing specific companies for possible investment, the Fund's Investment
Adviser ordinarily looks for several of the following characteristics: above-
average per share earnings growth; high return on invested capital; a healthy
balance sheet; sound financial and accounting policies and overall financial
strength; strong competitive advantages; effective research and product
development and marketing; development of new technologies; efficient service;
pricing flexibility; strong management; and general operating characteristics
that will enable the companies to compete successfully in their respective
markets. The Investment Adviser considers whether to sell a particular security
when any of those factors materially changes.
The Investment Adviser expects a high portfolio turnover rate of 200% or more.
The Fund may also lend portfolio securities on a short-term or long-term basis,
up to 30% of its total assets.
[GRAPHIC]PRINCIPAL INVESTMENTS
Normally, the Fund invests at least 75% of its total assets in common stocks of
U.S. mid cap companies. In the Investment Adviser's opinion, the middle 90%
includes companies with capitalizations between $1.6 billion and $10.7 billion.
Capitalization of companies held by the Fund may fluctuate greatly as the market
moves upwards or downwards.
[GRAPHIC]PRIMARY RISKS
Because you could lose money by investing in the Fund, be sure to read all risk
disclosures carefully before investing. The Fund is primarily subject to the
following risks:
/ / STOCK MARKET VOLATILITY--The prices of equity securities change in response
to many factors, including the historical and prospective earnings of the
issuer, the value of its assets, general economic conditions, interest
rates, investor perceptions, and market liquidity. Stock prices are
unpredictable, may fall suddenly and may continue to fall for extended
periods.
/ / ISSUER-SPECIFIC RISKS--The value of an individual security or particular
type of security can be more volatile than the market as a whole and can
perform differently than the value of the market as a whole.
/ / SMALLER ISSUERS--Investments in smaller-capitalization companies entail
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. Information regarding
smaller companies may be less available, incomplete or inaccurate, and their
securities may trade less frequently than those of larger companies.
/ / ACTIVE PORTFOLIO TRADING--A high portfolio turnover rate is likely to
generate more table short-term gains for shareholders and may have an
adverse effect on the Fund's performance.
/ / SECURITIES LENDING--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.
See "Principal Strategies, Risks and Other Information" starting on page 24.
[GRAPHIC]PAST PERFORMANCE
The following 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.
<PAGE>
8
MID CAP GROWTH FUND
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<TABLE>
<S> <C>
94 -10.77
95 38.25
96 16.18
97 16.38
98 14.34
99 99.82
</TABLE>
<TABLE>
<S> <C> <C>
BEST QUARTER: Q1 '91 +25.95%
WORST QUARTER: Q4 '87 -24.86%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 3/31/00
SINCE INCEPTION
1 YEAR 5 YEARS (4/19/93)
<S> <C> <C> <C>
- ----------------------------------------------------------------
FUND 117.16 37.51 27.69
RUSS MIDCAP GROWTH 77.20 30.33 19.28
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 6/30/00 WAS .
INDEX: THE RUSSELL MID CAP GROWTH INDEX MEASURES THE PERFORMANCE
OF THOSE COMPANIES AMONG THE 800 SMALLEST IN THE RUSSELL 1000
INDEX WITH HIGHER THAN AVERAGE PRICE-TO-BOOK RATIOS AND
FORECASTED GROWTH. THE RUSSELL MID CAP GROWTH INDEX IS
CONSIDERED GENERALLY REPRESENTATIVE OF THE U.S. MARKET FOR MID
CAP STOCKS. THE INDEX IS UNMANAGED.
CLASS 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>
[GRAPHIC]INVESTOR FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
<S> <C>
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+ 0.00%
- ---------------------------------------------------------------------------------
Other expenses (before waivers) 0.58%
- ---------------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.23%
- ---------------------------------------------------------------------------------
Waiver of fund expenses (0.21%)
- ---------------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.02%
+ Class R Shares have adopted a 12b-1 Plan that may pay a fee to the Distributor
at an annual rate of up to 0.25% of their average daily net assets. The Fund
has no current intention of activating the Plan and will give shareholders
60-days notice prior to activation of the Plan. See "Shareholder Services and
Distribution Plans."
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2001, the Investment
Adviser has contractually agreed to waive or defer its management fees and to pay
other operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a three year period. The Investment Adviser may not amend
the fee waiver agreement without the consent of the Fund. See "Expense Waivers"
on page 20.
</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 FOR THE 1 YEAR PERIOD, AND BEFORE WAIVERS
FOR THE OTHER PERIODS SHOWN. ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER,
BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year 1 Year 3 Year 5 Year 10
$127 $414 $721 $1,432
</TABLE>
<PAGE>
9
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
("small capitalizations").
In analyzing specific companies for possible investment, the Fund's Investment
Adviser ordinarily looks for several of the following characteristics: above-
average per share earnings growth; high return on invested capital; a healthy
balance sheet; sound financial and accounting policies and overall financial
strength; strong competitive advantages; effective research and product
development and marketing; development of new technologies; efficient service;
pricing flexibility; strong management; and general operating characteristics
that will enable the companies to compete successfully in their respective
markets. The Investment Adviser considers whether to sell a particular security
when any of those factors materially changes.
The Fund may also lend portfolio securities on a short-term or long-term basis,
up to 30% of its total assets.
[GRAPHIC]PRINCIPAL INVESTMENTS
Normally, the Fund invests at least 75% of its total assets in common stocks of
small capitalization U.S. companies. As of March 31, 2000, the market
capitalizations of companies held by the Fund ranged from $0.5 billion to
$75.8 billion. Capitalization of companies held by the Fund may fluctuate
greatly as the market moves upwards or downwards.
[GRAPHIC]PRIMARY RISKS
Because you could lose money by investing in the Fund, be sure to read all risk
disclosures carefully before investing. The Fund is primarily subject to the
following risks:
/ / STOCK MARKET VOLATILITY--The prices of equity securities change in response
to many factors, including the historical and prospective earnings of the
issuer, the value of its assets, general economic conditions, interest
rates, investor perceptions, and market liquidity. Stock prices are
unpredictable, may fall suddenly and may continue to fall for extended
periods.
/ / ISSUER-SPECIFIC RISKS--The value of an individual security or particular
type of security can be more volatile than the market as a whole and can
perform differently than the value of the market as a whole. The value of
securities of smaller issuers can be more volatile than that of larger
issuers.
/ / SMALLER ISSUERS--Investments in small-capitalization companies entail
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. Information regarding
smaller companies may be less available, incomplete or inaccurate, and their
securities may trade less frequently than those of larger companies.
/ / SECURITIES LENDING--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.
See "Principal Strategies, Risks and Other Information" starting on page 24.
[GRAPHIC]PAST PERFORMANCE
The following 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.
<PAGE>
10
SMALL CAP GROWTH FUND
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<TABLE>
<S> <C>
94 -3.87
95 35.22
96 18.43
97 11.65
98 3.82
99 93.05
</TABLE>
<TABLE>
<S> <C> <C>
BEST QUARTER: Q4 '99 +51.73%
WORST QUARTER: Q3 '98 -23.60%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 3/31/00
SINCE INCEPTION
1 YEAR 5 YEARS (10/1/93)
<S> <C> <C> <C>
- -------------------------------------------------------------------
FUND 103.52 31.21 23.53
RUSSELL 2000 GROWTH 59.06 19.82 15.90
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 6/30/00 WAS .
INDEX: THE RUSSELL 2000 GROWTH INDEX IS AN UNMANAGED INDEX
CONTAINING THOSE SECURITIES IN THE RUSSELL 2000 INDEX WITH A
GREATER-THAN-AVERAGE GROWTH ORIENTATION. COMPANIES IN THIS INDEX
GENERALLY HAVE HIGHER PRICE-TO-BOOK AND PRICE-EARNINGS RATIOS. THE
RUSSELL 2000 INDEX IN AN UNMANAGED INDEX AND IS A WIDELY REGARDED
SMALL-CAP INDEX OF THE 2,000 SMALLEST SECURITIES IN THE
RUSSELL 3000 INDEX WHICH COMPRISES THE 3,000 LARGEST U.S.
SECURITIES AS DETERMINED BY TOTAL MARKET CAPITALIZATION.
CLASS 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>
[GRAPHIC]INVESTOR FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
<S> <C>
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+ 0.00%
- ---------------------------------------------------------------------------------
Other expenses (before waivers) 0.52%
- ---------------------------------------------------------------------------------
Total annual fund operating expenses (before waivers)++ 1.62%
- ---------------------------------------------------------------------------------
Waiver of fund expenses (0.20%)
- ---------------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.42%
+ Class R Shares have adopted a 12b-1 Plan that may pay a fee to the Distributor
at an annual rate of up to 0.25% of their average daily net assets. The Fund
has no current intention of activating the Plan and will give shareholders
60-days notice prior to activation of the Plan. See 'Shareholder Services and
Distribution Plans.'
++ The numbers shown are estimates and reflect a restatement of expenses due to a
conversion from a "Master-Feeder" structure and reduced custody and
administration costs.
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2001, the Investment
Adviser has contractually agreed to waive or defer its management fees and to pay
other operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a three year period. The Investment Adviser may not amend
the fee waiver agreement without the consent of the Fund. See "Expense Waivers"
on page 20.
</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 FOR THE 1 YEAR PERIOD, AND BEFORE WAIVERS
FOR THE OTHER PERIODS SHOWN. ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER,
BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year 1 Year 3 Year 5 Year 10
$145 $470 $819 $1,620
</TABLE>
<PAGE>
11
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.
In analyzing specific companies for possible investment, the Fund's Investment
Adviser ordinarily looks for several of the following characteristics: above-
average per share earnings growth; high return on invested capital; a healthy
balance sheet; sound financial and accounting policies and overall financial
strength; strong competitive advantages; effective research and product
development and marketing; development of new technologies; efficient service;
pricing flexibility; strong management; and general operating characteristics
that will enable the companies to compete successfully in their respective
markets. The Investment Adviser considers whether to sell a particular security
when any of those factors materially changes. The Investment Adviser expects a
high portfolio turnover rate of 200% or more.
[GRAPHIC]PRINCIPAL INVESTMENTS
Normally, the Fund invests at least 80% of its total assets in common stocks of
large U.S. companies.
[GRAPHIC]PRIMARY RISKS
Because you could lose money by investing in the Fund, be sure to read all risk
disclosures carefully before investing. The Fund is primarily subject to the
following risks:
/ / VALUE INVESTING--The determination that a stock is undervalued is
subjective; the market may not agree, and the stock's price may not rise to
what the Investment Adviser believes is its full value. It may even decrease
in value. However, because the Fund's focus on undervalued stocks, the
Fund's downside risk may be less than with small company stocks since value
stocks are in theory already underpriced.
/ / STOCK MARKET VOLATILITY--The prices of equity securities change in response
to many factors, including the historical and prospective earnings of the
issuer, the value of its assets, general economic conditions, interest
rates, investor perceptions, and market liquidity. Stock prices are
unpredictable, may fall suddenly and may continue to fall for extended
periods.
/ / ISSUER-SPECIFIC RISKS--The value of an individual security or particular
type of security can be more volatile than the market as a whole and can
perform differently than the value of the market as a whole.
/ / ACTIVE PORTFOLIO TRADING--A high portfolio turnover rate is likely to
generate more taxable short-term gains for shareholders and may have an
adverse effect on the Fund's performance.
See "Principal Strategies, Risks and Other Information" starting on page 24.
[GRAPHIC]PAST PERFORMANCE
The following 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.
<PAGE>
12
VALUE FUND
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<TABLE>
<S> <C>
97 40.13
98 19.85
99 8.67
</TABLE>
<TABLE>
<S> <C> <C>
BEST QUARTER: Q4 '98 +16.92%
WORST QUARTER: Q3 '98 -12.47%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 3/31/00
SINCE INCEPTION
1 YEAR (4/30/96)
<S> <C> <C>
- --------------------------------------------------------------
FUND 4.36 21.81
S&P 500 17.94 25.60
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 6/30/00 WAS .
INDEX: THE STANDARD AND POOR'S 500 INDEX (S&P 500) IS AN
UNMANAGED INDEX COMPRISED OF 500 U.S. INDUSTRIAL,
TRANSPORTATION, UTILITY AND FINANCIAL COMPANIES AND IS
CONSIDERED TO BE GENERALLY REPRESENTATIVE OF THE U.S. STOCK
MARKET.
CLASS 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>
[GRAPHIC]INVESTOR FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
<S> <C>
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+ 0.00%
- ----------------------------------------------------------------------------
Other expenses (before waivers) 1.54%
- ----------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.52%
- ----------------------------------------------------------------------------
Waiver of fund expenses (0.26%)
- ----------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 1.26%
+ Class R Shares have adopted a 12b-1 Plan that may pay a fee to the
Distributor at an annual rate of up to 0.25% of their average daily net
assets. The Fund has no current intention of activating the Plan and will
give shareholders 60-days notice prior to activation of the Plan. See
"Shareholder Services and Distribution Plans."
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2001, the
Investment Adviser has contractually agreed to waive or defer its management
fees and to pay other operating expenses otherwise payable by the Fund,
subject to possible later reimbursement during a three year period. The
Investment Adviser may not amend the fee waiver agreement without the
consent of the Fund. See "Expense Waivers" on page 20.
</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 FOR THE 1 YEAR PERIOD SHOWN, AND BEFORE
WAIVERS FOR THE OTHER PERIODS SHOWN. ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR
LOWER, BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year 1 Year 3 Year 5 Year 10
$127 $615 $1,130 $2,277
</TABLE>
<PAGE>
13
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. The Investment Adviser expects a high
portfolio turnover rate of 200% or more.
[GRAPHIC]PRINCIPAL INVESTMENTS
Normally, the Fund invests at least 65% of its net assets in bonds of U.S. and
foreign corporations and governments. These bonds are rated in the top two
investment grades, or are of comparable quality if unrated. They include bonds,
notes, mortgage-backed and asset-backed securities with rates that are fixed,
variable or floating. The dollar weighted 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 26. The Fund may also use options, futures
contracts and interest rate and currency swaps as hedging techniques.
[GRAPHIC]PRIMARY RISKS
Because you could lose money by investing in the Fund, be sure to read all risk
disclosures carefully before investing. The Fund is primarily subject to the
following risks:
/ / INTEREST RATES--Interest rate risk is the risk that the value of the Fund's
investments will go down when interest rates rise. Normally the value of the
Fund's investments varies inversely with changes in interest rates so that
in periods of rising interest rates, the value of the Fund's portfolio
declines.
/ / MATURITY--Generally, longer-term securities are more susceptible to changes
in value as a result of interest-rate changes than are shorter-term
securities.
/ / CREDIT RISK--Credit risk refers to the risk that an issuer of a bond may
default with respect to the payment of principal and interest. The lower a
bond is rated, the more it is considered to be a speculative or risky
investment.
/ / HIGH RISK BONDS--Generally lower grade securities offer higher yields and
have more risk and volatility than higher-rated securities because of
reduced creditworthiness and greater chance of default by the issuer.
Securities rated below investment grade and other bonds may be subject to
some of the same risks as those inherent in below investment grade debt.
Accordingly, these high risk bonds and bonds rated in the lowest category of
investment grade are considered predominantly speculative and are subject to
greater volatility and risk of loss than investment grade securities,
particularly in deteriorating economic periods.
/ / PREPAYMENT RISK--Prepayment risk is commonly associated with pooled debt
securities, such as mortgage-backed securities and asset-backed securities,
but may affect other debt securities as well. When the underlying debt
obligations are prepaid head of schedule, the return on the security will be
lower than expected. Prepayment rates usually increase when interest rates
are falling.
/ / INFLATION RISK--There is a possibility that the rising prices of goods and
services may have the effect of offsetting the Fund's real return. This is
likely to have a greater impact on the returns of bond funds, which
historically have had more modest returns in comparison to equity funds.
/ / FOREIGN EXPOSURE--Foreign securities and securities issued by U.S. entities
with substantial foreign operations can involve additional risks relating to
political, economic or regulatory conditions in foreign countries. All of
these factors can make foreign investments more volatile than U.S.
investments.
/ / ACTIVE PORTFOLIO TRADING--A high portfolio turnover rate is likely to
generate more table short-term gains for shareholders and may have an
adverse effect on the Fund's performance.
See "Principal Strategies, Risks and Other Information" starting on page 24.
<PAGE>
14
HIGH QUALITY BOND FUND
[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
YEAR-BY-YEAR TOTAL RETURN AS OF 12/31 EACH YEAR (%)
<TABLE>
<S> <C>
96 2.63
97 9.76
98 8.89
99 0.28
</TABLE>
<TABLE>
<S> <C> <C>
BEST QUARTER: Q4 '95 +5.54%
WORST QUARTER: Q1 '96 -3.02%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN AS OF 3/31/00
SINCE INCEPTION
1 YEAR 5 YEARS (8/31/95)
<S> <C> <C> <C>
- ----------------------------------------------------------------
FUND 1.52 N/A 6.89
LEHMAN AGGREGATE
BOND 1.88 N/A 6.21
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 6/30/00 WAS .
INDEX: THE LEHMAN BROTHERS AGGREGATE BOND INDEX (LEHMAN
AGGREGATE BOND) IS COMPOSED OF SECURITIES FROM LEHMAN BROTHERS
GOVERNMENT/CORPORATE BOND INDEX, MORTGAGE-BACKED SECURITIES
INDEX, AND ASSET-BACKED SECURITIES INDEX. THE INDEX IS
UNMANAGED.
CLASS 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>
[GRAPHIC]INVESTOR FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<CAPTION>
<S> <C>
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+ 0.00%
- ---------------------------------------------------------------------------------
Other expenses (before waivers) 1.45%
- ---------------------------------------------------------------------------------
Total annual fund operating expenses (before waivers) 1.39%
- ---------------------------------------------------------------------------------
Waiver of fund expenses (0.69%)
- ---------------------------------------------------------------------------------
TOTAL ACTUAL ANNUAL FUND OPERATING EXPENSES (AFTER WAIVERS) 0.70%
+ Class R Shares have adopted a 12b-1 Plan that may pay a fee to the Distributor
at an annual rate of up to 0.25% of their average daily net assets. The Fund
has no current intention of activating the Plan and will give shareholders
60-days notice prior to activation of the Plan. See "Shareholder Services and
Distribution Plans."
EXPENSE WAIVERS: Through the fiscal year ending March 31, 2001, the Investment
Adviser has contractually agreed to waive or defer its management fees and to pay
other operating expenses otherwise payable by the Fund, subject to possible later
reimbursement during a three year period. The Investment Adviser may not amend
the fee waiver agreement without the consent of the Fund. See "Expense Waivers"
on page 20.
</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 FOR THE 1 YEAR PERIOD SHOWN, AND BEFORE
WAIVERS FOR THE OTHER PERIODS SHOWN. ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR
LOWER, BASED ON THESE ASSUMPTIONS YOUR COSTS WOULD BE:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year 1 Year 3 Year 5 Year 10
$80 $676 $1,159 $2,493
</TABLE>
<PAGE>
15
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
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 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, who is responsible for transmitting orders.
a qualified retirement
plan
- ---------------------------------------------------------------------------------------------------------------------------------
Mail application and check, payable to: NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS,
If you are sending money PO BOX 8326, BOSTON, MA 02266-8326. Send private courier or overnight delivery service to: Boston
by CHECK Financial Services, c/o Nicholas-Applegate, 66 Brocks Drive, Braintree, MA 02184. The Trust will not
accept third-party checks.
- ---------------------------------------------------------------------------------------------------------------------------------
Please read the bank wire or ACH section under the "Buying Shares" section below. You will need to
If you are sending money obtain an account number with the Trust by sending a completed application to: NICHOLAS-APPLEGATE
by BANK WIRE or ACH 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>
<PAGE>
16
SIMPLIFIED ACCOUNT INFORMATION
<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.
All transactions received in good order before the market closes
The price you will (normally 4:00 p.m. Eastern time) receive that day's NAV. Redemption proceeds normally are wired or
receive mailed within one business day after receiving a request in proper form. Payment may be delayed up to
seven days.
- ---------------------------------------------------------------------------------------------------------------------------------
If you are a participant
in Make exchanges through your plan administrator or sponsor,
a qualified retirement who is responsible for transmitting orders.
plan
- ---------------------------------------------------------------------------------------------------------------------------------
The exchange must be to an account with the same registration. If you intend to keep money in the Fund
Things you should know you are exchanging from, make sure that you leave an amount 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. The Trust will accept a request
How to request an by phone if this feature was previously established on your account. See the "Your Account" section
exchange by PHONE 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, and
exchange by MAIL the Fund you wish to exchange to. Mail this request to: NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS, PO BOX
8326, BOSTON, MA 02266-8326.
</TABLE>
<TABLE>
<CAPTION>
SELLING OR REDEEMING SHARES
IN WRITING BY PHONE
<S> <C> <C>
-----------------------------------------------------------------------------
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.
</TABLE>
<PAGE>
17
<TABLE>
<CAPTION>
SELLING OR REDEEMING SHARES
IN WRITING BY PHONE
<S> <C> <C>
-----------------------------------------------------------------------------
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, or call us
If you want to receive account owners. Mail this request to: at (800) 551-8043. The proceeds will be sent to
your monies by BANK WIRE NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS, PO BOX the existing bank wire address listed on the
8326, BOSTON, MA 02266-8326. The proceeds will be account.
sent to the existing bank wire address listed on
the account.
- ---------------------------------------------------------------------------------------------------------------------------------
Contact your financial representative, or call us
at (800) 551-8043. The proceeds will be sent in
If you want to receive accordance with the existing ACH instructions on
your monies by ACH Please call us at (800) 551-8043. 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. When the trust
makes a redemption in kind, a shareholder may incur brokerage costs in converting such securities to
cash and assumes the market risk during the time required to convert the securities to cash. However,
Redemption in Kind the Trust has elected to be governed by the provisions of Rule 18f-1 under the Investment Company Act,
pursuant to which it is obligated to pay in cash all requests for redemptions by any shareholder of
record, limited in amount with respect to each shareholder during any 90-day period to the lesser of
$250,000 or 1% of the net asset value of the Trust at the beginning of such period.
</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>
18
YOUR ACCOUNT
[GRAPHIC]TRANSACTION POLICIES
PURCHASE OF SHARES. Shares are offered at net asset value without a sales
charge. The minimum initial investment for single and omnibus accounts is
$250,000, and the minimum subsequent investment is $10,000. The minimum
investment may be waived for purchases of shares made by current or retired
directors, trustees, partners, officers and employees of the Trust, the
Distributor, the Investment Adviser and its general partner, certain family
members of the above persons, and trusts or plans primarily for such persons,
or, at the discretion of the Distributor.
PRICING OF 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.
Securities traded in foreign countries may not take place on all business days
of the New York Stock Exchange, and may occur in various foreign markets on days
which are not business days of the New York Stock Exchange. Accordingly, a
Fund's NAV may change on days when the U.S. markets are closed whereby a
shareholder of the Fund will not be able to sell their shares.
BUY AND SELL PRICES. When you buy shares, you pay the NAV, as described earlier.
When you sell shares, you receive the NAV. Your financial institution may charge
you a fee to execute orders on your behalf.
EXECUTION OF REQUESTS. 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.
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 seven business days
or longer, as allowed by federal securities laws.
PURCHASE OF SHARES JUST BEFORE RECORD DATE. If you buy shares of the Funds just
before the record date for a distribution (the date that determines who receives
the distribution), the Fund will pay that distribution to you. When a
distribution is paid out the value of each share of the Fund decreases by the
amount of the distribution to reflect the payout. The distribution you receive
makes up the decrease in share value. As explained under the Taxability of
Dividends section following, the distribution may be subject to income or
capital gains taxes. The timing of your purchase means that part of your
investment came back to you as taxable income.
REDEMPTIONS IN KIND. When a Fund elects to satisfy a redemption request with
securities, the shareholder assumes the market risk of an unfavorable market
movement during the time required to convert the securities to cash.
TELEPHONE TRANSACTIONS. For your protection, telephone requests may be recorded
in order to verify their accuracy. In addition the Trust will take measures to
verify the identity of the caller, such as asking for name, account number,
Social Security or taxpayer ID number and other relevant information. If these
measures are not taken, your Fund may be responsible for any losses that may
occur in your account due to an unauthorized telephone call.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider sending your request in writing.
CERTIFICATED SHARES. Shares of the Trust are electronically recorded. The Trust
does not issue certificated shares.
SALES IN ADVANCE OF PURCHASE PAYMENTS. When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but the Fund will not release the proceeds to you
until your purchase payment clears. This may take up to fifteen calendar days
after the purchase.
[GRAPHIC]FEATURES AND ACCOUNT POLICIES
The services referred to in this section may be terminated or modified at any
time upon 60 days' written notice to shareholders. Shareholders seeking to add
to, change or cancel their selection of available services should contact the
transfer agent.
RETIREMENT PLANS. You may invest in 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.
<PAGE>
19
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.
Federal tax law requires you to provide the Fund with your taxpayer
identification number and certifications as to your tax status. If you fail to
do this, or if you are otherwise subject to backup withholding, the Fund will
withhold and pay to the U.S. Treasury 31% of your distributions and sale
proceeds. Dividends of net investment income and short-term capital gains paid
to a nonresident foreign shareholder generally will be subject to a
U.S. withholding tax of 30%. This rate may be lower, depending on any tax treaty
the U.S. may have with the shareholder's country.
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 15), you may be asked to purchase more shares within 60 days. If you do not
take action, the Fund may close out your account and mail you the proceeds. Your
account will not be closed if its drop in value is due to Fund performance.
AUTOMATIC INVESTMENT PLAN. You may make regular monthly or quarterly investments
in 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.
<PAGE>
20
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.
Founded in 1984, the Investment Adviser currently manages over $24 billion of
discretionary assets for numerous clients, including employee benefit plans,
corporations, public retirement systems and unions, university endowments,
foundations, and other institutional investors and individuals. The Investment
Adviser's address is 600 West Broadway, Suite 2900, San Diego, California 92101.
Criterion Investment Management LLC ("Criterion") serves as sub-adviser to the
High Quality Bond Fund. Organized in April 1999, Criterion is registered under
the Investment Advisers Act of 1940 and is a wholly owned subsidiary of
Westdeutsche Landesbank Girzozentrale. Its principal address is 1990 Post Oak
Boulevard, Houston, Texas 77056. Criterion previously was the fixed income asset
management division of the Investment Adviser and now provides investment advice
to the Fund and approximately 80 other separate institutional clients with
approximately $9 billion in assets under management.
As compensation for Criterion's services under the subadvisory agreement, the
Investment Adviser pays Criterion a monthly subadvisory fee at an annual rate of
.25% of each the High Quality Bond Fund's average daily net assets.
The Emerging Countries Fund invests in the Indian stock markets through
Nicholas-Applegate Southeast Asia Fund, Ltd a subsidiary company of each of the
Funds and incorporated under the laws of Mauritius (the "Mauritius Subsidiary").
The Mauritius Subsidiary is entitled to benefit from the double taxation treaty
between India and Mauritius and invest in India in what the Investment Adviser
considers to be the most efficient way currently available. The Fund and
Mauritius Subsidiary will be treated as one entity, and their holdings of
investments are aggregated, for the purposes of applying the investment and
borrowing restrictions. All investments made by the Mauritius Subsidiary will
form part of the assets of the Fund and will be disclosed in the schedule of
investments of the Fund.
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
EXPENSE WAIVERS
The Investment Adviser has agreed to waive its fees and absorb other operating
expenses of the Funds so that total operating expenses, excluding taxes,
interest, brokerage and the expenses incurred from the creation and operation of
the Mauritius entity, do not exceed the percentages, as set forth below, for the
Class R shares of each Fund through March 31, 2001. In subsequent years, overall
operating expenses for each Fund will not fall below the applicable percentage
limitation until the Investment Adviser has been fully reimbursed for fees
foregone and expenses paid under the expense limitation agreement, as each Fund
will reimburse the Investment Adviser in subsequent years when operating
expenses (before reimbursement) are less than the applicable percentage
limitation.
Small Cap Growth Fund 1.42%
Mid Cap Growth Fund 1.25%
Large Cap Growth Fund 1.25%
Value Fund 1.25%
Emerging Countries Fund 1.90%
International Core Growth Fund 1.65%
High Quality Bond Fund 0.70%
<PAGE>
21
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.
In addition, the Investment Adviser may make additional payments from its own
resources to intermediaries for providing certain services for shareholders and
for the maintenance of shareholder accounts. This in no way affects the advisory
fee paid by each of the Funds. Contact the Investment Adviser for more
information.
PORTFOLIO TURNOVER
To the extent that the Investment Adviser actively trades the Fund's portfolio
securities in an attempt to achieve the Fund's investment goal, such trading may
cause the Fund to have an increased portfolio turnover rate of 300% or more,
which is likely to generate shorter-term gains (losses) for its shareholders,
which are taxed at a higher rate than longer-term gains (losses). Actively
trading portfolio securities may have an adverse impact on the Fund's
performance.
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.
PORTFOLIO TEAMS
EQUITY MANAGEMENT--INTERNATIONAL/GLOBAL
ARTHUR E. NICHOLAS, MANAGING PARTNER
CHIEF EXECUTIVE OFFICER
Since 1984; prior investment management experience with Pacific Century
Advisers, Security Pacific Bank and San Diego Trust & Savings Bank
B.S.--San Diego State University
CATHERINE SOMHEGYI, PARTNER
CHIEF INVESTMENT OFFICER--GLOBAL EQUITY MANAGEMENT
Since 1987; prior investment management experience with Professional Asset
Securities, Inc. and Pacific Century Advisers
M.B.A and B.S.--University of Southern California
INTERNATIONAL CORE GROWTH AND EMERGING COUNTRIES
LARRY SPEIDELL, PARTNER, CFA
DIRECTOR OF GLOBAL/SYSTEMATIC PORTFOLIO MANAGEMENT AND RESEARCH
Since 1994; 23 years prior investment management experience with Batterymarch
Financial Management and Putnam Management Company
M.B.A.--Harvard University; B.E.--Yale University
INTERNATIONAL CORE GROWTH AND EMERGING COUNTRIES
PEDRO V. MARCAL, PARTNER
PORTFOLIO MANAGER
Since 1996; Assistant Portfolio Manager 1994-1996; 5 years prior investment
management experience with A.B. Laffer, V.A. Canto & Associates, and A-Mark
Precious Metals
B.A.--University of California, San Diego
EMERGING COUNTRIES AND INTERNATIONAL CORE GROWTH
LORETTA J. MORRIS, PARTNER
PORTFOLIO MANAGER
Since 1990; 10 years prior investment management experience with Collins
Associates
Attended California State University, Long Beach;
INTERNATIONAL CORE GROWTH
<PAGE>
22
ORGANIZATION AND MANAGEMENT
ERNESTO RAMOS, PH.D.
PORTFOLIO MANAGER
Since 1995; 1994-1995 Research Manager; 14 years prior investment management and
quantitative research experience with Batterymarch Financial Management;
Bolt Beranek & Newman Inc.; and Harvard University
Ph.D.--Harvard University; B.S.--Massachusetts
Institute of Technology
INTERNATIONAL CORE GROWTH AND EMERGING COUNTRIES
MELISA A. GRIGOLITE
PORTFOLIO MANAGER
Since 1996; 1993-1996 International Analyst; 1991-1993 Account Administrator;
prior experience with SGPA Architecture and Planning
M.S.--San Diego State University; B.S.--Southwest Missouri State University
INTERNATIONAL CORE GROWTH
JESSICA GONCALVES
PORTFOLIO MANAGER
Since 1999; 1997-1999 Assistant Portfolio Manager; 1996-1997 Investment Analyst;
1995-1996 Investment Assistant; 3 years prior experience with Eaton Vance
Management and Union Capital Advisors
Attended University of Pennsylvania
EMERGING COUNTRIES
RANDALL S. KAHN, CFA
PORTFOLIO MANAGER
Since 1999; 12 years prior investment experience with American Century
Investments, Daiwa Securities America, Inc. and Daiwa Securities Co., LTD.
B.A.--University of California, Berkley
M.B.A.--University of Chicago
INTERNATIONAL CORE GROWTH
CHRISTOPHER ANGIOLETTI
INVESTMENT ANALYST
Since 1999; 3 years prior investment experience with Sterling Johnston Capital
Management, Inc.; Volpe, Brown, Whelan & Co., LLC; and
Oppenheimer & Co. Inc.
B.A.--University of California, Los Angeles
J.D.--Vanderbilt University School of Law
INTERNATIONAL CORE GROWTH
JOHN L. BRACKEN, JR.,
INVESTMENT ANALYST
Since 1999; 2 years prior investment experience with Ashworth, Inc.
B.S.--Wake Forest University
M.B.A.--Pepperdine University
INTERNATIONAL CORE GROWTH
JASON CAMPBELL
PORTFOLIO MANAGER
Since 1998; prior experience with San Diego State University Economics
Department
M.A. and B.A.--San Diego State University; Pontificia Universidade Catolica do
Rio de Janeiro
EMERGING COUNTRIES
DAVID LOPEZ
INVESTMENT ANALYST
Joined firm in 1996; 1999 responsible for research and portfolio analysis
B.A.--San Diego State University
INTERNATIONAL CORE GROWTH
JOHN MAZUR
INVESTMENT ANALYST
Since 1999; 1 year prior investment experience and 7 years of experience in the
Biotech industry
M.B.A.--The Wharton School, University of Pennsylvania; B.S.--University of
Southern California; attended Texas A&M University
EMERGING COUNTRIES
JACOB POZHARNY, PH.D.
SENIOR QUANTITATIVE ANALYST
Since 1999; 3 years prior experience with Bank Credit Analyst research group and
the Federal Reserve Bank of San Francisco
Ph.D. and M.S.--University of California at Riverside;
M.S. and B.A.--University of California at Santa Cruz
INTERNATIONAL CORE GROWTH
ROLF SCHILD
INVESTMENT ANALYST
Since 1997; previous investment experience with Raiffeisen Bank, Switzerland
M.B.A. and B.S.--Basel University, Switzerland
INTERNATIONAL CORE GROWTH
<PAGE>
23
ANDREW C. PARMET
INVESTMENT ANALYST
Since 1999, 6 years prior investment experience with Indosuez W.I. Carr
Securities; Natwest Securities Corp.; United Malayan Banking Corporation
Securities Ltd.; and Jardine Fleming Securities Ltd.
A.B.--Harvard University
EMERGING COUNTRIES
JON BORCHARDT
INVESTMENT ANALYST
Since 1996; 1994-1996 Senior Account Administrator; 5 years prior investment
management experience with Union Bank
B.A. University of San Francisco
INTERNATIONAL CORE GROWTH
EQUITY MANAGEMENT--U.S.
ARTHUR E. NICHOLAS, MANAGING PARTNER
CHIEF EXECUTIVE OFFICER
Since 1984; prior investment management experience with Pacific Century
Advisers, Security Pacific Bank and San Diego Trust & Savings Bank
B.S.--San Diego State University
CATHERINE SOMHEGYI, PARTNER
CHIEF INVESTMENT OFFICER--GLOBAL EQUITY MANAGEMENT
Since 1987; prior investment management experience with Professional Asset
Securities, Inc. and Pacific Century Advisers
M.B.A and B.S.--University of Southern California
LARGE CAP GROWTH, VALUE, SMALL CAP GROWTH AND MID CAP GROWTH
THOMAS BLEAKLEY, PARTNER
PORTFOLIO MANAGER
Since 1995; 3 years prior investment management experience with Twentieth
Century Investors and Dell Computer Corporation
M.B.A.--University of Texas--Boston University
SMALL CAP GROWTH
WILLIAM H. CHENOWETH, CFA, PARTNER
PORTFOLIO MANAGER
Since 1998; 12 years prior investment management experience with Turner
Investment Partners, Inc., and Jefferson-Pilot Corporation
M.B.A. and B.B.A.--Emory University
MID CAP GROWTH AND LARGE CAP GROWTH
ANDREW B. GALLAGHER, PARTNER
PORTFOLIO MANAGER
Since 1992; 7 years prior investment management experience with Pacific Century
Advisors and Sentinel Asset Management
M.B.A.--San Diego State University; B.A.--University of California, Irvine
MID CAP GROWTH AND LARGE CAP GROWTH
JOHN J. KANE, PARTNER
PORTFOLIO MANAGER--U.S. SYSTEMATIC
Since 1994; 25 years prior investment management and economics experience with
ARCO Investment Management Company and General Electric Company
M.A. and B.A.--Columbia University; M.B.A.--University of California, Los
Angeles
VALUE
LARRY SPEIDELL, CFA, PARTNER
DIRECTOR OF GLOBAL/SYSTEMATIC PORTFOLIO MANAGEMENT AND RESEARCH
Since 1994; 23 years prior investment management experience with Batterymarch
Financial Management and Putnam Management Company
M.B.A.--Harvard University; B.E.--Yale University
VALUE
JOHN C. MCCRAW, PARTNER
PORTFOLIO MANAGER
Since 1995; 1992-1995 Assistant Portfolio Manager, prior investment management
experience with Nations Bank
M.B.A.--University of California, Irvine; B.A.--Flagler College
SMALL CAP GROWTH
TRISHA C. SCHUSTER, CFA
PORTFOLIO MANAGER
Since 1998; 4 years prior investment experience with Bel Air Advisors/Bear
Stearns and Farmers
Insurance Company
B.A.--University of California, Los Angeles;
M.B.A.--University of California, Irvine
MID CAP GROWTH AND LARGE CAP GROWTH
<PAGE>
24
ORGANIZATION AND MANAGEMENT
MARK STUCKELMAN
PORTFOLIO MANAGER
Since 1995; 5 years prior experience investment management experience with Wells
Fargo Bank Investment Management Group; Fidelity Management Trust Co.; and
BARRA
M.B.A.--University of Pennsylvania/Wharton School; B.A.--University of
California, Berkley
VALUE
PAUL E. CLUSKEY
PORTFOLIO MANAGER
Since 1998; 4 years prior investment management experience at SEI Investments
and Piper Jaffray, Inc.
B.S.--New York University
SMALL CAP GROWTH
THOMAS J. SMITH, CFA
INVESTMENT ANALYST
Since 1998; 1995-1998 Account Administrator; 4 years prior investment experience
with Wells Fargo Bank and Dean Witter Reynolds
B.A.--San Diego State University
MID CAP GROWTH AND LARGE CAP GROWTH
TRISHA C. SCHUSTER, CFA
PORTFOLIO MANAGER
Since 1998; 5 years prior investment experience with Farmers Insurance Group and
Personal Financial Management
M.B.A.--University of Southern California; B.A.--University of California,
Irvine
LARGE CAP GROWTH,
KENNETH H. LEE
PORTFOLIO MANAGER
Since 1999; 9 years prior investment experience with Wells Fargo Bank and Dean
Witter Reynolds/ Lederer Quantitative Research
B.A.--University of California, Davis; attended Yonsei University, South Korea
LARGE CAP GROWTH AND MID CAP GROWTH,
EVAN C. LUNDQUIST
INVESTMENT ANALYST
Since 2000; 7 years prior experience with First American Asset Management, First
American Technology Fund team
B.A.--Saint Mary's College
LARGE CAP GROWTH AND MID CAP GROWTH,
JOHN GRAVES
INVESTMENT ANALYST
Since 1997; 9 years previous experience with San Diego County District
Attorney's Office and Imperial Savings
M.B.A.--San Diego State University; B.A.--Hunter College
VALUE
FIXED INCOME--SUB ADVISORY MANAGEMENT TEAM
FRED S. ROBERTSON, III, PARTNER
CHIEF INVESTMENT OFFICER--FIXED INCOME
Since 1995; 22 years prior investment management experience with Criterion
Investment Management Company and DuPont Chemical Pension Fund
M.B.A.--College of William and Mary; B.S.--Cornell University
HIGH QUALITY BOND
JAMES E. KELLERMAN, PARTNER
PORTFOLIO MANAGER
Since 1995; 20 years prior investment management experience with Criterion
Investment Management Company and Brown Brothers Harriman and Equitable Life
Insurance Co.
M.B.A.--St. John's University; B.B.A.--Susquehanna University
HIGH QUALITY BOND
MALCOM S. DAY, CFA
PORTFOLIO MANAGER
Since 1995; 3 years prior investment management experience with Payden & Rygel
M.B.A.--University of California, Los Angeles; B.S.--Northern University
HIGH QUALITY BOND
SUSAN MALONE
PORTFOLIO MANAGER
Since 1996; 7 years prior investment management experience with BEA Associates
M.B.A.--New York University; B.S.--Carnegie Mellon University
HIGH QUALITY BOND
<PAGE>
25
PRINCIPAL STRATEGIES, RISKS AND OTHER INFORMATION
INTERNATIONAL INVESTMENT RISK AND CONSIDERATIONS
FOREIGN SECURITIES. The International Core Growth and Emerging Countries Funds
invest in foreign securities as a principal strategy. The remainder of the Funds
may invest in foreign securities as a non-principal strategy. 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.
For example, with respect to the Mauritius Subsidiary, the Indian Revenue
authorities from time to time re-examine the eligibility of Mauritius entities
to tax relief granted under treaty between India and Mauritius. Under the terms
of the treaty, entities such as the Mauritius Subsidiary are not taxed on income
from capitial gains arising in India on the sale of Indian securities, a rate
which can be as high as 30%. While the Funds expect to continue to utilize the
Mauritius Subsidiary and rely on the treaty and its benefits, there is no
guarantee that Indian Revenue authorities will continue to allow treaty
benefits. In that instance, the Emerging Countries Fund could be liable for
Indian taxes for the entire period during which the Mauritius Subsidiary held
Indian securities.
INFLATION. Certain foreign countries, especially many emerging countries, have
experienced substantial, and in some periods extremely high and volatile, rates
of inflation. Rapid fluctuations in inflation rates and wage and price controls
may continue to have unpredictable effects on the economies, companies and
securities markets of these countries.
DIFFERENCES IN SECURITIES MARKETS. The securities markets in foreign countries
have substantially less trading volume than the markets in the United States and
debt and equity securities of many companies listed on such markets may be less
liquid and more volatile than comparable securities in the United States. Some
of the stock exchanges in foreign countries, to the extent that established
markets exist, are in the earlier stages of their development. The limited
liquidity of certain securities markets may affect the ability of each Fund to
buy and sell securities at the desired price and time.
Trading practices in certain foreign countries are also significantly different
from those in the United States. Although brokerage commissions are generally
higher than those in the U.S., the Investment Adviser will seek to achieve the
most favorable net results. In addition, securities settlements and clearance
procedures may be less developed and less reliable than those in the United
States. Delays in settlement could result in temporary periods in which the
assets of the Funds are not fully invested, or could result in a Fund being
unable to sell a security in a falling market.
CUSTODIAL AND REGISTRATION PROCEDURES. Systems for the registration and transfer
of securities in foreign markets can be less developed than similar systems in
the United States. There may be no standardized process for registration of
securities or a central registration system to track share ownership. The
process for transferring shares may be cumbersome, costly, time-consuming and
uncertain.
GOVERNMENT SUPERVISION OF SECURITIES MARKETS. Disclosure and regulatory
standards in many foreign countries are, in many respects, less stringent than
those in the United States. There may be less government supervision and
regulation of securities exchanges, listed companies, investors, and brokers in
foreign countries than in the United States, and enforcement of existing
regulations may be extremely limited.
FINANCIAL INFORMATION AND REPORTING STANDARDS. Issuers in foreign countries are
generally subject to accounting, auditing, and financial standards and
requirements that differ, in some cases materially, from those in the United
States. In particular, the assets and profits appearing in financial statements
<PAGE>
26
PRINCIPAL STRATEGIES, RISKS AND OTHER INFORMATION
may not reflect their financial position or results in the way they would be
reflected had the statements been prepared in accordance with U.S. generally
accepted accounting principles. Consequently, financial data may not reflect the
true condition of those issuers and securities markets.
GENERAL FIXED INCOME SECURITIES' RISKS
The High Quality Bond Fund invests in debt securities as a principal strategy.
The remainder of the Funds may invest in debt securities as a non-principal
strategy. The debt securities in which the Funds invests may be of any maturity.
Fixed income securities are subject to the following risks:
MARKET RISK. Prices of fixed income securities rise and fall in response to
interest rate changes for similar securities. Generally, when interest rates
rise, prices of fixed income securities fall. Interest rate changes have a
greater affect on fixed income securities with longer durations.
CREDIT RISK. Credit risk is the possibility that an issuer will default (the
issuer fails to repay interest and principal when due). If an issuer defaults,
the Fund will lose money.
Many fixed income securities receive credit ratings from companies such as
Standard & Poor's and Moody's Investor Services. Fixed income securities receive
different credit ratings depending on the rating company's assessment of the
likelihood of default by the issuer. The lower the rating of the fixed income
security, the greater the credit risk.
Lower rated fixed income securities generally compensate for greater credit risk
by paying interest at a higher rate. The difference between the yield of the
security and the yield of a U.S. Treasury security with a comparable maturity
(the "spread") measures the additional interest received for taking risk.
Spreads may increase generally in response to adverse economic or market
conditions. A security's spread may also increase if the security's rating is
lowered, or the security is perceived to have an increased credit risk. An
increase in the spread will cause the price of the security to decline.
CALL RISK. Call risk is the possibility that an issuer may redeem a fixed income
security before maturity ("call") at a price below it's current market price. An
increase in the likelihood of a call may reduce the security's price. If a fixed
income security is called, the Fund may have to reinvest the proceeds in other
fixed income securities with lower interest rates, higher credit risks, or other
less favorable characteristics.
LIQUIDITY RISKS. Fixed income securities that have noninvestment grade credit
ratings, have not been rated or that are not widely held may trade less
frequently than other securities. This may increase the price volatility of
these securities.
FOREIGN RISKS. Foreign debt securities pose additional risks because foreign
economic or political conditions may be less favorable than those of the United
States. Foreign financial markets may also have fewer investor protections. Debt
securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S. investors. Due to these risk factors, foreign debt
securities may be more volatile and less liquid than similar securities traded
in the U.S.
INVESTMENT GRADE BOND RISKS. The debt securities in which the High Quality Bond
Fund invests as a principal strategy 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.
LOWER RATED ("HIGH RISK")
SECURITIES RISKS
The High Quality Bond Fund may invest up to 35% of its assets in debt securities
rated below investment grade. The remainder of the Funds may invest in debt
securities rated below investment grade as a non-principal strategy. 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
<PAGE>
27
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.
REPURCHASE AGREEMENTS AND RISKS.
Each Fund may enter into repurchase agreements as a non-principal investment
strategy--that is, the purchase by the Fund of a security that a seller has
agreed to buy back, usually within one to seven days. The seller's promise to
repurchase the security is fully collateralized by securities equal in value to
102% of the purchase price, including accrued interest. If the seller defaults
and the collateral value declines, the Fund might incur a loss. If the seller
declares bankruptcy, the Fund may not be able to sell the collateral at the
desired time. The Funds enter into these agreements only with brokers, dealers,
or banks that meet credit quality standards established by the Board of
Trustees.
SHORT SALES AND RISKS.
A "short sale" is the sale by the Fund of a security which has been borrowed
from a third party on the expectation that the market price will drop. If the
price of the security drops, the Fund will make a profit by purchasing the
security in the open market at a lower price than at which it sold the security.
If the price of the security rises, the Fund may have to cover its short
position at a higher price than the short sale price, resulting in a loss. A
short sale can be covered or uncovered. In a covered short sale, the Fund either
(1) borrows and sells securities it already owns (also known as a short sale
"against the box"), or (2) deposits in a segregated account cash, U.S.
government securities, or other liquid securities in an amount equal to the
difference between the market value of the securities and the short sale price.
Use of uncovered short sales is a speculative investment technique and has
potentially unlimited risk of loss. Accordingly, a Fund will not make uncovered
short sales in an amount exceeding the lesser of 2% of the Fund's net assets or
2% of the securities of such class of the issuer. The Board of Trustees has
determined that 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 AND RISKS.
Each Fund may, from time to time, invest all of its assets in short-term
instruments when the Investment Adviser determines that adverse market,
economic, political or other 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' RISKS
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 and under
guidelines established by the Directors and will receive collateral in the form
of cash or U.S. government securities equal to least 102% of the value of the
securities loaned.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
HEDGING TRANSACTIONS RISKS
Each of the Funds may trade in derivative contracts to hedge portfolio holdings
on a non-principal basis. 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
<PAGE>
28
PRINCIPAL STRATEGIES, RISKS AND OTHER INFORMATION
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.
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.
<PAGE>
29
DESCRIPTION OF S&P'S CORPORATE BOND RATINGS
AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
BB - Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial or economic conditions which could lead to
inadequate capacity to meet 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
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, 2000. Please read in conjnunction
with the Trust's 2000 Annual Report which is available upon request.
<TABLE>
<CAPTION>
INCOME FROM LESS DISTRIBUTIONS FROM:
INVESTMENT OPERATIONS --------------------------
NET -------------------------------- DIVIDENDS
ASSET NET NET REALIZED TOTAL FROM FROM NET NET NET ASSET
VALUE, INVESTMENT AND UNREALIZED INVESTMENT INVESTMENT REALIZED VALUE,
BEGINNING INCOME (LOSS)(1) GAINS (LOSS) OPERATIONS INCOME CAPITAL GAINS ENDING
<S> <C> <C> <C> <C> <C> <C> <C>
INTERNATIONAL EQUITY FUNDS
INTERNATIONAL CORE GROWTH
6/1/99 (commenced) to
3/31/00 $20.01 ($0.20) $12.03 $11.83 $ -- $ -- $31.84
EMERGING COUNTRIES
6/1/99 (commenced) to
3/31/00 $15.26 ($0.17) $ 8.58 $ 8.41 $ -- $ -- $23.67
U.S. EQUITY FUNDS
LARGE CAP GROWTH
6/1/99 (commenced) to
3/31/00 $28.61 ($0.21) $21.37 $21.16 $ -- $ -- $49.77
MID CAP GROWTH
6/1/99 (commenced) to
3/31/00 $18.94 ($0.09) $22.66 $22.57 $ -- $ -- $41.51
SMALL CAP GROWTH
6/1/99 (commenced) to
3/31/00 $13.86 ($0.15) $13.69 $13.54 $ -- ($0.35) $27.05
VALUE
6/1/99 (commenced) to
3/31/00 $22.33 $0.12 ($ 0.71) ($ 0.59) $ -- $ -- $21.74
U.S. FIXED INCOME FUNDS
HIGH QUALITY BOND
6/1/99 (commenced) to
3/31/00 $12.66 $0.65 ($ 0.51) $ 0.14 ($0.68) $ -- $12.12
</TABLE>
- ----------------------------------------
(1) Net investment income per share is calculated by dividing net investment
income for the period by the average shares outstanding during the period.
<PAGE>
31
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET ASSETS (3)
-------------------------------------------------------------- FUND'S
NET ASSETS, NET EXPENSE PORTFOLIO
TOTAL ENDING INVESTMENT TOTAL (REIMBURSEMENTS)/ NET TURNOVER
RETURN(2) (IN 000'S) INCOME (LOSS) EXPENSES RECOUPMENT EXPENSES RATE
<S> <C> <C> <C> <C> <C> <C> <C>
INTERNATIONAL EQUITY FUNDS
INTERNATIONAL CORE GROWTH
6/1/99 (commenced) to
3/31/00 59.14% $15,571 (0.82%) 1.61% 0.04% 1.65% 158%
EMERGING COUNTRIES
6/1/99 (commenced) to
3/31/00 55.11% $ 1 (1.26%) 1.99% (0.05%) 1.94% 178%
U.S. EQUITY FUNDS
LARGE CAP GROWTH
6/1/99 (commenced) to
3/31/00 73.98% $83,785 (0.69%) 1.42% (0.15%) 1.27% 154%
MID CAP GROWTH
6/1/99 (commenced) to
3/31/00 119.11% $ 14 (0.73%) 1.23% (0.21%) 1.02% 115%
SMALL CAP GROWTH
6/1/99 (commenced) to
3/31/00 98.68% $ 5,861 (0.91%) 1.62% (0.20%) 1.42% 88%
VALUE
6/1/99 (commenced) to
3/31/00 (2.21%) $ 7,700 (0.70%) 1.52% (0.26%) 1.26% 140%
U.S. FIXED INCOME FUNDS
HIGH QUALITY BOND
6/1/99 (commenced) to
3/31/00 1.20% $ 2,810 6.47% 1.39% (0.69%) 0.70% 162%
</TABLE>
- ----------------------------------------
(2) Total returns are not annualized for periods less than one year.
(3) 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. Such amounts would decrease net
investment income (loss) ratios had such reductions not occurred.
<PAGE>
32
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 Class R 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>
33
<TABLE>
<CAPTION>
MID CAP GROWTH
PERFORMANCE
RUSSELL
MID CAP MID CAP
GROWTH GROWTH
YEAR FUND INDEX(1)
<S> <C> <C>
1985(2) 24.74% n/a
1986 32.85 17.55%
1987 3.59 2.76
1988 12.67 12.92
1989 33.92 31.48
1990 0.73 (5.13)
1991 55.52 47.03
1992 13.55 8.71
1993 19.77 11.19
1994 (10.52) (2.17)
1995 38.57 33.99
1996 16.46 17.48
1997 16.66 22.54
1998 14.65 17.86
1999 99.11 51.31
Last year(3) 23.55 51.31
Last 5 years(3) 37.69 30.33
Last 10 years(3) 25.89 21.69
Since inception(3) 25.27 19.28
</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 Class R
shares--May 21, 1999.
3 Through March 31, 2000.
<PAGE>
NEW ACCOUNT FORM (NON-IRA)
RETIREMENT SHARES
FOR AN IRA ACCOUNT APPLICATION, CALL 800 - 551-8643.
N I C H O L A S-A P P L E G A T E-REGISTERED TRADEMARK-
MAIL TO:
Nicholas-Applegate Institutional Funds
PO Box 8326
Boston, MA 02266-8326
800 - 551-8043
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(1216) / / $
- ---------------------------------------------------------
High Quality Bond R(1217) / / $
- ---------------------------------------------------------
International Core Growth R(1220) / / $
- ---------------------------------------------------------
Large Cap Growth R(1221) / / $
- ---------------------------------------------------------
Mid Cap Growth R(1222) / / $
- ---------------------------------------------------------
Small Cap Growth R(1223) / / $
- ---------------------------------------------------------
Value R(1215) / / $
- ---------------------------------------------------------
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>
From _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ To
Fund Name
<S> <C>
From _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Fund Name
</TABLE>
+MUST BE SAME ACCOUNT TYPE AND CLASS OF SHARES.
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 Day* Monthly Quarterly (JAN/APRIL/JULY/OCT)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ $_ _ ,_ _ _ ._ _ _ _ _ _
Fund Name Amount 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 Amount Day* Monthly Quarterly (JAN/APRIL/JULY/OCT)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Account Number (IF KNOWN)
TO:
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ $_ _ ,_ _ _ ._ _ _ _ _ _
Fund Name Amount Day* Monthly Quarterly (JAN/APRIL/JULY/OCT)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
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 Amount Day* Monthly Quarterly (JAN/APRIL/JULY/OCT)
BY CHECK (DO NOT NEED TO COMPLETE
SECTION 10)
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ $_ _ ,_ _ _ ._ _ 1 5 _ _
Fund Name Amount Day* Monthly Quarterly (JAN/APRIL/JULY/OCT)
</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>
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Address City State Zip
</TABLE>
(SEE REVERSE)
<PAGE>
12. DEALER INFORMATION
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HOME OFFICE INFORMATION (TO BE COMPLETED BY INVESTMENT REPRESENTATIVE)
<TABLE>
<S> <C>
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ - _ _ _ _
Dealer Name and Number (IF
KNOWN) Area Code Phone
</TABLE>
<TABLE>
<S> <C> <C> <C>
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ _
Home Office Address City State Zip
</TABLE>
BRANCH OFFICE INFORMATION
<TABLE>
<S> <C>
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ - _ _ _ _
Branch Office Number Area Code Phone
</TABLE>
<TABLE>
<S> <C> <C> <C>
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ _ _
Branch Office Address City State Zip
</TABLE>
REPRESENTATIVE INFORMATION
<TABLE>
<S> <C>
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
Representative's Name Representative's Number
</TABLE>
13. SIGNATURES
- --------------------------------------------------------------------------------
BY SIGNING THIS NEW ACCOUNT FORM BELOW, I ASSURE THAT:
/ / I have received and read the prospectus for each of the Funds in which I am
investing, and I believe each investment is suitable for me. I understand
that the prospectus terms are incorporated into this New Account Form by
reference.
/ / I authorize Nicholas-Applegate Institutional Funds, their affiliates and
agents to act on any instructions believed to be genuine for any service
authorized on this form. I agree they will not be liable for any resulting
loss or expense.
/ / I am of legal age in my state and have the authority and legal capacity to
purchase mutual fund shares.
/ / I understand that neither the fund(s) nor the distributor,
Nicholas-Applegate Securities, is a bank and that fund shares are not
obligations of or guaranteed by any bank or insured by the FDIC.
/ / I understand that the Investment Adviser may pay a service fee of up to .25%
from its own resources to intermediaries for their shareholder service
efforts and commitment to Nicholas-Applegate Institutional Funds.
/ / 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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<S> <C>
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ - _ _ _ _
Shareowner, Custodian, Trustee or Authorized Officer Date
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ - _ _ - _ _ _ _
Joint Owner, Custodian, Trustee or Authorized Officer Date
</TABLE>
<PAGE>
F O R M O R E I N F O R M A T I O N
More information on these Funds is available
free upon request, including the following:
ANNUAL/SEMI-ANNUAL 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, Suite 3000
San Diego, CA 92101
BY E-MAIL Send your request to www.nacm.com
ON THE INTERNET Text versions of the Funds'
documents can be viewed online or downloaded from:
SEC
http://www.sec.gov
You can also obtain copies by visiting the SEC's
Public Reference Room in Washington, DC
(phone 1-800-SEC-0330) or sending your request
and a duplicating fee to the SEC's Public
Reference Section, Washington, DC 20549-6009
N I C H O L A S-A P P L E G A T E-REGISTERED
TRADEMARK-
600 West Broadway
San Diego, CA 92101
800-551-8643
Nicholas-Applegate Securities, Distributor
Visit us at www.nacm.com
Nicholas-Applegate Institutional Funds
SEC file number: 333-71469
MFRPROI700
<PAGE>
Nicholas-Applegate-Registered Trademark- Institutional Funds
Institutional and Retirement Shares
600 West Broadway, 30th Floor
San Diego, California 92101
(800) 551-8643
STATEMENT OF ADDITIONAL INFORMATION
JULY __, 2000
<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
Global Health Care Fund
Convertible Fund Pacific Rim Fund Mid Cap Growth Fund
Latin America Fund Large Cap Growth Fund Small Cap Growth Fund
Short Intermediate Fund Value Fund High Yield Bond Fund
Mini Cap Growth Fund High Quality Bond Fund International Small Cap Growth
</TABLE>
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the Funds' prospectuses dated July __, 2000. This SAI
incorporates by reference the Funds' Annual Report. Obtain the prospectus or
the Annual Report without charge by calling 800-551-8643.
TABLE OF CONTENTS
Page
----
Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-2
Securities Descriptions and Techniques . . . . . . . . . . . . . . . . . . B-2
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . . . .B-16
Principal Holders of Securities. . . . . . . . . . . . . . . . . . . . . .B-18
Trustees and Principal Officers. . . . . . . . . . . . . . . . . . . . . .B-21
Investment Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-23
Custodian, Fund Accounting Agent and Administrators. . . . . . . . . . . .B-26
Transfer and Dividend Disbursing Agent
and Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . .B-26
Distributor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-27
Shareholder Service Plan . . . . . . . . . . . . . . . . . . . . . . . . .B-27
Distribution Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-27
Portfolio Transactions and Brokerage . . . . . . . . . . . . . . . . . . .B-28
Purchase and Redemption of Fund Shares . . . . . . . . . . . . . . . . . .B-30
Shareholder Services . . . . . . . . . . . . . . . . . . . . . . . . . . .B-32
Net Asset Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-32
Dividends, Distributions and Taxes . . . . . . . . . . . . . . . . . . . .B-34
Performance Information. . . . . . . . . . . . . . . . . . . . . . . . . .B-37
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .B-50
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
B-1
<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 a multi-class
structure in which the Nicholas-Applegate Mutual Funds invested in securities
directly and offered various classes of shares through multiple distribution
channels. At the same time the Trust was liquidated.
In May 1999, the Trust was reactivated and renamed Nicholas-Applegate
Institutional Funds to be the successor entity to the institutional assets of
Nicholas-Applegate Mutual Funds ("NAMF"). On that date, substantially all of the
institutional assets of the single-class series of NAMF were transferred to the
renamed Trust in a tax-free exchange for Class I shares of the corresponding
Funds of the Trust, which for accounting purposes is treated as a continuation
of the portfolios. Concurrently, substantially all institutional shareholders of
the multi-class series of NAMF exchanged their shares for corresponding Class I
shares of the respective Funds of the Trust, which has been accounted for as a
table exchange and a commencement of operations of those Funds.
The investment objectives, policies and limitations of the Funds of the Trust
were identical in every respect to the corresponding portfolios of the NAMF. The
investment management fees and expense limitations are also identical. The Trust
is authorized to issue an unlimited number of shares.
SECURITIES DESCRIPTIONS AND TECHNIQUES
The following discussion provides the various principal and non principal
investment policies and techniques employed by the Funds.
EQUITY SECURITIES:
COMMON STOCK is the most prevalent type of equity security. Common
stockholders receive the residual value of the issuer's earning and assets after
the issuer pays its creditors and any preferred stockholders. As a result,
changes in an issuer's earnings directly influence the value of its common
stock.
PREFERRED STOCKS have the right to receive specified dividends or
distributions before the payment of dividends or distributions on common stock.
Some preferred stocks also participate in dividends and distributions paid on
common stock. Preferred stocks may also permit the issuer to redeem the stock.
WARRANTS 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.
DEPOSITORY RECEIPTS are receipts issued by an American bank or trust
company evidencing ownership of underlying securities issued by foreign
issuers. ADRs in registered form, are designed for use in U.S. securities
markets. Such depository receipts may be sponsored by the foreign issuer or
may be unsponsored. The 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 U.S. dollars; the underling security
may be denominated in a foreign currency, although the underlying security
may be subject to foreign governmental taxes which would reduce the yield on
such securities.
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 equity securities depending upon
B-2
<PAGE>
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
their investment policies and limitations, because of their unique
characteristics.
FIXED INCOME SECURITIES:
CORPORATE DEBT SECURITIES are fixed income securities issued by
businesses. Notes, bonds, debentures and commercial paper are the most
prevalent types of corporate debt security. The credit risks of corporate
debt securities vary widely among issuers.
ZERO COUPON SECURITIES do not pay interest or principal until final
maturity. Most debt securities provide periodic payments of interest
(referred to as a "coupon payment"). In contrast, investors buy zero coupon
securities at a price below the amount payable at maturity. The difference
between the price and the amount paid at maturity represents interest on the
zero coupon security. This increases the market and credit risk of a zero
coupon security, because an investor must wait until maturity before
realizing any return on the investment.
There are many forms of zero coupon securities. Some securities are
originally issued at a discount and are referred to as "zero coupon" or
"capital appreciation" bonds. Others are created by separating the right to
receive coupon payments from the principal due at maturity, a process known
as "coupon stripping." Treasury STRIPs, IOs, and POs are the most common
forms of "stripped" zero coupon securities. In addition, some securities
give the issuer the option to deliver additional securities in place of cash
interest payments, thereby increasing the amount payable at maturity. These
are referred to as "pay-in-kind" or "PIK" securities.
COMMERCIAL PAPER is an issuer's draft or note with a maturity of less
than nine months. Companies typically issue commercial paper to fund current
expenditures. Most issuers constantly reissue their commercial paper and use
the proceeds (or bank loans) to repay maturing paper. Commercial paper may
default if the issuer cannot continue to obtain liquidity in this fashion.
The sort maturity of commercial paper reduces both the market and credit risk
as compared to other debt securities of the same issuer.
BANK INSTRUMENTS are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit and
banker's acceptances. Instruments denominated in U.S. dollars and issued by
non-U.S. branches of U.S. or foreign banks are commonly referred to as
Eurodollar instruments. Instruments denominated in U.S. dollars are issued by
U.S. branches of foreign banks are referred to as Yankee instruments.
DEMAND INSTRUMENTS are corporate debt securities that the issuer must repay
upon demand. Other demand instruments require a third party, such as a dealer
or bank, to repurchase the security for its face value upon demand. The Funds
treat demand instruments as short-term securities, even though their stated
maturity may extend beyond one year. Insurance contracts include guaranteed
investment contracts, funding agreements and annuities.
GOVERNMENT OBLIGATIONS include Treasury bills, certificates of
indebtedness, notes and bonds, and issues of such entities as the Government
National Mortgage Association ("GNMA"), Export-Import Bank of the United States,
Tennessee Valley Authority, Resolution Funding Corporation, Farmers Home
Administration, Federal Home Loan Banks, Federal Intermediate Credit Banks,
Federal Farm Credit Banks, Federal Land Banks, Federal Housing Administration,
Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage
Corporation, and the Student Loan Marketing Association. No
B-3
<PAGE>
assurances can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored instrumentalities if it is not obligated to do so
by law.
VARIABLE AND FLOATING RATE INSTRUMENTS are generally not rated by credited
rating agencies; however, the Investment Adviser under guidelines established by
the Trust's Board of Trustees will determine what unrated and variable and
floating rate instruments are of comparable quality at the time of the purchase
to rated instruments eligible for purchase by the Funds. 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 a 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 a Fund is not entitled to exercise its demand rights,
and a Fund could, for these or other reasons, suffer a loss to the extent of the
default. Variable and floating rate instruments may be secured by bank letters
of credit.
FOREIGN SECURITIES:
Foreign securities are securities of issuers based outside the U.S. They
are primarily denominated in foreign currencies and traded outside of the United
States. In addition to the risks normally associated with equity and fixed
income securities, foreign securities are subject to country risk and currency
risks. Trading in certain foreign markets is also subject to liquidity risks.
FOREIGN EXCHANGE CONTRACTS are used by a Fund to convert U.S. dollars into
the currency needed to buy a foreign security, or to convert foreign currency
received from the sale of a foreign security into U.S. dollars ("spot currency
trades"). 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 a 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 guasi-governmental
agencies.
B-4
<PAGE>
EURODOLLAR CONVERTIBLE SECURITIES are fixed income securities of a U.S.
issuer or a foreign issuer that are issued outside the United States and are
convertible into equity securities of the same or a different issuer. Interest
and dividends on Eurodollar securities are payable in U.S. dollars outside the
United States. Each Fund may invest without limitation in Eurodollar
convertible securities, subject to its investment policies and restrictions,
that are convertible into foreign equity securities listed, or represented by
ADRs listed, on the New York Stock Exchange or the American Stock Exchange or
convertible into publicly traded common stock of U.S. companies.
EURODOLLAR AND YANKEE DOLLAR INSTRUMENTS are bonds that pay interest and
principal in U.S. dollars held in banks outside the United States, primarily in
Europe. Eurodollar instruments are usually issued on behalf of multinational
companies and foreign governments by large underwriting groups composed of banks
and issuing houses from may countries. Yankee Dollar instruments are U.S.
dollar denominated bonds issued in the U.S. by foreign banks and corporations.
RISK MANAGEMENT AND RETURN ENHANCEMENT STRATEGIES
Each Fund may engage in various portfolio strategies, 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 polices.
RISKS OF RISK MANAGEMENT AND RETURN ENHANCEMENT STRATEGIES. Participation
in the options and futures markets and in currency exchange transactions
involves investment risks and transaction costs to which a Fund would not be
subject absent the use of these strategies. 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. Risk inherent in the use of options, foreign currency and futures
contracts and options on futures contracts include (1) dependence on the
Investment Adviser's ability to predict correctly movements in the direction of
interest rates, securities prices and currency markets; (2) imperfect
correlation between the price of options and futures contracts and options
thereon and movements in the prices of the securities being hedged; (3) the fact
that skills needed to use these strategies are different from those needed to
select portfolio securities; (4) the possible absence of a liquid secondary
market for any particular instrument at any time; (5) the risk that the
counterparty may be unable to complete the transaction; and (6) the possible
liability of a Fund to purchase or sell a portfolio security at a
disadvantageous time, due to the need for a Fund to maintain "cover" or to
segregate assets in connection with hedging transactions.
DERIVATIVES:
INDEX AND CURRENCY-LINKED SECURITIES are debt securities of companies that
call for interest payments and/or payment at maturity in different terms than
the typical note where the borrower agrees to make fixed interest payments and
to pay a fixed sum at maturity. Principal and/or interest payments on an
B-5
<PAGE>
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 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-thoughts." 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 grantors 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 insure
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 even higher than
anticipated prepayments of principal, a Fund may be subject to reinvestment in a
market
B-6
<PAGE>
of lower interest 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 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.
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.
ASSET BACKED SECURITIES are payable from pools of obligations other than
mortgages. Almost any type of fixed income assets (including other fixed income
securities) may be used to create an asset backed security. However, most asset
backed securities involve consumer or commercial debts with maturities of less
than ten years. Asset backed securities may take the form of commercial paper or
notes, in addition to pass through certificates. Asset backed securities may
also resemble some types of CMOs, such as Floaters, Inverse Floaters, IOs and
POs.
Historically, borrowers are more likely to refinance their mortgage than
any other type of consumer debt or short term commercial debt. In addition, some
asset backed securities use prepayment to buy addition assets, rather than
paying off the securities. Therefore, although asset backed securities may have
some prepayment risks, they generally do not present the same degree of risk as
mortgage backed securities.
SYNTHETIC CONVERTIBLE SECURITIES are derivative positions composed of two
or more different securities whose investment characteristics, taken together,
resemble those of convertible securities. For example, 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, a 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 Standard and Poor's.
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.
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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
a Fund writes options on futures contracts, it will be subject to margin
requirements similar to those applied to futures contracts.
STOCK INDEX OPTIONS. Each Fund may also purchase put and call options with
respect to U.S. and global stock indices. The Funds may purchase such options
as a hedge against changes in the values of portfolio securities or securities
which they intend to purchase or sell, or to reduce risks inherent in the
ongoing management of the Funds.
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, A Fund could not be
able to close out options which it had purchased, and if restrictions on
exercise were imposed, a 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 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
a call option on the same currency with the same expiration date but with
different exercise (or "strike") prices. Generally, the put option will have an
out-of-the-money strike price, while the call option will have either an
at-the-money strike price of an in-the-money strike prices. Foreign currency
options are derivative securities. Currency options traded on U.S. or other
exchanges may be 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.
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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 at a future date, which may
be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. For example, a Fund might
purchase a particular currency or enter into a forward currency contract to
preserve the U.S. dollar price of securities it intends to or has contracted to
purchase. Alternatively, it might sell a particular currency on either a spot
or forward basis to hedge against an anticipated decline in the dollar value of
securities it intends to or has contracted to sell. Although this strategy
could minimize the risk of loss due to a decline in the value of the hedged
currency, it could also limit any potential gain from an increase in the value
of the currency.
FUTURES CONTRACTS provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a price, date, and
time specified when the contract is made. Futures contracts traded OTC are
frequently referred to as "forward contracts". Entering into a contract to buy
is commonly referred to as buying or purchasing a contract or holding a long
position. Entering into a contract to sell is commonly referred to as selling a
contract or holding a short position. Futures are considered to be commodity
contracts.
The 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 markets, a contract is made to purchase or sell a bond in the future for
a set price on a certain date. Historically, the prices for bonds established
in the futures markets have generally tended to move in the aggregate in concert
with cash market prices, and the prices have maintained fairly predictable
relationships.
The sale of an interest rate or financial future sale by 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 describe above. A futures
option gives the holder, in return for the premium paid, the right to buy (call)
from or sell (put) to the writer of the option a futures contract at a specified
price at
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any time during the period of the option. Upon exercise, the writer of the
option is obligated to pay the difference between the cash value of the futures
contract and the exercise price. Like the buyer or seller of a futures
contract, the holder or writer of an option has the right to terminate its
position prior to the scheduled expiration of the option by selling, or
purchasing an option of the same series, at which time the person entering into
the closing transaction will realize a gain or loss. There is no guarantee that
such closing transactions can be effected.
Investments in futures options involve some of the same considerations as
investments in futures contracts (for example, the existence of a liquid
secondary market). In addition, the purchase of an option also entails the risk
that changes in the value of the underlying futures contract will not be fully
reflected in the value of the option. Depending on the pricing of the contract
will note be fully reflected in the value of the option. Depending on the
pricing of the option compared to either the futures contract upon which it is
based, or upon the price of the securities being hedged, an option may or may
not be less risky than ownership of the futures contract or such securities. In
general, the market prices of options are more volatile than the market prices
on the underlying futures contracts. Compared to the purchase or sale of
futures contracts, however, the purchase of call or put options on futures
contracts may frequently involve less potential risk to the Funds because the
maximum amount at risk is limited to the premium paid for the options (plus
transaction costs).
Investments in futures options involve some of the same considerations as
investments in futures contracts (for example, the existence of a liquid
secondary market). In addition, the purchase of an option also entails the risk
that changes in the value of the underlying futures contact will not be fully
reflected in the value of the option. Depending on the pricing of the option
compared to either the futures contract upon which it is based, or upon the
price of the securities being hedged, an option may or may not be less risky
than ownership of the futures contract or such securities. In general, the
market prices of options are more volatile than the market prices on the
underlying futures contracts. Compared to the purchase or sale of futures
contracts, however, the purchase of call or put options on futures contracts may
frequently involve less potential risk to the 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 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 security being
hedged has moved in a favorable direction, this advantage will be partially
offset by the loss on the contract. If the price of the future moves more than
the price of the hedged securities, the Fund will experience either a loss or a
gain on the contract which will not be completely offset by movements in the
price of the securities which are subject to the hedge.
When contracts are purchased to hedge against a possible increase in the
price of securities before 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 a 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.
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Most United States futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end of
the trading session. Once the daily limit has been reached in a particular type
of futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.
Successful use of futures by 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 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
Excepts 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 a 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.
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 the 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.
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CROSS-CURRENCY SWAPS. A cross-currency swap is a contract between two
counterparties to exchange interest and principal payments in different
currencies. A cross-currency swap normally has an exchange of principal at
maturity (the final exchange); and exchange of principal at the start of the
swap (the initial exchange) is optional. An initial exchange of notional
principal amounts at the spot exchange rate serves the same function as a spot
transaction in the foreign exchange market (for an immediate exchange of foreign
exchange risk). An exchange at maturity of notional principal amounts at the
spot exchange rate serves the same function as a forward transaction in the
foreign exchange market (for a future transfer of foreign exchange risk). The
currency swap market convention is to use the spot rate rather than the forward
rate for the exchange at maturity. The economic difference is realized through
the coupon exchanges over the life of the swap. In contrast to single currency
interest rate swaps, cross-currency swaps involve both interest rate risk and
foreign exchange risk.
SWAP OPTIONS. 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 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 in 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 transactional 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 enter into such transactions on a "net" basis, with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
streams. The net amount of accrued on a daily
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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 of the full amount accrued on a daily basis of the fund's obligations
with respect to the transaction. Such segregated accounts are maintained in
accordance with applicable regulations of the Commission.
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 the 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 their assets in cash, cash items, and
short-term, higher quality debt securities. A Fund 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.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest
its assets in securities of other investment companies as an efficient means of
carrying out its investment policies. It should be noted that investment
companies incur certain expenses, such as management fees, and, therefore, any
investment by the Fund in shares of other investment companies may be subject to
such duplicate expenses.
"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 even 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 is 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
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
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Quality Bond, Global Blue Chip, Pacific Rim, 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 purpose will not exceed 5% of
the Fund's net assets at any one time and, to the extent necessary, the Fund
will close out transactions in order to comply with this limitation. Such
transactions are subject to the limitations described above under "Options,"
"Futures Contracts," and "Interest Rate and Currency Swaps".
REPURCHASE AGREEMENTS are agreements are transactions in which a Fund buys
a security from a dealer or bank and agrees to sell the security back at a
mutually agreed upon time and price. Pursuant to such agreements, the Fund
acquires securities from financial institutions as are deemed to be creditworthy
by the Investment Adviser, subject to the seller's agreement to repurchase and
the Fund's agreement to resell such securities at a mutually agreed upon date
and price. The repurchase price generally equals the price paid by the Fund
plus interest negotiated on the basis of current short-term rates (which may be
more or less than the rate on the underlying portfolio security). Securities
subject to repurchase agreements will be held by the Fund's custodian or in the
Federal Reserve/Treasury Book-Entry System or an equivalent foreign system. The
seller under a repurchase agreement will be required to maintain the value of
the underlying securities at not less than 102% of the repurchase price under
the agreement . If the seller defaults on its repurchase obligation, the Fund
holding the repurchase agreement will suffer a loss to the extent that the
proceeds from a sale of the underlying securities is less than the repurchase
price under the agreement. Bankruptcy or insolvency of such a defaulting seller
may cause the Fund's rights with respect to such securities to be delayed or
limited. Repurchase agreements may be considered to be loans under the
Investment Company Act.
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 to 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 its custodian cash,
U.S. Government securities or other appropriate liquid securities in an amount
sufficient to cover its obligations under these agreements with broker-dealers
(no such collateral is required on such agreements with banks). Under the
Investment Company Act, these agreements may be considered borrowings by the
Funds, an are subject to the percentage limitations on borrowings describe
below. The agreements are subject to the same types of risks as borrowings.
WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS. Each
Fund may purchase securities on a "when-issued," forward commitment or delayed
settlement basis. In this event, a Fund's custodian will set aside cash or
liquid portfolio securities equal to the amount of the commitment in a separate
account. Normally, the custodian will set aside portfolio securities to satisfy
a purchase commitment. In such a case, 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 exceed 15% of the value of its net assets.
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When a Fund engages in when-issued, forward commitments and delayed
settlement transactions, it relies on the other party to consummate the trade.
Failure of such party to do so may result in a Fund's incurring a loss or
missing an opportunity to obtain a price credited to be advantageous.
BORROWING. Each Fund may borrow money through lines of credit, reverse
repurchase agreements, and other techniques. All borrowings by a Fund cannot
exceed one-third of a Fund's total assets.
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 form a borrowing remain fixed by the terms of the
Fund's agreement with its lender, the asset value per share of the Fund tends to
increase more when its portfolio securities increase in value and to decrease
more when its portfolio assets decrease in value than would otherwise be the
case if the Fund did not borrow funds. In addition, interest costs on
borrowings may fluctuate with changing market rates of interest and may
partially offset or exceed the return earned on borrowed funds. Under adverse
market conditions, the Fund might have to sell portfolio securities to meet
interest or principal payments at a time when fundamental investment
considerations would not favor such sales.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, each
Fund may lend portfolio securities in an amount up to 30% of total Fund
assets to broker-dealers, major banks, or other recognized domestic
institutional borrowers of securities. No lending may be made with any
companies affiliated with the Investment Manager. The Funds may lend
securities only to financial institutions such as banks, broker/ dealers and
other recognized institutional investors in amounts up to 30% of the Fund's
total assets. These loans earn income for the Funds and are fully
collateralized by cash, securities or letters of credit. The Funds invest
cash collateral in securities of other investment companies managed in
accordance with Rule 2a-7 of the Investment Company Act of 1940 ("money
market mutual funds"). The Funds might experience a loss if the financial
institution defaults on the loan.
The borrower at all times during the loan must maintain with the Fund cash
or cash equivalent collateral or provide to the Funds an irrevocable letter of
credit equal in value to at least 102% of the value of domestic and 105% of the
value of foreign securities loaned. During the time portfolio securities are on
loan, the borrower pays the Funds any interest paid on such securities, and the
Funds may invest the cash collateral and earn additional income, or it may
receive an agreed-upon amount of interest income from the borrower who has
delivered equivalent collateral or a letter of credit. Loans are subject to
termination at the option of the Funds or the borrower at any time. The Funds
may pay reasonable administrative and custodial fees in connection with a loan
and may pay a negotiated portion of the income earned on the collateral to the
borrower or placing broker. As with other extensions of credit, there are risks
of delay in recovery or even loss of rights in the collateral should the
borrower fail financially.
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 or
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).
Since a Fund in effect profits from a decline in the price of the
securities sold short without the need to invest the full purchase price of the
securities on the date of the short sale, the Fund's net asset value per share
tends to increase more when the securities it has sold short increase in value,
than would otherwise be the case if it had not engage in such short sale. The
amount of any gain will be decreased, and the amount of any loss increased, by
the amount of any premium, dividends or interest the Fund may be required to pay
in connection with the short sale. Short sales theoretically involve unlimited
loss potential, as the market price of securities sold short may continually
increase, although 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
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<PAGE>
deposits and segregation of assets aggregating more than 25% of the Fund's total
assets, taken at market value.
ILLIQUID SECURITIES. Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale because they
have not been registered under the Securities Act of 1933, as amended (the
"Securities Act"), securities which are otherwise not readily marketable and
repurchase agreements having a maturity of longer than seven days. Limitations
on resale may have an adverse effect on the marketability of portfolio
securities and the Fund night be unable to dispose of restricted or other
illiquid securities promptly or at reasonable prices and might thereby
experience difficulty satisfying redemption within seven days. The Fund might
also have to register such restricted securities in order to dispose of them,
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments. If such securities are subject to purchase by institutional buyers
in accordance with Rule 144A promulgated by the Commission under the Securities
Act, the Trust's Board of Trustees has determined that such securities are not
illiquid securities notwithstanding their legal or contractual restrictions on
resale. In all other cases, however, securities subject to restrictions on
resale will be deemed illiquid. Investing in restricted securities eligible for
resale under Rule 144A could have the effect of increasing the level of
illiquidity in the Funds to the extent that qualified institutional buyers
become uninterested in purchasing such securities.
The Emerging Countries, Global Blue Chip, Global Health Care, Pacific
Rim, 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
Funds treat 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 (except the Latin America and Global Health Care Funds) 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: (1)
cash and cash items, Government securities and securities of other investment
companies; and (2) other securities except that the Fund may not invest more
than 5% of its total assets in the securities of any single issuer or own
more than 10% of the outstanding voting securities of any one issuer. The
Latin America and Global Health Care Funds are non-diversified funds for
Investment Company Act purposes but are diversified for Internal Revenue Code
purposes. Under the Internal Revenue Code the Funds must have at least 50% of
the value of their total assets represented by: (1) cash and cash items,
Government securities and securities of other investment companies; and (2)
other securities except that the Fund may not invest more than 5% of its
total assets in the securities of any single issuer or own more than 10% of
the outstanding voting securities of any one issuer.
To the extent that the Latin America and Global Health Care Funds invest
heavily in a single issuer, their performance could suffer significantly from
adverse events affecting that issuer. The value of an individual security or a
particular type of security can be more volatile than the market as a whole and
can perform differently than the value of the market as a whole.
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.
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<PAGE>
The investment objective of each Fund is a fundamental policy. In
addition, no Fund:
1. May (except the Latin America and Global Health Care Funds) 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 or instrumentalities. For the Latin America and
Global Health Care Funds with respect to 50% of the value of each
Fund's total assets, will not purchase securities of any one issuer
(other than cash, cash items, or securities issued or guaranteed by
the government of the United States or its agencies or
instrumentalities) if as a result more than 5% of the value of its
total assets would be invested in the securities of that issuer,
and the Fund will not acquire more than 10% of the outstanding
voting securities of any one issuer.
2. May purchase more than 10% of the outstanding voting securities, or of
any class of securities, or 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 (except the Global Health Care Fund) 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 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 interest in real estate.
5. May make commercial loans of money, except that a Fund may purchase
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 from 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 are 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,
B-17
<PAGE>
High Yield Bond, Global Blue Chip, Global Health Care, Pacific Rim
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 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, Global Health Care, Pacific Rim 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 interest 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.
PRINCIPAL HOLDERS OF SECURITIES
As of March 31, 2000, the following persons held of record more than 5% of
the outstanding shares of the Funds:
Short Intermediate Fund Class I--Indiana State Council of Carpenters Health
& Welfare Fund C/O William A. Johnson Morris Association Inc. , PO Box 50440,
Indianapolis, IN 46250-0440 (44.87%); Community Hospital Foundation, PO Box 458,
Channelview, TX 77530-0458 (20.49%).
Global Technology Fund Class I--Wake Forest University, PO Box 7354,
Winston Salem, NC 27109-7354 (7.83%); Titus & Co Profit Sharing, Chase Manhattan
Bank c/o Mutual Funds Department, 4 New York Plaza #13, New York, NY
10004-2413(5.60%); Clarence L. Elder & Barbara K. Elder Joint Trustees, 1680
Lands End Road, Manalapan, FL 33462-4762 (5.18%).
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<PAGE>
Mini Cap Growth Fund Class I--Charles Schwab & Co. Inc., 101 Montgomery
Street 11th Floor, San Francisco, California 94104-4122 (26.99%); Northern Trust
Company, FBO Ford Family Foundation, PO Box 92956, Chicago, Il 60675-2956
(17.96%); The Lynde & Harry Bradley Foundation Inc., PO Box 510860, Milwaukee,
WI 53203-0153 (12.02%); Arthur E. Nicholas, P.O. Box 2169, Del Mar, CA
92014-1469; Rocco Trust & Co. Partnership, c/o Marshall and Ilsely Trust, P.O.
Box 2977, Milwaukee, WI 53201-2977; Northern Trust Custodian FBO Dallas Museum
of Art; P.O. Box 92956, Chicago, IL 60675-2956.
Latin America Fund Class I--Arthur E. Nicholas, PO Box 2169, Del Mar, CA
92014-1469 (94.41%).
Pacific Rim Fund Class I--Arthur E. Nicholas, PO Box 2169, Del Mar, CA
92014-1469 (61.11%); State Street Bank & Trust Co. Custodian of The IRA of
Richard E. McCaman, 1331 E. Nutwood Avenue, Fullerton, CA 92831-3308 (16.55%);
State Street Bank & Trust Co. Custodian for Roth Contribution IRA Robert H.
Elliott, 17 W. Irving Street, Chevy Chase, MD 20815-4218 (7.83%).
Global Blue Chip Fund Class I --Arthur E. Nicholas, PO Box 2169, Del Mar CA
92014-1469 (31.16%); Sherryl A. Nicholas Trustee, Sherryl A. Nicholas Revocable
Trust, PO Box 2295, Rancho Santa Fe, CA 92067-2295 (11.02%); CNA Trust
Corporation Trustee, FBO Nicholas-Applegate 401(K) Plan, PO Box 5024, Costa
Mesa, CA 92628-5024 (14.64%); Richard L. Matteucci & Nedra J. Matteucci Joint
Tennants, PO Drawr R, Albuquerque, NM 87103-1376 (7.56%);CNA Trust Corporation
Trustee, Nicholas-Applegate Pension Plan, PO Box 5024, Costa Mesa, California
92628-5024 (6.89%).
Global Growth & Income Fund Class I--Arthur E. Nicholas, PO Box 2169, Del
Mar, CA 92014-1469 (73.16%); Sherryl A. Nicholas Trustee, Sherryl A. Nicholas
Revocable Trust, PO Box 2295, Rancho Santa Fe, CA 92067-2295 (18.82%).
Convertible Fund Class I --Austin Fire Fighters Relief & Retirement Fund,
3301 Northland Drive #215, Austin, TX 79731-4951 (24.22%); Northern Trust
Company Trustee FBO Motion Picture Industry Individual Account Plan, P.O. Box
92956, Chicago, IL 60675-2956 (18.84%); Directors Guild of America Producer
Health Plan California Trust, 8436 W. 3rd Street, Suite 900, Los Angeles, CA
90048-4189 (9.83%); Northern Trust Trustee FBO Screen Actors Guild C/D/A Health
Plan, P.O. Box 92956, Chicago, IL 60675-2956 (5.52%).
Emerging Countries Fund Class I--Blue Cross & Blue Shield of Florida, Inc.
Attn: Performance Measurement Analyst, Banking & Investment DC1-3, 4800 Deerwood
Campus Parkway, Jacksonville, FL 32246-6498 (26.25%); Lauer & Co., C/O The
Glenmede Trust Co., 1 Liberty Place Suite 1200, Philadelphia, PA 19103 (17.52%);
University of Notre Dame, DU LAC Investment Office, Grace Hall, Suite 900, Notre
Dame, IN 46556 (13.02%); Northern Trust Co., Trustee, FBO Knight-Ridder Master
Retirement Trust, PO Box 92956, Chicago, IL 60675-2956; (6.22%); Bost & Co.,
Mutual Funds Operations, PO Box 3198, Pittsburgh, PA 15230-3198 (5.55%).
Emerging Countries Fund Class R--Putnam, Lovell, De Guardiola & Thornton,
Inc., Pier 5 The Embarcadero, San Francisco, CA 94111 (65.75%); Boston Financial
Data Services, Corporate Actions Audit Account #1, Nicholas-Applegate Fund, 2
Heritage Drive Floor 2, Quincy, MA 02171-2144 (11.42%); Boston Financial Data
Services, Corporate Actions Audit Account #4, Nicholas-Applegate Fund, 2
Heritage Drive Floor 2, Quincy, MA 02171-2144 (11.42%), Boston Financial Data
Services, Corporate Actions Audit Account #2, Nicholas-Applegate Fund, 2
Heritage Drive Floor 2, Quincy, MA 02171-2144 (11.42%).
High Yield Bond Fund Class I--Austin Fire Fighters Relief and Retirement
Fund, 3301 Northland Dr. #215, Austin, TX 78731-4951 (40.69%); Sherryl A.
Nicholas Revocable Trust, PO Box 2295, Rancho Santa Fe, CA 92067-2295 (26.66%);
Wuesthoff Memorial Hospital Funded Depreciation Not-For-Profit Corporation, PO
Box 565002, Rockledge, FL 39256-5002 (15.64%); Wuesthoff Memorial Hospital
Pension Plan Master Trust, Pension Plans Bargaining & Non-Bargaining, PO Box
565002, Rockledge, FL 32956-5002 (5.44%).
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<PAGE>
High Quality Bond Fund Class I--Charles Schwab & Co., Inc., 101 Montgomery
Street, 11th Floor, San Francisco, CA 94104-4122 (71.07%); Baker Botts LLP, 910
Louisiana Street, Houston, TX 77002-4916 (23.94%).
High Quality Bond Fund Class R--CNA Trust Corporation Trustee, FBO Trust
Fund Advisors, PO Box 5024; Costa Mesa, CA 92628-5024 (99.98%).
International Core Growth Fund Class I--Chase Manhattan Bank Trustee, Avon
Products Inc. & Subsidiaries Master Retirement Trust, 1345 Avenue of the
Americas, New York, NY 10105-0302 (8.13%); The University of North Carolina at
Chapel Hill, Foundation Investment Fund Inc., Investment Office, 1512 E.
Franklin Street, Suite 106, Chapel Hill, NC 27514-2816 (6.45%); Jennifer
Consigli Trustee Schwan's Sales Enterprise Inc., PSP, 105 Rosemont Road,
Westwood, MA 02090-2318 (6.87%); Jim Goad Trustee, Les Schwab Profit Sharing
Retirement Trust, P.O. Box 667, Prineville, Or. 97754-0667 (6.41%); Methodist
Children's Home Endowment Fund, 1111 Herring Ave, Waco, TX 76078-3696 (6.05%).
International Core Growth Fund Class R--American Express Trust Co. FBO
American Express Retirement Services Plan, P.O. Box 534, Minneapolis, MN
55440-0534 (84.34%); CAN Trust Corp. Trustee FBO Trust Fund Advisor--Omnibus
Part, P.O. Box 5024, Costa Mesa, CA 92628-5024 ( 10.17%); Light & Co., C/O
Allfirst Trust Co., Security Processing 109-911, P.O. Box 1596; Baltimore, MD
21203-1596 (5.49%); Austin Fire Fighters Relief & Retirement Fund, 3301
Northland Drive #215, Austin, TX 78731-4951 (5.80%);
International Small Cap Growth Fund Class I--The University of North
Carolina at Chapel Hill, Foundation Investment Fund Inc., Investment Office,
1512 E. Franklin Street, Suite 106, Chapel Hill, NC 27514-2816 (12.08%); First
Tennessee Bank NA Reinvestment Account, 165 Madison Avenue, Floor 7, Memphis, TN
38103-2723 (11.02%); University of British Columbia Endowment Fund, 220 Dundas
Street, 2nd Floor, London Ontario Canada N6A 4s4 (9.08%); Austin Fire Fighters
Relief & Retirement Fund, 3301 Northland Drive #215, Austin, TX 78731-4951
(7.36%); Northern Trust Custodian FBO Christel DeHaan Trust, P.O. Box 92956,
Chicago, Il 60675 (6.66%); Methodist Home, Texas Non-Profit Corporation, 1111
Herring Avenue, Waco, TX 76708-3696 (6.02%). The Investment Committee Trustee
FBO Short Brothers Pension Scheme, 1501 McGill College Avenue, 9th Floor,
Montreal Quebec, Canada H3A 3M8 (6.01%); Northern Trust Trustee FBO UA Local 467
Pension, New Century, P.O. Box 92956, Chicago, IL 60675-2956 (5.39%).
Large Cap Growth Fund Class I --San Diego Museum of Art Endowment
Fund/Non-Profit Co., P.O. Box 122107, San Diego, CA 92112-2107 (22.41%); Fifth
Third Bank Trustee FBO Gilmour Academy, P.O. Box 630074, Cincinnati, OH
45263-0091 (14.42%); San Diego Museum of Art Non-Profit Corporation, P.O. Box
122107, San Diego, CA 92112-2107 (11.21%); United Jewish Federation of Metrowest
Pension Trust; 901 Route 10, Whippany, NJ 07981-1156 (7.95%); Sherryl A.
Nicholas Revocable Trust, PO Box 2295, Rancho Santa Fe, CA 92067-2295 (6.90%);
Julian M. Firestone Trustee Julian M. Firestone Trust, 82 W. 3rd Street 2nd
Floor, New York, NY 10012-1008 (6.82%); CNA Trust Corporation Trustee, FBO
Nicholas-Applegate 401(K) Plan, PO Box 5024, Costa Mesa, CA 92628-5024 (6.71%).
Large Cap Growth Fund Class R--Fidelity Investments Institutional
Operations Co., Inc. as Agent for Certain Employee Retirement Plans, 100
Magellan Way KW1C, Covington, KY 41015-1999 (50.67%); CNA Trust Corporation
Trustee, FBO Trust Fund Advisors, PO Box 5024, Costa Mesa, CA 92628-5024
(49.33%).
Mid Cap Growth Fund Class I--Consumers Energy Company Employees Savings &
Incentive Plan, 212 W. Michigan Avenue, Jackson, MI 49201-2276 (40.18%);
Pacificorp Veba Trust, Attn: Kent Grether, 825 NE Multnomah Street, Suite 1900,
Portland, OR 97232-2135 (12.54%); LaSalle National Bank Trustee Metz Banking Co.
Pension Trust, PO Box 1443, Chicago, IL 60691-1443 (8.13%).
Mid Cap Growth Fund Class R--City National Bank, 225 Broadway 5th Floor,
San Diego, CA 92101-5005 (93.39%).
Small Cap Growth Fund Class I --Northern Trust Company Custodian FBO
Advocate, PO Box 92956, Chicago, IL 60675-2956 (24.97%); KPMG Peat Marwick,
Attn: Joe Geller, Partner and Employee Benifits, 3 Chestnut Ridge Road, BLDG-3,
Floor 2, Montvale, NJ 07645 (20.20%); Bankers Trust Co., FBO Teamsters Local
688-Mid/Small, 648 Grassmere Park Road, Nashville, TN 37211-3658 (6.42%);
Northern Trust Company Custodian FBO Ford Family Foundation, PO Box 92956,
Chicago, IL 60675-2956 (6.18%).
Small Cap Growth Fund Class R--CNA Trust Corp., FBO Trust Fund Advisors,
PO Box 5024, Costa Mesa, CA 92628-5024 (99.99%).
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<PAGE>
Value Fund Class I--The Investment Committee Trustee FBO Short Brothers
Pension Scheme, PO Box 241 Airport Road, Belfast BT3 9DZ, Northern Ireland
(31.11%); Pension Fund Trust Co., Trustee Fiducie Bombardier Trust, 800
Rene-Levesque West 29th Floor, Montreal, Canada H3B-1Y8 (19.40%); Baker Botts
LLP, 910 Louisiana Street, Houston, TX 77002-4916 (18.81%);Key Trust Company
Trustee fBO Bombardier Trust, P.O. Box 94871, Cleveland, OH 44101-4871 (9.91%);
Sherryl A. Nicholas, Sherryl A. Nicholas-Revocable Trust, P.O. Box 2295, Rancho
Santa Fe, CA 92067-2295 (6.00%); Royal Trust Co., Trustee Foundation J. Armand
Bombardier Trust, 800 Rene-Levesque West, 29th Floor, Montreal, Canada H3B-1Y8
(5.20%).
Value Fund Class R--CNA Trust Corp., Trustee FBO Trust Fund Advisors, PO
Box 5024, Costa Mesa, CA 92628-5024 (99.99%).
Worldwide Growth Fund Class I--The Investment Committee Trustee, FBO Short
Brothers Pension Scheme, PO Box 241 Airport Road, Belfast BT3 9DZ, Northern
Ireland (42.32%); Pension Fund Trust Co., Trustee Fiducie Bombardier Trust, 800
Rene-Levesque West 29th Floor, Montreal, Canada H3B-1Y8 (26.39%); Key Trut
Company Trustee FBO Bombardier Trust, P.O. Box 94871, Cleveland, Oh 44101-4871
(13.48%); Royal Trust Co., Trustee Foundation J. Armand Bombardier Trust, 800
Rene-Levesque West, 29th Floor, Montreal, Canada H3B-1Y8 (7.07%).
Global Health Care Fund Class I--The Investment Committee FBO Short
Brothers Pesnion Scheme, 1501 McGill College Ave., 9th Floor, Montreal, Quebec,
Canada H3A 3M8 (13.85%); Wake Forest University, P.O. Box 7354; Winston-Salem,
NC 27109-7354 (9.68%); Pension Fund Trust Co. Trustee Bombardier Trust, 1501
McGill College Ave 9th Floor, Montreal Quebec Canada H3A 3M8 (8.64%).
As of March 31, 2000, the Trustees and officers of the Trust, as a group,
owned beneficially and of record less than 1% of the outstanding shares of each
of the Funds, except for the shares indicated above that are held by Arthur E.
Nicholas.
TRUSTEES AND PRINCIPAL OFFICERS
The business of the Funds is managed by the Trustees of the Trust who
elect officers who are responsible for the day-to-day operations of the Fund and
who execute policies formulated by the Trustees. Several of the officers and
Trustees of the Trust are also officers of the Investment Adviser, or officers
of the Funds' Distributor, Nicholas-Applegate Securities.
The names, addresses and ages of the Trustees and principal officers of
the Trust, including their positions and principal occupations during the past
five years, are shown below. Trustees whose names are followed by an asterisk
are "interested persons" of the Trust (as defined by the Investment Company
Act). Unless otherwise indicated, the address of each Trustee and officer is 600
West Broadway, 30th Floor, San Diego, California 92101.
JOHN J.P. MCDONNELL (48), PRESIDENT. Chief Operating Officer,
Nicholas-Applegate Capital Management (since July 1998). Formerly, Chief
Financial Officer, American Express Travel Related Services New York (April
1978-June 1998).
ARTHUR E. NICHOLAS (52), TRUSTEE AND CHAIRMAN OF THE BOARD.* Managing
Partner, Nicholas-Applegate Capital Management (since 1984), and Chairman /
President Nicholas-Applegate Securities. Director and Chairman of the Board of
Directors of Nicholas-Applegate Fund, Inc., a registered open-end investment
company (since 1987); Formerly, President and Chairman of Nicholas-Applegate
Mutual Funds (until 1999).
WALTER E. AUCH (77), TRUSTEE. 6001 North 62nd Place, Paradise Valley,
Arizona. Brinson Funds (since 1994), Salomon Smith Barney Concert Series
(since 1996); Advisors Group (since 1997); Smith Barney Trak Fund (since
1992); Pimco Advisors L.P., an investment manager (since 1994); and Banyan
B-21
<PAGE>
Realty Fund (since 1988) Legena Properties Fund (since 1987); and Senele Group
(since 1988), real estate investment trusts. Formerly, Chairman and Chief
Executive Officer, Chicago Board of Options Exchange (1979-1986); Senior
Executive Vice President, Director and Member of the Executive Committee,
PaineWebber, Inc. (until 1979). Formerly, Trustee Nicholas-Applegate Mutual
Funds (until 1999)/
DARLENE DEREMER DARLENE DEREMER (43), TRUSTEE. 155 South Street, Wrentham,
Massachusetts. Darlene DeRemer is Managing Director of NewRiver's Internet
Advisory Services Division. Prior merging with NewRiver in March of 2000,
Darlene was President and Founder, DeRemer Associates, a strategic and marketing
consulting firm for the financial services industry (since 1987). Formerly, Vice
President and Director, Asset Management Division, State Street Bank and Trust
Company, now referred to as State Street Global Advisers, (from 1982-1987), and
Vice President, T. Rowe Price & Associates (1979-1982); Director, Jurika &
Voyles Fund Group (since 1994), Founding member and Director, National Defined
Contribution Council (since 1997); Trustee, Boston Alzheimer's Association
(since 1998); Member, Boston Club (since 1998); Founder, Mutual Fund Cafe
Website. Editorial Board, National Association of Variable Annuities (Since
1997). Nicholas-Applegate Strategic Opportunities Ltd. (since 1994), and King's
Wood Montessori School (since 1995); Member of Advisory Board, Financial Women's
Association (since 1995). Formerly, Trustee of Nicholas-Applegate Mutual Funds
(until 1999).
GEORGE F. KEANE (70), TRUSTEE. 7408 Eaton Court, University Park,
Florida 34201. President Emeritus, The Common Fund, a non-profit investment
management organization representing educational institutions (since 1993),
after serving as President (from 1971-1992); Member of Investment Advisory
Committee, New York State Common Retirement Fund (since 1982); Director,
Northern Trust of Connecticut (since 1991); Consultant, Associated Energy
Managers (since 1994); Director, The Bramwell Funds, Inc. (since 1994);
Director and former Chairman of the Board, Trigen Energy Corporation (since
1994); Director Universal Stainless & Alloy Products Inc. (since 1994).
Director, United Water Services and affiliated companies (since 1996);
Director, Security Capital U.S. Real Estate (since 1997); Director, The
Universal Bond Fund (since 1997). Formerly, President, Endowment Advisers,
Inc. (1987 - 1992); Trustee, Nicholas-Applegate Mutual Funds (until 1999).
E. BLAKE MOORE, JR. (42), SECRETARY. General Counsel and Secretary,
Nicholas-Applegate Capital Management and Nicholas-Applegate Securities (since
1993); Treasurer (1998-1999) and Secretary (1994-1999), Nicholas-Applegate
Mutual Funds.
C. WILLIAM MAHER (39), TREASURER. Chief Financial Officer,
Nicholas-Applegate Capital Management and Nicholas-Applegate Securities (since
1999). Formerly Chief Financial Officer, Mitchell Hutchins Asset Management,
Inc. (1990-1998); Treasurer, Nicholas-Applegate Mutual Funds (1999).
Each Trustee of the Trust that 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, 2000, to the Trustees who are not
affiliated with the Investment Adviser and the aggregate compensation paid to
such Trustees for service on the Trust's board and that of all other funds in
the "Trust complex" (as defined in Schedule 14A under the Securities Exchange
Act of 1934):
B-22
<PAGE>
<TABLE>
<CAPTION>
Total Compensation
Aggregate Pension or Retirement Estimated from Trust and Trust
Compensation Benefits Accrued as Part Annual Benefits Complex Paid to
Name from Trust of Trust Expenses Upon Retirement Trustee
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Walter E. Auch $17,000 None N/A $17,000(19*)
Darlene DeRemer $18,000 None N/A $18,000(19*)
George F. Keane $18,000 None N/A $18,000(19*)
</TABLE>
*Indicates total number of funds in Trust complex.
INVESTMENT ADVISER
The Investment Adviser to the Trust is Nicholas-Applegate Capital
Management, a California limited partnership, with offices at 600 West
Broadway, 30th Floor, San Diego, California 92101.
The Investment Adviser was organized in August 1984 to manage
discretionary accounts investing primarily in publicly traded equity securities
and securities convertible into or exercisable for publicly traded equity
securities, with the goal of capital appreciation. Its general partner is
Nicholas-Applegate Capital Management Holdings, L.P., a California limited
partnership, the general partner of which is Nicholas-Applegate Capital
Management Holdings, Inc., a California corporation owned by Mr. Nicholas.
Personnel of the Investment Adviser may invest in securities for their
own accounts pursuant to a Code of Ethics that sets forth all partners' and
employees' fiduciary responsibilities regarding the Funds, establishes
procedures for personal investing, and restricts certain transactions. For
example, all personal trades in most securities require pre-clearance and
participation in initial public offerings is prohibited. In addition,
restrictions on the timing of all personal investing in relation to trades by
the Funds and on short-term trading having been adopted.
SUB INVESTMENT ADVISER
Criterion Investment Management LLC ("Criterion") serves as sub-advisor to
the Short Intermediate and High Quality Bond Funds under the general
supervision of the Investment Adviser. Organized in April 1999, Criterion is
registered under the Investment Advisers Act of 1940 and is a wholly owned
subsidiary of Westdeutsche Landesbank Girzozentrale. Its principal address is
1990 Post Oak Boulevard, Houston, Texas 77056. Criterion previously was the
fixed income asset management division of the Investment Adviser and now
provides investment advice to the Funds and approximately 80 other separate
institutional clients with approximately $9 billion in assets under
management.
As compensation for Criterion's services under the subadvisory
agreement, the Investment Adviser pays Criterion monthly, a subadvisory fee
at an annual rate of .25% of each Fund's average daily net assets. Net fees
paid or owned by the Investment Adviser in 1999 to Criterion for the High
Quality Bond and Short Intermediate Funds were $23,186 and $22,151,
respectively.
MAURITIUS SUBSIDIARY
For reasons of efficient portfolio management, the International Small Cap and
Emerging Countries Funds invest in the Southeast Asian stock markets through the
Nicholas-Applegate Southeast Asia Fund, Ltd. a subsidiary of the Funds with
offices located at 3rd Floor, Les Cascades, Edith Cavell Street, Port Louis,
Mauritius (the "Mauritius Subsidiary"). The Mauritius Subsidiary, incorporated
on October 29, 1999, is an "Offshore Company" for the purposes of the Mauritius
Offshore Business Activities Act 1992 and has a certificate of tax residence
from the Commissioner of Income Tax in Mauritius. The directors of the Mauritius
subsidiary are:
E. Blake Moore, Jr.
Charles H. Field, Jr.
John J.P. McDonnell
K. Dev Joory
Couldip B. Lala
B-23
<PAGE>
All Directors act in a non-executive capacity.
International Financial Services Limited ("IFS"), is a company incorporated
in Mauritius and licensed by the Mauritius Offshore Business Activities
Authority ("MOBAA") to provide, inter alia, company management services to
offshore companies, has been appointed as administrator, registrar and secretary
to the Mauritius Subsidiary at a fee of approximately $1,300 per month. This
appointment may be terminated by either party on three months' prior written
notice or in the other circumstances listed in the agreement. The Mauritius
Subsidiary indemnifies IFS against matters other than those arising by reason of
the negligence, bad faith, dishonesty, fraud or willful breach of duty of IFS or
its employees and agents.
Under a double-taxation treaty currently in effect between India and
Mauritius, corporate taxpayers who reside in Mauritius are exempt from Indian
capital gains tax; therefore direct investments made by the Mauritius
Subsidiary in India are not subject to Indian taxes. India currently imposes
a domestic capital gains tax at the rate of 30% for short-term gains and 10%
for long-term gains. There is no assurance that the tax treaty will remain in
effect in future years. If the treaty is rescinded the Funds will not be able
to avail upon the tax relief and may be subject to retroactive capital gains
taxes.
THE INVESTMENT ADVISORY AGREEMENT
Under the Investment Advisory Agreement between Trust and the
Investment Adviser with respect to the Funds, the Trust retains the Investment
Adviser to manage the Funds' investment portfolios, subject to direction of the
Trust's Board of Trustees. The Investment Adviser is authorized to determine
which securities are to be bought or sold by the Funds and in what amounts.
The Investment Advisory Agreement provides that the Investment Advisory
will not be liable for any error of judgment or for any loss suffered by a Fund
or the Trust in connection with the matters to the Investment Advisory Agreement
relates, except for liability resulting form willful misfeasance, bad faith or
gross negligence in the performance of its duties or by reason of the Investment
Adviser's reckless disregard of its duties and obligations under the Investment
Advisory Agreement. The Trust has agreed to indemnity the Investment Adviser
against liabilities, costs and expenses that the Investment Adviser may incur in
connection with any action, suit, investigation or other proceeding arising out
of or otherwise based on any action actually or allegedly taken or omitted to be
taken by the Investment Adviser in connection with the performance of its duties
or obligations under the Investment Advisory Agreement or otherwise as
investment adviser of the Trust. The Investment Adviser is not entitled to
indemnification with respect to any liability to the Trust or its shareholders
by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties, or of its reckless disregard of its duties and
obligations under the Investment Advisory Agreement.
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, 1998, 1999 and 2000,
and the amounts of the reduction 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:
B-24
<PAGE>
For 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
Latin America Fund 4,778 13,560
Large Cap Fund 32,530 53,872
Mid Cap Growth Fund 3,422,148 9,400
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.
For Year Ended
March 31, 1999
<TABLE>
<CAPTION>
Fee Reductions
and Expense Reimbursements
Fund Advisory Fees (or Recoupments)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Global Blue Chip Fund 64,474 145,902
International Core Growth Fund 1,061,288 253,811
Worldwide Growth Fund 1,472,492 242,660
International Small Cap Growth Fund 1,149,529 168,199
Global Growth & Income Fund 46,259 161,466
Emerging Countries Fund 3,476,180 816,718
Pacific Rim Fund 10,116 132,636
Latin America Fund 12,038 124,861
Large Cap Growth Fund 178,627 154,098
Mid Cap Growth Fund 3,049,230 301,613
Value Fund 70,871 116,404
Small Cap Growth Fund 5,334,833 518,164
Mini Cap Growth fund 921,377 83,434
Convertible Fund 1,997,038 318,025
Short Intermediate Fund 44,439 149,179
High Quality Bond Fund 124,514 232,922
High Yield Bond Fund 466,926 318,323
Global Technology Fund 29,783 80,153
</TABLE>
<TABLE>
<CAPTION>
For Year Ended
March 31, 2000
Fee Reductions
and Expense Reimbursements
Fund Advisory Fees (or Recoupments)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Global Blue Chip Fund 128,590 78,076
International Core Growth Fund 1,730,163 (35,051)
Worldwide Growth Fund 1,391,630 73,822
International Small Cap Growth Fund 1,315,748 56,558
Global Growth & Income Fund 57,511 113,801
Emerging Countries Fund 2,497,173 207,942
Pacific Rim Fund 25,526 118,127
Latin America Fund 47,846 83,077
Global Health Care Fund 271,020 11,443
Large Cap Growth Fund 344,335 73,763
Mid Cap Growth Fund 1,172,637 131,914
Value Fund 246,907 79,755
Small Cap Growth Fund 2,019,763 388,726
Mini Cap Growth fund 880,167 130,916
Convertible Fund 417,743 134,536
Short Intermediate Fund 55,899 113,807
High Quality Bond Fund 84,863 126,523
High Yield Bond Fund 85,360 71,322
Global Technology Fund 1,390,764 2,985
</TABLE>
B-25
<PAGE>
CUSTODIAN, FUND ACCOUNTING AGENT AND ADMINISTRATORS
The Custodian, Fund Accounting and Administrator Agent for the Trust
is Brown Brothers Harriman & Co., Private Bankers ("BBH"), a New York Limited
Partnership established in 1818. BBH&Co. has offices worldwide and provides
services to Trust from its offices located at 40 Water Street, Boston,
Massachusetts 02109. As Custodian, Administrator and Fund Accounting Agent,
BBH&Co. is responsible for the custody of Trust's portfolio securities and
cash, maintaining the financial and accounting books and records of the
Trust, computing the Trust's net asset value per share and providing the
administration services required for the daily business operations of the
Trust. For its services, BBH received under the Administration Agreement
annual fees from each Fund equal to the Fund's pro rata portion (based on
each Funds net assets compared to the Trust's total net assets)of a fee equal
to 0.03% of the first $100 million of the Trust's average net assets, 0.02%
of the next $100 million, 0.01% thereafter, subject to a $25,000 annual
minimum and a $500,000 annual maximum. For the fiscal year ended March 31,
2000, for Fund Administration, BBH received aggregate compensation of
$458,332 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 the BBH or by the Trust's Distributor, transfer
agents, accounting agents, independent accountants and legal counsel. These
services, are comprised principally of assistance in coordinating with the
Trust's various service providers, providing certain officers of the Trust,
responding to inquiries from shareholders which are directed to the Trust rather
than other providers, calculating performance data, providing various reports to
the Board of Trustees, and assistance in preparing reports, prospectuses, proxy
statements and other shareholder communications. The Agreement contains
provisions regarding liability and termination similar to those of the
Administration Agreement.
Under the Administrative Services Agreement, the Investment Adviser is
compensated at the annual rate of 0.10% of the average daily net assets of each
Fund.
TRANSFER AND DIVIDEND DISBURSING AGENT, AND
INDEPENDENT AUDITORS
State Street Bank and Trust Company, 2 Heritage Drive, 7th Floor, North
Quincy, Massachusetts, 02171, serves as the Transfer Agent and as the Dividend
Disbursing Agent for the 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.
B-26
<PAGE>
Ernst and Young, L.L.P., 725 South Figueroa Street, Los Angeles,
California 90017, serves as the independent auditors for the Trust, and in that
capacity examines the annual and financial statements of the Trust.
DISTRIBUTOR
Nicholas-Applegate Securities (the "Distributor"), 600 West Broadway, 30th
Floor, San Diego, CA 92101, is the principal underwriter and distributor for the
Trust and, in such capacity is responsible for distributing shares of the 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 the Funds, 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 is 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 Funds shares; providing the
information to the Fund's 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.
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.
The Shareholder Service Plan continues in effect from year to year,
provided that each such continuance is approved at least annually by 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 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 any time, without
penalty, by the Board.
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
B-27
<PAGE>
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 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 R 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 the 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 up to 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 Fund, the Class will not reimburse the Distributor
for the excess in the subsequent fiscal year. However, because the Distributor
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 Distribution Plan.
Shareholders will be given a 60 day notice upon the Trust's determination to
activate the Plan.
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Trust's Board of Trustees, the
Investment Adviser executes the Funds' portfolio transactions and allocated the
brokerage business. In executing such transactions, the
B-28
<PAGE>
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 the markets in such securities except in
those circumstances where better prices and execution are available elsewhere.
The Investment Adviser negotiates commission rates with brokers or dealers based
on the quality or quantity of services provided in light of generally prevailing
rates, and while the Investment Adviser generally seeks reasonably competitive
commission rates, the 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 on investment decisions. Information, services and products so
received are in addition to and not in lieu of the services required to be
performed by the Investment Adviser under the Investment Advisory Agreement, and
the expenses of the Investment Adviser are not necessary reduced as a result to
the receipt of such supplemental information, service and products. Such
information, services and products may be useful to the Investment Adviser in
providing services to clients other than the Trust, and not all such
information, services and products are used by the Investment Adviser, in
connection with the Funds. Similarly, such information, services and products
provided to the Investment Adviser by brokers and dealers through whom other
clients of the Investment Adviser effect securities transactions may be useful
to the Investment Adviser in providing services to the 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, investment of the kind
made by the Funds may often also be made by such other accounts. When the
Investment Adviser buys and sells the same security at substantially the same
time on behalf of the 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, 2000, the following funds acquired
securities of their regular brokers and dealers (as defined in Rule 10b-1 under
the Investment Company Act) or their parents: Short Intermediate Fund--Morgan
Stanley Dean Witter & Co.($148,389); Global Growth & Income Fund--Morgan Stanley
Dean Witter & Co. ($75,438); Convertible Fund--Morgan Stanley Dean Witter &
Co.($2,411,346); High Quality Bond Fund--Merrill Lynch & Co. ($89,492);
International Core Growth Fund--UBS AG ($1,261,563); Worldwide Growth Fund--UBS
AG ($525,651); Value Fund--Lehman Brothers, Inc. ($805,100).
B-29
<PAGE>
The aggregate dollar amount of brokerage commission paid by the master fund
predecessors to the corresponding Funds during the last three fiscal years of
the Trust were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
FUND March 31, 2000 March 31, 1999 March 31, 1998
- ---- ------------------------------------------------------------
<S> <C> <C> <C>
Global Blue Chip Fund 132,706 $80,702 $49,764
International Core Growth 1,768,343 1,150,595 464,615
Worldwide Growth Fund 880,213 1,166,321 1,065,153
International Small Cap Growth Fund 1,162,059 873,671 745,259
Global Growth & Income Fund 48,004 36,494 52,145
Emerging Countries Fund 2,700,556 3,945,783 3,634,338
Pacific Rim Fund 74,497 27,429 10,403
Latin America Fund 90,728 26,817 12,759
Global Health Care Fund 241,040 N/A N/A
Large Cap Fund 157,024 115,558 30,907
Mid Cap Growth Fund 227,055 1,291,517 1,809,755
Value Fund 118,370 33,759 14,316
Small Cap Growth Fund 253,317 974,722 1,002,867
Mini Cap Growth Fund 96,858 187,001 202,223
Global Technology Fund 1,216,506 40,689 0
Convertible Fund 34,134 158,049 130,017
Short Intermediate Fund 5,229 0 0
High Quality Bond Fund(1) 0 529 100
High Yield Bond Fund 1,857 11,304 1,896
</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 years ended March 31, 1998.
Of the total commissions paid during the fiscal year ended March 31,
2000, $287,355 (31.20%) 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. The Trust has authorized one or more brokers to accept on its
behalf purchase and redemption orders. Such brokers are authorized to
designate other intermediaries to accept purchase and redemption orders on
the Trust's behalf. The Funds will have been deemed to have received a
purchase or redemption order when an authorized broker or, if applicable, a
broker's authorized designee, accepts the order. Customer orders will be
priced at the Fund's Net Asset Value next computed after they are accepted by
an authorized broker or the broker's authorized designees. Brokers/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 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.
B-30
<PAGE>
REDEMPTIONS IN KIND. Although the Funds intend to pay share redemptions in
cash, they reserve the right, as described below, to pay the redemption price in
whole or in part by a distribution of portfolio securities.
Because the Funds have elected to be governed by Rule 18f-1 under the
Investment Company Act of 1940, the Funds are obligated to pay Share
redemptions to any one shareholder in cash only up to the lesser of $250,000
or 1% of the net assets represented by such share class during any 90-day
period. Any share redemption payment greater than this amount will also be in
cash unless the Funds' Board determines that payment should be in kind. In
such a case, the Fund will pay all or a portion of the remainder of the
redemption in portfolio securities, valued in the same way as the Fund
determines its NAV. The portfolio securities will be selected in a manner
that the Fund's Board deems fair and equitable and, to the extent available,
such securities will be readily marketable.
The Board of Trustees of the Trust has adopted redemption in-kind policies
for shareholders who are deemed affiliated persons of the Funds. Pursuant to
these policies a redemption in-kind will be processed so that it does not result
in a dissolution of shares of remaining shareholders. Furthermore, under these
policies the affiliated party will have no influence over the selection process
of securities to be redeemed in kind.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving the portfolio securities and selling them
before their maturity could receive less than the redemption value of the
securities and could incur certain transaction costs.
B-31
<PAGE>
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
Funds must be automatically reinvested in the receiving Fund, (iii) if this
privilege is discontinued with respect to a particular receiving Fund, the value
of the account in that Fund must equal or exceed the Fund's minimum initial
investment requirement or the Fund will have the right, if the shareholder fails
to increase the value of the account to such minimum within 60 days after being
notified of the deficiency, automatically to redeem the account and send the
proceeds to the shareholder. These cross-investments of dividends and capital
gain distributions will be at net asset value (without a sales charge).
AUTOMATIC WITHDRAWAL
The Transfer Agent arranges for the redemption by the Fund of
sufficient shares, deposited by the shareholder with the Transfer Agent, to
provide the withdrawal payment specified. Withdrawal payments should not be
considered as dividends, yield or income. Automatic investments may not be made
into a shareholder account from which there are automatic withdrawals.
Withdrawals of amounts exceeding reinvested dividends and distributions and
increases in share value will reduce the aggregate value of the shareholder's
account.
REPORTS TO INVESTORS
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) all liabilities allocable to such Class,
by the total number of class I or R 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
B-32
<PAGE>
deemed by the Investment Adviser best to reflect fair value. A security which
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 the New York Stock Exchange or the national securities
exchange on which stock or stock options are traded adopt different trading
hours on either a permanent or temporary basis, the board of Trustees of Trust
will reconsider the time at which they compute net asset value. In addition, the
asset value of the Funds 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
or comparable maturity, quality and type; however, the Investment Adviser will
use, when it deems it appropriate, prices obtained for the day of valuation from
a bond pricing service, as discussed below. The 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 that 60 days, or by amortizing, from the sixty-first
day prior to maturity, their value on the sixty-first day prior to maturity if
their term to maturity from date of purchase by the Fund is more than 60 days,
unless this is determined by the Board of Trustees of the Trust not to represent
fair value. The Funds value repurchase agreements at close 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 value at par.
Such valuations are based on quotations of one or more dealers that make markets
in the securities as obtained from such dealers, or on the evaluation of a
pricing service.
The 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 and futures traded on it are valued
based on the sale price, or on the mean between the bid and ask prices, as the
case may be, as of 4:00 p.m. New York time.
Trading in securities on foreign securities exchanges and
over-the-counter markets is normally completed well before the close of business
day in New York. In addition, foreign securities trading may not take place on
all business days in New York, and may occur in various foreign markets on days
which are not business days in New York and on which net asset value is not
calculated. The calculation of net asset value may to take place
contemporaneously with the determination of the prices of portfolio securities
used in such calculation. Events affecting the values of portfolio securities
that occur between the time their prices are determined and the close of the New
York Stock Exchange will not be reflected in the calculation of net asset value
unless the Board of Trustees of the Trust deems that the particular event would
materially affect net asset value, in which case an adjustment will be made.
Assets or liabilities initially expressed in terms of foreign currencies are
translated prior to the next determination of the net asset value into U.S.
dollars at the spot exchange rates at 11:00 a.m. New York time or at such other
rates as the Investment Adviser may determine to be appropriate in computing
net asset value.
Securities and assets for which market quotations are not readily
available, or for which the Trust's Board of Trustees or persons designated by
the Board determine that the foregoing methods do not accurately reflect current
market value, are valued at fair value as determined in good faith by or under
the direction of the Trust's Board of Trustees. Such valuations and procedures
will be reviewed periodically by the Board of Trustees.
The Trust may use a pricing service approved by its Board of Trustees.
Prices provided by such a service represent evaluations of the mean between
current bid and asked market prices, may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size
B-33
<PAGE>
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 registered investment
company under Subchapter M of the Code, and intends that each Fund will remain
so qualified.
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 it gross income form dividends, interest, payments with respect to
securities loans, and gains from the sale or other disposition of securities or
foreign currencies, or other income (including, but not limited to, gains form
options, futures or forward contracts) derived with respect to its business of
investing in such securities or currencies; (b) for taxable years beginning
August 5, 1997 derive less than 30% of it gross income from the sale or other
disposition of stock, securities, options, futures, forward contracts, certain
foreign currencies and certain options, futures, and forward contracts on
foreign currencies held less than three months; (c) diversify its holdings so
that, at the end of each fiscal quarter, (i) at least 50% of the market value of
the Fund's assets is represented by cash, U.S. Government securities and
securities of other regulated investment companies, and other securities (for
purposes of this calculation generally limited, in respect of any one issuer, to
an amount not greater than 5% of the market value of the Fund's assets and 10%
of the outstanding voting securities of such issuer) and (ii) not more than 25%
of the value of its assets is invested in the securities of any one issuer
(other than U.S. Government securities or the securities of other regulated
investment companies), or two or more issuers which the Trust controls and which
are determined to be engaged in the same or similar trades or businesses; and
(d) distribute at least 90% of its investment company taxable income (which
includes dividends, interest, and net short-term capital gains in excess of net
long-term capital losses) each taxable year.
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 it ordinary
income and net capital gain (not taking into account any capital gains or losses
as an exception) for the calendar year, (2) at least 98% of its capital gains in
excess of its capital losses (and adjusted for certain ordinary losses) for the
twelve month period ending on October 31 of the calendar year, and (3) all
ordinary income and capital gains for previous years that were not distributed
during such years. A distribution will be treated as paid on December 31 of the
calendar year if it is declared by the Fund in October, November, December of
that year to shareholders of record on a date in such a month and paid by the
Portfolio during January of the following year. Such distributions will be
taxable to shareholders (other that those not subject to federal income tax) in
the calendar year in which the distributions are declared, rather than the
calendar year in which the distributions are received. To avoid the excise tax,
the 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
B-34
<PAGE>
Funds is derived form 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 period
requirement (described below) with respect to the underlying portfolio
security (91 days in the case of dividends derived from preferred stock). In
addition, a corporate shareholder must have held it shares in the Fund for
not less than 46 days during the 90-day period that begins 45 days before the
stock becomes ex-dividend with respect to the dividend (91 days during the
180-day period that begins 90 days before the stock becomes ex-dividend with
respect to the dividend in the case of dividends derived from preferred
stock) in order to claim the dividend received deduction. Not later than 60
days after the end of the 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.
BACKUP WITHHOLDING. Under certain provisions of the Internal Revenue Code
(the "Code"), the Funds may be required to withhold 31% of reportable dividends,
capital gains distributions and redemption payments ("backup withholding").
Generally, shareholders subject to backup withholding will be those for whom a
certified taxpayer identification number is not on file with the Fund or who, to
the Fund's knowledge, have furnished an incorrect number, or who have been
notified by the Internal Revenue Service that they are subject to backup
withholding. When establishing an account, an investor must provide his or her
taxpayer identification number and certify under penalty of perjury that such
number is correct and that he or she is not otherwise subject to backup
withholding. Corporate shareholders and other shareholders specified in the Code
are exempt from backup withholding. Backup withholding is not an additional tax.
Any amounts withheld may be credited against a shareholder's U.S. federal income
tax liability.
NONRESIDENT ALIENS. Nonresident alien individuals and foreign entities are
not subject to the backup withholding previously discussed, but must certify
their foreign status by attaching IRS Form W-8 to their application. Form W-8
remains in effect for three calendar years beginning with the calendar year in
which it is received by the Fund. Such shareholders may, however, be subject to
federal income tax withholding at a 30% rate on ordinary income dividends and
distributions and return of capital distributions. Under applicable treaty law,
residents of treaty countries may qualify for a reduced rate of withholding or a
withholding exemption.
SPECIAL TAX CONSIDERATIONS
SECTION 1256 CONTRACTS. Many of the futures contract 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
calculation the taxable income for the taxable year in which such losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the tax consequences of transactions in options, futures and
forward contracts to the Funds are not entirely clear. The transactions may
increase the amount of shore-term capital gain realized by a Fund which is taxed
as ordinary income when distributed to shareholders.
The Funds may take one or more of the elections available under the
Code which are applicable to straddles. If the Funds may any of the elections,
the amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to the shareholders, and which will be taxed to shareholders as
ordinary income or long-term capital gain, may be increased or decreased
substantially as compared to a fund that did not engage in such hedging
transactions.
The qualifying income and diversification requirements applicable to
the Funds' assets may limit the extent to which the Funds will be able to engage
in transactions in options, futures contracts or forward contracts.
SECTIONS 988 GAINS AND LOSSES. Under the Code, gains or losses
attributable to fluctuations in exchange rates which occur between the time 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
B-35
<PAGE>
receivables or pays such liabilities generally are treated as ordinary income or
loss. Similarly, gains or losses on disposition of debt securities denominated
in foreign currency and on disposition of certain futures attributable to
fluctuations in the value of the foreign currency between the date of
acquisition of the security or contract and the date of disposition also are
treated as ordinary gain or loss. These gains and losses, referred to under the
Code as "section 988" gains or losses, may increase or decrease the amount of
the Fund's investment company taxable income to be distributed to the
shareholders.
FOREIGN TAX. Foreign countries may impose withholding and other taxes
on other income received by a Fund form sources within those countries. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes. In addition, the Investment Adviser intend to manage the 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 the U.S. sources and certain currency fluctuation
gains, including fluctuation gains from foreign currency denominated debt
securities, receivables and payables as ordinary income derived from U.S.
sources. The limitation on the foreign tax credit applies separately to foreign
source passive income, and to certain other types of income. Shareholders may be
unable to claim a credit for the full amount of their proportion at share of the
foreign taxes paid by the Fund. The foreign tax credit is modified for purposes
of the federal alternative minimum tax and can be used to offset only 90% of the
alternative minimum tax imposed on corporations and individuals and foreign
taxes generally are not deductible in computing alternative minimum taxable
income.
ORIGINAL ISSUE DISCOUNT. The 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 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.
B-36
<PAGE>
PERFORMANCE INFORMATION
The Trust may form 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 objective and policies,
characteristics and quality of its portfolio, and the market conditions during
the given period, and should not be considered to be representative of what may
be achieved in the future. 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 investment are made at net
asset value (as opposed to market price) and that all of the dividends and
distributions by the Funds over the relevant time periods are invested at net
asset value. It is then assumed that, at the end of each period, the entire
amount is redeemed without regard to any redemption fees or costs. The average
annual total return is then determined by calculating the annual rate required
for the initial payment to grow to the amount which would been received upon
redemption. Total return does not take into account any federal or state
income taxes.
Total return is computed according to the following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years
ERV = ending redeemable value at the end of the period (or fractional
portion thereof) of a hypothetical $1,000 payment made at the
beginning of the period.
Yield
The yield for a Fund is calculated based on a 30-day or one-month
period, according to the following formula:
Yield = 2[(a - b + 1)6 -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
March 31, 2000 were as follows:
<TABLE>
<CAPTION>
Fund Class I
--------------------------------------------------
<S> <C>
Convertible Fund 1.50%
Short-Intermediate Fund 6.30%
High Quality Bond Fund 6.99%
High Yield Bond Fund 10.74%
</TABLE>
B-37
<PAGE>
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
- - references to ratings, rankings, and financial publication and/or
performance comparison of Shares to certain indices;
- - charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
- - discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views
on how such developments could impact the 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.
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
condition, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
Standard & Poor's Low-Priced Index compares a group of approximately twenty
actively traded stocks prices under 25% for one month periods and year-to-date.
Value Line Mutual Funds Survey, published by Value Line Publishing, Inc.,
analyzes price, yield, risk, and total return for equity and fixed income mutual
funds. The highest rating is One, and ratings are effective for one month.
CDR Mutual Fund Report, published by CDA Investment Technologies, Inc., analyzes
price, current yield, risk, total return, and average rate of return (average
annual compounded growth rate) over specified time periods for the mutual fund
industry.
Dow Jones Industrial Average (DJIA) represents share prices of selected blue
chip industrial corporations. The DJIA indicated daily changes in the average
price of stock of thes corporations. Because it represents the top corporations
of America, the DJIA index is a leading economic indicator for the stock market
at a whole.
Financial Publications. The Wall Street Journal, Business Week, Changing Times,
Financial World, Forbes, Fortune, and Money Magazines, among others--provide
performance statistics over specified time periods.
Lipper Analytical Services, Inc. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specified period of time.
Morningstar, Inc, an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Value, which rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
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<PAGE>
Standard and Poor's Daily Stock Price Index of 500 Common Stocks (S&P500) is a
composite index of common stocks in industry, transportation, and financial and
public utility companies. The index can be used to compare to the total returns
of funds whose portfolios are invested primarily in common stocks. In addition,
the S&P 500 assumes reinvestment of all dividends paid by stocks listed on its
index. Taxes due on any of these distributions are not included, nor are
brokerage or other fees calculated in the S&P figures.
Lipper Growth Fund Average is an average of the total returns of 580 growth
funds tracked by Lipper Analytical Services, Inc., an independent mutual fund
rating service.
Lipper Growth Fund Index is an average of the net asset-valuated total returns
for the top 30 growth funds tracked by Lipper Analytical Services, Inc., an
independent mutual fund rating service.
Strategic Insight Mutual Fund Research and Consulting, ranks funds in various
fund categories by making comparative calculations using total return. Total
return assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in net asset value over a specified
period of time. From time to time, the Funds will quote their Strategic Insight
ranking in the "growth funds" category in advertising and sales literature.
Mutual Fund Source Book, published by Morningstar, Inc., analyzes price, yield,
risk, and total return for equity and fixed income funds.
Value Line Composite Index, consists of approximately 1,700 common equity
securities. It is based on a geometric average of relative price changes of the
component stocks and does not include income.
Strategic Insight Growth Funds Index consists of mutual funds that invest in
well-established companies primarily for long-term capital gains rather than
current income.
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 date relating to the historical performance of all institutional
private accounts managed by the Investment Adviser, since the dates indicated,
hat 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.
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<PAGE>
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 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 objective, 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 be geometrically linking the monthly and quarterly
returns, respectively. The yearly returns are computed 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
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 organization 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-40
<PAGE>
CLASS I SHARES OF THE FUNDS
VALUE PERFORMANCE
<TABLE>
<CAPTION>
INVESTMENT
ADVISER'S
YEAR VALUE FUND VALUE COMPOSITE S&P 500 INDEX(1)
---- ---------- --------------- ----------------
<S> <C> <C> <C>
1994(2) N/A 3.79% 5.32%
1995 N/A 30.79 37.60
1996(2) 24.25% 32.01 22.95
1997 40.55 40.55 33.36
1998 20.13 20.19 28.58
1999 4.43 4.39 18.46
Last Year(3) 4.68 7.71 21.03
Since Inception(3) 22.10 20.93 24.07
</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 March 31, 2000.
B-41
<PAGE>
Large Cap Growth Fund
Class I Shares
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Year Large Cap Growth Fund Investment Adviser Russell 1000 Growth
Composite Index(1)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1995(2) N/A 35.38% 25.26%
- ---------------------------------------------------------------------------------------------------------
1996(2) (1.12%) 26.63 23.12
- ---------------------------------------------------------------------------------------------------------
1997 46.07 33.06 30.48
- ---------------------------------------------------------------------------------------------------------
1998 60.80 61.79 38.71
- ---------------------------------------------------------------------------------------------------------
1999 64.28 69.35 28.12
- ---------------------------------------------------------------------------------------------------------
Last Year(3) 84.91 102.74 33.02
- ---------------------------------------------------------------------------------------------------------
Since Inception(3) 65.22 53.31 29.97
- ---------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------
(1) The Russell 1000 Growth Index contains those companies among the Russell
1000 securities with a 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 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 Growth Fund--December 26, 1996.
(3) Through March 31, 2000.
B-42
<PAGE>
MINI CAP GROWTH FUND
CLASS I SHARES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Year Mini Cap Growth Fund Investment Adviser Russell 2000 Growth
Composite Index(1)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1991(2) N/A 28.69% 14.77%
- ---------------------------------------------------------------------------------------------------------
1992 N/A 1.58 7.77
- ---------------------------------------------------------------------------------------------------------
1993 N/A 7.25 13.36
- ---------------------------------------------------------------------------------------------------------
1994 N/A (5.85) (2.43)
- ---------------------------------------------------------------------------------------------------------
1995(2) 14.80% 55.93 31.06
- ---------------------------------------------------------------------------------------------------------
1996 28.37 27.72 11.26
- ---------------------------------------------------------------------------------------------------------
1997 30.19 30.61 12.84
- ---------------------------------------------------------------------------------------------------------
1998 8.43 10.86 1.28
- ---------------------------------------------------------------------------------------------------------
Last Year(3) 151.76 83.50 43.10
- ---------------------------------------------------------------------------------------------------------
Last 5 Years(3) N/A 41.73 16.95
- ---------------------------------------------------------------------------------------------------------
Since Inception(3) 39.60 29.13 14.24
- ---------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------
(1) The Russell 2000 Growth Index contains those securities in the Russell 2000
Index with a greater than average growth orientation. Companies within the Index
generally have higher price-to-book and price-earnings ratios than the average
for all companies in 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.
(2) Inception dates are as follows: Mini Cap Composite August 1, 1991; Mini Cap
Growth Fund--July 12, 1995.
(3) Through March 31, 2000
B-43
<PAGE>
Short Intermediate
Class I Shares
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Year Short Intermediate Fund Investment Adviser Merrill Lynch 1-3 Year
Composite Treasury Index(1)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1984(2) N/A 13.60 13.78%
- ----------------------------------------------------------------------------------------------------------
1985 N/A 15.97 13.96
- ----------------------------------------------------------------------------------------------------------
1986 N/A 11.01 10.35
- ----------------------------------------------------------------------------------------------------------
1987 N/A 5.38 5.65
- ----------------------------------------------------------------------------------------------------------
1988 N/A 8.23 6.22
- ----------------------------------------------------------------------------------------------------------
1989 N/A 10.46 10.87
- ----------------------------------------------------------------------------------------------------------
1990 N/A 9.73 9.72
- ----------------------------------------------------------------------------------------------------------
1991 N/A 12.87 11.68
- ----------------------------------------------------------------------------------------------------------
1992 N/A 6.51 6.30
- ----------------------------------------------------------------------------------------------------------
1993 N/A 7.48 5.41
- ----------------------------------------------------------------------------------------------------------
1994 N/A 0.69 0.57
- ----------------------------------------------------------------------------------------------------------
1995(2) 4.95 10.53 10.99
- ----------------------------------------------------------------------------------------------------------
1996 4.85 5.09 4.99
- ----------------------------------------------------------------------------------------------------------
1997 6.67 6.98 6.65
- ----------------------------------------------------------------------------------------------------------
1998 6.85 6.77 6.99
- ----------------------------------------------------------------------------------------------------------
1999 6.02 4.09 6.08
- ----------------------------------------------------------------------------------------------------------
Last Year(3) 3.80 4.46 3.08
- ----------------------------------------------------------------------------------------------------------
Last 5 Years(3) N/A 6.33 5.94
- ----------------------------------------------------------------------------------------------------------
Since Inception(3) 6.11 8.36 8.57
- ----------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------
(1) The Merrill Lynch 1-3 Year Treasury Index consists of all public U.S.
Treasury obligations having maturities from one to 3 years. The Index Includes
income and distributions but does not reflect fees, brokerage commissions or
other expenses of investing.
(2) Inception dates are as follows: Short Intermediate Composite--January 1,
1984; Short Intermediate Fund--August 31, 1995.
(3) Through March 31, 2000.
B-44
<PAGE>
High Quality Bond Fund
Class I Shares
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Year High Quality Bond Fund Investment Adviser Lehman Brothers
Composite Government/Corporate Bond
Index(1)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1984(2) N/A 16.22 15.00%
- -----------------------------------------------------------------------------------------------------------
1985(2) N/A 22.49 21.30
- -----------------------------------------------------------------------------------------------------------
1986 N/A 16.62 15.59
- -----------------------------------------------------------------------------------------------------------
1987 N/A 3.06 2.31
- -----------------------------------------------------------------------------------------------------------
1988 N/A 8.34 7.52
- -----------------------------------------------------------------------------------------------------------
1989 N/A 13.01 14.23
- -----------------------------------------------------------------------------------------------------------
1990 N/A 8.84 8.29
- -----------------------------------------------------------------------------------------------------------
1991 N/A 17.88 16.13
- -----------------------------------------------------------------------------------------------------------
1992 N/A 7.85 7.57
- -----------------------------------------------------------------------------------------------------------
1993 N/A 12.80 11.06
- -----------------------------------------------------------------------------------------------------------
1994 N/A (3.65) (3.51)
- -----------------------------------------------------------------------------------------------------------
1995(2) 8.81% 17.19 19.24
- -----------------------------------------------------------------------------------------------------------
1996 2.29 3.50 2.89
- -----------------------------------------------------------------------------------------------------------
1997 9.52 9.99 9.75
- -----------------------------------------------------------------------------------------------------------
1998 8.54 7.78 9.47
- -----------------------------------------------------------------------------------------------------------
1999 6.14 (0.62) 6.54
- -----------------------------------------------------------------------------------------------------------
Last Year(3) 1.62 4.46 1.68
- -----------------------------------------------------------------------------------------------------------
Last 5 Years(3) N/A 6.96 7.12
- -----------------------------------------------------------------------------------------------------------
Since Inception(3) 6.68 9.86 9.59
- -----------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------
(1) The Lehman Brothers Government/Corporate Bond Index is a blend 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-traded issues), its agencies and
quasi-federal corporations, and corporate debt guaranteed by the U.S.
Government. 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 from
distributions but does not reflect fees, brokerage commissions or other expenses
of investing.
(2) Inception dates are as follows: Discretionary U.S. Composite--January 1,
1984; High Quality Bond Fund (formerly Fully discretionary Fixed Income
Fund)--August 31, 1995.
(3) Through March 31, 2000.
B-45
<PAGE>
High Yield Bond Fund
Class I Shares
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Year High Yield Bond Fund Investment Adviser CS First Boston
Composite High Yield Bond
Index(1)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
1994(2) N/A 1.45% 0.09%
- ------------------------------------------------------------------------------------
1995 N/A 19.40 17.38
- ------------------------------------------------------------------------------------
1996 11.33 21.87 12.42
- ------------------------------------------------------------------------------------
1997 21.40 21.74 12.63
- ------------------------------------------------------------------------------------
1998 4.52 2.72 0.58
- ------------------------------------------------------------------------------------
1999(2) 1.69 (0.67) (0.75)
- ------------------------------------------------------------------------------------
Last Year(3) 6.24 8.88 3.28
- ------------------------------------------------------------------------------------
Since Inception(3) 12.59 12.33 7.29
- ------------------------------------------------------------------------------------
</TABLE>
- --------------------
(1) The CS First Boston High Yield Bond 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 expense of investing.
(2) Inception dates are as follow: High Yield Bond Composite--April 1, 1994;
High Yield Bond Fund--July 31, 1999.
(3) Through March 31, 2000.
B-46
<PAGE>
Value Fund
Class R Shares
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Year Value Fund Investment Adviser S&P 500 Index(1)
Composite
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1994(2) N/A 3.79% 5.32%
- --------------------------------------------------------------------------------------------------------
1995 N/A 30.79 37.60
- --------------------------------------------------------------------------------------------------------
1996 24.11 32.01 22.95
- --------------------------------------------------------------------------------------------------------
1997 40.13 40.55 33.36
- --------------------------------------------------------------------------------------------------------
1998(2) 19.85 20.09 28.58
- --------------------------------------------------------------------------------------------------------
1999(2) 4.19 4.39 18.46
- --------------------------------------------------------------------------------------------------------
Last Year(3) 4.36 7.71 21.03
- --------------------------------------------------------------------------------------------------------
Since Inception(3) 21.81 20.93 24.82
- --------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------
(1) The S&P 500 Index is an unmanaged index containing common stocks of 500
industrial, transporation, utility and financial companies. The Index is
regarded as generally representative of the U.S. stock market. 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: Value Composite--April 1, 1994; Value
Fund--August 1, 1998; Value Fund Class R Shares--May 21, 1999.
(3) Through March 31, 2000.
B-47
<PAGE>
Large Cap Growth Fund
Class R Shares
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Year Large Cap Growth Fund Investment Adviser Russell 1000 Growth
Composite Index(1)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1995(2) N/A 35.38% 25.26%
- ---------------------------------------------------------------------------------------------------------
1996(2) (1.03%) 26.63 23.12
- ---------------------------------------------------------------------------------------------------------
1997 45.67 33.06 30.48
- ---------------------------------------------------------------------------------------------------------
1998 60.34 61.75 38.71
- ---------------------------------------------------------------------------------------------------------
1999(2) 63.82 69.35 28.12
- ---------------------------------------------------------------------------------------------------------
Last Year(3) 84.91 102.74 33.02
- ---------------------------------------------------------------------------------------------------------
Since Inception(3) 65.22 53.31 29.97
- ---------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------
(1) The Russell 1000 Growth Index contains those companies among the Russell
1000 Index with a higher than average price-to-book ratio and forecasted growth.
The Russell 1000 Index contains the top 1000 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 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 Growth Fund--December 27, 1996; Large Cap Growth Fund Class R
Shares--May 21, 1999.
(3) Through March 31, 2000.
B-48
<PAGE>
High Quality Bond Fund
Class R Shares
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Year High Quality Bond Fund Investment Adviser Lehman Brothers
Composite Government/Corporate Bond
Index(1)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1984(2) N/A 16.22 15.00%
- -----------------------------------------------------------------------------------------------------------
1985 N/A 22.49 21.30
- -----------------------------------------------------------------------------------------------------------
1986 N/A 16.62 15.59
- -----------------------------------------------------------------------------------------------------------
1987 N/A 3.06 2.31
- -----------------------------------------------------------------------------------------------------------
1988 N/A 8.34 7.52
- -----------------------------------------------------------------------------------------------------------
1989 N/A 13.01 14.23
- -----------------------------------------------------------------------------------------------------------
1990 N/A 8.84 8.29
- -----------------------------------------------------------------------------------------------------------
1991 N/A 17.88 16.13
- -----------------------------------------------------------------------------------------------------------
1992 N/A 7.85 7.57
- -----------------------------------------------------------------------------------------------------------
1993 N/A 12.80 11.06
- -----------------------------------------------------------------------------------------------------------
1994 N/A (3.65) (3.51)
- -----------------------------------------------------------------------------------------------------------
1995(2) 8.81 17.19 19.24
- -----------------------------------------------------------------------------------------------------------
1996 2.29 3.50 2.89
- -----------------------------------------------------------------------------------------------------------
1997 9.52 9.99 9.75
- -----------------------------------------------------------------------------------------------------------
1998 8.54 7.78 9.47
- -----------------------------------------------------------------------------------------------------------
1999(2) 1.96 (0.62) (2.15)
- -----------------------------------------------------------------------------------------------------------
Last Year(3) (0.28) 1.77 1.68
- -----------------------------------------------------------------------------------------------------------
Last 5 Years(3) N/A 6.96 7.12
- -----------------------------------------------------------------------------------------------------------
Since Inception(3) 6.68 9.86 9.39
- -----------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------
(1) The Lehman Brothers Government/Corporate Bond Index is a blend 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-traded issues), its agencies and
quasi-federal corporations, and corporate debt guaranteed by the U.S.
Government. 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 from
distributions but does not reflect fees, brokerage commissions or other expenses
of investing.
(2) Inception dates are as follows: Discretionary U.S. Composite--January 1,
1984; High Quality Bond Fund (formerly Fully discretionary Fixed Income
Fund)--August 31, 1995; Class R shares--May 21, 1999.
(3) Through March 31, 2000.
B-49
<PAGE>
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
any investment company such as the Trust shall not be deemed to have been
effectively acted upon unless approved by a majority of the outstanding shares
of the series of the Trust affected by the matter. Under Rule 18f-2, a series is
presumed to be affected by a matter, unless the interests of each series in the
matter are identical or the matter does not affect any interest of such series.
Under Rule 18f-2 the approval of an investment advisory agreement or any change
in a fundamental investment policy would be effectively acted upon with respect
to 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 effectively acted upon by the shareholders of the Trust voting without regard
to the 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. Shareholders are entitled
to one vote for each full share held and fractional votes for fractional shares
held. Unless otherwise provided by law (for example, by Rule 18f-2 discussed
above) or by the Trust's Declaration of Trust or Bylaws, the Trust may take or
authorize any action upon the favorable vote of the holders of more than 50% of
the outstanding shares of the Trust.
The Trust will dispense the annual meetings of shareholders in any year
in which it is not required to elect Trustees under the Investment Company Act.
However, the Trust undertakes to hold a special meeting of its shareholders for
the purpose of voting on the question of removal of a Trustee or Trustees if
requested in writing by the holders of at least 10% of the Trust's outstanding
voting securities, and to assist in communicating with other shareholders as
required by Section 16(c) of the Investment Company Act.
Each share of each Fund represents an equal proportional interest in
the Fund and is entitled to such dividends and distributions out of the income
earned on the assets allocable to the Fund as are declared in the discretion of
the Trustees. In the event of the liquidation or dissolution of the Trust,
shareholders of 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 no binding upon its Trustees, officers, employees and agents
individually and that the Trustees, officers, employees and agents
B-50
<PAGE>
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.
B-51
<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 Trust, are opinions of
the ability to 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 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 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-1
<PAGE>
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 only having 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 SERVICES, 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 rating. 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 for 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 highly 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. Liability
factors are strong and 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.
A-2
<PAGE>
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.
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. Protections 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.
A-3
<PAGE>
BB, B, CCC, DD AND DP: Debt that possesses one of these rating 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
defaulted debt obligations, 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.
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 obligation in
higher categories.
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 a minus (-) sign to show relative standing within these major rating
categories.
IBCA
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.
A-4
<PAGE>
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 obligation in
higher categories.
BB, B, CCC, CC AND C: Obligations that 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.
A-5
<PAGE>
THOMSON BANKWATCH
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 repayment
of principal and interest. "BB" indicates the lowest degree of speculation and
"CC" the highest degree.
D: This designation indicates that the long-term debt is in default.
PLUS(+) OR MINUS(-): The ratings from "AAA" though "CC" may include a
plus or minus sign designation which indicates where within the respective
category the issue is placed.
A-6
<PAGE>
PART C
ITEM 23. EXHIBITS.
(a)(1) Certificate of Trust of Registrant--filed as Exhibit
1.1 to Amendment No. 1 to the Registrant's Form N-1A
Registration Statement ("Amendment No. 1") on March
17, 1993 and incorporated herein by reference.
(a)(2) Certificate of Amendment of Certificate of Trust of
Registrant--filed as Exhibit 1.2 to Amendment No. 1
to the Registrant's Form N-1A Registration Statement
on March 17, 1993 and incorporated herein by
reference.
(a)(3) Declaration of Trust of Registrant--filed as Exhibit
1 to Registrant's Form N1-A Registration Statement on
December 31, 1992 and incorporated herein by
reference.
(a)(4) Amended and Restated Declaration of Trust of
Registrant--filed as Exhibit 1.4 to Amendment No. 1
to the Registrant's Form N-1A Registration Statement
on March 17, 1993 and incorporated herein by
reference.
(a)(5) Amended and Restated Declaration of Trust dated
February 19, 1999--filed as Exhibit 5(a) to the
Registrant's Form N-1A Registration Statement on May
6, 1999 and incorporated herein by reference.
(a)(6) Amendment No. 1 to the Amended and Restated
Declaration of Trust dated February 19,1999--
filed as Exhibit (a)(6) to the Registrant's Form
N-1A Registration Statement on June 18, 1999 and
incorporated herein by reference.
(b)(1) Amended Bylaws of Registrant--filed as Exhibit 2 to
Amendment No. 2 to the Registrant's Form N-1A
Registration Statement on April 6, 1993 and
incorporated herein by reference.
(2)(b) Amended Bylaws of Registrant dated February 19,
1999--filed as Exhibit 2(b) to the Registrant's Form
N-1A Registration Statement on May 6, 1999 and
incorporated herein by reference.
(c) Not applicable.
(d)(1) Investment Advisory Agreement between Registrant and
Nicholas-Applegate Capital Management--filed as
Exhibit (d) to the Registrant's Form N-1A
Registration Statement on May 6, 1999 and
incorporated herein by reference.
(d)(2) Form of letter agreement dated August 31, 1999
between Registrant and Nicholas-Applegate Capital
Management adding the Global Health Care Fund to the
Investment Advisory Agreement--filed as Exhibit
(d)(2) to the Registrant's Form N-1A Registration
Statement on June 18, 1999 and incorporated herein
by reference.
(d)(3) Form of Sub Investment Advisory Agreement between
Registrant and Criterion Investment Management LLC.
(e)(1) Distribution Agreement between Registrant and
Nicholas-Applegate Securities dated May 10,
1999--filed as Exhibit (e) to the Registrant's Form
N-1A Registration Statement on May 6, 1999 and
incorporated herein by reference.
(f) None.
(g)(1) Custodian Services Agreement between Registrant and
Brown Brothers Harriman & Co.--filed as Exhibit 1(g)
to the Registrant's Form N-1A Registration Statement
on May 6, 1999 and incorporated herein by reference.
(g)(2) Foreign Custody Agreement between Registrant and
Brown Brothers Harriman & Co.--filed as Exhibit
(2)(g) to the Registrant's Form N-1A Registration
Statement on May 6, 1999 and incorporated herein by
reference.
C-1
<PAGE>
(g)(3) Amendment to Custodian Services Agreement between
Registrant and Brown Brothers Harriman & Co.--filed
as Exhibit (3)(g) to the Registrant's Form N-1A
Registration Statement on May 6, 1999 and
incorporated herein by reference.
(g)(4) Cash Management Authorization Services Agreement
between Registrant and Brown Brothers Harriman &
Co.--filed as Exhibit (4)(g) to the Registrant's Form
N-1A Registration Statement on May 6, 1999 and
incorporated herein by reference.
(g)(5) Form of letter agreement between Registrant and Brown
Brothers Harriman & Co. adding the Global Health Care
Fund to the Foreign Custody Agreement dated May 1,
1999.
(g)(6) Form of letter agreement between Registrant and Brown
Brothers Harriman & Co. adding the Global Health Care
Fund to Custodian Services Agreement dated May 1,
1999.
(g)(7) Form of letter agreement between Registrant and Brown
Brothers Harriman & Co. adding the Global Health Care
fund to the Cash Management Authorization Services
Agreement dated May 1, 1999.
(h)(1) Administration and Fund Accounting Agency Agreement
between Registrant and Brown Brothers Harriman & Co.
--filed as Exhibit (1)(h) to the Registrant's Form
N-1A Registration Statement on May 6, 1999 and
incorporated herein by reference.
(h)(2) Administration Services Agreement between Registrant
and Nicholas-Applegate Capital Management--filed as
Exhibit (2)(h) to the Registrant's Form N-1A
Registration Statement on May 6, 1999 and
incorporated herein by reference.
(h)(3) License Agreement between Registrant and
Nicholas-Applegate Capital Management--filed as
Exhibit (3)(h) to the Registrant's Form N-1A
Registration Statement on May 6, 1999 and
incorporated herein by reference.
(h)(4) Expense Reimbursement agreement between Registrant
and Nicholas-Applegate Capital Management--filed as
Exhibit No. (4)(h) to the Registrant's Form N-1A
Registration Statement on May 6, 1999 and
incorporated herein by reference.
(h)(5) Transfer Agency and Service Agreement between
Registrant and State Street Bank and Trust
Company--filed as Exhibit No. (5)(h) to the
Registrant's Form N-1A Registration Statement on May
27, 1999 and incorporated herein by reference.
(h)(6) Shareholder Service Plan between Registrant and
Nicholas-Applegate Securities for Class Q
Shares--filed as Exhibit No. (6)(h) to the
Registrant's Form N-1A Registration Statement on May
6, 1999 and incorporated herein by reference.
(h)(7) Form of letter agreement between Registrant and Brown
Brothers Harriman & Co. adding Global Health Care
Fund to the Administration and Fund Accounting Agency
Agreement dated May 1, 1999.
(h)(8) Form of letter agreement between Registrant and
Nicholas-Applegate Capital Management adding Global
Health Care Fund to the Expense Reimbursement
Agreement--filed as Exhibit (h)(8) to the
Registrant's Form N-1A Registration Statement on
June 18, 1999 and incorporated herein by reference.
(h)(9) Form of letter agreement between Registrant and State
Street Bank and Trust Company adding Global Health
Care Fund to the Transfer Agency and Service
Agreement--filed as Exhibit (h)(9) to the
Registrant's Form N-1A Registration Statement on
June 18, 1999 and incorporated herein by reference.
(h)(10) Credit Agreement between Registrant and
BankBoston, N.A. dated December 21, 1999.
(h)(11) Master Securities Lending Agreement between
Registrant and Goldman, Sachs & Co. dated July 22,
1999.
(i) Opinion of Counsel.
C-2
<PAGE>
(j) Consent of independent auditors.
(k) Not Applicable
(l) Investment Letter of initial investor in
Registrant--filed as Exhibit (l) to the Registrant's
Form N-1A Registration Statement on May 27, 1999 and
incorporated herein by reference.
(m) Form of Rule 12b-1 Plan for Class Q Shares--filed as
Exhibit (m) to the Registrant's Form N-1A
Registration Statement on May 6, 1999 and
incorporated herein by reference.
(n) Rule 18f-3 Plan between Registrant and
Nicholas-Applegate Capital Management--filed as
Exhibit (o) to the Registrant's Form N-1A
Registration Statement on May 6, 1999 and
incorporated herein by reference.
(p) Code of Ethics.
(q) Limited Powers of Attorney of Trustees--Filed as an
Exhibit to Amendment No. 12 to Registrant's Form N-1A
Registration Statement on August 1, 1994 and
incorporated herein by reference.
(q)(1) Limited Power of Attorney of Walter E. Auch--Filed as
an Exhibit to Amendment No. 14 to Registrant's Form
N-1A Registration Statement on September 26, 1994 and
incorporated herein by reference.
(q)(2) Limited Power of Attorney of John J.P. McDonnell--
filed as Exhibit (p)(2) to the Registrant's Form
N-1A Registration Statement on June 18, 1999 and
incorporated herein by reference.
(q)(3) Certified Resolution of Board of Trustees of
Registrant regarding Limited Power of Attorney of
John J.P. McDonnell--filed as Exhibit (p)(3) to the
Registrant's Form N-1A Registration Statement on
June 18, 1999 and incorporated herein by reference.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Arthur E. Nicholas is a member of the Board of Trustees of Registrant,
and also one of the seven members of the Board of Directors of
Nicholas-Applegate Fund, Inc., a registered investment company organized under
the laws of Maryland. Accordingly, Registrant and Nicholas-Applegate Fund, Inc.
may be deemed to be under common control.
ITEM 25. INDEMNIFICATION
Article V of Registrant's Declaration of Trust, included as Exhibit
(a)(5) hereto and incorporated herein by reference, provides for the
indemnification of Registrant's trustees, officers, employees and agents.
Indemnification of the Registrant's Investment Adviser and Placement
Agent is provided for, respectively, in Section 8 of the Investment Advisory
Agreement.
Registrant has obtained from a major insurance carrier a trustees' and
officers' liability policy covering certain types of errors and omissions. In no
event will Registrant indemnify any of its trustees, officers, employees or
agents against any liability to which such person would otherwise be subject by
reason of his willful misfeasance, bad faith or gross negligence in the
performance of his duties or by reason of his reckless disregard of the duties
involved in the conduct of his office or under his agreement with
C-3
<PAGE>
Registrant. Registrant will comply with Rule 484 under the Securities Act of
1933 and Release 11330 under the Investment Company Act in connection with any
indemnification.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Nicholas-Applegate Capital Management, the Investment Adviser to the
Trust, is a California limited partnership, the general partner of which is
Nicholas-Applegate Capital Management Holdings, L.P. During the three fiscal
years ended December 31, 1998, the Investment Adviser has engaged principally in
the business of providing investment services to institutional and other
clients. All of the additional information required by this Item 26 with respect
to the Investment Adviser is set forth in the Form ADV, as amended, of
Nicholas-Applegate Capital Management (File No. 801-21442), which is
incorporated herein by reference.
ITEM 27. PRINCIPAL UNDERWRITERS
(a) Nicholas-Applegate Securities does not act as a principal underwriter,
depositor or investment adviser to any investment company other than
Registrant.
(b) Nicholas-Applegate Securities, the Distributor of the shares of
Registrant's Funds, is a California limited partnership and its general
partner is Nicholas-Applegate Capital Management Holdings, L.P. (the
"General Partner"). Information is furnished below with respect to the
officers, partners and directors of the General Partner and
Nicholas-Applegate Securities.
The principal business address of such persons is 600 West Broadway, 30th Floor,
San Diego, California 92101, except as otherwise indicated below.
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with Positions in Offices
Business Address Principal Underwriter with Registrant
- ---------------- --------------------- ---------------
<S> <C> <C>
Arthur E. Nicholas President Chairman of the Board & Trustee
John J.P. McDonnell None President
E. 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 and Custodian, Brown Brothers Harriman &
Co. (40 Water Street, Boston, MA 02109.
ITEM 29. MANAGEMENT SERVICES.
None.
ITEM 30. UNDERTAKINGS.
None.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(a) under the Securities Act of 1933 and has dully caused this
Post-Effective Amendment to the Registration Statement to be signed on its
behalf by the undersigned, thereto duly authorized, in the City of San Diego,
and the state of California on this 24th day of May, 2000.
Nicholas-Applegate Institutional Funds
By: John J.P. McDonnell*
-----------------------------------
John J.P. McDonnell
President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to its Registration Statement has been signed below by
the following persons in the capacities indicated on May 24, 2000.
John J.P. McDonnell* President
- --------------------------------
John J.P. McDonnell
/s/ C. William Maher Principal Financial and Accounting
- -------------------------------- Officer
C. William Maher
/s/ E. Blake Moore, Jr.
- -------------------------------- Secretary
E. Blake Moore, Jr.
Arthur E. Nicholas* Chairman of the Board & Trustee
- --------------------------------
Arthur E. Nicholas
Walter E. Auch* Trustee
- --------------------------------
Walter E. Auch
Darlene Deremer* Trustee
- --------------------------------
Darlene Deremer
George F. Keane* Trustee
- --------------------------------
George F. Keane
* /s/ E. Blake Moore, Jr.
------------------------------
By: E. Blake Moore, Jr.
Attorney In Fact
<PAGE>
EXHIBIT (d)(3)
SUBADVISORY AGREEMENT
This Subadvisory Agreement (the "Agreement") is entered into as of
_________ __, 1999 between NICHOLAS-APPLEGATE CAPITAL MANAGEMENT, a California
limited partnership (the "Manager"), and CRITERION INVESTMENT MANAGEMENT LLC, a
Delaware limited liability company (the "Subadviser").
WHEREAS Nicholas-Applegate Institutional Funds, a Delaware business
trust (the "Trust"), a diversified open-end management company registered under
the Investment Company Act of 1940, as amended (the "1940 Act"), is a series
type investment company that is comprised of various series, each of which is a
separate investment portfolio having its own investment objectives and
investment policies;
WHEREAS the Manager has entered into an investment advisory agreement
with the Trust dated May __, 1999 (the "Management Agreement") pursuant to which
the Manager has been retained to furnish investment advisory services to the
Trust and each of its series;
WHEREAS the Subadviser is engaged in business as an investment adviser
and is registered as an investment adviser under the Investment Advisers Act of
1940, as amended (the "Advisers Act");
WHEREAS pursuant to the approval of the Trust and the authority granted
to the Manager in the Management Agreement, the Manager wishes to retain the
Subadviser to furnish investment advisory services to one or more series of the
Trust, and the Subadviser is willing to provide such services;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties agree as follows:
1. SERVICES TO BE RENDERED BY SUBADVISER TO THE TRUST.
a. Subject always to the supervision of the trustees of the Trust
(the "Trustees"), the Subadviser will provide a continuous
investment program for each of the series listed on Schedule A
(each such series, a "Fund"), including investment research and
management with respect to all securities and investments and
cash equivalents in a Fund. The Subadviser will determine from
time to time what securities and other investments will be
purchased, retained or sold with respect to a Fund.
<PAGE>
In the performance of its duties, the Subadviser (i) will provide
services under this Agreement in accordance with a Fund's
investment objectives, policies and restrictions as set forth in
its current prospectus and statement of additional information as
provided to the Subadviser by the Trust, (ii) will comply with
the 1940 Act and all rules and regulations thereunder, and all
other applicable law, and will comply with other written
directions which the Trustees or the Manager, as the case may be,
may from time to time provide, and (iii) shall exercise the same
care and diligence as required of the Manager pursuant to the
terms of the Management Agreement in the form provided by the
Manager to the Subadviser. The Subadviser and the Manager shall
each make its officers and employees available to the other from
time to time at reasonable times to review investment policies of
each Fund and to consult with each other regarding the investment
affairs of each Fund.
b. In the event that the Manager designates one or more series with
respect to which it and the Trust wish to retain the Subadviser
to render investment advisory services hereunder, it shall notify
the Subadviser in writing. If the Subadviser is willing to render
such services, it shall notify the Manager in writing, whereupon
such series shall become a Fund hereunder, and be subject to this
Agreement.
c. The Subadviser, at its expense, will furnish (i) all necessary
investment and management facilities, including salaries of
personnel, required for it to execute its duties hereunder in a
professional manner and (ii) administrative facilities, including
bookkeeping, clerical personnel and equipment necessary for the
efficient conduct of the investment affairs of each Fund,
including assistance in obtaining and verifying prices for
portfolio securities.
d. The Subadviser will place all orders for the purchase and sale of
portfolio securities for the account of a Fund with brokers or
dealers selected by the Subadviser. In executing portfolio
transactions and selecting brokers or dealers, the Subadviser
will use its best efforts to seek on behalf of a Fund the best
available price and execution. In assessing the best overall
terms available for any transaction, the Subadviser 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 or execute a particular transaction, the
Subadviser may also
<PAGE>
consider the brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange Act of 1934,
as amended (the "1934 Act") provided to a Fund and/or other
accounts over which the Subadviser or any affiliate of the
Subadviser exercises investment discretion. The Subadviser is
authorized to pay a broker or dealer who provides such brokerage
and research services a commission or spread for executing a
portfolio transaction for a 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
Subadviser 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 Subadviser to the particular Fund and to
the Trust. The Subadviser 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 of the
Trustees.
In executing portfolio transactions for any Fund, the Subadviser
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 Subadviser 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 a Fund
and such other clients.
e. The Subadviser will make available to the Trust and the Manager,
promptly upon request, any of the Funds' investment records and
ledgers maintained by the Subadviser as are necessary to assist
the Trust and the Manager to comply with the requirements of the
1940 Act, the Advisers Act, and other applicable laws. The
Subadviser will furnish to regulatory authorities having the
requisite authority any information or reports in connection with
such services in respect to each Fund which may be requested in
order to ascertain whether the operations of such Fund are being
conducted in a manner consistent with applicable laws and
regulations.
f. The Subadviser will provide reports to the Trustees for
consideration at meetings of the Trustees on the investment
program for each Fund and the issuers and securities represented
in each Fund's portfolio, and will furnish the Trustees with
respect to each Fund such periodic and special reports as the
Trustees and/or the Manager may reasonably request.
<PAGE>
g. The Subadviser shall not be obligated to pay any expenses of or
for the Trust or of or for a Fund not expressly assumed by the
Subadviser pursuant to this Section 1.
2. COMPENSATION TO BE PAID BY THE MANAGER TO THE SUBADVISER.
The Manager will pay to the Subadviser as compensation for the
Subadviser's services rendered, for the facilities furnished and for the
expenses borne by the Subadviser pursuant to Section 1, a fee in accordance with
Schedule A of this Agreement.
3. ASSIGNMENT TERMINATES THIS AGREEMENT; AMENDMENTS OF THIS AGREEMENT.
This Agreement shall automatically terminate with respect to a Fund,
without the payment of any penalty, in the event of its assignment or in the
event that the Management Agreement between the Manager and the Trust, with
respect to such Fund, shall have terminated for any reason, and the Manager
shall provide notice of any such termination of the Management Agreement to the
Subadviser.
4. EFFECTIVE PERIOD AND TERMINATION OF THIS AGREEMENT.
This Agreement shall become effective on the first date written above,
and shall remain in full force and effect continuously thereafter with respect
to each Fund (unless terminated automatically as set forth in Section 3) until
terminated as follows:
a. The Trust may at any time terminate this Agreement by written
notice delivered or mailed by registered mail, postage prepaid,
to the Manager and the Subadviser, or
b. 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 Fund for successive annual periods,
provided such continuance is specifically approved at least
annually (i) by the vote of a majority of those Trustees 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 (ii) by the Trustees 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 Trustees or by vote of a majority of the outstanding
voting securities of such Fund), by the Manager or by the
Subadviser, upon not less than 60
<PAGE>
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).
5. PROVISION OF CERTAIN INFORMATION BY SUBADVISER.
The Subadviser shall promptly notify the Manager in writing of the
occurrence of any of the following events: (a) the Subadviser shall fail to be
registered as an investment adviser under the Advisers Act, (b) the Securities
and Exchange Commission (the "SEC") has censured the Subadviser, placed
limitations on its activities, functions, or operations; suspended its
registration as an investment adviser; or has commenced proceedings or an
investigation that may result in any of these actions; (c) the Subadviser shall
have been served or otherwise have notice of any action, suit, proceeding,
inquiry or investigation, at law or in equity, before or by any court, public
board or body, involving the affairs of the Trust; (d) the Subadviser has a
reasonable basis for believing that a Fund has ceased to qualify or might not
qualify as a regulated investment company under the Internal Revenue Code of
1986, as amended; (e) there is a change in control, or an agreement
contemplating a change in control, of the Subadviser or any parent of the
Subadviser within the meaning of the 1940 Act; or (f) there is a material
adverse change in the business or financial position of the Subadviser.
6. EXCULPATION OF SUBADVISER.
The Subadviser 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
wilful misfeasance, bad faith or gross negligence on the part of the Subadviser
in the performance of its duties, or by reason of the Subadviser's reckless
disregard of its obligations and duties under this Agreement.
The Manager will indemnify and hold harmless the Subadviser from and
against all liabilities, damages, costs and expenses that the Subadviser 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 Subadviser with respect to the performance of its duties or
obligations hereunder or otherwise as an investment adviser of the Trust and
Fund; PROVIDED, HOWEVER, that the Subadviser will not be entitled to
indemnification with respect to any liability to the Trust or the Manager by
reason of willful misfeasance, bad faith or gross negligence on the part of the
Subadviser in the performance of its duties, or by reason of the Subadviser's
reckless disregard of its obligations and duties under this Agreement.
7. EXERCISE OF VOTING RIGHTS.
<PAGE>
Except with the agreement or on the specific instructions of the
Trustees or the Manager, the Subadviser shall exercise or procure the exercise
of any voting right attaching to investments of the Fund.
8. DISCLOSURE ABOUT SUBADVISER.
The Subadviser has reviewed Post-Effective Amendment No. _ to the
Registration Statement for the Trust filed with the SEC that contains disclosure
about the Subadviser, and represents and warrants that, with respect to the
disclosure about the Subadviser or information relating directly or indirectly
to the Subadviser, such Registration Statement contains, as of the date hereof,
no untrue statement of a material fact, and does not omit any statement of a
material fact which was required to be stated therein or necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading. The Subadviser further represents and warrants that
it is registered as an investment adviser under the Advisers Act and will
maintain such registration as long as this Agreement remains in effect.
9. BOOKS AND RECORDS
The Subadviser hereby agrees that all records that it maintains for the
Funds are the property of the Trust and further agrees to surrender promptly to
the Trust any of such records upon the Trust's or the Manager's request in
compliance with the requirements of Rule 31a-3 under the 1940 Act. The
Subadviser further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act any records required to be maintained by Rule 31a-1 under the
1940 Act.
10. CONFLICTS OF INTEREST
It is understood that any of the shareholders, Trustees, officers and
employees of the Trust may be a shareholder, partner, director, officer or
employee of, or be otherwise interested in, the Subadviser, and in any person
controlling, controlled by or under common control with the Subadviser, and that
the Subadviser and any person controlling, controlled by or under common control
with the Subadviser may have an interest in the Trust. It is also understood
that the Subadviser and persons controlling, controlled by or under common
control with the Subadviser have and may have advisory, management service,
distribution or other contracts with other organizations and persons, and may
have other interests and businesses.
11. SERVICES NOT EXCLUSIVE.
The Subadviser will for all purposes herein be deemed to be an
independent contractor and will, unless otherwise expressly provided herein or
authorize by the Trustees 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
<PAGE>
by the Subadviser hereunder are not deemed exclusive, and the Subadviser will be
free to furnish similar services to others so long as its services under this
Agreement are not impaired thereby.
12. NOTICES.
All notices, requests and consents shall be in writing and shall be
personally delivered or mailed by registered mail, postage prepaid, to the other
party at the address indicated below:
If to the Manager:
Nicholas-Applegate Capital Management
600 West Broadway
San Diego, California 92101
Fax: 619-687-8138
Attention: E. Blake Moore, Jr., General Counsel
If to the Subadviser:
Criterion Investment Management LLC
1990 Post Oak Boulevard
Suite 1100
Houston, Texas 77056
Fax: (713) 963-5213
Attention: Fred Robertson
13. GOVERNING LAW
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.
14. MISCELLANEOUS
This Agreement represents the entire agreement pertaining to the
subject matter hereof between the parties and supersedes all prior agreements
and understandings pertaining thereto. The headings of the sections of this
Agreement are inserted for convenience only and shall not constitute a part
hereof. Should any provision of this Agreement be held to be void in law or in
equity, the Agreement shall be construed, insofar as is possible, as if such
portion had never been contained herein. This
<PAGE>
Agreement may be executed in more than one counterpart with the same effect as
if the parties executing the several counterparts had all executed one
counterpart.
For the purposes of this Agreement, the terms "affiliated person",
"control", "interested person" and "assignment" shall have their respective
meanings defined in the 1940 Act and the rules and regulations thereunder,
subject, however, to such exemptions as may be granted by the SEC under the 1940
Act; the term "specifically approve at least annually" shall be construed in a
manner consistent with the 1940 Act and the rules and regulations thereunder;
and the term "brokerage and research services" shall have the meaning given in
the 1934 Act and the rules and regulations thereunder.
IN WITNESS WHEREOF, NICHOLAS-APPLEGATE CAPITAL MANAGEMENT and CRITERION
INVESTMENT MANAGEMENT LLC have each caused this instrument to be signed in
duplicate on its behalf by its duly authorized representative, all as of the day
and year first above written.
CRITERION INVESTMENT MANAGEMENT LLC NICHOLAS-APPLEGATE CAPITAL
MANAGEMENT
By:________________________________ By: ______________________
Name: E. Blake Moore, Jr.
Title: General Counsel
<PAGE>
SCHEDULE A
1. The following series of the Trust are covered by this Agreement:
High Quality Bond Fund
Short-Intermediate Fixed Income Fund
2. The Subadviser fee for each Fund shall be paid monthly in U.S.
dollars in arrears. The fee shall be equal to an annual rate of 0.25% of the
average daily net asset value with respect to such Fund. For a month in which
this Agreement becomes effective or terminates with respect to a Fund, the
portion of the Subadviser fee due hereunder shall be prorated on the basis of
the number of days that the Agreement is in effect during the month.
<PAGE>
EXHIBIT (g)(5)
Nicholas-Applegate Institutional Funds
600 West Broadway
30th Floor
San Diego, CA 92101
August 30, 1999
Brown Brothers Harriman & Co.
70 Water Street
Boston, MA 02109
Ladies and Gentlemen:
Reference is made to the Foreign Custody Manager Delegation
Agreement between Nicholas-Applegate Institutional Funds and Brown Brothers
Harriman & Co. dated May 1, 1999 (the "Agreement").
Pursuant to Section 12.3 of the Custodian Agreement dated May
1, 1999, we wish to amend the Agreement to add the Nicholas-Applegate Global
Health Care Fund. The full list of Funds covered by the Agreement under Appendix
C of the Agreement amended as attached hereto.
Please indicate your acceptance of this addition by signing
the letter below and returning a copy to us. Thank you for your assistance
regarding this matter.
Sincerely,
E. Blake Moore, Jr.
Secretary
AGREED:
Brown Brothers Harriman & Co.
By: ___________________________
Title: __________________________
<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 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
Nicholas-Applegate Global Health Care Fund
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:_______________________________________
E. BLAKE MOORE, JR. NAME:
SECRETARY TITLE:
<PAGE>
Exhibit (g)(6)
Nicholas-Applegate Institutional Funds
600 West Broadway
30th Floor
San Diego, CA 92101
August 30, 1999
Brown Brothers Harriman & Co.
70 Water Street
Boston, MA 02109
Ladies and Gentlemen:
Reference is made to the Custodian Agreement between
Nicholas-Applegate Institutional Funds and Brown Brothers Harriman & Co. dated
May 1, 1999 (the "Agreement").
Pursuant to Section 12.3 of the Agreement, we wish to amend
the Agreement to add the Nicholas-Applegate Global Health Care Fund. The full
list of Funds covered by the Agreement under Appendix C of the Agreement amended
as attached hereto.
Please indicate your acceptance of this addition by signing
the letter below and returning a copy to us. Thank you for your assistance
regarding this matter.
Sincerely,
E. Blake Moore, Jr.
Secretary
AGREED:
Brown Brothers Harriman & Co.
By: __________________________
Title: _________________________
<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 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
Nicholas-Applegate Global Health Care Fund
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:_______________________________________
E. BLAKE MOORE, JR. NAME:
SECRETARY TITLE:
<PAGE>
Exhibit (g)(7)
Nicholas-Applegate Institutional Funds
600 West Broadway
30th Floor
San Diego, CA 92101
August 30, 1999
Brown Brothers Harriman & Co.
70 Water Street
Boston, MA 02109
Ladies and Gentlemen:
Reference is made to the Cash Management Services Agreement
between Nicholas-Applegate Institutional Funds and Brown Brothers Harriman & Co.
dated May 1, 1999 (the "Agreement").
We wish to amend the Agreement to add the Nicholas-Applegate
Global Health Care Fund. The full list of Funds covered by the Agreement is set
forth on the Appendix attached hereto.
Please indicate your acceptance of this addition by signing
the letter below and returning a copy to us. Thank you for your assistance
regarding this matter.
Sincerely,
E. Blake Moore, Jr.
Secretary
AGREED:
Brown Brothers Harriman & Co.
By: __________________________
Title: _________________________
<PAGE>
APPENDIX
Nicholas-Applegate Mid Cap Growth Fund
Nicholas-Applegate Large Cap Growth Fund
Nicholas-Applegate Mini Cap Growth Fund
Nicholas-Applegate Small Cap Growth
Nicholas-Applegate Convertible Fund
Nicholas-Applegate Worldwide Growth Fund
Nicholas-Applegate International Core Growth Fund
Nicholas-Applegate Emerging Countries Fund
Nicholas-Applegate Global Growth & Income Fund
Nicholas-Applegate International Small Cap Growth Fund
Nicholas-Applegate Value Fund
Nicholas-Applegate High Yield Bond Fund
Nicholas-Applegate Short Intermediate Fixed Income Fund
Nicholas-Applegate High Quality Bond Fund
Nicholas-Applegate Global Blue Chip Fund
Nicholas-Applegate Pacific Rim Fund
Nicholas-Applegate Latin America Fund
Nicholas-Applegate Global Technology Fund
Nicholas-Applegate Global Health Care Fund
<PAGE>
Exhibit (h)(7)
Nicholas-Applegate Institutional Funds
600 West Broadway
30th Floor
San Diego, CA 92101
August 30, 1999
Brown Brothers Harriman & Co.
70 Water Street
Boston, MA 02109
Ladies and Gentlemen:
Reference is made to the Administration and Fund Accounting
Agency Agreement between Nicholas-Applegate Institutional Funds and Brown
Brothers Harriman & Co. dated May 1, 1999 (the "Agreement").
Pursuant to Section 10 of the Agreement, we wish to amend the
Agreement to add the Nicholas-Applegate Global Health Care Fund. The full list
of Funds covered under Appendix C of the Agreement is amended as attached
hereto.
Please indicate your acceptance of this addition by signing
the letter below and returning a copy to us. Thank you for your assistance
regarding this matter.
Sincerely,
E. Blake Moore, Jr.
Secretary
AGREED:
Brown Brothers Harriman & Co.
By: __________________________
Title: _________________________
<PAGE>
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 Mid Cap Growth Fund
Nicholas-Applegate Large Cap Growth Fund
Nicholas-Applegate Mini Cap Growth Fund
Nicholas-Applegate Small Cap Growth
Nicholas-Applegate Convertible Fund
Nicholas-Applegate Worldwide Growth Fund
Nicholas-Applegate International Core Growth Fund
Nicholas-Applegate Emerging Countries Fund
Nicholas-Applegate Global Growth & Income Fund
Nicholas-Applegate International Small Cap Growth Fund
Nicholas-Applegate Value Fund
Nicholas-Applegate High Yield Bond Fund
Nicholas-Applegate Short Intermediate Fixed Income Fund
Nicholas-Applegate High Quality Bond Fund
Nicholas-Applegate Global Blue Chip Fund
Nicholas-Applegate Pacific Rim Fund
Nicholas-Applegate Latin America Fund
Nicholas-Applegate Global Technology Fund
Nicholas-Applegate Global Health Care Fund
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:_______________________________________
E. BLAKE MOORE, JR. NAME:
SECRETARY TITLE:
<PAGE>
Exhibit (h)(10)
CREDIT AGREEMENT
dated as of
December 21, 1999
between
Nicholas Applegate Institutional Funds
and
BankBoston, N.A.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
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<S> <C>
ARTICLE I
DEFINITIONS
SECTION 1.01 Definitions.......................................................... 1
1.02 Accounting Terms and Determinations.................................. 5
ARTICLE II
THE CREDIT
SECTION 2.01 Commitments to Lend..................................................... 6
2.02 Notice of Borrowings; Funding of Loans.................................. 6
2.03 Note.................................................................... 6
2.04 Maturity of Loans....................................................... 6
2.05 Interest Rates.......................................................... 7
2.06 Fees.................................................................... 7
2.07 Mandatory Termination of Commitments.................................... 7
2.08 Optional Termination or Reduction of Commitments........................ 7
2.09 Optional and Mandatory Prepayments...................................... 8
2.10 General Provisions as to Payments....................................... 8
2.11 Computation of Interest and Fees........................................ 8
2.12 Recourse to Assets...................................................... 9
ARTICLE III
CONDITIONS
SECTION 3.01 Effectiveness.......................................................... 9
3.02 All Borrowings......................................................... 10
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01 Existence and Power; Investment Company................................ 11
4.02 Authorization; No Contravention........................................ 12
4.03 Binding Effect......................................................... 12
4.04 Compliance with Margin Rules........................................... 12
4.05 Affiliated Persons..................................................... 12
4.06 Subsidiaries........................................................... 12
4.07 Financial Information.................................................. 12
4.08 Litigation............................................................. 12
4.09 ERISA.................................................................. 13
4.10 Taxes.................................................................. 13
4.11 Compliance............................................................. 13
4.12 Full Disclosure........................................................ 13
<PAGE>
<CAPTION>
Page
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<S> <C>
ARTICLE V
COVENANTS
SECTION 5.01 Information............................................................ 14
5.02 Payment of Obligations................................................. 15
5.03 Maintenance of Insurance............................................... 15
5.04 Conduct of Business and Maintenance of Existence....................... 15
5.05 Compliance with Laws................................................... 15
5.06 Inspection of Property, Books and Records.............................. 15
5.07 Debt................................................................... 15
5.08 Negative Pledge........................................................ 16
5.09 Consolidations, Mergers and Sales of Assets............................ 16
5.10 Use of Proceeds........................................................ 17
5.11 Ratio of Debt to Net Assets............................................ 17
5.12 Compliance with Registration Statement................................. 17
5.13 Non-Affiliation with Bank.............................................. 17
5.14 Deposit Account........................................................ 17
5.15 Regulated Investment Company........................................... 17
5.16 No Subsidiary.......................................................... 17
5.17 ERISA.................................................................. 17
5.18 Distributions.......................................................... 17
ARTICLE VI
DEFAULTS
SECTION 6.01 Events of Default ..................................................... 18
ARTICLE VII
CHANGE IN CIRCUMSTANCES
SECTION 7.01 Increased Cost and Reduced Return...................................... 19
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 Notices................................................................ 20
8.02 No Waivers............................................................. 21
8.03 Expenses; Documentary Taxes; Indemnification........................... 21
8.04 Set-Off................................................................ 21
8.05 Amendments and Waivers................................................. 21
8.06 Successors and Assigns................................................. 21
8.07 Governing Law; Submission to Jurisdiction.............................. 22
8.08 Counterparts; Integration.............................................. 22
8.09 Waiver Of Jury Trial................................................... 22
<PAGE>
<CAPTION>
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<S> <C>
Exhibit A - Form of Note
Exhibit B - Form of Notice of Borrowing
Exhibit C - 1 Form of Opinion of Ropes & Gray
Exhibit C-2 Form of Opinion of E. Blake Moore, General Counsel
Schedule 1 - Addresses for Notices
Schedule 4.11(c) - Agreements with Regulators and Borrowing Limitations
</TABLE>
<PAGE>
CREDIT AGREEMENT
CREDIT AGREEMENT, dated as of December 21, 1999, by and among NICHOLAS
APPLEGATE INSTITUTIONAL FUNDS, a trust organized under the laws of Delaware, on
behalf of certain of its Series (as defined below) as set forth on EXHIBIT 1
attached hereto, and BANKBOSTON, N.A.(the "Bank").
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS. The following terms, as used
herein, have the following meanings:
"Additional Series" means any series or portfolio of a Trust
which is established after the date hereof.
"Additional Trust" means any Person which is an open-end
management investment company registered as such under the Investment Company
Act and for which the Investment Adviser acts as the investment adviser.
"Affiliate" has the meaning ascribed to the term "Affiliated
Person" in the Investment Company Act and the rules and regulations thereunder.
"Affiliated Person" has the meaning ascribed to that term in
the Investment Company Act and the rules and regulations thereunder.
"Bank" means BankBoston, its successors and assigns.
"BankBoston" means BankBoston, N.A., a national banking
association.
"Base Rate" means the higher of (a) the annual rate of
interest announced from time to time by BankBoston at its head office in Boston,
Massachusetts as its "base rate" and (b) one-half of one percent (1/2%) above
the Federal Funds Rate as in effect from time to time.
"Benefit Arrangement" means at any time an employee benefit
plan within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by any
member of the ERISA Group.
"Borrower" means, with respect to each Trust whose assets are
not divided into series or portfolios, that Trust, and with respect to each
Trust whose assets are divided into series or portfolios, such Trust on behalf
of a particular Series of such Trust. For example, if a Trust has two Series and
wishes to borrow on behalf of one of those Series, the term "Borrower" would
mean the Trust on behalf of the Series borrowing; if the Trust wishes to borrow
on behalf of both Series, the term "Borrower" would mean the Trust on behalf of
one Series and the Trust on behalf of the other Series, severally.
"Borrowing" means the aggregation of Loans of the Bank to be
made to a Borrower pursuant to Article II hereof on a single date.
<PAGE>
-2-
"Borrowing Date" means the Business Day on which Loans are
advanced hereunder as specified in a Notice of Borrowing delivered pursuant to
Section 2.02(a) hereof.
"Business Day" means any day on which commercial banks are
open for the purpose of transacting business in Boston, Massachusetts.
"Commitment" means the agreement of the Bank, subject to the
terms and conditions of this Agreement, to make Loans to the Borrowers
hereunder.
"Commitment Amount" means, $30,000,000, as such amount may be
reduced from time to time pursuant to Section 2.08.
"Custodian" means the entity which, on the Effective Date (or,
with respect to each Additional Trust or Additional Series which becomes a Trust
or Series hereunder, on the date such Additional Trust or Additional Series
becomes a Trust or Series hereunder), acts as the Borrower's custodian for
purposes of Section 17(f) of the Investment Company Act.
"Debt" of any Person means at any date, without duplication,
(a) all obligations of such Person for borrowed money or extensions of credit,
(b) all obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments, (c) all obligations of such Person to pay the
deferred purchase price of property or services, except trade accounts payable
arising in the ordinary course of business, (d) all obligations of such Person
as lessee which are or should be capitalized in accordance with generally
accepted accounting principles, (e) all Debt of others secured by a Lien on any
asset of such Person, whether or not such Debt is assumed by such Person, (f)
all obligations of such Person under Guarantees, all obligations to reimburse
the issuer in respect of letters of credit or under performance or surety bonds,
or other similar obligations, (g) all obligations of such Person in respect of
judgments, (h) all obligations of such Person in respect of banker's acceptances
and under reverse repurchase agreements, and (i) all obligations of such Person
in respect of futures contracts, swaps and other obligations that are, or would
be but for the segregation of assets therefor, senior securities for purposes of
the Investment Company Act.
"Default" means any condition or event which with the giving
of notice or lapse of time or both would, unless cured or waived, become an
Event of Default.
"Distribution" means the declaration or payment of any
dividend on or in respect of any beneficial interest in a Borrower, other than
dividends payable solely in beneficial interests in such Borrower; the purchase,
redemption, or other retirement of any beneficial interest in a Borrower,
directly or indirectly; the return of capital by a Borrower to the holders of
its beneficial interests as such; or any other distribution on or in respect of
any beneficial interest in a Borrower.
"Effective Date" means the date this Agreement becomes
effective in accordance with Section 3.01.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, or any successor statute.
"ERISA Group" means with respect to each Borrower, the
Borrower and all members of a controlled group of corporations and all trades or
businesses (whether or not incorporated) under common control which, together
with such Borrower, are treated as a single employer under Section 414 of the
Internal Revenue Code.
"Event of Default" has the meaning set forth in Section 6.01.
<PAGE>
-3-
"Federal Funds Rate" means for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for such day on such transactions
received by the Bank from three Federal funds brokers of recognized standing
selected by the Bank in its sole discretion.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (a) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation (whether arising by virtue of
partnership arrangements, by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain financial statement
conditions or otherwise) or (b) entered into for the purpose of assuring in any
other manner the obligee of such Debt or other obligation of the payment thereof
or to protect such obligee against loss in respect thereof (in whole or in
part), PROVIDED that the term Guarantee shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Internal Revenue Code" means the Internal Revenue Code of
1986, as amended, or any successor statute.
"Investment Adviser" means Nicholas-Applegate Capital
Management.
"Investment Company Act" means the Investment Company Act of
1940, as amended.
"Lending Office" means, initially, the office of the Bank at
100 Federal Street, Boston, Massachusetts 02110; and thereafter such other
office of the Bank, if any, located in the United States that shall be making or
maintaining Loans.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in respect of such
asset, including any agreement preventing a Person from encumbering such asset.
"Loans" means the revolving credit loans made or to be made to
a Borrower by the Bank pursuant to Section 2.01.
"Loan Documents" means, collectively, this Agreement, the
Note, and any and all other documents and instruments required to be delivered
pursuant to this Agreement, in each case as amended and in effect from time to
time.
"Maturity Date" means, with respect to each Loan, the earlier
of the day which is fourteen (14) days after the date such Loan was made or the
Termination Date.
"Maximum Amount" means, with respect to a Borrower, the
maximum amount such Borrower is permitted to borrow under the lowest borrowing
limitation imposed by the following:
(a) applicable laws and regulations, including the Investment
Company Act,
(b) the provisions of Sections 5.07 and 5.11 hereof,
<PAGE>
-4-
(c) the limitations on borrowings adopted by such Borrower in
its Prospectus, Statement of Additional Information or elsewhere, and
(d) any agreements with federal, state, local or foreign
governmental authorities or regulators,
in each case as in effect from time to time.
"Multiemployer Plan" means at any time an employee pension
benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any
member of the ERISA Group is then making or accruing an obligation to make
contributions or has within the preceding five plan years made contributions,
including for these purposes any Person which ceased to be a member of the ERISA
Group during such five year period.
"Net Assets" means, at any date and with respect to any
Borrower, the Total Assets of such Borrower MINUS the Total Liabilities of such
Borrower excluding the aggregate amount of such Borrower's Debt.
"Note" means promissory note of the Borrowers, substantially
in the form of EXHIBIT A attached hereto.
"Notice of Borrowing" has the meaning set forth in Section
2.02(a).
"Obligations" means, with respect to each Borrower, all
indebtedness, obligations and liabilities of such Borrower to the Bank, existing
on the date of this Agreement or arising thereafter, direct or indirect,
absolute or contingent, matured or unmatured, liquidated or unliquidated,
secured or unsecured, arising by contract, operation of law or otherwise,
arising or incurred under this Agreement or any of the other Loan Documents or
in respect of any of the Loans to such Borrower or the Note or other instruments
at any time evidencing any thereof.
"Overnight Rate" means one-half of one percent (1/2%) above
the Federal Funds Rate as in effect from time to time.
"Person" means an individual, a corporation (or series
thereof), a partnership, an association, a trust (or series thereof) or any
other entity or organization, including a government or political subdivision or
an agency or instrumentality thereof.
"Plan" means at any time an employee pension benefit plan
(other than a Multiemployer Plan) which is covered by Title IV of ERISA or
subject to the minimum funding standards of Section 302 or Section 412 of the
Internal Revenue Code and either (a) is maintained, or contributed to, by any
member of the ERISA Group for employees of any member of the ERISA Group or (b)
has at any time within the preceding five years been maintained, or contributed
to, by any Person which was at such time a member of the ERISA Group for
employees of any Person which was at such time a member of the ERISA Group.
"Prospectus" means the prospectus required to be delivered by
a Borrower to offerees of its securities pursuant to the Securities Act of 1933,
as amended, and all supplements thereto.
"Regulation U" means Regulation U of the Board of Governors of
the Federal Reserve System, as in effect from time to time.
<PAGE>
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"Revolving Credit Period" means the period from and including
the Effective Date to but excluding the Termination Date.
"Series" means, collectively, with respect to each Trust whose
assets are divided into series or portfolios, those series of such Trust listed
on SCHEDULE 1 attached hereto, and with the prior written consent of the Bank
and from and after delivery of each of the documents, in form and substance
satisfactory to the Bank, required by Section 3.01(b) hereof, any Additional
Series of such Trust and, individually, each of such Series.
"Statement of Additional Information" means the Statement of
Additional Information (and all supplements thereto) which must be provided by a
Borrower to recipients of its Prospectus upon request pursuant to rules and
regulations adopted by the Securities and Exchange Commission.
"Subsidiary" of a Borrower means any corporation or other
entity of which securities or other ownership interests having ordinary voting
power to elect a majority of the board of directors or other persons performing
similar functions are at the time directly or indirectly owned by such Borrower.
"Termination Date" means December 19, 2000 or such earlier
date on which the Commitment to the Borrowers terminates or is terminated
pursuant to the terms hereof.
"Total Assets" means, at any date, all assets of a Borrower
which in accordance with generally accepted accounting principles would be
classified as assets upon a balance sheet of such Borrower prepared as of such
date, valued in accordance with the methods and procedures described in such
Borrower's Prospectus and Statement of Additional Information.
"Total Liabilities" means, at any date, all liabilities of a
Borrower which in accordance with generally accepted accounting principles would
be classified as liabilities upon a balance sheet of such Borrower prepared as
of such date, including, without duplication, the aggregate amount of such
Borrower's Debt.
"Trust(s)" means, collectively, the Trust listed on SCHEDULE 1
attached hereto and, with the prior written consent of the Bank and from and
after delivery of each of the documents, in form and substance satisfactory to
the Bank, required in Section 3.01(b) hereof, any Additional Trust, and,
individually, each of such Trusts.
"Trust Default" means any condition or event which with the
giving of notice or lapse of time or both would, unless cured or waived, become
an Trust Event of Default.
"Trust Event of Default" means any Event of Default specified
in clauses (g) or (h) of Section 6.01 hereof, any Event of Default specified in
clause (b) of Section 6.01 hereof as a result of the failure by a Trust to
comply with Section 5.04 hereof, and any Event of Default specified in clause
(d) of Section 6.01 hereof to the extent such Event of Default arises with
respect to the representations set forth in Section 4.01 hereof.
SECTION 1.02. ACCOUNTING TERMS AND DETERMINATIONS. Unless
otherwise specified herein, all accounting terms used herein shall be
interpreted, all accounting determinations hereunder shall be made and all
financial statements required to be delivered hereunder shall be prepared in
accordance with generally accepted accounting principles as in effect from time
to time in the United States of America, applied on a basis consistent (except
for changes concurred in by the applicable Borrower's independent public
accountants) with the most recent audited financial statements of that Borrower
delivered to the Bank hereunder.
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ARTICLE II
THE CREDIT
SECTION 2.01. COMMITMENTS TO LEND. Subject to the terms and
conditions set forth in this Agreement, the Bank agrees to lend to each
Borrower, and each Borrower may borrow, repay and reborrow from time to time
during the Revolving Credit Period, upon notice by such Borrower to the Bank
given in accordance with Section 2.02(a) hereof, such sums as are requested by
such Borrower up to a maximum aggregate amount outstanding (after giving effect
to all amounts requested) at any one time equal to the Commitment Amount,
PROVIDED that (a) the aggregate principal amount of all Loans outstanding to any
Borrower (after giving effect to all amounts requested) shall not exceed at any
time the Maximum Amount for such Borrower at such time and (b) the aggregate
principal amount of all Loans outstanding to all Borrowers (after giving effect
to all amounts requested) shall not exceed at any time the Commitment Amount.
Each Borrowing under this Section shall be in an aggregate principal amount of
not less than $100,000 or a larger whole multiple of $100,000. Each Loan shall
mature and become due and payable as provided in Section 2.04.
SECTION 2.02. NOTICE OF BORROWINGS; FUNDING OF LOANS. (a) The
Borrower requesting a Loan shall give the Bank a notice substantially in the
form of EXHIBIT B attached hereto (a "Notice of Borrowing") of each Loan
requested hereunder not later than 2:00 p.m. (Boston time) (or telephonic notice
not later than 2:00 p.m. (Boston time) confirmed in writing substantially in the
form of EXHIBIT B attached hereto not later than 3:00 p.m. (Boston time)) on the
Business Day of each proposed Borrowing. Each Notice of Borrowing or oral
request shall constitute a representation and warranty by the Borrower named
therein that the conditions set forth in Section 3.02 (and, in the case of the
initial Loan to be made hereunder, Section 3.01) have been satisfied on the date
of such notice and will be satisfied on the Borrowing Date. Such Notice of
Borrowing or oral request shall not thereafter be revocable by the Borrower
named therein and shall obligate such Borrower to accept the Loan requested from
the Bank on the Borrowing Date.
(b) If the Bank makes a new Loan hereunder for the use of a
particular Borrower on a day on which that Borrower is to repay all or any part
of an outstanding Loan to it, the Bank shall apply the proceeds of its new Loan
to make such repayment and only an amount equal to the difference (if any)
between the amount being borrowed and the amount being repaid shall be made
available by the Bank or remitted by that Borrower to the Bank, as the case may
be.
SECTION 2.03. THE NOTE. (a) The Loans of the Bank to each
Borrower shall be evidenced by a single Note payable to the order of the Bank in
an amount equal to the Commitment Amount or, if less, the aggregate unpaid
principal amount of the Loans, plus interest thereon as provided below.
(b) The Bank shall record on the Note the date, type and
amount of each Loan made by it to each Borrower and the date and amount of each
payment of principal made by such Borrower with respect thereto; PROVIDED that
the failure of the Bank to make, or any error by the Bank in making, any such
recordation or endorsement shall not affect the obligations of any Borrower
hereunder or under the Note. The Bank is hereby irrevocably authorized by each
Borrower so to endorse its Note and to attach to and make a part of its Note a
continuation of any such schedule as and when required.
SECTION 2.04. MATURITY OF LOANS. Each Loan shall mature, and
the principal amount thereof shall be due and payable, on the Maturity Date for
such Loan, together with any and all accrued and unpaid interest thereon.
<PAGE>
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SECTION 2.05. INTEREST RATES. (a) Subject to Section 2.06(b)
hereof, each Loan shall bear interest on the outstanding principal amount
thereof, for the period commencing with the date such Loan is made up to but not
including the date such Loan is repaid in full, at a rate per annum equal to the
Overnight Rate as in effect from time to time. Interest on each Loan shall be
payable in full on the Maturity Date of such Loan.
(b) Any overdue principal of (whether at stated maturity, by
acceleration or otherwise) and (to the extent permitted by applicable law)
interest on the Loans and all other overdue amounts payable hereunder shall bear
interest, payable on demand, for each day from and including the date payment
thereof was due (whether at stated maturity, by acceleration or otherwise)
through and including the date of actual payment, at a rate per annum equal to
the sum of two percent (2%) above the Base Rate until such amount shall be paid
in full (after as well as before judgment). During the continuance a Default or
an Event of Default the principal of the Loans of the defaulting Borrower not
overdue shall, until such Default or Event of Default has been cured or remedied
or such Default or Event of Default has been waived by the Bank, bear interest
at a rate per annum equal to the greater of (i) two percent (2%) above the rate
of interest otherwise applicable to such Loans pursuant to Section 2.05(a)
hereof and (ii) the rate of interest applicable to overdue principal.
SECTION 2.06. FEES. (a) During the Revolving Credit Period,
the Borrowers shall pay to the Bank a commitment fee at the rate of 0.10% per
annum on the daily amount by which the Commitment Amount exceeded the aggregate
outstanding principal amount of the Loans.
(b) The commitment fee shall accrue from and including the
Effective Date to but excluding the Termination Date. Accrued commitment fees
payable hereunder shall be payable quarterly in arrears on the last day of each
March, June, September and December, commencing on the first such day after the
Effective Date, and on the Termination Date.
(d) The Borrowers shall pay the commitment fee pro rata based
on the relative asset size of each such Borrower as of the first day of each
calendar quarter or based on such other method as the Board of Directors or
Board of Trustees, as applicable, of the Trust(s) shall determine with prior
written notice to the Bank.
SECTION 2.07. MANDATORY TERMINATION OF COMMITMENTS. On the
Termination Date, the Commitment Amount permanently shall reduce to $0 and the
Bank's Commitment shall terminate. Each Borrower promises to pay on the
Termination Date, and there shall become absolutely due and payable on the
Termination Date, all of the Loans outstanding to that Borrower on such date,
together with any and all accrued and unpaid interest thereon.
SECTION 2.08. OPTIONAL TERMINATION OR REDUCTION OF
COMMITMENTS. (a) Each Borrower shall have the right at any time and from time to
time upon three (3) Business Days' prior written notice to the Bank to terminate
entirely the Commitment to such Borrower, whereupon the Commitment to such
Borrower shall be terminated. Promptly after receiving any notice of any
Borrower delivered pursuant to this clause (a), the Bank will revise SCHEDULE 1
attached hereto accordingly. Upon the effective date of any such termination,
the applicable Borrower shall pay to the Bank all of the Loans outstanding to
that Borrower on such date, together with any and all accrued and unpaid
interest thereon, as well as the full amount of any commitment fee then accrued
and allocated to such Borrower. No termination of the Commitment as to any
Borrower may be reinstated.
(b) The Borrowers shall have the right at any time and from
time to time upon three (3) Business Days' prior written notice to the Bank to
reduce by $1,000,000 or an
<PAGE>
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integral multiple thereof the unborrowed portion of the Commitment Amount
whereupon the Commitment Amount shall be reduced. Upon the effective date of any
such reduction, the Borrowers shall pay to the Bank the full amount of any
commitment fee then accrued on the amount of the reduction. No reduction in the
Commitment Amount may be reinstated.
SECTION 2.09. OPTIONAL AND MANDATORY PREPAYMENTS. (a) Each
Borrower may, upon at least one (1) Business Day's notice to the Bank (which
notice shall not thereafter be revocable by such Borrower), prepay any Loans in
whole at any time, or from time to time in part in an aggregate principal amount
not less than $100,000 and in larger integral multiples of $100,000, by paying
the principal amount to be prepaid together with accrued interest thereon to the
date of prepayment.
(b) If at any time the aggregate principal amount of all Loans
outstanding to any Borrower exceeds the Maximum Amount for such Borrower, such
Borrower immediately shall prepay such principal amount of one or more Loans
made to such Borrower (together with accrued interest thereon), as may be
necessary so that after such prepayment the aggregate principal amount of all
Loans outstanding to such Borrower does not exceed the Maximum Amount for such
Borrower.
(c) If at any time the aggregate principal amount of all Loans
outstanding to the Borrowers exceeds the Commitment Amount, the Borrowers shall
immediately prepay such principal amount of one or more Loans (together with
accrued interest thereon), as may be necessary to eliminate such excess.
SECTION 2.10. GENERAL PROVISIONS AS TO PAYMENTS. (a) Payment
of principal of and interest on the Loans and of fees and all other amounts due
hereunder shall be made not later than 2:00 p.m. (Boston time) on the date when
due, in Federal or other funds immediately available in Boston, to the Bank at
its address referred to in Section 9.01. Whenever any payment of principal of,
or interest on, the Loans or of fees shall be due on a day which is not a
Business Day, the date for payment thereof shall be extended to the next
succeeding Business Day and interest shall accrue during such extension. If the
date for any payment of principal is extended by operation of law or otherwise,
interest thereon shall be payable for such extended time.
(b) Each Borrower agrees that payments by such Borrower
hereunder and under any of the other Loan Documents shall be made without setoff
or counterclaim and free and clear of and without deduction for any taxes,
levies, imposts, duties, charges, fees, deductions, withholdings, compulsory
loans, restrictions or conditions of any nature now or hereafter imposed or
levied by any jurisdiction or any political subdivision thereof or taxing or
other authority therein unless such Borrower is compelled by law to make such
deduction or withholding. If any such obligation (other than one arising with
respect to taxes based on or measured by the income or profits of the Bank) is
imposed upon any Borrower with respect to any amount payable by it hereunder or
under any of the other Loan Documents, such Borrower will pay to the Bank on the
date on which such amount is due and payable hereunder or under such other Loan
Document, such additional amount in U.S. dollars as shall be necessary to enable
the Bank to receive the same net amount which the Bank would have received on
such due date had no such obligation been imposed upon such Borrower. Each
Borrower will deliver promptly to the Bank certificates or other valid vouchers
for all taxes or other charges deducted from or paid with respect to payments
made by such Borrower hereunder or under such other Loan Document.
SECTION 2.11. COMPUTATION OF INTEREST AND FEES. All interest
and fees hereunder shall be computed on the basis of a year of 360 days and paid
for the actual number of days elapsed. The Bank's determination of interest
rates shall be conclusive and binding for all purposes, absent manifest error.
<PAGE>
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SECTION 2.12. RECOURSE TO ASSETS. Loans made to each Borrower
hereunder shall be paid solely to the account of that Borrower and used by that
Borrower solely in accordance with Section 5.10 hereof. The obligations of each
Borrower under this Agreement and the Loan Documents are several and not joint.
The principal amount of the Loans made for use by a particular Borrower and
accrued interest thereon and any fees or additional amounts payable in
connection with or relating to such Loans pursuant to this Agreement, including,
without limitation, Sections 2.06, 7.01 and 8.03 hereof, shall be paid or repaid
solely from the assets of such Borrower and the Bank shall have no right of
recourse or offset against the assets of any other Borrower with respect to such
Loans or such other obligations or amounts, or any default in respect thereto.
ARTICLE III
CONDITIONS
SECTION 3.01. EFFECTIVENESS. (a) This Agreement shall become
effective on the date that each of the following conditions shall have been
satisfied:
(i) receipt by the Bank of counterparts hereof signed by each
of the Borrowers;
(ii) receipt by the Bank of a duly executed Note dated on or
before the Effective Date complying with the provisions of Section 2.04;
(iii) receipt by the Bank of opinions of Ropes & Gray, special
counsel to the Borrowers, and E. Blake Moore, Jr., General Counsel to each
Trust, substantially in the form of EXHIBITS C-1 and C-2 attached hereto which
are satisfactory to the Bank in all respects;
(iv) receipt by the Bank of a certificate manually signed by
the assistant secretary of each of the Borrowers to the effect set forth in
clauses (b) (if a Borrowing will occur on the Effective Date), (c) and (d) of
Section 3.02, such certificate to be dated the Effective Date and to be in form
and substance satisfactory to the Bank;
(v) receipt by the Bank of a manually signed certificate from
the Secretary of each Trust, in form and substance satisfactory to the Bank and
dated the Effective Date, as to the incumbency of, and bearing manual specimen
signatures of, the officers of such Trust who are authorized to execute and take
actions under the Loan Documents, as to the Custodian and Investment Adviser of
such Trust and each Series thereof, if applicable, and certifying and attaching
copies of (A) such Trust's declaration of trust or articles of incorporation or
organization, as applicable, and by-laws as then in effect, (B) duly authorized
resolutions of such Trust's Board of Trustees or Board of Directors, as
applicable, authorizing for the Trust and each Series thereof, the Borrowings
and transactions contemplated hereby, (C) the current Prospectus and Statement
of Additional Information of the Trust or each of the Series of the Trust, as
applicable, and (D) the Annual Reports and Semi-Annual Reports to Shareholders
of the Trust or the Series of the Trust, as applicable, for the two most
recently ended fiscal years of each;
(vi) satisfactory completion by the Bank of due diligence
with respect to the Borrowers;
(vii) the Bank being satisfied in its sole discretion that
there has been no material adverse change in the business, assets, financial
condition or prospects of any of the
<PAGE>
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Borrowers since the date of the most recent financial statements of the
applicable Borrower referred to in Section 4.07;
(viii) receipt by the Bank of all documents, opinions and
instruments it may reasonably request prior to the execution of this Agreement
relating to compliance with applicable rules and regulations promulgated by the
Federal Reserve Board and other governmental and regulatory authorities, the
authority for and the validity and enforceability of this Agreement and the
Note, and any other matters relevant hereto, all in form and substance
satisfactory to the Bank;
(ix) receipt by the Bank of a long form legal existence
certificate, along with a good standing certificate, for each Trust from the
Secretary of State of the jurisdiction of such Trust's organization or
incorporation, as applicable, dated no more than ten (10) days prior to the
Effective Date;
(x) receipt by the Bank of a copy of each Trust's certificate
or articles of incorporation or organization or certificate or declaration of
trust, as applicable, certified as of a date no more than ten (10) days prior to
the Effective Date by the Secretary of State of the jurisdiction of such Trust's
organization or incorporation, as applicable; and
(xi) receipt by the Bank of payment of all fees and expenses
(including fees and disbursements of special counsel for the Bank) then payable
hereunder and under the other Loan Documents;
PROVIDED that this Agreement shall not become effective or be binding on any
party hereto unless all of the foregoing conditions are satisfied not later than
December 31, 1999.
(b) After the Effective Date, upon the written consent of the Bank, any
Additional Trust may become a Trust hereunder and for all purposes of the Loan
Documents and any Additional Series may become a Series hereunder and for all
purposes of the Loan Documents, in each case only when the Additional Trust or
the applicable Trust, on behalf of such Additional Series, shall have delivered
to the Bank an executed addendum to each of the Loan Documents reflecting the
addition of such Additional Trust or Additional Series, as applicable, along
with the following:
(i) copies of each of the documents required by Section
3.01(a)(iv), (v), (ix) and (x) (with such changes as are applicable to reflect
the appropriate jurisdiction and nature of organization of any Additional Trust,
and with such changes to the dates of the documents required by such clauses as
such Additional Trust or such Trust, on behalf of such Additional Series, and
the Bank shall agree) with respect to such Additional Trust or Additional
Series;
(ii) an opinion of counsel to such Additional Trust or
Additional Series substantially in the form of EXHIBIT C attached hereto (with
such changes as are applicable to reflect the appropriate jurisdiction and
nature of organization of such Additional Trust or, in the case of an Additional
Series, the applicable Trust);
each of the foregoing in form and substance reasonably satisfactory to the Bank.
The Bank shall promptly provide written notice to the Borrowers when all of the
requirements of this clause (b) of this Section 3.01 have been satisfied.
SECTION 3.02. ALL BORROWINGS. The obligation of the Bank to
make a Loan on the occasion of any Borrowing is subject to the satisfaction of
the following conditions:
(a) receipt by the Bank of a Notice of Borrowing (or a telephonic
notice of borrowing) as required by Section 2.02(a) and the certificate required
to be delivered to the Bank pursuant
<PAGE>
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to Section 5.01(c), in each case which is satisfactory to the Bank in all
respects, along with all documents and information the Bank may reasonably
request to establish compliance with applicable rules and regulations
promulgated by the Federal Reserve Board;
(b) immediately after such Borrowing, the aggregate outstanding
principal amount of the Loans outstanding to the Borrower requesting the Loan
will not exceed the Maximum Amount for such Borrower and, immediately after such
Borrowing, the aggregate principal amount of all Loans outstanding to all
Borrowers will not exceed the Commitment Amount;
(c) immediately before and after such Borrowing, no Default or Event of
Default with respect to the Borrower requesting the Loan shall have occurred and
be continuing; and
(d) the representations and warranties of the Borrower requesting the
Loan contained in this Agreement and the other Loan Documents shall be true on
and as of the date of such Borrowing.
Each Borrowing hereunder shall be deemed to be a representation and warranty on
the date of such Borrowing by the Borrower requesting the Loan as to the facts
specified in clauses (b), (c) and (d) of this Section.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Each Borrower severally represents and warrants as to itself
and, if the Borrower is a Trust acting on behalf of one or more of its Series,
such Borrower also represents and warrants as to such Trust, where applicable,
that:
SECTION 4.01. EXISTENCE AND POWER; INVESTMENT COMPANY. (a)
SCHEDULE 1 attached hereto accurately and completely lists the full legal name,
principal business address and the nature and jurisdiction of organization of
the Borrower, or if the Borrower is a Trust acting on behalf of one or more
Series, of such Trust and such Series. The Borrower, or if the Borrower is a
Trust acting on behalf of one or more Series, the Trust is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization as set forth on SCHEDULE 1 attached hereto and has all corporate or
trust powers and all authorizations and approvals required to carry on its
business as now conducted.
(b) The Borrower, or if the Borrower is a Trust acting on
behalf of one or more Series, the Trust is an open-end management investment
company registered as such under the Investment Company Act, and the outstanding
shares of each class of its stock (i) have been duly issued and are fully paid
and non-assessable, (ii) have been duly registered under the Securities Act of
1933, as amended, and (iii) have been sold only in states or other jurisdictions
in which all filings required to be made under applicable state securities laws
have been made.
(c) If the Borrower is a Trust acting on behalf of a Series,
that Series of such Trust has been duly established as a separate series of such
Trust, and its assets and liabilities are segregated from the assets and
liabilities of each other Series of such Trust. That Series is not subject to
any liabilities of any other Series of such Trust other than expenses that are
not chargeable to a particular Series of such Trust but which are appropriately
allocated among the Series of such Trust, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles. The Trust is not subject to any liabilities of any other Trust.
<PAGE>
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SECTION 4.02. AUTHORIZATION; NO CONTRAVENTION. The execution,
delivery and performance by the Borrower of this Agreement, the Note and each of
the other Loan Documents to which it is a party are within its trust or
corporate powers, as applicable, have been duly authorized by all necessary
trust or corporate action, require no authorization or action by or in respect
of, or filing with, any governmental body, agency or official or any shareholder
or creditor of the Borrower, and do not contravene, or constitute a default
under, any provision of applicable law or regulation (including, without
limitation, the Investment Company Act), the certificate or articles of
organization or incorporation or declaration of trust, as applicable, or by-laws
of the Borrower, any agreement, judgment, injunction, order, decree or other
instrument binding upon the Borrower or the Borrower's most recent Prospectus or
Statement of Additional Information, or result in the creation or imposition of
any Lien on any assets of the Borrower.
SECTION 4.03. BINDING EFFECT. Each of the Loan Documents has
been duly executed and delivered by the Borrower. Each of this Agreement and the
other Loan Documents constitutes a valid and binding agreement of the Borrower
and the Note constitutes a valid and binding obligation of the Borrower, in each
case enforceable in accordance with their terms, except as enforceability is
limited by bankruptcy, insolvency, reorganization, moratorium or other laws
relating to or affecting generally the enforcement of creditors' rights.
SECTION 4.04. COMPLIANCE WITH MARGIN RULES. The execution,
delivery and performance by the Borrower of this Agreement, the Note and the
other Loan Documents and the transactions contemplated hereunder and thereunder
will not violate Regulation U or Regulation X of the Board of Governors of the
Federal Reserve System.
SECTION 4.05. AFFILIATED PERSONS. So far as appears from the
records of the Borrower, neither the Bank nor any Affiliate of the Bank known to
the Borrower is an Affiliated Person of the Borrower and none of the Borrower or
any Affiliate of the Borrower is an Affiliated Person of the Bank or of any
Affiliate of the Bank known to the Borrower.
SECTION 4.06. SUBSIDIARIES. The Borrower has no
Subsidiaries.
SECTION 4.07. FINANCIAL INFORMATION. (a) The statement of
assets and liabilities of the Borrower as of the last day of the Borrower's
fiscal year most recently ended prior to the Effective Date (or, with respect to
each Additional Trust or Additional Series which becomes a Trust or Series, as
applicable, hereunder, the fiscal year most recently ended prior to the date
such Additional Trust or Additional Series becomes a Trust or Series, as
applicable, hereunder), and the related Statements of Operations and Changes in
Net Assets for the fiscal year ended on such date, reported on by independent
public accountants of nationally recognized standing and set forth in the Annual
Report to Shareholders for the fiscal year ended on such date, together with the
notes and schedules thereto, present fairly, in all material respects, in
conformity with generally accepted accounting principles, the financial position
of the Borrower as of such date.
(b) Since the last day of the Borrower's fiscal year most
recently ended prior to the Effective Date (or, with respect to each Additional
Trust or Additional Series which becomes a Trust or Series hereunder, the fiscal
year most recently ended prior to the date such Additional Trust or Additional
Series becomes a Trust or Series hereunder), there has been no material adverse
change in the business, financial position, results of operations or prospects
of the Borrower.
SECTION 4.08. LITIGATION. There is no action, suit or
proceeding pending against, or, to the knowledge of the Borrower, threatened
against or affecting, the Borrower or any Person with whom it has entered into a
material contract or agreement before any court or arbitrator or any
governmental body, agency or official in which there is a reasonable possibility
<PAGE>
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of an adverse decision which could materially adversely affect the business,
financial position, results of operations or prospects of the Borrower, or which
in any manner draws into question the validity or enforceability of this
Agreement, the Note or any of the other Loan Documents or any such material
contract or agreement.
SECTION 4.09. ERISA. (a) The Borrower is not a member of an
ERISA Group and has no liability in respect of any Benefit Arrangement, Plan or
Multiemployer Plan subject to ERISA.
(b) No Loan will constitute a "prohibited transaction" within
the meaning of Section 406 of ERISA or Section 4975 of the Internal Revenue Code
for which an exemption is not available.
SECTION 4.10. TAXES. The Borrower has elected to be treated
and qualifies as a "regulated investment company" within the meaning of the
Internal Revenue Code. The Borrower has timely filed in correct form all United
States Federal income tax returns and all other material tax returns which are
required to be filed by it and has paid all taxes due pursuant to such returns
or pursuant to any assessment received by it. The charges, accruals and reserves
on the books of the Borrower in respect of taxes or other governmental charges
are, in the opinion of the Borrower, adequate.
SECTION 4.11. COMPLIANCE. (a) The Borrower is in compliance
with Section 18 of the Investment Company Act. The Borrower is also in
compliance with all other applicable laws and regulations (including, without
limitation, all other provisions of the Investment Company Act and all rules and
regulations thereunder), all applicable ordinances, decrees, requirements,
orders and judgments of, and all of the terms of any applicable licenses and
permits issued by, any governmental body, agency or official, and all agreements
and instruments to which it may be subject or any of its properties may be
bound, in each case where the violation thereof may have a material adverse
effect on its business, financial position, results of operations or prospects
or call into question the validity or enforceability of this Agreement, the Note
or any of the other Loan Documents. The Borrower is in compliance with all
investment policies and restrictions set forth in its most recent Prospectus and
Statement of Additional Information.
(b) No Default or Event of Default has occurred and is
continuing with respect to the Borrower.
(c) The Borrower is not subject to regulation under any
federal, state, local or foreign statute or regulation (other than the
Investment Company Act) which limits its ability to incur indebtedness. Except
as set forth on SCHEDULE 4.11(c) attached hereto, the Borrower has not entered
into any agreement with any federal, state, local or foreign governmental
authority or regulator limiting its ability to incur indebtedness. The borrowing
limitations adopted by the Borrower in its Prospectus, Statement of Additional
Information or elsewhere are set forth on SCHEDULE 4.11(c) attached hereto.
SECTION 4.12. FULL DISCLOSURE. All information heretofore
furnished by the Borrower to the Bank for purposes of or in connection with this
Agreement or any transaction contemplated hereby is, and all such information
hereafter furnished by the Borrower to the Bank will be, true and accurate in
all material respects on the date as of which such information is stated or
certified. The Borrower has disclosed to the Bank in writing all facts which, to
its knowledge after reasonable inquiry, materially and adversely affect or may
affect (to the extent the Borrower can now reasonably foresee), the business,
operations or financial condition of the Borrower or the ability of the Borrower
to perform its obligations under the Loan Documents.
<PAGE>
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ARTICLE V
COVENANTS
Each Borrower severally agrees that, so long as the Bank has
any Commitment to that Borrower hereunder or any amount is payable by that
Borrower under the Note:
SECTION 5.01. INFORMATION. The Borrower will deliver to the
Bank:
(a) as soon as available and in any event within 60 days after the end
of each fiscal year of the Borrower, a statement of its assets and liabilities,
including the portfolio of investments, as of the end of such fiscal year and
the related statements of operations and changes in net assets for such fiscal
year, all reported in a manner acceptable to the Securities and Exchange
Commission, together with an audit report thereon issued by independent public
accountants of nationally recognized standing;
(b) as soon as available and in any event within 60 days after the end
of the first semi-annual period of each fiscal year of the Borrower, a statement
of its assets and liabilities including the portfolio of investments, as of the
end of such period, all certified (subject to normal year-end adjustments) as to
fairness of presentation, generally accepted accounting principles and
consistency by the treasurer or vice president of the Borrower or accompanied by
an audit report thereon issued by independent public accountants of nationally
recognized standing;
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above and simultaneously with the
delivery of each Notice of Borrowing, a certificate of the treasurer or vice
president of the Borrower (i) stating whether any Default or Event of Default
exists on the date of such certificate and, if any Default or Event of Default
then exists, setting forth the details thereof and the action which the Borrower
is taking or proposes to take with respect thereto and (ii) setting forth in
reasonable detail the Net Asset Value of the Borrower and the calculations
required to establish whether such Borrower is in compliance with the
requirements of Section 5.11 on the date of such certificate;
(d) simultaneously with the delivery of each set of financial
statements referred to in clause (a) above, a statement of the firm of
independent accountants which reported on such statements whether anything has
come to their attention to cause them to believe that any Default or Event of
Default with respect to the Borrower existed on the date of such statements;
(e) promptly after the Borrower obtains knowledge of any Default or
Event of Default with respect to such Borrower, a certificate of the treasurer
or vice president of the Borrower setting forth the details thereof and the
action which the Borrower is taking or proposes to take with respect thereto;
(f) promptly upon the filing thereof with the Securities and Exchange
Commission or the mailing thereof to shareholders of the Borrower, copies of all
reports to shareholders, amendments and supplements to the Borrower's
registration statement, Prospectus or Statement of Additional Information, proxy
statements and other materials of a financial or otherwise material nature;
<PAGE>
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(g) promptly upon any officer of the Borrower becoming aware of any
action, suit or proceeding of the type described in Section 4.08, notice and a
description thereof and copies of any filed complaint relating thereto; and
(h) from time to time such additional information regarding the
financial position or business of the Borrower as the Bank may reasonably
request.
SECTION 5.02. PAYMENT OF OBLIGATIONS. The Borrower will duly
and punctually pay or cause to be paid the principal and interest on the Loans
made to it and all other amounts payable by it provided for in this Agreement
and the other Loan Documents. The Borrower will pay and discharge, at or before
maturity, all of its material obligations and liabilities, including, without
limitation, tax liabilities, except where the same may be contested in good
faith by appropriate proceedings, and will maintain, in accordance with
generally accepted accounting principles, appropriate reserves for the accrual
of any of the same.
SECTION 5.03. MAINTENANCE OF INSURANCE. The Borrower will
maintain with financially sound and reputable insurance companies, policies with
respect to its property and business against at least such risks (and with no
greater risk retentions) and in at least such amounts as are required by the
Investment Company Act and, in addition, as are customary in the case of
registered open-end investment companies; and will furnish to the Bank, upon
request, information presented in reasonable detail as to the insurance so
carried.
SECTION 5.04. CONDUCT OF BUSINESS AND MAINTENANCE OF
EXISTENCE. The Borrower will continue to engage in business of the same general
type as now conducted by it and the Borrower will, or if the Borrower is a Trust
acting on behalf of one or more of its Series, such Trust will, preserve, renew
and keep in full force and effect its existence as a Delaware business trust or
such other form of organization, as applicable, as indicated for such Trust on
SCHEDULE 1, and its rights, privileges and franchises necessary in the normal
conduct of its business. The Borrower will, or if the Borrower is a Trust acting
on behalf of one or more of its Series, such Trust will, maintain in full force
and effect its registration as a open-end management company under the
Investment Company Act, and, except as provided in Section 5.09 hereof, keep in
full force and effect the existence of the Series as separate series.
SECTION 5.05. COMPLIANCE WITH LAWS. The Borrower will comply
with Section 18 of the Investment Company Act. The Borrower will comply in all
material respects with all other applicable laws, ordinances, rules, regulations
and requirements of governmental authorities (including, without limitation,
ERISA and the other provisions of the Investment Company Act and the rules and
regulations thereunder) except where the necessity of compliance therewith is
contested in good faith by appropriate proceedings or exemptive relief has been
obtained therefrom and remains in effect. The Borrower will file all federal and
other tax returns, reports and declarations required by all relevant
jurisdictions on or before the due dates for such returns, reports and
declarations and will pay all taxes and other governmental assessments and
charges as and when they become due (except those that are being contested in
good faith by the Borrower and as to which the Borrower has established
appropriate reserves on its books and records).
SECTION 5.06. INSPECTION OF PROPERTY, BOOKS AND RECORDS. The
Borrower will keep proper books of record and account in which full, true and
correct entries shall be made of all dealings and transactions in relation to
its business and activities; and will permit representatives of the Bank, at the
Bank's expense, to visit and inspect any of its offices, to examine and make
abstracts from any of its books and records and to discuss its affairs, finances
and accounts with its officers, employees and independent public accountants,
all at such reasonable times and as often as may reasonably be desired.
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SECTION 5.07. DEBT. So long as any Loan is outstanding to the
Borrower, the Borrower will not create, assume or suffer to exist any Debt other
than:
(a) Debt arising under this Agreement and the Note; and
(b) Debt arising in connection with portfolio investments and
investment techniques permissible under the Investment Company Act and
consistent with the Borrower's investment objectives and fundamental and
operating investment restrictions;
PROVIDED THAT in no event shall the Borrower, while any Loan is outstanding to
it, (i) enter into or utilize swaps, caps, options, futures contracts, options
on futures contracts or other similar portfolio investments or investment
techniques other than for hedging purposes, (ii) enter into reverse repurchase
agreements, (iii) borrow money or create leverage under any arrangement other
than from the Bank hereunder, or (iv) issue or be or remain liable for or have
outstanding any "senior security" (as defined in the Investment Company Act),
except that the Borrower may borrow from the Bank hereunder. The Borrower will
not issue or have outstanding any preferred stock.
SECTION 5.08. NEGATIVE PLEDGE. The Borrower will not, while
any Loan is outstanding to the Borrower, create, assume or suffer to exist any
Lien on any of its assets, whether now owned or hereafter acquired, or on the
income or profits therefrom, except (a) Liens for taxes, assessments or
governmental charges or levies the payment of which is not at the time required,
and (b) encumbrances created in connection with the Borrower's portfolio
investments (and not for the primary purpose of borrowing money) to the extent
permitted by the provisions of the Borrower's Prospectus and Statement of
Additional Information and Section 5.07 hereof, PROVIDED THAT the aggregate
amount of such encumbered assets of the Borrower pursuant to this clause (c)
does not at any time exceed 5% of the Total Assets of the Borrower.
SECTION 5.09. CONSOLIDATIONS, MERGERS AND SALES OF ASSETS. The
Borrower will not consolidate or merge with or into any other Person or
reorganize its assets into series of a series corporation or entity (if it
currently has no series) or into a non-series corporation or entity (if it
currently is a series of such an entity), nor will the Borrower sell, lease or
otherwise transfer, directly or indirectly, all or any substantial part of its
assets to any other Person or invest all of its investable assets in any other
open-end management investment company or otherwise invest all of its assets in
a master-feeder or fund-of-funds investment structure or any other multiple
investment company structure except that:
(a) the Borrower may sell its assets in the ordinary course of
business as described in its Prospectus and Statement of Additional Information;
(b) the Borrower may consolidate or merge with or into any other Trust
(or a series thereof), or liquidate or transfer any of its assets to a Trust (or
a series thereof) or an Affiliate of a Trust (or a series thereof) PROVIDED
THAT, in each case, (i) the Borrower shall notify the Banks in writing of its
intention to so consolidate, merge, liquidate or transfer no later than fifteen
(15) Business Days prior to the date of such proposed consolidation, merger,
liquidation or transfer, along with a revised SCHEDULE 2 hereto which gives
effect to such consolidation, merger, liquidation or transfer, (ii) all
Obligations of such Borrower shall have been paid in full on or prior to the
date of such consolidation, merger, liquidation or transfer and (iii) from and
after the date of such consolidation, merger, liquidation or transfer such
Borrower shall no longer be a Borrower under this Agreement and such Borrower
shall no longer be permitted to request any Borrowing; and
(c) the Borrower may invest all of its investable assets in a Trust (or
a series thereof) or an Affiliate of a Trust (or a series thereof), PROVIDED
THAT (i) such Borrower shall notify the
<PAGE>
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Bank in writing of its intention to so invest its assets no later than fifteen
(15) Business Days prior to the date of such proposed investment, (ii) all
Obligations of such Borrower shall have been paid in full on or prior to the
date of such investment, and (iii) from and after the date of such investment
such Borrower shall no longer be a Borrower under this Agreement and such
Borrower shall no longer be permitted to request any Borrowing.
SECTION 5.10. USE OF PROCEEDS. The proceeds of the Loans made
under this Agreement to the Borrower will be used by the Borrower solely for
temporary or emergency purposes, including funding redemptions of its shares of
capital stock or beneficial interests.
SECTION 5.11. RATIO OF DEBT TO NET ASSETS. The Borrower will
not permit, at any time, the aggregate amount of its Debt to exceed 33-1/3% of
its Net Assets.
SECTION 5.12. COMPLIANCE WITH REGISTRATION STATEMENT. The
Borrower will at all times comply in all material respects with the investment
objectives, limitations and policies set forth in its Prospectus and Statement
of Additional Information, and will not make any investment, loan, advance or
extension of credit inconsistent with those investment objectives, limitations
or policies. The Borrower will not permit its investment objective or any
fundamental policy or its diversified status (if it is diversified) to be
changed from those in effect on the Effective Date (or, with respect to each
Additional Trust or Additional Series which becomes a Trust or a Series
hereunder, on the date such Additional Trust or Additional Series becomes a
Trust or a Series hereunder) and reflected in its Prospectus and Statement of
Additional Information delivered to the Bank on the Effective Date (or, with
respect to each Additional Trust or Additional Series, on the date such Trust or
Additional Series becomes a Trust or a Series hereunder).
SECTION 5.13. NON-AFFILIATION WITH BANK. The Borrower will not
at any time become an Affiliated Person of the Bank or any Affiliate of the Bank
known to the Borrower and the Borrower will use its best efforts to ensure that
none of its Affiliates is or becomes an Affiliated Person of the Bank or any
Affiliate of the Bank known to the Borrower.
SECTION 5.14. DEPOSIT ACCOUNT. The Borrower shall specify a
deposit account with its Custodian in which Loans shall be deposited.
SECTION 5.15. REGULATED INVESTMENT COMPANY. The Borrower will
maintain its status as a "regulated investment company" under the Internal
Revenue Code at all times and will make sufficient distributions to qualify to
be taxed as a "regulated investment company" pursuant to subchapter M of the
Internal Revenue Code.
SECTION 5.16. NO SUBSIDIARY. The Borrower will not have at any
time any Subsidiary.
SECTION 5.17. ERISA. The Borrower will not become a member of
any ERISA Group and will not incur any liability in respect of any Benefit
Arrangement, Plan or Multiemployer Plan subject to ERISA.
SECTION 5.18. DISTRIBUTIONS. The Borrower will not make any
Distribution to any of its shareholders if a Default or Event of Default has
occurred and is continuing with respect to such Borrower or will result from
such Distribution, PROVIDED THAT the Borrower shall at all times be permitted to
make Distributions that are required to enable it to maintain its status as a
"regulated investment company" under subchapter M of the Internal Revenue Code.
<PAGE>
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ARTICLE VI
DEFAULTS
SECTION 6.01. EVENTS OF DEFAULT. If one or more of the
following events ("Events of Default") shall have occurred and be continuing
with respect to any Borrower:
(a) such Borrower shall fail to pay any principal of any Loan to such
Borrower when the same shall become due and payable or such Borrower shall fail
to pay any interest on any Loan to such Borrower, any fees or any other amount
payable by such Borrower hereunder;
(b) such Borrower shall fail to observe or perform any covenant
contained in Article V, or if the Borrower is a Trust acting on behalf of one or
more of its Series, the Trust shall fail to comply with Section 5.04 hereof;
(c) such Borrower shall fail to observe or perform any covenant or
agreement contained in this Agreement or in any other Loan Document (other than
those covered by clause (a) or (b) above) for ten (10) days after written notice
thereof has been given to such Borrower by the Bank;
(d) any representation, warranty, certification or statement made (or
deemed made) by such Borrower as to itself or, if such Borrower is a Trust
acting on behalf of one or more of its Series, as to such Trust, in this
Agreement, any other Loan Document or in any certificate, financial statement or
other document delivered pursuant to this Agreement or any other Loan Document
shall prove to have been incorrect in any material respect when made (or deemed
made);
(e) such Borrower shall fail to pay any Debt of the Borrower when due
or within any applicable grace period;
(f) any event or condition shall occur which results in the
acceleration of the maturity of any Debt of such Borrower or enables (or, with
the giving of notice or lapse of time or both, would enable) the holder of such
Debt or any Person acting on such holder's behalf to accelerate the maturity
thereof;
(g) such Borrower, or if the Borrower is a Trust acting on behalf of
one or more of its Series, such Trust, shall seek the appointment of a trustee,
receiver, liquidator, custodian or other similar official for it or any of its
Series or any substantial part of its property or the property of any of its
Series, or shall commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself or any of its
Series or its or any of its Series' debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator or other similar official for it or any
substantial part of its property or the property of any of its Series, or shall
consent to any such relief or to the appointment of or taking possession by any
such official in an involuntary case or other proceeding commenced against it or
against any of its Series or such Borrower or such Trust or any of its Series
shall make a general assignment for the benefit of creditors, or shall fail
generally to pay its debts as they become due, or shall take any action to
authorize any of the foregoing;
(h) an involuntary case or other proceeding shall be commenced against
such Borrower or, if the Borrower is a Trust acting on behalf of one or more of
its Series, such Trust, seeking liquidation, reorganization or other relief with
respect to it or any of its Series or its or any of its Series' debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar
<PAGE>
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official of it or any of its Series and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of 60 days; or an
order for relief shall be entered against the Borrower or such Trust or any of
its Series under the federal bankruptcy laws as now or hereafter in effect;
(i) a judgment or order for the payment of money in excess of $500,000
shall be rendered against such Borrower and such judgment or order shall
continue unsatisfied and unstayed for a period of ten (10) days; or
(j) any investment advisory agreement or management agreement which is
in effect on the Effective Date (or, with respect to each Additional Trust or
Additional Series which becomes a Trust or a Series hereunder, on the date such
Additional Trust or Additional Series becomes a Trust or a Series hereunder) for
the Borrower shall terminate, or the Investment Adviser shall cease to be the
investment adviser to the Borrower;
then, and in every such event, the Bank may by notice to the defaulting Borrower
terminate the Commitment as to that Borrower, and it shall thereupon terminate,
and by notice to the defaulting Borrower declare the Loans to such Borrower
(together with accrued interest thereon) to be, and such Loans (together with
accrued interest thereon) shall thereupon become, immediately due and payable
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by the Borrowers; PROVIDED that in the case of any of the
Events of Default specified in clause (g) or (h) above, automatically without
any notice to the defaulting Borrower or any other act by the Bank, the
Commitment shall thereupon terminate as to the defaulting Borrower and the Loans
to the defaulting Borrower (together with accrued interest thereon) shall become
immediately due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby waived by the Borrowers.
Notwithstanding any provision of this Agreement to the contrary, (i) a
Trust Default or a Trust Event of Default with respect to a Trust acting on
behalf of one or more of its Series shall constitute a Default or an Event of
Default, as the case may be, with respect to all Series of that Trust, and (ii)
except as provided in the preceding clause (i) if there occurs any Default or
Event of Default solely with respect to a particular Borrower, such Default or
Event of Default shall not constitute, in and of itself, a Default or an Event
of Default with respect to any other Borrower and shall not permit the Bank to
terminate the Commitment or exercise any of its other remedies as to any other
Borrower.
ARTICLE VII
CHANGE IN CIRCUMSTANCES
SECTION 7.01. INCREASED COST AND REDUCED RETURN. (a) If any
applicable law, rule or regulation, or any new law, rule or regulation, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Bank (or its Lending Office) with
any request or directive (whether or not having the force of law) of any such
authority, central bank or comparable agency in connection therewith:
(i) shall subject the Bank (or its Lending Office) to any tax, duty or
other charge with respect to its Loans, its Note or its Commitment, or shall
change the basis of taxation of payments to the Bank (or its Lending Office) of
the principal of or interest on its Loans or any other amounts due under this
Agreement or its Commitment, in each case except for any tax on, or changes in
the rate of tax on the overall net income of the Bank or its Lending Office
<PAGE>
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imposed by the jurisdiction in which the Bank's principal executive office or
Lending Office is located; or
(ii) shall impose, modify or deem applicable any reserve (including,
without limitation, any such requirement imposed by the Board of Governors of
the Federal Reserve System), special deposit, insurance assessment or similar
requirement against assets of, deposits with or for the account of, or credit
extended by, the Bank (or its Lending Office) or shall impose on the Bank (or
its Lending Office) any other condition affecting its Loans, its Note or its
Commitment;
and the result of any of the foregoing is to increase the cost to the Bank (or
its Lending Office) of making or maintaining any Loan to any Borrower, or to
reduce the amount of any sum received or receivable by the Bank (or its Lending
Office) from any Borrower under this Agreement or under its Note with respect
thereto, by an amount deemed by the Bank to be material, then, upon demand by
the Bank and delivery to such Borrower of the certificate required by clause (c)
hereof, such Borrower shall pay to the Bank such additional amount or amounts as
will compensate the Bank for such increased cost or reduction.
(b) If the Bank shall determine that any change in any
existing applicable law, rule or regulation or any new law, rule or regulation,
regarding capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or any new request or directive of general applicability regarding
capital adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency, has or would have the effect of reducing the
rate of return on capital of the Bank (or its parent corporation) as a
consequence of such Bank's obligations hereunder to a level below that which the
Bank (or its parent corporation) could have achieved but for such law, change,
request or directive (taking into consideration its policies with respect to
capital adequacy) by an amount deemed by the Bank to be material, then from time
to time, upon demand by the Bank, each Borrower shall pay to the Bank such
additional amount or amounts as will compensate the Bank (or its parent
corporation) for such reduction.
(c) The Bank will promptly notify each Borrower of any event
of which it has knowledge, occurring after the date hereof, which will entitle
the Bank to compensation pursuant to this Section and will designate a different
Lending Office if such designation will avoid the need for, or reduce the amount
of, such compensation and will not, in the judgment of the Bank, be otherwise
disadvantageous to the Bank. A certificate of any Bank claiming compensation
under this Section and setting forth the additional amount or amounts to be paid
to it hereunder and the calculations used in determining such additional amount
or amounts shall be conclusive in the absence of manifest error. In determining
such amount, the Bank may use any reasonable averaging and attribution methods.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. NOTICES. All notices, requests, consents and
other communications to any party hereunder shall be in writing (including
facsimile transmission or similar writing) and shall be given to such party at
its address or facsimile number set forth on SCHEDULE 1 attached hereto. Each
such notice, request, consent or other communication shall be effective (a) if
given by facsimile, when such facsimile is transmitted to the facsimile number
specified in this Section and the appropriate confirmation is received, (b) if
given by mail, 72 hours after such communication is deposited in the mails with
first class postage prepaid, addressed as aforesaid or (c) if given by any other
means, when delivered at the address specified in this Section.
<PAGE>
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SECTION 8.02. NO WAIVERS. No failure or delay by any party
hereunder in exercising any right, power or privilege hereunder or under the
Note shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein provided shall
be cumulative and not exclusive of any rights or remedies provided by law.
SECTION 8.03. EXPENSES; DOCUMENTARY TAXES; INDEMNIFICATION.
(a) Each Borrower, severally and not jointly, agrees to pay (i) all reasonable
out-of-pocket expenses of the Bank and its Affiliates, including the fees and
disbursements of special counsel for the Bank, in connection with the
preparation, negotiation and closing of this Agreement and the other Loan
Documents any waiver or consent hereunder or any amendment hereof, any waiver of
any Default or Event of Default or alleged Default or Event of Default
hereunder, and any termination hereof, and (ii) if a Default or an Event of
Default occurs, all reasonable out-of-pocket expenses incurred by the Bank and
its Affiliates, including fees and disbursements of counsel (including
reasonable allocated costs of in-house counsel), in connection with such Default
or Event of Default and collection, bankruptcy, insolvency and other enforcement
proceedings resulting therefrom PROVIDED, HOWEVER, that any such amounts payable
in connection with a Default or Event of Default by a particular Borrower or
arising out of or relating to the Loans made to a particular Borrower shall only
be payable out of the assets of such Borrower and no other Borrower. Each
Borrower, severally and not jointly, agrees to indemnify the Bank against any
transfer taxes, documentary taxes, assessments or charges made by any
governmental authority by reason of the execution and delivery of this Agreement
or the Note. All amounts to be paid pursuant to this clause (a) (other than
pursuant to clause (ii) of the first sentence of this clause (a)) shall be paid
by the Borrowers PRO RATA based on the relative asset size of each such Borrower
as of the first day of each calendar quarter or based on such other method as
the Boards of Directors or Boards of Trustees, as applicable, of the Trust(s)
shall determine with prior written notice to the Bank.
(b) Each Borrower agrees to indemnify the Bank and its
Affiliates and hold the Bank and its Affiliates harmless from and against any
and all liabilities, losses, damages, costs and expenses of any kind, including,
without limitation, the reasonable fees and disbursements of counsel, which may
be incurred by the Bank or any of its Affiliates in connection with any
investigative, administrative or judicial proceeding (whether or not the Bank or
its Affiliate shall be designated a party thereto) relating to or arising out of
this Agreement or the other Loan Documents or any actual or proposed use of the
proceeds of the Loans, PROVIDED that the Bank and its Affiliates shall not have
the right to be indemnified hereunder for their own gross negligence or willful
misconduct as finally determined by a court of competent jurisdiction.
SECTION 8.04. SET OFF. Regardless of the adequacy of any
collateral, during the continuance of any Event of Default as to a particular
Borrower, any deposits or other sums credited by or due from the Bank solely to
that Borrower, and any securities or other property of that Borrower in the
possession of the Bank may be applied to or set off by the Bank against the
payment of that Borrower's Obligations and any and all other liabilities,
direct, or indirect, absolute or contingent, due or to become due, now existing
or hereafter arising, of that Borrower to the Bank.
SECTION 8.05. AMENDMENTS AND WAIVERS. Any provision of this
Agreement or the Note or any of the other Loan Documents may be amended or
waived if, but only if, such amendment or waiver is in writing and is signed by
the Borrowers and the Bank.
SECTION 8.06. SUCCESSORS AND ASSIGNS. (a) The provisions of
this Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns, except that no Borrower may
assign or otherwise transfer any of its rights under this Agreement without the
prior written consent of the Bank.
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(b) The Bank may at any time assign all or any portion of its
rights under this Agreement and the Note to a Federal Reserve Bank. No such
assignment shall release the Bank from its obligations hereunder.
SECTION 8.07. GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS
AGREEMENT AND EACH OF THE OTHER LOAN DOCUMENTS ARE CONTRACTS UNDER THE LAWS OF
THE COMMONWEALTH OF MASSACHUSETTS AND SHALL FOR ALL PURPOSES BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID COMMONWEALTH OF MASSACHUSETTS
(EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). EACH BORROWER
AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS
OR ANY FEDERAL COURT SITTING THEREIN AND CONSENTS TO THE NONEXCLUSIVE
JURISDICTION OF SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING
MADE UPON SUCH BORROWER BY MAIL AT THE ADDRESS SPECIFIED IN SECTION 8.01. EACH
BORROWER HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE
VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN
INCONVENIENT COURT.
SECTION 8.08. COUNTERPARTS; INTEGRATION. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement and each of the other Loan Documents constitute the
entire agreement and understanding among the parties hereto and supersede any
and all prior agreements and understandings, oral or written, relating to the
subject matter hereof. The provisions of this Agreement are severable and if any
one clause or provision hereof shall be held invalid or unenforceable in whole
or in part in any jurisdiction, then such invalidity or unenforceability shall
affect only such clause or provision, or part thereof, in such jurisdiction, and
shall not in any manner affect such clause or provision in any other
jurisdiction, or any other clause or provision of this Agreement in any
jurisdiction.
SECTION 8.09. WAIVER OF JURY TRIAL. EACH BORROWER AND THE BANK
HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
[Signature page follows.]
<PAGE>
-23-
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as an agreement under seal by their respective
authorized officers as of the day and year first above written.
NICHOLAS APPLEGATE INSTITUTIONAL FUNDS, on
behalf of each of its series Convertible
Fund, Large Cap Growth Fund, Mid Cap Growth
Fund, Small Cap Growth Fund, Mini Cap Growth
Fund, Value Fund, High Quality Bond Fund,
High Yield Bond Fund, Short Intermediate
Fixed Income Fund, Emerging Countries Fund,
Global Blue Chip Fund, Global Growth &
Income Fund, Global Healthcare Fund, Global
Technology Fund, International Core Growth
Fund, International Small Cap Growth Fund,
Latin America Fund, Pacific Rim Fund,
Worldwide Growth Fund
By:________________________________
Title:
BANKBOSTON, N.A.
By:________________________________
Title:
<PAGE>
SCHEDULE 1
----------
SERIES:
TRUST:
NICHOLAS APPLEGATE INSTITUTIONAL - Convertible Fund
FUNDS - Large Cap Growth Fund
- Mid Cap Growth Fund
Address: 600 West Broadway, 30th Floor - Small Cap Growth Fund
San Diego, California 92101 - Mini Cap Growth Fund
Tel: - Value Fund
Fax: - High Quality Bond Fund
- High Yield Bond Fund
Jurisdiction of Incorporation: - Short Intermediate Fixed Income Fund
Delaware business trust - Emerging Countries Fund
- Global Blue Chip Fund
- Global Growth & Income Fund
- Global Healthcare Fund
- Global Technology Fund
- International Core Growth Fund
- Latin America Fund
- Pacific Rim Fund
- Worldwide Growth Fund
BANK:
BANKBOSTON, N.A.
Lending Office:
100 Federal Street
Boston, Massachusetts 02110
Telecopy Number: (617) 434-1096
Attention: Matthew Steinaway, Director
<PAGE>
EXHIBIT A
FORM OF NOTE
$30,000,000 ____________, 1999
FOR VALUE RECEIVED, each of the undersigned, on behalf of itself or, if
such Trust has divided its assets into series or portfolios, on behalf of each
particular Series listed on the signature pages hereto (the undersigned, on
behalf of itself or each such particular Series, as applicable, shall be
referred to herein as a "Borrower") hereby promises to pay to the order of
BANKBOSTON, N.A. (the "Bank") at the head office of the Bank at 100 Federal
Street, Boston, Massachusetts 02110:
(a) prior to or on the Termination Date, the principal amount
of THIRTY MILLION DOLLARS ($30,000,000) or, if less, the aggregate
unpaid principal amount of Loans advanced by the Bank to such Borrower
pursuant to the Credit Agreement dated as of ________, 1999 (as amended
and in effect from time to time, the "Credit Agreement"), among the
undersigned and the Bank;
(b) the principal outstanding hereunder to such Borrower from
time to time at the times provided in the Credit Agreement; and
(c) interest on the principal balance hereof from time to time
outstanding to such Borrower from the Effective Date (as defined in the
Credit Agreement) through and including the maturity date hereof at the
times and at the rates provided in the Credit Agreement.
This Note evidences borrowings under and has been issued by each of the
Borrowers in accordance with the terms of the Credit Agreement. The Bank and any
holder hereof is entitled to the benefits of the Credit Agreement and the other
Loan Documents, and may enforce the agreements of each of the Borrowers
contained therein, and any holder hereof may exercise the respective remedies
provided for thereby or otherwise available in respect thereof, all in
accordance with the respective terms thereof. The obligations of each Borrower
hereunder are of that Borrower only and not of any other Borrower. All
capitalized terms used in this Note and not otherwise defined herein shall have
the same meanings herein as in the Credit Agreement.
Each Borrower irrevocably authorizes the Bank to make or cause to be
made, at or about the date of any Loan to such Borrower or at the time of
receipt of any payment of principal of this Note from such Borrower, an
appropriate notation on the grid attached to this Note, or the continuation of
such grid, or any other similar record, including computer records, reflecting
the making of such Loan or (as the case may be) the receipt of such payment. The
outstanding amount of the Loans to any Borrower set forth on the grid attached
to this Note, or the continuation of such grid, or any other similar record,
including computer records, maintained by the Bank with respect to any Loans
shall be PRIMA FACIE evidence of the principal amount thereof owing and unpaid
to the Bank, but the failure to record, or any error in so recording, any such
amount on any such grid, continuation or other record shall not limit or
otherwise affect the obligation of such Borrower hereunder or under the Credit
Agreement to make payments of principal of and interest on this Note when due.
Each Borrower has the right in certain circumstances and the obligation
under certain other circumstances to prepay the whole or part of the principal
of this Note on the terms and conditions specified in the Credit Agreement.
<PAGE>
-2-
If any one or more of the Events of Default shall occur with respect to
any Borrower, the entire unpaid principal amount of this Note outstanding to
such Borrower and all of the unpaid interest accrued thereon may become or be
declared due and payable in the manner and with the effect provided in the
Credit Agreement.
No delay or omission on the part of the Bank or any holder hereof in
exercising any right hereunder shall operate as a waiver of such right or of any
other rights of the Bank or such holder, nor shall any delay, omission or waiver
on any one occasion be deemed a bar or waiver of the same or any other right on
any further occasion.
Each Borrower and every endorser and guarantor of this Note or the
obligation represented hereby waives presentment, demand, notice, protest and
all other demands and notices in connection with the delivery, acceptance,
performance, default or enforcement of this Note, and assents to any extension
or postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of collateral and to the addition or release
of any other party or person primarily or secondarily liable.
THIS NOTE AND THE OBLIGATIONS OF EACH BORROWER HEREUNDER SHALL FOR ALL
PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE
COMMONWEALTH OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR
CHOICE OF LAW). EACH BORROWER AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS
NOTE MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY
FEDERAL COURT SITTING THEREIN AND CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF
SUCH COURT AND THE SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON SUCH
BORROWER BY MAIL AT THE ADDRESS SPECIFIED IN SECTION 8.01 OF THE CREDIT
AGREEMENT. EACH BORROWER HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT
IS BROUGHT IN AN INCONVENIENT COURT.
<PAGE>
-3-
IN WITNESS WHEREOF, the undersigned has caused this Note to be signed
in its name by its duly authorized officer on behalf of each Borrower as of the
day and year first above written.
NICHOLAS APPLEGATE INSTITUTIONAL FUNDS, on
behalf of each of its series Convertible
Fund, Large Cap Growth Fund, Mid Cap Growth
Fund, Small Cap Growth Fund, Mini Cap Growth
Fund, Value Fund, High Quality Bond Fund,
High Yield Bond Fund, Short Intermediate
Fixed Income Fund, Emerging Countries Fund,
Global Blue Chip Fund, Global Growth &
Income Fund, Global Healthcare Fund, Global
Technology Fund, International Core Growth
Fund, International Small Cap Growth Fund,
Latin America Fund, Pacific Rim Fund,
Worldwide Growth Fund
By:________________________________
Title:
<PAGE>
<TABLE>
<CAPTION>
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Amount of Balance of
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Date Borrower of Loan or Prepaid Unpaid Made By:
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</TABLE>
<PAGE>
EXHIBIT B
FORM OF
NOTICE OF BORROWING
DATE:
-----------------------------------
TO: BankBoston, N.A.
ATTN:
-----------------------------------
FROM: [Trust] [on behalf of its Series __________] (the "Borrower")
In connection with the Credit Agreement currently in effect with you,
please increase the outstanding balance of Loans as indicated below. The Loans
should be recorded on the books of the Borrower as a liability of the Borrower
to the Bank and interest payable to the Bank should be recorded at the agreed
upon rate.
<TABLE>
<S> <C>
(a) Date of proposed Borrowing: ___________________________________
(b) Amount of Loan requested: $__________________________________
(c) Cumulative Loans to this
Borrower (after this Loan): $__________________________________
(d) Aggregate Debt of the Borrower: $__________________________________
(e) Net Assets of the Borrower: $__________________________________
(f) Ratio of Debt to Net Assets: ___________________________________%
(g) Maximum Loans permitted
to this Borrower: $__________________________________
(h) Aggregate Loans outstanding
to all Borrowers (after this Loan): $__________________________________
(i) Commitment Amount: $__________________________________
________________________________
Authorized Signature
</TABLE>
Wire to:
_____________________________
_____________________________
_____________________________
<PAGE>
EXHIBIT C
Text of Borrowers' Counsel Opinion
1. The Trust is a Delaware business trust duly organized and validly
existing and authorized to transact business under the laws of the State of
Delaware. The Trust is an open-end management investment company registered as
such under the Investment Company Act and the outstanding shares of each class
of its stock (a) have been duly issued and are fully paid and non-assessable,
(b) have been duly registered under the Securities Act of 1933, as amended and
(c) have been issued pursuant to all filings required to be made under State
securities or so-called "Blue Sky" laws. The Trust has the power and authority
to own its properties and to carry on its business as presently conducted, and
is qualified to do business in those jurisdictions in which its ownership of
property or the nature of its business activities is such that failure to
receive or retain such qualification would have a material adverse effect upon
the business, operations or condition (financial or otherwise) of the Trust or
any of its Series.
2. Each Series of the Trust has been duly established as a separate
series of the Trust, and its assets and liabilities are segregated from the
assets and liabilities of each other Series of the Trust.
3. Each of the Borrowers has all trust power and authority necessary to
execute and deliver the Agreement and the Note, to make the borrowings provided
for therein and to perform its obligations under the Agreement and the Note. All
such action has been duly authorized by all necessary proceedings on each of
such Borrower's part.
4. The Agreement and the Note have each been duly and validly executed
and delivered by each Borrower which is a party thereto. The Agreement
constitutes the legal, valid and binding agreement of each Borrower, and the
Note constitute the legal, valid and binding obligation of each Borrower, in
each case enforceable against such Borrower in accordance with their terms.
5. There is no pending or threatened litigation, governmental
proceeding, inquiry or investigation by or against any Borrower which involves
or could involve any material adverse effect on the business, operations,
prospects or condition (financial or otherwise) of that Borrower.
6. Neither the execution and delivery of the Agreement and the Note by
each Borrower, the consummation of the transactions contemplated therein nor the
compliance by each Borrower with the terms and provisions thereof will conflict
with or result in a breach of any of the terms, conditions or provisions of the
declaration of trust or by-laws of the Trust, any existing Federal, Delaware or
Massachusetts law, rule or regulation, the most recent Prospectus or Statement
of Additional Information of any such Borrower, or any agreement or instrument
to which any such Borrower is a party or by which it is bound or to which it is
subject, or constitute a default thereunder or result in the creation or
imposition of any lien of any nature whatsoever upon any of the property of any
such Borrower pursuant to the terms of any such agreement or instrument.
7. No authorization, consent, approval, license, exemption or other
action by, and no registration, qualification, designation, declaration or
filing with, any Federal, Massachusetts or Delaware official body is or will be
necessary or advisable in connection with the execution and delivery of the
Agreement or the Note, consummation of the transactions contemplated therein, or
performance of or compliance with the terms and conditions thereof.
<PAGE>
-2-
8. The execution, delivery and performance by each Borrower of the
Agreement and the Note and the transactions contemplated thereunder are exempt
from and not subject to any limitations under Regulation U or Regulation X of
the Board of Governors of the Federal Reserve System.
<PAGE>
EXHIBIT (h)(11)
[LOGO] MASTER SECURITIES
LOAN AGREEMENT
----------------------------------------------------------------------
Dated as of July 22, 1999
-----------------------------------------------------------------------
Between Goldman, Sachs & Co.
-----------------------------------------------------------------------
and Nicholas|Applegate Institutional Fund, as listed in Annex I
-----------------------------------------------------------------------
This Agreement sets forth the terms and conditions under which one party
("Lender") may, from time to time, lend to the other party ("Borrower")
certain securities against a pledge of collateral. Capitalized terms not
otherwise defined herein shall have the meanings provided in Section 26.
The parties hereto agree as follows:
1. LOANS OF SECURITIES.
1.1 Subject to the terms and conditions of this Agreement, Borrower
or Lender may, from time to time, orally seek to initiate a
transaction in which Lender will lend securities to Borrower.
Borrower and Lender shall agree orally on the terms of each
Loan, including the issuer of the securities, the amount of
securities to be lent, the basis of compensation, and the amount
of Collateral to be transferred by Borrower, which terms may be
amended during the Loan.
1.2 Notwithstanding any other provision in this Agreement regarding
when a Loan commences, a Loan hereunder shall not occur until
the Loaned Securities and the Collateral therefor have been
transferred in accordance with Section 16.
1.3 WITHOUT WAIVING ANY RIGHTS GIVEN TO LENDER HEREUNDER, IT IS
UNDERSTOOD AND AGREED THAT THE PROVISIONS OF THE SECURITIES
INVESTOR PROTECTION ACT OF 1970 MAY NOT PROTECT LENDER WITH
RESPECT TO LOANED SECURITIES HEREUNDER AND THAT, THEREFORE, THE
COLLATERAL DELIVERED TO LENDER MAY CONSTITUTE THE ONLY SOURCE OF
SATISFACTION OF BORROWER'S OBLIGATIONS IN THE EVENT BORROWER
FAILS TO RETURN THE LOANED SECURITIES.
2. TRANSFER OF LOANED SECURITIES.
2.1 Unless otherwise agreed, Lender shall transfer Loaned Securities
to Borrower hereunder on or before the Cutoff Time on the date
agreed to by Borrower and Lender for the commencement of the
Loan.
<PAGE>
2.2 Unless otherwise agreed, Borrower shall provide Lender, in each
Loan in which Lender is a Customer, with a schedule and receipt
listing the Loaned Securities. Such schedule and receipt may
consist of (a) a schedule provided to Borrower by Lender and
executed and returned by Borrower when the Loaned Securities are
received, (b) in the case of securities transferred through a
Clearing Organization which provides transferors with a notice
evidencing such transfer, such notice, or(C)a confirmation or
other document provided to Lender by Borrower.
3. COLLATERAL.
3.1 Unless otherwise agreed, Borrower shall, prior to or
concurrently with the transfer of the Loaned Securities to
Borrower, but in no case later than the close of business on the
day of such transfer, transfer to Lender Collateral with a
market value at least equal to a percentage of the market value
of the Loaned Securities agreed to by Borrower and Lender (which
shall be 102% of the market value of the Loaned Securiies for
domestic securities and 105% of the market value of the Loaned
Securities for international securities) (the "Margin
Percentage").
3.2 The Collateral transferred by Borrower to Lender, as adjusted
pursuant to Section 8, shall be security for Borrower's
obligations in respect of such Loan and for any other
obligations of Borrower to Lender. Borrower hereby pledges with,
assigns to, and grants Lender a continuing first security
interest in, and a lien upon, the Collateral, which shall attach
upon the transfer of the Loaned Securities by Lender to Borrower
and which shall cease upon the transfer of the Loaned Securities
by Borrower to Lender. In addition to the rights and remedies
given to Lender hereunder, Lender shall have all the rights and
remedies of a secured party under the New York Uniform
Commercial Code. It is understood that Lender may use or invest
the Collateral, if such consists of cash, at its own risk, but
that (unless Lender is a Broker-Dealer) Lender shall, during the
term of any Loan hereunder, segregate Collateral from all
securities or other assets in its possession. Lender may pledge,
re-pledge, hypothecate, re-hypothecate, lend, re-lend, sell or
otherwise transfer the Collateral, or re- register Collateral
evidenced by physical certificates in any name other than
Borrower's, only (a) if Lender is Broker-Dealer or (b) in the
event of a Default by Borrower. Segregation of Collateral may be
accomplished by appropriate identification on the books and
records of Lender if it is a "financial intermediary" or a
"clearing corporation" within the meaning of the New York
Uniform Commercial Code.
3.3 Except as otherwise provided herein, upon transfer to Lender of
the Loaned Securities on the day a Loan is terminated pursuant
to Section 5, Lender shall be obligated to transfer the
Collateral (as adjusted pursuant to Section 8) to Borrower no
later than the Cutoff Time on such day or, if such day is not a
day on which a transfer of such Collateral may be effected under
Section 16, the next day on which such a transfer may be
effected.
3.4 If Borrower transfers Collateral to Lender, as provided in
Section 3.1, and Lender does not transfer the Loaned Securities
to Borrower, Borrower shall have the absolute right to the
return of the Collateral; and if Lender transfers Loaned
Securities to Borrower and Borrower does not transfer Collateral
to Lender as provided in Section 3.1, Lender shall have the
absolute right to the return of the Loaned Securities.
3.5 Borrower may, upon reasonable notice to Lender (taking into
account all relevant factors, including industry practice, the
type of Collateral to be substituted and the applicable method
of transfer), substitute Collateral for Collateral securing any
Loan or Loans; provided, however, that such substituted
Collateral shall (a) consist only of cash, securities or other
property that Borrower and Lender agreed would be acceptable
Collateral prior to the Loan or Loans and (b) have a market
value such that the aggregate market value of such substituted
Collateral, together with all other Collateral for Loans in
which the party
2
<PAGE>
substituting such Collateral is acting as Borrower, shall equal
or exceed the agreed upon Margin Percentage of the market value
of the Loaned Securities. Prior to the expiration of any letter
of credit supporting Borrower's obligations hereunder, Borrower
shall, no later than the Cutoff Time on the date such letter of
credit expires, obtain an extension of the expiration of such
letter of credit or replace such letter of credit by providing
Lender with a substitute letter of credit in an amount at least
equal to the amount of the letter of credit for which it is
substituted.
3.6 Lender acknowledges that, in connection with Loans of Government
Securities and as otherwise permitted by applicable law, some
securities provided by Borrower as Collateral under this
Agreement may not be guaranteed by the United States.
4. FEES FOR LOAN.
4.1 Unless otherwise agreed, (a) Borrower agrees to pay Lender a
loan fee (a "Loan Fee"), computed daily on each Loan to the
extent such Loan is secured by Collateral other than cash, based
on the aggregate par value (in the case of Loans of Government
Securities) or the aggregate market value (in the case of all
other Loans) of the Loaned Securities on the day for which such
Loan Fee is being computed, and (b) Lender agrees to pay
Borrower a fee or rebate (a "Cash Collateral Fee") on Collateral
consisting of cash, computed daily based on the amount of cash
held by Lender as Collateral, in the case of each of the Loan
Fee and the Cash Collateral Fee at such rates as Borrower and
Lender may agree. Except as Borrower and Lender may otherwise
agree (in the event that cash Collateral is transferred by
clearing house funds or otherwise), Loan Fees shall accrue from
and including the date on which the Loaned Securities are
transferred to Borrower to, but excluding, the date on which
such Loaned Securities are returned to Lender, and Cash
Collateral Fees shall accrue from and including the date on
which the cash Collateral is transferred to Lender to, but
excluding, the date on which such cash Collateral is returned to
Borrower.
4.2 Unless otherwise agreed, any Loan Fee or Cash Collateral Fee
payable hereunder shall be payable:
(a) in the case of any Loan of securities other than Government
Securities, upon the earlier of (i) the fifteenth day of the
month following the calendar month in which such fee was
incurred or (ii) the termination of all Loans hereunder (or, if
a transfer of cash in accordance with Section 16 may not be
effected on such fifteenth day or the day of such termination,
as the case may be, the next day on which such a transfer may be
effected); and
(b) in the case of any Loan of Government Securities, upon the
termination of such Loan.
Notwithstanding the foregoing, all Loan Fees shall be payable by
Borrower immediately in the event of a Default hereunder by
Borrower and all Cash Collateral Fees shall be payable
immediately by Lender in the event of a Default by Lender.
5. TERMINATION OF THE LOAN.
Unless otherwise agreed, (a) Borrower may terminate a Loan on any
Business Day by giving notice to Lender and transferring the Loaned
Securities to Lender before the Cutoff Time on such Business Day, and
(b) Lender may terminate a Loan on a termination date established by
notice given to Borrower prior to the close of business on a Business
Day. The termination date established by a termination notice given by
Lender to Borrower shall be a date no earlier than the standard
settlement date for trades of the Loaned Securities entered into on the
date of such notice, which date shall, unless Borrower and Lender agree
to the contrary, be (i) in the case of Government Securities, the next
Business Day following such notice and (ii) in the case of all other
3
<PAGE>
securities, the third Business Day following such notice. Unless
otherwise agreed, Borrower shall, on or before the Cutoff Time on the
termination date of a Loan, transfer the Loaned Securities to Lender;
provided, however, that upon such transfer by Borrower, Lender shall
transfer the Collateral (as adjusted pursuant to Section 8) to Borrower
in accordance with Section 3.3.
6. RIGHTS OF BORROWER IN RESPECT OF THE LOANED SECURITIES.
Except as set forth in Sections 7.1 and 7.2 and as otherwise agreed by
Borrower and Lender, until Loaned Securities are required to be
redelivered to Lender upon termination of a Loan hereunder, Borrower
shall have all of the incidents of ownership of the Loaned Securities,
including the right to transfer the Loaned Securities to others. Lender
hereby waives the right to vote, or to provide any consent or to take
any similar action with respect to, the Loaned Securities in the event
that the record date or deadline for such vote, consent or other action
falls during the term of the Loan.
7. DIVIDENDS, DISTRIBUTIONS, ETC.
7.1 Lender shall be entitled to receive all distributions made on or
in respect of the Loaned Securities which are not otherwise
received by Lender, to the full extent it would be so entitled
if the Loaned Securities had not been lent to Borrower,
including, but not limited to: (a) cash and all other property,
(b) stock dividends, (C) securities received as a result of
split ups of the Loaned Securities and distributions in respect
thereof, (d) interest payments, and (e) all rights to purchase
additional securities.
7.2 Any cash distributions made on or in respect of the Loaned
Securities, which Lender is entitled to receive pursuant to
Section 7.1, shall be paid by the transfer of cash to Lender by
Borrower, on the date any such distribution is paid, in an
amount equal to such cash distribution, so long as Lender is not
in Default at the time of such payment. Non-cash distributions
received by Borrower shall be added to the Loaned Securities on
the date of distribution and shall be considered such for all
purposes, except that if the Loan has terminated, Borrower shall
forthwith transfer the same to Lender.
7.3 Borrower shall be entitled to receive all cash distributions
made on or in respect of non-cash Collateral which are not
otherwise received by Borrower, to the full extent it would be
so entitled if the Collateral had not been transferred to
Lender. Any distributions of cash made on or in respect of such
Collateral which Borrower is entitled to receive hereunder shall
be paid by the transfer of cash to Borrower by Lender, on the
date any such distribution is paid, in an amount equal to such
cash distribution, so long as Borrower is not in Default at the
time of such payment.
7.4 (a) Unless otherwise agreed, if (i) Borrower is required to make
a payment (a "Borrower Payment") with respect to cash
distributions on Loaned Securities under Sections 7.1 and 7.2
("Securities Distributions"), or (ii) Lender is required to make
a payment (a "Lender Payment") with respect to cash
distributions on Collateral under Section 7.3 ("Collateral
Distributions"), and (iii) Borrower or Lender, as the case may
be ("Payor"), shall be required by law to collect any
withholding or other tax, duty, fee, levy or charge required to
be deducted or withheld from such Borrower Payment or Lender
Payment ("Tax"), then Payor shall (subject to subsections (b)
and (C) below), pay such additional amounts as may be necessary
in order that the net amount of the Borrower Payment or Lender
Payment received by the Lender or Borrower, as the case may be
("Payee"), after payment of such Tax equals the net amount of
the Securities Distribution or Collateral Distribution that
would have been received if such Securities Distribution or
Collateral Distribution had been paid directly to the Payee.
4
<PAGE>
(b) No additional amounts shall be payable to a Payee under
subsection (a) above to the xtent that Tax would have been
imposed on a Securities Distribution or Collateral
Distribution paid directly to the Payee.
(c) No additional amounts shall be payable to a Payee under
subsection (a) above to the extent that such Payee is
entitled to an exemption from, or reduction in the rate of,
Tax on a Borrower Payment or Lender Payment subject to the
provision of a certificate or other documentation, but has
failed timely to provide such certificate or other
documentation.
(d) Each party hereto shall be deemed to represent that, as of
the commencement of any Loan hereunder, no Tax would be
imposed on any cash distribution paid to it with respect to
(i) Loaned Securities subject to a Loan in which it is
acting as Lender or (ii) Collateral for any Loan in which it
is acting as Borrower, unless such party has given notice to
the contrary to the other party hereto (which notice shall
specify the rate at which such Tax would be imposed). Each
party agrees to notify the other of any change that occurs
during the term of a Loan in the rate of any Tax that would
be imposed on any such cash distributions payable to it.
7.5 To the extent that, under the provisions of Sections 7.1 through
7.4 (a) a transfer of cash or other property by Borrower would
give rise to a Margin Excess (as defined in Section 8.3 below)
or (b) a transfer of cash or other property by Lender would give
rise to a Margin Deficit (as defined in Section 8.2 below),
Borrower or Lender (as the case may be) shall not be obligated
to make such transfer of cash or other property in accordance
with such Sections, but shall in lieu of such transfer
immediately credit the amounts that would have been transferable
under such Sections to the account of Lender or Borrower (as the
case may be).
8. MARK TO MARKET.
8.1 Borrower shall daily mark to market any Loan hereunder and in
the event that at the close of trading on any Business Day the
market value of the Collateral for any Loan to Borrower shall be
less than 102% of the market value of all the outstanding Loaned
Securities for domestic securities and 105% of the market value
of all the outstanding Loaned Securities for international
securities subject to such Loan, Borrower shall transfer
additional Collateral no later than the close of the next
Business Day so that the market value of such additional
Collateral, when added to the market value of the other
Collateral for such Loan, shall equal 102% or 105%, whichever is
applicable, of the market value of the Loaned Securities.
8.2 In addition to any rights of Lender under Section 8.1, in the
event that at the close of trading on any Business Day the
aggregate market value of all Collateral for Loans by Lender
shall be less than the Margin Percentage of the market value of
all the outstanding Loaned Securities subject to such Loans (a
"Margin Deficit"), Lender may, by notice to Borrower, demand
that Borrower transfer to Lender additional Collateral so that
the market value of such additional Collateral, when added to
the market value of all other Collateral for such Loans, shall
equal or exceed the agreed upon Margin Percentage of the market
value of the Loaned Securities. Unless otherwise agreed, such
transfer is to be made no later than the close of the next
Business Day following the day of Lender's notice to Borrower.
8.3 In the event that at the close of trading on any Business Day
the market value of all Collateral for Loans to Borrower shall
be greater than the Margin Percentage of the market value of all
the outstanding Loaned Securities subject to such Loans (a
"Margin Excess"), Borrower may, by notice to Lender, demand that
Lender transfer to Borrower such amount of the Collateral
selected by Borrower so that the market value of the Collateral
for such Loans,
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after deduction of such amounts, shall thereupon not exceed the
Margin Percentage of the later than the close of the next
Business Day following the day of Borrower's notice to Lender.
8.4 Borrower and Lender may agree, with respect to one or more Loans
hereunder, to mark the values to market pursuant to Sections 8.2
and 8.3 by separately valuing the Loaned Securities lent and the
Collateral given in respect thereof on a Loan-by-Loan basis.
8.5 Borrower and Lender may agree, with respect to any or all Loans
hereunder, that the respective rights of Lender and Borrower
under Sections 8.2 and 8.3 may be exercised only where a Margin
Excess or Margin Deficit exceeds a specified dollar amount or a
specified percentage of the market value of the Loaned
Securities under such Loans (which amount or percentage shall be
agreed to by Borrower and Lender prior to entering into any such
Loans).
9. REPRESENTATIONS.
Each party to this Agreement hereby makes the following representations
and warranties, which shall continue during the term of any Loan
hereunder:
9.1 Each party hereto represents and warrants that (a) it has the
power to execute and deliver this Agreement, to enter into the
Loans contemplated hereby and to perform its obligations
hereunder; (b) it has taken all necessary action to authorize
such execution, delivery and performance; and(C)this Agreement
constitutes a legal, valid and binding obligation enforceable
against it in accordance with its terms.
9.2 Each party hereto represents and warrants that the execution,
delivery and performance by it of this Agreement and each Loan
hereunder will at all times comply with all applicable laws and
regulations including those of applicable regulatory and
self-regulatory organizations.
9.3 Each party hereto represents and warrants that it has not relied
on the other for any tax or accounting advice concerning this
Agreement and that it has made its own determination as to the
tax and accounting treatment of any Loan and any dividends,
remuneration or other funds received hereunder.
9.4 Borrower represents and warrants that it is acting for its own
account. Lender represents and warrants that it is acting for
its own account unless it expressly specifies otherwise in
writing and complies with Section 10.3(b).
9.5 Borrower represents and warrants that (a) it has, or will have
at the time of transfer of any Collateral, the right to grant a
first security interest therein subject to the terms and
conditions hereof, and (b) it (or the person to whom it relends
the Loaned Securities) is borrowing or will borrow the Loaned
Securities (except for Loaned Securities that qualify as
"exempted securities" under Regulation T of the Board of
Governors of the Federal Reserve System) for the purpose of
making delivery of such securities in the case of short sales,
failure to receive securities required to be delivered, or as
otherwise permitted pursuant to Regulation T as in effect from
time to time.
9.6 Lender represents and warrants that it has, or will have at the
time of transfer of any Loaned Securities, the right to transfer
the Loaned Securities subject to the terms and conditions
hereof.
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10. COVENANTS.
10.1 Each party hereto agrees and acknowledges that (a) each Loan
hereunder is a "securities contract," as such term is defined in
Section 741(7) of Title 11 of the United States Code (the
"Bankruptcy Code"), (b) each and every transfer of funds,
securities and other property under this Agreement and each Loan
hereunder is a "settlement payment" or a "margin payment," as
such terms are used in Sections 362(b)(6) and 546(e) of the
Bankruptcy Code, and(C)the rights given to Borrower and Lender
hereunder upon a Default by the other constitute the right to
cause the liquidation of a securities contract and the right to
set off mutual debts and claims in connection with a securities
contract, as such terms are used in Sections 555 and 362(b)(6)
of the Bankruptcy Code. Each party hereto further agrees and
acknowledges that if a party hereto is an "insured depository
institution," as such term is defined in the Federal Deposit
Insurance Act, as amended ("FDIA"), then each Loan hereunder is
a "securities contract" and "qualified financial contract," as
such terms are defined in the FDIA and any rules, orders or
policy statements thereunder.
10.2 Borrower agrees to be liable as principal with respect to its
obligations hereunder.
10.3 Lender agrees either (a) to be liable as principal with respect
to its obligations hereunder or (b) to execute and comply fully
with the provisions of Annex I (the terms and conditions of
which Annex are incorporated herein and made a part hereof).
10.4 Promptly upon (and in any event within seven (7) Business Days
after) demand by Lender, Borrower shall furnish Lender with
Borrower's most recent publicly-available financial statements
and any other financial statements mutually agreed upon by
Borrower and Lender. Unless otherwise agreed, if Borrower is
subject to the requirements of Rule 17a-5(C) under the Exchange
Act, it may satisfy the requirements of this Section by
furnishing Lender with its most recent statement required to be
furnished to customers pursuant to such Rule.
10.5 Except to the extent required by applicable law or regulation or
as otherwise agreed, Borrower and Lender agree that Loans
hereunder shall in no event be "exchange con-tracts" for
purposes of the rules of any securities exchange and that Loans
hereunder shall not be governed by the buy-in or similar rules
of any such exchange, registered national securities or other
self-regulatory organization.
11. EVENTS OF DEFAULT.
All Loans hereunder may, at the option of the non-defaulting party
exercised by notice to the defaulting party (which option shall be deemed to
have been exercised, even if no notice is given, immediately upon the occurrence
of an event specified in subsection 11.5 below), be terminated immediately upon
the occurrence of any one or more of the following events (individually, a
"Default"):
11.1 if any Loaned Securities shall not be transferred to Lender upon
termination of the Loan as required by Section 5;
11.2 if any Collateral shall not be transferred to Borrower upon
termination of the Loan as required by Sections 3.3 and 5;
11.3 if either party shall fail to transfer Collateral as required by
Section 8;
11.4 if either party (i) shall fail to transfer to the other party
amounts in respect of distributions required to be transferred
by Section 7, (ii) shall have received notice of such failure
from the non-defaulting party, and (iii) shall not have cured
such default by the Cutoff Time on the
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next day after such notice on which a transfer of cash may be
effected in accordance with Section 16;
11.5 if (i) either party shall commence as debtor any case or
proceeding under any bankruptcy, insolvency, reorganization,
liquidation, dissolution or similar law, or seek the appointment
of a receiver, conservator, trustee, custodian or similar
official for such party or any substantial part of its property,
(ii) any such case or proceeding shall be commenced against
either party, or another shall seek such an appointment, or any
application shall be filed against either party for a protective
decree under the provisions of the Securities Investor
Protection Act of 1970, which (A) is consented to or not timely
contested by such party, (B) results in the entry of an order
for relief, such an appointment, the issuance of such a
protective decree or the entry of an order having a similar
effect, or (C) is not dismissed within 15 days, (iii) either
party shall make a general assignment for the benefit of
creditors, or (iv) either party shall admit in writing its
inability to pay its debts as they become due;
11.6 if either party shall have been suspended or expelled from
membership or participation in any national securities exchange
or registered national securities association of which it is a
member or other self-regulatory organization to whose rules it
is subject or if it is suspended from dealing in securities by
any federal or state government agency thereof.
11.7 if either party shall have its license, charter, or other
authorization necessary to conduct a material portion of its
business withdrawn, suspended or revoked by any applicable
federal or state government or agency thereof;
11.8 if any representation made by either party in respect of this
Agreement or any Loan or Loans hereunder shall be incorrect or
untrue in any material respect during the term of any Loan
hereunder;
11.9 if either party notifies the other, orally or in writing, of its
inability to or its intention not to perform its obligations
hereunder or otherwise disaffirms, rejects or repudiates any of
its obligations hereunder; or
11.10 if either party (i) shall fail to perform any material
obligation under this Agreement not specifically set forth in
clauses 11.1 through 11.9 above, including but not limited to
the payment of fees as required by Section 4, and the payment of
transfer taxes as required by Section 14, (ii) shall have
received notice of such failure from the non-defaulting party
and (iii) shall not have cured such failure by the Cutoff Time
on the next day after such notice on which a transfer of cash
may be effected under Section 16.
12. LENDER'S REMEDIES.
Upon the occurrence of a Default under Section 11 entitling Lender to
terminate all Loans hereunder, Lender shall have the right (without
further notice to Borrower), in addition to any other remedies provided
herein or under applicable law, (a) to purchase a like amount of Loaned
Securities ("Replacement Securities") in the principal market for such
securities in a commercially reasonable manner, (b) to sell any
Collateral in the principal market for such Collateral in a commercially
reasonable manner and (C) to apply and set off the Collateral and any
proceeds thereof (including any amounts drawn under a letter of credit
supporting any Loan) against the payment of the purchase price for such
Replacement Securities and any amounts due to Lender under Sections 4,
7, 14 and 17. In the event Lender shall exercise such rights, Borrower's
obligation to return a like amount of the Loaned Securities shall
terminate. Lender may similarly apply the Collateral and any proceeds
thereof to any other obligation of Borrower under this Agreement,
including Borrower's obligations with respect to distributions paid to
Borrower (and not forwarded to Lender) in respect of Loaned Securities.
In the event that (i) the purchase price of Replacement Securities (plus
all other amounts, if any, due to Lender hereunder) exceeds (ii) the
amount of the Collateral, Borrower shall be liable to Lender for the
amount of such excess together with interest thereon at a rate equal to
(A) in the case of purchases of Foreign Securities, LIBOR, (B) in the
case of purchases of any other securities (or other amounts, if any, due
to Lender hereunder), the Federal
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Funds Rate or (C) such other rate as may be specified in Schedule B, in
each case as such rate fluctuates from day to day, from the date of such
purchase until the date of payment of such excess. As security for
Borrower's obligation to pay such excess, Lender shall have, and
Borrower hereby grants, a security interest in any property of Borrower
then held by or for Lender and a right of setoff with respect to such
property and any other amount payable by Lender to Borrower. The
purchase price of Replacement Securities purchased under this Section 12
shall include, and the proceeds of any sale of Collateral shall be
determined after deduction of, broker's fees and commissions and all
other reasonable costs, fees and expenses related to such purchase or
sale (as the case may be). In the event Lender exercises its rights
under this Section 12, Lender may elect in its sole discretion, in lieu
of purchasing all or a portion of the Replacement Securities or selling
all or a portion of the Collateral, to be deemed to have made,
respectively, such purchase of Replacement Securities or sale of
Collateral for an amount equal to the price therefor on the date of such
exercise obtained from a generally recognized source or the most recent
closing bid quotation from such a source. Subject to Section 19, upon
the satisfaction of all obligations hereunder, any remaining Collateral
shall be returned to Borrower.
13. BORROWER'S REMEDIES.
Upon the occurrence of a Default under Section 11 entitling Borrower to
terminate all Loans hereunder, Borrower shall have the right (without
further notice to Lender), in addition to any other remedies provided
herein or under applicable law, (a) to purchase a like amount of
Collateral ("Replacement Collateral") in the principal market for such
Collateral in a commercially reasonable manner, (b) to sell a like
amount of the Loaned Securities in the principal market for such
securities in a commercially reasonable manner and (C) to apply and set
off the Loaned Securities and any proceeds thereof against (i) the
payment of the purchase price for such Replacement Collateral (ii)
Lender's obligation to return any cash or other Collateral and (iii) any
amounts due to Borrower under Sections 4, 7 and 17. In such event,
Borrower may treat the Loaned Securities as its own and Lender's
obligation to return a like amount of the Collateral shall terminate;
provided, however, that Lender shall immediately return any letters of
credit supporting any Loan upon the exercise or deemed exercise by
Borrower of its termination rights under Section 11. Borrower may
similarly apply the Loaned Securities and any proceeds thereof to any
other obligation of Lender under this Agreement, including Lender's
obligations with respect to distributions paid to Lender (and not
forwarded to Borrower) in respect of Collateral. In the event that (i)
the sales price received from such Loaned Securities is less than (ii)
the purchase price of Replacement Collateral (plus the amount of any
cash or other Collateral not replaced by Borrower and all other amounts,
if any, due to Borrower hereunder), Lender shall be liable to Borrower
for the amount of any such deficiency, together with interest on such
amounts at a rate equal to (A) in the case of Collateral consisting of
Foreign Securities, LIBOR, (B) in the case of Collateral consisting of
any other securities (or other amounts due, if any, to Borrower
hereunder), the Federal Funds Rate or (C) such other rate as may be
specified in Schedule B, in each case as such rate fluctuates from day
to day, from the date of such sale until the date of payment of such
deficiency. As security for Lender's obligation to pay such deficiency,
Borrower shall have, and Lender hereby grants, a security interest in
any property of Lender then held by or for Borrower and a right of
setoff with respect to such property and any other amount payable by
Borrower to Lender. The purchase price of any Replacement Collateral
purchased under this Section 13 shall include, and the proceeds of any
sale of Loaned Securities shall be determined after deduction of,
broker's fees and commissions and all other reasonable costs, fees and
expenses related to such purchase or sale (as the case may be). In the
event Borrower exercises its rights under this Section 13, Borrower may
elect in its sole discretion, in lieu of purchasing all or a portion of
the Replacement Collateral or selling all or a portion of the Loaned
Securities, to be deemed to have made, respectively, such purchase of
Replacement Collateral or sale of Loaned Securities for an amount equal
to the price therefor on the date of such exercise obtained from a
generally recognized source or the most recent closing bid quotation
from such a source. Subject to Section 19, upon the satisfaction of all
Lender's obligations hereunder, any remaining Loaned Securities (or
remaining cash proceeds thereof ) shall be returned to Lender. Without
limiting the foregoing, the parties hereto agree that they intend the
Loans hereunder to be loans of securities. If, however, any Loan is
deemed to be a loan of money by Borrower to Lender, then Borrower shall
have, and Lender shall be deemed to have granted, a security interest in
the Loaned Securities and the proceeds thereof.
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14. TRANSFER TAXES.
All transfer taxes with respect to the transfer of the Loaned Securities
by Lender to Borrower and by Borrower to Lender upon termination of the
Loan shall be paid by Borrower.
15. MARKET VALUE.
15.1 Unless otherwise agreed, if the principal market for the
securities to be valued is a national securities exchange in the
United States, their market value shall be determined by their
last sale price on such exchange on the preceding Business Day
or, if there was no sale on that day, by the last sale price on
the next preceding Business Day on which there was a sale on
such exchange, all as quoted on the Consolidated Tape or, if not
quoted on the Consolidated Tape, then as quoted by such
exchange.
15.2 Except as provided in Section 15.3 or 15.4 or as otherwise
agreed, if the principal market for the securities to be valued
is the over-the-counter market, their market value shall be
determined as follows. If the securities are quoted on the
National Association of Securities Dealers Automated Quotations
System ("NASDAQ"), their market value shall be the closing sale
price on NASDAQ on the preceding Business Day or, if the
securities are issues for which last sale prices are not quoted
on NASDAQ, the closing bid price on such day. If the securities
to be valued are not quoted on NASDAQ, their market value shall
be the highest bid quotation as quoted in any of The Wall Street
Journal, the National Quotation Bureau pink sheets, the Salomon
Brothers quotation sheets, quotations sheets of registered
market makers and, if necessary, dealers' telephone quotations
on the preceding Business Day. In each case, if the relevant
quotation did not exist on such day, then the relevant quotation
on the next preceding Business Day in which there was such a
quotation shall be the market value.
15.3 Unless otherwise agreed, if the securities to be valued are
Government Securities, their market value shall be the average
of the bid and ask prices as quoted on Prophesy at 3:30 P.M. New
York time on the Business Day preceding the date on which such
determination is made. If the securities are not so quoted on
such day, their market value shall be determined as of the next
preceding Business Day on which they were so quoted. If the
securities to be valued are Government Securities that are not
quoted on Prophesy, their market value shall be determined as of
the close of business on the preceding Business Day in
accordance with market practice for such securities.
15.4 Unless otherwise agreed, if the securities to be valued are
Foreign Securities, their market value shall be determined as of
the close of business on the preceding Business Day in
accordance with market practice in the principal market for such
securities.
15.5 Unless otherwise agreed, the market value of a letter of credit
shall be the undrawn amount thereof.
15.6 All determinations of market value under Sections 15.1, 15.2,
15.3 and 15.4 shall include, where applicable, accrued interest
to the extent not already included therein (other than any
interest transferred to the other party pursuant to Section 7),
unless market practice with respect to the valuation of such
securities in connection with securities loans is to the
contrary. All determinations of market value that are required
to be made at the close of trading on any Business Day pursuant
to Section 8 or otherwise hereunder shall be made as if being
determined at the commencement of trading on the next Business
Day. The determinations of market value provided for in this
Section 15 shall apply for all purposes under this Agreement,
except for purposes of Sections 12 and 13.
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16. TRANSFERS.
16.1 All transfers of securities hereunder shall be by (a) physical
delivery of certificates representing such securities together
with duly executed stock and bond transfer powers, as the case
may be, with signatures guaranteed by a bank or a member of the
New York Stock Exchange, Inc., (b) transfer on the books of a
Clearing Organization, or -C- such other means as Borrower and
Lender may agree. In every transfer of securities hereunder, the
transferor shall take all steps necessary (i) to effect a
"transfer" under Section 8-313 of the New York Uniform
Commercial Code or, where applicable, under any U.S. federal
regulation governing transfers of securities and (ii) to provide
the transferee with comparable rights under any applicable
foreign law or regulation.
16.2 All transfers of cash Collateral hereunder shall be by (a) wire
transfer in immediately available, freely transferable funds or
(b) such other means as Borrower and Lender may agree. All other
transfers of cash hereunder shall be made in accordance with the
preceding sentence or by delivery of a certified or official
bank check representing next-day New York Clearing House Funds.
16.3 All transfers of a letter of credit from Borrower to Lender
shall be made by physical delivery to Lender of an irrevocable
letter of credit issued by a "bank" as defined in Section
3(a)(6)(A)--C- of the Exchange Act. Transfer of a letter of
credit from Lender to Borrower shall be made by causing such
letter of credit to be returned or by causing the amount of such
letter of credit to be reduced to the amount required after such
transfer.
16.4 A transfer of securities, cash or letters of credit may be
effected under this Section 16 on any day except (a) a day on
which the transferee is closed for business at its address set
forth in Schedule A hereto or (b) a day on which a Clearing
Organization or wire transfer system is closed, if the
facilities of such Clearing Organization or wire transfer system
are required to effect such transfer.
17. CONTRACTUAL CURRENCY.
17.1 Borrower and Lender agree that: (a) any payment in respect of a
distribution under Section 7 shall be made in the currency in
which the underlying distribution of cash was made; (b) any
return of cash shall be made in the currency in which the
underlying transfer of cash was made and -C- any other payment
of cash in connection with a Loan under this Agreement shall be
in the currency agreed upon by Borrower and Lender in connection
with such Loan (the currency established under clause (a), (b)
or -C- hereinafter referred to as the "Contractual Currency").
Notwithstanding the foregoing, the payee of any such payment
may, at its option, accept tender thereof in any other currency;
provided, however, that, to the extent permitted by applicable
law, the obligation of the payor to make such payment will be
discharged only to the extent of the amount of Contractual
Currency that such payee may, consistent with normal banking
procedures, purchase with such other currency (after deduction
of any premium and costs of exchange) on the banking day next
succeeding its receipt of such currency.
17.2 If for any reason the amount in the Contractual Currency
received under Section 17.1, including amounts received after
conversion of any recovery under any judgment or order expressed
in a currency other than the Contractual Currency, falls short
of the amount in the Contractual Currency due in respect of this
Agreement, the party required to make the payment will (unless a
Default has occurred and such party is the non-defaulting party)
as a separate and independent obligation and to the extent
permitted by applicable law,
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immediately pay such additional amount in the Contractual
Currency as may be necessary to compensate for the shortfall.
17.3 If for any reason the amount in the Contractual Currency
received under Section 17.1 exceeds the amount in the
Contractual Currency due in respect of this Agreement, then the
party receiving the payment will (unless a Default has occurred
and such party is the non-defaulting party) refund promptly the
amount of such excess.
18. ERISA.
Lender shall, if any of the securities transferred to the Borrower
hereunder for any Loan have been or shall be obtained, directly or
indirectly, from or using the assets of any Plan, so notify Borrower in
writing upon the execution of the Agreement or upon initiation of such
Loan under Section 1.1. If Lender so notifies Borrower, then Borrower
and Lender shall conduct the Loan in accordance with the terms and
conditions of Department of Labor Prohibited Transaction Exemption 81-6
(46 Fed. Reg. 7527, Jan. 23, 1981; as amended, 52 Fed. Reg. 18754, May
19, 1987), or any successor thereto (unless Borrower and Lender have
agreed prior to entering into a Loan that such Loan will be conducted in
reliance on another exemption, or without relying on any exemption, from
the prohibited transaction provisions of Section 406 of the Employee
Retirement Income Security Act of 1974, as amended, and Section 4975 of
the Internal Revenue Code of 1986, as amended). Without limiting the
foregoing and notwithstanding any other provision of this Agreement, if
the Loan will be conducted in accordance with Prohibited Transaction
Exemption 81-6, then:
18.1 Borrower represents and warrants to Lender that it is either (i)
a bank subject to federal or state supervision, (ii) a
broker-dealer registered under the Exchange Act or (iii) exempt
from registration under Section 15(a)(1) of the Exchange Act as
a dealer in Government Securities.
18.2 Borrower represents and warrants that, during the term of any
Loan hereunder, neither Borrower nor any affiliate of Borrower
has any discretionary authority or control with respect to the
investment of the assets of the Plan involved in the Loan or
renders investment advice (within the meaning of 29 C.F.R.
Section 2510.3-21-C-) with respect to the assets of the Plan
involved in the Loan. Lender agrees that, prior to or at the
commencement of any Loan hereunder, it will communicate to
Borrower information regarding the Plan sufficient to identify
to Borrower any person or persons that have discretionary
authority or control with respect to the investment of the
assets of the Plan involved in the Loan or that render
investment advice (as defined in the preceding sentence) with
respect to the assets of the Plan involved in the Loan. In the
event Lender fails to communicate and keep current during the
term of any Loan such information, Lender rather than Borrower
shall be deemed to have made the representation and warranty in
the first sentence of this clause (b).
18.3 Borrower and Lender agree that:
(a) the term "Collateral" shall mean cash, securities issued or
guaranteed by the United States government or its agencies or
instrumentalities, or irrevocable bank letters of credit
issued by a person other than Borrower or an affiliate
thereof;
(b) prior to the making of any Loans hereunder, Borrower shall
provide Lender with (A) the most recent available audited
statement of Borrower's financial condition and (B) the most
recent available unaudited statement of Borrower's financial
condition (if more recent than the most recent audited
statement), and each Loan made hereunder shall be deemed a
representation by Borrower that there has been no material
adverse change in Borrower's financial condition subsequent
to the date of the latest financial statements or information
furnished in accordance herewith;
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(c) the Loan may be terminated by Lender at any time, whereupon
Borrower shall deliver the Loaned Securities to Lender within
the lesser of (A) the customary delivery period for such
securities; (B) five Business Days and -C- the time
negotiated for such delivery between Borrower and Lender;
provided, however, that Borrower and Lender may agree to a
longer period only if permitted by Prohibited Transaction
Exemption 81-6; and
(d) the Collateral transferred shall be security only for
obligations of Borrower to the Plan with respect to Loans,
and shall not be security for any obligation of Borrower to
any agent or affiliate of the Plan.
19. SINGLE AGREEMENT.
19.1 Borrower and Lender acknowledge that, and have entered into this
Agreement in reliance on the fact that, all Loans hereunder
constitute a single business and contractual relationship and
have been entered into in consideration of each other.
Accordingly, Borrower and Lender hereby agree that payments,
deliveries and other transfers made by either of them in respect
of any Loan shall be deemed to have been made in consideration
of payments, deliveries and other transfers in respect of any
other Loan hereunder, and the obligations to make any such
payments, deliveries and other transfers may be applied against
each other and netted. In addition, Borrower and Lender
acknowledge that, and have entered into this Agreement in
reliance on the fact that, all Loans hereunder have been entered
into in consideration of each other. Accordingly, Borrower and
Lender hereby agree that (a) each shall perform all of its
obligations in respect of each Loan hereunder, and that a
default in the performance of any such obligation by Borrower or
by Lender (the "Defaulting Party") in any Loan hereunder shall
constitute a default by the Defaulting Party under all such
Loans hereunder, and (b) the non-defaulting party shall be
entitled to set off claims and apply property held by it in
respect of any Loan hereunder against obligations owing to it in
respect of any other Loan with the Defaulting Party.
19.2 Notwithstanding the above, where the Lender has executed this
Agreement on behalf of the funds listed in Annex 1 (the
"Funds"), each Fund shall be deemed a "Lender" and to have
entered into a wholly separate loan agreement relating to any
Loaned Security and Loan Fee. In no event shall such Fund have
any responsibility for the obligations of any other Fund arising
from such Fund lending securities to Borrower.
20. APPLICABLE LAW.
THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF
LAW PRINCIPLES THEREOF.
21. WAIVER.
The failure of a party to this Agreement to insist upon strict adherence
to any term of this Agreement on any occasion shall not be considered a
waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Agreement. All
waivers in respect of a Default must be in writing.
22. REMEDIES.
All remedies hereunder and all obligations with respect to any Loan
shall survive the termination of the relevant Loan, return of Loaned
Securities or Collateral and termination of this Agreement.
13
<PAGE>
23. NOTICES AND OTHER COMMUNICATIONS.
Unless another address is specified in writing by the respective party
to whom any notice or other communication is to be given hereunder, all
such notices or communications shall be in writing or confirmed in
writing and delivered at the respective addresses set forth in Schedule
A attached hereto. All notices shall be effective upon actual receipt,
provided, however, that if any notice shall be received by a party on a
day on which such party is not open for business at its office located
at the address set forth in Schedule A, such notice shall be deemed to
have been received by such party at the opening of business on the next
day on which such party is open for business at such address.
24. SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL.
24.1 EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY (A) SUBMITS TO
THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR
NEW YORK STATE COURT SITTING IN NEW YORK CITY, AND ANY APPELLATE
COURT FROM ANY SUCH COURT, SOLELY FOR THE PURPOSE OF ANY SUIT,
ACTION OR PROCEEDING BROUGHT TO ENFORCE ITS OBLIGATIONS
HEREUNDER OR RELATING IN ANY WAY TO THIS AGREEMENT OR ANY LOAN
HEREUN-DER AND (B) WAIVES, TO THE FULLEST EXTENT IT MAY
EFFECTIVELY DO SO, ANY DEFENSE OF AN INCONVENIENT FORUM TO THE
MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT AND
ANY RIGHT OF JURISDICTION ON ACCOUNT OF ITS PLACE OF RESIDENCE
OR DOMICILE.
24.2 EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY RIGHT THAT IT
MAY HAVE TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
25. MISCELLANEOUS.
This Agreement supersedes any other agreement between the parties hereto
concerning loans of securities between Borrower and Lender. This
Agreement shall not be assigned by either party without the prior
written consent of the other party and any attempted assignment without
such consent shall be null and void. Subject to the foregoing, this
Agreement shall be binding upon and shall ensure to the benefit of
Borrower and Lender and their respective heirs, representatives,
successors and assigns. This Agreement may be terminated by either party
upon written notice to the other, subject only to fulfillment of any
obligations then outstanding. This Agreement shall not be modified,
except by an instrument in writing signed by the party against whom
enforcement is sought. The parties hereto acknowledge and agree that, in
connection with this Agreement and each Loan hereunder, time is of the
essence. Each provision and agreement herein shall be treated as
separate and independent from any other provision herein and shall be
enforceable notwithstanding the unenforceability of any such other
provision or agreement.
26. DEFINITIONS.
For the purposes hereof:
26.1 "Broker-Dealer" shall mean any person that is a broker
(including a municipal securities broker), dealer, municipal
securities dealer, government securities broker or government
securities dealer as defined in the Exchange Act, regardless of
whether the activities of such person are conducted in the
United States or otherwise require such person to register with
the Securities and Exchange Commission or other regulatory body.
14
<PAGE>
26.2 "Business Day" shall mean, with respect to any Loan hereunder, a
day on which regular trading occurs in the principal market for
the Loaned Securities subject to such Loan, provided, however,
that for purposes of Section 15, such term shall mean a day on
which regular trading occurs in the principal market for the
securities whose value is being determined. Notwithstanding the
foregoing, (i) for purposes of Section 8, "Business Day" shall
mean any day on which regular trading occurs in the principal
market for any Loaned Securities or for any securities Collateral
under any outstanding Loan here-under and "next Business Day"
shall mean the next day on which a transfer of Collateral may be
effected in accordance with Section 16; and (ii) in no event
shall a Saturday or Sunday be considered a Business Day.
26.3 "Clearing Organization" shall mean The Depository Trust Company,
or, if agreed to by Borrower and Lender, such other clearing
agency at which Borrower (or Borrower's agent) and Lender (or
Lender's agent) maintain accounts, or a book-entry system
maintained by a Federal Reserve Bank.
26.4 "Collateral" shall mean, whether now owned or hereafter acquired
and to the extent permitted by applicable law, (a) any property
which Borrower and Lender agree shall be acceptable collateral
prior to the Loan and which is transferred to Lender pursuant to
Section 3 or 8 (including as collateral, for definitional
purposes, any letters of credit mutually acceptable to Lender and
Borrower), (b) any property substituted therefor pursuant to
Section 3.5, -C- all accounts in which such property is deposited
and all securities and the like in which any cash collateral is
invested or reinvested, and (d) any proceeds of any of the
foregoing. For purposes of return of Collateral by Lender or
purchase or sale of securities pursuant to Section 12 or 13, such
term shall include securities of the same issuer, class and
quantity as the Collateral initially transferred by Borrower to
Lender.
26.5 "Customer" shall mean any person that is a customer of Borrower
under Rule 15c3-3 under the Exchange Act or any comparable
regulation of the Secretary of the Treasury under Section 15C of
the Exchange Act (to the extent that Borrower is subject to such
Rule or comparable regulations).
26.6 "Cutoff Time" shall mean a time on a Business Day by which a
transfer of cash, securities or other property must be made by
Borrower or Lender to the other, as shall be agreed by Borrower
and Lender in Schedule B or otherwise orally or in writing or, in
the absence of any such agreement, as shall be determined in
accordance with market practice.
26.7 "Default" shall have the meaning assigned in Section 11.
26.8 "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
26.9 "Federal Funds Rate" shall mean the rate of interest (expressed
as an annual rate), as published in Federal Reserve Statistical
Release H.15(519) or any publication substituted therefor,
charged for federal funds (dollars in immediately available
funds borrowed by banks on an overnight unsecured basis) on that
day or, if that day is not a banking day in New York City, on
the next preceding banking day.
26.10 "Foreign Securities" shall mean, unless otherwise agreed,
securities that are principally cleared and settled outside the
United States.
26.11 "Government Securities" shall mean government securities as
defined in Section 3(a)(42)(A)-C- of the Exchange Act.
15
<PAGE>
26.12 "LIBOR" shall mean for any date, the offered rate for deposits
in U.S. dollars for a period of three months which appears on
the Reuters Screen LIBO page as of 11:00 A.M., London time, on
such date (or, if at least two such rates appear, the arithmetic
mean of such rates).
26.13 "Loan" shall mean a loan of securities hereunder.
26.14 "Loaned Security" shall mean any security which is a security as
defined in the Exchange Act, transferred in a Loan hereunder
until such security (or an identical security) is transferred
back to Lender hereunder, except that, if any new or different
security shall be exchanged for any Loaned Security by
recapitalization, merger, consolidation or other corporate
action, such new or different security shall, effective upon
such exchange, be deemed to become a Loaned Security in
substitution for the former Loaned Security for which such
exchange is made. For purposes of return of Loaned Securities by
Borrower or purchase or sale of securities pursuant to Section
12 or 13, such term shall include securities of the same issuer,
class and quantity as the Loaned Securities, as adjusted
pursuant to the preceding sentence.
16
<PAGE>
26.15 "Plan" shall mean (a) any "employee benefit plan" as defined in
Section 3(3) of the Employee Retirement Income Security Act of
1974 which is subject to Part 4 of Subtitle B of Title I of such
Act; (b) any "plan" as defined in Section 4975(e)(1) of the
Internal Revenue Code of 1986; or -C- any entity the assets of
which are deemed to be assets of any such "employee benefit
plan" or "plan" by reason of the Department of Labor's plan
asset regulation, 29 C.F.R. Section 2510.3-101.
GOLDMAN, SACHS & CO.
By:
-----------------------------------------
Title:
-----------------------------------------
Date:
-----------------------------------------
NICHOLAS|APPLEGATE INSTITUTIONAL FUND, AS LISTED IN ANNEX I
By:
-----------------------------------------
Title:
-----------------------------------------
Date:
-----------------------------------------
17
<PAGE>
SCHEDULE A to the Master Securities Loan Agreement dated as of July 7, 1999
between Nicholas|Applegate Institutional Fund, as listed in Annex I and Goldman,
Sachs & Co.
NAMES AND ADDRESSES FOR COMMUNICATIONS
GOLDMAN, SACHS & CO.:
Mr. John Masterson
Managing Director
1 New York Plaza
48th Floor
New York, NY 10004
Telephone - (212) 357-4373
Facsimile- (212) 346-2168
NICHOLAS|APPLEGATE INSTITUTIONAL FUND, AS LISTED IN ANNEX I :
Mr. Bill Maher
Chief Financial Officer
Nicholas|Applegate Capital Management
600 West Broadway
30th Floor
San Diego, California 92101
Telephone - (619) 687-2950
Facsimile - (619) 687-8135
18
<PAGE>
SCHEDULE B to the Master Securities Loan Agreement dated as of July 7, 1999
between Nicholas|Applegate Institutional Fund, as listed in Annex I and Goldman,
Sachs & Co.
1. Section 5 of the Agreement is hereby amended by:
- inserting in subsection (i) the designation "U.S." before the phrase
"Government Securities"
- deleting subsection (ii) in its entirety and substituting in place
thereof the following phrase "(ii) in the case of securities subject to
Rule 15c6-1, the standard settlement date i.e. the third business day
following such notice."
- inserting a new subsection (iii) to read as follows "(iii) in the
case of all other securities, the standard settlement date following
such notice."
2. Section 25 is modified by inserting at the end of the second sentence
therein after the word "void" the following language:
"; except for an assignment or delegation of all of either party's rights and
obligations hereunder in whatever form either party determines may be
appropriate to a partnership, corporation, trust or other organization in
whatever form that succeeds to all or substantially all of such party's assets
and business and that assumes such obligations by contract, operation of law or
otherwise. Upon any such delegation and assumption of obligations, such party
shall be relieved of and fully discharged from all obligations hereunder,
whether such obligations arose before or after such delegation and assumption."
19
<PAGE>
Master Securities Loan Agreement
Annex I
Nicholas|Applegate Institutional Funds:
Global Blue Chip Fund
Convertible Fund
Emerging Countries Fund
Global Growth & Income Fund
Global Technology Fund
International Core Growth Fund
International Small Cap Growth Fund
Large Cap Growth Fund
Latin America Fund
Mid Cap Growth Fund
Mini Cap Growth Fund
Pacific Rim Fund
Small Cap Growth Fund
Worldwide Growth Fund
20
<PAGE>
Exhibit (i)
May 24, 2000
Nicholas-Applegate Institutional Funds
600 West Broadway, 30th Floor
San Diego, CA 92101
RE: Nicholas-Applegate Institutional Funds (the "Trust")(File Nos.
811-07384 and 333-71469); Post-Effective Amendments No. 21 to the
Registration Statement on Form N-1A
Ladies and Gentlemen,
I have acted as fund counsel to Nicholas-Applegate Institutional Funds,
a Delaware business trust (the "Trust"), in connection with the filing of
Post-Effective Amendment No. 22 to the Registration Statement of the Trust
(the "Amendment").
I have examined the Amendment as furnished to me by the Trust and such
other documents and records as I have deemed necessary for the purposes of
this opinion. Based upon this examination, I am of the opinion and hereby
represent in accordance with Rule 485(a)(1), that the Amendment does not
contain disclosures which would render it ineligible to become effective
pursuant to Rule 485(a).
I hereby consent to the filing of this opinion of counsel as an exhibit
to the Registration Statement.
Very truly yours,
/s/ Charles H. Field
Charles H. Field
Fund Counsel
<PAGE>
Exhibit (j)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Financial Highlights"
and "Transfer and Dividend Disbursing Agent, Legal Counsel and Independent
Auditors" in Post-Effective Amendment No. 4 under the Securities Act of 1933 and
Amendment No. 22 under the Investment Company Act of 1940 to the Registration
Statement (Form N-1A, No. 811-7384) and related Prospectuses and Statement of
Additional Information of Nicholas-Applegate Institutional Funds.
s/s Ernst & Young LLP
Los Angeles, California
May 23, 2000
<PAGE>
EXHIBIT (p)
NICHOLAS-APPLEGATE
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- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CODE OF ETHICS AND CONDUCT
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<PAGE>
NICHOLAS-APPLEGATE
CAPITAL MANAGEMENT
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NICHOLAS-APPLEGATE SECURITIES
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS
<PAGE>
MESSAGE FROM THE MANAGING PARTNER
Nicholas-Applegate, quite simply, does not exist without our clients. While it's
true we are an investment management firm, known for providing excellent
investment returns and client service, a large part of our success is built on
our reputation for integrity and professionalism. Our clients place not only
their money, but also their trust with us when they hire us. It is up to us as a
firm, and each one of us individually, to ensure that trust is upheld. Without
it, we would not have a single client, regardless of our investment returns.
With this in mind, the firm has long had a formal Code of Ethics in place. Every
employee commits to follow this Code when he/she joins the firm, and we, as a
firm, are committed to the principles embodied by the Code. The driving
principle is actually pretty easy to express: "Our clients come first."
Everything, really, flows from that simple statement. When you review and sign
the attached Code of Ethics, I'd like you to keep these principles in mind and
know that they are supported at our firm from the top down. I'd also like you to
recognize that ultimately the Code of Ethics is really just an expression about
the way we, as a firm, want to do business, and that it is our responsibility
individually, and as a firm, to ensure the Code is followed in spirit, as well
as word. The Code can't cover every individual situation that may come up, so we
must all use our best efforts to apply the principles of the Code in our
everyday business. We, and our clients, should expect nothing less.
Art Nicholas
i
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
TABLE OF CONTENTS
- -----------------------------------------------------------------------------------
<S> <C>
A. DEFINITIONS .......................................................... A-1
I. INTRODUCTION & OVERVIEW................................................ 1
-----------------------
II. PERSONS COVERED BY THIS CODE
----------------------------
a. EMPLOYEES & COVERED PERSONS....................................... 3
b. OUTSIDE FUND DIRECTORS/TRUSTEES................................... 3
c. THE ADMINISTRATOR................................................. 4
III. PERSONAL SECURITIES TRANSACTIONS
--------------------------------
a. COVERED SECURITIES & TRANSACTIONS................................. 5
b. EXEMPT SECURITIES & TRANSACTIONS.................................. 5
IV. PROCEDURES FOR TRADING SECURITIES
---------------------------------
A. PRE-CLEARANCE..................................................... 7
B. VIOLATIONS........................................................ 8
C. HOLDING PERIOD RESTRICTION........................................ 10
D. BLACKOUT PERIOD................................................... 10
E. DE MINIMIS TRANSACTIONS........................................... 10
F. INITIAL PUBLIC OFFERINGS ("IPOS") & PRIVATE PLACEMENTS............ 11
G. FRONT-RUNNING..................................................... 11
H. INSIDE INFORMATION................................................ 11
V. REPORTS & CERTIFICATIONS REGARDING PERSONAL SECURITIES TRANSACTIONS
-------------------------------------------------------------------
A. PERSONAL HOLDINGS REPORTS......................................... 13
B. MONTHLY TRANSACTION & GIFT REPORTS................................ 13
C. DUPLICATE BROKERAGE STATEMENTS & CONFIRMATIONS.................... 14
D. CERTIFICATION OF COMPLIANCE....................................... 14
VI. POTENTIAL CONFLICT OF INTEREST ISSUES
-------------------------------------
a. SERVICE ON BOARDS OF OTHER COMPANIES.............................. 15
b. GIFTS............................................................. 15
c. GIFT PRE-CLEARANCE................................................ 15
d. GIFT VIOLATIONS................................................... 16
ii
<PAGE>
<CAPTION>
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TABLE OF CONTENTS (CONT'D)
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<S> <C>
VII. VIOLATIONS OF THE CODE ................................................ 17
----------------------
VIII. ANNUAL BOARD REVIEW ................................................... 18
-------------------
IX. ADMINISTRATION & CONSTRUCTION ......................................... 19
-----------------------------
X. AMENDMENTS & MODIFICATIONS............................................. 20
--------------------------
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POLICIES & PROCEDURES - INSIDER TRADING POLICY ............... APPENDIX I
----------------------------------------------
EXAMPLES OF BENEFICIAL OWNERSHIP ............................. APPENDIX II
--------------------------------
PERSONAL TRADING RESTRICTION SUMMARY ........................ APPENDIX III
------------------------------------
EXCEPTIONS TO BAN ON SHORT-TERM TRADING ...................... APPENDIX IV
---------------------------------------
CODE OF ETHICS SIGNATURE PAGES................................. APPENDIX V
------------------------------
</TABLE>
iii
<PAGE>
DEFINITIONS
- -------------------------------------------------------------------------------
THE FOLLOWING DEFINITIONS APPLY TO THIS CODE OF ETHICS:
<TABLE>
<S> <C>
NACM Nicholas-Applegate Capital Management, Inc., a CA LP
NAS Nicholas-Applegate Securities
NAIF OR FUNDS Nicholas-Applegate Institutional Funds
NA Nicholas-Applegate (I.E., NACM, NAS and NAIF)
CODE NA Code of Ethics
EMPLOYEES All officers, partners and employees of NACM and NAS, well as
part-time employees, consultants, temps and interns after one month
COVERED PERSONS Any Employee and any relative by blood or marriage living in the
Employee's household or any person who holds an account that names
Employee as a beneficiary or otherwise
INVESTMENT PERSONNEL Trading Desk personnel, portfolio managers and financial analysts
ADMINISTRATOR Brown Brothers Harriman - Administrator of the Funds
ADVISORY CLIENTS Shareholders of funds, institutional clients and any other person
or entity whom NA provides investment advisory services
EXEMPT TRANSACTIONS Any transaction that does not require pre-clearance by NA's
Compliance Department prior to execution (E.G., open-end mutual
funds, U.S, government securities and named indices as listed in the
Code at APPENDIX IV)
TRUSTEES Trustees of the Funds
BENEFICIAL OWNERSHIP For purposes of this Code, "beneficial ownership" means any interest
in a security for which a Covered Person can directly or indirectly
receive a monetary benefit, including the right to buy or sell a
security, to direct the purchase or sale of a security, or to vote or
direct the voting of a security. Please refer to APPENDIX II for
additional examples of beneficial ownership
A-1
<PAGE>
NON-EMPLOYEE TRUSTEES Trustees of the Funds who are not Employees of NACM or NAS (including
employees of the Administrator)
PERSONAL SECURITIES TRANSACTION Any trade in debt or equity securities executed on a stock market,
or other securities not defined as "exempt securities" under the NA
Code of Ethics, by a Covered Person. This includes all futures,
options, warrants, short-sells, margin calls, or other instrument of
investment relating to an equity security
EXEMPT SECURITIES Securities, which, under the Code, do not require pre-clearance
authorization by the Compliance Department (see page 11 and APPENDIX
IV)
BLUEFORM Monthly Personal Securities Transaction and Gift Report
INSIDER Persons who are officers, directors, employees and spouse and anyone
else who is privy to inside information
INSIDER TRADING Buying or selling of a security while in possession of material,
non-public information or anyone who has communicated such
information in connection with a transaction that results in a
public trade or information service or medium
NON-PUBLIC INFORMATION Any information that is not made known via a public magazine,
newspaper or other public document
ACCESS PERSON Any Employee of NA, including temporary employees (if here more
than one month), interns and consultants (working on NA premises)
OPEN-END INVESTMENT COMPANIES Funds that continuously offer new shares and redeem outstanding shares
(OPEN-END MUTUAL FUNDS) at NAV on any business day. Shares are purchased directly from the
distributor of the funds
CLOSED-END INVESTMENT COMPANIES Funds whose shares traded on the secondary market with most being
listed on stock exchanges. New shares are not continuously offered,
nor are outstanding shares redeemable.
</TABLE>
A-2
<PAGE>
CODE OF ETHICS AND CONDUCT
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
NICHOLAS-APPLEGATE SECURITIES
NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS
REVISED AS OF MARCH 20, 2000
- -------------------------------------------------------------------------------
I. INTRODUCTION & OVERVIEW
- -------------------------------------------------------------------------------
Nicholas-Applegate Capital Management ("NACM"), Nicholas-Applegate
Securities ("NAS") and Nicholas-Applegate Institutional Funds ("NAIF")
(collectively, "NA") have developed and maintain a reputation for
integrity and high ethical standards. Therefore, it is essential not
only that NA and its employees comply with relevant federal and state
securities laws, but that we also maintain high standards of personal
and professional conduct. NA's Code of Ethics and Conduct (the "Code")
is designed to help ensure that we conduct our business in a manner
consistent with these high standards.
As a registered investment adviser, NA and its employees owe a
fiduciary duty to our clients that requires each of us to place the
interests of our clients ahead of our own. A critical component of
meeting our fiduciary duty is to avoid potential conflicts of interest.
Accordingly, you must avoid all activities, interests and relationships
that interfere or appear to interfere with making decisions in the best
interests of the shareholders of NAIF (or "Funds") and any other person
or entity to which NA provides investment advisory services (together,
"Advisory Clients").
Please bear in mind a conflict of interest can arise even if there is
no financial loss to Advisory Clients and regardless of the employee's
motivation. Many potential conflicts of interest can arise in
connection with employee personal trading and related activities. The
Code is designed to address and prevent potential conflicts of interest
pertaining to personal trading and related activities and is based on
the following principles:
1) WE MUST AT ALL TIMES PLACE THE INTERESTS OF OUR ADVISORY CLIENTS
FIRST. In other words, as a fiduciary, you must scrupulously
avoid serving your own personal interests ahead of the interests
of NA Advisory Clients.
2) We must make sure that all PERSONAL SECURITIES TRANSACTIONS ARE
CONDUCTED CONSISTENT WITH THE CODE and in such a manner as to
avoid any actual or potential conflicts of interest or any abuse
of an individual's position of trust and responsibility.
3) WE MUST NOT TAKE INAPPROPRIATE ADVANTAGE OF OUR POSITIONS. The
receipt of investment opportunities, perquisites, or gifts from
persons seeking business with NA could call into question the
exercise of your independent judgment.
1
<PAGE>
The Code contains policies and procedures relating to personal trading
by Covered Persons, as well as Trustees of the Funds.
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YOU MUST BECOME FAMILIAR
WITH AND ABIDE BY THE CODE
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Compliance with the Code is a condition of your employment with NA.
Violations of the Code will be taken seriously and will result in
sanctions against the violator, up to and including termination of
employment.
As with all policies and procedures, the Code was designed to apply to
a myriad of circumstances and conduct. However, this Code is not
intended to be all-inclusive as no policy can anticipate every
potential conflict of interest that can arise in connection with
personal trading.
- -------------------------------------------------------------------------------
YOU ARE EXPECTED TO ABIDE NOT ONLY BY THE LETTER OF THE CODE,
BUT ALSO BY THE SPIRIT OF THE CODE
- -------------------------------------------------------------------------------
Whether or not a specific provision of the Code addresses a particular
situation, you must conduct your activities in accordance with the
general principles contained in the Code and in a manner that is
designed to avoid any ACTUAL OR POTENTIAL conflicts of interest. NA
reserves the right, when it deems necessary in light of particular
circumstances, to impose more stringent requirements on those persons
subject to the Code, or to grant exceptions to the Code.
Because governmental regulations and industry standards relating to
personal trading and potential conflicts of interest can evolve over
time, NA reserves the right to modify any or all of the policies and
procedures set forth in the Code. If NA revises the Code, the Director
of Compliance will provide you with written notification of the
changes. You must familiarize yourself with any modifications to the
Code.
IF YOU HAVE ANY QUESTIONS ABOUT ANY ASPECT OF THE CODE, OR IF YOU HAVE
QUESTIONS REGARDING APPLICATION OF THE CODE IN A PARTICULAR SITUATION,
CONTACT THE COMPLIANCE DEPARTMENT.
2
<PAGE>
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II. PERSONS COVERED BY THIS CODE
- -------------------------------------------------------------------------------
A. EMPLOYEES & COVERED PERSONS
The policies and procedures set forth in the Code apply to all
officers, principals and employees of NACM and NAS (collectively,
"Employees"). The Code also applies to all temporary employees,
consultants and interns (if here more than one month) who work for NA
on premises.
The policies and procedures set forth in the Code also apply to all
members of an Employee's immediate family which, for purposes of the
Code, refers to ANY RELATIVE BY BLOOD OR MARRIAGE LIVING IN THE
EMPLOYEE'S HOUSEHOLD (together with Employees, "Covered Persons").
- -------------------------------------------------------------------------------
THE CODE ALSO APPLIES TO ACCOUNTS IN WHICH THE
EMPLOYEE IS NAMED AS A BENEFICIARY, TRUSTEE OR
IS OTHERWISE ABLE TO EXERCISE INVESTMENT CONTROL
- -------------------------------------------------------------------------------
B. OUTSIDE FUND DIRECTORS/TRUSTEES
Special rules apply to Fund Trustees who are not employees of NACM or
NAS ("Non-Employee Trustees"). Specifically, Non-Employee Trustees are
NOT subject to the:
- 3-day blackout period;
- prohibition on initial public offerings;
- restrictions on private placements;
- ban on short-term trading profits;
- gift restrictions; or
- restriction on service as a director.
Further, a Non-Employee Trustee is not required to pre-clear personal
securities transactions PROVIDED he or she did not have knowledge of
any current or pending transactions in the Security that have been
completed within the last fifteen (15) calendar days immediately
preceding the date of the transaction.
A Non-Employee Trustee is not required to submit quarterly personal
securities transaction reports, unless he or she knew, or should have
known, in the ordinary course of the fulfillment of his or her official
duties as a trustee of one of the Funds, that during the 15-day period
immediately preceding or following the date of a transaction in a
security by the Non-Employee Trustee that such security was purchased
or sold, or was considered for a purchase or sale, by a Fund or by NA
for an Advisory Client. Non-Employee Trustees also are not required to
submit annual portfolio holdings reports to NA.
3
<PAGE>
C. THE ADMINISTRATOR
Officers of the Fund who are officers or employees of the Fund's
Administrator are exempt from all provisions of this Code to the extent
that the Administrator has adopted reasonable written policies and
procedures regarding personal securities transactions by its employees.
4
<PAGE>
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III. PERSONAL SECURITIES TRANSACTIONS
- -------------------------------------------------------------------------------
The firm's policies and procedures set forth in the Code regarding
personal investing apply to ALL personal securities transactions by
Covered Persons, UNLESS a transaction is in an Exempt Security or the
transaction is an Exempt Transaction as defined below.
A. COVERED SECURITIES & TRANSACTIONS
Personal securities transactions subject to the Code include, but are
not limited to:
- equity securities including common and preferred stock, except as
otherwise exempted below;
- investment and non-investment grade debt securities;
- investments convertible into, or exchangeable for, stock or debt
securities;
- any derivative instrument relating to any of the above securities,
including options, warrants and futures;
- any interest in a partnership investment in any of the foregoing;
and
- shares of closed-end investment companies.
B. EXEMPT SECURITIES & TRANSACTIONS
The Code pre-clearance procedures and reporting requirements do not
apply to the following types of securities and transactions, UNLESS
SPECIFIED OTHERWISE, which are referred to as "Exempt Securities" and
"Exempt Transactions":
EXEMPT SECURITIES
1. Shares of registered open-end mutual funds and money market
funds;
2. Treasury bonds, treasury notes, treasury bills, U.S. Savings
Bonds, and other instruments issued by the U.S. government or its
agencies or instrumentalities;
3. Debt instruments issued by a banking institution, such as
bankers' acceptances and bank certificates of deposit; (this does
not exempt corporate bonds or high yield bonds)
4. Commercial paper;
5. Municipal bonds; or
6. Stock indices; (SEE APPENDIX IV)
EXEMPT TRANSACTIONS
1. Transactions in an account over which a Covered Person has no
direct or indirect influence or control; or in any account held
by a Covered Person which is managed on a discretionary basis by
a person other than the Covered Person and, with respect to which
the Covered Person does not influence or control the
transactions;
5
<PAGE>
2. Transactions that are non-voluntary on the part of the Covered
Person (THESE TRANSACTIONS MUST BE REPORTED ON THE MONTHLY REPORT
OR "BLUE FORM") (E.G., bond calls, stock splits, spin-offs,
etc.);
3. Purchases that are part of an automatic dividend reinvestment
plan. However, your initial purchase into a DRIP program must
be pre-cleared with Compliance and reported on your first
monthly report after starting the program. If you ever
contribute more than the automatic deduction to this plan, you
must pre-clear this transaction as if it were a non-exempt
transaction;
4. Purchases as a result of the exercise by a Covered Person of
rights issued pro rata to all holders of a class of
securities, to the extent that such rights were acquired from
the issuer, and the sale of such rights;
5. Other similar circumstances as determined by the Director of
Compliance or General Counsel; or 6. Transactions in options
or futures contracts on commodities, currencies or interest
rates.
Additionally, transactions in accounts over which the Covered Person
has no beneficial ownership, nor exercises direct or indirect influence
or control, may be excluded from the Code (and treated as Exempt
Transactions).
IF YOU HAVE ANY QUESTIONS ABOUT WHETHER A PARTICULAR TRANSACTION
QUALIFIES AS AN EXEMPT TRANSACTION, CONTACT THE COMPLIANCE DEPARTMENT
OR THE GENERAL COUNSEL.
6
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- -------------------------------------------------------------------------------
IV. PROCEDURES FOR TRADING SECURITIES
- -------------------------------------------------------------------------------
Covered Persons wishing to purchase or sell securities for their own
accounts must follow certain procedures designed to avoid actual or
potential conflicts of interest. These procedures include pre-clearing
the transaction, holding the security for at least the required minimum
length of time, and adhering to a blackout period around Advisory
Client trades. Please note that these procedures DO NOT APPLY TO EXEMPT
SECURITIES AND EXEMPT TRANSACTIONS, as described above.
A. PRE-CLEARANCE
As a Covered Person, you must submit an Employee Personal Request (an
electronic pre-clearance form), which can be found on the NA intranet
site at HOME.NACM.COM UNDER TRADING/MONTHLY REPORTS AND FORMS - CTI
ITRADE, prior to the purchase or sale of securities for your own
account or any accounts over which you have control or have a
beneficial interest. In addition, Investment Personnel must have all
transactions approved by the Chief Investment Officer ("CIO") (or
investment partner in the CIO's absence). Requests received without the
required signature will not be cleared.
You must submit pre-clearance for ALL PERSONAL SECURITIES transactions,
unless the transaction qualifies as an Exempt or De Minimis Transaction
(described below). All other purchase or sale transactions, including
transactions in equity securities of up to 1,000 shares or $10,000 that
are NOT listed on a domestic exchange or have market capitalization of
LESS THAN $2 BILLION, must be pre-cleared prior to execution.
- -------------------------------------------------------------------------------
TRANSACTIONS IN EQUITY SECURITIES UNDER 1000 SHARES
OR $10,000, WITH A MARKET CAPITALIZATION OF
OVER $2 BILLION DO NOT NEED PRE-CLEARANCE
- -------------------------------------------------------------------------------
However, if you are buying 500 shares or less, the security is on NYSE
or the issuer's market capitalization is over $500 million the trade
will be approved even if NA is active in the security.
NA will treat the pre-clearance process as confidential and will not
disclose the information given during the pre-clearance process, except
as required by law or for applicable business purposes.
As a Covered Person, you cannot execute the requested transaction until
you receive authorization from the Compliance Department to do so.
Pre-clearance requests will be processed by the Compliance Department
as quickly as possible. PLEASE REMEMBER THAT PRE-CLEARANCE APPROVAL IS
NOT AUTOMATICALLY GRANTED FOR EVERY TRADE.
7
<PAGE>
PRIORITY PRE-CLEARANCE WINDOW
Compliance Department personnel will give priority attention to any
pre-clearance request submitted prior to 9:00 a.m. In these cases, you
will normally receive notification of your pre-clearance approval or
denial within 10-15 minutes. Pre-clearance requests submitted after
9:00 a.m. will be processed in as timely a manner as possible, but
other Compliance Department duties may delay the response for two (2)
hours or more (depending on department priorities) after submission.
PRE-CLEARANCE PERIOD
Pre-clearance must be obtained on the date of the proposed transaction.
Pre-clearance approval for domestic Personal Securities Transactions
effected through a broker-dealer is the day it is pre-cleared up until
the "market open" the next business day (6:30 a.m. PT, except holidays)
after the day that pre-clearance was obtained.
- -------------------------------------------------------------------------------
IF YOU DECIDE NOT TO EXECUTE THE TRANSACTION ON THE DAY YOUR
PRE-CLEARANCE APPROVAL IS GIVEN, OR YOUR ENTIRE TRADE
IS NOT EXECUTED, YOU MUST REQUEST PRE-CLEARANCE
AGAIN AT SUCH TIME AS YOU DECIDE
TO EXECUTE THE TRADE
- -------------------------------------------------------------------------------
Pre-clearance approval is valid only for the particular security and
quantity indicated on the Form. For example, if you wish to increase
the size of the transaction, you must submit a new pre-clearance
request and receive a new pre-clearance approval. However, you may
decrease the size of the transaction without obtaining new
authorization, but should inform Compliance if this is done.
Failure to obtain pre-clearance for a personal securities transaction
is a serious breach of NA's Code. If you fail to obtain pre-clearance
approval for your personal securities transaction, you will be subject
to disciplinary action, up to and including termination of employment.
You may also be required to cancel the trade and bear any losses that
occur. You may also be required to disgorge any profits realized on the
unauthorized trade and donate them to a charity designated by NA (see
below).
B. VIOLATIONS
1. MONTHLY REPORTING VIOLATIONS
You must complete your Personal Security Transaction and Gift Report
("Blueform") via the intranet site by the end of the 10th day of each
month, regardless of whether you had any trading or gift activity for
that month.
8
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- -------------------------------------------------------------------------------
YOU MUST SUBMIT YOUR BLUEFORM
BY THE 10TH OF EVERY MONTH
- -------------------------------------------------------------------------------
The Executive Committee member with oversight of your department may
grant exceptions to this requirement for legitimate business or
personal reasons. However, you should make every reasonable effort to
submit your report in a timely manner.
- -------------------------------------------------------------------------------
IF YOU FAIL TO REMIT YOUR BLUEFORM ON TIME,
YOU WILL BE FINED $50 FOR THE FIRST DAY LATE & $10
FOR EACH ADDITIONAL DAY THE REPORT IS LATE.
- -------------------------------------------------------------------------------
2. TRADING VIOLATIONS
Any trading-related violation of this Code, including failure to
properly pre-clear a non-exempt personal trade, etc., will incur the
following sanctions, IN ADDITION TO disgorging any profits on personal
trades that conflict with NA client transactions:
- -------------------------------------------------------------------------------
FIRST VIOLATION
- -------------------------------------------------------------------------------
- A fine of 0.5% of base salary up to $500;
- Meet with Department Head and the Director of Compliance to
discuss and re-sign the Code of Ethics.
- -------------------------------------------------------------------------------
SECOND VIOLATION (WITHIN 12 MONTHS)
- -------------------------------------------------------------------------------
- A fine of 1% of base salary up to $1,000;
- Meet with Department Head and the Director of Compliance to
discuss and re-sign the Code of Ethics;
- Written warning to personnel file;
- -------------------------------------------------------------------------------
THIRD VIOLATION (WITHIN 12 MONTHS)
- -------------------------------------------------------------------------------
- A fine of 2% of base salary up to $2,000;
- Meet with Department Head and the Director of Compliance to
discuss and re-sign the Code of Ethics;
- Written warning to personnel file;
- Prohibition from trading personally for a specific period of time
(e.g., 6 months to 1 year) except to close out current positions;
- May result in termination of employment with NA.
All fines will be paid to a charity of NA's choice: currently the
United Way. Checks will be submitted to Compliance and forwarded to
the selected charity.
9
<PAGE>
C. HOLDING PERIOD RESTRICTION
As a general principle, personal securities transactions must be for
investment purposes and not for the purposes of generating short-term
profits. Any profits realized on a sale of a security held less than 60
days will be disgorged, with a check written to a charity of NA's
choice, currently the United Way. Checks will be submitted to
Compliance and forwarded to the selected charity. You may, however,
sell a security held less than 60 days if the security is being sold
for no profit.
This holding period restriction does not apply to Exempt Securities or
Exempt Transactions. NA's Director of Compliance or General Counsel may
also grant exceptions to this prohibition in limited circumstances
(E.G., bankruptcy, eviction, personal health emergency, etc.) upon
prior written request.
- -------------------------------------------------------------------------------
YOU MAY NOT SELL A SECURITY ACQUIRED WITHIN THE
PREVIOUS 60 DAYS, UNLESS SELLING AT A LOSS
- -------------------------------------------------------------------------------
D. BLACKOUT PERIOD
As a Covered Person, you may not buy or sell equity securities for your
personal accounts if:
- NA has engaged in a transaction in the same or an equivalent
security for an Advisory Client account within the last
three (3) days, OR
- the security is on the NA trading blotter or proposed
blotter.
In the event you effect a prohibited personal securities transaction
within 3 business days before or after an Advisory Client account
transaction in the same or equivalent security, you will be required to
close out your position in the security and disgorge any profit
realized from the transaction to a charity designated by NA. However,
if you properly obtained pre-clearance for a transaction and an
Advisory Client account subsequently transacted in the same security
within 3 days of your transaction, this will not normally result in
required disgorgement, unless otherwise determined by NA's Director of
Compliance or General Counsel.
The blackout period does not apply to transactions that qualify as
Exempt Securities or Exempt Transactions.
E. DE MINIMIS TRANSACTIONS
You are NOT required to pre-clear certain de minimis transactions that
meet the following criteria. However, you must report these
transactions on your monthly Blue Form:
10
<PAGE>
EQUITY SECURITIES
Any purchase or sale transaction of up to 1,000 shares or $10,000
DAILY in a NYSE-listed security or any security listed on another
domestic exchange (including NASDAQ) with a market capitalization of
at least $2 billion.
DEBT SECURITIES
Any purchase or sale transaction of up to 100 units ($100,000 principal
amount) in an issuer with a market capitalization of at least $2
billion.
- -------------------------------------------------------------------------------
ALL DE MINIMIS TRANSACTIONS ARE SUBJECT TO
THE HOLDING PERIOD RESTRICTION
- -------------------------------------------------------------------------------
F. INITIAL PUBLIC OFFERINGS ("IPOS") & PRIVATE PLACEMENTS
As a Covered Person, you may not engage in a personal securities
transaction in any security in a private placement or IPO without prior
written approval of NA's Director of Compliance or its General Counsel.
In considering such approval, the Director of Compliance or General
Counsel will take into account, among other factors, whether the
investment opportunity is available to and/or should be reserved for an
Advisory Client account, and whether the opportunity is being offered
to the Covered Person by virtue of his or her position.
If you are approved to engage in a personal securities transaction in a
private placement or IPO, you must disclose that investment if you play
a part directly or indirectly in subsequent investment considerations
of the security for an Advisory Client account. In such circumstances,
NA's decision to purchase or sell securities of the issuer shall be
subject to an independent review by an NA Employee with no personal
interest in the issuer. In addition, you may also be required to
refrain from trading the security.
G. FRONT-RUNNING
As a Covered Person, you may not front-run an order or recommendation,
even if you are not handling the order or the recommendation (and even
if the order or recommendation is for someone other than the Covered
Person). Front-running consists of executing a transaction based on the
knowledge of the forthcoming transaction or recommendation in the same
or an underlying security, or other related securities, within three
(3) business days preceding a transaction on behalf of an Advisory
Client.
H. INSIDE INFORMATION
As a Covered Person, you may not use material, non-public information
about any issuer of securities, whether or not such securities are held
in the portfolios of Advisory Clients or suitable for inclusion in such
portfolios, for personal gain or on behalf of an Advisory Client. If
you believe you are in possession of such information, you must contact
NA's Director of
11
<PAGE>
Compliance immediately to discuss the information and the circumstances
surrounding its receipt. This prohibition does not prevent a Covered
Person from contacting officers and employees of issuers or other
investment professionals in seeking information about issuers that is
publicly available. (REFER TO NA'S INSIDER TRADING POLICY ATTACHED
APPENDIX I FOR MORE INFORMATION.)
- -------------------------------------------------------------------------------
AS A COVERED PERSON, YOU MAY NOT USE MATERIAL,
NON-PUBLIC INFORMATION ABOUT ANY ISSUER OF SECURITIES
- -------------------------------------------------------------------------------
IF YOU HAVE ANY REGARDING PERSONAL TRADING, CONTACT THE COMPLIANCE
DEPARTMENT OR THE GENERAL COUNSEL.
12
<PAGE>
- -------------------------------------------------------------------------------
V. REPORTS & CERTIFICATIONS REGARDING PERSONAL SECURITIES TRANSACTIONS
- -------------------------------------------------------------------------------
A. PERSONAL HOLDINGS REPORTS
In order to address potential conflicts of interest that can arise when
a Covered Person acquires or disposes of a security, and to help ensure
compliance with the Code, as a Covered Person, you must submit a
Personal Holdings Report at the time of commencement of employment with
NACM or NAS and annually thereafter with a list of all securities
holdings in which you have a beneficial interest (other than interests
in Exempt Securities).
- -------------------------------------------------------------------------------
YOU MUST SUBMIT A COMPLETE PERSONAL HOLDINGS
REPORT UPON COMMENCEMENT OF
EMPLOYMENT & ANNUALLY THEREAFTER
- -------------------------------------------------------------------------------
B. MONTHLY TRANSACTION & GIFT REPORTS
As a Covered Person, you must file a Monthly Securities Transaction and
Gift Report ("Blueform") with Compliance by the 10th day of each month
for the previous month (e.g., a September Blue Form would be due by the
10th of October). If you did not execute any securities transactions
during the applicable month, you must still submit a Blue Form
indicating that fact. You file these Reports electronically on the NA
Intranet site at HTTP://HOME.NACM.COM/COMPLIANCE. The Compliance
Department receives all Report confirmations via email and stores them
in a master database that is archived annually to CD ROM.
Your Report must contain the following information with respect to each
reportable personal securities transaction. All fields must be
completed in order for your report to be successfully filed:
- Date of transaction;
- Nature of the transaction (purchase, sale or any other type
of acquisition or disposition);
- Security name;
- Security symbol or CUSIP;
- Number of shares/par;
- Principal amount of each security and/or the price at which
the transaction was effected; and
- Name of the broker, dealer or bank with or through whom the
transaction was effected.
13
<PAGE>
Monthly Reports may contain a statement that the report is not to be
construed as an admission that the person filing the report has or had
any direct or indirect beneficial interest in any security described in
the report.
C. DUPLICATE BROKERAGE STATEMENTS & CONFIRMATIONS
To assist NA in monitoring compliance with the Code, as a Covered
Person, you must instruct each broker-dealer with whom you maintain an
account to send duplicate copies of all transaction confirmations and
statements directly to NA's Compliance Department. This requirement
does not apply to accounts that are exclusively hold Exempt Securities
or are held at a mutual fund company.
D. CERTIFICATION OF COMPLIANCE
As a newly hired Employee, you must certify that you have read,
understand and will comply with the Code.
As a continuing Employee, you must annually certify that you have read,
understand, have complied, and will continue to comply, with the Code.
14
<PAGE>
- -------------------------------------------------------------------------------
VI. POTENTIAL CONFLICT OF INTEREST ISSUES
- -------------------------------------------------------------------------------
Certain activities, while not directly involving personal trading
issues, nonetheless raise similar potential conflict of interest issues
and are appropriate for inclusion in the Code. These monitored
activities are as follows:
A. SERVICE ON BOARDS OF OTHER COMPANIES
As a Covered Person, you are prohibited from serving on the board of
directors of any PUBLICLY TRADED company or organization. In addition,
if you wish to serve on the board of directors of a PRIVATELY HELD "for
profit" company, you must first obtain prior written approval from NA's
Director of Compliance or General Counsel. It is not necessary to
obtain approval to serve on the board of directors of entities such as
schools, churches, industry organizations or associations, or similar
non-profit boards.
B. GIFTS
As a Covered Person, you may not seek any gift, favor, gratuity, or
preferential treatment from any person or entity that:
- does business with or on behalf of NA;
- is or may appear to be connected with any present or future
business dealings between NA and that person or
organization; or
- may create or appear to create a conflict of interest.
You may only accept gifts offered as a courtesy. You must report on
your monthly Blueform all gifts, favors or gratuities valued at $25
MORE (EXCEPT MEALS VALUED AT LESS THAN $50). Non-Employee Trustees only
need to report gifts if values in excess of $100 AND the gift is given
in connection with the Trustee's affiliation with the NA.
C. GIFT PRE-CLEARANCE
You must submit a gift pre-clearance form and obtain prior written
approval for all gifts with a fair market value in excess of $100. Fair
market value applies to the value of the total gift (e.g., if you
receive 4 tickets valued at $55 a piece, this is considered a gift in
valued over $100 and must be pre-cleared). You must make every
reasonable effort to obtain approval from your direct supervisor and
the Compliance Department PRIOR to accepting anything of value over
$100. In the event that pre-approval is not possible, you must make
disclosure as soon as possible after the gift/event, in any event, no
later than on your next Blue Form.
A gift may be denied or required to be returned or reimbursed if you
receive an excessive number of gifts, especially if received from a
single source or if the total dollar value of gifts received during a
single year is deemed excessive.
15
<PAGE>
D. GIFT VIOLATIONS
In the event you fail to properly disclose and/or pre-clear these
items, the Management Committee will require the employee personally to
either donate the fair market value of the item (or the item itself) to
charity or directly reimburse the person or entity responsible for
giving the item.
As a Covered Person, you may not offer any gifts, favors or gratuities
that could be viewed as influencing decision-making or otherwise could
be considered as creating a conflict of interest on the part of the
recipient.
You must never give or receive gifts or entertainment that would be
controversial to either you or NA, if the information was made public.
You should be aware that certain NA clients might also place
restrictions on gifts YOU may give to their employees.
16
<PAGE>
- -------------------------------------------------------------------------------
VII. VIOLATIONS OF THE CODE
- -------------------------------------------------------------------------------
A violation of this Code is subject to the imposition of such sanctions
as may be deemed appropriate under the circumstances to achieve the
purposes of this Code. NA's Director of Compliance and the Executive
Committee will determine sanctions for violations of the Code. Such
sanctions may include those previously described, as well as others
deemed appropriate.
Sanctions for a material violation (I.E., one that involves an actual
conflict or appearance of impropriety) of this Code by a Trustee of the
Funds will be determined by a majority vote of that Fund's
Disinterested Trustees.
IF YOU HAVE ANY QUESTIONS ABOUT ANY ASPECT OF THE CODE, CONTACT THE
DIRECTOR OF COMPLIANCE.
17
<PAGE>
- -------------------------------------------------------------------------------
VIII. ANNUAL BOARD REVIEW
- -------------------------------------------------------------------------------
The NA management annually prepares a report to the Funds' boards
summarizing existing procedures concerning personal trading (including
any changes in the Code), highlights material violations of the Code
requiring significant corrective action and identifies any recommended
changes to the Code.
18
<PAGE>
- -------------------------------------------------------------------------------
IX. ADMINISTRATION & CONSTRUCTION
- -------------------------------------------------------------------------------
NA's Director of Compliance serves as the "Administrator" of this Code.
The Administrator's duties include:
- Maintenance of a current list of Covered Persons;
- Providing all Employees with a copy of the Code and
periodically informing them of their duties and obligations
under the Code;
- Supervising the implementation and enforcement of the terms
of the Code;
- Maintaining or supervising the maintenance of all records
and reports required by the Code;
- Preparing a list of all transactions effected by any Covered
Person during the three (3) day blackout period;
- Determining whether any particular securities transactions
should be exempted pursuant to the provisions of Section III
of the Code;
- Issuing, either personally or with the assistance of
counsel, any interpretation of the Code which would be
consistent with the objectives of the Code;
- Conducting inspections or investigations reasonably required
to detect and report material violations of the Code and
provide recommendations relative to these violations to NA's
Management Committee, or the Board of Trustees of a Fund or
any Committee appointed by them to deal with such
information;
- Submitting a quarterly report to the Trustees of each Fund
containing a description of any material violation and
action taken and any other significant information
concerning administration of the Code; and
- Regular reporting on Code compliance to the Executive
Committee and General Counsel.
19
<PAGE>
- -------------------------------------------------------------------------------
X. AMENDMENTS & MODIFICATIONS
- -------------------------------------------------------------------------------
This Code may be amended or modified as deemed necessary by the
officers of the Funds, with the advice of Fund counsel, provided such
amendments or modifications shall be submitted to the Board of Trustees
of the Funds for ratification and approval at the next available
meeting. This version of the Code has been amended taking into account
the recent amendments to Rule 17j-1 under the Investment Company Act of
1940. This Code is effective as of March 20, 2000 to be ratified by the
Board of Trustees of the Funds at its next regularly scheduled meeting.
20
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
APPENDIX I
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
NICHOLAS-APPLEGATE SECURITIES
POLICIES AND PROCEDURES CONCERNING THE MISUSE
OF MATERIAL NON-PUBLIC INFORMATION
("INSIDER TRADING")
Every employee of Nicholas-Applegate Capital Management, a California Limited
Partnership ("NA") must read and retain a copy of these Policies and Procedures.
Any questions regarding the Policies and Procedures described herein should be
referred to NA's Compliance Department ("Compliance").
- -------------------------------------------------------------------------------
SECTION I. POLICY STATEMENT ON INSIDER TRADING ("POLICY STATEMENT")
- -------------------------------------------------------------------------------
NA's Policy Statement applies to every Employee and extends to
activities both within and outside the scope of their duties at NA. NA
forbids any Employee from engaging in any activities that would be
considered "insider trading."
The term "insider trading" is not defined in the federal securities
laws, but generally is understood to prohibit the following activities:
- Trading by an insider, while in possession of material
non-public information;
- Trading by a non-insider, while in possession of material
non-public information, where the information either was
disclosed to the non-insider in violation of an insider's
duty to keep it confidential or was misappropriated;
- Recommending the purchase or sale of securities while in
possession of material non-public information; or
- Communicating material non-public information to others
(I.E., "tipping").
The elements of insider trading and the penalties for such unlawful
conduct are discussed below. If you have any questions regarding this
Policy Statement you should consult the Compliance Department.
WHO IS AN INSIDER?
The concept of "insider" is broad and it includes officers, partners
and employees of a company. In addition, a person can be a "temporary
insider" if he or she enters into a special confidential relationship
in the conduct of a company's affairs and, as a result, is given access
to information solely for the company's purposes. A temporary insider
can include, among others, company attorneys, accountants, consultants,
bank lending officers, and the employees of these organizations. In
addition, NA and its Employees may become temporary insiders of a
company that NA advises or for which NA performs other services.
According to the U.S. Supreme Court, before an outsider will be
considered a temporary insider for these purposes, the company
I-1
<PAGE>
must expect the outsider to keep the disclosed non-public information
confidential and the relationship must, at least, imply such a duty.
WHAT IS MATERIAL INFORMATION?
Trading, tipping, or recommending securities transactions while in
possession of inside information is not an actionable activity UNLESS
the information is "material." Generally, information is considered
material if: (i) there is a substantial likelihood that a reasonable
investor would consider it important in making his or her investment
decisions or (ii) it is reasonably certain to have a substantial effect
on the price of a company's securities. Information that should be
considered material includes, but is not limited to:
- dividend changes;
- earnings estimates;
- changes in previously released earnings estimates;
- a joint venture;
- the borrowing of significant funds;
- a major labor dispute, merger or acquisition proposals or
agreements;
- major litigation;
- liquidation problems; and
- extraordinary management developments.
For information to be considered material, it need not be so important
that it would have changed an investor's decision to purchase or sell
particular securities; rather it is enough that it is the type of
information on which reasonable investors rely in making purchase or
sale decisions. The materiality of information relating to the possible
occurrence of any future event would depend on the likelihood that the
event will occur and its significance if it did occur.
Material information does not have to relate to a company's business.
For example, in U.S. v. CARPENTER, 791 F.2d 1024 (2d Cir. 1986), AFF'D,
484 U.S. 19 (1987) (affirmed without opinion by an evenly divided court
with respect to the charge of insider trading, based on the
"misappropriation" theory), the court considered as material certain
information about the contents of a forthcoming newspaper column that
was expected to affect the market price of a security. In that case, a
WALL STREET JOURNAL reporter was found criminally liable for disclosing
to others the dates that reports on various companies would appear in
the JOURNAL and whether those reports would be favorable or not.
WHAT IS NON-PUBLIC INFORMATION?
All information is considered non-public until it has been effectively
communicated to the marketplace. One must be able to point to some fact
to show that the information is generally public. For example,
information found in a report filed with the SEC, or appearing in DOW
JONES, REUTERS ECONOMIC SERVICES, THE WALL STREET JOURNAL or other
publications of general circulation would be considered public.
Information in bulletins and research reports disseminated by brokerage
firms are also generally considered to be public information.
I-2
<PAGE>
BASIS FOR LIABILITY
In order to be found liable for insider trading, one must either (i)
have a fiduciary relationship with the other party to the transaction
and have breached the fiduciary duty owed to that other party, or (ii)
have misappropriated material non-public information from another
person.
FIDUCIARY DUTY THEORY
---------------------
Insider trading liability may be imposed on the theory that
the insider breached a fiduciary duty to a company. In 1980,
the U.S. Supreme Court held that there is no general duty to
disclose before trading on material non-public information,
and that such a duty arises only where there is a fiduciary
relationship. That is, there must be an existing relationship
between the parties to the transaction such that one party has
a right to expect that the other party would either (a)
disclose any material non-public information, if appropriate
or permitted to do so, or (b) refrain from trading on such
material non-public information. CHIARELLA v. U.S., 445 U.S.
222 (1980).
In DIRKS v. SEC, 463 U.S. 646 (1983), the U.S. Supreme Court
stated alternative theories under which non-insiders can
acquire the fiduciary duties of insiders: (a) they can enter
into a confidential relationship with the company through
which they gain the information (E.G., attorneys, accountants,
etc.), or (b) they can acquire a fiduciary duty to the
company's shareholders as "tippees" if they were aware, or
should have been aware, that they had been given confidential
information by an insider that violated his or her fiduciary
duty to the company's shareholders by providing such
information to an outsider.
However, in the "tippee" situation, a breach of duty occurs
ONLY where the insider personally benefits, directly or
indirectly, from the disclosure. Such benefit does not have to
be pecuniary, and can be a gift, a reputational benefit that
will translate into future earnings, or even evidence of a
relationship that suggests a QUID PRO QUO.
MISAPPROPRIATION THEORY
-----------------------
Another basis for insider trading liability is the
"misappropriation" theory. Under the misappropriation theory,
liability is established when trading occurs as a result of,
or based upon, material non-public information that was stolen
or misappropriated from any other person. In U.S. v.
CARPENTER, SUPRA, the court held that a columnist for THE WALL
STREET JOURNAL had defrauded the JOURNAL when he obtained
information that was to appear in the JOURNAL and used such
information for trading in the securities markets. The court
held that the columnist's misappropriation of information from
his employer was sufficient to give rise to a duty to disclose
such information or abstain from trading thereon, even though
the columnist owed no direct fiduciary duty to the issuers of
the securities described in the column or to purchasers or
sellers of such securities in the marketplace. Similarly, if
information is given to an analyst on a confidential basis and
the analyst uses that information for trading purposes,
liability could arise under the misappropriation theory.
I-3
<PAGE>
PENALTIES FOR INSIDER TRADING
Penalties for trading on, or communicating material non-public
information are severe, both for individuals involved in such unlawful
conduct and their employers. A person can be subject to some or all of
the penalties below even if he or she did not personally benefit from
the violation. Penalties include:
- Civil injunctions;
- Criminal penalties for individuals of up to $1 million and
for "non-natural persons" of up to $2.5 million plus, for
individuals, a maximum jail term from five to ten years;
- Private rights of actions for disgorgement of profits;
- Civil penalties for the person who committed the violation
of up to three times the profit gained or loss avoided,
whether or not the person actually benefited;
- Civil penalties for the employer or other controlling person
of up to the greater of $1 million per violation or three
times the amount of the profit gained or loss avoided, as a
result of each violation; and
- A permanent bar, pursuant to the SEC's administrative
jurisdiction, from association with any broker, dealer,
investment company, investment adviser, or municipal
securities dealer.
In addition, any violation of this Policy Statement can be expected to
result in serious sanctions by NA, including dismissal of the persons
involved.
- -------------------------------------------------------------------------------
SECTION II. PROCEDURES TO IMPLEMENT NA'S POLICY STATEMENT
- -------------------------------------------------------------------------------
The following procedures have been established to aid NA's Employees in
avoiding insider trading, and to aid NA in preventing, detecting and
imposing sanctions against insider trading. Every Employee of NA must
follow these procedures or risk serious sanctions, as described above.
If you have any questions about these procedures you should consult
with the Director of Compliance.
IDENTIFYING INSIDER INFORMATION
Before trading for yourself or others, including for any client
accounts managed by NA, in the securities of a company about which you
may have potential insider information, or revealing such information
to others or making a recommendation based on such information, you
should ask yourself the following questions.
- Is the information material?
- Is this information that an investor would consider important in
making an investment decision?
- Is this information that would substantially affect the market
price of the securities if generally disclosed?
- Is the information non-public?
I-4
<PAGE>
- To whom has this information been provided?
- Has the information been effectively communicated to the
marketplace by being published in THE WALL STREET JOURNAL or
other publications of general circulation, or has it otherwise
been made available to the public?
If, after consideration of the above, you believe that the information
is material and non-public, or if you have questions as to whether the
information may be material and non-public, you should take the
following steps.
- Report the matter immediately to Compliance and disclose all
information that you believe may bear on the issue of whether the
information you have is material and non-public;
- Refrain from purchasing or selling securities with respect to
such information on behalf of yourself or others, including for
client accounts managed by NA; and
- Refrain from communicating the information inside or outside NA,
other than to Compliance.
After Compliance has reviewed the issue, you will be instructed to
continue the prohibitions against trading, tipping, or communication,
or you will be allowed to trade and communicate the information. In
appropriate circumstances, our Director of Compliance will consult with
our General Counsel as to the appropriate course of action.
PERSONAL SECURITIES TRADING
All Employees of NA must adhere to NA's Code of Ethics and Conduct
("Code") with respect to:
- securities transactions effected for their own account,
- accounts over which they have a direct or indirect beneficial
interest, and
- accounts over which they exercise any direct or indirect
influence.
Please refer to NA's Code as necessary. In accordance with the Code,
Employees are required to obtain prior written approval from Compliance
for all personal securities transactions (unless otherwise exempt under
the Code) and to submit to Compliance a Monthly Securities Transaction
and Gift Report ("Blueform") concerning all equity securities
transactions as required by NA's Code.
RESTRICTING ACCESS TO MATERIAL NON-PUBLIC INFORMATION
Information in your possession that you identify, or that has been
identified to you as material and non-public, must not be communicated
to anyone, except as provided above. In addition, you should make
certain that such information is secure. For example, files containing
material non-public information should be sealed and inaccessible and
access to computer files containing material non-public information
should be restricted by means of a password or other similar
restriction.
I-5
<PAGE>
RESOLVING ISSUES CONCERNING INSIDER TRADING
If, after consideration of the items set forth above, doubt remains as
to whether information is material or non-public, or if there is any
unresolved question as to the applicability or interpretation of the
foregoing procedures, or as to the propriety of any action, please
discuss such matters with our Director of Compliance before trading or
communicating the information in question to anyone.
SUPERVISORY PROCEDURES
NA's Compliance Department is critical to the implementation and
maintenance of these Policies and Procedures against insider trading.
The supervisory procedures set forth below are designed to detect and
prevent insider trading.
PREVENTION OF INSIDER TRADING
-----------------------------
In addition to the pre-approval and monthly reporting
procedures specified in the Code concerning personal
securities transactions, the following measures have been
implemented to prevent insider trading by NA's Employees.
1. All Employees of NA will be provided with a copy of
these Policies and Procedures regarding insider
trading.
2. Compliance will, as deemed necessary, conduct
educational seminars to familiarize Employees with NA's
Policies and Procedures. Such educational seminars will
target, in particular, persons in sensitive areas of NA
who may receive inside information more often than
others;
3. Compliance will answer questions regarding NA's
Policies and Procedures;
4. Compliance will resolve issues of whether information
received by an Employee of NA is material and
non-public;
5. Compliance will review these Policies and Procedures on
a regular basis and update as necessary;
6. Whenever it has been determined that an Employee of NA
has possession of material non-public information,
Compliance will (i) implement measures to prevent
dissemination of such information, and (ii) restrict
Employees from trading in the securities by placing
such securities on NA's Restricted List; and
7. Upon the request of any Employee, Compliance will
review and any requests for clearance to trade in
specified securities and either approve or disapprove.
DETECTION OF INSIDER TRADING
To detect insider trading, Compliance will:
1. Review the personal securities transaction reports
filed by each Employee, including subsequent monthly
review of all personal securities transactions;
2. Review the trading activity of client accounts managed by
NA;
3. Review the trading activity of NA's own accounts,
if any; and
I-6
<PAGE>
4. Coordinate the review of such reports with other
appropriate Employees of NA when Compliance has reason to
believe inside information has been provided to certain
Employees.
REPORTS TO MANAGEMENT
Promptly upon learning of a potential violation of NA's
Policies and Procedures, Compliance will prepare a
confidential written report to management, providing full
details and recommendations for further action. In addition,
Compliance will prepare reports to management, when
appropriate, setting forth:
1. A summary of existing procedures to prevent and detect
insider trading;
2. Full details of any investigation, either internal or
by a regulatory agency, of any suspected insider
trading and the results of such investigation;
3. An evaluation of the current procedures and any
recommendations for improvement; and
4. A description of NA's continuing education program
regarding insider trading, including the dates of any
seminars since the last report to management.
In response to such report, management will determine whether
any changes to the Policies and Procedures might be
appropriate.
I-7
<PAGE>
- -------------------------------------------------------------------------------
APPENDIX II
- -------------------------------------------------------------------------------
EXAMPLES OF BENEFICIAL OWNERSHIP
--------------------------------
- - Securities held by an Access Person for their own benefit, regardless of
the form in which held;
- - Securities held by others for an Access Person's benefit, such as
securities held by custodians, brokers, relatives, executors or
administrators;
- - Securities held by a pledgee for an Access Person's account;
- - Securities held by a trust in which an Access Person has an income or
remainder interest, unless the Access Person's only interest is to receive
principal (a) if some other remainderman dies before distribution or (b) if
some other person can direct by will a distribution of trust property or
income to the Access Person;
- - Securities held by an Access Person as trustee or co-trustee, where the
Access Person or any member of their immediate family (I.E., spouse,
children or their descendants, stepchildren, parents and their ancestors,
and stepparents, in each case treating a legal adoption as a blood
relationship) has an income or remainder interest in the trust;
- - Securities held by a trust of which the Access Person is the settlor, if
the Access Person has the power to revoke the trust without obtaining the
consent of all the beneficiaries;
- - Securities held by a general or limited partnership in which an Access
Person is either the general partner of such partnership or a controlling
partner of such entity (E.G., Access Person owns more than 25% of the
partnership's general or limited partnership interests);
- - Securities held by a personal holding company controlled by an Access
Person alone or jointly with others;
- - Securities held in the name of an Access Person's spouse - unless legally
separated or divorced;
- - Securities held in the name of minor children of an Access Person or in the
name of any relative of an Access Person or of their spouse (including an
adult child) who is presently sharing the Access Person's home;
- - Securities held in the name of any person other than an Access Person and
those listed in above, if by reason of any contract, understanding,
relationship, agreement, or other arrangement the Access Person obtains
benefits equivalent to those of ownership; and
- - Securities held in the name of any person other than an Access Person ,
even though the Access Person does not obtain benefits equivalent to those
of ownership (as described above), if the Access Person can vest or re-vest
title in himself.
II-1
<PAGE>
- -------------------------------------------------------------------------------
APPENDIX III
- -------------------------------------------------------------------------------
QUICK REFERENCE GUIDE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION PRE- CLEAR REPORT BLACK-OUT HOLDING TRADING FINE DISGORGEMENT
PERIOD PERIOD APPLIES REQUIRED
("Blue Form")
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EXEMPT SECURITIES:
Open-end mutual funds, US Gov't securities,
BAs, CDs, CP, Muni bonds and stock indices NO NO NO NO N/A N/A
- --------------------------------------------------------------------------------------------------------------------------------
EXEMPT TRANSACTIONS:
No control or influence, non-voluntary,
automatic dividend reinvestment plan,
exercise of pro-rata rights issue, options NO NO NO NO N/A N/A
or futures on commodities, currencies or
interest rates
- --------------------------------------------------------------------------------------------------------------------------------
DE MINIMIS TRANSACTIONS:
1,000 shares or $10,000 and NYSE or other
listed domestic exchange, including NASDAQ, NO YES NO YES YES YES
and market cap = $2 billion (daily limit)
- --------------------------------------------------------------------------------------------------------------------------------
= 500 shares, NYSE, or market cap = $500 YES YES NO YES YES YES
million
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: THIS INFORMATION IS PROVIDED AS A SUMMARY ONLY. YOU ARE RESPONSIBLE TO
ENSURE YOUR PERSONAL SECURITIES TRADING COMPLIES WITH THE CODE. PLEASE REFER TO
THE CODE FOR FURTHER DETAILS. IF YOU HAVE ANY QUESTIONS, PLEASE CONTACT
COMPLIANCE.
III-1
<PAGE>
- -------------------------------------------------------------------------------
APPENDIX IV
- -------------------------------------------------------------------------------
EXEMPT INDICES
- -------------------------------------------------------------------------------
The following are exempt from the 60-DAY MINIMUM hold rule and are exempt from
pre-clearance:
- - S&P 500 Index
- - S&P 100 Index
- - S&P Mid Cap Index (400 Issues)
- - S&P Small Cap Index (600 Issues)
- - NASDAQ 100 Index
- - Russell 2000 Index
- - Wilshire Small Cap Index (250 Issues)
- - EUROTOP 100 Index
- - Financial Times Stock Exchange (FT-SE) 100 Index
- - Japan Index (210 Issues)
- - NYSE Composite Index (2400 Issues)
- - PHLX National OTC Index (100 Issues)
- - Standard & Poor's Depository Receipts (SPDRs)
- - Standard & Poor's Mid Cap 400 Depository Receipts (Mid Cap SPDRs)
- - Gold/Silver Index Options
- - World Equity Benchmark Shares (WEBS)
- - JP Morgan Commodity Indexed Preferred Securities, Series A (Symbol JPO)
- - Dow Jones Industrials Diamonds (DIA)
- - NASDAQ 100 Shares (QQQ)
The Director of Compliance may approve any other Index on a case-by-case basis.
If you have any questions regarding the above, please contact the Compliance
Department.
IV-1
<PAGE>
- -------------------------------------------------------------------------------
APPENDIX V
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NEW HIRES:
PLEASE COMPLETE, SIGN & RETURN THE FOLLOWING 4 PAGES TO THE COMPLIANCE
DEPARTMENT WITHIN 5 DAYS OF YOUR DATE OF HIRE
YOU ARE NOT PERMITTED TO EXECUTE ANY PERSONAL
TRADES UNTIL THESE CERTIFICATES ARE FILED.
ANNUAL RECERTIFICATION (PRESENT EMPLOYEES):
YOU ARE REQUIRED TO COMPLETE, SIGN & RETURN THE FOLLOWING 4 PAGES TO THE
COMPLIANCE DEPARTMENT BY THE ANNUAL DUE DATE (STATED IN RENEWAL PACKET). IF IT
IS RECEIVED AFTER THAT DATE YOU WILL INCUR A FINE AS FOLLOWS - $50 FOR THE FIRST
DAY LATE & $10 EVERY DAY AFTER THAT.
ALL FINES ARE WRITTEN & SENT TO THE UNITED WAY.
YOU WILL ALSO BE RESTRICTED FROM TRADING UNTIL THESE
CERTIFICATES ARE RECEIVED IN COMPLIANCE (ONLY IF LATE).
THANK YOU
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
V-1
<PAGE>
- -------------------------------------------------------------------------------
NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS
NICHOLAS-APPLEGATE SECURITIES
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
CERTIFICATE OF COMPLIANCE
- -----------------------------------
NAME (PLEASE PRINT)
This is to certify that the Code of Ethics and Conduct ("Code"), updated as of
March 2000, is available for my review on the intranet site (home.nacm.com) for
the year 2000. I have read and understand the Code. I certify that I will comply
with these policies and procedures during the course of my employment by NACM or
NAS. Moreover, I agree to promptly report to the Director of Compliance any
violation, or possible violation of this Code, of which I become aware.
I understand that a violation of this Code will be grounds for disciplinary
action or dismissal and may also be a violation of federal and/or state
securities laws.
- ------------------------------------
SIGNATURE
- ------------------------------------
DATE
- -------------------------------------------------------------------------------
V-2
<PAGE>
- -------------------------------------------------------------------------------
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
NICHOLAS-APPLEGATE SECURITIES
INSIDER TRADING POLICY
{APPENDIX I}
CERTIFICATE OF COMPLIANCE
- ------------------------------------
NAME (PLEASE PRINT)
This is to certify that I have read and understand the policies and procedures
of NA's Insider Trading Policy (the "Policy"), updated as of March 2000, and
available for my review on the intranet site (home.nacm.com) for the year 2000.
I certify that I will comply with these policies and procedures during the
course of my employment with NA. Moreover, I agree to promptly report to the
Director of Compliance any violation, or possible violation, of the Policy of
which I became aware.
I understand that violation of the Policy will be grounds for disciplinary
action or dismissal and may also be a violation of federal and/or state
securities laws.
- ------------------------------------
SIGNATURE
- ------------------------------------
DATE
- -------------------------------------------------------------------------------
V-3
<PAGE>
PERSONAL HOLDINGS REPORT
AS REQUIRED IN Section V of the NA's Code of Ethics ("Code"), please provide a
list of all Securities (except Exempt Securities) in which you have a beneficial
interest, including those in accounts of your immediate family and all
Securities in non-client accounts for which you make investment decisions.
1. List all Securities that are:
a) personally owned; or
b) in which a beneficial interest is held by you, your spouse, minor
child, or any other member of your immediate household;
c) any trust or estate of which you or your spouse is a trustee,
other fiduciary or beneficiary, or of which your minor child is a
beneficiary; or
d) any person for whom you direct or effect transactions under a
power of attorney or otherwise.
TABLE A
-------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
NAME OF SECURITY TYPE SECURITY(1) HOLDINGS HOLDINGS RELATIONSHIP(3) DISCLAIMER OF
# OF SHARES PRINCIPAL BENEFICIAL INTEREST(4)
AMOUNT ($)(2)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* IF NONE, WRITE NONE.
*NOTE: CONTINUE LISTING AS NECESSARY ON ADDITIONAL SHEETS. (YOU MAY ATTACH
A COPY OF A BROKER STATEMENT LISTING THE INFORMATION - IF SO, INDICATE BY
WRITING "SEE ATTACHED.")
IF YOU ARE A PRESENT EMPLOYEE (NEW EMPLOYEES CONTINUE TO TABLE B)
- -----------------------------------------------------------------
2. Have you, during the past 12 months, requested prior clearance of and
filed monthly reports for all applicable securities transactions as
required by the Code?
Yes No
-----------------------------------
If "No", has the transaction been discussed with the Compliance
Department?
Yes No
-----------------------------------
- -------------------------------
(1) INSERT THE FOLLOWING SYMBOL AS PERTINENT TO INDICATE THE TYPE OF SECURITY
HELD: C-COMMON STOCK, P-PREFERRED STOCK, O-OPTION, W-WARRANT AND D-DEBT
SECURITY.
(2) TO BE COMPLETED ONLY FOR DEBT SECURITIES.
(3) INSERT a, b, c, OR d AS EXPLAINED ABOVE, TO DESCRIBE YOUR INTEREST IN THESE
SECURITIES.
(4) MARK X TO INDICATE THAT THE REPORTING OR RECORDING OF THIS SECURITIES
HOLDING SHALL NOT BE CONSTRUED AS AN ADMISSION THAT YOU HAVE ANY DIRECT OR
INDIRECT BENEFICIAL INTEREST IN THESE SECURITIES. Please see Appendix ii for a
list of examples of beneficial interest.
V-4
<PAGE>
If not, please advise the Compliance Department in writing separately
of any securities transactions not pre-cleared or reported.
3. Have you filed monthly reports for all reportable securities
transactions as required by the Code?
Yes No
-----------------------------------
In addition, Nicholas-Applegate requires all employees to disclose ALL
BROKERAGE ACCOUNTS in their name, any spouse's account, any children's
account or any other account over which the employee has control or is
a beneficiary.
TABLE B
-------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
NAME OF BROKER ACCOUNT NUMBER NAME(S) ON ACCOUNT
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* IF NONE, WRITE NONE.
I certify that the statements made by me on this form are true, complete and
correct to the best of my knowledge and belief and are made in good faith.
- ----------------------------------- -------------------------------------
DATE SIGNATURE
V-5
