<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON SEPTEMBER 30, 1997
REGISTRATION NO. 33-57684; 811-7454
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 10 X
AND ---
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 12 X
(CHECK APPROPRIATE BOX OR BOXES) ---
---------------------
PACIFIC CAPITAL FUNDS
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
3435 STELZER ROAD
COLUMBUS, OHIO 43219-3035
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
---------------------
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (800) 554-3862
IRIMGA MCKAY
1230 COLUMBIA STREET
SAN DIEGO, CALIFORNIA 92101
(NAME AND ADDRESS OF AGENT FOR SERVICE)
WITH A COPY TO:
JOEL H. GOLDBERG, ESQ.
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE
BOX):
_ IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (b)
_ ON (DATE) PURSUANT TO PARAGRAPH (b)
X 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)(i)
_ ON (DATE) PURSUANT TO PARAGRAPH (a)(i)
_ 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)(ii)
_ ON (DATE) PURSUANT TO PARAGRAPH (a) (ii) OF RULE 485
IF APPROPRIATE, CHECK THE FOLLOWING BOX:
_ THIS POST-EFFECTIVE AMENDMENT DESIGNATES A NEW EFFECTIVE DATE FOR A
PREVIOUSLY FILED POST-EFFECTIVE AMENDMENT
_ 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)(i)
_ ON (DATE) PURSUANT TO PARAGRAPH (a)(i)
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Securities Being Amount Being Proposed Maximum Proposed Maximum Amount of Registration
Registered Registered Offering Price Per Aggregate Offering Price Fee
Share*
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of beneficial
interest, no par value 4,296,001 $11.94 N/A $0
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* THE TOTAL NUMBER OF SHARES REDEEMED DURING THE FISCAL YEAR ENDED JULY 31,
1997 AMOUNTED TO 21,348,987 SHARES. OF THIS NUMBER, NO SHARES HAVE BEEN USED
FOR REDUCTION PURSUANT TO PARAGRAPH (A) OF RULE 24E-2 IN ALL PREVIOUS FILINGS
OF POST-EFFECTIVE AMENDMENTS DURING THE CURRENT YEAR AND 17,052,985 SHARES
HAVE BEEN USED FOR REDUCTION PURSUANT TO PARAGRAPH (C) OF RULE 24F-2 IN ALL
PREVIOUS FILINGS DURING THE CURRENT YEAR. 4,296,001 ($51,304,267) OF THE
REDEEMED SHARES FOR THE FISCAL YEAR ENDED JULY 31, 1997 ARE BEING USED FOR THE
REDUCTIONS IN THE POST-EFFECTIVE AMENDMENT BEING FILED HEREIN.
PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT OF 1940, REGISTRANT
PREVIOUSLY ELECTED TO REGISTER AN INDEFINITE NUMBER OF SHARES OF BENEFICIAL
INTEREST, NO PAR VALUE. A RULE 24F-2 NOTICE WAS LAST FILED ON SEPTEMBER 29,
1997.
<PAGE> 2
PACIFIC CAPITAL FUNDS
Cross Reference Sheet
================================================================================
Part A Prospectus Captions
1 Cover Page
2 Fund Expenses; Highlights
3 (a) & (b) Financial Highlights
4 Investment Objectives and Policies of the Funds; General
Information
5 Highlights; Management, Advisory, and Other Service
Arrangements; General Information; Additional Discussion
Regarding Permitted Investment Activities; Additional Risk
Disclosure
5A Not Applicable
6 General Information; Dividend and Tax Information
7 How to Purchase Class A and Class B Shares; How to Purchase
Class Y Shares; Management, Advisory and Other Service
Arrangements; Valuation of Class A and Class B Shares;
Valuation of Class Y Shares
8 How to Redeem Class A and Class B Shares; How to Redeem
Class Y Shares
9 Not Applicable
- --------------------------------------------------------------------------------
Part B Statement of Additional Information Captions
- --------------------------------------------------------------------------------
10 Cover
11 Cover
12 Not Applicable
13 Investment Restrictions; Additional Information on Fund
Investments
14 Management
15 Management
16 Management; Distribution and Shareholder Service Plan;
Custodian; Independent Auditors
17 Portfolio Transactions
18 Capital Stock
19 Determination of Net Asset Value
20 Tax Information
21 Distribution and Shareholder Service Plan
22 Calculation of Yield and Total Return
23 Financial Statements
- --------------------------------------------------------------------------------
Part C Other Information
- --------------------------------------------------------------------------------
24-32 Information required to be included in Part C is set forth
under the appropriate item, so numbered, in Part C of
this document.
<PAGE> 3
PACIFIC CAPITAL FUNDS
GROWTH AND INCOME FUND
GROWTH STOCK FUND
BALANCED FUND
3435 Stelzer Road
Columbus, Ohio 43219-3035
Pacific Capital Funds (the "Trust") is a professionally managed, open-end,
management investment company with multiple funds available for investment. This
Prospectus contains information about three of the funds of the Trust--the
Growth and Income Fund, the Growth Stock Fund and the Balanced Fund (each a
"Fund" and collectively, the "Funds"). The Funds are advised by Pacific Century
Trust ("Pacific Century"), a division of Bank of Hawaii and sponsored,
administered and distributed by BISYS Fund Services ("BISYS" or the
"Distributor"). The Balanced Fund has not yet commenced operations.
This Prospectus relates to the Class A and Class B shares of each Fund;
certain investors may qualify to invest in a Fund's Class Y shares, which are
not offered hereby. See "General Information--Description of the Trust and its
Shares." This Prospectus sets forth concisely the information a prospective
investor should know before investing in any of the Funds. Investors should read
this Prospectus carefully and retain it for future reference. A Statement of
Additional Information ("SAI") dated November 29, 1997 containing additional
information about the Funds has been filed with the Securities and Exchange
Commission (the "Commission") and is hereby incorporated by reference into this
Prospectus. The SAI is available without charge and can be obtained by writing
to the Funds at the address printed above or by calling 800-258-9232.
FOR PURCHASE, REDEMPTION, ACCOUNT OR GENERAL INQUIRIES, CONTACT THE TRUST'S
TRANSFER AGENT: ADMINISTRATIVE DATA MANAGEMENT CORPORATION, 581 MAIN STREET,
WOODBRIDGE, NEW JERSEY 07095
800-258-9232
THIS PROSPECTUS SHOULD BE READ
AND RETAINED FOR FUTURE REFERENCE
------------------------
SHARES OF PACIFIC CAPITAL FUNDS ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR
GUARANTEED BY, BANK OF HAWAII OR ANY OF ITS AFFILIATES. SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
AGENCY. AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
PROSPECTUS DATED NOVEMBER 29, 1997
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Highlights............................................................................ 1
Fund Expenses......................................................................... 3
Financial Highlights.................................................................. 5
Investment Objectives and Policies of the Funds....................................... 6
Additional Discussion Regarding Permitted Investment Activities....................... 7
Additional Investment Restrictions.................................................... 14
Management, Advisory and Other Service Arrangements................................... 15
Valuation of Class A and Class B Shares............................................... 18
How to Purchase Class A and Class B Shares............................................ 18
How to Redeem Class A and Class B Shares.............................................. 25
Dividend and Tax Information.......................................................... 27
General Information................................................................... 29
</TABLE>
<PAGE> 5
HIGHLIGHTS
This Prospectus describes the Funds, each of which has its own distinct
investment objectives and policies, which are described and summarized here.
GROWTH AND INCOME FUND--The primary investment objective of the Growth and
Income Fund, a diversified portfolio, is to seek current income. A secondary
objective of the Growth and Income Fund is long-term capital appreciation.
Growth and Income Fund pursues these objectives by investing primarily in a
diversified portfolio of high quality, dividend paying common stocks and
securities that are convertible into common stocks.
GROWTH STOCK FUND--The primary investment objective of the Growth Stock
Fund, a diversified portfolio, is to provide investors with long-term capital
appreciation. Income generation is a secondary objective of the Growth Stock
Fund. Growth Stock Fund pursues these objectives by investing primarily in
common stocks and securities that are convertible into common stocks of both
domestic and foreign companies. The Growth Stock Fund may invest in securities
issued by large, well-established companies, as well as those issued by smaller
companies, subject to a minimum market capitalization of $50 million. There may
be some additional risks associated with investments in smaller companies. See
"Additional Discussion Regarding Permitted Investment Activities--Additional
Risk Disclosure."
BALANCED FUND--The primary investment objective of the Balanced Fund, a
diversified portfolio, is to seek current income. A secondary objective of the
Balanced Fund is long-term capital appreciation. The Balanced Fund pursues these
objectives by investing in a diversified portfolio of common stocks, preferred
stocks, bonds and securities that are convertible into common stocks. Common
stocks will be selected on the basis of strong earnings growth trends,
above-average prospects for future earnings growth, and diversification among
industries and companies. Preferred stocks, bonds and convertible securities
will be selected on the basis of strong earnings and credit record, the ability
to provide current income, and the other characteristics described above with
respect to common stocks.
CERTAIN RISKS
Stocks held in the Funds' portfolios are subject to market risk (i.e., the
possibility that common stock prices will decline over short or even extended
periods). The U.S. stock market experiences periods when stock prices rise and
periods when stock prices decline. The Growth Stock Fund may invest a
significant portion of its assets in the securities of smaller and newer
issuers. Investments in such companies may present greater opportunities for
capital appreciation because of high potential earnings growth, but they may
also involve greater risk. Such companies, relative to larger concerns, may have
limited product lines, markets or financial resources, or may depend on a small
group of key managers. Their securities may trade less frequently or in limited
volume, or only in the over-the-counter market or on a regional securities
exchange. As a result, these securities may fluctuate in value more than those
of larger, more established companies and, as a group, may suffer more severe
price declines during periods of generally declining equity prices.
There can, of course, be no assurance that any mutual fund will achieve its
investment objective. In addition, unlike insured bank deposits, an investment
in the Funds is not insured against loss of principal. Equity securities such as
those in which the Funds may invest are more volatile and carry more risk than
some other forms of investment, such as short-term high-grade fixed income
securities. Depending upon the performance of a Fund's investments, the net
asset value per share of that Fund may decrease instead of increase.
PROSPECTUS
1
<PAGE> 6
For additional information concerning the investment policies and practices
of the Funds, see "Investment Objectives and Policies of the Funds," "Additional
Discussion Regarding Permitted Investment Activities" and "Additional Investment
Restrictions" in this Prospectus. Further information also is provided in the
SAI.
PURCHASE OF CLASS A AND CLASS B SHARES
Class A and Class B shares of each Fund are sold on a continuous basis and
may be purchased by mail or by electronic transfer. See "How to Purchase Class A
and Class B Shares." Initial purchases may be made with a minimum investment of
$1,000 (the $1,000 minimum may be waived or reduced for certain accounts; the
minimum initial purchase is $250 for Individual Retirement Accounts ("IRAs") and
$100 for Auto Invest Plan participants). Subsequent investments may be made with
as little as $50. For more information about purchasing Fund shares call ADM at
1-800-258-9232 or contact your Participating Organization (defined below).
Class A shares of the Funds are offered at net asset value plus a sales
load at the time of purchase. Class B shares of the Funds are offered at net
asset value without the imposition of a sales charge at the time of purchase,
but are charged a deferred sales charge if shares are redeemed within six years
of purchase. See "Valuation of Class A and Class B Shares." Only institutions
(including Bank of Hawaii and its affiliated and correspondent banks)
("Institutions") acting on behalf of customers having a qualified trust account,
employee benefit account or other qualifying relationship at such Institution
are eligible to invest in the Class Y shares of each Fund, which are not offered
hereby. See "General Information."
DIVIDENDS AND DISTRIBUTIONS
The Funds will declare and pay dividends of substantially all of their net
income monthly. Any net capital gains of a Fund will be distributed at least
annually. At an investor's choice, dividends are paid by mail, directly
deposited into a financial institution account, or automatically reinvested,
without sales charges, in additional shares at the then-current net asset value.
If no election is made, dividends will be automatically reinvested. See
"Dividend and Tax Information."
PACIFIC CENTURY AND BISYS
For its services as investment adviser to the Funds, Pacific Century
receives a fee from each Fund at annual rates that are based on the Fund's
average daily net assets. See "Fund Expenses" and "Management, Advisory and
Other Service Arrangements." A division of Bank of Hawaii, Pacific Century was
founded in 1898 and is the oldest and largest trust company in Hawaii. It has
investment management authority over approximately $7.5 billion in client
financial assets. Pacific Century is not authorized to and does not carry on a
banking business.
BISYS provides certain administrative services to the Funds, for which each
Fund pays it a fee at an annual rate based on the Fund's average daily net
assets. BISYS also distributes the Funds' shares, for which it may receive
certain additional fees. See "Management, Advisory and Other Service
Arrangements."
REDEMPTION OF CLASS A AND CLASS B SHARES
Class A and Class B shares may ordinarily be redeemed by mail or by
telephone. However, all or part of a customer's shares may be subject to
redemption in accordance with instructions and limitations pertaining to his or
her account held by a Participating Organization. See "How to Redeem Class A and
Class B Shares."
PROSPECTUS
2
<PAGE> 7
FUND EXPENSES
The following Table of Expenses lists the costs and expenses that a
shareholder can expect to incur as an investor in Class A and Class B shares of
a Fund. Certain investors may qualify to invest in a Fund's Class Y shares,
which are not offered hereby. Long-term Class A and Class B shareholders could
pay more in distribution related charges than the economic equivalent of the
maximum front-end sales charges applicable to mutual funds sold by members of
the National Association of Securities Dealers, Inc. ("NASD").
TABLE OF EXPENSES(a)
<TABLE>
<CAPTION>
GROWTH AND GROWTH BALANCED
INCOME FUND STOCK FUND FUND
---------------------- ---------------------- ----------------------
CLASS A CLASS B(b) CLASS A CLASS B(b) CLASS A CLASS B(b)
------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases
(as a percentage of offering
price)....................... 4.00% None 4.00% None 4.00% None
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering
price)......................... None None None None None None
Deferred Sales Load (as a
percentage of original purchase
price or redemption proceeds,
as applicable)................. None 5.00% None 5.00% None 5.00%
Redemption Fee(c)................. None None None None None None
Exchange Fee...................... None None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net
assets)
Management Fees................... 0.80% 0.80% 0.80% 0.80% 0.80% 0.80%
12b-1 Fees (after waivers)........ 0.25% 1.00% 0.25% 1.00% 0.25% 1.00%
Other Expenses (after waivers and
reimbursements)................ .27% .27% .27% .27% .27% .27%
Total Fund Operating Expenses
(after waivers)................ 1.32% 2.07% 1.32% 2.07% 1.32% 2.07%
</TABLE>
EXAMPLE
A shareholder would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return(d) and (2) redemption at the end of each time
period.
<TABLE>
<CAPTION>
GROWTH AND GROWTH BALANCED
INCOME FUND STOCK FUND FUND
---------------------- ---------------------- ----------------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Time Period
1 year........................ $53 $71 $53 $71 $53 $71
3 years....................... $80 $95 $80 $95 $80 $95
5 years....................... $109 $131 $109 $131 $109 $131
10 years...................... $193 $221 $193 $221 $193 $221
</TABLE>
A shareholder would pay the following expenses on the same $1,000
investment, assuming no redemption.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1 year........................ -- $21 -- $21 -- $21
3 years....................... -- $65 -- $95 -- $95
5 years....................... -- $111 -- $111 -- $111
10 years...................... -- $221 -- $221 -- $221
</TABLE>
PROSPECTUS
3
<PAGE> 8
- ------------
(a) Investors who purchase shares through a Participating Organization,
including an affiliate of Pacific Century or an Institution (as defined
above), may be charged account-level fees for additional services provided
to them by such Participating Organization in connection with investment in
a Fund.
(b) Class B shares automatically convert to Class A shares approximately eight
years after initial purchase. See "Conversion of Class B shares to Class A
shares."
(c) The Transfer Agent will reduce the amount of a wire redemption payment by
its then current wire redemption charge. As of the date of this Prospectus,
there is no charge for wire redemptions. While this policy is subject to
change at any time, it is not anticipated that such charge would exceed $7
per wire redemption.
(d) The assumed 5% annual return is hypothetical and should not be considered a
representation of past or future annual return. The actual rate of return
may be greater or lesser than the assumed rate. The Example should not be
considered a representation of past or future expenses, and actual expenses
may be greater or lesser than those shown.
EXPLANATION OF TABLE
The purpose of the foregoing table is to assist shareholders in
understanding the various costs and expenses that an investor in the Class A and
Class B shares of the Funds will bear directly or indirectly. With respect to
the Class A shares of Growth Stock Fund and Growth and Income Fund, the amounts
set forth under "Annual Fund Operating Expenses," as well as expense amounts
used in the Example, are based on actual amounts incurred during the most recent
fiscal year. With respect to the Class B shares of Growth Stock Fund and Growth
and Income Fund (which have not been publicly offered as of the date of this
Prospectus) all such amounts are based on estimated amounts for the current
fiscal year. With respect to the Class A and Class B shares of Balanced Fund
(which has not yet commenced operations as of this date of this Prospectus) all
such amounts are based on estimated amounts for the current fiscal year. See
"Management, Advisory and Other Service Arrangements--The Sponsor, Administrator
and Distributor." In addition, with respect to the Class A shares of the Funds,
"Rule 12b-1 Fees" have been adjusted to reflect the current fee payable (after
voluntary waiver) as of the date of this Prospectus. The Example set forth above
assumes reinvestment of all dividends and distributions and utilizes a 5% annual
rate of return as mandated by Securities and Exchange Commission regulations.
Pacific Century and BISYS each may elect, in its sole discretion, to
otherwise waive or reimburse its respective fees. Any such waivers or
reimbursements will reduce the total expenses of the Fund to which they apply,
thereby increasing yield or total return. As described above, with respect to
the Class A shares, the percentages shown above under "12b-1 Fees," "Other
Expenses" and "Total Fund Operating Expenses" for the Funds reflect voluntary
fee waivers and reimbursements. Absent such waivers and reimbursements, these
percentages would be (i) 0.75%, 0.31%, and 1.86% for the Class A shares of
Growth Stock Fund; (ii) 0.75%, 0.31% and 1.86% for the Class A shares of Growth
and Income Fund; and (iii) 0.75%, 0.31% and 1.86% for the Class A shares of
Balanced Fund. With respect to the Class B shares, the percentages shown above
under "Other Expenses" and "Total Fund Operating Expenses" for the Funds reflect
voluntary fee waivers and reimbursements. Absent such waivers and
reimbursements, these percentages would be (i) 0.31% and 2.11% for the Class B
shares of Growth Stock Fund; (ii) 0.31% and 2.11% for the Class B shares of
Growth and Income Fund; and, (iii) 0.31% and 2.11% for the Class B shares of
Balanced Fund. There can be no assurance that the foregoing waivers and expense
reimbursements will continue to apply.
PROSPECTUS
4
<PAGE> 9
FINANCIAL HIGHLIGHTS
The Financial Highlights in the table below set forth certain financial
data and investment results of the Growth Stock Fund and Growth and Income Fund
since the commencement of operations of the Class A shares of these Funds, and
are expressed in one share outstanding throughout the relevant period. The
Financial Highlights are derived from the financial statements of Pacific
Capital Funds which have been audited by Ernst & Young LLP, independent
auditors. The Financial Highlights should be read in conjunction with the
financial statements, related notes, and other financial information included in
the Statement of Additional Information. The Trust's annual report contains
additional performance information relating to the Funds and is available upon
request, without charge. Financial information is not presented for Class B
shares, since Class B shares were not publicly issued as of the date of this
Prospectus.
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND GROWTH STOCK FUND
CLASS A CLASS A
----------------------------------- ------------------------------------------------
YEAR YEAR OCT. 14, YEAR YEAR YEAR NOV. 1,
ENDED ENDED 1994 TO ENDED ENDED ENDED 1993 TO
JULY 31, JULY 31, JULY 31, JULY 31, JULY 31, JULY 31 JULY 31,
1997 1996 1995(A) 1997 1996 1995(F) 1994(A)
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.......................... $ 12.32 $ 11.44 $ 10.00 $ 11.89 $ 11.71 $ 9.83 $ 10.00
------- ------- ------ ------- ------- ------ -------
Investment Activities
Net investment income.......... 0.08 0.16 0.17 0.03 0.07 0.12 0.07
------- ------- ------ ------- ------- ------ -------
Net realized and unrealized
gain (loss) on investments.... 5.57 1.19 1.44 5.55 0.89 1.87 (0.18)
------- ------- ------ ------- ------- ------ -------
Total from Investment
Activities.................. 5.65 1.35 1.61 5.58 0.96 1.99 (0.11)
------- ------- ------ ------- ------- ------ -------
Distributions
Net investment income.......... (0.08) (0.15) (0.17) (0.03) (0.07) (0.11) (0.06)
------- ------- ------ ------- ------- ------ -------
In excess of net investment
income........................ (0.01) (0.01) -- (0.01) -- -- --
------- ------- ------ ------- ------- ------ -------
Net realized gains............. (0.63) (0.31) -- -- (0.22) -- --
------- ------- ------ ------- ------- ------ -------
In excess of net realized
gains......................... -- -- -- -- (0.49) -- --
------- ------- ------ ------- ------- ------ -------
Total Distributions.......... (0.72) (0.47) (0.17) (0.04) (0.78) (0.11) (0.06)
------- ------- ------ ------- ------- ------ -------
NET ASSET VALUE, END OF PERIOD... $ 17.25 $ 12.32 $ 11.44 $ 17.43 $ 11.89 $ 11.71 $ 9.83
======= ======= ====== ======= ======= ====== =======
Total Return (excludes sales
charges)........................ 47.59% 11.96% 16.35%(b) 47.02% 8.25% 20.43% (1.05%)(b)
RATIOS/SUPPLEMENTARY DATA:
Net assets at end of period
(000)......................... $ 3,726 $ 1,160 $ 328 $ 9,742 $ 5,261 $ 3,905 $ 56,121
Ratio of expenses to average
net assets.................... 1.32% 1.37% 1.40%(c) 1.32% 1.34% 1.36% 1.41%(c)
Ratio of net investment income
to average net assets......... 0.48% 1.03% 2.08%(c) 0.16% 0.60% 1.12% 0.98%(c)
Ratio of expenses to average
net assets*................... 1.86% 1.91% 1.99%(c) 1.86% 1.88% 1.98% 2.31%(c)
Ratio of net investment income
to average net assets*........ (0.06%) 0.49% 1.49% (0.38%) 0.06% 0.50% 0.07%(c)
Portfolio Turnover (d)........... 74.83% 80.83% 12.78% 32.20% 61.30% 32.40% 25.89%
Average Commission Rate paid
(e)............................. $ 0.0874 $ 0.0921 -- $ 0.0893 $ 0.0895 -- --
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. In addition, with
respect to the Growth Stock Fund, the investment adviser reimbursed
expenses. If such voluntary fee reductions and expense reimbursements had
not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund, as a whole,
without distinguishing between the classes of shares issued.
(e) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and sold
for which commissions were charged.
(f) The Financial Highlights presented for the Class A shares reflects
operations and distributions for the Fund, as a whole, for the period from
August 1, 1994 through October 13, 1994 combined with the operations and
distributions of the Class A shares only for the period from October 14,
1994 through July 31, 1995.
Balanced Fund has not yet commenced operations and, therefore, no
information is provided for the Fund.
PROSPECTUS
5
<PAGE> 10
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
Each Fund has its own investment objectives, as described earlier in this
Prospectus. Each Fund also follows its own investment policies and practices,
subject to certain investment restrictions, all described further below and in
"Additional Discussion Regarding Permitted Investment Activities." The SAI also
contains more specific descriptions of investment restrictions which govern the
investments of each of the Funds.
GROWTH AND INCOME FUND
The Growth and Income Fund invests primarily in a diversified portfolio of
high quality, dividend-paying common stocks and securities convertible into
common stocks. The Growth and Income Fund anticipates investing in securities
that currently have in the aggregate an above average dividend yield, with the
anticipation that the dividend will remain constant or be increased in the
future. These securities generally represent the core holdings of the Growth and
Income Fund. However, these holdings may be balanced with lower yielding but
higher growth-oriented securities to achieve more growth potential. Under normal
market conditions, the Growth and Income Fund will invest at least 65% of the
value of its total assets in income producing common stocks and securities
convertible into common stocks.
GROWTH STOCK FUND
The Growth Stock Fund invests primarily in common stocks and securities
that are convertible into common stocks of both domestic and foreign companies.
Under normal market conditions, the Growth Stock Fund will invest at least 65%
of its total assets in common stocks or securities convertible into common
stocks.
BALANCED FUND
The Balanced Fund will invest primarily in common stocks, preferred stocks,
bonds, and securities that are convertible into common stocks. Under normal
market conditions, the Balanced Fund will invest in common stocks, fixed income
securities and securities convertible into common stocks (i.e., warrants,
convertible preferred stock, fixed rate preferred stock, convertible
fixed-income securities, options and rights). At least 25% of the value of the
Balanced Fund's assets will be invested in senior fixed-income securities.
The Balanced Fund will invest in common stocks of issuers that exhibit
strong earnings growth trends and that are believed by the Fund to have
above-average prospects for future earnings growth. The Balanced Fund will
maintain a portfolio of common stocks diversified among industries and
companies. The Balanced Fund may invest in common stocks of large companies
(i.e., those companies with more than $750 million in capitalization) which the
Fund believes offer the potential for long-term earnings growth and/or
above-average dividend yield. Some investments may also be made in common stocks
of medium and smaller sized companies (i.e., those companies with at least $250
million, but less than $750 million in capitalization) which have the potential
to generate high levels of future revenue and earnings growth and where the
investment opportunity may not be fully reflected in the price of the securities
but which may involve greater volatility than investments in larger companies.
The Balanced Fund intends to invest less than 50% of its total assets in
the securities of medium and smaller sized companies and the remainder in
securities of larger sized companies. However, the actual percentage may vary
according to changes in market conditions and the judgment of Pacific Century of
how best to achieve the Balanced Fund's investment objective. For risk
disclosure regarding investments in medium and smaller sized companies, see
"Highlights--Certain Risks."
------------------------
Debt obligations acquired by the Funds will, at the time of purchase, be
rated investment grade or better, that is, obligations rated in one of the top
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four rating categories assigned by a nationally recognized statistical rating
organization (an "NRSRO"), or unrated obligations determined by Pacific Century
to be of comparable quality. See SAI, "Appendix A."
ADDITIONAL DISCUSSION REGARDING PERMITTED INVESTMENT ACTIVITIES
CONVERTIBLE SECURITIES
To the extent described above, the Funds may invest in convertible
securities that provide current income and are issued by companies with the
characteristics described above. The Funds may purchase convertible securities
that are fixed-income debt securities or preferred stocks, and which may be
converted at a stated price within a specified period of time into a certain
quantity of the common stock of the same or other issuers. Convertible
securities, while usually subordinated to nonconvertible debt securities of the
same issuer, are senior to common stocks in an issuer's capital structure.
Convertible securities may offer more flexibility by providing the investor with
a steady income stream (generally yielding a lower amount than nonconvertible
securities of the same issuer and a higher amount than common stocks) as well as
the opportunity to take advantage of increases in the price of the issuer's
common stock through the conversion feature. Convertible securities prices tend
to be influenced by changes in the market value of the common stock as well as
changes in interest rates. Convertible securities in which the Funds invest are
subject to the same rating criteria as the Funds' investments in debt
obligations. See "Investment Objectives and Polices of the Funds," above.
U.S. GOVERNMENT OBLIGATIONS
Each of the Funds may invest in U.S. Government Obligations which include,
in addition to U.S. Treasury Securities, the obligations of Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Government National Mortgage Association
("GNMA"), Student Loan Marketing Association ("SLMA"), Federal National Mortgage
Association ("FNMA"), Resolution Trust Corporation and Federal Home Loan
Mortgage Corporation ("FHLMC"). U.S. Treasury Securities and certain other
obligations of certain agencies and instrumentalities of the U.S. Government,
such as those of the GNMA, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of the Export-Import Bank of the United
States, are supported by the right of the issuer to borrow from the U.S.
Treasury; others, such as those of FNMA, are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; still
others, such as those of the SLMA, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government sponsored instrumentalities if it
is not obligated to do so by law. Some of these instruments may be variable or
floating rate instruments. The Funds will invest in the obligations of such
instrumentalities only when Pacific Century believes that the credit risk with
respect to the instrumentality is minimal.
BANK AND SAVINGS AND LOAN OBLIGATIONS
Each of the Funds may invest in Bank and Savings and Loan obligations.
These obligations include negotiable certificates of deposit, fixed-time
deposits, bankers' acceptances, and interest bearing demand accounts. The Funds
limit their bank investments to dollar-denominated obligations of U.S.,
Canadian, Asian or European banks which have more than $500 million in total
assets at the time of investment or of United States savings and loan
associations which have more than $1 billion in total assets at the time of
investment and, in the case of U.S. banks, are members of the Federal Reserve
System or are examined by the Comptroller of the Currency or whose deposits are
insured by the Federal Deposit Insurance Corporation.
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COMMERCIAL PAPER
Each of the Funds may invest in commercial paper that is rated at the time
of purchase in the highest short-term rating category by an NRSRO or unrated if
considered by Pacific Century to be of comparable quality. Commercial paper
includes short-term unsecured promissory notes, and variable floating rate
demand notes issued by domestic and foreign bank holding companies, corporations
and financial institutions as well as similar taxable and tax-exempt instruments
issued by government agencies and instrumentalities.
CORPORATE SECURITIES
Each of the Funds may invest in debt securities issued by domestic
corporations, U.S. dollar-denominated debt securities issued by Canadian
corporations, Yankee bonds and supra-national obligations. Yankee bonds are U.S.
dollar-denominated obligations issued by foreign governments or companies.
Supra-national obligations are U.S. dollar-denominated obligations issued by
international entities such as the World Bank and the Inter-American Development
Bank.
PREFERRED STOCK
Each of the Funds may invest in preferred stock which is a class of capital
stock that pays dividends at a specified rate and that has preference over
common stock in the payment of dividends and the liquidation of assets.
Preferred stock does not ordinarily carry voting rights.
ILLIQUID SECURITIES
Each of the Funds may invest in illiquid securities. The Funds will not
knowingly invest more than 15% of the value of their respective net assets in
securities that are illiquid. Repurchase agreements with a duration of more than
seven days, time deposits that do not provide for payment to a Fund within seven
days after notice, Guaranteed Investment Contracts ("GICs") and most commercial
paper issued in reliance upon the exemption in Section 4(2) of the Securities
Act of 1933 (the "1933 Act") (other than variable amount master demand notes
with maturities of nine months or less) are subject to this 15% limit.
If otherwise consistent with its investment objectives and policies, any of
the Funds may purchase securities which are not registered under the 1933 Act
but which can be sold to "qualified institutional buyers" in accordance with
Rule 144A under the 1933 Act. Any such security will not be considered illiquid
so long as it is determined by Pacific Century, acting under guidelines and
procedures that are developed, established and monitored by the Board of
Trustees, that an adequate trading market exists for that security. This
investment practice could have the effect of increasing the level of illiquidity
in the Funds during any period that qualified institutional buyers become
uninterested in purchasing these restricted securities. The ability to sell to
qualified institutional buyers under Rule 144A is a recent development, and it
is not possible to predict how this market will develop.
BORROWINGS
Each Fund may borrow from banks up to 20% of the current value of its net
assets for temporary purposes in order to meet redemptions. Each Fund may borrow
funds for temporary purposes by entering into reverse repurchase agreements
which are considered to be borrowings under the Investment Company Act of 1940
(the "1940 Act"). At the time a Fund enters into a reverse repurchase agreement
(an agreement under which the Fund sells portfolio securities and agrees to
repurchase them at an agreed upon date and price), it will place in a segregated
custodial account cash or other liquid assets having a value equal to or greater
than the repurchase price (including accrued interest) and will subsequently
monitor the account so that such value is maintained. Reverse repurchase
agreements involve the risk that the market value of the securities sold by a
Fund may decline below the price of the securities it is obligated to
repurchase. The Funds would pay interest on amounts obtained pursuant to a
reverse repurchase agreement.
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LOANS OF PORTFOLIO SECURITIES
Each of the Funds may lend securities from its portfolio to brokers,
dealers and financial institutions (but not individuals) if liquid assets equal
to the current market value of the securities loaned (including accrued interest
thereon) plus the interest payable to the Fund with respect to the loan is
maintained with the Fund. In determining whether to lend a security to a
particular broker, dealer or financial institution, Pacific Century will
consider all relevant facts and circumstances, including the creditworthiness of
the broker, dealer or financial institution. Any loans of portfolio securities
will be fully collateralized based on values that are marked to market daily by
Pacific Century. No Fund will enter into any portfolio security lending
arrangement having a duration of longer than one year. Any securities that a
Fund may receive as collateral will not become part of such Fund's portfolio at
the time of the loan and, in the event of a default by the borrower, the Fund
will, if permitted by law, dispose of such collateral except for such part
thereof that is a security in which such Fund may invest. During the time
securities are on loan, the borrower will pay the Fund any accrued income on
those securities, and the Fund may invest the cash collateral and earn
additional income or receive an agreed-upon fee from a borrower that had
delivered cash-equivalent collateral. No Fund will lend securities having a
value that exceeds 30% of the current value of its total assets. Loans of
securities by a Fund will be subject to termination at the Fund's or the
borrower's option. The Funds may pay reasonable administrative and custodial
fees in connection with a securities loan and may pay a negotiated portion of
the interest or fee earned with respect to the collateral to the borrower or the
placing broker. Borrowers and placing brokers may not be affiliated, directly or
indirectly, with the Trust, Pacific Century, or BISYS.
FUTURES CONTRACTS AND RELATED OPTIONS
Each of the Funds may enter into contracts for the future delivery of
securities and futures contracts based on a specific security, class of
securities, or an index, purchase or sell options on any such futures contracts
and engage in related closing transactions. A futures contract on a securities
index is an agreement obligating either party to pay, and entitling the other
party to receive, while the contract is outstanding, cash payments based on the
level of a specified securities index.
The Funds may engage in such futures contracts in an effort to hedge
against market risks and/or manage cash flow into the Funds. For example, when
interest rates are expected to rise or market values of portfolio securities are
expected to fall, the Funds can seek through the sale of futures contracts to
offset a decline in the value of its portfolio securities. When interest rates
are expected to fall or market values are expected to rise, the Funds, through
the purchase of such contracts, can attempt to secure better rates or prices for
the Funds than might later be available in the market when it effects
anticipated purchases. Alternatively, futures may be used to manage cash flows
into and out of the Funds. For example, the investment manager may wish to be
fully invested in a particular asset class. Through the use of futures, the
manager can achieve this objective immediately while temporarily deferring
industry and security selection, in the interest of timeliness.
The acquisition of put and call options on futures contracts will,
respectively, give the Funds the right (but not the obligation), for a specified
price, to sell or to purchase the underlying futures contract, upon exercise of
the option, at any time during the option period.
Aggregate initial margin deposits for futures contracts, and premiums paid
for related options, may not exceed five percent of each Fund's total assets,
and the value of securities that are the subject of such futures and options
(both for receipt and delivery) may not exceed one-third of the market value of
each Fund's total assets. Futures transactions will be limited to the extent
necessary to maintain each Fund's qualification as a regulated investment
company.
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<PAGE> 14
Futures transactions involve brokerage costs and require the Funds to
segregate assets to cover its obligations under futures, or to cover its
obligations by owning the assets underlying open futures contracts. The Funds
may lose the expected benefit of futures transactions if interest rates,
exchange rates or securities prices move in an unanticipated manner. Such losses
are potentially significant and unanticipated changes may also result in poorer
overall performance than if the Funds had not entered into any futures
transactions. In addition, the value of each Fund's futures positions may not
prove to be perfectly or even highly correlated with the value of its portfolio
securities, limiting each Fund's ability to hedge effectively against interest
rate, exchange rate and/or market risk and giving rise to additional risks.
There is no assurance of liquidity in the secondary market for purposes of
closing out futures positions. Where a liquid secondary market does not exist, a
Fund is unlikely to be able to control losses by closing out futures positions.
Finally, gains and losses on investments in options and futures depend on
Pacific Century's ability to predict correctly the direction of stock prices,
interest rates and other economic factors.
ASSET BACKED SECURITIES
Each of the Funds may invest in Asset Backed Securities. Asset Backed
Securities arise through the grouping by governmental, government-related, and
private organizations of loans, receivables, and other assets originated by
various lenders. Asset Backed Securities acquired by a Fund consist of both
mortgage and non-mortgage backed securities. Interest in pools of these assets
differ from other forms of debt securities, which normally provide for periodic
payment of interest in fixed amounts with principal paid at maturity or
specified call dates. Instead, Asset Backed Securities provide periodic payments
which generally consist of both interest and principal payments.
The life of an Asset Backed Security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of an Asset Backed Security, will be primarily a function of
current market interest rates, although other economic and demographic factors
may be involved. For example, falling interest rates generally result in an
increase in the rate of prepayments of mortgage loans while rising interest
rates generally decrease the rate of prepayments. An acceleration in prepayments
in response to sharply falling interest rates will shorten the security's
average maturity and limit the potential appreciation in the security's value
relative to a conventional debt security. Consequently, Asset Backed Securities
are not as effective in locking in high, long-term yields. Conversely, in
periods of sharply rising rates, prepayments are generally slow, increasing the
security's average life and its potential for price depreciation.
Mortgage backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself.
One such type of mortgage backed security is a GNMA Certificate. GNMA
Certificates are backed as to the timely payment of principal and interest by
the full faith and credit of the U.S. Government. Another type is a FNMA
Certificate; the principal and interest of which are guaranteed only by FNMA
itself, not by the full faith and credit of the U.S. Government. Another type is
a FHLMC Participation Certificate. This type of obligation is guaranteed by
FHLMC as to timely payment of principal and interest. However, like a FNMA
security, it is not guaranteed by the full faith and credit of the U.S.
Government. Mortgage backed securities issued by private issuers, whether or not
such obligations are subject to guarantees by the private issuer, may entail
greater risk than obligations directly or indirectly guaranteed by the U.S.
Government. Such securities will be purchased for the Funds only when Pacific
Century determines that they are readily marketable at the time of purchase.
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The average life of mortgage backed securities varies with the maturities
of the underlying mortgage instruments, which have maximum maturities of 40
years. The average life is likely to be substantially less than the original
maturity of the mortgage pools underlying the securities as the result of
mortgage prepayments, mortgage refinancings, or foreclosures. The rate of
mortgage prepayments, and hence the average life of the certificates, will be a
function of the level of interest rates, general economic conditions, the
location and age of the mortgage and other social and demographic conditions.
Such prepayments are passed through to the registered holder with the regular
monthly payments of principal and interest and have the effect of reducing
future payments. Estimated average life will be determined by Pacific Century
and used for the purpose of determining, respectively, the average weighted
maturity of the Funds. Various independent mortgage backed securities dealers
publish average remaining life data using proprietary models and, in making such
determinations for the Funds, Pacific Century might deem such data unreasonable
if such data appeared to present a significantly different average remaining
expected life for a security when compared to data relating to the average
remaining life of comparable securities as provided by other independent
mortgage backed securities dealers.
The Funds also may invest in non-mortgage backed securities including
interests in pools of receivables, such as motor vehicle installment purchase
obligations and credit card receivables. Such securities are generally issued as
pass-through certificates, which represent undivided fractional ownership
interests in the underlying pool of assets. Such securities also may be debt
instruments, which also are known as collateralized obligations and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt.
Non-mortgage backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities. Non-mortgage backed securities will be purchased
by the Funds only when such securities are readily marketable and rated in one
of the two highest rating categories by an NRSRO or if unrated, deemed to be of
comparable quality at the time of purchase. In addition, such securities
generally will have remaining estimated lives at the time of purchase of five
years or less. See the SAI, "Additional Information on Fund Investments."
REPURCHASE AGREEMENTS
The Funds may enter into repurchase agreements wherein the seller of a
security to the Fund agrees to repurchase that security from the Fund at a
mutually agreed-upon time and price. The period of maturity is usually quite
short, often overnight or a few days, although it may extend over a number of
months. A Fund may enter into repurchase agreements only with respect to
obligations that could otherwise be purchased by the Fund. All repurchase
agreements will be fully collateralized based on values that are marked to
market daily by Pacific Century. If the seller defaults and the value of the
underlying securities has declined, the Fund may incur a loss. In addition, if
bankruptcy proceedings are commenced with respect to the seller of the security,
the Fund's disposition of the security may be delayed or limited.
OTHER INVESTMENT COMPANIES
In connection with the management of its daily cash position, each of the
Funds may invest in securities issued by other investment companies, including
(to the extent permitted by the 1940 Act) other investment companies managed by
Pacific Century. Securities of other investment companies will be acquired by a
Fund within the limits prescribed by the 1940 Act. Each of the Funds intends to
limit its investments so that as determined immediately after a securities
purchase is made: (a) not more than 5% of the value of its total assets will be
PROSPECTUS
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invested in the securities of any one investment company; (b) not more than 10%
of the value of its total assets will be invested in the aggregate in securities
of investment companies as a group; (c) not more than 3% of the outstanding
voting stock of any one investment company will be owned by the Fund; and (d)
the Fund, together with other investment companies having the same investment
adviser and companies controlled by such companies, owns not more than 10% of
the total stock of any one closed-end company. As a shareholder of another
investment company, a Fund would bear, along with other shareholders, its pro
rata portion of the other investment company's expenses, including advisory
fees. These expenses would be in addition to the advisory and other expenses
that a Fund bears directly in connection with its own operations. However,
Pacific Century has undertaken to waive or reimburse the Funds its advisory fees
with respect to Fund assets so invested (except when such purchase is part of a
plan of merger, consolidation, reorganization or acquisition).
REAL ESTATE MORTGAGE INVESTMENT CONDUITS
Each of the Funds may invest in Real Estate Mortgage Investment Conduits
("REMICs"). REMICs are a pass-through vehicle created to issue multiclass
mortgage-backed securities. REMICs may be organized as corporations,
partnerships, or trusts and those meeting certain qualifications are not subject
to double taxation. Interests in REMICs may be senior or junior, regular (debt
instruments) or residual (equity interests).
FLOATING AND VARIABLE RATE DEBT INSTRUMENTS
Each of the Funds may invest in floating and variable rate debt
instruments. Floating and variable rate debt instruments bear interest at rates
that are not fixed, but vary with changes in specified market rates or indices
or at specified intervals. Certain of these instruments may carry a demand
feature that would permit the holder to tender them back to the issuer at a par
value prior to maturity. The floating and variable rate instruments that the
Funds may purchase include certificates of participation in such obligations
purchased from banks. Pacific Century will monitor on an ongoing basis the
ability of an issuer of a demand instrument to make payment when due, which
could be affected by events occurring between the date the Funds elect to demand
payment and the date payment is due, except when such demand instruments permit
same-day settlement. In this regard, Pacific Century, pursuant to direction of
the Board of Trustees, will determine the liquidity of those instruments with
demand features that cannot be exercised within seven days.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Each of the Funds may purchase securities on a "when-issued" basis and may
also purchase or sell securities on a "forward commitment" basis. These
transactions, which involve a commitment by a Fund to purchase or sell
particular securities with payment and delivery taking place at a future date
(perhaps one or two months later), permit a Fund to lock-in a price or yield on
a security it owns or intends to purchase, regardless of future changes in
interest rates. When-issued and forward commitment transactions involve the
risk, however, that the yield obtained in a transaction may be less favorable
than the yield available in the market when the securities delivery takes place.
The Funds do not intend to engage in when-issued purchases and forward
commitments for speculative purposes but only in furtherance of their investment
objectives. The forward commitments and when-issued purchases are not expected
to exceed 25% of the value of any of the Funds' total assets absent unusual
market conditions.
The Funds will not start earning interest or dividends on when-issued
securities until they are received. The value of the securities underlying a
when-issued purchase or a forward commitment to purchase securities, and any
subsequent fluctuations in their value, is taken into account when determining
the net asset value of a Fund starting on the date such Fund agrees to purchase
the securities. Each Fund will establish a segregated account in which it will
maintain liquid assets in an amount at least equal in value to such Fund's
commitment to
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purchase securities on a when-issued or forward commitment basis. If the value
of these assets declines, the Fund will replace additional liquid assets in the
account on a daily basis so that the value of the assets in the account is equal
to the amount of such commitments.
LETTERS OF CREDIT AND LIQUIDITY AGREEMENTS
Each of the Funds may purchase debt obligations that are backed by an
irrevocable letter of credit or liquidity agreement of a bank, savings and loan
association or insurance company which assumes the obligation for payment of
principal and interest in the event of default by the issuer. Only banks,
savings and loan associations and insurance companies which, in the opinion of
Pacific Century, are of investment quality comparable to other permitted
investments of such Fund, may be used for letter of credit and liquidity
agreement backed investments.
FOREIGN SECURITIES
Each of the Funds may invest in securities of foreign governmental and
private issuers that are denominated in and pay interest in U.S. dollars.
Investments in foreign securities involve certain considerations that are not
typically associated with investing in domestic securities. There may be less
publicly available information about a foreign issuer than about a domestic
issuer. Foreign issuers also are not generally subject to the same accounting,
auditing and financial reporting standards or governmental supervision as
domestic issuers. In addition, with respect to certain foreign countries, tax on
interest, gains and/or dividends may be withheld at the source under foreign
income tax laws, and there is a possibility of expropriation or confiscatory
taxation, political or social instability or diplomatic developments that could
adversely affect investments in, the liquidity of, and the ability to enforce
contractual obligations with respect to, securities of issuers located in those
countries.
WARRANTS
Each of the Funds may invest in warrants. A warrant gives the holder
thereof the right to subscribe by a specified date to a stated number of shares
of stock of the issuer at a fixed price. Warrants tend to be more volatile than
the underlying stock, and if at a warrant's expiration date the stock is trading
at a price below the price set in the warrant, the warrant will expire
worthless. Conversely, if at the expiration date the stock is trading at a price
higher than the price set in the warrant, the Fund can acquire the stock at a
price below its market value. No Fund may invest more than 10% of its net assets
in warrants.
OPTIONS
Each of the Funds may purchase put and call options and write covered put
and call options on securities in which such Fund may invest directly and that
are traded on registered domestic securities exchanges or that result from
separate, privately negotiated transactions with primary U.S. Government
securities dealers recognized by the Board of Governors of the Federal Reserve
System in an amount not exceeding 5% of the Fund's net assets. Options may be
entered into in an attempt to hedge a Fund's portfolio against market risk or to
enhance income (e.g., to attempt to realize through the receipt of premiums a
greater current return than would be realized on the underlying securities
alone). See the SAI, "Additional Information on Fund Investments."
INTEREST ONLY OR PRINCIPAL ONLY OBLIGATIONS
Each of the Funds may make limited investments (not exceeding 5% of the
relevant Fund's net assets) in separately traded principal and interest
components of securities issued by the United States Treasury. The principal and
interest components of selected securities are traded independently under the
Separate Trading of Registered Interest and Principal of Securities program
("STRIPs"). Under the STRIPs program, the principal and interest components are
individually numbered and sep-
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arately issued by the U.S. Treasury at the request of depository financial
institutions, which then trade the component parts independently.
GUARANTEED INVESTMENT CONTRACTS
Each of the Funds may invest up to 5% of its net assets in Guaranteed
Investment Contracts ("GICs") issued by highly rated U.S. insurance companies.
GICs are considered to be illiquid, and accordingly, are subject to each Fund's
15% limitation on investment in illiquid securities. See the SAI, "Additional
Information on Fund Investments."
ADDITIONAL RISK DISCLOSURE
Obligations rated in the lowest of the top four rating categories by an
NRSRO have speculative characteristics, and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade bonds.
Subsequent to its purchase by a Fund, an issue of securities may cease to be
rated or its rating category may be reduced below the minimum rating required
for purchase by the respective Fund. Pacific Century will consider such an event
in determining whether the relevant Fund should continue to hold the obligation.
PORTFOLIO TURNOVER
Generally, the Funds will purchase portfolio securities for capital
appreciation or investment income, or both, and not for short-term trading
profits. However, a Fund may sell a portfolio investment soon after its
acquisition if Pacific Century believes that such a disposition is consistent
with attaining the investment objective of the particular Fund. Portfolio
investments may be sold for a variety of reasons, such as a more favorable
investment opportunity or other circumstances bearing on the desirability of
continuing to hold such investments. The annual portfolio turnover rate is not
expected to exceed 100% for any Fund. For the fiscal years ended July 31, 1997
and July 31, 1996, the portfolio turnover rate for Growth Stock Fund was 32.20%
and 61.30%, respectively. For the fiscal years ended July 31, 1997 and July 31,
1996, the portfolio turnover rate for Growth and Income Fund was 74.83% and
80.83%, respectively. See "Portfolio Transactions" in the SAI for additional
information relating to portfolio turnover.
INVESTMENT POLICIES
Each Fund's investment objectives, as set forth in the first paragraph of
the description of each Fund in the "Highlights" section, are fundamental; that
is, they may not be changed without approval by vote of the holders of a
majority of the relevant Fund's outstanding voting securities, as described
under "Capital Stock" in the SAI. If the Trust's Board of Trustees determines,
however, that a Fund's investment objective can best be achieved by a
substantive change in a non-fundamental investment policy or strategy, the
Trust's Board may make such change without shareholder approval and will
disclose any such material changes in the then current prospectus. Any policy
that is not specified in a Fund's Prospectus, or in the SAI, as being
fundamental, is nonfundamental.
ADDITIONAL INVESTMENT RESTRICTIONS
AS MATTERS OF FUNDAMENTAL POLICY, EACH OF THE FUNDS MAY NOT:
1. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in the securities of such issuer, or more than 10% of
the issuer's outstanding voting securities would be owned by the Fund except
that up to 25% of the value of the Fund's total assets may be invested without
regard to these limitations.
2. Purchase any securities which would cause 25% or more of the value of
the Fund's total assets
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at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry, provided that (a) there is no limitation with respect to
U.S. Government Obligations and repurchase agreements secured by such
obligations; (b) wholly owned finance companies will be considered to be in the
industries of their parents if their activities are primarily related to
financing the activities of the parents; and (c) utilities will be divided
according to their services, for example, gas, gas transmission, electric and
gas, electric and telephone will each be considered a separate industry.
3. Make loans, borrow money or issue senior securities, except under
certain circumstances, and subject to certain percentage limitations, specified
above and in the SAI.
If a percentage limitation is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in the value of
a Fund's portfolio securities will not constitute a violation of such
limitation.
MANAGEMENT, ADVISORY AND OTHER SERVICE ARRANGEMENTS
THE BOARD OF TRUSTEES
The business and affairs of the Trust are managed under the direction and
control of its Board of Trustees. The names and principal occupations of the
Trustees of the Trust are listed below. Trustees deemed to be "interested
persons" of the Trust for purposes of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
POSITION(S) HELD
NAME AND ADDRESS WITH THE TRUST PRINCIPAL ORGANIZATION
- ----------------------- ------------------------ --------------------------------------------------------
<S> <C> <C>
Deborah G. Patterson* Trustee and Chairperson Senior Vice President of Bank of Hawaii--Asset
Management and Private Client Group (1994-present);
Director of KPMG Peat Marwick (1993-1994); Senior Vice
President and Manager of Wells Fargo Bank (1987-1992)
Irimga McKay* Trustee and President Senior Vice President of BISYS Fund Services
(1994-present); Senior Vice President of Concord
Financial Group (1986-1994)
Douglas Philpotts* Trustee Chairman of the Board of Directors (1992-1994),
President (1986-1992), and Director (1984-present) of
Pacific Century
Richard W. Gushman, II Trustee President and Chief Executive Officer of OKOA, Inc.
(1985-present); Adviser to RAMPAC, Inc.
Stanley W. Hong Trustee President and Chief Executive Officer of the Chamber of
Commerce of Hawaii (1996-present); Business Consultant
(1994-present)
Russell K. Okata Trustee Executive Director of Hawaii Government Employees
Association (1981-present)
Oswald K. Stender Trustee Trustee of Bernice Pauahi Bishop Estate (1990-present);
Director of Hawaiian Electric Industries, Inc.
(1993-present)
</TABLE>
PROSPECTUS
15
<PAGE> 20
Trustees of the Trust who are not officers or employees of the Trust, BISYS
or Pacific Century are entitled to receive from the Trust a quarterly retainer
and a fee for each Board of Trustees meeting attended. All Trustees are
reimbursed for all reasonable out-of-pocket expenses relating to attendance at
meetings.
THE ADVISER
Pursuant to an Advisory Agreement, the Funds are advised by Pacific
Century, whose address is Financial Plaza of the Pacific, 111 S. King Street,
Honolulu, Hawaii 96813. Pacific Century is a Hawaii corporation organized in
1898 and is the largest trust company in the State of Hawaii, both in terms of
assets under administration and assets under management. As of July 31, 1997,
Pacific Century had approximately $7.5 billion of client financial assets under
management. Pacific Century is a division of Bank of Hawaii, the largest banking
organization headquartered in the State of Hawaii, with approximately $12.6
billion of assets as of July 31, 1997 and branches and offices throughout the
Pacific Basin, including Guam, Singapore, Tokyo, Seoul and Taiwan. All shares of
Bank of Hawaii are owned by Pacific Century Financial Corporation (formerly
Bancorp Hawaii, Inc., "Pacific Century Financial") and Bank of Hawaii's
Directors (each of whom owns qualifying shares as required by Hawaii law).
Pacific Century Financial is a bank holding company, registered under the Bank
Holding Company Act of 1956, as amended, and its common stock is listed and
traded on the New York Stock Exchange (the "Exchange"). Pacific Century
Financial files annual and periodic reports with the Commission and the
Exchange, which are available for public inspection. Pacific Century is not
authorized to and does not carry on a banking business.
The actual management of the portfolios of the Trust is coordinated by
Pacific Century's investment unit, which is staffed with more than 40 people,
including 5 Chartered Financial Analysts and 9 M.B.A.'s. All investment
decisions of the Funds are made by a committee, and no person is primarily
responsible for making recommendations to the committee. Pacific Century has
served as investment adviser to other investment companies since 1984. These
include the Hawaiian Tax-Free Trust, with assets exceeding $660 million as of
July 31, 1997, and the Cash Assets Trust, with assets of approximately $736
million as of July 31, 1997.
Subject to the supervision of the Board of Trustees, Pacific Century will
provide a continuous investment program for the Funds, including investment
research and management with respect to all securities and investments and cash
equivalents in the Funds. Pacific Century will determine from time to time what
securities and other investments will be purchased, retained or sold by the
Trust with respect to the Funds. Pacific Century will provide the services under
the Advisory Agreement in accordance with each of the Fund's investment
objectives, policies, and restrictions.
For its services under the Advisory Agreement, Pacific Century is entitled
to monthly advisory fees at the annual rate of 0.80% of each Fund's average
daily net assets. For the fiscal year ended July 31, 1997, the advisory fees
paid by the Funds to Pacific Century under the Advisory Agreement, as a
percentage of average daily net assets, were: Growth Stock Fund--0.80% and
Growth and Income Fund--0.80%. Balanced Fund has not commenced operations as of
the date of this Prospectus.
THE SPONSOR, ADMINISTRATOR AND DISTRIBUTOR
BISYS is the administrator for each Fund, and also acts as the Trust's
principal underwriter and distributor. BISYS generally assists in all aspects of
the administration and operation of the Funds. For expenses assumed and services
provided as administrator pursuant to its Administration Agreement with the
Trust, BISYS is entitled to receive a fee from the Funds, computed daily and
paid monthly, at an annual rate equal to 0.20% of the average daily net assets
of each Fund.
For the fiscal year ended July 31, 1997, the ratio of total expenses to
average net assets for the Class A shares of Growth Stock Fund was 1.86%
PROSPECTUS
16
<PAGE> 21
(excluding waivers). For the fiscal year ended July 31, 1997, the ratio of total
expenses to average net assets for the Class A shares of Growth and Income Fund
was 1.86% (excluding waivers).
In addition, BISYS, as the principal underwriter of the Funds within the
meaning of the 1940 Act has entered into a Distribution Agreement with the Trust
pursuant to which BISYS has the responsibility for distributing shares of the
Funds. The Distribution Agreement provides that BISYS shall act as agent for the
Funds for the sale of their shares and may enter into selling agreements with
banks, broker/dealers or other financial institutions to market and make
available shares to their respective customers. For its services, BISYS is
entitled to a fee, as set forth in the separate Distribution and Shareholder
Servicing Plans for each of the Class A and Class B shares (each a "Distribution
Plan"). The Distribution Plan for the Class A shares provides that BISYS is
entitled to receive from each Fund a fee in an amount not to exceed on an annual
basis 0.75% of the average daily net asset value of each Fund's Class A shares.
The Distribution Plan for the Class B shares provides that BISYS is entitled to
receive from each Fund a fee in an amount not to exceed on an annual basis 1.00%
of the average daily net asset value of each Fund's Class B shares. The Funds
had not begun to offer Class B shares publicly at the date of this Prospectus.
Accordingly, no payments had yet been made pursuant to the Class B Distribution
Plan. Fees under each of the Distribution Plans compensate BISYS for the
following: (a) payments BISYS makes to banks and other institutions and industry
professionals, broker/dealers, including Pacific Century, BISYS and their
affiliates or subsidiaries, pursuant to an agreement in connection with
providing administrative support services to the holders of a Fund's Class A or
Class B shares; or (b) payments to financial institutions and industry
professionals (such as insurance companies, investment counselors, and BISYS'
affiliates and subsidiaries) in consideration for the sales support services
provided and expenses assumed in connection with distribution assistance,
including but not limited to, printing and distributing Prospectuses to persons
other than current Class A or Class B shareholders of a Fund, printing and
distributing advertising and sales literature and reports to prospective Class A
or Class B investors in connection with the sale of a Fund's shares, and
providing personnel and communication equipment used in servicing shareholder
accounts and responding to prospective Class A or Class B shareholder inquiries.
BISYS may enter into selling agreements with one or more selling agents under
which such agents may receive compensation from BISYS for sales support
services, including, but not limited to, commissions or other payments to such
agents based on the average daily net assets of the Class A or Class B shares of
each Fund.
The distribution fee shall be paid to BISYS only to compensate or to
reimburse it for actual payments or expenses incurred as described above. The
actual distribution fee payable to BISYS is determined, within such limit, from
time to time by mutual agreement between the Trust and BISYS, and may not exceed
the maximum fee payable under the Conduct Rules of the NASD. Until further
notice, BISYS voluntarily intends to waive a portion of its distribution fee for
the current fiscal year such that the distribution fee payable by each Fund will
not exceed 0.25% of the average daily net asset value attributable to the Fund's
Class A shares on an annual basis. No Fund's Class A or Class B shares will be
liable for distribution expenditures made by BISYS in any given year in excess
of the maximum amount payable under the Distribution Plan for that Fund in that
year. BISYS is a broker-dealer registered with the Commission, and is a member
of the NASD.
As noted above, each Fund also offers Class Y shares, which are made
available only to certain investors. The Class Y shares are not subject to any
distribution fees or entitled to benefits under either Distribution Plan.
PROSPECTUS
17
<PAGE> 22
OTHER SERVICE ARRANGEMENTS
Administrative Data Management Corporation ("ADM" or the "Transfer Agent"),
581 Main Street, Woodbridge, New Jersey 07095, serves as the Trust's transfer
agent and dividend disbursing agent. Ernst & Young LLP, One Columbus, Suite
2300, 10 West Broad Street, Columbus, Ohio 43215, serves as independent auditors
for the Trust.
VALUATION OF CLASS A AND CLASS B SHARES
The net asset value of the Class A and Class B shares for each Fund is
determined and their shares are priced as of the close of the New York Stock
Exchange (the "Exchange") (currently 4:00 p.m., Eastern Time) (the "Valuation
Time") each Business Day. As used herein, a "Business Day" is a day on which the
Exchange is open for trading and any other day (other than a day on which no
shares of that Fund are tendered for redemption and no order to purchase shares
received) during which there is sufficient trading in the Fund's portfolio
securities that the Fund's net asset value per share might be materially
affected. The Exchange will not be open in observance of the following holidays:
New Year's Day, Martin Luther King Day, President's Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset
value per share for Class A and Class B is calculated by determining the value
of such Class's proportional interest in the securities and other assets of each
Fund, less (i) such class's proportional share of general liabilities and (ii)
liabilities allocable only to such class, and dividing such amount by the number
of shares of the Class outstanding. The net asset value per share for each Fund
will fluctuate as the value of its investment portfolio changes. The per share
net asset value of Class A shares generally will be higher than the per share
net asset value of Class B shares reflecting the daily expense accruals of the
distribution fees applicable to the Class B shares.
Except for debt obligations with remaining maturities of 60 days or less,
which are valued at amortized cost, assets are valued at current market prices,
or if such prices are not readily available, at fair value as determined in good
faith by the Board of Trustees. Prices used for such valuations may be provided
by independent pricing services. For further information about valuation of
investments in the Funds, see the SAI.
HOW TO PURCHASE CLASS A AND CLASS B SHARES
PURCHASE OF SHARES
Class A and Class B shares of each Fund are sold on a continuous basis.
Investors may purchase Class A and Class B shares of a Fund by completing and
signing an account registration form ("Account Registration Form") and mailing
it, together with a check (or other negotiable bank draft or money order)
payable to the Trust, in at least the minimum initial purchase amount, to your
Participating Organization or to the Trust's Transfer Agent, Administrative Data
Management Corporation, 581 Main Street, Woodbridge, NJ 07095. Subsequent
purchases of shares of a Fund may be made at any time by mailing a check (or
other negotiable bank draft or money order) payable to the Trust, to ADM at the
above address or to your Participating Organization.
Class A and Class B shares of the Funds may also be purchased through
banks, institutions or industry professionals, such as broker/dealers, who have
entered into an agreement with BISYS ("Participating Organizations") under each
of the Distribution Plans. See "Management, Advisory and Other Service
Arrangements." BISYS' principal office is located at 3435 Stelzer Road,
Columbus, Ohio 43219-3035.
PROSPECTUS
18
<PAGE> 23
Class A and Class B shares of a Fund sold to Participating Organizations
acting in a fiduciary, advisory, custodial or other similar capacity on behalf
of a customer will normally be held of record by the Participating Organization.
With respect to shares so sold, it is the responsibility of the Participating
Organization to transmit purchase or redemption orders to ADM and to deliver
federal funds for purchase on a timely basis. Beneficial ownership of shares of
a Fund will be recorded by the Participating Organization and reflected in the
account statements provided by the Participating Organization to the customer.
If an Account Registration Form has been previously received by ADM,
investors may also purchase Class A and Class B Shares by telephoning ADM at
800-258-9232. Payment for Class A and Class B Shares ordered by telephone may be
made by check or by electronic transfer and must be received by the Trust's
Custodian within seven days of the telephone order. If payment is not received
within seven days or a check timely received does not clear, the purchase may be
canceled and the investor could be liable for any losses or fees incurred. In
the case of purchases of Class A and Class B shares effected by wiring funds to
the Trust's Custodian, investors must call ADM at 800-258-9232 to obtain
instructions regarding the bank account number into which the funds should be
wired and other pertinent information. If you have opened an account through a
Participating Organization, you should telephone the Participating Organization
to make further investments.
Class A and Class B shares of each Fund are purchased at the public
offering price per share, which is the net asset value per share (see "Valuation
of Class A and Class B Shares") next determined after receipt by the Transfer
Agent of an order to purchase shares in good form plus the applicable sales
charge as described below. The Participating Organizations are responsible for
the prompt transmission of purchase orders to the Transfer Agent. Purchases of
Class A and Class B shares of a Fund will be effected only on a Business Day of
such Fund. An order received by the Transfer Agent prior to the Valuation Time
on any Business Day will be executed based on the net asset value determined as
of the Valuation Time on the date of receipt. An order received by the Transfer
Agent after the Valuation Time on any Business Day will be executed based on the
net asset value determined as of the next Business Day.
The minimum investment for an investor's initial purchase of Class A and
Class B shares of a Fund is $1,000. The minimum investment for subsequent
purchases of Class A and Class B shares is $50. The minimum initial investment
amount for IRAs is $250. As discussed below, the minimum initial investment
amount for Auto Invest Plan participants is $100; the minimum investment for
subsequent purchases is $50.
Depending upon the terms of a particular customer account, a Participating
Organization may charge a customer's account fees for automatic investment and
other cash management services provided in connection with investment in the
Funds. Information concerning these services and any charges will be provided by
the relevant Participating Organization. This Prospectus should be read in
conjunction with any such information received from the Participating
Organization.
The Trust reserves the right to reject any order for the purchase of its
Class A or Class B shares in whole or in part.
Every shareholder will receive a confirmation of each new transaction in
the shareholder's account. In the case of shares held of record by a
Participating Organization but beneficially owned by a customer, confirmations
of purchases, exchanges and redemptions of shares by a Participating
Organization will be sent to the customer by the Participating Organization.
Certificates representing shares will not be issued.
SALES CHARGES
CLASS A SHARES
The public offering price of a Class A share of a Fund equals its net asset
value plus a sales charge.
PROSPECTUS
19
<PAGE> 24
BISYS receives this sales charge as principal underwriter and will reallow a
portion of it to broker/dealers or other financial institutions as dealer
discounts and brokerage commissions. From time to time dealers who receive
dealer discounts and broker commissions from BISYS may reallow a portion of such
dealer discounts and broker commissions to other dealers or brokers. BISYS may
elect to reallow a higher percentage of the sales charge stated below to
selected brokers and dealers for all sales with respect to which orders are
placed with BISYS during a particular period. At BISYS' discretion, the entire
sales charge may at times be re-allowed as dealer discounts and brokerage
commissions. If the entire sales charge is reallowed to a broker/dealer or
financial institution, it may be deemed an "underwriter" under the Securities
Act of 1933, as amended.
<TABLE>
<CAPTION>
DEALER
SALES CHARGE AS ALLOWANCE
SALES CHARGE AS A PERCENTAGE OF AS A PERCENTAGE
A PERCENTAGE OF NET AMOUNT OF OFFERING
AMOUNT OF PURCHASE OFFERING PRICE INVESTED PRICE
- ------------------------------------------------ --------------- --------------- ---------------
<S> <C> <C> <C>
Less than $25,000............................... 4.00% 4.17% 3.60%
$25,000 or more but less than $50,000........... 3.75% 3.90% 3.38%
$50,000 or more but less than $100,000.......... 3.50% 3.63% 3.15%
$100,000 or more but less than $250,000......... 3.25% 3.36% 2.93%
$250,000 or more but less than $500,000......... 3.00% 3.09% 2.70%
$500,000 or more but less than $1,000,000....... 2.50% 2.56% 2.25%
$1,000,000 or more.............................. 0.00% 0.00% 0.00%
</TABLE>
While there are no sales charges on single transactions of $1 million or
more, BISYS will make payments to securities dealers, from its own resources,
related to these transactions as shown in the table below. The first payment
will be applied to the total purchase price and made payable upon settlement of
the purchase. Subsequent payments will be made at the end of each full calendar
quarter following the original purchase. The amount of each subsequent payment
will be based on the number of shares originally purchased and remaining in the
account at the time of the payment multiplied by the net asset value per share
at the purchase date. The payment schedule will be as follows:
<TABLE>
<CAPTION>
NUMBER OF AMOUNT OF TOTAL OF ALL
AMOUNT OF PURCHASE PAYMENTS EACH PAYMENT PAYMENTS
- -------------------------------------------------------- --------- ------------ ------------
<S> <C> <C> <C>
1,000,000 or more but less than $2,000,000.............. 6 0.083% 0.50%
2,000,000 or more but less than $4,000,000.............. 5 0.070% 0.35%
4,000,000 or more....................................... 4 0.063% 0.25%
</TABLE>
The sales charges set forth in the tables above are applicable to purchases
made at one time by any purchaser (a "Purchaser"), which term shall mean: (i) an
individual, his or her spouse and children under the age of 21, if any; (ii) a
trustee or other fiduciary of a single trust estate or single fiduciary account;
or (iii) any other organized group of persons, whether incorporated or not,
provided that such organization has been in existence for at least six months
and has some bona fide business purpose other than the purchase of redeemable
securities of a registered investment company. In order to qualify for a reduced
sales charge, all orders from a Purchaser will have to be placed through a
single investment dealer and identified at the time of purchase as originating
from the same Purchaser, although such orders may be placed into more than one
discrete account which identifies the Purchasers.
BISYS, at its expense, will also provide additional compensation to dealers
in connection with sales of shares of the Trust. Such compensation will
PROSPECTUS
20
<PAGE> 25
include financial assistance to dealers in connection with conferences, sales or
training programs for their employees, seminars for the public advertising
campaigns regarding one or more Funds, and/or other dealer-sponsored special
events. In some instances, this compensation will be made available only to
certain dealers whose representatives have sold a significant amount of such
shares. Compensation will include payment for travel expenses, including
lodging, incurred in connection with trips taken by invited registered
representatives and members of their families to locations within or outside of
the United States for meetings or seminars of a business nature. Compensation
will also include the following types of non-cash compensation offered through
sales contests: (1) vacation trips, including the provision of travel
arrangements and lodging, (2) tickets for entertainment events (such as
concerts, cruises and sporting events), and (3) merchandise (such as clothing,
trophies, clocks and pens). Dealers may not use sales of the Trust's Shares to
qualify for this compensation to the extent such may be prohibited by the laws
of any state or any self-regulatory agency, such as the NASD. None of the
aforementioned compensation is paid for by the Funds or their shareholders.
REDUCED SALES CHARGES
CLASS A SHARES
SALES CHARGE WAIVERS--The following classes of investors may purchase Class
A shares of a Fund with no sales charge in the manner described below (any of
which may be changed or eliminated at any time by BISYS):
(1) Existing shareholders of a Fund, upon the reinvestment of dividend and
capital gain distributions;
(2) Officers, trustees, directors, employees and retired employees of the
Trust, Pacific Century Financial and its affiliates, and of BISYS and its
affiliates (and spouses and children of each of the foregoing);
(3) With the exception of investors for whom Pacific Century Investment
Services provides custodial services, investors for whom Pacific Century
Financial or one of its affiliates acts in a fiduciary, advisory, custodial,
agency or similar capacity;
(4) Investors who purchase shares of a Fund through a retirement related
payroll deduction plan, a 401(k) plan, a 403(b) plan, or a similar plan which by
its terms permits purchases of shares; and
(5) Orders placed on behalf of other investment companies distributed by
the Distributor.
The Trust permits the sale of its Class A shares at prices that reflect the
reduction or elimination of the sales charge to investors who are members of
certain qualified groups meeting the following requirements. A qualified group
(i) is a group or association, or a category of purchasers who are represented
by a fiduciary, professional or other representative (other than a registered
broker-dealer); (ii) satisfies uniform criteria which enable the Distributor to
realize economies of scale in its costs of distributing shares; (iii) if it is a
group or association, gives its endorsement or authorization to an investment
program to facilitate solicitation of its membership by a broker or dealer, and
(iv) complies with the conditions of purchase that are set forth in any
agreement entered into between the Trust and the group, representative or broker
or dealer. At the time of purchase the investor, either directly or through a
broker or dealer, must furnish the Transfer Agent with information sufficient to
permit verification that the purchase qualifies for a reduced sales charge.
The Distributor may waive the sales charge for an investor who purchases a
Fund's Class A shares with the proceeds from the recent redemption of shares of
any non-money market front-end or back-end load mutual fund. To the extent the
sales load of the Fund in which such investor seeks to invest is higher than
that of the fund with respect to which the redemption proceeds relate, the
Distributor will waive only that portion of the Fund's sales load which equals
the prior sales load paid. Any portion of the sales load which is not waived in
accordance
PROSPECTUS
21
<PAGE> 26
with the foregoing must be paid by the investor at the time of purchase.
Purchases of Fund shares using redemption proceeds as described above must be
made within 60 days of redemption from funds which are not a series of Pacific
Capital Funds and within 120 days of redemption from funds which are series of
Pacific Capital Funds. The Transfer Agent must be notified in writing by the
investor, or by his or her financial institution, at the time the purchase is
made. A copy of the investor's account statement showing such redemption must
accompany such notice. BISYS also, from time to time, may waive the sales charge
for all investors with respect to any Fund.
LETTERS OF INTENT--Any Purchaser may obtain a reduced sales charge by means
of a written Letter of Intent which expresses the intention of such Purchaser to
purchase a certain amount of a Fund's Class A shares within a period of 13
months. Each purchase of shares under a Letter of Intent will be made at the
public offering price plus the sales charge applicable at the time of such
purchase to a single transaction of the total dollar amount indicated in the
Letter of Intent. A Letter of Intent may include purchases of shares made not
more than 90 days prior to the date such Purchaser signs a Letter of Intent;
however, the 13-month period during which the Letter of Intent is in effect will
begin on the date of the earlier purchase to be included. The terms of the
Letter of Intent and the escrow account associated therewith are described in
the Account Registration Form. For further information, interested investors
should contact ADM or their Participating Organization. Letter of Intent
privileges may be amended or terminated without notice at any time by the Trust.
CONCURRENT PURCHASES AND RIGHT OF ACCUMULATION--A Purchaser may qualify for
a reduced sales charge by (i) combining concurrent purchases of shares of a Fund
with purchases of one or more of the other Funds sold with a sales charge or
(ii) combining a current purchase of shares of a Fund with prior purchases of
shares of any of the other Funds sold subject to a sales charge. The applicable
sales charge is based on the sum of (a) the Purchaser's current purchase of
shares of any Fund sold with a sales charge plus (b) the then-current net asset
value of all shares held by the Purchaser in any Fund sold with a sales charge.
To receive the applicable public offering price pursuant to the right of
accumulation, shareholders must at the time of purchase provide ADM or the
Participating Organization with sufficient information to permit confirmation of
qualification. Accumulation privileges may be amended or terminated without
notice at any time by the Trust. Shares of other series of the Trust sold
subject to a sales charge which are not offered through this Prospectus may be
counted for purposes of the accumulation privileges.
CLASS B SHARES
The public offering price of a Class B share of a Fund equals its net asset
value without the imposition of a sales charge at the time of purchase. However,
Class B shares are subject to a contingent deferred sales charge ("CDSC") if the
shares are redeemed within six years of purchase, at rates set forth below.
After approximately eight years, Class B shares will automatically convert to
Class A shares. See "Conversion of Class B shares to Class A shares" below, for
more detail. At the time of redemption, the CDSC will be based on the initial
purchase price or the current market value of the shares being redeemed,
whichever is less. A CDSC will not be imposed on amounts representing increases
in net asset value above the net asset value at the time of purchase. There is
no CDSC on shares acquired through reinvestment of dividends. Imposition of the
CDSC and the distribution fee on Class B shares is limited by the NASD
asset-based sales charge rule.
PROSPECTUS
22
<PAGE> 27
The following table sets forth the rates of the Class B CDSC:
<TABLE>
<CAPTION>
CDSC AS A PERCENTAGE OF
YEARS AFTER DOLLAR AMOUNT SUBJECT TO
PURCHASE CHARGE
- ------------------ -------------------------
<S> <C>
1st year.......... 5%
2nd year.......... 4%
3rd year.......... 3%
4th year.......... 3%
5th year.......... 2%
6th year.......... 1%
</TABLE>
Solely for purposes of determining the number of years which have elapsed
from the time of purchase of any Class B shares, all purchases during a month
will be aggregated and deemed to have been made on the last day of the month. In
determining whether a CDSC is applicable to a redemption, the calculation will
be made in the manner that results in the lowest possible charge being assessed.
In this regard, it will be assumed that the redemption is first of shares held
for more than six years or shares acquired pursuant to reinvestment of dividends
or distributions both of which do not carry any CDSCs. It will then be assumed
that the redemption is of shares held longest during the six year period, which
will have the lowest CDSC.
For example assume an investor purchased 100 Class B shares with a net
asset value of $10 per share (i.e., at an aggregate net asset value of $1,000)
and in the eleventh month after purchase, the net asset value per share is $12
and, during such time, the investor has acquired five additional Class B shares
through dividend reinvestment. If at such time the investor makes his first
redemption of 50 Class B shares (producing proceeds of $600), five of such
shares will not be subject to the charge because of dividend reinvestment. With
respect to the remaining 45 Class B shares being redeemed, the charge will be
applied only to the original cost of $10 per share and not to the increase in
net asset value of $2 per share. Therefore, only $450 of the $600 redemption
proceeds will be subject to the charge of 5.00%, totaling $22.50.
The contingent deferred sales charge is waived on redemptions of Class B
shares (i) following the death or disability (as defined in the Internal Revenue
Code (the "Code")) of a shareholder (or both shareholders in the case of joint
accounts), (ii) to the extent that the redemption represents a minimum required
distribution from an IRA or a Custodial Account under Code Section 403 (b) (7)
to a shareholder who has reached age 70 1/2, and (iii) to the extent the
redemption represents the minimum distribution from retirement plans under Code
Section 401 (a) where such redemptions are necessary to make distributions to
plan participants.
CONVERSION OF CLASS B SHARES TO CLASS A SHARES.
After approximately eight years, Class B shares will automatically convert
to Class A shares and will be subject to the lower Distribution and Shareholder
Service fees charged to Class A shares.
For purposes of conversion of Class A shares, shares received as dividends
and other distributions paid on Class B shares in a shareholder's Fund account
will be considered to be held in a separate sub-account. Each time any Class B
shares in a shareholder's Fund account (other than those in the sub-account)
convert to Class A shares, a pro-rata portion of the Class B shares in the
sub-account will also convert to Class A shares.
If a shareholder effects one or more exchanges among Class B shares of the
Funds of the Trust during the six-year period, the Trust will aggregate the
holding periods for the shares of each Fund of the Trust for purposes of
calculating that six-year period. Because the per share net asset value of the
Class A shares may be higher than that of the Class B shares at the time of
conversion, a shareholder may receive fewer Class A shares than the number of
Class B shares converted, although the dollar value will be the same.
The conversion will be on the basis of the relative net asset value of the
shares of the two classes, without the imposition of any sales load, fee or
other charge. Conversion of Class B shares to Class A shares will not be deemed
a purchase or sale of the shares for federal income tax purposes.
PROSPECTUS
23
<PAGE> 28
Shares purchased through reinvestment of dividends in Class B shares will
also convert automatically to Class A shares after approximately eight years.
AUTO INVEST PLAN--The Auto Invest Plan enables Class A or Class B
shareholders of any of the Funds to make regular monthly or quarterly purchases
of Class A or Class B shares through automatic deductions from their bank
accounts. With shareholder authorization, the Transfer Agent will deduct the
amount specified from the shareholder's bank account which will automatically be
invested in shares at the public offering price on the dates of the deduction.
The required minimum initial investment when opening an account using the Auto
Invest Plan is $100; the minimum amount for subsequent investments is $50. To
participate in the Auto Invest Plan, shareholders should complete the
appropriate section of the Account Registration Form which can be obtained by
calling ADM at 800-258-9232. For a shareholder to change the Auto Invest Plan
instructions, the request must be made in writing to ADM or your Participating
Organization. Depending upon the terms of a particular customer account, a
Participating Organization may charge a customer's account fees for services
provided in connection with investment in a Fund. Information concerning these
services and any charges will be provided by the Participating Organizations.
This Prospectus should be read in conjunction with any such information received
from the Participating Organizations.
EXCHANGE PRIVILEGES
Except as described below, Class A and Class B shareholders may exchange
shares of any Fund on the basis of the relative net asset value of the shares
exchanged, without payment of a sales charge, for the same class of any other
Fund, the same class of any other series of the Trust or for service class
shares of the Cash Assets Trust, the Tax-Free Cash Assets Trust, or the U.S.
Treasuries Cash Assets Trust. The exchange privilege may be exercised by
shareholders so long as they maintain the respective minimum account balance in
each Fund in which they own shares.
To the extent that a holder of Class A shares exchanges into a Fund having
a higher initial sales charge than that of the Fund from which the shareholder
is exchanging, the shareholder will pay the sales charge differential at the
time of the exchange. Class B shares of a Fund which are subject to a CDSC will
be exchangeable on the basis of relative net asset value per share without the
payment of any CDSC that might otherwise have been due upon redemption of the
shares of the Fund. For purposes of computing the CDSC upon redemption of shares
received in the exchange, the holding period will be measured from the date of
purchase of the original shares and will retain the same CDSC rate as they had
before the exchange, except that the rate will change to the new Fund's rate if
that rate is higher. A CDSC rate that has increased will drop again with a
future exchange into a Fund with a lower rate.
For federal income tax purposes, an exchange of shares is deemed a sale on
which a shareholder may realize capital gain or loss. Before an exchange can be
effected, a shareholder must receive a prospectus of the fund into which the
subject shares are to be exchanged. If you have previously elected the telephone
exchange option on your Account Registration Form, an exchange can be made by
calling ADM at 800-258-9232 or telephoning your Participating Organization.
Otherwise, exchanges may be made by forwarding a written request for exchange to
ADM or your Participating Organization. Exchange privileges may be exercised
only in those states where shares of such other Fund or series may be legally
sold, and may be amended or terminated at any time upon 60 days' notice.
PROSPECTUS
24
<PAGE> 29
HOW TO REDEEM CLASS A AND CLASS B SHARES
Shareholders may redeem their Class A and Class B shares without charge on
any day that net asset value is calculated (see "Valuation of Class A and Class
B Shares") and the shares may ordinarily be redeemed by mail or by telephone.
However, if you purchase shares through a Participating Organization which
serves as the shareholder of record, you must redeem through such institution.
In all other cases, a completed Account Registration Form must have been
received by the Transfer Agent before redemption requests may be honored. All or
part of a customer's shares may be subject to redemption in accordance with
instructions and limitations pertaining to his or her account held by a
Participating Organization. For example, if a customer has agreed to maintain a
minimum balance in his or her account, and the balance in that account falls
below that minimum due to redemptions, the customer may be obliged to redeem, or
the Participating Organization may be authorized to redeem the customer's shares
for and on behalf of the customer.
REDEMPTION BY MAIL
A written request for redemption must be received by ADM or your
Participating Organization in order to constitute a valid tender for redemption.
Participating Organizations are responsible for the prompt transmission of
redemption requests to the Transfer Agent. The Transfer Agent will require a
signature guarantee by an eligible guarantor institution if (a) the redemption
check is to be payable to anyone other than the Class A or Class B
shareholder(s) of record or (b) a redemption check is to be mailed or proceeds
are to be wired to the Class A or Class B shareholder(s) at an address other
than the address of record or other than a commercial bank account designated on
the Account Registration Form of such Class A or Class B shareholder(s) or (c)
the redemption proceeds exceed $50,000. For purposes of this policy, the term
"eligible guarantor institution" shall mean members of the STAMP (Securities
Transfer Agents Medallion Program), MSP (New York Stock Exchange Medallion
Signature Program) or SEMP (Stock Exchanges Medallion Program). Participants of
STAMP, MSP, and SEMP are subject to dollar value limitations which must be
considered when requesting their authorization. The Transfer Agent reserves the
right to reject any signature guarantee if it has reason to believe that the
transaction would otherwise be improper.
REDEMPTION BY TELEPHONE
A shareholder may have the proceeds of redemption requests electronically
transferred or mailed directly to a domestic commercial bank account previously
designated by the shareholder on the Account Registration Form. Under most
circumstances, such proceeds will be transmitted on the next Business Day
following receipt of a valid request for redemption. If you authorize the
telephone redemption option in your Account Registration Form such electronic
redemption request may be made by the shareholder by telephone to ADM or your
Participating Organization. The Transfer Agent will reduce the amount of a wire
redemption payment by its then-current wire redemption charge. As of the date of
this Prospectus, there is no charge for wire redemptions. While this policy is
subject to change at any time, it is not anticipated that such charge would
exceed $7 per wire redemption. There is no charge for having proceeds of
redemption requests mailed to a designated bank account. The Trust will not
permit shareholders to change their accounts by telephone. For telephone
redemptions through ADM, call ADM at 800-258-9232. Neither the Distributor, the
Transfer Agent, Pacific Century nor the Trust will be liable for any losses,
damages, expenses or cost arising out of any telephone transaction (including
exchanges and redemptions) effected in accordance with the Funds' telephone
transaction procedures, upon instructions reasonably believed to be genuine. The
Trust will employ procedures designed to provide reasonable assurance that
instructions by telephone are genuine. A description of the procedures employed
by the Trust to confirm instructions communicated by telephone is contained in
the Statement of Additional Information. This policy places the entire risk of
loss for unauthorized or fraudulent transactions on the shareholder, except that
if the Distributor,
PROSPECTUS
25
<PAGE> 30
the Transfer Agent, Pacific Century, the Trust or their affiliates do not follow
reasonable procedures, some or all of them may be liable for any such losses.
During times of drastic economic or market changes, telephone exchanges or
redemptions may be difficult to implement. If you experience difficulty in
making a telephone exchange or redemption, your exchange or redemption request
may be made by regular or express mail, and it will be implemented at the next
determined net asset value following receipt by the Transfer Agent.
PAYMENTS TO CLASS A AND CLASS B SHAREHOLDERS
Redemption orders are effected at the net asset value per share next
determined after Class A and Class B shares are properly tendered for
redemption, as described above. The proceeds paid upon redemption of shares in a
Fund may be more or less than the amount invested. Payment to shareholders for
shares redeemed will be made within seven days after receipt by the Transfer
Agent of the request for redemption. However, to the greatest extent possible,
the Trust will attempt to honor requests from shareholders for next Business Day
payments upon redemption of shares if the request for redemption is received by
the Transfer Agent before 4:00 p.m., Eastern Time, on a Business Day or, if the
request for redemption is received after 4:00 p.m., Eastern Time, to honor
requests for payment within two Business Days, unless it would be
disadvantageous to the Trust or the shareholders of the particular Fund to sell
or liquidate portfolio securities in an amount sufficient to satisfy requests
for payments in such manner.
If the Trust is requested to redeem shares for which it has not yet
received good payment, it may delay the forwarding of proceeds only until
payment has been collected for the purchase of such shares. Such collection may
take up to 15 days or more. To avoid delay in payment upon redemption shortly
after purchasing shares, investors should purchase shares by certified or bank
check or by wire transfer. The Trust intends to pay cash for all shares
redeemed, but under abnormal conditions which make payment in cash inadvisable,
the Trust may make payment wholly or partly in portfolio securities at their
then-current market value equal to the redemption price, net of any CDSC. In
such cases, an investor may incur brokerage costs in converting such securities
to cash.
Due to the relatively high cost of handling small accounts, the Trust
reserves the right to redeem, at net asset value, the shares of any shareholder
if, because of redemptions of shares by or on behalf of the shareholder, the
account of such shareholder in any Fund has a value of less than $250.
Accordingly, an investor purchasing shares of a Fund in only the minimum
investment amount may be subject to such involuntary redemption if he or she
thereafter redeems some of his or her shares. Before the Trust exercises its
right to redeem such shares and to send the proceeds to the shareholder, the
shareholder will be given notice that the value of the shares of a Fund in his
or her account is less than the minimum amount and will be allowed 60 days to
make an additional investment in an amount which will increase the value of the
account to at least $1,000.
AUTO WITHDRAWAL PLAN
The Auto Withdrawal Plan enables Class A shareholders of any of the Funds
to make regular monthly or quarterly redemptions of Class A shares. With
shareholder authorization, the Transfer Agent will automatically redeem Class A
shares at the net asset value on the dates of the withdrawal and have a check in
the amount specified mailed to the shareholder. The required minimum withdrawal
is $100. To participate in the Auto Withdrawal Plan, shareholders should call
ADM for more information. Purchases of additional shares concurrent with
withdrawals may be disadvantageous to certain shareholders because of tax
liabilities and sales charges. To change the Auto Withdrawal Instructions or to
discontinue the feature, a shareholder must submit a written request to ADM or
their Participating Organization.
PROSPECTUS
26
<PAGE> 31
DIVIDEND AND TAX INFORMATION
DIVIDENDS AND DISTRIBUTIONS
The Funds will declare and pay dividends of substantially all of their net
income monthly. Distributable net realized capital gains are distributed at
least annually to shareholders of record. A shareholder will automatically
receive all income dividends and capital gains distributions in additional full
and fractional shares of the same Class of shares held unless the shareholder
elects to receive such dividends or distributions in cash. Dividends elected to
be received in cash may be deposited directly into a shareholder's financial
institution account, provided the shareholder has completed the appropriate
section of the Account Registration Form. Dividends and distributions are
reinvested without a sales charge as of the ex-dividend date using the net asset
value determined on that date and are credited to a shareholder's account on the
payment date. Reinvested dividends and distributions receive the same tax
treatment as dividends and distributions paid in cash. Dividends are generally
taxable when received. However, dividends declared in October, November or
December to shareholders of record during those months and paid during the
following January are treated for tax purposes as if they were received by each
shareholder on December 31 of the prior year. Elections to receive dividends or
distributions in cash, or any revocation thereof, must be made in writing to ADM
at 581 Main Street, Woodbridge, New Jersey 07095 or to your Participating
Organization and will become effective with respect to dividends and
distributions having record dates after its receipt by the Transfer Agent.
TAX INFORMATION
Each Fund intends to continue to qualify as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). If a
Fund does so qualify, it will not be liable for federal income taxes to the
extent it distributes its income to shareholders as dividends and capital gain
distributions. However, the Code contains a number of complex tests relating to
such qualification and it is possible, although not likely, that a Fund might
not meet one or more of these tests in any particular year. If it does not so
qualify, it would be treated for tax purposes as an ordinary corporation, would
receive no tax deduction for distributions made to shareholders and would be
unable to pay dividends or distributions which would qualify as "capital gains
dividends," as discussed below.
Corporate shareholders may be entitled to a dividends received deduction
with respect to dividends paid by a Fund to the extent that they relate to
dividends received from domestic corporations.
Capital gains dividends (net gains from the sale of capital assets held for
more than 12 months over net short-term losses which a Fund distributes) are
reportable by shareholders as long-term capital gains. This is the case whether
the shareholder takes his distribution in cash or elects to have the
distribution reinvested in Fund shares and regardless of the length of time the
shareholder has held his or her shares. The maximum capital gains rate for
individuals is 28% with respect to assets held for more than 12 months, but not
more than 18 months ("mid-term gains"), and 20% with respect to assets held for
more than 18 months ("long-term gains"). The maximum capital gains rate for
corporate shareholders currently is the same as the maximum tax rate for
ordinary income.
Short-term gains, when distributed, are taxed to shareholders as ordinary
income. Capital losses of a Fund are not claimed by shareholders but carried
forward by the Fund to offset gains in later years and thereby lessen the
later-year capital gains distributions and amounts taxed to shareholders.
A Fund's gains or losses on sales of securities will be long-term, mid-term
or short-term depending upon the length of time the Fund has held such
securities. Capital gains and losses of the Fund will also include gains and
losses on futures and options, if any, including gains and losses actually
realized on sales and exchanges and gains and losses deemed
PROSPECTUS
27
<PAGE> 32
to be realized. Those deemed to be realized are on futures and options held by a
Fund at year-end, which are "marked to the market," that is, deemed sold for
fair market value. Net gains or losses realized and deemed realized on Section
1256 futures and options contracts will be reportable by the Fund as long-term
to the extent of 60% of the gains or losses and short-term to the extent of 40%
regardless of the actual holding period of such investments.
The Trust will be required to withhold, subject to certain exemptions, at a
rate of 31% on dividends paid and redemption proceeds (including proceeds from
exchanges) paid or credited to non-exempt shareholders of the Funds if a correct
Taxpayer Identification Number, certified when required, is not on file with the
Trust or the Transfer Agent.
Under the Code, dividends (but not capital gain distributions) paid to a
non-resident alien or other foreign shareholder may be subject to U.S.
withholding tax at the rate of 30% (or a lower treaty rate).
Information as to the federal tax status of the Trust's dividends and
distributions will be mailed to shareholders annually.
TAX EFFECTS OF REDEMPTIONS
A shareholder who redeems his or her shares or exchanges his or her shares
for shares of another Fund generally will have a capital gain or loss (depending
on whether the proceeds of the redemption are more or less than their tax basis,
which is usually cost). In the case of an individual, any such capital gain will
be treated as short-term capital gain if the shares were held for not more than
12 months, mid-term gain, taxable at the maximum rate of 28%, if such shares
were held for more than 12, but not more than 18 months, and long-term capital
gain, taxable at the maximum rate of 20%, if such shares were held for more than
18 months. In the case of a corporation, any such capital gain will be treated
as long-term capital gain, taxable at the same rates as ordinary income, if such
shares were held for more than 12 months. Any such capital loss will be treated
as long-term capital loss if such shares were held for more than 12 months, and
otherwise will be treated as short term capital loss. However, if the shares
redeemed or sold were held for six months or less, any capital loss is treated
as long-term to the extent of capital gains distributions received on such
shares.
HAWAIIAN TAX INFORMATION
The Funds, and dividends and distributions made by the Funds to Hawaii
residents, will generally be treated for Hawaii income tax purposes in the same
manner as they are treated under the Code for federal income tax purposes.
Persons or entities who are not Hawaii residents should not be subject to
Hawaii income taxation on dividends and distributions made by the Trust but will
be subject to other state and local taxes.
For further information regarding taxation, see "Tax Information" in the
SAI.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect, and state
taxation.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to federal, local or foreign taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in a
Fund.
PROSPECTUS
28
<PAGE> 33
GENERAL INFORMATION
PERFORMANCE
From time to time performance for the Class A and Class B shares of the
Funds showing each Fund's average annual total return, aggregate total return
and yield may be presented in advertisements, sales literature and in reports to
Class A and Class B shareholders. Such performance figures are based on
historical earnings and are not intended to indicate future performance. Average
annual total return will be calculated for the period since the establishment of
the Funds, and will, unless otherwise noted, reflect the imposition of the
maximum sales charge. Average annual total return is measured by comparing the
value of an investment in Class A shares of a Fund at the beginning of the
relevant period to the redemption value of the investment, after reflecting the
reinvestment of any dividends or capital gains distributions and annualizing the
difference. Aggregate total return is calculated similarly to average annual
total return except that the return figure is aggregated over the relevant
period instead of annualized. Yield will be computed by dividing such Fund's net
investment income per Class A or Class B share earned during a recent 30-day
period by such Fund's per Class A or Class B share maximum offering price
(reduced by any undeclared earned income expected to be paid shortly as a
dividend) on the last day of the period and annualizing the result. From time to
time, average annual total return, aggregate total return and yield for the
Class A shares of the Funds may also be calculated and advertised on the basis
of an investment in a Fund at the net asset value per share or at net asset
value per share plus a reduced sales charge, rather than the public offering
price per share. In this case, the figure would not reflect the effect of a
maximum sales charge that a Class A shareholder may have paid.
Shareholders may also be provided with information comparing the
performance of the Class A and Class B shares of the Funds to the performance of
other mutual funds or mutual fund portfolios with comparable investment
objectives and policies. This information may be based on data relating to
various mutual fund or market indices such as those prepared by Dow Jones & Co.,
Inc. and Standard & Poor's Corporation or data prepared by Lipper Analytical
Services, Inc. Comparisons may also be made to indices or data published in
Money Magazine, Forbes, Barron's, The Wall Street Journal, The New York Times,
Business Week, American Banker, Institutional Investor, Pensions and
Investments, USA Today, Fortune, CDA/Wiesenberger, Ibbotson Associates, Inc.,
Morningstar and regional periodicals and newspapers. In addition to yield
information, general information about the Funds that appears in a publication
such as those mentioned above may also be quoted or reproduced in advertisements
or in reports to shareholders. Reports to shareholders may contain performance
information on any Fund.
Yield and total return are functions of the type and quality of instruments
held in the portfolio, operating expenses, and market conditions. Consequently,
current yields and total return will fluctuate and are not necessarily
representative of future results. Any fees charged by an affiliate of Pacific
Century or a Participating Organization with respect to customer accounts for
investing in shares of the Funds will not be included in performance
calculations; such fees, if charged, would reduce the actual yield and total
return from that quoted.
Because of differences in the fees and/or expenses borne by the classes of
shares of the Funds, the average annual total return, aggregate total return,
and yield of the Class B shares can be expected, at any given time, to be lower
than the average annual total return, aggregate total return, and yield of Class
A shares. Standardized yield and total return quotations will be computed
separately for Class A and Class B shares.
DESCRIPTION OF THE TRUST AND ITS SHARES
CAPITALIZATION--The Trust was organized as a Massachusetts business trust on
October 30, 1992, and currently consists of nine separately managed series.
PROSPECTUS
29
<PAGE> 34
The Board of Trustees may establish additional series in the future. The series
of the Trust are: the Balanced Fund, Diversified Fixed Income Fund, Growth and
Income Fund, Growth Stock Fund, New Asia Growth Fund, Short Intermediate U.S.
Treasury Securities Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate
Securities Fund and the U.S. Treasury Securities Fund, each with unlimited
transferable shares of beneficial interest, no par value. When issued in
accordance with the terms and procedures described in their respective
Prospectuses, shares of the Funds are fully paid, non-assessable and freely
transferable.
Each series is comprised of three classes of shares--Class A, Class B and
Class Y shares. The classes have identical rights with respect to the series of
which they are a part, provided that there are certain matters which affect one
class but not another. Currently, the only such matters are the existence of the
Distribution Plans with respect to each of Class A and Class B shares, but not
any Class Y shares, the absence of any sales load with regard to the purchase or
redemption of the Class Y shares, and the fact that a sales person or other
person entitled to receive compensation for selling or servicing Class A, Class
B or Class Y shares may receive different compensation with respect to one such
Class over the other Class in the same Fund. On all such matters, shareholders
vote as a class, and not by series. Class Y shares have different expenses, and
are subject to no sales charge, which may affect performance. A separate
Prospectus applies to the Class Y shares of each series. Prospectuses relating
to the Class Y shares of each series may be obtained by calling the telephone
number listed on the first page of this Prospectus.
VOTING--Shareholders have the right to vote on the election of Trustees and
on any and all matters as to which, by law or the provisions of the Declaration
of Trust of the Trust, they may be entitled to vote. All shares of the Trust
have equal voting rights and will be voted in the aggregate, and not by class or
series, except where voting by class or series is required by law or where the
matter involved affects only one class or series. The Trust is not required to
hold annual meetings of the Funds' shareholders, and does not intend to do so,
in any fiscal year in which it is not required by law to elect Trustees. The
Trustees are required to call a meeting for the purpose of considering the
removal of persons serving as Trustee, if requested in writing to do so by the
holders of not less than 10% of the outstanding shares of the Trust.
SHAREHOLDER LIABILITY--Under Massachusetts law, shareholders of the Funds
could, under certain circumstances, be held personally liable for the
obligations of the Trust. However, the Trust's Declaration of Trust disclaims
shareholder liability for acts or obligations of the Trust. The Declaration of
Trust provides for indemnification out of a Fund's property for all loss and
expense of any shareholder of such Fund held liable on account of being or
having been a shareholder. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which a
Fund would be unable to meet its obligations.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to a Fund at the address or
telephone number set forth on the cover page of this Prospectus.
PROSPECTUS
30
<PAGE> 35
APPLICATION FOR PACIFIC CAPITAL FUNDS
PLEASE COMPLETE STEPS 1 THROUGH 4 AND MAIL TO:
ADM, ATTN: OUTSIDE FUNDS TRANSFER AGENT OPERATIONS
581 MAIN STREET, WOODBRIDGE, NJ 07095-1198
1-800-258-9232 [PACIFIC CAPITAL FUNDS LOGO]
- --------------------------------------------------------------------------------
STEP 1 ACCOUNT REGISTRATION PLEASE TYPE OR PRINT NAME EXACTLY AS ACCOUNT IS
TO BE REGISTERED
A. REGISTRATION
<TABLE>
<S> <C> <C> <C>
[ ] Individual 1. ----------------------------------------------------------------------------------------------
First Name Middle Initial Last Name Social Security Number
[ ]
Joint Account* 2. ----------------------------------------------------------------------------------------------
(Use lines 1 First Name Middle Initial Last Name Social Security Number
and 2) *JOINT ACCOUNTS WILL BE TENANTS WITH RIGHTS OF SURVIVORSHIP UNLESS OTHERWISE SPECIFIED.
[ ]
For a Minor 3. --------------------------------- Under the ------------ Uniform Gifts/Transfers to Minors Act
(Only one Custodian's First Name Middle Initial Last Name State
custodian Custodian For
and one minor
are ----------------------------------------------------------------------------------------------
permitted.) Minor's First Name Middle Initial Last Name Minor's Social Security No.
[ ]
For Trust, 4. ----------------------------------------------------------------------------------------------
Corporation, (Name of Corporation or Partnership; PLEASE INDICATE TYPE OF ORGANIZATION. If a Trust, include
Partnership or the name and date of the Trust Instrument. The name(s) of the Trustees in which account will be
other Entity registered should be listed below. Account for a Pension or Profit Sharing Plan or Trust may be
registered in the name of the Plan or Trust itself.)
----------------------------------------------------------------------------------------------
Tax I.D. Number Trustee(s) or Authorized Title
Individual
</TABLE>
- --------------------------------------------------------------------------------
B. MAILING ADDRESS AND TELEPHONE NUMBER
- --------------------------------------------------------------------------------
Street or P.O. Box City State Zip Code
( )
- --------------------------------------------------------------------------------
Area Code Occupation Employer's Name
Daytime Telephone Number Employer's Address City State
Citizen or resident of: U.S. [ ] Other [ ] ___ Check here [ ] if you are a
non U.S.
Citizen or
resident and
not subject to
back-up
withholding.
See certification in Step 4.
- --------------------------------------------------------------------------------
C. INVESTMENT DEALER OR BROKER: (Important -- to be completed by Dealer or
Broker)
- --------------------------------------------------------------------------------
Dealer Name Branch Office Address Branch Office City/State Branch #
( )
- --------------------------------------------------------------------------------
Representative's Name Rep # Area Code Telephone # [Agent User Dealer # /
Branch #]
- --------------------------------------------------------------------------------
STEP 2 PURCHASE OF SHARES
A. INITIAL INVESTMENT
Make check payable to: Pacific Capital Funds Minimum Initial Investment
in any Fund is $1,000. Subsequent Investments, $50.
<TABLE>
<S> <C> <C>
U.S. Treasury Securities Fund $ --------- Tax-Free Short Intermediate Securities $ ---------
Fund
Short Intermediate U.S. Treasury Securities Fund $ --------- Growth Stock Fund $ ---------
Diversified Fixed Income Fund $ --------- Balanced Fund $ ---------
Tax-Free Securities Fund $ --------- Growth and Income Fund $ ---------
New Asia Growth Fund $ --------- Total Investment $ ---------
</TABLE>
- --------------------------------------------------------------------------------
B. DISTRIBUTIONS: All income dividends and capital gains distributions will be
REINVESTED in additional shares at net asset value unless otherwise indicated
below.
Dividends are to be: [ ] Reinvested [ ] Paid in cash* Capital Gains are
to be: [ ] Reinvested [ ] Paid in cash*
*FOR CASH DIVIDENDS, PLEASE CHOOSE ONE OF THE FOLLOWING OPTIONS:
[ ] Wire directly into my financial institutional account. ATTACHED IS A
VOIDED CHECK showing the account information where I would like the
dividend deposited.
[ ] Mail check to my address listed in Step 1B.
[ ] Mail check as requested in Step 3F.
<PAGE> 36
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
C. LETTER OF INTENT
(See Terms of Escrow I/we intend to invest in shares of one or more of the Pacific
for Letter Capital Funds during the 13-month period from the date of my
of Intent at the end of first purchase pursuant to this Letter (which purchase cannot
this be more than 90 days prior to the date of this Letter), an
application). aggregate amount (excluding any reinvestment of dividends or
distributions) of at least $25,000 which, together with my
- ----------------------- present holdings of Pacific Capital Fund shares (at public
Check appropriate box offering price on date of this Letter), will equal or exceed
[ ] YES [ ] NO the minimum amount checked below:*
[ ] $25,000 [ ] $50,000 [ ] $100,000 [ ] $250,000
[ ] $500,000 [ ] $1,000,000
*Accumulated investments must aggregate at least $100,000 for
reduced sales charges to apply to purchases of shares of the
Short-Intermediate U.S. Treasury Securities Fund or the
Tax-Free Short Intermediate Securities Fund.
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
STEP 3 SPECIAL FEATURES This option provides you with a convenient way to have
A. AUTOMATIC INVEST PROGRAM amounts automatically drawn on your financial institution
--------------------------- account and invested in your Pacific Capital Fund account. To
Check appropriate box establish this program, please complete Step 4, Sections A &
[ ] YES [ ] NO B of this Application.
I wish to make regular monthly investments. The minimum
initial purchase is reduced to $100 per Fund when you use
this service. Subsequent minimum purchase is $50 for each
Fund. YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED
CHECK.
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Amount
Please select how often you
would like to have the
----------- Fund $ --------- amount(s) shown above
withdrawn from your checking
----------- Fund $ --------- account and invested into
the above selected Fund(s).
----------- Fund $ --------- [ ] Once each month -- [ ] Twice each month on the
on the 1st 1st and the 16th
Total $ --------- [ ] Once each month -- [ ] Once each quarter on the
1st beginning in the month of
-----------------.
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
B. TELEPHONE INVESTMENT This option provides you with a convenient way to add to your
----------------------- account at any time you wish by simply calling Administrative
Data Management Corp. toll-free at 1-800-258-9232. To
Check appropriate box establish this program, please complete Step 4, Sections A &
[ ] YES [ ] NO B of this Application. YOU MUST ATTACH A PRE-PRINTED DEPOSIT
SLIP OR VOIDED CHECK.
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
C. AUTOMATIC WITHDRAWAL PLAN Please establish an Automatic Withdrawal Plan for this
Application must be account, subject to the terms of the Automatic Withdrawal
received in good order Plan Provisions set forth below. To realize the amount stated
at least two weeks below, Administrative Data Management Corp. (the "Agent") is
prior to 1st actual authorized to redeem sufficient shares from this account at
liquidation date. the then current Net Asset Value, in accordance with the
terms below:
The minimum Automatic Withdrawal amount is $100 per Fund.
</TABLE>
- -----------------------
Check appropriate box
<TABLE>
<S> <C> <C>
[ ] YES [ ] NO
$ ---------------------------
------------------------- Fund
$ ---------------------------
------------------------- Fund
Total $ ---------------------------
</TABLE>
Please select how often you would like to have payments made
from your account under the Automatic Withdrawal Plan.
<TABLE>
<S> <C>
[ ] Once each month -- on the [ ] Twice each month on the 1st and 16th
1st
[ ] Once each month -- on the [ ] Once each quarter on the 1st beginning in
16th the month of -------------------- .
</TABLE>
Please choose one of the following options:
[ ] Mail check to my address listed in Step 1a.
[ ] Mail check as requested in Step 3f.
<PAGE> 37
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
D. 1. TELEPHONE EXCHANGE The Agent is authorized to accept and act upon my/our or any
This option allows you other person's telephone instructions to execute
to effect exchanges the exchange of shares of one Pacific Capital
among accounts in your Fund for one of the funds into which exchange is
name within the Pacific permitted, as designated in the Prospectus, with
Capital group of Funds, identical shareholder registration. The exchange
as described in the will be executed at the relative net asset
Prospectus, by values of the two funds as next determined
telephone. following receipt of such instructions. Except
for gross negligence in acting upon such
telephone instructions to execute an exchange
and subject to the conditions set forth herein,
I (we) understand and agree to hold harmless the
Agent, each of the Pacific Capital Funds, and
their respective officers, directors, trustees,
employees, agents and affiliates against any
liability, damage, expense, claim or loss,
including reasonable costs and attorney's fees
resulting from acceptance of or acting or
failure to act upon this Authorization.
</TABLE>
- -----------------------
Check appropriate box
[ ] YES [ ] NO
TO MAKE A TELEPHONE EXCHANGE, CALL THE AGENT AT 1-800-258-9232.
<TABLE>
<CAPTION>
<S> <C>
2. TELEPHONE REDEMPTION The Agent is authorized to accept and act upon my/our or any
This option allows you other person's telephone instructions to execute
to effect telephone a redemption of shares of one or more Pacific
redemptions, as Capital Funds. The redemption will be executed
described in the at net asset value next determined following
Prospectus. receipt of such instructions.
Except for gross negligence in acting upon such
telephone instructions to execute a redemption
and subject to the conditions set forth herein,
I (we) understand and agree to hold harmless the
Agent, each of the Pacific Capital Funds, and
their respective officers, directors, trustees,
employees, agents and affiliates against any
liability, damage, expense, claim or loss,
including reasonable costs and attorney's fees
resulting from acceptance of or acting or
failure to act upon this Authorization.
</TABLE>
- -----------------------
Check appropriate box
[ ] YES [ ] NO
TO MAKE A TELEPHONE REDEMPTION, CALL THE AGENT AT 1-800-258-9232.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
E. EXPEDITED REDEMPTION Cash proceeds in any amount from the redemption of shares
The proceeds will be will be mailed or wired, whenever possible, upon
deposited to your request, if in an amount of $1,000 or more to my
financial institution (our) account at a financial institution. The
account listed. financial institution account must be in the
same name(s) as this Pacific Capital Fund
account is registered. YOU MUST ATTACH A
PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK.
</TABLE>
- -----------------------
Check appropriate box
[ ] YES [ ] NO
TO MAKE AN EXPEDITED
REDEMPTION, CALL THE
AGENT AT
1-800-258-9232.
<TABLE>
<S> <C>
-------------------------------------------- ---------------------------------------
Financial Institution Account Registration Financial Institution Account Number
-------------------------------------------- ---------------------------------------
Name of Financial Institution Financial Institution Transit/Routing Number
-------------------------------------------- ---------------------------------------
Street City State Zip Code
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
F. SECONDARY ADDRESS Checks should be made payable as indicated below. If check is
payable to a financial institution, i.e., a
commercial bank, savings bank or credit union,
for your account, indicate financial institution
name, address and your account number.
</TABLE>
- -----------------------
Check appropriate box
[ ] YES [ ] NO
<TABLE>
<S> <C>
-------------------------------------------- ---------------------------------------
First Name Middle Initial Last Name Name of Financial Institution
-------------------------------------------- ---------------------------------------
First Name Middle Initial Last Name Street
-------------------------------------------- ---------------------------------------
Street City State Zip Code
-------------------------------------------- ---------------------------------------
City State Zip Code Financial Institution Account Number
</TABLE>
<PAGE> 38
- --------------------------------------------------------------------------------
STEP 4 DEPOSITORS AUTHORIZATION TO HONOR DEBITS
SECTION A IF YOU SELECTED AUTOMATIC INVESTMENT OR TELEPHONE INVESTMENT YOU
MUST ALSO COMPLETE STEP 4, SECTIONS A & B.
I/We authorize the Financial Institution listed below to charge my/our account
for any drafts or debits drawn on my/our account initiated by the Agent,
Administrative Data Management Corp., and to pay such sums in accordance
therewith, provided my/our account has sufficient funds to cover such drafts or
debits. I/We further agree that your treatment of such orders will be the same
as if I/we personally signed or initiated the drafts or debits.
I/We understand that this authority will remain in effect until you receive
my/our written instructions to cancel this service. I/We also agree that if any
such drafts or debits are dishonored, for any reason, you shall have no
liabilities.
FINANCIAL INSTITUTION ACCOUNT NUMBER
<TABLE>
<S> <C>
NAME AND ADDRESS ------------------------------------------------------------------------
WHERE MY/OUR NAME OF FINANCIAL INSTITUTION
ACCOUNT IS ------------------------------------------------------------------------
MAINTAINED STREET ADDRESS
------------------------------------------------------------------------
CITY STATE ZIP CODE
NAME(S) AND ---------------------------------------------------- ------------------
SIGNATURE(S) OF PLEASE PRINT DATE
DEPOSITOR(S) AS ----------------------------------------------------
THEY APPEAR WHERE SIGNATURE
ACCOUNT IS ----------------------------------------------------
REGISTERED PLEASE PRINT
---------------------------------------------------- ------------------
SIGNATURE DATE
</TABLE>
- --------------------------------------------------------------------------------
SECTION B SHAREHOLDER AUTHORIZATION / SIGNATURE(S) REQUIRED
- I/We authorize the Pacific Capital Funds and its agents to act upon these
Instructions for the features that have been checked.
- I/We acknowledge that in connection with an Automatic Investment or
Telephone Investment, if my/our account at the Financial Institution has
insufficient funds, Pacific Capital Funds and its agents may cancel the
purchase transaction and are authorized to liquidate other shares or
fractions thereof held in my/our Pacific Capital Fund account to make up any
deficiency resulting from any decline in the net asset value of shares so
purchased and any dividends paid on those shares. I/We understand that in
the event of such deficiency, Pacific Capital Funds and its agents will
first liquidate shares of the Pacific Capital Fund to which the purchase
transaction relates, and then, in the discretion of Pacific Capital Funds
and its agents, shares of any other Pacific Capital Fund in my/our account
at the Financial Institution. I/We authorize Pacific Capital Funds and its
agents to correct any transfer error by a debit or credit to my/our
financial Institution account and/or Fund account and to charge the account
for any related charges.
- I/We acknowledge that shares purchased either through Automatic Investment
or Telephone Investment are subject to applicable sales charges.
- The undersigned warrants that he/she has full authority and is of legal age
to purchase shares of the Pacific Capital Fund(s) designated above and has
received and read a current Prospectus of such Fund(s) and agrees to its
terms. Pacific Capital Funds, Agent and the Distributor and their Trustees,
directors, employees and agents will not be liable for acting upon
instructions believed to be genuine, and will not be responsible for any
losses resulting from unauthorized telephone transactions if the Agent
follows reasonable procedures designed to verify the identity of the caller.
The Agent will request some or all of the following information: account
name and number, name(s) and social security number registered to the
account and personal identification; the Agent may also record calls.
Shareholders should verify the accuracy of confirmation statements
immediately upon receipt. Under penalties of perjury, the undersigned whose
Social Security (Tax I.D.) Number is shown above certifies(I) that Number is
my correct taxpayer identification number and (II) currently I am not under
IRS notification that I am subject to backup withholding (line out (II) if
under notification). If no such Number is shown, the undersigned further
certifies, under penalties of perjury, that either (a) no such Number has
been issued, and a Number has been or will soon be applied for. If a Number
is not provided to you within sixty days, the undersigned understands that
all payments (including liquidations) are subject to 31% withholding under
federal tax law, until a Number is provided and the undersigned may be
subject to a $50 I.R.S. penalty; or (b) that the undersigned is not a
citizen resident of the U.S.; and either does not expect to be in the U.S.
for more than 182 days during each calendar year and does not conduct a
business in the U.S. which would receive any gain from the Fund, or is
exempt under an income tax treaty. NOTE: ALL REGISTERED OWNERS OF THE
ACCOUNT MUST SIGN BELOW. FOR A TRUST, ALL TRUSTEES MUST SIGN*
<TABLE>
<S> <C> <C>
- ------------------------------------------ ------------------------------------------ ------------------
INDIVIDUAL (OR CUSTODIAN) JOINT REGISTRANT, IF ANY DATE
- ------------------------------------------
CORPORATE OFFICER, PARTNER, TRUSTEE(S), ------------------------------------------ ------------------
ETC. TITLE DATE
*FOR A TRUST, CORPORATION OR ASSOCIATION, THIS FORM MUST BE ACCOMPANIED BY PROOF OF AUTHORITY TO SIGN, SUCH AS A
CERTIFIED COPY OF THE CORPORATE RESOLUTION OR A CERTIFICATE OF INCUMBENCY UNDER THE TRUST INSTRUMENT.
</TABLE>
<PAGE> 39
SPECIAL INFORMATION
- Certain features (Automatic Investment, Telephone Investment, Expedited
Redemption and Direct Deposit of Dividends) are effective 15 days after this
form is received in good order by the Fund's Agent.
- You may cancel any feature at any time, effective 3 days after the Agent
receives notice from you.
- Either the Fund or the Agent may cancel any feature, without prior notice,
if in its judgment your use of any feature involves unusual effort or
difficulty in the administration of your account.
- The Fund reserves the right to alter, amend or terminate any or all features
or to charge a service fee upon 30 days' written notice to shareholders
except if additional notice is specifically required by the terms of the
Prospectus.
BANKING INFORMATION
- If your Financial Institution account changes, you must complete a Ready
Access Features form which may be obtained from the Agent at 1-800-258-9232
and send it to the Agent together with a "voided" check or pre-printed
deposit slip from the new account. The new Financial Institution change is
effective in 15 days after this form is received in good order by the Fund's
Agent.
TERMS OF LETTER OF INTENT AND ESCROW
By checking Box 2c and signing the Application, the investor is entitled to
make each purchase at the public offering price applicable to a single
transaction of the dollar amount checked above, and agrees to be bound by the
terms and conditions applicable to Letters of Intent appearing below.
The investor is making no commitment to purchase shares, but if the
investor's purchases within thirteen months from the date of the investor's
first purchase do not aggregate $25,000, or, if such purchases added to the
investor's present holdings do not aggregate the minimum amount specified
above, the investor will pay the increased amount of sales charge prescribed
in the terms of escrow below.
The commission to the dealer or broker, if any, named herein shall be at the
rate applicable to the minimum amount of the investor's specified intended
purchases checked above. If the investor's actual purchases do not reach this
minimum amount, the commissions previously paid to the dealer will be adjusted
to the rate applicable to the investor's total purchases. If the investor's
purchases exceed the dollar amount of the investor's intended purchases and
pass the next commission break-point, the investor shall receive the lower
sales charge, provided that the dealer returns to the Distributor the excess
of commissions previously allowed or paid to him over that which would be
applicable to the amount of the investor's total purchases.
The investor's dealer or broker shall refer to this Letter of Intent in
placing any future purchase orders for the investor while this Letter is in
effect.
The escrow shall operate as follows:
1. Out of the initial purchase (or subsequent purchases if necessary), 3%
of the dollar amount specified in the Letter of Intent shall be held in
escrow in shares of the Fund by the Agent. All dividends and any capital
distributions on the escrowed shares will be credited to the investor's
account.
2. If the total minimum investment specified under the Letter is completed
within a thirteen-month period, the escrowed shares will be promptly
released to the investor. However, shares disposed of prior to
completion of the purchase requirement under the Letter will be deducted
from the amount required to complete the investment commitment.
3. If the total purchases pursuant to the Letter are less than the amount
specified in the Letter as the intended aggregate purchase, the investor
must remit to the Agent an amount equal to the difference between the
dollar amount of sales charges actually paid and the amount of sales
charges which would have been paid if the total amount purchased had
been made at a single time. If such difference in sales charges is not
paid within twenty days after receipt of a request from the Agent or the
dealer, the Agent will, within sixty days after the expiration of the
Letter, redeem the number of escrowed shares necessary to realize such
difference in sales charges. Any shares remaining after such redemption
will be released to the investor. The escrow of shares will not be
released until any additional sales charge due has been paid as stated
in this section.
4. By checking Box 2c and signing the Application, the investor irrevocably
constitutes and appoints the Agent or the Distributor as his attorney to
surrender for redemption any or all escrowed shares on the books of the
Fund.
AUTOMATIC WITHDRAWAL PLAN PROVISIONS
By requesting an Automatic Withdrawal Plan, the applicant agrees to the
terms and conditions applicable to such plans, as stated below.
1. The Agent will administer the Automatic Withdrawal Plan (the "Plan") as
agent for the person (the "Planholder") who executed the Plan
authorization.
2. Certificates will not be issued for shares of the Fund purchased for and
held under the Plan, but the Agent will credit all such shares to the
Planholder on the records of the Fund. Any share certificates now held
by the Planholder may be surrendered unendorsed to the Agent with the
application so that the shares represented by the certificate may be
held under the Plan.
3. Dividends and distributions will be reinvested in shares of the Fund at
the Net Asset Value.
4. Redemptions of shares in connection with disbursement payments will be
made at the Net Asset Value per share in effect at the close of business
on the first business day of the month or quarter.
5. The amount and the interval of disbursement payments and the address to
which checks are to be mailed may be changed, at any time, by the
Planholder on written notification to the Agent. The Planholder should
allow at least two weeks' time in mailing such notification before the
requested change can be put in effect.
6. The Planholder may, at any time, instruct the Agent by written notice
(in proper form in accordance with the requirements of the then current
prospectus of the Fund) to redeem all, or any part of, the shares held
under the Plan. In such case the Agent will redeem the number of shares
requested at the Net Asset Value per share in effect in accordance with
the Fund's usual redemption procedures and will mail a check for the
proceeds of such redemption to the Planholder.
7. The Plan may, at any time, be terminated by the Planholder on written
notice to the Agent, or by the Agent upon receiving directions to that
effect from the Fund. The Agent will also terminate the Plan upon
receipt of evidence satisfactory to it of the death or legal incapacity
of the Planholder. Upon termination of the Plan by the Agent or the
Fund, shares remaining unredeemed will be held in an uncertificated
account in the name of the Planholder, and the account will continue as
a dividend-reinvestment, uncertificated account unless and until proper
instructions are received from the Planholder, his executor or guardian,
or as otherwise appropriate.
8. The Agent shall incur no liability to the Planholder for any action
taken or omitted by the Agent in good faith.
9. In the event that the Agent shall cease to act as transfer agent for the
Fund, the Planholder will be deemed to have appointed any successor
transfer agent to act as his Agent in administering the Plan.
10. Purchases of additional shares concurrently with withdrawals are
undesirable because of sales charges when purchases are made.
Accordingly, a Planholder may not maintain this Plan while
simultaneously making regular purchases. While an occasional lump sum
investment may be made, such investment should normally be an amount
equivalent to three times the annual withdrawal or $5,000, whichever is
less.
<PAGE> 40
INVESTMENT ADVISER
Pacific Century Trust
111 S. King Street
Honolulu, Hawaii 96813
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219-3035
LEGAL COUNSEL
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
INDEPENDENT AUDITORS
Ernst & Young LLP
One Columbus, Suite 2300
10 West Broad Street
Columbus, Ohio 43215
TRANSFER AGENT
Administrative Data Management Corp.
581 Main Street
Woodbridge, New Jersey 07095
[PACIFIC CAPITAL FUNDS LOGO]
PACIFIC CAPITAL FUNDS
-------------------
GROWTH AND INCOME FUND
GROWTH STOCK FUND
-------------------
CLASS A AND CLASS B
<PAGE> 41
PACIFIC CAPITAL FUNDS
U.S. TREASURY SECURITIES FUND
SHORT INTERMEDIATE U.S. TREASURY SECURITIES FUND
DIVERSIFIED FIXED INCOME FUND
TAX-FREE SECURITIES FUND
TAX-FREE SHORT INTERMEDIATE SECURITIES FUND
3435 Stelzer Road
Columbus, Ohio 43219-3035
Pacific Capital Funds (the "Trust") is a professionally managed, open-end,
management investment company with multiple funds available for investment. This
Prospectus contains information about five of the funds of the Trust--the
Diversified Fixed Income Fund, the Short Intermediate U.S. Treasury Securities
Fund, the Tax-Free Securities Fund, the Tax-Free Short Intermediate Securities
Fund and the U.S. Treasury Securities Fund (each a "Fund" and collectively, the
"Funds"). The Funds are advised by Pacific Century Trust ("Pacific Century"), a
division of Bank of Hawaii and sponsored, administered and distributed by BISYS
Fund Services ("BISYS" or the "Distributor").
This Prospectus relates only to the Class A and Class B shares of each
Fund; certain investors may qualify to invest in a Fund's Class Y shares, which
are not offered hereby. See "General Information--Description of the Trust and
its Shares." This Prospectus sets forth concisely the information a prospective
investor should know before investing in any of the Funds. Investors should read
this Prospectus carefully and retain it for future reference. A Statement of
Additional Information ("SAI") dated November 29, 1997 containing additional and
more detailed information about the Funds has been filed with the Securities and
Exchange Commission (the "Commission") and is hereby incorporated by reference
into this Prospectus. The SAI is available without charge and can be obtained by
writing to the Funds at the address printed above or by calling 800-258-9232.
FOR PURCHASE, REDEMPTION, ACCOUNT OR GENERAL INQUIRIES CONTACT THE TRUST'S
TRANSFER AGENT: ADMINISTRATIVE DATA MANAGEMENT CORPORATION, 581 MAIN STREET,
WOODBRIDGE, NEW JERSEY 07095
800-258-9232
THIS PROSPECTUS SHOULD BE READ
AND RETAINED FOR FUTURE REFERENCE
------------------------
SHARES OF PACIFIC CAPITAL FUNDS ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR
GUARANTEED BY, BANK OF HAWAII OR ANY OF ITS AFFILIATES. SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
AGENCY. AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
PROSPECTUS DATED NOVEMBER 29, 1997.
<PAGE> 42
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Highlights......................................................................... 1
Fund Expenses...................................................................... 4
Financial Highlights............................................................... 7
Investment Objectives and Policies of the Funds.................................... 9
Additional Discussion Regarding Permitted Investment Activities.................... 10
Additional Investment Restrictions................................................. 19
Management, Advisory and Other Service Arrangements................................ 20
Valuation of Class A and Class B shares............................................ 23
How to Purchase Class A and Class B shares......................................... 23
How to Redeem Class A and Class B shares........................................... 30
Dividend and Tax Information....................................................... 32
General Information................................................................ 35
</TABLE>
<PAGE> 43
HIGHLIGHTS
This Prospectus describes the Funds, each of which has its own distinct
investment objectives and policies, which are described and summarized here.
U.S. TREASURY SECURITIES FUND--The primary investment objective of the U.S.
Treasury Securities Fund, a diversified portfolio, is to provide investors with
a high level of current income consistent with prudent risk of capital. Capital
appreciation is a secondary investment objective of the U.S. Treasury Securities
Fund. The U.S. Treasury Securities Fund seeks to achieve these objectives by (i)
investing primarily in U.S. Treasury bonds, notes, bills ("U.S. Treasury
Securities") and repurchase agreements that are collateralized by U.S. Treasury
Securities; and (ii) varying the dollar-weighted average remaining maturity of
its portfolio to take advantage of changes in interest rates.
SHORT INTERMEDIATE U.S. TREASURY SECURITIES FUND--The primary investment
objective of the Short Intermediate U.S. Treasury Securities Fund, a diversified
portfolio, is to provide investors with a high level of current income
consistent with prudent risk of capital. Capital appreciation is a secondary
objective of the Short Intermediate U.S. Treasury Securities Fund. The Short
Intermediate U.S. Treasury Securities Fund seeks to achieve these objectives by
investing primarily in U.S. Treasury Securities and repurchase agreements that
are collateralized by U.S. Treasury Securities. Under normal market conditions,
the dollar-weighted average remaining maturity of the Short Intermediate U.S.
Treasury Securities Fund's portfolio will be from two to five years.
DIVERSIFIED FIXED INCOME FUND--The investment objective of the Diversified
Fixed Income Fund, a diversified portfolio, is to seek a high level of current
income. The Diversified Fixed Income Fund seeks to achieve this objective by
investing primarily in obligations issued or guaranteed by the U.S. Government,
its agencies, or instrumentalities ("U.S. Government Obligations") and in
investment grade debt securities. Pacific Century will monitor the Diversified
Fixed Income Fund's portfolio performance on an ongoing basis and reallocate
assets in response to actual and anticipated market and economic changes. This
approach may result in significant variations in the dollar-weighted average
remaining maturity of the Diversified Fixed Income Fund's portfolio.
TAX-FREE SECURITIES FUND--The investment objective of the Tax-Free
Securities Fund, a non-diversified portfolio, is to provide investors with a
high level of current income exempt from federal income tax and Hawaii income
tax. The Tax-Free Securities Fund pursues this objective by investing, under
normal market conditions, at least 80% of the Fund's net assets in debt
obligations of issuers that pay interest that, in the opinion of counsel to the
issuer, is exempt from federal income tax and is not subject to the federal
alternative minimum tax ("Municipal Obligations"). In addition, the Tax-Free
Securities Fund intends to invest at least 50%, and no more than 60%, of the
market value of its securities in debt obligations issued by or on behalf of the
State of Hawaii and its political subdivisions, agencies and instrumentalities
and other issuers which pay interest that is exempt from Hawaii personal income
tax and exempt from federal income tax, but which, subject to the guidelines
discussed above, may be subject to the federal alternative minimum tax
("Hawaiian Municipal Obligations"). Pacific Century will monitor the Tax-Free
Securities Fund's portfolio performance on an ongoing basis and will reallocate
assets in response to actual and anticipated market and economic changes. This
approach may result in significant variations in the dollar-weighted average
remaining maturity of the Tax-Free Securities Fund's portfolio.
TAX-FREE SHORT INTERMEDIATE SECURITIES FUND--The investment objectives of
the Tax-Free Short Intermediate Securities Fund, a non-diversified portfolio,
are to provide investors with a high level of current income, exempt from
federal income tax and Hawaii income tax, and to provide greater price stability
than a
PROSPECTUS
1
<PAGE> 44
long-term bond fund. The Tax-Free Short Intermediate Securities Fund pursues
these objectives by investing, under normal market conditions, at least 80% of
its net assets in Municipal Obligations. In addition, the Tax-Free Short
Intermediate Securities Fund intends to invest at least 50%, and no more than
60%, of the market value of its securities in Hawaiian Municipal Obligations.
Under normal market conditions, the dollar-weighted average remaining maturity
of the Tax-Free Short Intermediate Securities Fund's portfolio will be from two
to five years.
CERTAIN RISKS
Investments in all of the Funds are subject to default risk (i.e., the risk
that the issuers of securities in which a Fund invests may default in the
payment of principal and/or interest), although the U.S. Treasury Securities
held by the U.S. Treasury Securities Fund and the Short Intermediate U.S.
Treasury Fund are direct obligations of the U.S. Government. The Funds are also
subject to interest rate risk (i.e., the risk that increases in market interest
rates may adversely affect the value of the debt securities in which a Fund
invests and hence the value of an investment in such Fund). There can, of
course, be no assurance that any mutual fund will achieve its investment
objective. In addition, unlike insured bank deposits, no investment in any Fund
is insured against loss of principal. See "Additional Discussion Regarding
Permitted Investment Activities--Additional Risk Disclosure."
For additional information concerning the investment policies and practices
of the Funds, see "Investment Objectives and Policies of the Funds," "Additional
Discussion Regarding Permitted Investment Activities" and "Additional Investment
Restrictions" in this Prospectus. Further information also is provided in the
SAI.
PURCHASE OF CLASS A AND CLASS B SHARES
Class A and Class B shares of each Fund are sold on a continuous basis and
may be purchased by mail or by electronic transfer. See "How to Purchase Class A
and Class B Shares." Initial purchases may only be made with a minimum
investment of $1,000 (the $1,000 minimum may be waived or reduced for certain
accounts; the minimum initial purchase is $250 for Individual Retirement
Accounts ("IRAs") and $100 for Auto Invest Plan participants). Subsequent
investments may be made with as little as $50. For more information about
purchasing Fund shares call ADM at 1-800-258-9232 or contact your Participating
Organization (defined below).
Class A shares of the Funds are offered at net asset value plus a sales
load at the time of purchase. Class B shares of the Funds are offered at net
asset value without the imposition of a sales charge at the time of purchase,
but are charged a deferred sales charge if shares are redeemed within six years
of purchase. See "Valuation of Class A and Class B Shares." Only institutions
(including Bank of Hawaii and its affiliated and correspondents banks)
("Institutions") acting on behalf of customers having a qualified trust account,
employee benefit account or other qualifying relationship at such Institution
are eligible to invest in the Class Y shares of each Fund, which are not offered
hereby. See "General Information."
DIVIDENDS AND DISTRIBUTIONS
The Funds will declare dividends of substantially all of their net income
daily and will pay such dividends monthly. Any net capital gains of a Fund will
be distributed at least annually. At an investor's choice, dividends are paid by
mail, directly deposited into a financial institution account, or automatically
reinvested,
PROSPECTUS
2
<PAGE> 45
without sales charges, in additional shares at the then-current net asset value.
If no election is made, dividends will be automatically reinvested. See
"Dividend and Tax Information."
PACIFIC CENTURY AND BISYS
For its services as investment adviser to the Funds, Pacific Century
receives a fee from each Fund at annual rates that are based on the Fund's
average daily net assets. See "Fund Expenses" and "Management, Advisory and
Other Service Arrangements." A division of Bank of Hawaii, Pacific Century was
founded in 1898 and is the oldest and largest trust company in Hawaii. It has
investment authority over approximately $7.5 billion in client financial assets,
including having investment authority over approximately $1.5 billion in
municipal obligations. Pacific Century is not authorized to and does not carry
on a banking business.
BISYS provides certain administrative services to the Funds, for which each
Fund pays it a fee at an annual rate based on the Fund's average daily net
assets. BISYS also distributes the Funds' shares, for which it may receive
certain additional fees. See "Management, Advisory and Other Service
Arrangements."
REDEMPTION OF CLASS A AND CLASS B SHARES
Class A and Class B shares may ordinarily be redeemed by mail or by
telephone. However, all or part of a customer's shares may be subject to
redemption in accordance with instructions and limitations pertaining to his or
her account held by a Participating Organization. See "How to Redeem Class A and
Class B Shares."
PROSPECTUS
3
<PAGE> 46
FUND EXPENSES
The following Table of Expenses lists the costs and expenses that a
shareholder can expect to incur as an investor in Class A and Class B shares of
a Fund. Certain investors may qualify to invest in a Fund's Class Y shares,
which are not offered hereby. Long-term Class A and Class B shareholders could
pay more in distribution related charges than the economic equivalent of the
maximum front-end sales charges applicable to mutual funds sold by members of
the National Association of Securities Dealers, Inc. ("NASD").
TABLE OF EXPENSES(a)
<TABLE>
<CAPTION>
SHORT INTERMEDIATE TAX-FREE SHORT
U.S. TREASURY U.S. TREASURY DIVERSIFIED FIXED INTERMEDIATE TAX-FREE SECURITIES
SECURITIES FUND SECURITIES FUND INCOME FUND SECURITIES FUND FUND
-------------------- -------------------- -------------------- -------------------- --------------------
CLASS A CLASS B(b) CLASS A CLASS B(b) CLASS A CLASS B(b) CLASS A CLASS B(b) CLASS A CLASS B(b)
------- ---------- ------- ---------- ------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION
EXPENSES
MAXIMUM SALES
LOAD IMPOSED
ON PURCHASES
(AS A
PERCENTAGE OF
OFFERING
PRICE)........ 4.00% None 2.25% None 4.00% None 2.25% None 4.00% None
Maximum
Sales Load
Imposed on
Reinvested
Dividends
(as a
percentage
of
offering
price).... None None None None None None None None None None
Deferred
Sales Load
(as a
percentage
of
original
purchase
price or
redemption
proceeds,
as
applicable)... None 5.00% None 5.00% None 5.00% None 5.00% None 5.00%
Redemption
Fee (c)... None None None None None None None None None None
Exchange
Fee....... None None None None None None None None None None
ANNUAL FUND
OPERATING
EXPENSES (AS A
PERCENTAGE OF
AVERAGE NET
ASSETS)
MANAGEMENT
FEES.......... 0.60% 0.60% 0.30%+ 0.30%+ 0.60% 0.60% 0.50% 0.50% 0.60% 0.60%
12b-1 Fees
(after
waivers).. 0.25% 1.00% 0.25% 1.00% 0.25% 1.00% 0.25% 1.00% 0.25% 1.00%
Other
Expenses
(after
waivers
and
reimbursements)... 0.31% 0.31% 0.32% 0.32% 0.30% 0.30% 0.34% 0.34% 0.27% 0.27%
Total Fund
Operating
Expenses... 1.16% 1.91% 0.87% 1.62% 1.15% 1.90% 1.09% 1.84% 1.12% 1.87%
(after
waivers
and
reimbursements)
</TABLE>
- ------------
+ Reflects waiver. See "Explanation of Table" below.
PROSPECTUS
4
<PAGE> 47
EXAMPLE
A shareholder would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return (d) and (2) redemption at the end of each time
period.
<TABLE>
<CAPTION>
SHORT
INTERMEDIATE TAX-FREE SHORT TAX-FREE
U.S. TREASURY U.S. TREASURY DIVERSIFIED FIXED INTERMEDIATE SECURITIES
SECURITIES FUND SECURITIES FUND INCOME FUND SECURITIES FUND FUND
----------------- ----------------- ----------------- ----------------- -----------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TIME PERIOD
1 year........... $ 51 $ 69 $ 31 $ 66 $ 51 $ 69 $ 33 $ 69 $ 51 $ 69
3 years.......... $ 75 $ 90 $ 50 $ 81 $ 75 $ 90 $ 56 $ 88 $ 74 $ 89
5 years.......... $ 101 $ 123 $ 70 $ 108 $ 101 $ 123 $ 81 $ 120 $ 99 $ 121
10 years......... $ 175 $ 204 $ 127 $ 172 $ 174 $ 202 $ 152 $ 196 $ 171 $ 199
</TABLE>
A shareholder would pay the following expenses on the same $1,000
investment, assuming no redemption.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year........... -- $ 19 -- $ 16 -- $ 19 -- $ 19 -- $ 19
3 years.......... -- $ 60 -- $ 51 -- $ 60 -- $ 58 -- $ 59
5 years.......... -- $ 103 -- $ 88 -- $ 103 -- $ 100 -- $ 101
10 years......... -- $ 204 -- $ 172 -- $ 202 -- $ 196 -- $ 199
</TABLE>
- ------------
(a) Investors who purchase shares through a Participating Organization,
including an affiliate of Pacific Century or an Institution (as defined
above), may be charged account-level fees for additional services provided
to them by such Participating Organization in connection with investment in
a Fund.
(b) Class B shares automatically convert to Class A shares approximately eight
years after initial purchase. See "Conversion of Class B Shares to Class A
Shares."
(c) The Transfer Agent will reduce the amount of a wire redemption payment by
its then current wire redemption charge. As of the date of this Prospectus,
there is no charge for wire redemptions. While this policy is subject to
change at any time, it is not anticipated that such charge would exceed $7
per wire redemption.
(d) The assumed 5% annual return is hypothetical and should not be considered a
representation of past or future annual return. The actual rate of return
may be greater or lesser than the assumed rate. The Example should not be
considered a representation of past or future expenses, and actual expenses
may be greater or lesser than those shown.
EXPLANATION OF TABLE
The purpose of the foregoing table is to assist shareholders in
understanding the various costs and expenses that an investor in the Class A and
Class B shares of the Funds will bear directly or indirectly. With respect to
the Class A shares of the Funds, the amounts set forth under "Annual Fund
Operating Expenses," as well as expense amounts used in the Example, are based
on actual amounts incurred during the most recent fiscal year. With respect to
the Class B shares of the Funds (which have not been publicly offered as of the
date of this Prospectus) all such amounts are based on estimated amounts for the
current fiscal year. In addition, with respect to the Class A shares of the
Funds, "Rule 12b-1 Fees" have been adjusted to reflect the current fee payable
(after voluntary waiver) as of the date of this Prospectus. See "Management,
Advisory and Other Service Arrangements -- The Sponsor, Administrator and
Distributor." The Example set forth
PROSPECTUS
5
<PAGE> 48
above assumes reinvestment of dividends and distributions and utilizes a 5%
annual rate of return as mandated by the Securities and Exchange Commission.
Pacific Century and BISYS each may elect, in its sole discretion, to
otherwise waive or reimburse its respective fees. Any such waivers or
reimbursements will reduce the total expenses of the Fund to which they apply,
thereby increasing yield or total return. As described above, with respect to
the Class A shares, the percentages shown above under "12b-1 Fees," "Other
Expenses" and "Total Fund Operating Expenses" reflect voluntary fee waivers and
reimbursements. Absent such waivers and reimbursements, these percentages would
be (i) 0.75%, 0.35% and 1.70% for the Class A shares of the U.S. Treasury
Securities Fund; (ii) 0.75%, 0.37%, and 1.62% for the Class A shares of the
Short Intermediate U.S. Treasury Securities Fund; (iii) 0.75%, 0.34%, and 1.69%
for the Class A shares of Diversified Fixed Income Fund; (iv) 0.75%, 0.39% and
1.64% for the Class A shares of the Tax-Free Short Intermediate Securities Fund;
and (v) 0.75%, 0.31% and 1.66% for the Class A shares of the Tax-Free Securities
Fund. With respect to the Class B shares, the percentages shown above under
"Other Expenses" and "Total Fund Operating Expenses" reflect voluntary fee
waivers and reimbursements. Absent such waivers and reimbursements, these
percentages would be (i) 0.35% and 1.95% for the Class B shares of the U.S.
Treasury Securities Fund; (ii) 0.37 and 1.87% for the Class B shares of the
Short Intermediate U.S. Treasury Securities Fund; (iii) 0.34% and 1.94% for the
Class B shares of the Diversified Fixed Income Fund; (iv) 0.39% and 1.89% for
the Class B shares of the Tax-Free Short Intermediate Securities Fund; and (v)
0.31% and 1.91% for the Class B shares of the Tax-Free Securities Fund. In
addition, the percentage shown above under "Management Fees" for Class A and
Class B shares of Short Intermediate U.S. Treasury Securities Fund reflects a
voluntary fee waiver. Absent such waiver, this percentage would be 0.50%. There
can be no assurance that the foregoing waivers and expense reimbursements will
continue to apply.
PROSPECTUS
6
<PAGE> 49
FINANCIAL HIGHLIGHTS
The Financial Highlights in the table below set forth certain financial data
and investment results of the Class A shares of the Funds since their inception,
expressed in one share outstanding throughout the relevant period. The Financial
Highlights are derived from the financial statements of Pacific Capital Funds
which have been audited by Ernst& Young LLP, independent auditors. The Financial
Highlights should be read in conjunction with the financial statements, related
notes, and other financial information included in the Statement of Additional
Information. The Trust's annual report contains additional performance
information relating to the Funds and is available upon request, without charge.
Financial information is not presented for the Class B shares, since Class B
shares were not publicly issued as of the date of this Prospectus.
<TABLE>
<CAPTION>
U.S. TREASURY SECURITIES FUND SHORT INTERMEDIATE U.S. TREASURY SECURITIES FUND
CLASS A CLASS A
-------------------------------------------------- ---------------------------------------------------
NOVEMBER 1 DECEMBER 13,
YEAR ENDED YEAR ENDED YEAR ENDED 1993 TO YEAR ENDED YEAR ENDED YEAR ENDED 1993 TO
JULY 31, JULY 31, JULY 31, JULY 31, JULY 31, JULY 31, JULY 31, JULY 31,
1997 1996 1995(D) 1994(A) 1997 1996(D) 1995(D) 1994(A)
---------- ---------- ---------- ----------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD
Investment
Activities........... 9$.13..... $ 9.42 $ 9.04 $ 10.00 $ 9.41 $ 9.60 $ 9.52 $ 10.00
Net investment
income........... 0.52 0.53 0.50 0.31 0.49 0.48 0.52 0.24
Net realized and
unrealized gain
(loss) on
investments...... 0.25..... (0.20) 0.38 (1.00) 0.14 (0.11) 0.05 (0.52)
------- ------- ------- ------- ------- ------- ------- -------
Total from
Investment
Activities... 0.77 0.33 0.88 (0.69) 0.63 0.37 0.57 (0.28)
------- ------- ------- ------- ------- ------- ------- -------
Distributions
Net investment
income........... (0.46).... (0.53) (0.50) (0.27) (0.49) (0.50) (0.49) (0.20)
In excess of net
investment
income........... (0.07) (0.09) -- -- -- (0.04) -- --
In excess of net
realized gains... -- -- -- -- -- (0.02) -- --
------- ------- ------- ------- ------- ------- ------- -------
Total
Distributions... (0.53) (0.62) (0.50) (0.27) (0.49) (0.56) (0.49) (0.20)
------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD............... $ 9.37 $ 9.13 $ 9.42 $ 9.04 $ 9.55 $ 9.41 $ 9.60 $ 9.52
======= ======= ======= ======= ======= ======= ======= =======
Total Return (excludes
sales charges)....... 8.68% 3.43% 10.18% (6.95%)(c) 6.92% 3.90% 6.28% (2.76%)(c)
RATIOS/SUPPLEMENTARY
DATA:
Net assets at end
of period
(000)............ $ 1,087 $ 979 $ 1,035 $60,125 $ 618 $ 1,156 $ 489 $ 3,419
Ratio of expenses
to average net
assets........... 1.16% 1.20% 1.19% 1.15%(b) 0.87% 0.92% 0.99% 1.00%(b)
Ratio of net
investment income
to average net
assets........... 5.60% 5.55% 5.57% 4.62%(b) 5.22% 5.14% 5.51% 3.96%(b)
Ratio of expenses
to average net
assets*.......... 1.70% 1.74% 1.81% 2.09%(b) 1.62% 1.67% 1.78% 5.39%(b)
Ratio of net
investment income
to average net
assets*.......... 5.06% 5.01% 4.96% 3.68%(b) 4.47% 4.39% 4.72% (0.43%)(b)
Portfolio
Turnover(e).......... 44.90% 15.75% 80.98% 11.36% 51.56% 47.17% 62.73% 0.00%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. In addition, the
investment adviser reimbursed expenses. If such voluntary fee reductions and
expense reimbursements had not occurred, the ratios would have been as
indicated.
(a) Period from commencement of operations.
(b) Annualized.
(c) Not annualized.
(d) The Financial Highlights presented for the Class A shares reflects
operations and distributions for the Fund, as a whole, for the period from
August 1, 1994 through October 13, 1994 combined with the operations and
distributions of the Class A shares only for the period from October 14,
1994 through July 31, 1995.
(e) Portfolio turnover is calculated on the basis of the Fund, as a whole,
without distinguishing between the classes of shares issued.
PROSPECTUS
7
<PAGE> 50
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
Diversified Tax-Free Short Intermediate Tax-Free
Fixed Income Fund Securities Fund Securities Fund
Class A Class A Class A
----------------------------------- ----------------------------------- -----------------------------------
OCTOBER 14, October 14, October 14,
YEAR ENDED YEAR ENDED 1994 TO Year ended Year ended 1994 to Year ended Year ended 1994 to
JULY 31, JULY 31, JULY 31, July 31, July 31, July 31, July 31, July 31, July 31,
1997 1996 1995(a) 1997 1996 1995(a) 1997 1996 1995(a)
---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD........... $10.45 $10.75 $ 10.0 $10.05 $10.11 $ 10.00 $10.44 $10.53 $ 10.00
------ ------ ------ ------ ------ ------ ------ ------ ------
Investment
Activities
Net investment
income....... 0.57 0.59 0.49 0.37 0.37 0.30 0.49 0.50 0.39
Net realized
and
unrealized
gain (loss)
on
investment... 0.35 (0.19) 0.74 0.13 (0.03) 0.08 0.46 0.07 0.50
------ ------ ------ ------ ------ ------ ------ ------ ------
Total from
Investment
Activities... 0.92 0.40 1.23 0.50 0.34 0.38 0.95 0.57 0.89
------ ------ ------ ------ ------ ------ ------ ------ ------
Distributions
Net investment
income (0.57) (0.58) (0.48) (0.37) (0.37) (0.27) (0.49) (0.49) (0.36)
In excess of
net
investment
income....... -- (0.02) -- -- (0.03) -- -- (0.04) --
In excess of
net realized
gains........ (0.09) (0.10) -- -- -- -- -- (0.04) --
Net realized
gains........ -- -- -- (0.01) -- -- (0.06) (0.09) --
------ ------ ------ ------ ------ ------ ------ ------ ------
Total
Distributions... (0.66) (0.70) (0.48) (0.38) (0.40) (0.27) (0.55) (0.66) (0.36)
------ ------ ------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE,
END OF PERIOD.... $10.71 $10.45 $ 10.75 $10.17 $10.05 $ 10.11 $10.84 $10.44 $ 10.53
====== ====== ====== ====== ====== ====== ====== ====== ======
Total Return
(excludes sales
charges)......... 9.20% 3.69% 12.66%(b) 5.06% 3.41% 3.90%(b) 9.35% 5.54% 9.06%(b)
RATIOS/SUPPLEMENTARY
DATA:
Net assets at
end of period
(000)........ $1,103 $1,093 $ 27 $ 724 $ 451 $ 308 $2,545 $ 569 $ 563
Ratio of
expenses to
average net
assets....... 1.15% 1.15% 1.18%(c) 1.09% 1.08% 1.05%(c) 1.12% 1.14% 1.15%(c)
Ratio of net
investment
income to
average net
assets....... 5.44% 5.31% 6.25%(c) 3.57% 3.64% 3.82%(c) 4.60% 4.66% 4.93%(c)
Ratio of
expenses to
average net
assets....... 1.69% 1.69% 1.77%(c) 1.64% 1.63% 1.64%(c) 1.66% 1.68% 1.74%(c)
Ratio of net
investment
income to
average net
assets*...... 4.90% 4.77% 5.66%(c) 3.02% 3.09% 3.23%(c) 4.06% 4.12% 4.34%(c)
Portfolio
Turnover(d)...... 80.98% 58.86% 60.47% 29.46% 54.70% 89.98% 11.07% 24.78% 49.17%
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund, as a whole,
without distinguishing between the classes of shares issued.
PROSPECTUS
8
<PAGE> 51
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
Each Fund has its own investment objectives, as described earlier in this
Prospectus. Each Fund also follows its own investment policies and practices,
subject to certain investment restrictions, all described further below and in
"Additional Discussion Regarding Permitted Investment Activities." The SAI also
contains more specific descriptions of investment restrictions which govern the
investments of each of the Funds.
U.S. TREASURY SECURITIES FUND
The U.S. Treasury Securities Fund invests primarily in U.S. Treasury
Securities and in repurchase agreements collateralized by U.S. Treasury
Securities. The U.S. Treasury Securities Fund seeks to enhance its total return
by shortening the average maturity of portfolio securities when interest rates
are anticipated to increase and lengthening the maturity of such portfolio
securities to take advantage of anticipated interest rate declines. Under normal
market conditions, at least 65% of the value of the total assets of the U.S.
Treasury Securities Fund will be invested in U.S. Treasury Securities.
SHORT INTERMEDIATE U.S. TREASURY SECURITIES FUND
The Short Intermediate U.S. Treasury Securities Fund invests primarily in
U.S. Treasury Securities and in repurchase agreements collateralized by U.S.
Treasury Securities. The Short Intermediate U.S. Treasury Securities Fund seeks
to enhance its total return by shortening the average maturity of portfolio
securities when interest rates are anticipated to increase and lengthening the
maturity of such portfolio securities to take advantage of anticipated interest
rate declines. Due to the dollar-weighted average maturity of the Short
Intermediate U.S. Treasury Securities Fund, it is expected to be less volatile
than the U.S. Treasury Securities Fund. Under normal market conditions, at least
65% of the value of the total assets of the Short Intermediate U.S. Treasury
Securities Fund will be invested in U.S. Treasury Securities.
DIVERSIFIED FIXED INCOME FUND
The Diversified Fixed Income Fund invests in U.S. Government Obligations
and in investment grade debt obligations. Most obligations acquired by the
Diversified Fixed Income Fund will be issued by companies or governmental
entities located within the United States. Up to 25% of the total assets of the
Diversified Fixed Income Fund may, however, be invested in dollar-denominated
debt obligations of foreign issuers. Under normal market conditions, at least
65% of the value of the total assets of the Diversified Fixed Income Fund will
be invested in fixed income securities.
TAX-FREE SECURITIES FUND
The Tax-Free Securities Fund purchases primarily Hawaiian Municipal
Obligations and Municipal Obligations. As a matter of fundamental policy, the
Tax-Free Securities Fund will have, under normal market conditions, at least 80%
of its net assets invested in Municipal Obligations. As a matter of operating
policy, under normal market conditions, at least 50%, and no more than 60%, of
the market value of the Tax-Free Securities Fund's securities will be invested
in Hawaiian Municipal Obligations. For temporary defensive purposes, Pacific
Century may invest more than 20% of the Tax-Free Securities Fund's net assets in
securities that are subject to federal income tax or the federal alternative
minimum tax.
TAX-FREE SHORT INTERMEDIATE SECURITIES FUND
The Tax-Free Short Intermediate Securities Fund purchases primarily
Hawaiian Municipal Obligations and Municipal Obligations. As a matter of
fundamental policy, the Tax-Free Short Intermediate Securities Fund will have,
under normal market conditions, at least 80% of its net assets invested in
Municipal Obligations. As a matter of operating policy, under normal market
conditions at least 50%, and no more than 60%, of the market value of the
Tax-Free Short Intermediate Securities Fund's
PROSPECTUS
9
<PAGE> 52
securities will be invested in Hawaiian Municipal Obligations. For temporary
defensive purposes, Pacific Century may invest more than 20% of the Tax-Free
Short Intermediate Securities Fund's net assets in securities that are subject
to federal income tax or the federal alternative minimum tax.
------------------------
Debt obligations acquired by the Funds will, at the time of purchase, be
rated investment grade or better-that is, obligations rated in one of the top
four rating categories assigned by a nationally recognized statistical rating
organization (an "NRSRO") or unrated obligations determined by Pacific Century
to be of comparable quality. See the SAI, "Appendix A."
ADDITIONAL DISCUSSION REGARDING PERMITTED INVESTMENT ACTIVITIES
MUNICIPAL OBLIGATIONS
MUNICIPAL BONDS--Municipal bonds generally have a maturity at the time of
issuance of up to thirty years. They are principally classified either as
"general obligation" bonds, which are secured by the pledge of the
municipality's faith, credit and taxing power for the payment of principal and
interest, or as "revenue" bonds, which are payable only from the revenues
derived from a particular project or facility and generally are dependent solely
on a specific revenue source.
The Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities
Fund may invest in municipal bonds which are covered by insurance guaranteeing
the scheduled payment of principal and interest until their maturity ("Insured
Municipal Bonds"). The insurance can be purchased either by the issuing
government entity or by the Fund purchasing the bond. This insurance is
primarily written by two organizations: Ambac Indemnity Corporation (formerly
called American Municipal Bond Assurance Corporation), a unit of Citicorp, and
Municipal Bond Insurance Association, a pool of private insurers, but may be
written by certain other large insurance companies. This insurance feature
minimizes the risks to the Tax-Free Securities Fund and the Tax-Free Short
Intermediate Securities Fund and its shareholders associated with payment delays
or defaults in these portfolio securities, but does not guarantee the market
value of these portfolio securities or the value of the shares of the Tax-Free
Securities Fund and the Tax-Free Short Intermediate Securities Fund. An issuer
would likely purchase insurance in order to obtain a higher rating by an NRSRO
than it would receive without the insurance thereby reducing the issuer's
borrowing costs. The price paid or received for an Insured Municipal Bond may be
higher than the price that would otherwise be paid or received for the municipal
bond absent the insurance.
The Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities
Fund may invest in moral obligation bonds ("Moral Obligation Bonds") which are
tax-exempt bonds issued by a municipality or a state financial intermediary and
backed by the moral obligation pledge of a state government. Under a moral
obligation pledge, a state government indicates its intent to appropriate funds
in the future if the primary obligor, the municipality or intermediary,
defaults. The state's obligation to honor the pledge is moral rather than legal
because future legislatures cannot be legally obligated to appropriate the funds
required.
MUNICIPAL NOTES--Municipal notes generally have maturities at the time of
issuance of three years or less. Subject to its respective investment objective
and policies, the Tax-Free Securities Fund and the Tax-Free Short Intermediate
Securities Fund may invest in municipal notes that are rated at the date of
purchase in the two highest rating categories assigned by an NRSRO, or not rated
but considered by Pacific Century to be of comparable quality. Municipal notes
generally are issued in anticipation of the receipt of tax funds, of the
PROSPECTUS
10
<PAGE> 53
proceeds of bond placements or of other revenues. The ability of an issuer to
make payments is, therefore, dependent on such tax receipts, proceeds from bond
sales or other revenues, as the case may be.
The Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities
Fund also may invest in certain "private activity" bonds or notes. Such Funds
may not be an appropriate investment for entities which are "substantial users,"
or certain "related persons" of substantial users, of facilities financed by
private activity bonds. "Substantial users" are defined under U.S. Treasury
Regulations to include a non-exempt person who regularly uses a part of such
facilities in his trade or business and whose gross revenues derived with
respect to the facilities financed by the issuance of bonds are more than 5% of
the total revenues derived by all users of such facilities, or who occupies more
than 5% of the usable area of such facilities or for whom such facilities, or a
part thereof, were specifically constructed, reconstructed or acquired. "Related
persons" include certain related natural persons, affiliated corporations,
partnerships and their partners and S corporations and their shareholders.
MUNICIPAL COMMERCIAL PAPER--Municipal commercial paper is a debt obligation
with a stated maturity of 270 days or less that is issued to finance seasonal
working capital needs or as short-term financing in anticipation of longer-term
debt. Subject to its respective investment objective and policies, the Tax-Free
Securities Fund and the Tax-Free Short Intermediate Securities Fund may invest
in municipal commercial paper that is rated at the date of purchase in one of
the two highest rating categories by an NRSRO or not rated but is considered by
Pacific Century to be of comparable quality.
U.S. GOVERNMENT OBLIGATIONS
Each of the Funds may invest in U.S. Government Obligations which include,
in addition to U.S. Treasury Securities, the obligations of Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Government National Mortgage Association
("GNMA"), Federal National Mortgage Association ("FNMA"), Student Loan Marketing
Association ("SLMA"), Resolution Trust Corporation and Federal Home Loan
Mortgage Corporation ("FHLMC"). U.S. Treasury Securities and certain other
obligations of certain agencies and instrumentalities of the U.S. Government,
such as those of the GNMA, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of the Export-Import Bank of the United
States, are supported by the right of the issuer to borrow from the U.S.
Treasury; others, such as those of FNMA, are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; still
others, such as those of the SLMA, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government sponsored instrumentalities if it
is not obligated to do so by law. Some of these instruments may be variable or
floating rate instruments. The Funds will invest in the obligations of such
instrumentalities only when Pacific Century believes that the credit risk with
respect to the instrumentality is minimal.
BANK AND SAVINGS AND LOAN OBLIGATIONS
Each of the Funds may invest in Bank and Savings and Loan obligations.
These obligations include negotiable certificates of deposit, fixed time
deposits, bankers' acceptances, and interest bearing demand accounts. The Funds
limit their bank investments to dollar-denominated obligations of U.S.,
Canadian, Asian, Australian or European banks which have more than $500 million
in total assets at the time of investment or of United States savings and loan
associations which have more than $1 billion in total assets at the time of
investment and, in the case of U.S. banks, are members of the Federal Reserve
System or are examined by the Comptroller of the Currency or whose deposits are
insured by the Federal Deposit Insurance Corporation.
PROSPECTUS
11
<PAGE> 54
COMMERCIAL PAPER
Each of the Funds may invest in commercial paper that is rated at the time
of purchase in the highest short-term rating category by an NRSRO or unrated if
considered by Pacific Century to be of comparable quality. Commercial paper
includes short-term unsecured promissory notes, and variable floating rate
demand notes issued by domestic and foreign bank holding companies, corporations
and financial institutions as well as similar taxable and tax-exempt instruments
issued by government agencies and instrumentalities.
CORPORATE SECURITIES
Each of the Funds may invest in debt securities issued by domestic
corporations, U.S. dollar-denominated debt securities issued by Canadian
corporations, Yankee bonds and supra-national obligations. Yankee bonds are U.S.
dollar-denominated obligations issued by foreign governments or companies.
Supra-national obligations are U.S. dollar-denominated obligations issued by
international entities such as the World Bank and the Inter-American Development
Bank.
PREFERRED STOCK
Each of the Funds may invest in preferred stock which is a class of capital
stock that pays dividends at a specified rate and that has preference over
common stock in the payment of dividends and the liquidation of assets.
Preferred stock does not ordinarily carry voting rights.
ILLIQUID SECURITIES
Each of the Funds may invest in illiquid securities. The Funds will not
knowingly invest more than 15% of the value of their respective net assets in
securities that are illiquid. Repurchase agreements with a duration of more than
seven days, time deposits that do not provide for payment to a Fund within seven
days after notice, Guaranteed Investment Contracts ("GICs") and most commercial
paper issued in reliance upon the exemption in Section 4(2) of the Securities
Act of 1933 (the "1933 Act") (other than variable amount master demand notes
with maturities of nine months or less) are subject to this 15% limit.
If otherwise consistent with its investment objective and policies, any of
the Funds may purchase securities which are not registered under the 1933 Act
but which can be sold to "qualified institutional buyers" in accordance with
Rule 144A under the 1933 Act. Any such security will not be considered illiquid
so long as it is determined by Pacific Century, acting under guidelines and
procedures that are developed, established and monitored by the Board of
Trustees, that an adequate trading market exists for that security. This
investment practice could have the effect of increasing the level of illiquidity
in a Fund during any period that qualified institutional buyers become
uninterested in purchasing these restricted securities. The ability to sell to
qualified institutional buyers under Rule 144A is a recent development, and it
is not possible to predict how this market will develop.
BORROWINGS
Each Fund may borrow from banks up to 20% of the current value of its net
assets for temporary purposes in order to meet redemptions. Each Fund may borrow
funds for temporary purposes by entering into reverse repurchase agreements
which are considered to be borrowings under the Investment Company Act of 1940
(the "1940 Act"). At the time a Fund enters into a reverse repurchase agreement
(an agreement under which the Fund sells portfolio securities and agrees to
repurchase them at an agreed-upon date and price), it will place in a segregated
custodial account cash or other liquid assets having a value equal to or greater
than the repurchase price (including accrued interest) and will subsequently
monitor the account so that such value is maintained. Reverse repurchase
agreements involve the risk that the market value of the securities sold by a
Fund may decline below the price of the securities it is obligated to
repurchase. The Funds would pay interest on amounts obtained pursuant to a
reverse repurchase agreement.
PROSPECTUS
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<PAGE> 55
LOANS OF PORTFOLIO SECURITIES
Each of the Funds may lend securities from its portfolio to brokers,
dealers and financial institutions (but not individuals) if liquid assets equal
to the current market value of the securities loaned (including accrued interest
thereon) plus the interest payable to the Fund with respect to the loan is
maintained with the Fund. In determining whether to lend a security to a
particular broker, dealer or financial institution, Pacific Century will
consider all relevant facts and circumstances, including the creditworthiness of
the broker, dealer or financial institution. Any loans of portfolio securities
will be fully collateralized based on values that are marked to market daily by
Pacific Century. No Fund will enter into any portfolio security lending
arrangement having a duration of longer than one year. Any securities that a
Fund may receive as collateral will not become part of such Fund's portfolio at
the time of the loan and, in the event of a default by the borrower, the Fund
will, if permitted by law, dispose of such collateral except for such part
thereof that is a security in which such Fund may invest. During the time
securities are on loan, the borrower will pay the Fund any accrued income on
those securities, and the Fund may invest the cash collateral and earn
additional income or receive an agreed-upon fee from a borrower that had
delivered cash-equivalent collateral. No Fund will lend securities having a
value that exceeds 30% of the current value of its total assets. Loans of
securities by a Fund will be subject to termination at the Fund's or the
borrower's option. The Funds may pay reasonable administrative and custodial
fees in connection with a securities loan and may pay a negotiated portion of
the interest or fee earned with respect to the collateral to the borrower or the
placing broker. Borrowers and placing brokers may not be affiliated, directly or
indirectly, with the Trust, Pacific Century, or BISYS.
FUTURES CONTRACTS AND RELATED OPTIONS
Each of the Funds may enter into contracts for the future delivery of
securities and futures contracts based on a specific security, class of
securities, or an index, purchase or sell options on any such futures contracts
and engage in related closing transactions. A futures contract on a securities
index is an agreement obligating either party to pay, and entitling the other
party to receive, while the contract is outstanding, cash payments based on the
level of a specified securities index.
The Funds may engage in such futures contracts in an effort to hedge
against market risks and/or manage cash flow into the Funds. For example, when
interest rates are expected to rise or market values of portfolio securities are
expected to fall, the Funds can seek through the sale of futures contracts to
offset a decline in the value of its portfolio securities. When interest rates
are expected to fall or market values are expected to rise, the Funds, through
the purchase of such contracts, can attempt to secure better rates or prices for
the Funds than might later be available in the market when it effects
anticipated purchases. Alternatively, futures may be used to manage cash flows
into and out of the Funds. For example, the investment manager may wish to be
fully invested in a particular asset class. Through the use of futures, the
manager can achieve this objective immediately while temporarily deferring
industry and security selection, in the interest of timeliness.
The acquisition of put and call options on futures contracts will,
respectively, give the Funds the right (but not the obligation), for a specified
price, to sell or to purchase the underlying futures contract, upon exercise of
the option, at any time during the option period.
Aggregate initial margin deposits for futures contracts, and premiums paid
for related options, may not exceed five percent of each Fund's total assets,
and the value of securities that are the subject of such futures and options
(both for receipt and delivery) may not exceed one-third of the market value of
each Fund's total assets. Futures transactions will be limited to the extent
necessary to maintain each Fund's qualification as a regulated investment
company.
PROSPECTUS
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Futures transactions involve brokerage costs and require the Funds to
segregate assets to cover its obligations under futures, or to cover its
obligations by owning the assets underlying open futures contracts. The Funds
may lose the expected benefit of futures transactions if interest rates,
exchange rates or securities prices move in an unanticipated manner. Such losses
are potentially significant and unanticipated changes may result in poorer
overall performance than if the Funds had not entered into any futures
transactions. In addition, the value of each Fund's futures positions may not
prove to be perfectly or even highly correlated with the value of its portfolio
securities, limiting each Fund's ability to hedge effectively against interest
rate, exchange rate and/or market risk and giving rise to additional risks.
There is no assurance of liquidity in the secondary market for purposes of
closing out futures positions. Where a liquid secondary market does not exist, a
Fund is unlikely to be able to control losses by closing out futures positions.
Finally, gains and losses on investments in options and futures depend on
Pacific Century's ability to predict correctly the direction of interest rates
and other economic factors.
ASSET BACKED SECURITIES
Each of the Funds may invest in Asset Backed Securities. Asset Backed
Securities arise through the grouping by governmental, government-related, and
private organizations of loans, receivables, and other assets originated by
various lenders. Asset Backed Securities acquired by a Fund consist of both
mortgage and non-mortgage backed securities. Interest in pools of these assets
differ from other forms of debt securities, which normally provide for periodic
payment of interest in fixed amounts with principal paid at maturity or
specified call dates. Instead, Asset Backed Securities provide periodic payments
which generally consist of both interest and principal payments.
The life of an Asset Backed Security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of an Asset Backed Security, will be primarily a function of
current market interest rates, although other economic and demographic factors
may be involved. For example, falling interest rates generally result in an
increase in the rate of prepayments of mortgage loans while rising interest
rates generally decrease the rate of prepayments. An acceleration in prepayments
in response to sharply falling interest rates will shorten the security's
average maturity and limit the potential appreciation in the security's value
relative to a conventional debt security. Consequently, Asset Backed Securities
are not as effective in locking in high, long-term yields. Conversely, in
periods of sharply rising rates, prepayments are generally slow, increasing the
security's average life and its potential for price depreciation.
Mortgage backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself.
One such type of mortgage-backed security is a GNMA Certificate. GNMA
Certificates are backed as to the timely payment of principal and interest by
the full faith and credit of the U.S. Government. Another type is a FNMA
Certificate, the principal and interest of which are guaranteed only by FNMA
itself, not by the full faith and credit of the U.S. Government. Another type is
a FHLMC Participation Certificate. This type of obligation is guaranteed by
FHLMC as to timely payment of principal and interest. However, like a FNMA
security, it is not guaranteed by the full faith and credit of the U.S.
Government. Mortgage-backed securities issued by private issuers, whether or not
such obligations are subject to guarantees by the private issuer, may entail
greater risk than obligations directly or indirectly guaranteed by the U.S.
Government. Such securities will be purchased for the Funds only when Pacific
Century determines that they are readily marketable at the time of purchase.
PROSPECTUS
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<PAGE> 57
The average life of mortgage-backed securities varies with the maturities
of the underlying mortgage instruments, which have maximum maturities of 40
years. The average life is likely to be substantially less than the original
maturity of the mortgage pools underlying the securities as the result of
mortgage prepayments, mortgage refinancings, or foreclosures. The rate of
mortgage prepayments, and hence the average life of the certificates, will be a
function of the level of interest rates, general economic conditions, the
location and age of the mortgage and other social and demographic conditions.
Such prepayments are passed through to the registered holder with the regular
monthly payments of principal and interest and have the effect of reducing
future payments. Estimated average life will be determined by Pacific Century
and used for the purpose of determining, respectively, the average weighted
maturity of the Funds. Various independent mortgage-backed securities dealers
publish average remaining life data using proprietary models and, in making such
determinations for the Funds, Pacific Century might deem such data unreasonable
if such data appeared to present a significantly different average remaining
expected life for a security when compared to data relating to the average
remaining life of comparable securities as provided by other independent
mortgage-backed securities dealers.
The Funds also may invest in non-mortgage backed securities including
interests in pools of receivables, such as motor vehicle installment purchase
obligations and credit card receivables. Such securities are generally issued as
pass-through certificates, which represent undivided fractional ownership
interests in the underlying pool of assets. Such securities also may be debt
instruments, which also are known as collateralized obligations and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt.
Non-mortgage-backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities. Non-mortgage-backed securities will be purchased
by the Funds only when such securities are readily marketable and rated at the
time of purchase in one of the two highest rating categories assigned by an
NRSRO or, if unrated, considered by Pacific Century to be of comparable quality.
In addition, such securities generally will have remaining estimated lives at
the time of purchase of five years or less. See the SAI, "Additional Information
of Fund Investments."
REAL ESTATE MORTGAGE INVESTMENT CONDUITS
Each of the Funds may invest in Real Estate Mortgage Investment Conduits
("REMICs"). REMICs are a pass-through vehicle created to issue multiclass
mortgage-backed securities. REMICs may be organized as corporations,
partnerships, or trusts and those meeting certain qualifications are not subject
to double taxation. Interests in REMICs may be senior or junior, regular (debt
instruments) or residual (equity interests).
FLOATING AND VARIABLE RATE DEBT INSTRUMENTS
Each of the Funds may invest in floating and variable rate debt
instruments. Floating and variable rate debt instruments bear interest at rates
that are not fixed, but vary with changes in specified market rates or indices
or at specified intervals. Certain of these instruments may carry a demand
feature that would permit the holder to tender them back to the issuer at a par
value prior to maturity. The floating and variable rate instruments that the
Funds may purchase include certificates of participation in such obligations
purchased from banks. Pacific Century will monitor on an ongoing basis the
ability of an issuer of a demand instrument to make payment when due, which
could be affected by events occurring between the date the Funds elect to demand
payment and the date payment is due, except when such demand instruments permit
same-day settlement. In this regard, Pacific Century, pursuant to
PROSPECTUS
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<PAGE> 58
direction of the Board of Trustees, will determine the liquidity of those
instruments with demand features that cannot be exercised within seven days.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
Each of the Funds may purchase securities on a "when-issued" basis and may
also purchase or sell securities on a "forward commitment" basis. These
transactions, which involve a commitment by a Fund to purchase or sell
particular securities with payment and delivery taking place at a future date
(perhaps one or two months later), permit a Fund to lock-in a price or yield on
a security it owns or intends to purchase, regardless of future changes in
interest rates. When-issued and forward commitment transactions involve the
risk, however, that the yield obtained in a transaction may be less favorable
than the yield available in the market when the securities delivery takes place.
The Funds do not intend to engage in when-issued purchases and forward
commitments for speculative purposes but only in furtherance of their investment
objectives. The forward commitments and when-issued purchases are not expected
to exceed 25% of the value of any of the Funds' total assets absent unusual
market conditions.
The Funds will not start earning interest or dividends on when-issued
securities until they are received. The value of the securities underlying a
when-issued purchase or a forward commitment to purchase securities, and any
subsequent fluctuations in their value, is taken into account when determining
the net asset value of a Fund starting on the date such Fund agrees to purchase
the securities. Each Fund will establish a segregated account in which it will
maintain liquid assets in an amount at least equal in value to such Fund's
commitment to purchase securities on a when-issued or forward commitment basis.
If the value of these assets declines, the Fund will replace additional liquid
assets in the account on a daily basis so that the value of the assets in the
account is equal to the amount of such commitments.
LETTERS OF CREDIT AND LIQUIDITY AGREEMENTS
Each of the Funds may purchase debt obligations that are backed by an
irrevocable letter of credit or liquidity agreement of a bank, savings and loan
association or insurance company which assumes the obligation for payment of
principal and interest in the event of default by the issuer. Only banks,
savings and loan associations and insurance companies which, in the opinion of
Pacific Century, are of investment quality comparable to other permitted
investments of such Fund, may be used for letter of credit and liquidity
agreement backed investments.
REPURCHASE AGREEMENTS
Each of the Funds may enter into repurchase agreements wherein the seller
of a security to the Fund agrees to repurchase that security from the Fund at a
mutually agreed-upon time and price. The period of maturity is usually quite
short, often overnight or a few days, although it may extend over a number of
months. A Fund may enter into repurchase agreements only with respect to
obligations that could otherwise be purchased by the Fund. All repurchase
agreements will be fully collateralized based on values that are marked to
market daily by Pacific Century. If the seller defaults and the value of the
underlying securities has declined, the Fund may incur a loss. In addition, if
bankruptcy proceedings are commenced with respect to the seller of the security,
the Fund's disposition of the security may be delayed or limited.
OTHER INVESTMENT COMPANIES
In connection with the management of its daily cash position, each of the
Funds may invest in securities issued by other investment companies, including
(to the extent permitted by the 1940 Act) other investment companies managed by
Pacific Century. Securities of other investment companies will be acquired by a
Fund within the limits prescribed by the 1940 Act. Each of the Funds intends to
limit its investments so that, as determined immediately after a securities
purchase is made:
PROSPECTUS
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(a) not more than 5% of the value of its total assets will be invested in the
securities of any one investment company; (b) not more than 10% of the value of
its total assets will be invested in the aggregate in securities of investment
companies as a group; (c) not more than 3% of the outstanding voting stock of
any one investment company will be owned by the Fund; and (d) the Fund, together
with other investment companies having the same investment adviser and companies
controlled by such companies, owns not more than 10% of the total stock of any
one closed-end company. As a shareholder of another investment company, a Fund
would bear, along with other shareholders, its pro rata portion of the other
investment company's expenses, including advisory fees. These expenses would be
in addition to the advisory and other expenses that a Fund bears directly in
connection with its own operations; however, Pacific Century has undertaken to
waive or reimburse the Funds its advisory fees with respect to Fund assets so
invested (except when such purchase is part of a plan of merger, consolidation,
reorganization or acquisition).
FOREIGN SECURITIES
Each of the Funds may invest in securities of foreign governmental and
private issuers that are denominated in and pay interest in U.S. dollars.
Investments in foreign securities involve certain considerations that are not
typically associated with investing in domestic securities. There may be less
publicly available information about a foreign issuer than about a domestic
issuer. Foreign issuers also are not generally subject to the same accounting,
auditing and financial reporting standards or governmental supervision as
domestic issuers. In addition, with respect to certain foreign countries, tax on
interest, gains and/or dividends may be withheld at the source under foreign
income tax laws, and there is a possibility of expropriation or confiscatory
taxation, political or social instability or diplomatic developments that could
adversely affect investments in, the liquidity of, and the ability to enforce
contractual obligations with respect to, securities of issuers located in those
countries.
OPTIONS
Each of the Funds may purchase put and call options and write covered put
and call options on securities in which such Fund may invest directly and that
are traded on registered domestic securities exchanges or that result from
separate, privately negotiated transactions with primary U.S. Government
securities dealers recognized by the Board of Governors of the Federal Reserve
System in an amount not exceeding 5% of the Fund's net assets. Options may be
entered into in an attempt to hedge a Fund's portfolio against market risk or to
enhance income (e.g., to attempt to realize through the receipt of premiums a
greater current return than would be realized on the underlying securities
alone). See SAI, "Additional Information on Fund Investments."
INTEREST ONLY OR PRINCIPAL ONLY OBLIGATIONS
Each of the Funds may make limited investments (not exceeding 5% of the
relevant Fund's net assets) in separately traded principal and interest
components of securities issued by the United States Treasury. The principal and
interest components of selected securities are traded independently under the
Separate Trading of Registered Interest and Principal of Securities program
("STRIPs"). Under the STRIPs program, the principal and interest components are
individually numbered and separately issued by the U.S. Treasury at the request
of depository financial institutions, which then trade the component parts
independently.
GUARANTEED INVESTMENT CONTRACTS
Each of the Funds may invest up to 5% of its net assets in Guaranteed
Investment Contracts ("GICs") issued by highly rated U.S. insurance companies.
GICs are considered to be illiquid, and accordingly, are subject to each Fund's
15% limitation on investment in illiquid securities. See SAI, "Additional
Information on Fund Investments."
PROSPECTUS
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ADDITIONAL RISK DISCLOSURE
Obligations rated in the lowest of the top four rating categories by an
NRSRO have speculative characteristics, and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade bonds.
Subsequent to its purchase by a Fund, an issue of securities may cease to be
rated or its rating category may be reduced below the minimum rating required
for purchase by the respective Fund. Pacific Century will consider such an event
in determining whether the relevant Fund should continue to hold the obligation.
The Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities
Fund are nondiversified, which means that their assets may be invested among
fewer issuers and therefore the value of their assets may be subject to greater
impact by events affecting one of their investments.
Since the Tax-Free Securities Fund and the Tax-Free Short Intermediate
Securities Fund invest significantly in obligations of issuers located in
Hawaii, the marketability and market value of these obligations may be affected
by certain Hawaiian constitutional provisions, legislative measures, executive
orders, administrative regulations and vote initiatives.
The Hawaiian economy is concentrated in tourism, agriculture and military
operations. Tourism is the strongest factor with tourists from a variety of
nations cushioning any adverse economic situations in a single country. Hawaiian
agriculture is diversifying into an expanded range of agricultural products,
away from the dominant pineapple and sugar production that has been subject to
increased foreign competition.
Governmental activities, including activities usually administered on a
municipal or county level such as public education, are the responsibility of
the state. This concentration aggravates an otherwise high level of state debt
obligations. The state General Fund has operated either within planned deficits
or with ending fund balances since December 1962. Revenue is derived primarily
from general excise taxes and individual and corporate income tax.
There can, of course, be no assurance that any mutual fund will achieve its
investment objective. In addition, unlike insured bank deposits, an investment
in the Funds is not insured against loss of principal.
PORTFOLIO TURNOVER
Generally, the Funds will purchase portfolio securities for capital
appreciation or investment income, or both, and not for short-term trading
profits. However, a Fund may sell a portfolio investment soon after its
acquisition if Pacific Century believes that such a disposition is consistent
with attaining the investment objective of the particular Fund. Portfolio
investments may be sold for a variety of reasons, such as a more favorable
investment opportunity or other circumstances bearing on the desirability of
continuing to hold such investments. The annual portfolio turnover rate is not
expected to exceed 100% for any Fund. For the fiscal years ended July 31, 1997
and July 31, 1996, the portfolio turnover rate for the Funds were as follows:
PROSPECTUS
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PORTFOLIO TURNOVER RATE FOR FISCAL YEARS
ENDED JULY 31, 1997 AND JULY 31, 1996
<TABLE>
<CAPTION>
FUND 1997 1996
----------------------------------------------------------------- ----- -----
<S> <C> <C>
Diversified Fixed Income Fund.................................... 80.98% 58.86%
Short Intermediate U.S. Treasury Securities Fund................. 51.56% 47.17%
Tax-Free Securities Fund......................................... 11.07% 24.78%
Tax-Free Short Intermediate Securities Fund...................... 29.46% 54.70%
U.S. Treasury Securities Fund.................................... 44.90% 15.75%
</TABLE>
See "Portfolio Transactions" in the SAI for additional information relating
to portfolio turnover.
INVESTMENT POLICIES
Each Fund's investment objectives, as set forth in the first paragraph of
the description of each Fund in the "Highlights" section are fundamental; that
is, they may not be changed without approval by vote of the holders of a
majority of the relevant Fund's outstanding voting securities, as described
under "Capital Stock" in the SAI. If the Trust's Board of Trustees determines,
however, that a Fund's investment objective can best be achieved by a
substantive change in a non-fundamental investment policy or strategy, the
Trust's Board may make such change without shareholder approval and will
disclose any such material changes in the then current prospectus. Any policy
that is not specified in a Fund's Prospectus, or in the SAI, as being
fundamental, is non-fundamental.
ADDITIONAL INVESTMENT RESTRICTIONS
As matters of fundamental policy, each of the Funds may not:
1. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in the securities of such issuer, or more than 10% of
the issuer's outstanding voting securities would be owned by the Fund, except
that up to 25% of the value of the Fund's total assets may be invested without
regard to these limitations, and except that this restriction does not apply to
the Tax-Free Securities Fund or the Tax-Free Short Intermediate Securities Fund,
which are non-diversified funds.
2. Purchase any securities which would cause 25% or more of the value of
the Fund's total assets at the time of purchase to be invested in the securities
of one or more issuers conducting their principal business activities in the
same industry, provided that (a) there is no limitation with respect to U.S.
Government Obligations and repurchase agreements secured by such obligations;
(b) with respect to the Tax-Free Securities Fund and the Tax-Free Short
Intermediate Securities Fund, there is no limitation with respect to Municipal
Obligations (for purposes of this limitation, private activity bonds that are
backed only by the assets and revenues of a non-governmental user shall not be
deemed to be Municipal Obligations); (c) wholly owned finance companies will be
considered to be in the industries of their parents if their activities are
primarily related to financing the activities of the parents; and (d) utilities
will be divided according to their services, for example, gas, gas transmission,
electric and gas, electric and telephone will each be considered a separate
industry.
3. Make loans, borrow money or issue senior securities, except under
certain circumstances, and
PROSPECTUS
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subject to certain percentage limitations, specified
above and in the SAI.
If a percentage limitation is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in the value of
a Fund's portfolio securities will not constitute a violation of such
limitation.
MANAGEMENT, ADVISORY AND OTHER SERVICE ARRANGEMENTS
THE BOARD OF TRUSTEES
The business and affairs of the Trust are managed under the direction and
control of its Board of Trustees. The names and principal occupations of the
Trustees of the Trust are listed below. Trustees deemed to be "interested
persons" of the Trust for purposes of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
POSITION(S) HELD
NAME AND ADDRESS WITH THE TRUST PRINCIPAL ORGANIZATION
- ------------------------- ---------------------- ---------------------------------------------
<S> <C> <C>
Deborah G. Patterson* Trustee and Senior Vice President of Bank of
Chairperson Hawaii--Asset Management and Private Client
Group (1994-present); Director of KPMG Peat
Marwick (1993-1994); Senior Vice President
and Manager of Wells Fargo Bank (1987-1992)
Irimga McKay* Trustee and President Senior Vice President of BISYS Fund Services
(1994-present); Senior Vice President of
Concord Financial Group (1986-1994)
Douglas Philpotts* Trustee Chairman of the Board of Directors
(1992-1994), President (1986-1992), and
Director (1984-present) of Pacific Century
Richard W. Gushman, II Trustee President and Chief Executive Officer of
OKOA, Inc. (1985-present); Adviser to RAMPAC,
Inc.
Stanley W. Hong Trustee President and Chief Executive Officer of the
Chamber of Commerce of Hawaii (1996-present);
Business Consultant (1994-present)
Russell K. Okata Trustee Executive Director of Hawaii Government
Employees Association (1981-present)
Oswald K. Stender Trustee Trustee of Bernice Pauahi Bishop Estate
(1990-present); Director of Hawaiian Electric
Industries, Inc. (1993-present)
</TABLE>
Trustees of the Trust who are not officers or employees of the Trust, BISYS
or Pacific Century are entitled to receive from the Trust a quarterly retainer
and a fee for each Board of Trustees meeting attended. All Trustees are
reimbursed for all reasonable out-of-pocket expenses relating to attendance at
meetings.
PROSPECTUS
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THE ADVISER
Pursuant to an Advisory Agreement, the Funds are advised by Pacific
Century, whose address is Financial Plaza of the Pacific, 111 S. King Street,
Honolulu, Hawaii 96813. Pacific Century is a Hawaii corporation organized in
1898 and is the largest trust company in the State of Hawaii, both in terms of
assets under administration and assets under management. As of July 31, 1997,
Pacific Century had approximately $7.5 billion of client financial assets under
management. Pacific Century is a division of Bank of Hawaii, the largest banking
organization headquartered in the State of Hawaii, with approximately $12.6
billion of assets as of July 31, 1997, and branches and offices throughout the
Pacific Basin, including Guam, Singapore, Tokyo, Seoul and Taiwan. All shares of
Bank of Hawaii are owned by Pacific Century Financial Corporation (formerly
Bancorp Hawaii, Inc. "Pacific Century Financial") and Bank of Hawaii's Directors
(each of whom owns qualifying shares as required by Hawaii law). Pacific Century
Financial is a bank holding company, registered under the Bank Holding Company
Act of 1956, as amended, and its common stock is listed and traded on the New
York Stock Exchange (the "Exchange"). Pacific Century Financial files annual and
periodic reports with the Commission and the Exchange, which are available for
public inspection. Pacific Century is not authorized to and does not carry on a
banking business.
The actual management of the portfolios of the Trust is coordinated by
Pacific Century's investment unit, which is staffed with more than 40 people,
including 5 Chartered Financial Analysts and 9 M.B.A.'s. All investment
decisions of the Funds are made by a committee, and no person is primarily
responsible for making recommendations to the committee. Pacific Century has
served as investment adviser to other investment companies since 1984. These
include the Hawaiian Tax-Free Trust, with assets exceeding $61.0 million as of
July 31, 1997, and the Cash Assets Trust, with assets of approximately $736
million as of July 31, 1997.
Subject to the supervision of the Board of Trustees, Pacific Century will
provide a continuous investment program for the Funds, including investment
research and management with respect to all securities and investments and cash
equivalents in the Funds. Pacific Century will determine from time to time what
securities and other investments will be purchased, retained or sold by the
Trust with respect to the Funds. Pacific Century will provide the services under
the Advisory Agreement in accordance with each of the Fund's investment
objectives, policies, and restrictions.
For its services under the Advisory Agreement, Pacific Century is entitled
to monthly advisory fees at the annual rates of each Fund's average daily net
asset value equal to 0.50% for the Short Intermediate U.S. Treasury Securities
Fund and the Tax-Free Short Intermediate Securities Fund, and 0.60% for the
Diversified Fixed Income Fund, the U.S. Treasury Securities Fund and the
Tax-Free Securities Fund. For the fiscal year ended July 31, 1997, the fees paid
by the Funds to Pacific Century under the Advisory Agreement, as a percentage of
average daily net assets, were as follows: Diversified Fixed Income Fund--0.60%;
Short-Intermediate U.S. Treasury Securities Fund--0.30% (after advisory fee
waiver); Tax-Free Securities Fund--0.60%; Tax-Free Short Intermediate Securities
Fund--0.50%; and U.S. Treasury Securities Fund--0.60%.
THE SPONSOR, ADMINISTRATOR AND DISTRIBUTOR
BISYS is the administrator for each Fund, and also acts as the Trust's
principal underwriter and distributor. BISYS generally assists in all aspects of
the administration and operation of the Funds. For expenses assumed and services
provided as administrator pursuant to its Administration Agreement with the
Trust, BISYS is entitled to receive a fee from the Funds, computed daily and
paid monthly, at an annual rate equal to 0.20% of the average daily net assets
of each Fund.
For the fiscal year ended July 31, 1997, the ratios of total expenses to
average net assets (ex-
PROSPECTUS
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<PAGE> 64
cluding waivers) for the Class A shares of the
Funds were as follows: Diversified Fixed Income Fund -- 1.69%; Short
Intermediate U.S. Treasury Securities Fund -- 1.62%; Tax-Free Securities
Fund -- 1.66%; Tax-Free Short Intermediate Securities Fund 1.64%; and U.S.
Treasury Securities Fund -- 1.70%.
In addition, BISYS, as the principal underwriter of the Funds within the
meaning of the 1940 Act, has entered into a Distribution Agreement with the
Trust pursuant to which BISYS has the responsibility for distributing shares of
the Funds. The Distribution Agreement provides that BISYS shall act as agent for
the Funds for the sale of their shares and may enter into selling agreements
with banks, broker/dealers or other financial institutions to market and make
available shares to their respective customers. For its services, BISYS is
entitled to a Distribution Fee as set forth in the separate Distribution and
Shareholder Servicing Plans for each of the Class A and Class B shares (each a
"Distribution Plan"). The Distribution Plan for the Class A shares provides that
BISYS is entitled to receive from each Fund a fee in an amount not to exceed on
an annual basis 0.75% of the average daily net asset value of each Fund's Class
A shares. The Distribution Plan for the Class B shares provides that BISYS is
entitled to receive from each Fund a fee in an amount not to exceed on an annual
basis 1.00% of the average daily net asset value of each Fund's Class B shares.
The Funds had not begun to offer Class B shares publicly at the date of this
Prospectus. Accordingly, no payments had yet been made pursuant to the Class B
distribution Plan. Fees under each of the Distribution Plans compensate BISYS
for the following: (a) payments BISYS makes to banks and other institutions and
industry professionals, broker/dealers, including Pacific Century, BISYS and
their affiliates or subsidiaries, pursuant to an agreement in connection with
providing administrative support services to the holders of a Fund's Class A or
Class B shares; or (b) payments to financial institutions and industry
professionals (such as insurance companies, investment counselors, and BISYS'
affiliates and subsidiaries) in consideration for the sales support services
provided and expenses assumed in connection with distribution assistance,
including but not limited to, printing and distributing Prospectuses to persons
other than current Class A or Class B shareholders of a Fund, printing and
distributing advertising and sales literature and reports to prospective Class
or Class B investors in connection with the sale of a Fund's shares, and
providing personnel and communication equipment used in servicing shareholder
accounts and responding to prospective Class A or B shareholder inquiries. BISYS
may enter into selling agreements with one or more selling agents under which
such agents may receive compensation form BISYS for sales support services,
including, but not limited to, commissions or other payments to such agents
based on the average daily net assets of the Class A or Class B shares of each
Fund.
The distribution fee shall be paid to BISYS only to compensate or to
reimburse it for actual payments or expenses incurred as described above. The
actual distribution fee payable to BISYS is determined, within such limit, from
time to time by mutual agreement between the Trust and BISYS, and may not exceed
the maximum fee payable under the Conduct Rules of the NASD. Until further
notice, BISYS voluntarily intends to waive a portion of its distribution fee for
the current fiscal year such that the distribution fee payable by each Fund will
not exceed 0.25% of the average daily net asset value attributable to the Fund's
Class A shares on an annual basis. No Fund's Class A or Class B shares will be
liable for distribution expenditures made by BISYS in any given year in excess
of the maximum amount payable under the Distribution Plan for that Fund in that
year. BISYS is a broker/dealer registered with the Commission, and is a member
of the NASD.
As noted above, each Fund also offers Class Y shares, which are made
available only to certain investors. The Class Y shares are not subject to any
distribution fees or entitled to benefits under the Distribution Plan.
PROSPECTUS
22
<PAGE> 65
OTHER SERVICE ARRANGEMENTS
Administrative Data Management Corporation ("ADM" or the "Transfer Agent"),
581 Main Street, Woodbridge, New Jersey 07095, serves as the Trust's transfer
agent and dividend disbursing agent. Ernst& Young LLP, One Columbus, Suite 2300,
10 West Broad Street, Columbus, Ohio 43215, serves as independent auditors for
the Trust.
VALUATION OF CLASS A AND B SHARES
The net asset value of the Class A and Class B shares for each Fund is
determined and their shares are priced as of the close of the New York Stock
Exchange (the "Exchange") (currently 4:00 p.m., Eastern Time) (the "Valuation
Time") each Business Day. As used herein, a "Business Day" is a day on which the
Exchange is open for trading and any other day (other than a day on which no
shares of that Fund are tendered for redemption and no order to purchase shares
is received) during which there is sufficient trading in the Fund's portfolio
securities that the Fund's net asset value per share might be materially
affected. The Exchange will not be open in observance of the following holidays:
New Year's Day, President's Day, Martin Luther King Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset
value per share for Class A and Class B is calculated by determining the value
of such Class's proportional interest in the securities and other assets of each
Fund, less (i) such class's proportional share of general liabilities and (ii)
liabilities allocable only to such class, and dividing such amount by the number
of shares of the class outstanding. The net asset value per share for each Fund
will fluctuate as the value of its investment portfolio changes. The per share
net asset value of Class A shares generally will be higher than the per share
net asset value of Class B shares reflecting the daily expense accruals of the
distribution fees applicable to the Class B shares.
Except for debt obligations with remaining maturities of 60 days or less,
which are valued at amortized cost, assets are valued at current market prices,
or if such prices are not readily available, at fair value as determined in good
faith by the Board of Trustees. Prices used for such valuations may be provided
by independent pricing services. For further information about valuation of
investments in the Funds, see the SAI.
HOW TO PURCHASE CLASS A AND B SHARES
PURCHASE OF SHARES
Class A and Class B shares of each Fund are sold on a continuous basis.
Investors may purchase Class A and Class B shares of a Fund by completing and
signing an account registration form ("Account Registration Form") and mailing
it, together with a check (or other negotiable bank draft or money order)
payable to the Trust, in at least the minimum initial purchase amount, to your
Participating Organization or to the Trust's Transfer Agent, Administrative Data
Management Corporation, 581 Main Street, Woodbridge, New Jersey 07095.
Subsequent purchases of shares of a Fund may be made at any time by mailing a
check (or other negotiable bank draft or money order) payable to the Trust, to
ADM at the above address or to your Participating Organization.
Class A and Class B shares of the Funds may also be purchased through
procedures established by BISYS in connection with requirements of qualified
accounts maintained by or on behalf of certain persons ("Customers") by banks,
institutions or industry professionals, such as broker/dealers, who have entered
into an agreement with BISYS ("Participating Organizations") under each of the
Distribution Plans. See "Management, Advisory and
PROSPECTUS
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<PAGE> 66
Other Service Arrangements." BISYS' principal office is located at 3435 Stelzer
Road, Columbus, Ohio 43219-3035.
Class A and Class B shares of a Fund sold to Participating Organizations
acting in a fiduciary, advisory, custodial or other similar capacity on behalf
of a customer will normally be held of record by the Participating
Organizations. With respect to shares so sold, it is the responsibility of the
Participating Organizations to transmit purchase or redemption orders to ADM and
to deliver federal funds for purchase on a timely basis. Beneficial ownership of
shares of a Fund will be recorded by the Participating Organizations and
reflected in the account statements provided by the Participating Organization
to the customer.
If an Account Registration Form has been previously received by ADM,
investors may also purchase Class A and Class B shares by telephoning ADM at
800-258-9232. Payment for Class A and Class B shares ordered by telephone may be
made by check or by electronic transfer and must be received by the Trust's
Custodian within seven days of the telephone order. If payment is not received
within seven days or a check timely received does not clear, the purchase may be
cancelled and the investor could be liable for any losses or fees incurred. In
the case of purchases of Class A and Class B shares effected by wiring funds to
the Trust's Custodian, investors must call ADM at 800-258-9232 to obtain
instructions regarding the bank account number into which the funds should be
wired and other pertinent information. If you have opened an account through a
Participating Organization, you should telephone the Participating Organization
to make further investments.
Class A and Class B shares of each Fund are purchased at the public
offering price per share, which is the net asset value per share (see "Valuation
of Class A and Class B shares") next determined after receipt by the Transfer
Agent of an order to purchase shares in good form plus the applicable sales
charge as described below. The Participating Organizations are responsible for
the prompt transmission of purchase orders to the Transfer Agent. Purchases of
Class A and Class B shares of a Fund will be effected only on a Business Day of
such Fund. An order received by the Transfer Agent prior to the Valuation Time
on any Business Day will be executed based on the net asset value determined as
of the Valuation Time on the date of receipt. An order received by the Transfer
Agent after the Valuation Time on any Business Day will be executed based on the
net asset value determined as of the next Business Day.
The minimum investment for an investor's initial purchase of Class A and
Class B shares of a Fund is $1,000. The minimum investment for subsequent
purchases of Class A and Class B shares is $50. The minimum initial investment
amount for IRAs is $250. As discussed below, the minimum initial investment
amount for Auto Invest Plan participants is $100.
Depending upon the terms of a particular customer account, a Participating
Organization may charge a customer's account fees for automatic investment and
other cash management services provided in connection with investment in the
Funds. Information concerning these services and any charges will be provided by
the relevant Participating Organization. This Prospectus should be read in
conjunction with any such information received from the Participating
Organization.
The Trust reserves the right to reject any order for the purchase of its
Class A or Class B shares in whole or in part.
Every shareholder will receive a confirmation of each new transaction in
the shareholder's account. In the case of shares held of record by a
Participating Organization but beneficially owned by a customer, confirmations
of purchases, exchanges and redemptions of shares by a Participating
Organization will be sent to the customer by the Participating Organization.
Certificates representing shares will not be issued.
PROSPECTUS
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<PAGE> 67
SALES CHARGES
CLASS A SHARES
The public offering price of a Class A share of a Fund equals its net asset
value plus a sales charge. BISYS receives this sales charge as principal
underwriter and will reallow a portion of it to broker/dealers or other
financial institutions as dealer discounts and brokerage commissions. From time
to time dealers who receive dealer discounts and broker commissions from BISYS
may reallow a portion of such dealer discounts and broker commissions to other
dealers or brokers. BISYS may elect to reallow a higher percentage of the sales
charge stated below to selected brokers and dealers for all sales with respect
to which orders are placed with BISYS during a particular period. At BISYS'
discretion, the entire sales charge may at times be reallowed as dealer
discounts and brokerage commissions. If the entire sales charge is reallowed to
a broker/dealer or financial institution, it may be deemed an "underwriter"
under the Securities Act of 1933, as amended.
The following sales charge schedule applies to all Funds except the Short
Intermediate U.S. Treasury Securities Fund and the Tax-Free Short Intermediate
Securities Fund:
<TABLE>
<CAPTION>
DEALER
SALES CHARGE AS ALLOWANCE
SALES CHARGE AS A PERCENTAGE OF AS A PERCENTAGE
A PERCENTAGE OF NET AMOUNT OF OFFERING
AMOUNT OF PURCHASE OFFERING PRICE INVESTED PRICE
- ----------------------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
Less than $25,000.............................. 4.00% 4.17% 3.60%
$25,000 or more but less than $50,000.......... 3.75% 3.90% 3.38%
$50,000 or more but less than $100,000......... 3.50% 3.63% 3.15%
$100,000 or more but less than $250,000........ 3.25% 3.36% 2.93%
$250,000 or more but less than $500,000........ 3.00% 3.09% 2.70%
$500,000 or more but less than $1,000,000...... 2.50% 2.56% 2.25%
$1,000,000 or more............................. 0.00% 0.00% 0.00%
</TABLE>
The following sales charge schedule applies to the Short Intermediate U.S.
Treasury Securities Fund and Tax-Free Short Intermediate Securities Fund:
<TABLE>
<CAPTION>
DEALER
SALES CHARGE AS ALLOWANCE
SALES CHARGE AS A PERCENTAGE OF AS A PERCENTAGE
A PERCENTAGE OF NET AMOUNT OF OFFERING
AMOUNT OF PURCHASE OFFERING PRICE INVESTED PRICE
- ----------------------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
Less than $100,000............................. 2.25% 2.30% 2.03%
$100,000 or more but less than $250,000........ 1.75% 1.78% 1.58%
$250,000 or more but less than $500,000........ 1.25% 1.27% 1.13%
$500,000 or more but less than $1,000,000...... 1.00% 1.01% 0.90%
$1,000,000 or more............................. 0.00% 0.00% 0.00%
</TABLE>
While there are no sales charges on single transactions of $1 million or
more, BISYS will make payments to securities dealers, from its own resources,
related to these transactions as shown in the table below. The first payment
will be applied to the total purchase price and made payable upon settlement of
the purchase. Subsequent payments will be made at the end of each full calendar
quarter following the original purchase. The amount of each subsequent payment
will be based on the number of shares originally purchased and remaining in the
account at the time of the payment multiplied by the net asset value per share
at the purchase date. The payment schedule will be as follows:
PROSPECTUS
25
<PAGE> 68
<TABLE>
<CAPTION>
NUMBER OF AMOUNT OF TOTAL OF
AMOUNT OF PURCHASE PAYMENTS EACH PAYMENT ALL PAYMENTS
- ------------------------------------------------------- --------- ------------ ------------
<S> <C> <C> <C>
$1,000,000 or more but less than $2,000,000............ 6 0.083% 0.50%
$2,000,000 or more but less than $4,000,000............ 5 0.070% 0.35%
$4,000,000 or more..................................... 4 0.063% 0.25%
</TABLE>
The sales charges set forth in the tables above are applicable to purchases
made at one time by any purchaser (a "Purchaser"), which term shall mean: (i) an
individual, his or her spouse and children under the age of 21, if any; (ii) a
trustee or other fiduciary of a single trust estate or single fiduciary account;
or (iii) any other organized group of persons, whether incorporated or not,
provided that such organization has been in existence for at least six months
and has some bona fide business purpose other than the purchase of redeemable
securities of a registered investment company. In order to qualify for a reduced
sales charge, all orders from a Purchaser will have to be placed through a
single investment dealer and identified at the time of purchase as originating
from the same Purchaser, although such orders may be placed into more than one
discrete account which identifies the Purchasers.
BISYS, at its expense, will also provide additional compensation to dealers
in connection with sales of shares of the Trust. Such compensation will include
financial assistance to dealers in connection with conferences, sales or
training programs for their employees, seminars for the public advertising
campaigns regarding one or more Funds, and/or other dealer-sponsored special
events. In some instances, this compensation will be made available only to
certain dealers whose representatives have sold a significant amount of such
shares. Compensation will include payment for travel expenses, including
lodging, incurred in connection with trips taken by invited registered
representatives and members of their families to locations within or outside of
the United States for meetings or seminars of a business nature. Compensation
will also include the following types of non-cash compensation offered through
sales contests: (1) vacation trips, including the provision of travel
arrangements and lodging, (2) tickets for entertainment events (such as
concerts, cruises and sporting events), and (3) merchandise (such as clothing,
trophies, clocks and pens). Dealers may not use sales of the Trust's Shares to
qualify for this compensation to the extent such may be prohibited by the laws
of any state or any self-regulatory agency, such as the NASD. None of the
aforementioned compensation is paid for by the Funds or their shareholders.
REDUCED SALES CHARGES
CLASS A SHARES
SALES CHARGE WAIVERS--The following classes of investors may purchase Class
A shares of a Fund with no sales charge in the manner described below (any of
which may be changed or eliminated at any time by BISYS):
(1) Existing shareholders of a Fund, upon the reinvestment of dividend and
capital gain distributions;
(2) Officers, trustees, directors, employees and retired employees of the
Trust, Pacific Century Financial and its affiliates, and of BISYS and its
affiliates (and spouses and children of each of the foregoing);
(3) With the exception of investors for whom Pacific Century Investment
Services provides custodial services, investors for whom Pacific Century
Financial or one of its affiliates acts in a fiduciary, advisory, custodial,
agency or similar capacity;
(4) Investors who purchase shares of a Fund through a retirement related
payroll deduction plan, a 401(k) plan, a 403(b) plan, or a similar plan which by
its terms permits purchases of shares; and
(5) Orders placed on behalf of other investment companies distributed by
the Distributor.
PROSPECTUS
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<PAGE> 69
The Trust permits the sale of its Class A shares at prices that reflect the
reduction or elimination of the sales charge to investors who are members of
certain qualified groups meeting the following requirements. A qualified group
(i) is a group or association, or a category of purchasers who are represented
by a fiduciary, professional or other representative (other than a registered
broker-dealer); (ii) satisfies uniform criteria which enable the Distributor to
realize economies of scale in its costs of distributing shares; (iii) if it is a
group or association, gives its endorsement or authorization to an investment
program to facilitate solicitation of its membership by a broker or dealer, and
(iv) complies with the conditions of purchase that are set forth in any
agreement entered into between the Trust and the group, representative or broker
or dealer. At the time of purchase the investor, either directly or through a
broker or dealer, must furnish the Transfer Agent with information sufficient to
permit verification that the purchase qualifies for a reduced sales charge.
The Distributor may waive the sales charge for an investor who purchases a
Fund's Class A shares with the proceeds from the recent redemption of shares of
any non-money market front-end or back-end load mutual fund. To the extent the
sales load of the Fund in which such investor seeks to invest is higher than
that of the fund with respect to which the redemption proceeds relate, the
Distributor will waive only that portion of the Fund's sales load which equals
the prior sales load paid. Any portion of the sales load which is not waived in
accordance with the foregoing must be paid by the investor at the time of
purchase. Purchases of Fund shares using redemption proceeds as described above
must be made within 60 days of redemption from funds which are not a series of
Pacific Capital Funds and within 120 days of redemption from funds which are
series of Pacific Capital Funds. The Transfer Agent must be notified in writing
by the investor, or by his or her financial institution, at the time the
purchase is made. A copy of the investor's account statement showing such
redemption must accompany such notice. BISYS also, from time to time, may waive
the sales charge for all investors with respect to any Fund.
LETTERS OF INTENT--Any Purchaser may obtain a reduced sales charge by means
of a written Letter of Intent which expresses the intention of such Purchaser to
purchase a certain amount of a Fund's Class A shares within a period of 13
months. Each purchase of shares under a Letter of Intent will be made at the
public offering price plus the sales charge applicable at the time of such
purchase to a single transaction of the total dollar amount indicated in the
Letter of Intent. A Letter of Intent may include purchases of shares made not
more than 90 days prior to the date such Purchaser signs a Letter of Intent;
however, the 13-month period during which the Letter of Intent is in effect will
begin on the date of the earlier purchase to be included. The terms of the
Letter of Intent and the escrow account associated therewith are described in
the Account Registration Form. For further information, interested investors
should contact ADM or their Participating Organization. Letter of Intent
privileges may be amended or terminated without notice at any time by the Trust.
CONCURRENT PURCHASES AND RIGHT OF ACCUMULATION--A Purchaser may qualify for
a reduced sales charge by (i) combining concurrent purchases of shares of a Fund
with purchases of one or more of the other Funds sold with a sales charge or
(ii) combining a current purchase of shares of a Fund with prior purchases of
shares of any of the other Funds sold subject to a sales charge. The applicable
sales charge is based on the sum of (a) the Purchaser's current purchase of
shares of any Fund sold with a sales charge plus (b) the then-current net asset
value of all shares held by the Purchaser in any Fund sold with a sales charge.
To receive the applicable public offering price pursuant to the right of
accumulation, shareholders must at the time of purchase provide ADM or their
Participating Organization with sufficient information to permit confirmation of
qualification. Accumulation privileges may be amended or terminated without
notice at any time by the Trust. Shares of other
PROSPECTUS
27
<PAGE> 70
series of the Trust sold subject to a sales charge which are not offered through
this Prospectus may be counted for purposes of the accumulation privileges.
CLASS B SHARES
The public offering price of a Class B share of a Fund equals its net asset
value without the imposition of a sales charge at the time of purchase. However,
Class B shares are subject to a contingent deferred sales charge ("CDSC") if the
shares are redeemed within six years of purchase, at rates set forth below.
After approximately eight years, Class B shares will automatically convert to
Class A shares. See "Conversion of Class B shares to Class A shares" below, for
more detail. At the time of redemption, the CDSC will be based on the initial
purchase price or the current market value of the shares being redeemed,
whichever is less. A CDSC will not be imposed on amounts representing increases
in net asset value above the net asset value at the time of purchase. There is
no CDSC on shares acquired through reinvestment of dividends. Imposition of the
CDSC and the distribution fee on Class B shares is limited by the NASD
asset-based sales charge rule.
The following table sets forth the rates of the Class B CDSC:
<TABLE>
<CAPTION>
CDSC AS A
PERCENTAGE OF
DOLLAR AMOUNT
YEARS AFTER PURCHASE SUBJECT TO CHANGE
--------------------- -----------------
<S> <C>
1st Year............. 5%
2nd Year............. 4%
3rd Year............. 3%
4th Year............. 3%
5th Year............. 2%
6th Year............. 1%
</TABLE>
Solely for purposes of determining the number of years which have elapsed
from the time of purchase of any Class B shares, all purchases during a month
will be aggregated and deemed to have been made on the last day of the month. In
determining whether a CDSC is applicable to a redemption, the calculation will
be made in the manner that results in the lowest possible charge being assessed.
In this regard, it will be assumed that the redemption is first of shares held
for more than six years or shares acquired pursuant to reinvestment of dividends
or distributions both of which do not carry any CDSCs. It will then be assumed
that the redemption is of shares held longest during the six year period, which
will have the lowest CDSC.
For example, assume an investor purchased 100 Class B shares with a net
asset value of $10 per share (i.e., at an aggregate net asset value of $1,000)
and in the eleventh month after purchase, the net asset value per share is $12
and, during such time, the investor has acquired five additional Class B shares
through dividend reinvestment. If at such time the investor makes his first
redemption of 50 Class B shares (producing proceeds of $600), five of such
shares will not be subject to the charge because of dividend reinvestment. With
respect to the remaining 45 Class B shares being redeemed, the charge will be
applied only to the original cost of $10 per share and not to the increase in
net asset value of $2 per share. Therefore, only $450 of the $600 redemption
proceeds will be subject to the charge of 5.00%, totaling $22.50.
The contingent deferred sales charge is waived on redemptions of Class B
shares (i) following the death or disability (as defined in the Internal Revenue
Code (the "Code")) of a shareholder (or both shareholders in the case of joint
accounts), (ii) to the extent that the redemption represents a minimum required
distribution from an IRA or a Custodial Account under Code Section 403(b)(7) to
a shareholder who has reached age 70 1/2, and (iii) to the extent the redemption
represents the minimum distribution from retirement plans under Code Section
401(a) where such redemptions are necessary to make distributions to plan
participants.
CONVERSION OF CLASS B SHARES TO CLASS A SHARES
After approximately eight years Class B shares will automatically convert
to Class A shares and will
PROSPECTUS
28
<PAGE> 71
be subject to the lower Distribution and Shareholder Service fees charged to
Class A shares.
For purposes of conversion of Class A shares, shares received as dividends
and other distributions paid on Class B shares in a shareholder's Fund account
will be considered to be held in a separate sub-account. Each time any Class B
shares in a shareholder's Fund account (other than those in the sub-account)
convert to Class A shares, a pro-rata portion of the Class B shares in the
sub-account will also convert to Class A shares.
If a shareholder effects one or more exchanges among Class B shares of the
Funds of the Trust during the six-year period, the Trust will aggregate the
holding periods for the shares of each Fund of the Trust for purposes of
calculating that six-year period. Because the per share net asset value of the
Class A shares may be higher than that of the Class B shares at the time of
conversion, a shareholder may receive fewer Class A shares than the number of
Class B shares converted, although the dollar value will be the same.
The conversion will be on the basis of the relative net asset value of the
shares of the two classes, without the imposition of any sales load, fee or
other charge. Conversion of Class B shares to Class A shares will not be deemed
a purchase or sale of the shares for federal income tax purposes.
Shares purchased through reinvestment of dividends in Class B shares will
also convert automatically to Class A shares after approximately eight years.
AUTO INVEST PLAN--The Auto Invest Plan enables Class A or Class B
shareholders of any of the Funds to make regular monthly or quarterly purchases
of Class A or Class B shares through automatic deductions from their bank
accounts. With shareholder authorization, the Transfer Agent will deduct the
amount specified from the shareholder's bank account which will automatically be
invested in shares at the public offering price on the dates of the deduction.
The required minimum initial investment when opening an account using the Auto
Invest Plan is $100; the minimum amount for subsequent investments is $50. To
participate in the Auto Invest Plan, shareholders should complete the
appropriate section of the Account Registration Form which can be obtained by
calling ADM at 800-258-9232. For a shareholder to change the Auto Invest Plan
instructions, the request must be made in writing to ADM or your Participating
Organization. Depending upon the terms of a particular customer account, a
Participating Organization may charge a customer's account fees for services
provided in connection with investment in the Funds. Information concerning
these services and any charges will be provided by the Participating
Organizations. This Prospectus should be read in conjunction with any such
information received from the Participating Organizations.
EXCHANGE PRIVILEGES
Except as described below, Class A and Class B shareholders may exchange
shares of any Fund on the basis of the relative net asset value of the shares
exchanged, without payment of a sales charge, for the same class of any other
Fund, the same class of any other series of the Trust or for service class
shares of the Cash Assets Trust, the Tax-Free Cash Assets Trust or the U.S.
Treasuries Cash Assets Trust. The exchange privilege may be exercised by
shareholders so long as they maintain the respective minimum account balance in
each Fund in which they own shares.
To the extent that a holder of Class A shares exchanges into a Fund having
a higher initial sales charge than that of the Fund from which the shareholder
is exchanging, the shareholder will pay the sales charge differential at the
time of the exchange. Class B shares of a Fund which are subject to a CDSC will
be exchangeable on the basis of relative net asset value per share without the
payment of any CDSC that might otherwise have been due upon redemption of the
shares of the Fund. For purposes of computing the CDSC upon redemption of shares
received in the exchange, the holding period will be measured from the date of
purchase of the original shares and will retain the same CDSC rate as they
PROSPECTUS
29
<PAGE> 72
had before the exchange, except that the rate will change to the new Fund's rate
if that rate is higher. A CDSC rate that has increased will drop again with a
future exchange into a Fund with a lower rate.
For federal income tax purposes, an exchange of shares is deemed a sale on
which a shareholder may realize capital gain or loss. Before an exchange can be
effected, a shareholder must receive a prospectus of the fund into which the
subject shares are to be exchanged. If you have previously elected the telephone
exchange option on your Account Registration Form, an exchange can be made by
calling ADM at 800-258-9232 or your Participating Organization. Otherwise,
exchanges may be made by forwarding a written request for exchange to ADM or
your Participating Organization. Exchange privileges may be exercised only in
those states where shares of such other Fund or series may be legally sold, and
may be amended or terminated at any time upon 60 days' notice.
HOW TO REDEEM CLASS A AND CLASS B SHARES
Shareholders may redeem their Class A and Class B shares without charge on
any day that net asset value is calculated (see "Valuation of Class A and Class
B Shares") and the shares may ordinarily be redeemed by mail or by telephone.
However, if you purchase shares through a Participating Organization which
serves as the shareholder of record, you must redeem through such institution.
In all other cases, a completed Account Registration Form must have been
received by the Transfer Agent before redemption requests may be honored. All or
part of a customer's shares may be subject to redemption in accordance with
instructions and limitations pertaining to his or her account held by a
Participating Organization. For example, if a customer has agreed to maintain a
minimum balance in his or her account, and the balance in that account falls
below that minimum due to redemptions, the customer may be obliged to redeem, or
the Participating Organization may be authorized to redeem the customer's shares
for and on behalf of the customer.
REDEMPTION BY MAIL
A written request for redemption must be received by ADM or your
Participating Organization in order to constitute a valid tender for redemption.
The Participating Organizations are responsible for the prompt transmission of
redemption requests to the Transfer Agent. The Transfer Agent will require a
signature guarantee by an eligible guarantor institution if (a) the redemption
check is to be payable to anyone other than the Class A or Class B
shareholder(s) of record or (b) a redemption check is to be mailed or proceeds
are to be wired to the Class A or Class B shareholder(s) at an address other
than the address of record or other than a commercial bank account designated on
the Account Registration Form of such Class A and Class B shareholder(s) or (c)
the redemption proceeds exceed $50,000. For purposes of this policy, the term
"eligible guarantor institution" shall mean members of the STAMP (Securities
Transfer Agents Medallion Program), MSP (New York Stock Exchange Medallion
Signature Program) or SEMP (Stock Exchanges Medallion Program). Participants of
STAMP, MSP, and SEMP are subject to dollar value limitations which must be
considered when requesting their authorization. The Transfer Agent reserves the
right to reject any signature guarantee if it has reason to believe that the
transaction would otherwise be improper.
REDEMPTION BY TELEPHONE
A shareholder may have the proceeds of redemption requests electronically
transferred or mailed directly to a domestic commercial bank account previously
designated by the shareholder on the Account Registration Form. Under most
circumstances, such proceeds will be transmitted on the next Business Day
following receipt of a valid request for redemption. If you authorize the tele-
PROSPECTUS
30
<PAGE> 73
phone redemption option in your Account Registration Form, such electronic
redemption request may be made by the shareholder by telephone to ADM or your
Participating Organization. The Transfer Agent will reduce the amount of a wire
redemption payment by its then-current wire redemption charge. As of the date of
this Prospectus, there is no charge for wire redemptions. While this policy is
subject to change at any time, it is not anticipated that such charge would
exceed $7 per wire redemption. There is no charge for having proceeds of
redemption requests mailed to a designated bank account. The Trust will not
permit shareholders to change their accounts by telephone. For telephone
redemptions, call ADM at 800-258-9232. Neither the Distributor, the Transfer
Agent, Pacific Century nor the Trust will be liable for any losses, damages,
expense or cost arising out of any telephone transaction (including exchanges
and redemptions) effected in accordance with the Fund's telephone transaction
procedures, upon instructions reasonably believed to be genuine. The Trust will
employ procedures designed to provide reasonable assurance that instructions by
telephone are genuine. A description of the procedures employed by the Trust to
confirm instructions communicated by telephone is contained in the Statement of
Additional Information. This policy places the entire risk of loss for
unauthorized or fraudulent transactions on the Shareholder, except that if the
Distributor, the Transfer Agent, Pacific Century, the Trust or their affiliates
do not follow reasonable procedures, some or all of them may be liable for any
such losses.
During times of drastic economic or market changes, telephone exchanges or
redemptions may be difficult to implement. If you experience difficulty in
making a telephone exchange or redemption, your exchange or redemption request
may be made by regular or express mail, and it will be implemented at the next
determined net asset value following receipt by the Transfer Agent.
PAYMENTS TO CLASS A AND CLASS B SHAREHOLDERS
Redemption orders are effected at the net asset value per share next
determined after the Class A and Class B shares are properly tendered for
redemption, as described above. The proceeds paid upon redemption of shares in a
Fund may be more or less than the amount invested. Payment to shareholders for
shares redeemed will be made within seven days after receipt by the Transfer
Agent of the request for redemption. However, to the greatest extent possible,
the Trust will attempt to honor requests from shareholders for next Business Day
payments upon redemption of shares if the request for redemption is received by
the Transfer Agent before 4:00 p.m., Eastern Time, on a Business Day or, if the
request for redemption is received after 4:00 p.m., Eastern Time, to honor
requests for payment within two Business Days, unless it would be
disadvantageous to the Trust or the shareholders of the particular Fund to sell
or liquidate portfolio securities in an amount sufficient to satisfy requests
for payments in such manner.
If the Trust is requested to redeem shares for which it has not yet
received good payment, it may delay the forwarding of proceeds only until
payment has been collected for the purchase of such shares. Such collection may
take up to 15 days or more. To avoid delay in payment upon redemption shortly
after purchasing shares, investors should purchase shares by certified or bank
check or by wire transfer. The Trust intends to pay cash for all shares
redeemed, but under abnormal conditions which make payment in cash inadvisable,
the Trust may make payment wholly or partly in portfolio securities at their
then-current market value equal to the redemption price, net of any CDSC. In
such cases, an investor may incur brokerage costs in converting such securities
to cash.
Due to the relatively high cost of handling small accounts, the Trust
reserves the right to redeem, at net asset value, the shares of any shareholder
if, because of redemptions of shares by or on behalf of the shareholder, the
account of such shareholder in any Fund has a value of less than $250 due to
redemptions. Accordingly, an investor purchasing shares of a Fund in only the
minimum investment amount may be subject to such involuntary redemption if he or
she thereafter redeems
PROSPECTUS
31
<PAGE> 74
some of his or her shares. Before the Trust exercises its right to redeem such
shares and to send the proceeds to the shareholder, the shareholder will be
given notice that the value of the shares of a Fund in his or her account is
less than the minimum amount and will be allowed 60 days to make an additional
investment in an amount which will increase the value of the account to at least
$1,000.
AUTO WITHDRAWAL PLAN
The Auto Withdrawal Plan enables Class A shareholders of any of the Funds
to make regular monthly or quarterly redemptions of Class A shares. With
shareholder authorization, the Transfer Agent will automatically redeem Class A
shares at the net asset value on the dates of the withdrawal and have a check in
the amount specified mailed to the shareholder. The required minimum withdrawal
is $100. To participate in the Auto Withdrawal Plan, shareholders should call
ADM for more information. Purchases of additional shares concurrent with
withdrawals may be disadvantageous to certain shareholders because of tax
liabilities and sales charges. To change the Auto Withdrawal Instructions, or to
discontinue the feature, a shareholder must submit a written request to ADM or
their Participating Organization.
DIVIDEND AND TAX INFORMATION
DIVIDENDS AND DISTRIBUTIONS
The Funds will declare dividends of substantially all of their net income
daily and will pay such dividends monthly. Distributable net realized capital
gains are distributed at least annually to shareholders of record. A shareholder
will automatically receive all income dividends and capital gains distributions
in additional full and fractional shares of the same Class of shares held unless
the shareholder elects to receive such dividends or distributions in cash.
Dividends elected to be received in cash may be deposited directly into a
shareholder's financial institution account, provided the shareholder has
completed the appropriate section of the Account Registration Form. Dividends
and distributions are reinvested without a sales charge as of the ex-dividend
date using the net asset value determined on that date and are credited to a
shareholder's account on the payment date. Reinvested dividends and
distributions receive the same tax treatment as dividends and distributions paid
in cash. Dividends are generally taxable when received. However, dividends
declared in October, November or December to shareholders of record during those
months and paid during the following January are treated for tax purposes as if
they were received by each shareholder on December 31 of the prior year.
Elections to receive dividends or distributions in cash, or any revocation
thereof, must be made in writing to ADM at 581 Main Street, Woodbridge, New
Jersey 07095 or to your Participating Organization, and will become effective
with respect to dividends and distributions having record dates after its
receipt by the Transfer Agent.
TAX INFORMATION
Each Fund intends to continue to qualify as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). If a
Fund does so qualify, it will not be liable for federal income taxes on amounts
paid by it as dividends and capital gain distributions. However, the Code
contains a number of complex tests relating to such qualification and it is
possible, although not likely, that a Fund might not meet one or more of these
tests in any particular year. If it does not so qualify, it would be treated for
tax purposes as an ordinary corporation, would receive no tax deduction for
distributions made to shareholders and would be unable to pay dividends or
distributions which would qualify as "exempt-interest dividends" or "capital
gains dividends," as discussed below.
The Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities
Fund each in-
PROSPECTUS
32
<PAGE> 75
tends to qualify during each fiscal year under the Code to pay exempt-interest
dividends to shareholders. Exempt-interest dividends which are derived from net
interest income earned by a Fund on tax-exempt securities will be excludable
from gross income of the shareholders of the Tax-Free Securities Fund and the
Tax-Free Short Intermediate Securities Fund for regular federal income tax
purposes. Distributions of capital gains, and accrued market discount on taxable
securities or municipal securities are taxable and are not included in
exempt-interest dividends. Dividends from interest on taxable short-term
obligations, and income from repurchase agreements and securities loans, are
reportable by shareholders of the Tax-Free Securities Fund and the Tax-Free
Short Intermediate Securities Fund as ordinary income. Although tax-exempt
dividends are not taxed, each taxpayer must report the total amount of
tax-exempt interest (including exempt-interest dividends from a Fund) received
or acquired during the year.
Capital gains dividends (net gains from the sale of capital assets held for
more than 12 months over net short-term losses which a Fund distributes) are
reportable by shareholders as long-term capital gains. This is the case whether
the shareholder takes his or her distribution in cash or elects to have the
distribution reinvested in Fund shares and regardless of the length of time the
shareholder has held his or her shares. The maximum capital gains rate for
individuals is 28% with respect to assets held for more than 12 months, but not
more than 18 months ("mid-term gains"), and 20% with respect to assets held for
more than 18 months ("long-term gains"). The maximum capital gains rate for
corporate shareholders currently is the same as the maximum tax rate for
ordinary income.
Short-term gains, when distributed, are taxed to shareholders as ordinary
income. Capital losses of the Funds are not claimed by shareholders but carried
forward by the Fund to offset gains in later years and thereby lessen the
later-year capital gains distributions and amounts taxed to shareholders.
A Fund's gains or losses on sales of securities will be long-term, mid-term
or short-term depending upon the length of time the Fund has held such
securities. Capital gains and losses of the Fund will also include gains and
losses on futures and options, if any, including gains and losses actually
realized on sales and exchanges and gains and losses deemed to be realized.
Those deemed to be realized are on futures and options held by a Fund at
year-end, which are "marked to the market," that is, deemed sold for fair market
value. Net gains or losses realized and deemed realized on Section 1256 futures
and options contracts will be reportable by the Fund as long-term to the extent
of 60% of the gains or losses and short-term to the extent of 40% regardless of
the actual holding period of such investments.
Corporate shareholders are not expected to be entitled to any dividends
received deduction with respect to dividends paid by the Funds.
Information as to the tax status of a Fund's dividends and distributions
will be mailed to shareholders annually.
Under the Code, interest on loans incurred by shareholders to enable them
to purchase shares of the Tax-Free Securities Fund and the Tax-Free Short
Intermediate Securities Fund may not be deducted for federal or Hawaii tax
purposes to the extent the shareholders receive tax-exempt dividends from such
Fund. In addition, under rules used by the Internal Revenue Service for
determining when borrowed funds are deemed used for the purpose of purchasing or
carrying particular assets, the purchase of shares of such a Fund may be
considered to have been made with borrowed funds even though the borrowed funds
are not directly traceable to the purchase of shares.
The receipt of exempt-interest dividends from a Fund by an individual
shareholder may result in some portion of any social security payments or
railroad retirement benefits received by the shareholder or the shareholder's
spouse being included in taxable income.
PROSPECTUS
33
<PAGE> 76
Persons who are "substantial users" (or persons related thereto) of
facilities financed by industrial development bonds or private activity bonds
should consult their own tax advisers before purchasing shares of either the
Tax-Free Securities Fund or the Tax-Free Short Intermediate Securities Fund.
While interest from Municipal Obligations held by the Tax-Free Securities
Fund and the Tax Free Short Intermediate Securities Fund is tax-exempt for
purposes of computing the shareholder's regular tax, interest from so-called
private activity bonds issued after August 7, 1986 constitutes a tax preference
for both individuals and corporations and thus will enter into a computation of
the alternative minimum tax, and all tax-exempt interest will be a component of
the corporate alternative minimum tax. Whether or not that computation will
result in a tax will depend on many factors, and shareholders should consult
their tax advisers as to the possible alternative minimum tax, if any, they may
incur.
The Trust will be required to withhold, subject to certain exemptions, at a
rate of 31% on dividends paid and redemption proceeds (including proceeds from
exchanges) paid or credited to non-exempt shareholders of the Funds if a correct
Taxpayer Identification Number, certified when required, is not on file with the
Trust or the Transfer Agent.
Under the Code, dividends (but not capital gain distributions) paid to a
non-resident alien or other foreign shareholder may be subject to U.S.
withholding tax at the rate of 30% (or a lower treaty rate).
TAX EFFECTS OF REDEMPTIONS
A shareholder who redeems his or her shares or exchanges his or her shares
for shares of another Fund generally will have a capital gain or loss (depending
on whether the proceeds of the redemption are more or less than their tax basis,
which is usually cost). In the case of an individual, any such capital gain will
be treated as short-term capital gain if the shares were held for not more than
12 months, mid-term gain, taxable at the maximum rate of 28%, if such shares
were held for more than 12, but not more than 18 months, and long-term capital
gain, taxable at the maximum rate of 20%, if such shares were held for more than
18 months. In the case of a corporation, any such capital gain will be treated
as long-term capital gain, taxable at the same rates as ordinary income, if such
shares were held for more than 12 months. Any such capital loss will be treated
as long-term capital loss if such shares were held for more than 12 months, and
otherwise will be treated as short term capital loss. However, if the shares
redeemed or sold were held for six months or less, any capital loss is
disallowed to the extent of any exempt interest dividends on these shares and is
otherwise treated as long-term to the extent of capital gains distributions
received on such shares.
HAWAIIAN TAX INFORMATION
If at the close of each quarter of the Tax-Free Short Intermediate
Securities Fund's and the Tax-Free Securities Fund's taxable year at least 50%
of the value of its total assets consists of obligations the interest on which,
if such obligations were held by an individual, would be exempt from Hawaii
personal income tax (under either the laws of Hawaii or of the United States),
the Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities Fund
will be entitled to pay dividends to its shareholders which will be exempt from
Hawaii personal income tax to the extent derived from such obligations. Similar
exemptions may be available in other states with regard to the portion of
tax-exempt dividends attributable to interest exempt from state taxation under
federal law.
Dividends and distributions made by the Tax-Free Securities Fund or the
Tax-Free Short Intermediate Securities Fund to Hawaii residents, to the extent
attributable to Hawaiian Municipal Obligations, will generally be treated for
Hawaii personal income tax purposes in the same manner as they are treated under
the Code for federal income tax purposes. Under Hawaii law, interest derived
from obligations of states (and their political subdivi-
PROSPECTUS
34
<PAGE> 77
sions) other than Hawaii will not be exempt from Hawaii income taxation.
Persons or entities who are not Hawaii residents should not be subject to
Hawaii income taxation on dividends and distributions made by the Trust but will
be subject to other state and local taxes.
For further information regarding taxation, see "Tax Information" in the
SAI.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect, and state
taxation.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to federal, local or foreign taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in a
Fund.
GENERAL INFORMATION
PERFORMANCE
From time to time, performance for the Class A and Class B shares of the
Funds showing each Fund's average annual total return, aggregate total return,
yield, and tax-equivalent yield where appropriate may be presented in
advertisements, sales literature and in reports to Class A and Class B
shareholders. Such performance figures are based on historical earnings and are
not intended to indicate future performance. Average annual total return will be
calculated for the period since the establishment of the Funds, and will, unless
otherwise noted, reflect the imposition of the maximum sales charge. Average
annual return is measured by comparing the value of an investment in Class A
shares of a Fund at the beginning of the relevant period to the redemption value
of the investment, after reflecting the reinvestment of any dividends or capital
gains distributions and annualizing the difference. Aggregate total return is
calculated similarly to average annual total return except that the return
figure is aggregated over the relevant period instead of annualized. Yield will
be computed by dividing such Fund's net investment income per Class A or Class B
share earned during a recent 30-day period by such Fund's per Class A or Class B
share maximum offering price (reduced by any undeclared earned income expected
to be paid shortly as a dividend) on the last day of the period and annualizing
the result. From time to time, average annual total return, aggregate total
return and yield for the Class A shares of the Funds may also be calculated and
advertised on the basis of an investment in a Fund at the net asset value per
share or at net asset value per share plus a reduced sales charge, rather than
the public offering price per share. In this case, the figure would not reflect
the effect of a maximum sales charge that a Class A shareholder may have paid.
Tax-equivalent yield for the Tax-Free Securities Fund and the Short Intermediate
Tax-Free Securities Fund will be computed assuming a stated income tax rate has
been applied to non-exempt income to derive the tax-exempt portion of the Funds'
yield.
Shareholders may also be provided with information comparing the
performance of the Class A and Class B shares of the Funds to the performance of
other mutual funds with comparable investment objectives and policies. This
information may be based on data relating to various mutual fund or market
indices such as those prepared by Dow Jones& Co., Inc. and Standard& Poor's
Corporation or data prepared by Lipper Analytical Services, Inc. Comparisons may
also be made to indices or data published in Money Magazine, Forbes, Barron's,
The Wall Street Journal, The New York Times, Business Week, American Banker,
Institutional Investor, Pensions and Investments, USA Today, Fortune,
CDA/Wiesenberger, Ibbotson Associates, Inc., Morningstar and regional
periodicals and newspapers. In addition to yield information, general
information about the Funds that appears in a publication such as those
mentioned above may also be quoted or reproduced in advertisements or in
PROSPECTUS
35
<PAGE> 78
reports to shareholders. Reports to shareholders may contain performance
information on any Fund.
Yield and total return are functions of the type and quality of instruments
held in the portfolio, operating expenses, and market conditions. Consequently,
current yields and total return will fluctuate and are not necessarily
representative of future results. Any fees charged by an affiliate of Pacific
Century or an Institution with respect to customer accounts for investing in
shares of the Funds will not be included in performance calculations; such fees,
if charged, would reduce the actual yield and total return from that quoted.
Because of differences in the fees and/or expenses borne by the classes of
shares of the Funds, the average annual total return, aggregate total return,
yield, and tax-equivalent yield of the Class B shares, as the case may be, can
be expected, at any given time, to be lower than the average annual total
return, aggregate total return, yield, and tax-equivalent yield, of Class A
shares. Standardized yield and total return quotations will be computed
separately for Class A and Class B.
DESCRIPTION OF THE TRUST AND ITS SHARES
CAPITALIZATION--The Trust was organized as a Massachusetts business trust
on October 30, 1992, and currently consists of nine separately managed series.
The Board of Trustees may establish additional series in the future. The series
of the Trust are: the Balanced Fund, Diversified Fixed Income Fund, Growth and
Income Fund, Growth Stock Fund, New Asia Growth Fund, Short Intermediate U.S.
Treasury Securities Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate
U.S. Treasury Securities Fund and the U.S. Treasury Securities Fund, each with
unlimited transferable shares of beneficial interest, no par value. When issued
in accordance with the terms and procedures described in their respective
Prospectuses, shares of the Funds are fully paid, non-assessable and freely
transferable.
Each series is comprised of three classes of shares--Class A, Class B, and
Class Y shares. The classes have identical rights with respect to the series of
which they are a part, provided that there are certain matters which affect one
class but not another. Currently, the only such matters are the existence of the
Distribution Plans with respect to each of Class A and Class B shares but not
any Class Y shares, the absence of any sales load with regard to the purchase or
redemption of the Class Y shares, and the fact that a salesperson or other
person entitled to receive compensation for selling or servicing Class A, Class
B or Class Y shares may receive different compensation with respect to one such
class over the other Class in the same Fund. On all such matters, shareholders
vote as a class, and not by series. Class Y shares have different expenses, and
are subject to no sales charge, which may affect performance. A separate
Prospectus applies to the Class Y shares of each series. Prospectuses relating
to the Class Y shares of each series may be obtained by calling the telephone
number listed on the first page of this Prospectus.
VOTING--Shareholders have the right to vote on the election of Trustees and
on any and all matters as to which, by law or the provisions of the Declaration
of Trust of the Trust, they may be entitled to vote. All shares of the Trust
have equal voting rights and will be voted in the aggregate, and not by class or
series, except where voting by class or series is required by law or where the
matter involved affects only one class or series. The Trust is not required to
hold annual meetings of the Funds' shareholders, and does not intend to do so,
in any fiscal year in which it is not required by law to elect Trustees. The
Trustees are required to call a meeting for the purpose of considering the
removal of persons serving as Trustee, if requested in writing to do so by the
holders of not less than 10% of the outstanding shares of the Trust.
SHAREHOLDER LIABILITY--Under Massachusetts law, shareholders of the Funds
could, under certain circumstances, be held personally liable for the
obligations of the Trust. However, the Trust's Declaration of Trust disclaims
shareholder liability for acts or obligations of the Trust. The Declaration of
PROSPECTUS
36
<PAGE> 79
Trust provides for indemnification out of a Fund's property for any losses and
expenses of any shareholder of such Fund held liable on account of being or
having been a shareholder. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which a
Fund would be unable to meet its obligations.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to a Fund at the address or
telephone number set forth on the cover page of this Prospectus.
PROSPECTUS
37
<PAGE> 80
APPLICATION FOR PACIFIC CAPITAL FUNDS
PLEASE COMPLETE STEPS 1 THROUGH 4 AND MAIL TO:
ADM, ATTN: OUTSIDE FUNDS TRANSFER AGENT OPERATIONS
581 MAIN STREET, WOODBRIDGE, NJ 07095-1198
1-800-258-9232 LOGO
- --------------------------------------------------------------------------------
STEP 1 ACCOUNT REGISTRATION PLEASE TYPE OR PRINT NAME EXACTLY AS ACCOUNT IS
TO BE REGISTERED
A. REGISTRATION
<TABLE>
<S> <C> <C> <C>
[ ] Individual 1. ----------------------------------------------------------------------------------------------
First Name Middle Initial Last Name Social Security Number
[ ]
Joint Account* 2. ----------------------------------------------------------------------------------------------
(Use lines 1 First Name Middle Initial Last Name Social Security Number
and 2) *JOINT ACCOUNTS WILL BE TENANTS WITH RIGHTS OF SURVIVORSHIP UNLESS OTHERWISE SPECIFIED.
[ ]
For a Minor 3. -----------------------------------------------------------------------------------
Custodian's First Name Middle Initial Last Name
(Only one Under the ------------ Uniform Gifts/Transfers to Minors Act
custodian State
and one minor
are Custodian For ----------------------------------------------------------------------
permitted.) Minor's First Name Middle Initial Last Name Minor's Social Security No.
[ ]
For Trust, 4. ----------------------------------------------------------------------------------------------
Corporation, (Name of Corporation or Partnership; PLEASE INDICATE TYPE OF ORGANIZATION. If a Trust, include
Partnership or the name and date of the Trust Instrument. The name(s) of the Trustees in which account will be
other Entity registered should be listed below. Account for a Pension or Profit Sharing Plan or Trust may be
registered in the name of the Plan or Trust itself.)
----------------------------------------------------------------------------------------------
Tax I.D. Number Trustee(s) or Authorized Individual
Title
</TABLE>
- --------------------------------------------------------------------------------
B. MAILING ADDRESS AND TELEPHONE NUMBER
- --------------------------------------------------------------------------------
Street or P.O. Box City State Zip Code
( )
- --------------------------------------------------------------------------------
Area Code Daytime Telephone Number Occupation Employer's Name/Employer's
Address City State
Citizen or resident of: U.S. [ ] Other [ ] ___ Check here [ ] if you are a
non U.S.
Citizen or
resident and
not subject to
back-up
withholding.
See certification in Step 4.
- --------------------------------------------------------------------------------
C. INVESTMENT DEALER OR BROKER: (Important -- to be completed by Dealer or
Broker)
- --------------------------------------------------------------------------------
Dealer Name Branch Office Address Branch Office City/State Branch #
( )
- --------------------------------------------------------------------------------
Representative's Name Rep # Area Code Telephone # [Agent User Dealer # /
Branch #]
- --------------------------------------------------------------------------------
STEP 2 PURCHASE OF SHARES
A. INITIAL INVESTMENT
Make check payable to: Pacific Capital Funds Minimum Initial Investment
in any Fund is $1,000. Subsequent Investments, $50.
<TABLE>
<S> <C> <C>
U.S. Treasury Securities Fund $ --------- Tax-Free Short Intermediate Securities $ ---------
Fund
Short Intermediate U.S. Treasury Securities Fund $ --------- Growth Stock Fund $ ---------
Diversified Fixed Income Fund $ --------- Balanced Fund $ ---------
Tax-Free Securities Fund $ --------- Growth and Income Fund $ ---------
New Asia Growth Fund $ --------- Total Investment $ ---------
</TABLE>
- --------------------------------------------------------------------------------
B. DISTRIBUTIONS: All income dividends and capital gains distributions will be
REINVESTED in additional shares at net asset value unless otherwise indicated
below.
Dividends are to be: [ ] Reinvested [ ] Paid in cash* Capital Gains are
to be: [ ] Reinvested [ ] Paid in cash*
*FOR CASH DIVIDENDS, PLEASE CHOOSE ONE OF THE FOLLOWING OPTIONS:
[ ] Wire directly into my financial institutional account. ATTACHED IS A
VOIDED CHECK showing the account information where I would like the
dividend deposited.
[ ] Mail check to my address listed in Step 1B.
[ ] Mail check as requested in Step 3F.
<PAGE> 81
- --------------------------------------------------------------------------------
C. LETTER OF INTENT I/we intend to invest in shares of one or more of the
(See Terms of Escrow Pacific Capital Funds during the 13-month period from
for Letter the date of my first purchase pursuant to this Letter
of Intent at the end (which purchase cannot be more than 90 days prior to
of this application. the date of this Letter), an aggregate amount
- --------------------- (excluding any reinvestment of dividends or
Check appropriate box distributions) of at least $25,000 which, together with
[ ] YES [ ] NO my present holdings of Pacific Capital Fund shares (at
public offering price on date of this Letter), will
equal or exceed the minimum amount checked below:*
[ ] $ 25,000 [ ] $ 50,000 [ ] $ 100,000 [ ] $250,000
[ ] $500,000 [ ] $1,000,000
*Accumulated investments must aggregate at least $100,000 for
reduced sales charges to apply to purchases of shares of the
Short-Intermediate U.S. Treasury Securities Fund or the
Tax-Free Short Intermediate Securities Fund.
- --------------------------------------------------------------------------------
STEP 3 SPECIAL FEATURES
A. AUTOMATIC INVEST PROGRAM
- -----------------------
Check appropriate box This option provided you with a convenient way to have
[ ] YES [ ] NO amounts automatically drown on your financial
institution account and invested in your Pacific
Capital Fund account. To establish this program, please
complete Step 4, Sections A & B of this Application. I
wish to make regular monthly investments. The minimum
initial purchase is reduced to $100 per Fund when you
use this service. Subsequent minimum purchase is $50
for each Fund. YOU MUST ATTACH A PRE-PRINTED DEPOSIT
SLIP OR VOIDED CHECK.
<TABLE>
<S> <C> <C>
Amount
Please select how often you
would like to have the
----------- Fund $ --------- amount(s) shown above
withdrawn from your checking
----------- Fund $ ---------
account and invested into the
above selected Fund(s).
----------- Fund $ --------- [ ] Once each month -- on the
1st
Total $ --------- [ ] Once each month -- on the
16th
<CAPTION>
<S> <C>
----------- Fund
----------- Fund
----------- Fund [ ] Twice each month on the 1st and
the 16th
Total [ ] Once each quarter on the 1st
beginning in the month of
-----------------.
</TABLE>
- --------------------------------------------------------------------------------
B. TELEPHONE INVESTMENT
- -----------------------
Check appropriate box This option provides you with a convenient way to add
[ ] YES [ ] NO to your account at any time you wish by simply calling
Administrative Data Management Corp. toll-free at
1-800-258-9232. To establish this program, please
complete Step 4, Sections A & B of this Application.
YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED
CHECK.
- --------------------------------------------------------------------------------
C. AUTOMATIC WITHDRAWAL PLAN
Application must be Please establish an Automatic Withdrawal Plan for this
received in good order account, subject to the terms of the Automatic
at least two weeks Withdrawal Plan Provisions set forth below. to realize
prior to 1st actual the amount stated below, Administrative Data Management
liquidation date. Corp. (the "Agent") is authorized to redeem sufficient
shares from this account at the then current Net Asset
- --------------------- Value, in accordance with the terms below:
The minimum automatic Withdrawal amount is $100 per
Check appropriate box Fund.
<TABLE>
<S> <C>
[ ] YES [ ] NO
$ ---------------------------
------------------------- Fund
$ ---------------------------
------------------------- Fund
Total $ ---------------------------
</TABLE>
Please select how often you would like to have payments made
from your account under the Automatic Withdrawal Plan.
<TABLE>
<S> <C>
[ ] Once each month -- on the [ ] Twice each month on the 1st and 16th
1st
[ ] Once each month -- on the [ ] Once each quarter on the 1st beginning in
16th the month of -------------------- .
</TABLE>
Please choose one of the following options:
[ ] Mail check to my address listed in Step 1a.
[ ] Mail check as requested in Step 3f.
<PAGE> 82
- --------------------------------------------------------------------------------
D. 1. TELEPHONE EXCHANGE
This option The Agent is authorized to accept and act upon my/our or any
allows you to other person's telephone instructions to execute the exchange
effect exchanges of shares of one Pacific Capital Fund for one of the funds
among accounts into which exchange is permitted, as designated in the
in your name Prospectus, with identical shareholder registration. The
within the exchange will be executed at the relative net asset values of
Pacific Capital the two funds as next determined following receipt of such
group of Funds, instructions.
as described in Except for gross negligence in acting upon such telephone
the Prospectus, instructions to execute an exchange and subject to the
by telephone. conditions set forth herein, I (we) understand and agree to
- ---------------- hold harmless the Agent, each of the Pacific Capital Funds,
Check and their respective officers, directors, trustees,
appropriate box employees, agents and affiliates against any liability,
[ ] YES [ ] No damage, expense, claim or loss, including reasonable costs
and attorney's fees resulting from acceptance of or acting or
failure to act upon this Authorization.
TO MAKE A TELEPHONE EXCHANGE, CALL THE AGENT AT 1-800-258-9232.
2. TELEPHONE REDEMPTION
This option The Agent is authorized to accept and act upon my/our or any
allows you to other person's telephone instructions to execute a redemption
effect telephone of shares of one or more Pacific Capital Funds. The
redemptions, as redemption will be executed at net asset value next
described in the determined following receipt of such instructions.
Prospectus.
- ---------------- Except for gross negligence in acting upon such telephone
Check instructions to execute a redemption and subject to the
appropriate box conditions set forth herein, I (we) understand and agree to
[ ] YES [ ] No hold harmless the Agent, each of the Pacific Capital Funds,
and their respective officers, directors, trustees,
employees, agents and affiliates against any liability,
damage, expense, claim or loss, including reasonable costs
and attorney's fees resulting from acceptance of or acting or
failure to act upon this Authorization.
TO MAKE A TELEPHONE REDEMPTION, CALL THE AGENT AT 1-800-258-9232.
- --------------------------------------------------------------------------------
E. EXPEDITED REDEMPTION
The proceeds will Cash proceeds in any amount from the redemption of shares
be deposited to will be mailed or wired, whenever possible, upon request, if
your financial in an amount of $1,000 or more to my (our) account at a
institution financial institution. The financial institution account must
account listed. be in the same name(s) as this Pacific Capital Fund account
- ---------------- is registered. YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR
Check VOIDED CHECK.
appropriate box
TO MAKE AN EXPEDITED
REDEMPTION, CALL THE
AGENT AT
1-800-258-9232.
<TABLE>
<S> <C>
-------------------------------------------- ---------------------------------------
Financial Institution Account Registration Financial Institution Account Number
-------------------------------------------- ---------------------------------------
Name of Financial Institution Financial Institution Transit/Routing Number
-------------------------------------------- ---------------------------------------
Street City State Zip Code
</TABLE>
- --------------------------------------------------------------------------------
F. SECONDARY ADDRESS
- ---------------- Checks should be made payable as indicated below. If check is
Check payable to a financial institution, i.e., a commercial bank,
appropriate box savings bank or credit union, for your account, indicate
[ ] YES [ ] No financial institution name, address and your account number.
<TABLE>
<S> <C>
-------------------------------------------- ---------------------------------------
First Name Middle
Initial Last Name Name of Financial Institution
-------------------------------------------- ---------------------------------------
First Name Middle
Initial Last Name Street
-------------------------------------------- ---------------------------------------
Street City State Zip Code
-------------------------------------------- ---------------------------------------
City State Zip Code Financial Institution Account Number
</TABLE>
<PAGE> 83
- --------------------------------------------------------------------------------
STEP 4 DEPOSITORS AUTHORIZATION TO HONOR DEBITS
SECTION A IF YOU SELECTED AUTOMATIC INVESTMENT OR TELEPHONE INVESTMENT YOU
MUST ALSO COMPLETE STEP 4,
SECTIONS A & B.
I/We authorize the Financial Institution listed below to charge my/our account
for any drafts or debits drawn on my/our account initiated by the Agent,
Administrative Data Management Corp., and to pay such sums in accordance
therewith, provided my/our account has sufficient funds to cover such drafts or
debits. I/We further agree that your treatment of such orders will be the same
as if I/we personally signed or initiated the drafts or debits.
I/We understand that this authority will remain in effect until you receive
my/our written instructions to cancel this service. I/We also agree that if any
such drafts or debits are dishonored, for any reason, you shall have no
liabilities.
FINANCIAL INSTITUTION ACCOUNT NUMBER
<TABLE>
<S> <C>
NAME AND ADDRESS ------------------------------------------------------------------------
WHERE MY/OUR NAME OF FINANCIAL INSTITUTION
ACCOUNT IS ------------------------------------------------------------------------
MAINTAINED STREET ADDRESS
------------------------------------------------------------------------
CITY STATE ZIP
CODE
NAME(S) AND ---------------------------------------------------- ------------------
SIGNATURE(S) OF PLEASE PRINT DATE
DEPOSITOR(S) AS ---------------------------------------------------- ------------------
THEY APPEAR WHERE SIGNATURE DATE
ACCOUNT IS ----------------------------------------------------
REGISTERED PLEASE PRINT
----------------------------------------------------
SIGNATURE
</TABLE>
- --------------------------------------------------------------------------------
SECTION B SHAREHOLDER AUTHORIZATION / SIGNATURE(S) REQUIRED
- I/We authorize the Pacific Capital Funds and its agents to act upon these
Instructions for the features that have been checked.
- I/We acknowledge that in connection with an Automatic Investment or
Telephone Investment, if my/our account at the Financial Institution has
insufficient funds, Pacific Capital Funds and its agents may cancel the
purchase transaction and are authorized to liquidate other shares or
fractions thereof held in my/our Pacific Capital Fund account to make up any
deficiency resulting from any decline in the net asset value of shares so
purchased and any dividends paid on those shares. I/We understand that in
the event of such deficiency, Pacific Capital Funds and its agents will
first liquidate shares of the Pacific Capital Fund to which the purchase
transaction relates, and then, in the discretion of Pacific Capital Funds
and its agents, shares of any other Pacific Capital Fund in my/our account
at the Financial Institution. I/We authorize Pacific Capital Funds and its
agents to correct any transfer error by a debit or credit to my/our
financial Institution account and/or Fund account and to charge the account
for any related charges.
- I/We acknowledge that shares purchased either through Automatic Investment
or Telephone Investment are subject to applicable sales charges.
- The undersigned warrants that he/she has full authority and is of legal age
to purchase shares of the Pacific Capital Fund(s) designated above and has
received and read a current Prospectus of such Fund(s) and agrees to its
terms. Pacific Capital Funds, Agent and the Distributor and their Trustees,
directors, employees and agents will not be liable for acting upon
instructions believed to be genuine, and will not be responsible for any
losses resulting from unauthorized telephone transactions if the Agent
follows reasonable procedures designed to verify the identity of the caller.
The Agent will request some or all of the following information: account
name and number, name(s) and social security number registered to the
account and personal identification; the Agent may also record calls.
Shareholders should verify the accuracy of confirmation statements
immediately upon receipt. Under penalties of perjury, the undersigned whose
Social Security (Tax I.D.) Number is shown above certifies(I) that Number is
my correct taxpayer identification number and (II) currently I am not under
IRS notification that I am subject to backup withholding (line out (II) if
under notification). If no such Number is shown, the undersigned further
certifies, under penalties of perjury, that either (a) no such Number has
been issued, and a Number has been or will soon be applied for. If a Number
is not provided to you within sixty days, the undersigned understands that
all payments (including liquidations) are subject to 31% withholding under
federal tax law, until a Number is provided and the undersigned may be
subject to a $50 I.R.S. penalty; or (b) that the undersigned is not a
citizen resident of the U.S.; and either does not expect to be in the U.S.
for more than 182 days during each calendar year and does not conduct a
business in the U.S. which would receive any gain from the Fund, or is
exempt under an income tax treaty. NOTE: ALL REGISTERED OWNERS OF THE
ACCOUNT MUST SIGN BELOW. FOR A TRUST, ALL TRUSTEES MUST SIGN*
<TABLE>
<S> <C> <C>
- ------------------------------------------ ------------------------------------------ ------------------
INDIVIDUAL (OR CUSTODIAN) JOINT REGISTRANT, IF ANY DATE
- ------------------------------------------
CORPORATE OFFICER, PARTNER, TRUSTEE(S), ------------------------------------------ ------------------
ETC. TITLE DATE
*FOR A TRUST, CORPORATION OR ASSOCIATION, THIS FORM MUST BE ACCOMPANIED BY PROOF OF AUTHORITY TO SIGN, SUCH AS A
CERTIFIED COPY OF THE CORPORATE RESOLUTION OR A CERTIFICATE OF INCUMBENCY UNDER THE TRUST INSTRUMENT.
</TABLE>
<PAGE> 84
SPECIAL INFORMATION
- Certain features (Automatic Investment, Telephone Investment, Expedited
Redemption and Direct Deposit of Dividends) are effective 15 days after this
form is received in good order by the Fund's Agent.
- You may cancel any feature at any time, effective 3 days after the Agent
receives notice from you.
- Either the Fund or the Agent may cancel any feature, without prior notice,
if in its judgment your use of any feature involves unusual effort or
difficulty in the administration of your account.
- The Fund reserves the right to alter, amend or terminate any or all features
or to charge a service fee upon 30 days' written notice to shareholders
except if additional notice is specifically required by the terms of the
Prospectus.
BANKING INFORMATION
- If your Financial Institution account changes, you must complete a Ready
Access Features form which may be obtained from the Agent at 1-800-258-9232
and send it to the Agent together with a "voided" check or pre-printed
deposit slip from the new account. The new Financial Institution change is
effective in 15 days after this form is received in good order by the Fund's
Agent.
TERMS OF LETTER OF INTENT AND ESCROW
By checking Box 2c and signing the Application, the investor is entitled to
make each purchase at the public offering price applicable to a single
transaction of the dollar amount checked above, and agrees to be bound by the
terms and conditions applicable to Letters of Intent appearing below.
The investor is making no commitment to purchase shares, but if the
investor's purchases within thirteen months from the date of the investor's
first purchase do not aggregate $25,000, or, if such purchases added to the
investor's present holdings do not aggregate the minimum amount specified
above, the investor will pay the increased amount of sales charge prescribed
in the terms of escrow below.
The commission to the dealer or broker, if any, named herein shall be at the
rate applicable to the minimum amount of the investor's specified intended
purchases checked above. If the investor's actual purchases do not reach this
minimum amount, the commissions previously paid to the dealer will be adjusted
to the rate applicable to the investor's total purchases. If the investor's
purchases exceed the dollar amount of the investor's intended purchases and
pass the next commission break-point, the investor shall receive the lower
sales charge, provided that the dealer returns to the Distributor the excess
of commissions previously allowed or paid to him over that which would be
applicable to the amount of the investor's total purchases.
The investor's dealer or broker shall refer to this Letter of Intent in
placing any future purchase orders for the investor while this Letter is in
effect.
The escrow shall operate as follows:
1. Out of the initial purchase (or subsequent purchases if necessary), 3%
of the dollar amount specified in the Letter of Intent shall be held in
escrow in shares of the Fund by the Agent. All dividends and any capital
distributions on the escrowed shares will be credited to the investor's
account.
2. If the total minimum investment specified under the Letter is completed
within a thirteen-month period, the escrowed shares will be promptly
released to the investor. However, shares disposed of prior to
completion of the purchase requirement under the Letter will be deducted
from the amount required to complete the investment commitment.
3. If the total purchases pursuant to the Letter are less than the amount
specified in the Letter as the intended aggregate purchase, the investor
must remit to the Agent an amount equal to the difference between the
dollar amount of sales charges actually paid and the amount of sales
charges which would have been paid if the total amount purchased had
been made at a single time. If such difference in sales charges is not
paid within twenty days after receipt of a request from the Agent or the
dealer, the Agent will, within sixty days after the expiration of the
Letter, redeem the number of escrowed shares necessary to realize such
difference in sales charges. Any shares remaining after such redemption
will be released to the investor. The escrow of shares will not be
released until any additional sales charge due has been paid as stated
in this section.
4. By checking Box 2c and signing the Application, the investor irrevocably
constitutes and appoints the Agent or the Distributor as his attorney to
surrender for redemption any or all escrowed shares on the books of the
Fund.
AUTOMATIC WITHDRAWAL PLAN PROVISIONS
By requesting an Automatic Withdrawal Plan, the applicant agrees to the
terms and conditions applicable to such plans, as stated below.
1. The Agent will administer the Automatic Withdrawal Plan (the "Plan") as
agent for the person (the "Planholder") who executed the Plan
authorization.
2. Certificates will not be issued for shares of the Fund purchased for and
held under the Plan, but the Agent will credit all such shares to the
Planholder on the records of the Fund. Any share certificates now held
by the Planholder may be surrendered unendorsed to the Agent with the
application so that the shares represented by the certificate may be
held under the Plan.
3. Dividends and distributions will be reinvested in shares of the Fund at
the Net Asset Value.
4. Redemptions of shares in connection with disbursement payments will be
made at the Net Asset Value per share in effect at the close of business
on the first business day of the month or quarter.
5. The amount and the interval of disbursement payments and the address to
which checks are to be mailed may be changed, at any time, by the
Planholder on written notification to the Agent. The Planholder should
allow at least two weeks' time in mailing such notification before the
requested change can be put in effect.
6. The Planholder may, at any time, instruct the Agent by written notice
(in proper form in accordance with the requirements of the then current
prospectus of the Fund) to redeem all, or any part of, the shares held
under the Plan. In such case the Agent will redeem the number of shares
requested at the Net Asset Value per share in effect in accordance with
the Fund's usual redemption procedures and will mail a check for the
proceeds of such redemption to the Planholder.
7. The Plan may, at any time, be terminated by the Planholder on written
notice to the Agent, or by the Agent upon receiving directions to that
effect from the Fund. The Agent will also terminate the Plan upon
receipt of evidence satisfactory to it of the death or legal incapacity
of the Planholder. Upon termination of the Plan by the Agent or the
Fund, shares remaining unredeemed will be held in an uncertificated
account in the name of the Planholder, and the account will continue as
a dividend-reinvestment, uncertificated account unless and until proper
instructions are received from the Planholder, his executor or guardian,
or as otherwise appropriate.
8. The Agent shall incur no liability to the Planholder for any action
taken or omitted by the Agent in good faith.
9. In the event that the Agent shall cease to act as transfer agent for the
Fund, the Planholder will be deemed to have appointed any successor
transfer agent to act as his Agent in administering the Plan.
10. Purchases of additional shares concurrently with withdrawals are
undesirable because of sales charges when purchases are made.
Accordingly, a Planholder may not maintain this Plan while
simultaneously making regular purchases. While an occasional lump sum
investment may be made, such investment should normally be an amount
equivalent to three times the annual withdrawal or $5,000, whichever is
less.
<PAGE> 85
INVESTMENT ADVISER
Pacific Century Trust
111 S. King Street
Honolulu, Hawaii 96813
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219-3035
LEGAL COUNSEL
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
INDEPENDENT AUDITORS
Ernst & Young LLP
One Columbus, Suite 2300
10 West Broad Street
Columbus, Ohio 43215
TRANSFER AGENT
Administrative Data Management Corp.
581 Main Street
Woodbridge, New Jersey 07095
[PACIFIC CAPITAL FUNDS LOGO]
PACIFIC CAPITAL FUNDS
-------------------
U.S. TREASURY SECURITIES FUND
SHORT INTERMEDIATE U.S. TREASURY
SECURITIES FUND
DIVERSIFIED FIXED INCOME FUND
TAX-FREE SECURITIES FUND
TAX-FREE SHORT INTERMEDIATE
SECURITIES FUND
-------------------
CLASS A AND CLASS B
<PAGE> 86
PACIFIC CAPITAL FUNDS
NEW ASIA GROWTH FUND
3435 Stelzer Road
Columbus, Ohio 43219-3035
New Asia Growth Fund (the "Fund") is one series of Pacific Capital Funds
(the "Trust"), a professionally managed, open-end, management investment company
with multiple portfolios or series available for investment. The Fund seeks to
achieve long-term growth of capital, primarily through direct or indirect
investments in equity securities of companies located in the developing
countries of Asia. For purposes of its investment objective, the Fund considers
such developing countries to be all countries in Asia other than Japan. The Fund
is advised by Pacific Century Trust ("Pacific Century"), a division of Bank of
Hawaii and sponsored, administered and distributed by BISYS Fund Services
("BISYS" or the "Distributor"). Nicholas-Applegate Capital Management (Hong
Kong) LLC ("Nicholas-Applegate") serves as sub-adviser (the "Sub-Adviser") to
the Fund. (Pacific Century and the Sub-Adviser may hereafter be referred to
collectively as the "investment adviser.")
This Prospectus relates only to the Class A and Class B shares of the Fund;
certain investors may qualify to invest in the Fund's Class Y Shares, which are
not offered hereby. Class A , Class B and Class Y shares of the other eight
series of the Trust--the U.S. Treasury Securities Fund, the Short Intermediate
U.S. Treasury Securities Fund, the Diversified Fixed Income Fund, the Tax-Free
Short Intermediate Securities Fund, the Tax-Free Securities Fund, the Growth
Stock Fund, the Balanced Fund and the Growth and Income Fund--each of which has
its own investment objectives and policies, are offered by separate
Prospectuses, which can be obtained from the Trust at the above address and
telephone number. See, "General Information--Description of the Trust and its
Shares."
This Prospectus sets forth concisely the information a prospective investor
should know before investing in the Fund. Investors should read this Prospectus
carefully and retain it for future reference. A Statement of Additional
Information ("SAI") dated November 29, 1997 containing additional and more
detailed information about the Fund has been filed with the Securities and
Exchange Commission (the "Commission") and is hereby incorporated by reference
into this Prospectus. The SAI is available without charge and can be obtained by
writing to the Fund at the address printed above or by calling 800-258-9232.
FOR PURCHASE, REDEMPTION, ACCOUNT OR GENERAL INQUIRIES CONTACT THE TRUST'S
TRANSFER AGENT: ADMINISTRATIVE DATA MANAGEMENT CORPORATION, 581 MAIN STREET,
WOODBRIDGE, NEW JERSEY 07095
800-258-9232
THIS PROSPECTUS SHOULD BE READ
AND RETAINED FOR FUTURE REFERENCE
------------------------
SHARES OF PACIFIC CAPITAL FUNDS ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR
GUARANTEED BY, BANK OF HAWAII OR ANY OF ITS AFFILIATES. SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
AGENCY. AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
PROSPECTUS DATED NOVEMBER 29, 1997
<PAGE> 87
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Highlights............................................................................ 1
Fund Expenses......................................................................... 3
Financial Highlights.................................................................. 5
Investment Objective and Policies of the Fund......................................... 6
Additional Discussion Regarding Permitted Investment Activities....................... 7
Additional Risk Disclosure............................................................ 17
Additional Investment Restrictions.................................................... 21
Management, Advisory and Other Service Arrangements................................... 22
Valuation of Class A and Class B Shares............................................... 25
How to Purchase Class A and Class B Shares............................................ 25
How to Redeem Class A and Class B Shares.............................................. 32
Dividend and Tax Information.......................................................... 34
General Information................................................................... 36
</TABLE>
<PAGE> 88
HIGHLIGHTS
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is long-term growth of capital. The Fund
seeks to achieve this objective primarily through direct or indirect investments
in equity securities of companies located in the developing countries of Asia.
Indirect investments mean purchasing interests in other foreign investment
companies or trusts which themselves invest in the developing countries of Asia.
The Fund may invest to a lesser degree in debt securities and other instruments
(i.e., warrants and securities convertible into equity or debt securities) if
the investment adviser believes that such investments would help achieve the
Fund's investment objective. Current income from dividends and interest will not
be an important consideration in selecting portfolio securities. Because of its
emphasis on the economies of the developing countries of Asia, the Funds should
be considered a vehicle for diversification of an individual's portfolio and not
a balanced investment program. For additional information concerning the
investment policies and practices of the Fund, see "Investment Objective and
Policies of the Fund," "Additional Discussion Regarding Permitted Investment
Activities" and "Additional Investment Restrictions" in this Prospectus. Further
information also is provided in the SAI.
CERTAIN RISKS
Investments in securities of companies located in the developing countries
of Asia involve special considerations and risks not typically associated with
investments in securities of United States issuers, including: the risks
associated with international investing generally, such as currency
fluctuations; the risks of investing in countries with smaller capital markets,
such as limited liquidity, price volatility and restrictions on foreign
investment; and the risks associated with the undeveloped economies of the
developing countries of Asia, including significant political and social
uncertainties, government involvement in the economies, overburdened
infrastructures, archaic legal systems, environmental problems, and obsolete
financial systems.
Equity securities held in the Fund's portfolio are subject to market risk
(i.e., the possibility that common stock prices will decline over short or even
extended periods of time). Debt securities held in the Fund's portfolio are
subject to default risk (i.e., the risk that the issuers of securities in which
the Fund invests may default in the payment of principal and interest). The
operating expense ratio of the Fund can be expected to be higher than that of an
investment company investing exclusively in United States securities because the
expenses of the Fund, such as custodial and brokerage costs, are higher.
Investors are reminded that in certain circumstances, their right to redeem
shares in the Fund may be suspended. There can be no assurance that the Fund
will achieve its investment objective. In addition, unlike insured bank
deposits, an investment in the Fund is not insured against loss of principal.
Therefore, investors should be prepared to accept some risk with money invested
in the Fund. The Fund may also engage in various hedging strategies and invest
in derivative securities.
For additional discussion of certain risks involved in investing in the
Fund, see "Additional Risk Disclosure" below.
PURCHASE OF CLASS A AND CLASS B SHARES
Class A and Class B shares of each Fund are sold on a continuous basis and
may be purchased by mail or by electronic transfer. See "How to Purchase Class A
and Class B Shares." Initial purchases may be made with a minimum investment of
$1,000 (the $1,000 minimum may be waived or reduced for certain accounts;
PROSPECTUS
1
<PAGE> 89
the minimum initial purchase is $250 for Individual Retirement Accounts ("IRAs")
and $100 for Auto Invest Plan participants). Subsequent investments may be made
with as little as $50. For more information about purchasing Fund shares call
1-800-258-9232 or contact your Participating Organization (defined below).
Class A shares of the Fund are offered at net asset value plus a sales load
at the time of purchase. Class B shares of the Funds are offered at net asset
value without the imposition of a sales charge at the time of purchase, but are
charged a deferred sales charge if shares are redeemed within six years of
purchase. See "Valuation of Class A and Class B Shares." Only institutions
(including Bank of Hawaii and its affiliated and correspondent banks)
("Institutions") acting on behalf of customers having a qualified trust account,
employee benefit account or other qualifying relationship at such Institution
are eligible to invest in the Class Y shares of the Fund, which are not offered
hereby. See "General Information."
DETERMINATION OF NET ASSET VALUE
The net asset value of the Class A and Class B shares for the Fund is
determined and its shares are priced as of the close of the New York Stock
Exchange (the "Exchange"), currently 4:00 p.m. Eastern Time (the "Valuation
Time"), each Business Day (defined below). See "Valuation of Class A and Class B
Shares."
DIVIDENDS AND DISTRIBUTIONS
The Fund will declare and pay dividends of substantially all of its net
income quarterly. Any net capital gains of the Fund will be distributed at least
annually. At an investor's choice, dividends are paid by mail, directly
deposited into a financial institution account, or automatically reinvested,
without sales charges in additional shares at the then-current net asset value.
If no election is made, dividends will be automatically reinvested. See
"Dividend and Tax Information."
PACIFIC CENTURY, THE SUB-ADVISER AND BISYS
For its services as investment adviser to the Fund, Pacific Century
receives a fee from the Fund at an annual rate based on the Fund's average daily
net assets. A division of Bank of Hawaii, Pacific Century was founded in 1898
and is the oldest and largest trust company in Hawaii. It has investment
management authority over approximately $7.5 billion in client financial assets.
Pacific Century is not authorized to and does not carry on a banking business.
Pacific Century has retained the Sub-Adviser to provide investment advisory
services with respect to management of the foreign component of the Fund's
portfolio. For its services, Pacific Century pays the Sub-Adviser a fee at an
annual rate based on the Fund's average daily net assets.
BISYS provides certain administrative services to the Fund, for which the
Fund pays it a fee at an annual rate based on the Fund's average daily net
assets. BISYS also distributes the Fund's shares.
For additional information concerning these arrangements, see "Fund
Expenses" and "Management, Advisory and Other Service Arrangements."
REDEMPTION OF CLASS A AND CLASS B SHARES
Class A and Class B shares may ordinarily be redeemed by mail or by
telephone. However, all or part of a customer's shares may be subject to
redemption in accordance with instructions and limitations pertaining to his or
her account held by a Participating Organization (defined below). See "How to
Redeem Class A and Class B Shares."
PROSPECTUS
2
<PAGE> 90
FUND EXPENSES
The following Table of Expenses lists the costs and expenses that a
shareholder can expect to incur as an investor in Class A and Class B shares of
the Fund. Certain investors may qualify to invest in the Fund's Class Y Shares,
which are not offered hereby. Long-term Class A and Class B shareholders could
pay more in distribution-related charges than the economic equivalent of the
maximum front-end sales charges applicable to mutual funds sold by members of
the National Association of Securities Dealers, Inc. ("NASD").
TABLE OF EXPENSES (A)
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B (B)
------- -----------
<S> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage
of offering price)..................................... 5.25% None
Maximum Sales Load Imposed on Reinvested Dividends....... None None
Deferred Sales Load...................................... None 5.00%
Redemption Fees (as a percentage of amount redeemed, if
applicable) (c)........................................ None None
Exchange Fee............................................. None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fee........................................... 0.90%+ 0.90%
12b-1 Fee (after waivers)................................ 0.25% 1.00%
Other Expenses (after waivers and reimbursements)........ 0.83% 0.83%
Total Fund Operating Expenses (after waivers and
reimbursements)........................................ 1.98% 2.73%
</TABLE>
- ------------
+ RESTATED TO REFLECT THE ELIMINATION OF A VOLUNTARY WAIVER BY THE ADVISER OF A
PORTION OF ITS MANAGEMENT FEE.
EXAMPLE
A shareholder would pay the following expenses on a $1,000 investment in
Class A and Class B shares assuming (1) 5% annual return (d) and (2) redemption
at the end of each time period.
<TABLE>
<CAPTION>
Time Period CLASS A CLASS B
------- -------
<S> <C> <C>
1 year....................................................... $ 72 $ 78
3 years...................................................... $ 111 $ 115
5 years...................................................... $ 154 $ 164
10 years...................................................... $ 271 $ 288
</TABLE>
PROSPECTUS
3
<PAGE> 91
A shareholder would pay the following expenses on the same $1,000
investment, assuming no redemption.
<TABLE>
<CAPTION>
Time Period CLASS A CLASS B
------- -------
<S> <C> <C>
1 year....................................................... -- $ 28
3 years...................................................... -- $ 85
5 years...................................................... -- $ 144
10 years...................................................... -- $ 288
</TABLE>
- ------------
(a) Investors who purchase shares through a Participating Organization (as
defined below), including an affiliate of Pacific Century or an Institution
(as defined above), may be charged account-level fees for additional
services provided to them by such Participating Organization in connection
with investment in the Fund.
(b) Class B shares automatically convert to Class A shares approximately eight
years after initial purchase. See "Conversion of Class B shares to Class A
shares."
(c) The Transfer Agent will reduce the amount of a wire redemption payment by
its then current wire redemption charge. As of the date of this Prospectus,
there is no charge for wire redemptions. While this policy is subject to
change at any time, it is not anticipated that such charge would exceed $7
per wire redemption.
(d) The assumed 5% annual return is hypothetical and should not be considered a
representation of past or future annual return; the actual rate of return
may be greater or lesser than the assumed rate. The example should not be
considered a representation of past or future expenses, and actual expenses
may be greater or lesser than those shown.
EXPLANATION OF TABLE
The purpose of the foregoing table is to assist shareholders in
understanding the various costs and expenses that an investor in the Class A and
Class B shares of the Fund will bear directly or indirectly. With respect to the
Class A shares of the Fund, the amounts set forth under "Annual Fund Operating
Expenses -- Other Expenses," as well as the expense amounts used in the example,
are based on actual amounts for the most recent fiscal year. With respect to the
Class B shares of the Fund (which have not been publicly offered as of the date
of this Prospectus) all such amounts are based on estimated amounts for the
current fiscal year. In addition, with respect to the Class A shares of the
Fund, "Rule 12b-1 Fees" have been adjusted to reflect the current fee payable
(after voluntary waiver) as of the date of this Prospectus. The example set
forth above assumes reinvestment of all dividends and distributions and utilizes
a 5% annual rate of return as mandated by Commission regulations.
Pacific Century, the Sub-Adviser and BISYS each may elect, in its sole
discretion, to otherwise waive or reimburse its respective fees. Any such
waivers or reimbursements will reduce the total expenses of the Fund, thereby
increasing total return. As described above, with respect to the Class A shares,
the percentages shown above under "12b-1 Fees", "Other Expenses" and "Total Fund
Operating Expenses" reflect voluntary fee waivers and reimbursements. Absent
such waivers and reimbursements, these percentages would be 0.75%, 0.93%, and
2.58% for the Class A shares. With respect to the Class B shares, the
percentages shown above under "Other Expenses" and "Total Fund Operating
Expenses" reflect voluntary fee waivers and reimbursements. Absent such waivers
and reimbursements, these percentages would be 0.93% and 2.83% for the Class B
shares. There can be no assurance that the foregoing waivers and expense
reimbursements will continue to apply.
PROSPECTUS
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<PAGE> 92
FINANCIAL HIGHLIGHTS
The Financial Highlights in the table below set forth certain financial
data and investment results of the Class A shares of the Fund since its
inception, expressed in one share outstanding throughout the period. The
Financial Highlights are derived from the financial statements of Pacific
Capital Funds which have been audited by Ernst & Young LLP, independent
auditors. The Financial Highlights should be read in conjunction with the
financial statements, related notes, and other financial information included in
the Statement of Additional Information. The Trust's annual report contains
additional performance information relating to the Fund and is available upon
request, without charge. Financial information is not presented for Class B
shares, since Class B shares were not publicly issued as of the date of this
Prospectus.
<TABLE>
<CAPTION>
YEAR YEAR FEBRUARY 15,
ENDED ENDED 1995 TO
JULY 31, 1997 JULY 31, 1996 JULY 31, 1995(A)
------------- ------------- ----------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................... $ 11.11 $ 11.21 $10.00
Investment Activities
Net investment income (loss)....................... 0.03 (0.02) .02
Net realized and unrealized gain on investments.... 2.88 0.20 1.19
------- ------- ------
Total from Investment Activities.............. 2.91 0.18 1.21
------- ------- ------
Distributions
Net investment income.............................. (0.01)
In excess of net investment income................. -- (0.02) --
Net realized gains................................. (0.12) (0.26) --
------- ------- ------
Total Distributions........................... (0.13) (0.28) --
------- ------- ------
NET ASSET VALUE, END OF PERIOD.......................... $ 13.89 $ 11.11 $11.21
======= ======= ======
Total Return (excludes sales charges)................... 26.31% 1.71% 12.10%(b)
RATIOS/SUPPLEMENTARY DATA:
Net assets at end of period (000).................. $ 3,459 $ 1,990 $ 330
Ratio of expenses to average net assets............ 1.98% 2.22% 2.24%(c)
Ratio of net investment income (loss) to average
net assets....................................... 0.20% (0.28%) .80%(c)
Ratio of expenses to average net assets*........... 2.58% 3.58% 3.51%(c)
Ratio of net investment income (loss) to average
net assets*...................................... (0.40%) (1.64%) (0.47%)(c)
Portfolio Turnover(d).............................. 134.89% 86.53% 55.62%
Average Commission Rate paid(e).................... $0.0059 $0.0069 --
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund, as a whole,
without distinguishing between the classes of shares issued.
(e) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and sold
for which commissions were charged.
PROSPECTUS
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<PAGE> 93
INVESTMENT OBJECTIVE AND POLICIES OF THE FUND
The Fund is designed for U.S. investors seeking diversification of their
respective investment portfolios by participating in the economies of developing
Asian countries. The Fund's investment objective is to seek long-term growth of
capital. The Fund seeks to achieve this objective primarily through direct or
indirect investments in equity securities of companies located in the developing
countries of Asia. The Fund invests indirectly in the equity securities of
companies located in developing Asian countries by purchasing interests in other
foreign investment companies or trusts which themselves invest in the developing
countries of Asia. For purposes of its investment objective, the Fund considers
such developing countries to be all countries in Asia other than Japan. The Fund
may invest to a lesser degree in debt securities and other instruments (i.e.,
warrants and securities convertible into equity or debt securities) if the
investment adviser believes they would help achieve the Fund's objective.
Current income from dividends and interest will not be an important
consideration in selecting portfolio securities.
It is anticipated that under normal market conditions the Fund will invest
at least 70% of its total assets directly or indirectly in common stock, common
stock equivalents (such as preferred or debt securities convertible into common
stocks) and preferred stocks of companies located in the developing countries of
Asia which the investment adviser believes have potential for capital
appreciation. The Fund will consider an issuer of securities to be located in a
developing country of Asia if it is organized under the laws of a developing
Asian country, if it derives 50% or more of its total revenues from business in
a developing Asian country, or if its equity securities are traded principally
on a securities exchange in a developing Asian country.
Developing countries in which the Fund may invest include, but are not
limited to: Hong Kong, China, India, Indonesia, South Korea, Malaysia, the
Philippines, Singapore, Taiwan, Pakistan, Bangladesh, Sri Lanka and Thailand.
The criteria which the investment adviser uses to select and maintain a
portfolio of investments in any country depends on its view as to the upside
potential of the stock markets in such country and, more specifically, the
investment instruments therein. In determining the upside potential for each
market, the investment adviser will consider the economic, political and social
factors affecting each country and the prospects for improvements in these
factors in the short, medium and long term.
The Fund will not limit its investments to any particular type of company.
The Fund may invest in companies, large or small, whose earnings are believed to
be in a relatively strong growth trend, or in companies in which significant
further growth is not anticipated but whose market value per share is thought to
be undervalued. The Fund may invest in small and relatively less well-known
companies. Investing in small and relatively less well-known companies generally
involves greater risks than investing in larger, more established issuers. For
example, such companies may have limited product lines, markets or financial
resources and may lack management depth. In addition, the securities of such
companies may have limited marketability and may be subject to more abrupt or
erratic market movements than securities of larger, more established companies.
Subject to the Fund's investment objective, up to 35% of the Fund's total
assets may be invested in any combination of equity, debt and convertible
securities of issuers located outside Asia, including money market instruments
of the United States, should opportunities in these markets occur. In addition,
this portion of the Fund's portfolio will consist of various other financial
instruments such as forward foreign exchange contracts, futures contracts and
options. See "Additional Discussion Regarding Permitted Investment Activities."
PROSPECTUS
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<PAGE> 94
ADDITIONAL DISCUSSION REGARDING PERMITTED INVESTMENT ACTIVITIES
FOREIGN SECURITIES AND DEPOSITARY RECEIPTS
As described above, the Fund will invest substantially all of its assets in
the securities of foreign issuers. The Fund may invest in the securities of
foreign issuers directly or in the form of American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs"), Global Depositary Receipts
("GDRs") or other Depositary Receipts (which, together with ADRs, GDRs and EDRs,
are hereinafter collectively referred to as "Depositary Receipts") to the extent
such Depositary Receipts become available. ADRs (which include American
Depositary Shares and New York Shares) are publicly traded on exchanges or
over-the-counter ("OTC") in the United States. GDRs, EDRs and other types of
Depositary Receipts are typically issued by foreign depositaries, although they
may also be issued by U.S. depositaries, and evidence ownership interests in a
security or pool of securities issued by either a U.S. or foreign corporation.
Depositary Receipts may be "sponsored" or "unsponsored." In a sponsored
arrangement, the foreign issuer assumes the obligation to pay some or all of the
depositary's transaction fees, whereas in an unsponsored arrangement, the
foreign issuer assumes no obligation and the depositary's transaction fees are
paid by the holders of the Depositary Receipts. Foreign issuers in respect of
whose securities unsponsored Depositary Receipts have been issued are not
necessarily obligated to disclose material information in the markets in which
the unsponsored Depositary Receipts are traded, and therefore, there may not be
correlation between such information and the market value of such securities.
The Fund may hold foreign currency in connection with the purchase and sale
of foreign securities. To the extent the foreign currency is so held, there may
be a risk due to foreign currency exchange rate fluctuations. Such foreign
currency will be held with the Fund's custodian bank or by an approved foreign
subcustodian.
Investing in the securities of foreign issuers involves special risks and
considerations not typically associated with investing in the United States. See
"Additional Risk Disclosure--Risk Factors and Special Considerations of
Investing Primarily in Developing Asian Countries" below. For additional
discussion concerning investment in foreign debt securities, see "Debt
Securities" below.
CONVERTIBLE SECURITIES
The Fund may invest in convertible securities that provide current income
and are issued by companies with the characteristics described above. The Fund
may purchase convertible securities that are fixed-income debt securities or
preferred stocks, and which may be converted at a stated price within a
specified period of time into a certain quantity of the common stock of the same
or other issuers. Convertible securities, while usually subordinated to
nonconvertible debt securities of the same issuer, are senior to common stocks
in an issuer's capital structure. Convertible securities may offer more
flexibility by providing the investor with a steady income stream (generally
yielding a lower amount than nonconvertible securities of the same issuer and a
higher amount than common stocks) as well as the opportunity to take advantage
of increases in the price of the issuer's common stock through the conversion
feature. Convertible security prices tend to be influenced by changes in the
market value of the common stock as well as changes in interest rates.
Convertible securities in which the Fund may invest are subject to the rating
criteria and limitations discussed below under "Debt Securities."
DEBT SECURITIES
The Fund may invest in debt securities issued by foreign and domestic
corporations or financial institutions, and Yankee bonds. Foreign debt
securities in which the Fund may invest include, but are not limited to, fixed
income securities of developing Asian countries and global fixed income
securities. Developing Asian fixed income securities are debt
PROSPECTUS
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<PAGE> 95
securities or obligations issued or guaranteed by governments in such countries
(including their agencies, instrumentalities or political subdivisions)
("sovereign debt"), debt securities or obligations of entities organized to
restructure outstanding debt of such issuers, and debt securities of issuers
located in such developing countries. Global fixed-income securities include
government obligations issued or guaranteed by U.S. and foreign governments and
their political subdivisions, authorities, agencies or instrumentalities and by
supranational entities (such as the World Bank, The European Economic Community,
the Asian Development Bank and the European Coal and Steel Community), Eurobonds
and corporate bonds with varying maturities denominated in various currencies.
Yankee bonds are U.S. dollar-denominated obligations issued by foreign
governments or companies.
The debt securities in which the Fund will invest (including convertible
securities) will be of investment grade (i.e., rated in the top four rating
categories by a nationally recognized statistical rating organization (an
"NRSRO") or, if unrated, determined to be of comparable quality by the Fund's
investment adviser); provided, that up to 10% of the Fund's net assets may be
invested in securities rated below investment grade by an NRSRO or determined to
be of comparable quality by the investment adviser. Debt securities rated below
investment grade or of comparable quality are commonly referred to as "junk
bonds." For a description of the risks associated with investment in debt
securities, including lower-rated debt securities and sovereign debt, see
"Additional Risk Disclosure-- Risk Factors Associated with Investment in Certain
Debt Securities."
PREFERRED STOCK
The Fund may invest in preferred stock which is a class of capital stock
that pays dividends at a specified rate and that has preference over common
stock in the payment of dividends and the liquidation of assets. Preferred stock
does not ordinarily carry voting rights.
ILLIQUID SECURITIES
The Fund may invest in illiquid securities. The Fund will not knowingly
invest more than 15% of the value of its respective net assets in securities
that are illiquid. Repurchase agreements with a duration of more than seven
days, time deposits that do not provide for payment to the Fund within seven
days after notice, Guaranteed Investment Contracts ("GICs"), most commercial
paper issued in reliance upon the exemption in Section 4(2) of the Securities
Act of 1933, as amended (the "1933 Act") (other than variable amount master
demand notes with maturities of nine months or less), and foreign assets subject
to material legal restrictions on repatriation are subject to this 15% limit.
If otherwise consistent with its investment objectives and policies, the
Fund may purchase securities which are not registered under the 1933 Act but
which can be sold to "qualified institutional buyers" in accordance with Rule
144A under the 1933 Act. Any such security will not be considered illiquid so
long as it is determined by the investment adviser, acting under guidelines and
procedures that are developed, established and monitored by the Board of
Trustees, that an adequate trading market exists for that security either within
or outside the United States. This investment practice could have the effect of
increasing the level of illiquidity in the Fund during any period that qualified
institutional buyers become uninterested in purchasing these restricted
securities. The ability to sell to qualified institutional buyers under Rule
144A is a recent development, and it is not possible to predict how this market
will develop.
The staff of the Commission has taken the position that OTC options that
are purchased and the assets used as cover for written OTC options should
generally be treated as illiquid securities. However, if a dealer recognized by
the Federal Reserve Bank as a primary dealer in U.S. Government securities is
the other party to an option contract written by the Fund and the Fund has the
absolute right to repurchase the option from the dealer at a formula price
established in a con-
PROSPECTUS
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<PAGE> 96
tract with the dealer, the Commission staff has agreed that the Fund needs to
treat as illiquid only that amount of the cover assets equal to the formula
price less the amount by which the market value of the security subject to the
option exceeds the exercise price of the option (the amounts by which the option
is in-the-money). Although the investment adviser does not believe that OTC
options are generally illiquid, pending resolution of this issue, the Fund will
conduct their operations in conformity with the views of the Commission staff.
BORROWINGS
The Fund may borrow an amount equal to no more than 33 1/3% of the value of
its total assets (calculated at the time of the borrowing) from banks for
temporary, extraordinary or emergency purposes, for the clearance of
transactions, to hedge against currency movements or for investment purposes.
The Fund may pledge up to 33 1/3% of its total assets to secure these
borrowings. If the Fund's asset coverage for borrowings falls below 300%, the
Fund will take prompt action to reduce its borrowings. If the 300% asset
coverage should decline as a result of market fluctuations or other reasons, the
Fund may be required to sell portfolio securities to reduce the debt and restore
the 300% asset coverage, even though it may be disadvantageous from an
investment standpoint to sell securities at that time.
Borrowing for investment purposes is generally known as "leveraging."
Leveraging may exaggerate the effect on net asset value of any increase or
decrease in the market value of the Fund's portfolio. Money borrowed for
leveraging will be subject to interest costs which may or may not be recovered
by appreciation of the securities purchased. In addition, the Fund may be
required to maintain minimum average balances in connection with such borrowing
or pay a commitment fee to maintain a line of credit, which would increase the
cost of borrowing over the stated interest rate.
The Fund may borrow funds for temporary purposes by entering into reverse
repurchase agreements which are considered to be borrowings under the Investment
Company Act of 1940, as amended (the "1940 Act"). At the time the Fund enters
into a reverse repurchase agreement (an agreement under which the Fund sells
portfolio securities and agrees to repurchase them at an agreed upon date and
price), it will place in a segregated custodial account cash or other liquid
assets having a value equal to or greater than the repurchase price (including
accrued interest) and will subsequently monitor the account so that such value
is maintained. Reverse repurchase agreements involve the risk that the market
value of the securities sold by the Fund may decline below the price of the
securities it is obligated to repurchase. The Fund would pay interest on amounts
obtained pursuant to a reverse repurchase agreement.
LOANS OF PORTFOLIO SECURITIES
The Fund may lend securities from its portfolio to brokers, dealers and
financial institutions (but not individuals) if liquid assets equal to the
current market value of the securities loaned (including accrued interest
thereon) plus the interest payable to the Fund with respect to the loan is
maintained with the Fund. In determining whether to lend a security to a
particular broker, dealer or financial institution, the investment adviser will
consider all relevant facts and circumstances, including the creditworthiness of
the broker, dealer or financial institution. Any loans of portfolio securities
will be fully collateralized based on values that are marked to market daily by
the investment adviser. The Fund will not enter into any portfolio security
lending arrangement having a duration of longer than one year. Any securities
that the Fund may receive as collateral will not become part of the Fund's
portfolio at the time of the loan and, in the event of a default by the
borrower, the Fund will, if permitted by law, dispose of such collateral except
for such part thereof that is a security in which the Fund may invest. During
the time securities are on loan, the borrower will pay the Fund any accrued
income on those securities, and the Fund may invest the cash collateral and earn
additional income or receive an agreed-upon fee from a borrower that had
PROSPECTUS
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<PAGE> 97
delivered cash-equivalent collateral. The Fund will not lend securities having a
value that exceeds 33 1/3% of the current value of its total assets. Loans of
securities by the Fund will be subject to termination at the Fund's or the
borrower's option. The Fund may pay reasonable administrative and custodial fees
in connection with a securities loan and may pay a negotiated portion of the
interest or fee earned with respect to the collateral to the borrower or the
placing broker. Borrowers and placing brokers may not be affiliated, directly or
indirectly, with the Trust, Pacific Century, the Sub-Adviser or BISYS.
HEDGING STRATEGIES
The Fund may engage in various portfolio strategies including derivative
transactions to reduce certain risks of its investments. These strategies
currently include the use of options, forward currency exchange contracts and
futures contracts and options thereon. The Fund's ability to use these
strategies may be limited by market conditions, regulatory limits and tax
considerations and there can be no assurance that any of these strategies will
succeed. See "Additional Information on Fund Investments" and "Tax Information"
in the SAI. New financial products and risk management techniques continue to be
developed and the Fund may use these new investments and techniques to the
extent consistent with its investment objective and policies.
Options. The Fund may purchase put and call options and write (i.e., sell)
covered put and call options on securities, securities indexes (e.g., S&P 500)
and currencies that are traded on U.S. or foreign securities exchanges or in the
OTC market to hedge the Fund's portfolio. In addition, the Fund may purchase put
and call options and write covered put and call options on securities that
result from separate, privately negotiated transactions with primary U.S.
Government securities dealers recognized by the Board of Governors of the
Federal Reserve System. The Fund may purchase put options in an effort to
protect the value of securities (or currencies) that it owns against a decline
in market value and purchase call options in an effort to protect against an
increase in the price of securities (or currencies) it intends to purchase. The
Fund may also purchase put and call options to offset previously written put and
call options of the same series. See SAI, "Additional Information on Fund
Investments."
A call option gives the purchaser, in exchange for a premium paid, the
right for a specified period of time to purchase securities or currency subject
to the option at a specified price (the exercise price or strike price). A put
option gives the purchaser in return for a premium, the right for a specified
time, to sell the securities or currency subject to the option of the writer of
the put at the exercise price.
The aggregate value of the exercise price or strike price of call options
written by the Fund may not exceed 25% of the Fund's net asset value.
Forward Currency Exchange Contracts. The Fund may enter into forward
foreign currency exchange contracts to protect the value of its assets against
future changes in the level of currency exchange rates. The Fund may enter into
such contracts on a spot, i.e., cash, basis at the rate then prevailing in the
currency exchange market or on a forward basis, by entering into a forward
contract to purchase or sell currency. A forward contract on foreign currency is
an obligation to purchase or sell a specific currency at a future date, which
may be any fixed number of days agreed upon by the parties from the date of the
contract at a price set on the date of the contract.
The Fund's dealings in forward contracts will be limited to hedging
involving either specific transactions or portfolio positions. Transaction
hedging is the purchase or sale of a forward contract with respect to specific
receivables or payables of the Fund generally arising in connection with the
purchase or sale of its portfolio securities, accruals of interest or dividends
receivable and Fund expenses. Position hedging is the sale of a foreign currency
with respect to portfolio security positions denominated or quoted in that
currency or in a different currency (cross hedge). Although there are no limits
on the number of forward contracts which the Fund may enter into, the Fund may
not
PROSPECTUS
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position hedge (including cross hedges) with respect to a particular currency
for an amount greater than the aggregate market value (determined at the time of
making any sale of forward currency) of the securities being hedged. See SAI,
"Additional Information on Fund Investments."
Futures Contracts and Related Options. The Fund may enter into contracts
for the future delivery of specific securities, classes of securities, financial
indices or currencies, may purchase or sell exchange-listed or OTC options on
any such futures contracts and may engage in related closing transactions. A
financial futures contract is an agreement to purchase or sell an agreed amount
of securities or currency at a set price for delivery in the future. A futures
contract on a securities index is an agreement obligating either party to pay,
and entitling the other party to receive, while the contract is outstanding,
cash payments based on the level of a specified securities index. The
acquisition of put and call options on futures contracts will, respectively,
give the Fund the right (but not the obligation), for a specified price, to sell
or to purchase the underlying futures contract, upon exercise of the option, at
any time during the option period.
The Fund may engage in futures contracts and related options in an effort
to hedge against market or currency risks. For example, with respect to market
risk, when interest rates are expected to rise or market values of portfolio
securities are expected to fall, the Fund can seek through the sale of futures
contracts to offset a decline in the value of its portfolio securities. When
interest rates are expected to fall or market values are expected to rise, the
Fund, through the purchase of such contracts, can attempt to secure better rates
or prices for the Fund than might later be available in the market when it
effects anticipated purchases. With respect to currency risk, by entering into
currency futures and options thereon on U.S. and foreign exchanges, the Fund can
seek to establish the rate at which it will be entitled to exchange U.S. dollars
for another currency at a future time. By selling currency futures, the Fund can
seek to establish the number of dollars it will receive at delivery for a
certain amount of a foreign currency. In this way, whenever the Fund anticipates
a decline in the value of a foreign currency against the U.S. dollar, the Fund
can attempt to "lock in" the U.S. dollar value of some or all of the securities
held in its portfolio that are denominated in that currency. By purchasing
currency futures, the Fund can establish the number of dollars it will be
required to pay for a specified amount of a foreign currency in a future month.
Thus if the Fund intends to buy securities in the future and expects the U.S.
dollar to decline against the relevant foreign currency during the period before
the purchase is effected, the Fund can attempt to "lock in" the price in U.S.
dollars of the securities it intends to acquire.
The Fund may not purchase and sell futures contracts and related options
for other than bona fide hedging purposes (as defined in Commodity Futures
Trading Commission ("CFTC") regulations) if, immediately thereafter, aggregate
initial margin deposits for futures contracts, and premiums paid for related
options, would exceed five percent (5%) of the liquidation value of the Fund's
total assets. The Fund may purchase and sell futures contracts and related
options, without limitation, for bona fide hedging purposes. Futures
transactions will be limited to the extent necessary to maintain the Fund's
qualification as a regulated investment company.
Futures transactions involve brokerage costs and require the Fund to
segregate assets to cover its obligations under futures, or to cover its
obligations by owning the assets underlying open futures contracts. The Fund may
lose the expected benefit of futures transactions if interest rates, exchange
rates or securities prices move in an unanticipated manner. Such losses are
potentially significant and unanticipated changes may result in poorer overall
performance than if the Fund had not entered into any futures transactions. In
addition, the value of the Fund's futures positions may not prove to be
perfectly or even highly correlated with the value of its portfolio securities,
limiting the Fund's ability to hedge effectively against interest rate, exchange
rate and/or market risk and giving rise to additional
PROSPECTUS
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risks. There is no assurance of liquidity in the secondary market for purposes
of closing out future positions. Where a liquid secondary market does not exist,
the Fund is unlikely to be able to control losses by closing out futures
positions. Gains and losses on investments in options and futures depend on the
investment adviser's ability to predict correctly the direction of stock prices,
interest rates and other economic factors. Certain futures exchanges or boards
of trade have established daily limits on the amount that the price of futures
contracts or related options may vary, either up or down, from the previous
day's settlement price. These daily limits may restrict the Fund's ability to
purchase or sell certain futures contracts or related options on any particular
day. For additional discussion of certain risks associated with the use of
futures contracts and options thereon, see "Additional Risk Disclosure--Risks of
Hedging Strategies."
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements wherein the seller of a
security to the Fund agrees to repurchase that security from the Fund at a
mutually agreed-upon time and price. The period of maturity is usually quite
short, often overnight or a few days, although it may extend over a number of
months. The Fund may enter into repurchase agreements only with respect to
obligations that could otherwise be purchased by the Fund. All repurchase
agreements will be fully collateralized based on values that are marked to
market daily by the investment adviser. If the seller defaults and the value of
the underlying securities has declined, the Fund may incur a loss. In addition,
if bankruptcy proceedings are commenced with respect to the seller of the
security, the Fund's disposition of the security may be delayed or limited.
OTHER INVESTMENT COMPANIES
The Fund may invest in securities issued by other investment companies,
including (to the extent permitted by the 1940 Act) other investment companies
managed by Pacific Century. In this regard, the Fund may purchase the securities
of certain foreign investment funds or trusts called passive foreign investment
companies, which have been the only or primary way to invest in certain
developing countries of Asia. Securities of other investment companies will be
acquired by the Fund within the limits prescribed by the 1940 Act. The Fund
intends to limit its investments so that as determined immediately after a
securities purchase is made: (a) not more than 5% of the value of its total
assets will be invested in the securities of any one investment company; (b) not
more than 10% of the value of its total assets will be invested in the aggregate
in securities of investment companies as a group; (c) not more than 3% of the
outstanding voting stock of any one investment company will be owned by the
Fund; and (d) the Fund, together with other investment companies having the same
investment adviser and companies controlled by such companies, owns not more
than 10% of the total stock of any one closed-end company.
As a shareholder of another investment company, the Fund would bear, along
with other shareholders, its pro rata portion of the other investment company's
expenses. Accordingly, in addition to bearing their proportionate share of the
Fund's expenses (i.e., management fees and operating expenses) shareholders will
also indirectly bear similar expenses of such other investment companies or
trusts. However, Pacific Century has undertaken to waive or reimburse the Fund
its advisory fees with respect to assets invested in other investment companies
or trusts (except when such purchase is part of a plan of merger, consolidation,
reorganization or acquisition).
Investments by the Fund in wholly-owned investment entities created under
the laws of certain countries will not be deemed the making of an investment in
other investment companies.
WHEN-ISSUED SECURITIES AND FORWARD
COMMITMENTS
The Fund may purchase securities on a "when-issued" basis and may also
purchase or sell securities on a "forward commitment" basis. These trans-
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actions, which involve a commitment by the Fund to purchase or sell particular
securities with payment and delivery taking place at a future date (perhaps one
or two months later), permit the Fund to lock-in a price or yield on a security
it owns or intends to purchase, regardless of future changes in interest rates.
When-issued and forward commitment transactions involve the risk, however, that
the yield obtained in a transaction may be less favorable than the yield
available in the market when the securities delivery takes place. The Fund does
not intend to engage in when-issued purchases and forward commitments for
speculative purposes but only in furtherance of its investment objective. The
forward commitments and when-issued purchases are not expected to exceed 25% of
the value of the Fund's total assets absent unusual market conditions.
The Fund will not start earning interest or dividends on when-issued
securities until they are received. The value of the securities underlying a
when-issued purchase or a forward commitment to purchase securities, and any
subsequent fluctuations in their value, is taken into account when determining
the net asset value of the Fund starting on the date the Fund agrees to purchase
the securities. The Fund will establish a segregated account in which it will
maintain liquid high-grade debt securities in an amount at least equal in value
to the Fund's commitment to purchase securities on a when-issued or forward
commitment basis. If the value of these assets declines, the Fund will replace
additional liquid assets in the account on a daily basis so that the value of
the assets in the account is equal to the amount of such commitments.
WARRANTS
The Fund may invest in warrants. A warrant gives the holder thereof the
right to subscribe by a specified date to a stated number of shares of stock of
the issuer at a fixed price. Warrants tend to be more volatile than the
underlying stock, and if at a warrant's expiration date the stock is trading at
a price below the price set in the warrant, the warrant will expire worthless.
Conversely, if at the expiration date the stock is trading at a price higher
than the price set in the warrant, the Fund can acquire the stock at a price
below its market value. The Fund may not invest more than 10% of its net assets
in warrants.
DEFENSIVE STRATEGY
At times the investment adviser may judge that conditions in the securities
markets make pursuing the Fund's basic investment strategy inconsistent with the
best interests of its shareholders. At such times, the investment adviser may
temporarily use alternative strategies, primarily designed to reduce
fluctuations in the value of the Fund's assets. In implementing these
"defensive" strategies, the Fund may invest without limit in cash (foreign
currency or U.S. dollars) and in domestic, Eurodollar and foreign short-term
money market instruments. It is impossible to predict when, or for how long, the
Fund will use such alternative strategies.
U.S. GOVERNMENT OBLIGATIONS
The Fund may invest in U.S. Government Obligations which include, in
addition to U.S. Treasury Securities, the obligations of Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Government National Mortgage Association
("GNMA"), Federal National Mortgage Association ("FNMA"), Student Loan Marketing
Association ("SLMA"), Resolution Trust Corporation and Federal Home Loan
Mortgage Corporation ("FHLMC"). U.S. Treasury Securities and certain other
obligations of certain agencies and instrumentalities of the U.S. Government,
such as those of the GNMA, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of the Export-Import Bank of the United
States, are supported by the right of the issuer to borrow from the U.S.
Treasury; others, such as those of FNMA, are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; still
others, such as those of the SLMA, are supported only by the credit of the
instrumentality. No
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assurance can be given that the U.S. Government would provide financial support
to sponsored instrumentalities if it is not obligated to do so by law. Some of
these instruments may be variable or floating rate instruments. The Fund will
invest in the obligations of such instrumentalities only when the investment
adviser believes that the credit risk with respect to the instrumentality is
minimal.
COMMERCIAL PAPER
The Fund may invest in commercial paper that is rated at the time of
purchase in the two highest short-term rating categories by an NRSRO or unrated
if considered by the investment adviser to be of comparable quality. Commercial
paper includes short-term unsecured promissory notes, and variable floating rate
demand notes issued by domestic and foreign bank holding companies, corporations
and financial institutions as well as similar taxable and tax-exempt instruments
issued by government agencies and instrumentalities.
BANK AND SAVINGS AND LOAN OBLIGATIONS
The Fund may invest in Bank and Savings and Loan Obligations. These
obligations include negotiable certificates of deposit, fixed time deposits,
bankers' acceptances, and interest bearing demand accounts. The Fund limits its
bank investments to dollar-denominated obligations of U.S., Canadian, Asian or
European banks which have more than $500 million in total assets at the time of
investment or of United States savings and loan associations which have more
than $1 billion in total assets at the time of investment and, in the case of
U.S. banks, are members of the Federal Reserve System or are examined by the
Comptroller of the Currency or whose deposits are insured by the Federal Deposit
Insurance Corporation.
ASSET BACKED SECURITIES
The Fund may invest in Asset Backed Securities. Asset Backed Securities
arise through the grouping by governmental, government-related, and private
organizations of loans and receivables originated by various lenders. Asset
Backed Securities acquired by the Fund consist of both mortgage and non-mortgage
backed securities. Interest in pools of these assets differ from other forms of
debt securities, which normally provide for periodic payment of interest in
fixed amounts with principal paid at maturity or specified call dates. Instead,
Asset Backed Securities provide periodic payments which generally consist of
both interest and principal payments.
The life of an Asset Backed Security varies with the prepayment experience
of the underlying debt instruments. The rate of such prepayments, and hence the
life of an Asset Backed Security, will be primarily a function of current market
interest rates, although other economic and demographic factors may be involved.
For example, falling interest rates generally result in an increase in the rate
of prepayments of mortgage loans while rising interest rates generally decrease
the rate of prepayments. An acceleration in prepayments in response to sharply
falling interest rates will shorten the security's average maturity and limit
the potential appreciation in the security's value relative to a conventional
debt security. Consequently, Asset Backed Securities are not as effective in
locking in high, long-term yields. Conversely, in periods of sharply rising
rates, prepayments are generally slow, increasing the security's average life
and its potential for price depreciation.
Mortgage backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself.
One such type of mortgage backed security is a GNMA Certificate. GNMA
Certificates are backed as to the timely payment of principal and interest by
the full faith and credit of the U.S. Government. Another type is a FNMA
Certificate, the principal and interest of which are guaranteed only by FNMA
itself, not by the full faith and credit of the U.S. Government. Another type is
a FHLMC Par-
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ticipation Certificate. This type of obligation is guaranteed by FHLMC as to
timely payment of principal and interest. However, like a FNMA security, it is
not guaranteed by the full faith and credit of the U.S. Government. Mortgage
backed securities issued by private issuers, whether or not such obligations are
subject to guarantees by the private issuer, may entail greater risk than
obligations directly or indirectly guaranteed by the U.S. Government. Such
securities will be purchased for the Fund only when the investment adviser
determines that they are readily marketable at the time of purchase.
The average life of mortgage backed securities varies with the maturities
of the underlying mortgage instruments, which have maximum maturities of up to
40 years. The average life is likely to be substantially less than the original
maturity of the mortgage pools underlying the securities as the result of
mortgage prepayments, mortgage refinancings, or foreclosures. The rate of
mortgage prepayments, and hence the average life of the certificates, will be a
function of the level of interest rates, general economic conditions, the
location and age of the mortgage and other social and demographic conditions.
Such prepayments are passed through to the registered holder with the regular
monthly payments of principal and interest and have the effect of reducing
future payments. As a result of the pass-through of prepayments of principal on
the underlying securities, mortgage backed securities are often subject to more
rapid prepayments of principal than their stated maturity would indicate.
Because the prepayment characteristics of the underlying mortgages vary, it is
not possible to predict accurately the realized yield or the average life of a
particular issue of pass-through certificates. As a result of these principal
payment features, mortgage backed securities are generally more volatile than
other U.S. Government securities.
Estimated average life of the mortgage backed security will be determined
by the investment adviser and used for the purpose of determining the average
weighted maturity of the Fund. Various independent mortgage backed securities
dealers publish average remaining life data using proprietary models and, in
making such determinations for the Fund, the investment adviser might deem such
data unreasonable if such data appeared to present a significantly different
average remaining expected life for a security when compared to data relating to
the average remaining life of comparable securities as provided by other
independent mortgage backed securities dealers.
The Fund also may invest in non-mortgage backed securities including
interests in pools of receivables, such as motor vehicle installment purchase
obligations and credit card receivables. Such securities are generally issued as
pass-through certificates, which represent undivided fractional ownership
interests in the underlying pool of assets. Such securities also may be debt
instruments, which also are known as collateralized obligations and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owning such assets and issuing such debt.
Non-mortgage backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities. Non-mortgage backed securities will be purchased
by the Fund only when such securities are readily marketable and rated at the
time of purchase in one of the two highest rating categories by an NRSRO or, if
unrated, considered by the investment adviser to be of comparable quality. In
addition, such securities generally will have remaining estimated lives at the
time of purchase of five years or less. See the SAI, "Additional Information on
Fund Investments."
REAL ESTATE MORTGAGE INVESTMENT CONDUITS
The Fund may invest in Real Estate Mortgage Investment Conduits ("REMICs").
REMICs are a pass-through vehicle created to issue multiclass mortgage-backed
securities. REMICs may be or-
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ganized as corporations, partnerships, or trusts and those meeting certain
qualifications are not subject to double taxation. Interests in REMICs may be
senior or junior, regular (debt instruments) or residual (equity interests).
FLOATING AND VARIABLE RATE DEBT INSTRUMENTS
The Fund may invest in floating and variable rate debt instruments.
Floating and variable rate debt instruments bear interest at rates that are not
fixed, but vary with changes in specified market rates or indices or at
specified intervals. Certain of these instruments may carry a demand feature
that would permit the holder to tender them back to the issuer at a par value
prior to maturity. The floating and variable rate instruments that the Fund may
purchase include certificates of participation in such obligations purchased
from banks. The investment adviser will monitor on an ongoing basis the ability
of an issuer of a demand instrument to make payment when due, which could be
affected by events occurring between the date the Fund elects to demand payment
and the date payment is due, except when such demand instruments permit same-day
settlement. In this regard, the investment adviser, pursuant to direction of the
Board of Trustees, will determine the liquidity of those instruments with demand
features that cannot be exercised within seven days.
LETTERS OF CREDIT AND LIQUIDITY AGREEMENTS
The Fund may purchase debt obligations that are backed by an irrevocable
letter of credit or liquidity agreement of a bank, savings and loan association
or insurance company which assumes the obligation for payment of principal and
interest in the event of default by the issuer. Only banks, savings and loan
associations and insurance companies which, in the opinion of the investment
adviser, are of investment quality comparable to other permitted investments of
the Fund, may be used for letter of credit and liquidity agreement backed
investments.
INTEREST ONLY OR PRINCIPAL ONLY OBLIGATIONS
The Fund may make limited investments (not exceeding 5% of the Fund's net
assets) in separately traded principal and interest components of securities
issued by the United States Treasury. The principal and interest components of
selected securities are traded independently under the Separate Trading of
Registered Interest and Principal of Securities program ("STRIPs"). Under the
STRIPs program, the principal and interest components are individually numbered
and separately issued by the U.S. Treasury at the request of depository
financial institutions, which then trade the component parts independently.
GUARANTEED INVESTMENT CONTRACTS
The Fund may invest up to 5% of its net assets in Guaranteed Investment
Contracts ("GICs") issued by highly rated U.S. insurance companies. GICs are
considered to be illiquid, and accordingly, are subject to the Fund's 15%
limitation on investment in illiquid securities. See SAI, "Additional
Information on Fund Investments."
PORTFOLIO TURNOVER
Generally, the Fund will purchase portfolio securities for capital
appreciation and not for short-term trading profits. However, the Fund may sell
a portfolio investment soon after its acquisition if the investment adviser
believes that such a disposition is consistent with attaining the investment
objective of the Fund. Portfolio investments may be sold for a variety of
reasons, such as a more favorable investment opportunity or other circumstances
bearing on the desirability of continuing to hold such investments. As a result,
the Fund may engage in a substantial number of portfolio transactions.
Accordingly, while the Fund anticipates that its annual portfolio turnover rate
should not exceed 100% under normal conditions, it is impossible to predict
portfolio turnover rates. For the fiscal year ended July 31, 1997 and July 31,
1996, the Fund's portfolio turnover rate was 134.89% and 86.53%, respec-
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tively. See "Portfolio Transactions" in the SAI for additional information
relating to portfolio turnover.
INVESTMENT POLICIES
The Fund's investment objective, as set forth in the first paragraph of the
description of the Fund in the "Highlights" section is fundamental; that is, it
may not be changed without approval by vote of the holders of a majority of the
Fund's outstanding voting securities, as described under "Capital Stock" in the
SAI. If the Trust's Board of Trustees determines, however, that the Fund's
investment objective can best be achieved by a substantive change in a
nonfundamental investment policy or strategy, the Trust's Board may make such
change without shareholder approval and will disclose any such material changes
in the then current prospectus. Any policy that is not specified in the Fund's
Prospectus, or in the SAI, as being fundamental is nonfundamental.
ADDITIONAL RISK DISCLOSURE
RISK FACTORS AND SPECIAL CONSIDERATIONS OF
INVESTING PRIMARILY IN DEVELOPING ASIAN
COUNTRIES
General. Because the Fund intends to invest primarily in securities of
companies located in developing Asian countries, an investor in the Fund should
be aware of certain risk factors and special considerations relating to
investing in these developing economies. More generally, the investor should
also be aware of risks and considerations related to international investing and
investing in smaller capital markets, each of which may involve risks which are
not typically associated with investments in securities of U.S. issuers.
Consequently, the Fund should be considered as a means of diversifying an
investment portfolio and not in itself a balanced investment program.
Investing on an International Basis and in Countries with Smaller Capital
Markets. Investing on an international basis and in countries with smaller
capital markets involves certain risks not involved in domestic investments,
including fluctuations in foreign exchange rates, future political and economic
developments, and the possible imposition of exchange controls or other foreign
governmental laws or restrictions. Since the Fund will invest heavily in
securities denominated or quoted in currencies other than the U.S. dollar,
changes in foreign currency exchange rates will affect the value of securities
in the portfolio and the unrealized appreciation or depreciation of investments
insofar as U.S. investors are concerned. In addition, with respect to certain
foreign countries, there is the possibility of expropriation of assets,
confiscatory taxation, political or social instability or diplomatic
developments which could affect investments in those countries. Moreover,
individual foreign economies may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross national product, rates of
inflation, capital reinvestment, resources, self-sufficiency and balance of
payments position. Certain foreign investments may also be subject to foreign
withholding taxes. These risks are often heightened for investments in smaller
capital markets and developing countries of Asia.
Most of the securities held by the Fund will not be registered with the
Commission, nor will the issuers thereof be subject to the reporting
requirements of such agency. Accordingly, there may be less publicly available
information about a foreign company than about a U.S. company, and such foreign
companies may not be subject to accounting, auditing and financial reporting
standards and requirements comparable to those to which U.S. companies are
subject. As a result, traditional investment measurements, such as
price/earnings ratios, as used in the United States, may not be applicable to
certain smaller capital markets. Foreign companies, and companies in smaller
capital markets in particular, are not generally subject to uniform accounting,
auditing and financial reporting standards or to practices and requirements
comparable to those applicable to domestic companies.
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Foreign markets also have different clearance and settlement procedures, and in
certain markets there have been times when settlements have failed to keep pace
with the volume of securities transactions, making it difficult to conduct such
transactions. Brokerage commissions and other transaction costs on foreign
securities exchanges are generally higher than in the United States. There is
generally less government supervision and regulation of exchanges, brokers and
issuers in foreign countries than there is in the United States.
The operating expense ratio of the Fund can be expected to be higher than
that of an investment company investing exclusively in U.S. securities since the
expenses of the Fund, such as management and advisory fees and custodial costs,
are higher.
Investing in Developing Asian Securities Markets and Economies. The
securities markets of developing Asian countries are not as large as the U.S.
securities markets and have substantially less trading volume, resulting in a
lack of liquidity and high price volatility. Certain markets, such as those of
China, are in only the earliest stages of development. There is also a high
concentration of market capitalization and trading volume in a small number of
issuers representing a limited number of industries, as well as a high
concentration of investors and financial intermediaries. Many of such markets
also may be affected by developments with respect to more established markets in
the region, such as in Japan. Developing Asian brokers typically are fewer in
number and less capitalized than brokers in the United States. These factors,
combined with the U.S. regulatory requirements for open-end investment companies
and the restrictions on foreign investments discussed below, result in
potentially fewer investment opportunities for the Fund and may have an adverse
impact on the investment performance of the Fund.
The investment objective of the Fund reflects the belief that the economies
of the developing Asian countries will continue to grow in such a fashion as to
provide attractive investment opportunities. At the same time, emerging
economies present certain risks that do not exist in more established economies.
Especially significant is that political and social uncertainties exist for some
of these developing Asian countries. In addition, the governments of many of
such countries have a heavy role in regulating and supervising the economy.
Another risk common to most such countries is that the economy is heavily export
oriented and, accordingly, is dependent upon international trade. The existence
of overburdened infrastructure and obsolete financial systems also presents
risks in certain countries, as do environmental problems. Certain economies also
depend to a significant degree upon exports of primary commodities and,
therefore, are vulnerable to changes in commodity prices which, in turn, may be
affected by a variety of factors.
Archaic legal systems in certain developing Asian countries also may have
an adverse impact on the Fund. For example, while the potential liability of a
shareholder in a U.S. corporation with respect to the acts of the corporation is
generally limited to the amount of the shareholder's investment, the notion of
limited liability is less clear in certain developing Asian countries.
Similarly, the rights of investors in developing Asian companies may be more
limited than those of shareholders of U.S. corporations.
Certain of the risks associated with international investments and
investing in smaller capital markets are heightened for investments in
developing Asian countries. For example, some of the currencies of developing
Asian countries have experienced devaluations relative to the U.S. dollar, and
major adjustments have been made periodically in certain of such currencies.
Certain countries, such as India, face serious exchange constraints.
Inflation accounting rules in some developing Asian countries require, for
companies that keep accounting records in the local currency, for both tax and
accounting purposes, that certain assets and liabilities be restated on the
company's balance sheet in order to express items in terms of currency
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of constant purchasing power. Inflation accounting
may indirectly generate losses or profits for certain developing Asian
companies.
Satisfactory custodial services for investment securities may not be
available in some developing Asian countries, which may result in the Fund
incurring additional costs and delays in providing transportation and custody
services for such securities outside such countries.
Certain developing Asian countries, such as the Philippines and India, are
especially large debtors to commercial banks and foreign governments. In
addition, trading in sovereign debt issued or guaranteed by governmental
entities in developing Asian countries involves a high degree of risk. These
risks are discussed below in "Risk Factors Associated with Investment in Certain
Debt Securities."
Restrictions on Foreign Investments. Some developing Asian countries
prohibit or impose substantial restrictions on investments in their capital
markets, particularly their equity markets, by foreign entities such as the
Fund. As illustrations, certain countries may require governmental approval
prior to investments by foreign persons or limit the amount of investment by
foreign persons in a particular company or limit the investment by foreign
persons to only a specific class of securities of a company which may have less
advantageous terms (including price) than securities of the company available
for purchase by nationals. Certain countries may restrict investment
opportunities in issuers or industries deemed important to national interests.
The manner in which foreign investors may invest in companies in certain
developing Asian countries, as well as limitations on such investments, also may
have an adverse impact on the operations of the Fund. For example, the Fund may
be required in certain of such countries to invest initially through a local
broker or other entity and then have the shares that were purchased
re-registered in the name of the Fund. Re-registration may in some instances not
be able to occur on a timely basis, resulting in a delay during which the Fund
may be denied certain of its rights as an investor, including rights as to
dividends or to be made aware of certain corporate actions. There also may be
instances where the Fund places a purchase order but is subsequently informed,
at the time of re-registration, that the permissible allocation of the
investment to foreign investors has been filled, depriving the Fund of the
ability to make its desired investment at that time.
Substantial limitations may exist in certain countries with respect to the
Fund's ability to repatriate investment income, capital or the proceeds of sales
of securities by foreign investors. The Fund could be adversely affected by
delays in, or a refusal to grant, any required governmental approval for
repatriation of capital, as well as by the application to the Fund of any
restrictions on investments. In addition, even where there is no outright
restriction on repatriation of capital, the mechanics of repatriation may affect
certain aspects of the operations of the Fund. For example, funds may be
withdrawn from China only in U.S. or Hong Kong dollars and only at an exchange
rate established by the government once each week.
A number of publicly traded closed-end investment companies have been
organized to facilitate indirect foreign investment in developing Asian
countries, and certain of such countries, such as Thailand and South Korea, have
specifically authorized such funds. There also are investment opportunities in
certain of such countries in pooled vehicles that resemble open-end investment
companies. As discussed above, the Fund's investment in these companies will be
subject to certain percentage limitations of the 1940 Act. See "Additional
Discussion Regarding Permitted Investment Activities--Other Investment
Companies." This restriction on investments in securities of investment
companies may limit opportunities for the Fund to invest indirectly in certain
developing Asian countries. Shares of certain investment companies may at times
be acquired only at market prices representing premiums to their net asset
values.
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In certain countries, banks or other financial institutions may be among
the leading companies or have actively traded securities. The 1940 Act restricts
the Fund's investments in any equity securities of an issuer which, in its most
recent fiscal year, derived more than 15% of its revenues from "securities
related activities," as defined by the rules thereunder. These provisions may
restrict the Fund's investments in certain foreign banks and other financial
institutions.
Limitations on Share Transactions. To permit the Fund to invest the net
proceeds from the sale of its shares in an orderly manner, the Fund may, from
time to time, suspend the sale of its shares, except for dividend reinvestment.
The Fund also reserves the right to limit the number of its shares that may be
purchased by a person during a specified period of time or in the aggregate.
RISKS OF HEDGING STRATEGIES
Participation in the options or futures markets and in currency exchange
transactions involves investment risks and transaction costs to which the Fund
would not be subject absent the use of these strategies. If the investment
adviser's predictions of movements in the direction of the securities, foreign
currency and interest rate markets are inaccurate, the adverse consequences to
the Fund may leave the Fund in a worse position than if such strategies were not
used. Risks inherent in the use of options, foreign currency and futures
contracts and options on futures contracts include (1) dependence on the
investment adviser's ability to predict correctly movements in the direction of
interest rates, securities prices and currency markets; (2) imperfect
correlation between the price of options and futures contracts and options
thereon and movements in the prices of the securities or currencies 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
possible need to defer closing out certain hedged positions to avoid adverse tax
consequences; and (6) the possible inability of the Fund to purchase or sell a
portfolio security at a time that otherwise would be favorable for it to do so,
or the possible need for the Fund to sell a portfolio security at a
disadvantageous time, due to the need for the Fund to maintain "cover" or to
segregate securities in connection with hedging transactions. See "Additional
Information on Fund Investments" and "Tax Information" in the SAI.
The Fund will generally purchase options and futures on an exchange only if
there appears to be a liquid secondary market for such options or futures; the
Fund will generally purchase over-the-counter options only if management
believes that the other party to the options will continue to make a market for
such options. However, there can be no assurance that a liquid secondary market
will continue to exist or that the other party will continue to make a market.
Thus, it may not be possible to close an options or futures transaction. The
inability to close options and futures positions also could have an adverse
impact on the Fund's ability to effectively hedge its portfolio. There is also
the risk of loss by the Fund of margin deposits or collateral in the event of
bankruptcy of a broker with whom the Fund has an open position in an option, a
futures contract or related option.
RISK FACTORS ASSOCIATED WITH INVESTMENT IN CERTAIN DEBT SECURITIES
Lower Rated Debt Securities. Securities rated in the medium to low rating
categories of NRSROs such as Standard & Poor's Corporation ("S&P") and Moody's
Investors Service, Inc. ("Moody's") and unrated securities of comparable quality
(referred to herein as "high yield/high risk securities") are predominantly
speculative with respect to the capacity to pay interest and repay principal in
accordance with the terms of the security, generally involve a greater
volatility of price than securities in higher rating categories, may have call
or redemption features which would permit the issuer to repurchase securities
from the Fund, are less liquid than higher rated securities, and may have their
value and liquidity negatively impacted by adverse publicity and investor
perceptions. See "Appendix"
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in the SAI. These securities are commonly referred to as "junk bonds". In
purchasing such securities, the Fund will rely on the investment adviser's
judgment, analysis and experience in evaluating the creditworthiness of an
issuer of such securities. The investment adviser will take into consideration,
among other things, the issuer's financial resources, its sensitivity to
economic conditions and trends, its operating history, the quality of the
issuer's management and regulatory matters. The Fund is not authorized to
purchase debt securities that are in default, except that the Fund may invest in
sovereign debt which is in default, provided that not more than 5% of its total
assets is invested in sovereign debt (including sovereign debt which is in
default). For a further discussion of the risks associated with investment in
high yield/high risk securities, see "Additional Information Fund Investments"
in the SAI.
Sovereign Debt. The sovereign debt instruments in which the Fund may
invest involve great risk and are deemed to be the equivalent in terms of
quality to high yield-high risk securities. The Fund may have difficulty
disposing of certain sovereign debt obligations because there may be no liquid
secondary trading market for such securities. The Fund may invest up to 5% of
its total assets in sovereign debt, including sovereign debt which is in
default.
ADDITIONAL INVESTMENT RESTRICTIONS
As matters of fundamental policy, the Fund may not:
1. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in the securities of such issuer, or more than 10% of
the issuer's outstanding voting securities would be owned by the Fund, except
that up to 25% of the value of the Fund's total assets may be invested without
regard to these limitations.
2. Purchase any securities which would cause 25% or more of the value of
the Fund's total assets at the time of purchase to be invested in the securities
of one or more issuers conducting their principal business activities in the
same industry, provided that (a) there is no limitation with respect to U.S.
Government Obligations and repurchase agreements secured by such obligations;
(b) wholly owned finance companies will be considered to be in the industries of
their parents if their activities are primarily related to financing the
activities of the parents; and (c) utilities will be divided according to their
services, for example, gas, gas transmission, electric and gas, electric and
telephone will each be considered a separate industry.
3. Make loans, borrow money or issue senior securities, except under
certain circumstances, and subject to certain percentage limitations, specified
above and in the SAI.
If a percentage limitation is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in the value of
the Fund's portfolio securities will not constitute a violation of such
limitation.
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<PAGE> 109
MANAGEMENT, ADVISORY AND OTHER SERVICE ARRANGEMENTS
THE BOARD OF TRUSTEES
The business and affairs of the Trust are managed under the direction and
control of its Board of Trustees. The names and principal occupations of the
Trustees of the Trust are listed below. Trustees deemed to be "interested
persons" of the Trust for purposes of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
POSITION(S) HELD
NAME AND ADDRESS WITH THE TRUST PRINCIPAL ORGANIZATION
- ----------------------- ---------------------- -----------------------------------------------
<S> <C> <C>
Deborah G. Patterson* Trustee and Senior Vice President of Bank of Hawaii--Asset
Chairperson Management and Private client group
(1994-Present): Director of KPMG Peat Marwick
(1993-1994); Senior Vice President and Manager
of Wells Fargo Bank (1987-1992)
Irimga McKay* Trustee and President Senior Vice President of BISYS Fund Services
(1994-present); Senior Vice President of
Concord Financial Group (1986-1994)
Douglas Philpotts* Trustee Chairman of the Board of Directors (1992-1994),
President (1986-1992), and Director
(1984-present) of Pacific Century
Richard W. Gushman, II Trustee President and Chief Executive Officer of OKOA,
Inc. (1985-present); Adviser to RAMPAC, Inc.
Stanley W. Hong Trustee President and Chief Executive Officer of the
Chamber of Commerce of Hawaii (1996-present);
Business Consultant (1994-present)
Russell K. Okata Trustee Executive Director of Hawaii Government
Employees Association (1981-present)
Oswald K. Stender Trustee Trustee of Bernice Pauahi Bishop Estate
(1990-present); Director of Hawaiian Electric
Industries, Inc. (1993-present)
</TABLE>
Trustees of the Trust who are not officers or employees of the Trust,
BISYS, or Pacific Century are entitled to receive from the Trust a quarterly
retainer and a fee for each Board of Trustees meeting attended. All Trustees are
reimbursed for all reasonable out-of-pocket expenses relating to attendance at
meetings.
THE ADVISER
Pursuant to an Advisory Agreement, the Fund is advised by Pacific Century,
whose address is Financial Plaza of the Pacific, 111 S. King Street, Honolulu,
Hawaii 96813. Pacific Century is a Hawaii corporation organized in 1898 and is
the largest trust company in the State of Hawaii, both in terms of assets under
administration and assets under management. As of July 31, 1997, Pacific Century
had approximately $7.5 billion of client financial assets under management.
Pacific Century is a division of Bank of Hawaii, the largest banking
organization headquartered in the State of Hawaii, with approximately $12.6
billion of assets as of July 31, 1997, and branches and offices throughout the
Pacific Basin, including Guam, Singapore, Tokyo, Seoul and Taiwan. All shares of
Bank of Hawaii are owned by Pacific Century Financial Corporation (formerly
Bancorp Hawaii, Inc. "Pacific Century Financial") and Bank of Hawaii's Directors
(each
PROSPECTUS
22
<PAGE> 110
of whom owns qualifying shares as required by Hawaii law). Pacific Century
Financial is a bank holding company, registered under the Bank Holding Company
Act of 1956, as amended, and its common stock is listed and traded on the New
York Stock Exchange (the "Exchange"). Pacific Century Financial files annual and
periodic reports with the Commission and the Exchange, which are available for
public inspection. Pacific Century is not authorized to and does not carry on a
banking business.
The actual management of each series of the Trust, including the Fund, is
coordinated by Pacific Century's investment unit, which is staffed with more
than 40 people, including 5 Chartered Financial Analysts and 9 M.B.A.'s. All
investment decisions of Pacific Century with respect to the Fund's portfolio are
made by a committee, and no person is primarily responsible for making
recommendations to the committee. Pacific Century has served as investment
adviser to other investment companies since 1984. These include the Hawaiian
Tax-Free Trust, with assets exceeding $660 million as of July 31, 1997, and the
Cash Assets Trust, with assets of approximately $736 million as of July 31,
1997.
Subject to the supervision of the Board of Trustees, Pacific Century will
provide a continuous investment program for the domestic portion of the Fund's
portfolio, including investment research and management with respect to all
domestic securities and investments and cash equivalents in the Fund. Pacific
Century will determine from time to time what domestic securities and other
investments will be purchased, retained or sold by the Trust with respect to the
Fund. Pacific Century will provide the services under the Advisory Agreement in
accordance with each of the Fund's investment objectives, policies, and
restrictions. In addition, Pacific Century will provide oversight of the Fund's
Sub-Adviser.
For its services, Pacific Century is entitled to monthly advisory fees at
the annual rate of 0.90% of the Fund's average daily net asset value. The Fund's
advisory fee is higher than that paid by most other investment companies;
however, it is comparable if not lower than that paid by many other funds that
invest primarily in the Asian markets. For the fiscal year ended July 31, 1997,
the advisory fee paid by the Fund to Pacific Century as a percentage of average
daily net assets for services provided under the Advisory Agreement was 0.90%.
THE SUB-ADVISER
Nicholas-Applegate Capital Management (Hong Kong) LLC has been retained as
Sub-Adviser to the Fund. Pursuant to a separate sub-advisory agreement with
Pacific Century (the "Sub-Advisory Agreement"), the Sub-Adviser provides
investment advisory services with respect to management of the foreign component
of the Fund's portfolio, including investment research with respect to all
foreign securities, currencies and cash equivalents in the Fund.
The Sub-Adviser is a California limited liability company located at Room
604-6, Three Exchange Square, 8 Connaught Place, Central, Hong Kong, and is part
of an investment management organization which together manage approximately $31
billion as of July 31, 1997 through a variety of investment products and
services. The Sub-Adviser is registered as an investment adviser with the
Commission under the Investment Advisers Act of 1940. The Sub-Adviser
specializes in the management of equities in Asia.
For its services under the Sub-Advisory Agreement, Pacific Century pays the
Sub-Adviser a fee equal to 0.50% of the Fund's average daily net assets,
computed daily and payable quarterly. The fee paid by Pacific Century to the
Sub-Adviser represents a portion of the 0.90% investment advisory fee paid to
Pacific Century. The Fund does not pay any incremental fee for the services of
the Sub-Adviser.
All investment decisions of the Sub-Adviser with respect to the Fund are
made by a committee, and no person is primarily responsible for making
recommendations to the committee.
PROSPECTUS
23
<PAGE> 111
THE SPONSOR, ADMINISTRATOR AND DISTRIBUTOR
BISYS is the administrator for the Fund, and also acts as the Trust's
principal underwriter and distributor. BISYS generally assists in all aspects of
the administration and operation of the Fund. For expenses assumed and services
provided as administrator pursuant to its Administration Agreement with the
Trust, BISYS is entitled to receive a fee from the Fund, computed daily and paid
monthly, at an annual rate equal to 0.20% of the average daily net assets of the
Fund.
For the fiscal year ended July 31, 1997, the ratio of total expenses for
the Class A shares of the Fund to average net assets was 2.58% (excluding
waivers).
In addition, BISYS, as the principal underwriter of the Fund within the
meaning of the 1940 Act, has entered into a Distribution Agreement with the
Trust pursuant to which BISYS has the responsibility for distributing shares of
the Fund. The Distribution Agreement provides that BISYS shall act as agent for
the Fund for the sale of its shares and may enter into selling agreements with
banks, broker/dealers or other financial institutions to market and make
available shares to their respective customers. For its services, BISYS is
entitled to a fee, as set forth in the separate Distribution and Shareholder
Servicing Plans for each of the Class A and Class B shares (each a "Distribution
Plan") between BISYS and the Trust on behalf of the Fund. The Distribution Plan
for the Class A shares provides that, with respect to the Class A and Class B
shares, BISYS is entitled to receive from the Fund a fee in an amount not to
exceed on an annual basis 0.75% of the average daily net asset value of each
Fund's Class A shares. The Distribution Plan for the Class B shares provides
that BISYS is entitled to receive from each Fund a fee in an amount not to
exceed on an annual basis 1.00% of the average daily net asset value of each
Fund's Class B shares. The Funds had not yet begun to offer Class B share
publicly at the date of this prospectus. Accordingly, no payments had yet been
made pursuant to the Class B Distribution Plan. Fees under each of the
Distribution Plans compensate BISYS for the following: (a) payments BISYS makes
to banks and other prospectus institutions and industry professionals,
broker/dealers, including Pacific Century, BISYS and their affiliates or
subsidiaries, pursuant to an agreement in connection with providing
administrative support services to the holders of the Fund's Class A or Class B
shares; or (b) payments to financial institutions and industry professionals
(such as insurance companies, investment counselors, and BISYS' affiliates and
subsidiaries) in consideration for the sales support services provided and
expenses assumed in connection with distribution assistance, including but not
limited to printing and distributing Prospectuses to persons other than current
Class A or Class B shareholders of the Fund, printing and distributing
advertising and sales literature and reports to prospective Class A or Class B
investors in connection with the sale of the Fund's Shares, and providing
personnel and communication equipment used in servicing shareholder accounts and
responding to prospective Class A or Class B shareholder inquiries. BISYS may
enter into selling agreements with one or more selling agents under which such
agents may receive compensation from BISYS for sales support services,
including, but not limited to, commissions or other payments to such agents
based on the average daily net assets of the Class A or Class B shares of each
Fund.
The distribution fee shall be paid to BISYS only to compensate or to
reimburse it for actual payments or expenses incurred as described above. The
actual distribution fee payable to BISYS is determined, within such limit, from
time to time by mutual agreement between the Trust and BISYS, and may not exceed
the maximum fee payable under the Conduct Rules of the NASD. Until further
notice, BISYS voluntarily intends to waive a portion of the distribution fee for
the current fiscal year such that the distribution fee payable by the Fund will
not exceed 0.25% of the average daily net asset value attributable to the Fund's
Class A shares on an annual basis. No Fund's Class A or Class B shares will be
liable for distribution expenditures
PROSPECTUS
24
<PAGE> 112
made by BISYS in any given year in excess of the maximum amount payable under
the Distribution Plan for the Fund in that year. BISYS is a broker-dealer
registered with the Commission, and is a member of the NASD.
As noted above, the Fund also offers Class Y Shares, which are made
available only to certain investors. The Class Y shares are not subject to any
distribution fees or entitled to benefits under the Distribution Plan.
OTHER SERVICE ARRANGEMENTS
Administrative Data Management Corporation ("ADM" or the "Transfer Agent"),
581 Main Street, Woodbridge, New Jersey 07095, serves as the Trust's transfer
agent and dividend disbursing agent. Ernst & Young LLP, One Columbus, Suite
2300, 10 West Broad Street, Columbus, Ohio 43215, serves as independent auditors
for the Trust.
VALUATION OF CLASS A AND CLASS B SHARES
The net asset value of the Class A and Class B shares of the Fund is
determined and their shares are priced as of the close of the Exchange
(currently 4:00 p.m., Eastern Time) (the "Valuation Time") each Business Day. As
used herein, a "Business Day" is a day on which the Exchange is open for trading
and any other day (other than a day on which no shares of the Fund are tendered
for redemption and no order to purchase shares is received) during which there
is sufficient trading in the Fund's portfolio securities that the Fund's net
asset value per share might be materially affected. The Exchange will not be
open in observance of the following holidays: New Year's Day, Martin Luther King
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. Net asset value per share for Class A and
Class B shares is calculated by determining the value of such class's
proportional interest in the securities and other assets of the Fund, less (i)
such class's proportional share of general liabilities and (ii) liabilities
allocable only to such class, and dividing such amount by the number of shares
of the class outstanding. The net asset value per share of the Fund will
fluctuate as the value of its investment portfolio changes. The per share net
asset value of Class A shares generally will be higher than the per share net
asset value of Class B shares reflecting the daily expense accruals of the
distribution fees applicable to the Class B shares.
Except for debt obligations with remaining maturities of 60 days or less,
which are valued at amortized cost, assets are valued at current market prices,
or if such prices are not readily available, at fair value as determined in good
faith by the investment adviser in accordance with the procedures adopted by the
Trustees. If the adviser is unable to make such determination in accordance with
the procedures, the securities and assets will be valued at fair value as
determined by the Board of Trustees. Prices used for such valuations may be
provided by independent pricing services. For further information about
valuation of investments in the Fund, see the SAI.
HOW TO PURCHASE CLASS A AND CLASS B SHARES
PURCHASE OF SHARES
Class A and Class B shares of the Fund are sold on a continuous basis.
Investors may purchase Class A and Class B shares of the Fund by completing and
signing an account registration form ("Account Registration Form") and mailing
it, together with a check (or other negotiable bank draft or money order)
payable to the Trust, in at least the minimum initial purchase amount, to your
Participating Organization or to the Trust's Transfer Agent, Administrative Data
Management Corporation, 581 Main Street, Woodbridge, NJ 07095.
PROSPECTUS
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<PAGE> 113
Subsequent purchases of shares of the Fund may be made at any time by mailing a
check (or other negotiable bank draft or money order) payable to the Trust, to
ADM at the above address or to your Participating Organization.
Class A and Class B shares of the Fund may also be purchased through
procedures established by BISYS in connection with requirements of qualified
accounts maintained by or on behalf of certain persons ("Customers") by banks,
institutions or industry professionals, such as broker/dealers, who have entered
into an agreement with BISYS ("Participating Organizations") under each of the
Distribution Plans. See, "Management, Advisory and Other Service Arrangements."
BISYS' principal office is located at 3435 Stelzer Road, Columbus, Ohio
43219-3035.
Class A and Class B shares of the Fund sold to Participating Organizations
acting in a fiduciary, advisory, custodial or other similar capacity on behalf
of a customer will normally be held of record by the Participating Organization.
With respect to shares so sold, it is the responsibility of the Participating
Organization to transmit purchase or redemption orders to ADM and to deliver
federal funds for purchase on a timely basis. Beneficial ownership of shares of
the Fund will be recorded by the Participating Organization and reflected in the
account statements provided by the Participating Organization to the customer.
If an Account Registration Form has been previously received by ADM,
investors may also purchase Class A and Class B shares by telephoning ADM at
800-258-9232. Payment for Class A and Class B shares ordered by telephone may be
made by check or by electronic transfer and must be received by the Trust's
Custodian within seven days of the telephone order. If payment is not received
within seven days or a check timely received does not clear, the purchase may be
canceled and the investor could be liable for any losses or fees incurred. In
the case of purchases of Class A and Class B shares effected by wiring funds to
the Trust's Custodian, investors must call ADM at 800-258-9232 to obtain
instructions regarding the bank account number into which the funds should be
wired and other pertinent information. If you have opened an account through a
Participating Organization, you should telephone the Participating Organization
to make further investments.
Class A and Class B shares of the Fund are purchased at the public offering
price per share, which is the net asset value per share (see, "Valuation of
Class A and Class B shares") next determined after receipt by the Transfer Agent
of an order to purchase shares in good form plus the applicable sales charge as
described below. The Participating Organizations are responsible for the prompt
transmission of purchase orders to the Transfer Agent. Purchases of Class A and
Class B shares of the Fund will be effected only on a Business Day of the Fund.
An order received by the Transfer Agent prior to the Valuation Time on any
Business Day will be executed based on the net asset value determined as of the
Valuation Time on the date of receipt. An order received by the Transfer Agent
after the Valuation Time on any Business Day will be executed based on the net
asset value determined as of the next Business Day.
The minimum investment for an investor's initial purchase of Class A and
Class B shares of the Fund is $1,000. The minimum investment for subsequent
purchases of Class A and Class B shares is $50. The minimum initial investment
amount for IRAs is $250. As discussed below, the minimum initial investment
amount for Auto Invest Plan participants is $100.
Depending upon the terms of a particular customer account, a Participating
Organization may charge a customer's account fees for automatic investment and
other cash management services provided in connection with investment in the
Fund. Information concerning these services and any charges will be provided by
the relevant Participating Organization. This Prospectus should be read in
conjunction with any such information received from the Participating
Organization.
PROSPECTUS
26
<PAGE> 114
The Trust reserves the right to reject any order for the purchase of its
Class A or Class B shares in whole or in part.
Every shareholder will receive a confirmation of each new transaction in
the shareholder's account. In the case shares held of record by a Participating
Organization but beneficially owned by a customer, confirmations of purchases,
exchanges and redemptions of shares by a Participating Organization will be sent
to the customer by the Participating Organization. Certificates representing
shares will not be issued.
SALES CHARGES
CLASS A SHARES
The public offering price of a Class A Share of the Fund equals its net
asset value plus a sales charge. BISYS receives this sales charge as principal
underwriter and will reallow a portion of it to broker/dealers or other
financial institutions as dealer discounts and brokerage commissions. From time
to time dealers who receive dealer discounts and broker commissions from BISYS
may reallow a portion of such dealer discounts and broker commissions to other
dealers or brokers. BISYS may elect to reallow a higher percentage of the sales
charge stated below to selected brokers and dealers for all sales with respect
to which orders are placed with BISYS during a particular period. At BISYS'
discretion, the entire sales charge may at times be re-allowed as dealer
discounts and brokerage commissions. If the entire sales charge is reallowed to
a broker/dealer or financial institution, it may be deemed an "underwriter"
under the Securities Act of 1933, as amended.
<TABLE>
<CAPTION>
DEALER
SALES CHARGE AS ALLOWANCE
SALES CHARGE AS A PERCENTAGE OF AS A PERCENTAGE
A PERCENTAGE OF NET AMOUNT OF OFFERING
AMOUNT OF PURCHASE OFFERING PRICE INVESTED PRICE
- ------------------------------------------------ --------------- --------------- ---------------
<S> <C> <C> <C>
Less than $25,000............................... 5.25% 5.54% 4.73%
$25,000 or more but less than $50,000........... 4.75% 4.99% 4.28%
$50,000 or more but less than $100,000.......... 4.25% 4.44% 3.83%
$100,000 or more but less than $250,000......... 3.75% 3.90% 3.38%
$250,000 or more but less than $500,000......... 3.25% 3.36% 2.93%
$500,000 or more but less than $1,000,000....... 2.75% 2.83% 2.48%
$1,000,000 or more.............................. 0.00% 0.00% 0.00%
</TABLE>
While there are no sales charges on single transactions of $1 million or
more, BISYS will make payments to securities dealers, from its own resources,
related to these transactions as shown in the table below. The first payment
will be applied to the total purchase price and made payable upon settlement of
the purchase. Subsequent payments will be made at the end of each full calendar
quarter following the original purchase. The amount of each subsequent payment
will be based on the number of shares originally purchased and remaining in the
account at the time of the payment multiplied by the net asset value per share
at the purchase date. The payment schedule will be as follows:
<TABLE>
<CAPTION>
NUMBER OF AMOUNT OF TOTAL OF ALL
AMOUNT OF PURCHASE PAYMENTS EACH PAYMENT PAYMENTS
- ----------------------------------------------------------- --------- ------------ ------------
<S> <C> <C> <C>
$1,000,000 or more but less than $2,000,000................ 6 0.083% 0.50%
$2,000,000 or more but less than $4,000,000................ 5 0.070% 0.35%
$4,000,000 or more ........................................ 4 0.063% 0.25%
</TABLE>
PROSPECTUS
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<PAGE> 115
The sales charges set forth in the tables above are applicable to purchases
made at one time by any purchaser (a "Purchaser"), which term shall mean: (i) an
individual, his or her spouse and children under the age of 21, if any; (ii) a
trustee or other fiduciary of a single trust estate or single fiduciary account;
or (iii) any other organized group of persons, whether incorporated or not,
provided that such organization has been in existence for at least six months
and has some bona fide business purpose other than the purchase of redeemable
securities of a registered investment company. In order to qualify for a reduced
sales charge, all orders from a Purchaser will have to be placed through a
single investment dealer and identified at the time of purchase as originating
from the same Purchaser, although such orders may be placed into more than one
discrete account which identifies the Purchasers.
BISYS, at its expense, will also provide additional compensation to dealers
in connection with sales of shares of the Trust. Such compensation will include
financial assistance to dealers in connection with conferences, sales or
training programs for their employees, seminars for the public advertising
campaigns regarding one or more Funds, and/or other dealer-sponsored special
events. In some instances, this compensation will be made available only to
certain dealers whose representatives have sold a significant amount of such
shares. Compensation will include payment for travel expenses, including
lodging, incurred in connection with trips taken by invited registered
representatives and members of their families to locations within or outside of
the United States for meetings or seminars of a business nature. Compensation
will also include the following types of non-cash compensation offered through
sales contests: (1) vacation trips, including the provision of travel
arrangements and lodging, (2) tickets for entertainment events (such as
concerts, cruises and sporting events), and (3) merchandise (such as clothing,
trophies, clocks and pens). Dealers may not use sales of the Trust's Shares to
qualify for this compensation to the extent such may be prohibited by the laws
of any state or any self-regulatory agency, such as the NASD. None of the
aforementioned compensation is paid for by the Funds or their shareholders.
REDUCED SALES CHARGES
CLASS A SHARES
SALES CHARGE WAIVERS--The following classes of investors may purchase Class
A shares of the Fund with no sales charge in the manner described below (any of
which may be changed or eliminated at any time by BISYS):
(1) Existing shareholders of the Fund, upon the reinvestment of dividend
and capital gain distributions;
(2) Officers, trustees, directors, employees and retired employees of the
Trust, Pacific Century Financial and its affiliates, and of BISYS and its
affiliates (and spouses and children of each of the foregoing);
(3) With the exception of investors for whom Pacific Century Investment
Services provides custodial services, investors for whom Pacific Century
Financial or one of its affiliates acts in a fiduciary, advisory, custodial,
agency or similar capacity;
(4) Investors who purchase shares of the Fund through a retirement related
payroll deduction plan, a 401(k) plan, a 403(b) plan, or a similar plan which by
its terms permits purchases of shares; and
(5) Orders placed on behalf of other investment companies distributed by
the Distributor.
The Trust permits the sale of its Class A shares at prices that reflect the
reduction or elimination of the sales charge to investors who are members of
certain qualified groups meeting the following requirements. A qualified group
(i) is a group or association, or a category of purchasers who are represented
by a fiduciary, professional or other representative (other than a registered
broker-dealer); (ii) satisfies uniform criteria which enable the Distributor to
realize economies of scale in its costs of distributing shares; (iii) if it is a
group or association, gives its endorsement or authorization
PROSPECTUS
28
<PAGE> 116
to an investment program to facilitate solicitation of its membership by a
broker or dealer, and (iv) complies with the conditions of purchase that are set
forth in any agreement entered into between the Trust and the group,
representative or broker or dealer. At the time of purchase the investor, either
directly or through a broker or dealer, must furnish the Transfer Agent with
information sufficient to permit verification that the purchase qualifies for a
reduced sales charge.
The Distributor may waive the sales charge for an investor who purchases a
Fund's Class A shares with the proceeds from the recent redemption of shares of
any non-money market front-end or back-end load mutual fund. To the extent the
sales load of the Fund in which such investor seeks to invest is higher than
that of the fund with respect to which the redemption proceeds relate, the
Distributor will waive only that portion of the Fund's sales load which equals
the prior sales load paid. Any portion of the sales load which is not waived in
accordance with the foregoing must be paid by the investor at the time of
purchase. Purchases of Fund shares using redemption proceeds as described above
must be made within 60 days of redemption from funds which are not a series of
Pacific Capital Funds and within 120 days of redemption from funds which are
series of Pacific Capital Funds. The Transfer Agent must be notified in writing
by the investor, or by his or her financial institution, at the time the
purchase is made. A copy of the investor's account statement showing such
redemption must accompany such notice. BISYS also, from time to time, may waive
the sales charge for all investors with respect to any Fund. The Transfer Agent
must be notified in writing by the investor, or by his or her financial
institution, at the time the purchase is made. A copy of the investor's account
statement showing such redemption must accompany such notice. BISYS also, from
time to time, may waive the sales charge for all investors with respect to the
Fund.
LETTERS OF INTENT--Any Purchaser may obtain a reduced sales charge by means
of a written Letter of Intent which expresses the intention of such Purchaser to
purchase a certain amount of the Fund's Class A shares within a period of 13
months. Each purchase of shares under a Letter of Intent will be made at the
public offering price plus the sales charge applicable at the time of such
purchase to a single transaction of the total dollar amount indicated in the
Letter of Intent. A Letter of Intent may include purchases of shares made not
more than 90 days prior to the date such Purchaser signs a Letter of Intent;
however, the 13-month period during which the Letter of Intent is in effect will
begin on the date of the earlier purchase to be included. The terms of the
Letter of Intent and the escrow account associated therewith are described in
the Account Registration Form. For further information, interested investors
should contact ADM or their Participating Organization. Letter of Intent
privileges may be amended or terminated without notice at any time by the Trust.
CONCURRENT PURCHASES AND RIGHT OF ACCUMULATION--A Purchaser may qualify for
a reduced sales charge by (i) combining concurrent purchases of shares of the
Fund with purchases of one or more of the other series of the Trust sold with a
sales charge or (ii) combining a current purchase of shares of the Fund with
prior purchases of shares of any of the other series of the Trust sold subject
to a sales charge. The applicable sales charge is based on the sum of (a) the
Purchaser's current purchase of shares of the Fund sold with a sales charge plus
(b) the then-current net asset value of all shares held by the Purchaser in any
series of the Trust sold with a sales charge. To receive the applicable public
offering price pursuant to the right of accumulation, shareholders must at the
time of purchase provide ADM or the Participating Organization with sufficient
information to permit confirmation of qualification. Accumulation privileges may
be amended or terminated without notice at any time by the Trust.
CLASS B SHARES
The public offering price of a Class B share of a Fund equals its net asset
value without the imposition of a sales charge at the time of purchase. However,
Class B shares are subject to a contingent deferred sales charge ("CDSC") if the
shares are
PROSPECTUS
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<PAGE> 117
redeemed within six years of purchase, at rates set forth below. After
approximately eight years, Class B shares will automatically convert to Class A
shares. See "Conversion of Class B shares to Class A shares" below, for more
details. At the time of redemption, the CDSC will be based on the initial
purchase price or the current market value of the shares being redeemed,
whichever is less. A CDSC will not be imposed on amounts representing increases
in net asset value above the net asset value at the time of purchase. There is
no CDSC on shares acquired through investment of dividends. Imposition of the
CDSC and the distribution fee on Class B shares is limited by the NASD
asset-based sales charge rule.
The following table sets forth the rates of the Class B CDSC:
<TABLE>
<CAPTION>
CDSC AS A PERCENTAGE
OF DOLLAR AMOUNT
YEARS AFTER PURCHASE SUBJECT TO CHARGE
- ------------------------------------------------------------------------- --------------------
<S> <C>
1st year................................................................. 5%
2nd year................................................................. 4%
3rd year................................................................. 3%
4th year................................................................. 3%
5th year................................................................. 2%
6th year................................................................. 1%
</TABLE>
Solely for purposes of determining the number of years which have elapsed
from the time of purchase of any Class B Shares, all purchases during a month
will be aggregated and deemed to have been made on the last day of the month. In
determining whether a CDSC is applicable to a redemption, the calculation will
be made in the manner that results in the lowest possible charge being assessed.
In this regard, it will be assumed that the redemption is first of shares held
for more than six years or shares acquired pursuant to reinvestment of dividends
or distributions both of which do not carry any CDSCs. It will then be assumed
that the redemption is of shares held longest during the six year period, which
will have the lowest CDSC.
For example, assume an investor purchased 100 Class B shares with a net
asset value of $10 per share (i.e., at an aggregate net asset value of $1,000)
and in the eleventh month after purchase, the net asset value per share is $12
and, during such time, the investor has acquired five additional Class B shares
through dividend reinvestment. If at such time the investor makes his first
redemption of 50 Class B shares (producing proceeds of $600), five of such
shares will not be subject to the charge because of dividend reinvestment. With
respect to the remaining 45 Class B shares being redeemed, the charge will be
applied only to the original cost of $10 per share and not to the increase in
net asset value of $2 per share. Therefore, only $450 of the $600 redemption
proceeds will be subject to the charge of 5.00%, totaling $22.50.
The CDSC is waived on redemptions of Class B shares (i) following the death
or disability (as defined in the Internal Revenue Code (the "Code")) of a
shareholder (or both shareholders in the case of joint accounts), (ii) to the
extent that the redemption represents a minimum required distribution from an
IRA or a Custodial Account under Code Section 403 (b) (7) to a shareholder who
has reached age 70 1/2, and (iii) to the extent the redemption represents the
minimum distribution from retirement plans under Code Section 401 (a) where such
redemptions are necessary to make distributions to plan participants.
CONVERSION OF CLASS B SHARES TO CLASS A SHARES
After approximately eight years, Class B shares will automatically convert
to Class A shares and will be subject to the lower Distribution and Shareholder
Services fees charged to Class A shares.
PROSPECTUS
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<PAGE> 118
For purposes of conversion of Class A shares, shares received as dividends
and other distributions paid on Class B shares in a shareholder's Fund account
will be considered to be held in a separate sub-account. Each time any Class B
shares in a shareholder's Fund account (other than those in the sub-account)
convert to Class A shares, a pro-rata portion of the Class B shares in the
sub-account will also convert to Class A shares.
If a shareholder effects one or more exchanges among Class B shares of the
Funds of the Trust during the six-year period, the Trust will aggregate the
holding periods for the shares of each Fund of the Trust for purposes of
calculating that six-year period. Because the per share net asset value of the
Class A shares may be higher than that of the Class B shares at the time of
conversion, a shareholder may receive fewer Class A shares than the number of
Class B shares converted, although the dollar value will be the same.
The conversion will be on the basis of the relative net asset value of the
shares of the two classes, without the imposition of any sales load, fee or
other charge. Conversion of Class B shares to Class A shares will not be deemed
a purchase or sale of the shares for federal income tax purposes.
Shares purchased through reinvestment of dividends in Class B shares will
also convert automatically to Class A shares after approximately eight years.
AUTO INVEST PLAN--The Auto Invest Plan enables Class A or Class B
shareholders of the Fund to make regular monthly or quarterly purchases of Class
A or Class B shares through automatic deductions from their bank accounts. With
shareholder authorization, the Transfer Agent will deduct the amount specified
from the shareholder's bank account which will automatically be invested in
shares at the public offering price on the dates of the deduction. The required
minimum initial investment when opening an account using the Auto Invest Plan is
$100; the minimum amount for subsequent investments is $50. To participate in
the Auto Invest Plan, shareholders should complete the appropriate section of
the Account Registration Form which can be obtained by calling ADM at
800-258-9232. For a shareholder to change the Auto Invest Plan instructions the
request must be made in writing to ADM or your Participating Organization.
Depending upon the terms of a particular customer account, a Participating
Organization may charge a customer's account fees for services provided in
connection with investment in the Fund. Information concerning these services
and any charges will be provided by the Participating Organizations. This
Prospectus should be read in conjunction with any such information received from
the Participating Organizations.
The Trust reserves the right to reject any order for the purchase of its
Class A and Class B shares in whole or in part.
EXCHANGE PRIVILEGES
Except as described below, Class A and Class B shareholders may exchange
shares of the Fund on the basis of the relative net asset value of the shares
exchanged, for the same class of any other series of the Trust or for service
class shares of the Cash Assets Trust, the Tax-Free Cash Assets Trust, or the
U.S. Treasuries Cash Assets Trust. The exchange privilege may be exercised by
shareholders so long as they maintain the respective minimum account balance in
the Fund.
To the extent that a holder of Class A shares exchanges into a Fund having
a higher initial sales charge than that of the Fund from which the shareholder
is exchanging, the shareholder will pay the sales charge differential at the
time of the exchange. Class B shares of a Fund which are subject to a CDSC will
be exchangeable on the basis of relative net asset value per share without the
payment of any CDSC that might otherwise have been due upon redemption of the
shares of the Fund. For purposes of computing the CDSC upon redemption of shares
received in the exchange, the holding period will be measured from the date of
purchase of the original shares and will retain the same CDSC rate as they had
before the exchange, except that the rate will
PROSPECTUS
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<PAGE> 119
change to the new Fund's rate if that rate is higher. A CDSC rate that has
increased will drop again with a future exchange into a Fund with a lower rate.
For federal income tax purposes, an exchange of shares is deemed a sale on
which a shareholder may realize capital gain or loss. Before an exchange can be
effected, a shareholder must receive a prospectus of the series or fund into
which the subject shares are to be exchanged. If you have previously elected the
telephone exchange option on your Account Application, an exchange can be made
by calling ADM at 800-258-9232 or your Participating Organization. Otherwise,
exchanges may be made by forwarding a written request for exchange to ADM or
your Participating Organization. Exchange privileges may be exercised only in
those states where shares of such series or fund may be legally sold, and may be
amended or terminated at any time upon 60 days' notice.
HOW TO REDEEM CLASS A AND CLASS B SHARES
Shareholders may redeem their Class A and Class B shares without charge on
any day that net asset value is calculated (see, "Valuation of Class A and Class
B Shares") and the shares may ordinarily be redeemed by mail or by telephone.
However, if you purchase shares through a Participating Organization which
serves as the shareholder of record, you must redeem through such institution.
In all other cases, a completed Account Registration Form must have been
received by the Transfer Agent before redemption requests may be honored. All or
part of a customer's Class A and Class B shares may be subject to redemption in
accordance with instructions and limitations pertaining to his or her account
held by a Participating Organization. For example, if a customer has agreed to
maintain a minimum balance in his or her account, and the balance in that
account falls below that minimum due to redemptions, the customer may be obliged
to redeem, or the Participating Organization may be authorized to redeem the
customer's shares for and on behalf of the customer.
REDEMPTION BY MAIL
A written request for redemption must be received by ADM or your
Participating Organization in order to constitute a valid tender for redemption.
ADM and the Participating Organizations are responsible for the prompt
transmission of redemption requests to the Transfer Agent. The Transfer Agent
will require a signature guarantee by an eligible guarantor institution if (a)
the redemption check is to be payable to anyone other than the Class A or Class
B shareholder(s) of record or (b) a redemption check is to be mailed or proceeds
are to be wired to the Class A or Class B shareholder(s) at an address other
than the address of record or other than a commercial bank account designated on
the Account Registration Form of such Class A or Class B shareholder(s) or (c)
the redemption proceeds exceed $50,000. For purposes of this policy, the term
"eligible guarantor institution" shall mean members of the STAMP (Securities
Transfer Agents Medallion Program), MSP (New York Stock Exchange Medallion
Signature Program) or SEMP (Stock Exchanges Medallion Program). Participants of
STAMP, MSP, and SEMP are subject to dollar value limitations which must be
considered when requesting their authorization. The Transfer Agent reserves the
right to reject any signature guarantee if it has reason to believe that the
transaction would otherwise be improper.
REDEMPTION BY TELEPHONE
A shareholder may have the proceeds of redemption requests electronically
transferred or mailed directly to a domestic commercial bank account previously
designated by the shareholder on the Account Registration Form. Under most
circumstances, such proceeds will be transmitted on the next Business Day
following receipt of a valid request for redemption. If you authorize the
telephone redemption option in your Account Registration Form such electronic
redemption request may
PROSPECTUS
32
<PAGE> 120
be made by the shareholder by telephone to ADM or your Participating
Organization. The Transfer Agent will reduce the amount of a wire redemption
payment by its then-current wire redemption charge. As of the date of this
Prospectus, there is no charge for wire redemptions. While this policy is
subject to change at any time, it is not anticipated that such charge would
exceed $7 per wire redemption. There is no charge for having proceeds of
redemption requests mailed to a designated bank account. The Trust will not
permit shareholders to change their accounts by telephone. For telephone
redemptions, call ADM at 800-258-9232.
Neither the Trust, the Fund, Pacific Century, the Distributor nor the
Transfer Agent are liable for damages resulting from following instructions
communicated by telephone that any of them reasonably believed to be genuine.
The Trust will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. A description of the procedures employed
by the Trust to confirm instructions communicated by telephone is contained in
the Statement of Additional Information. This policy places the entire risk of
loss for unauthorized or fraudulent transactions on the shareholder, except that
if the Trust and BISYS do not follow reasonable procedures, some or all of them
may be liable for any such losses.
During times of drastic economic or market changes, telephone exchanges or
redemptions may be difficult to implement. If you experience difficulty in
making a telephone exchange or redemption, your exchange or redemption request
may be made by regular or express mail, and it will be implemented at the next
determined net asset value following receipt by the Transfer Agent.
PAYMENTS TO CLASS A AND CLASS B SHAREHOLDERS
Redemption orders are effected at the net asset value per share next
determined after the Class A and Class B shares are properly tendered for
redemption, as described above. The proceeds paid upon redemption of shares in
the Fund may be more or less than the amount invested. Payment to shareholders
for shares redeemed will be made within seven days after receipt by the Transfer
Agent of the request for redemption. However, to the greatest extent possible,
the Trust will attempt to honor requests from shareholders for next Business Day
payments upon redemption of shares if the request for redemption is received by
the Transfer Agent before 4:00 p.m., Eastern Time, on a Business Day or, if the
request for redemption is received after 4:00 p.m., Eastern Time, to honor
requests for payment within two Business Days, unless it would be
disadvantageous to the Trust or the shareholders of the Fund to sell or
liquidate portfolio securities in an amount sufficient to satisfy requests for
payments in such manner.
If the Trust is requested to redeem shares for which it has not yet
received good payment, it may delay the forwarding of proceeds only until
payment has been collected for the purchase of such shares. Such collection may
take up to 15 days. To avoid delay in payment upon redemption shortly after
purchasing shares, investors should purchase shares by certified or bank check
or by wire transfer. The Trust intends to pay cash for all shares redeemed, but
under abnormal conditions which make payment in cash inadvisable, the Trust may
make payment wholly or partly in portfolio securities at their then-current
market value equal to the redemption price, net of any CDSC. In such cases, an
investor may incur brokerage costs in converting such securities to cash.
Due to the relatively high cost of handling small accounts, the Trust
reserves the right to redeem, at net asset value, the shares of any shareholder
if, because of redemptions of shares by or on behalf of the shareholder, the
account of such shareholder in the Fund has a value of less than $250 due to
redemptions. Accordingly, an investor purchasing shares of the Fund in only the
minimum investment amount may be subject to such involuntary redemption if he or
she thereafter redeems some of his or her shares. Before the Trust exercises its
right to redeem such shares and to send the proceeds to the shareholder, the
shareholder will be given notice that the value of the shares of the Fund
PROSPECTUS
33
<PAGE> 121
in his or her account is less than the minimum amount and will be allowed 60
days to make an additional investment in an amount which will increase the value
of the account to at least $1,000.
AUTO WITHDRAWAL PLAN
The Auto Withdrawal Plan enables Class A shareholders of the Fund to make
regular monthly or quarterly redemptions of Class A shares. With shareholder
authorization, the Transfer Agent will automatically redeem Class A shares at
the net asset value on the dates of the withdrawal and have a check in the
amount specified mailed to the shareholder. The required minimum withdrawal is
$100. To participate in the Auto Withdrawal Plan, shareholders should call ADM
for more information. Purchases of additional shares concurrent with withdrawals
may be disadvantageous to certain shareholders because of tax liabilities and
sales charges. To change the Auto Withdrawal Instructions or to discontinue the
feature, a shareholder must submit a written request to ADM or their
Participating Organization.
DIVIDEND AND TAX INFORMATION
DIVIDENDS AND DISTRIBUTIONS
The Fund will declare and pay dividends of substantially all of its net
income quarterly. Distributable net realized capital gains are distributed at
least annually to shareholders of record. A shareholder will automatically
receive all income dividends and capital gains distributions in additional full
and fractional shares of the same Class of shares held unless the shareholder
elects to receive such dividends or distributions in cash. Dividends elected to
be received in cash may be deposited directly into a shareholder's financial
institution account, provided the shareholder has completed the appropriate
section of the Account Registration Form. Dividends and distributions are
reinvested without a sales charge as of the ex-dividend date using the net asset
value determined on that date and are credited to a shareholder's account on the
payment date. Reinvested dividends and distributions receive the same tax
treatment as dividends and distributions paid in cash. Dividends are generally
taxable when received. However, dividends declared in October, November or
December to shareholders of record during those months and paid during the
following January are treated for tax purposes as if they were received by each
shareholder on December 31 of the prior year. Elections to receive dividends or
distributions in cash, or any revocation thereof, must be made in writing to ADM
at 581 Main Street, Woodbridge, New Jersey 07095, or to your Participating
Organization and will become effective with respect to dividends and
distributions having record dates after its receipt by the Transfer Agent.
TAX INFORMATION
The Fund intends to continue to qualify as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Code"). If it does so
qualify, it will not be liable for federal income taxes to the extent it
distributes its income in the form of dividends and capital gains distributions.
However, the Code contains a number of complex tests relating to such
qualification and it is possible, although not likely, that the Fund might not
meet one or more of these tests in any particular year. If it does not so
qualify, it would be treated for tax purposes as an ordinary corporation, would
receive no tax deduction for payments made to shareholders and would be unable
to pass through foreign tax credits or pay dividends or distributions which
would qualify as "capital gains dividends," as discussed below.
Corporate shareholders are not expected to be entitled to the dividends
received deduction with respect to dividends paid by the Fund.
PROSPECTUS
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<PAGE> 122
Capital gains dividends (net gains from the sale of capital assets held for
more than 12 months over net short-term losses which a Fund distributes) are
reportable by shareholders as capital gains. This is the case whether the
shareholder takes his distribution in cash or elects to have the distribution
reinvested in Fund shares and regardless of the length of time the shareholder
has held his or her shares. The maximum capital gains rate for individuals is
28% with respect to assets held for more than 12 months, but not more than 18
months ("mid-term gains"), and 20% with respect to assets held for more than 18
months ("long-term gains"). The maximum capital gains rate for corporate
shareholders currently is the same as the maximum tax rate for ordinary income.
Short-term gains, when distributed, are taxed to shareholders as ordinary
income. Capital losses of the Fund are not claimed by shareholders but carried
forward by the Fund to offset gains in later years and thereby reduce the
later-year capital gains distributions and amounts taxed to shareholders.
The Fund's gains or losses on sales of securities will be long-term,
mid-term or short-term depending upon the length of time the Fund has held such
securities. Capital gains and losses of the Fund will also include gains and
losses on futures and options, if any, including gains and losses actually
realized on sales and exchanges and gains and losses deemed to be realized.
Those deemed to be realized are on futures and options held by the Fund at
year-end, which are "marked to the market," that is, deemed sold for the fair
market value. Net gains or losses realized and deemed realized on Section 1256
futures and options contracts will be reportable by the Fund as long-term to the
extent of 60% of the gains or losses and short-term to the extent of 40%
regardless of the actual holding period of such investments.
The Fund may, from time to time, invest in passive foreign investment
companies ("PFICs"). PFICs are foreign corporations which derive a majority of
their income from passive sources. For tax purposes, the Fund's investments in
PFICs are subject to special tax provisions that may result in the taxation of
certain gains realized by the Fund as ordinary income, plus an interest
liability on such gains or on distributions from the PFIC. See "Tax Information"
in the SAI.
Gains or losses on disposition of debt securities denominated in a foreign
currency attributable to fluctuations in the value of foreign currency between
the date of acquisition of the security and the date of disposition are treated
as ordinary gain or loss. These gains or losses increase or decrease the amount
of the Fund's investment company taxable income available to be distributed to
shareholders as ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. If currency fluctuation losses exceed other
investment company taxable income during a taxable year, distributions made by
the Fund during the year would be characterized as a return of capital to
shareholders, reducing the shareholder's basis in his or her Fund shares.
The Fund may incur foreign income taxes in connection with some of its
foreign investments. Certain of these taxes may be credited to shareholders. See
"Tax Information" in the SAI.
The Trust will be required to withhold, subject to certain exemptions, at a
rate of 31% on dividends paid and redemption proceeds (including proceeds from
exchanges) paid or credited to non-exempt shareholders of the Fund, if a correct
Taxpayer Identification Number, certified when required, is not on file with the
Trust or the Transfer Agent.
Under the Code, dividends (but not net capital gain distribution) paid to a
non-resident alien or other foreign shareholder may be subject to U.S.
withholding tax at the rate of 30% (or a lower treaty rate).
Information as to the federal tax status of the Trust's dividends and
distributions will be mailed to shareholders annually.
PROSPECTUS
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<PAGE> 123
TAX EFFECTS OF REDEMPTIONS
A shareholder who redeems his or her shares or exchanges his or her shares
for shares of another Fund generally will have a capital gain or loss (depending
on whether the proceeds of the redemption are more or less than their tax basis,
which is usually cost). In the case of an individual, any such capital gain will
be treated as short-term capital gain if the shares were held for not more than
12 months, mid-term gain, taxable at the maximum rate of 28%, if such shares
were held for more than 12, but not more than 18 months, and long-term capital
gain, taxable at the maximum rate of 20%, if such shares were held for more than
18 months. In the case of a corporation, any such capital gain will be treated
as long-term capital gain, taxable at the same rates as ordinary income, if such
shares were held for more than 12 months. Any such capital loss will be treated
as long-term capital loss if such shares were held for more than 12 months, and
otherwise will be treated as short term capital loss. However, if the shares
redeemed or sold were held for six months or less, any capital loss is treated
as long-term to the extent of capital gains distributions received on such
shares.
HAWAIIAN TAX INFORMATION
The Fund, and dividends and distributions made by the Fund to Hawaii
residents, will generally be treated for Hawaii income tax purposes in the same
manner as they are treated under the Code for federal income tax purposes.
Persons or entities who are not Hawaii residents should not be subject to
Hawaii income taxation on dividends and distributions made by the Trust but may
be subject to other state and local taxes.
------------------------
For further information regarding taxation, see "Tax Information" in the
SAI. The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect, and state
taxation.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to federal, state, local or foreign taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in the
Fund.
GENERAL INFORMATION
PERFORMANCE
From time to time performance for the Class A and Class B shares of the
Fund showing the Fund's average annual total return and aggregate total return
may be presented in advertisements, sales literature and in reports to Class A
and Class B shareholders. Such performance figures are based on historical
earnings and are not intended to indicate future performance. Average annual
total return will be calculated for the period since the establishment of the
Fund, and will, unless otherwise noted, reflect the imposition of maximum sales
charge. Average annual total return is measured by comparing the value of an
investment in the Class A shares of the Fund at the beginning of the relevant
period to the redemption value of the investment, after reflecting the
reinvestment of any dividends or capital gains distributions, and annualizing
the difference. Aggregate total return is calculated similarly to average annual
total return except that the return figure is aggregated over the relevant
period instead of annualized. From time to time, average annual total return and
aggregate total return for the Class A shares of the Funds may also be
calculated and advertised on the basis of an investment in a Fund at the net
asset value per share or at net asset value per share plus a reduced sales
charge, rather than the public offering price per share. In this case, the
figure would not reflect the effect of a maximum sales charge that a Class A
shareholder may have paid.
PROSPECTUS
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<PAGE> 124
Shareholders may also be provided with information comparing the
performance of the Class A and Class B shares of the Fund to the performance of
other mutual funds or mutual fund portfolios with comparable investment
objectives and policies. This information may be based on data relating to
various mutual fund or market indices such as those prepared by Dow Jones & Co.,
Inc. and Standard & Poor's Corporation or data prepared by Lipper Analytical
Services, Inc. Comparisons may also be made to indices or data published in
Money Magazine, Forbes, Barron's, The Wall Street Journal, The New York Times,
Business Week, American Banker, Institutional Investor, Pensions and
Investments, USA Today, Fortune, CDA/Weisenberger, Ibbotson Associates, Inc.,
Morningstar and regional periodicals and newspapers. General information about
the Fund that appears in a publication such as those mentioned above may also be
quoted or reproduced in advertisements or in reports to shareholders. Reports to
shareholders may contain performance information on other series of the Trust.
Total return is a function of the type and quality of instruments held in
the portfolio, operating expenses, and market conditions. Consequently, current
total return will fluctuate and is not necessarily representative of future
results. Any fees charged by an affiliate of Pacific Century or a Participating
Organization with respect to customer accounts for investing in shares of the
Fund will not be included in performance calculations; such fees, if charged,
would reduce the actual total return from that quoted.
Because of differences in the fees and/or expenses borne by the classes of
shares of the Fund, the average annual total return and aggregate total return
of the Class B shares can be expected, at any given time, to be lower than the
average annual total return and aggregate total return of Class A shares.
Standardized total return quotations will be computed separately for Class A and
Class B shares.
DESCRIPTION OF THE TRUST AND ITS SHARES
CAPITALIZATION--The Trust was organized as a Massachusetts business trust
on October 30, 1992, and currently consists of nine separately managed series.
The Board of Trustees may establish additional series in the future. The series
of the Trust are: the Balanced Fund, Diversified Fixed Income Fund, Growth and
Income Fund, Growth Stock Fund, New Asia Growth Fund, Short-Intermediate U.S.
Treasury Securities Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate
Securities Fund and the U.S. Treasury Securities Fund, each with unlimited
transferable shares of beneficial interest, no par value. When issued in
accordance with the terms and procedures described in their respective
Prospectuses, shares of each separately managed series are fully paid,
non-assessable and freely transferable.
Each series is comprised of three classes of shares--Class A, Class B and
Class Y shares. The classes have identical rights with respect to the series of
which they are a part, provided that there are certain matters which affect one
class but not another. Currently, the only such matters are the existence of the
Distribution Plans with respect to each of Class A and Class B shares but not
any Class Y shares, the absence of any sales load with regard to the purchase or
redemption of the Class Y shares, and the fact that a salesperson or other
person entitled to receive compensation for selling or servicing Class A, Class
B or Class Y shares may receive different compensation with respect to one such
Class over the other Class in the same Fund. On all such matters, shareholders
vote as a class, and not by series. Class Y shares have different expenses, and
are subject to no sales charge, which may effect performance. A separate
Prospectus applies to the Class Y shares of each series. Prospectuses relating
to the Class Y shares of each series may be obtained by calling the telephone
number listed on the first page of this Prospectus.
VOTING--Shareholders have the right to vote on the election of Trustees and
on any and all matters as to which, by law or the provisions of the Declara-
PROSPECTUS
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<PAGE> 125
tion of Trust of the Trust, they may be entitled to vote. All shares of the
Trust have equal voting rights and will be voted in the aggregate, and not by
class or series, except where voting by class or series is required by law or
where the matter involved affects only one class or series. The Trust is not
required to hold annual meetings of the Fund's shareholders, and does not intend
to do so, in any fiscal year in which it is not required by law to elect
Trustees. The Trustees are required to call a meeting for the purpose of
considering the removal of persons serving as Trustee, if requested in writing
to do so by the holders of not less than 10% of the outstanding shares of the
Trust.
SHAREHOLDER LIABILITY--Under Massachusetts law, shareholders of the Fund
could, under certain circumstances, be held personally liable for the
obligations of the Trust. However, the Trust's Declaration of Trust disclaims
shareholder liability for acts or obligations of the Trust. The Declaration of
Trust provides for indemnification out of the Fund's property for all loss and
expense of any shareholder of the Fund held liable on account of being or having
been a shareholder. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which the Fund
would be unable to meet its obligations.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Fund at the address or
telephone number set forth on the cover page of this Prospectus.
PROSPECTUS
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<PAGE> 126
APPLICATION FOR PACIFIC CAPITAL FUNDS
PLEASE COMPLETE STEPS 1 THROUGH 4 AND MAIL TO:
ADM, ATTN: OUTSIDE FUNDS TRANSFER AGENT OPERATIONS
581 MAIN STREET, WOODBRIDGE, NJ 07095-1198
1-800-258-9232 [PACIFIC LOGO]
- --------------------------------------------------------------------------------
STEP 1 ACCOUNT REGISTRATION PLEASE TYPE OR PRINT NAME EXACTLY AS ACCOUNT IS
TO BE REGISTERED
A. REGISTRATION
<TABLE>
<S> <C> <C> <C>
[ ] Individual 1. ----------------------------------------------------------------------------------------------
First Name Middle Initial Last Name Social Security Number
[ ]
Joint Account* 2. ----------------------------------------------------------------------------------------------
(Use lines 1 First Name Middle Initial Last Name Social Security Number
and 2) *JOINT ACCOUNTS WILL BE TENANTS WITH RIGHTS OF SURVIVORSHIP UNLESS OTHERWISE SPECIFIED.
[ ]
For a Minor 3. -----------------------------------------------------------------------------------------------
(Only one Custodian's First Name Middle Initial Last Name
custodian Under the Uniform Gifts/Transfers to Minors Act
and one minor -----------------------------------------------------------------------------------------------
are State
permitted.) Custodian For
-----------------------------------------------------------------------------------------------
Minor's First Name Middle Initial Last Name Minor's Social Security No.
[ ]
For Trust, 4. -----------------------------------------------------------------------------------------------
Corporation, (Name of Corporation or Partnership; PLEASE INDICATE TYPE OF ORGANIZATION. If a Trust, include
Partnership or the name and date of the Trust Instrument. The name(s) of the Trustees in which account will be
other Entity registered should be listed below. Account for a Pension or Profit Sharing Plan or Trust may be
registered in the name of the Plan or Trust itself.)
-----------------------------------------------------------------------------------------------
Tax I.D. Number Trustee(s) or Authorized Individual Title
</TABLE>
- --------------------------------------------------------------------------------
B. MAILING ADDRESS AND TELEPHONE NUMBER
- --------------------------------------------------------------------------------
Street or P.O. Box City State Zip Code
( )
- --------------------------------------------------------------------------------
Area Code Daytime Telephone Number Occupation
- --------------------------------------------------------------------------------
Employer's Name/Employer's Address City State
Citizen or resident of: U.S. [ ] Other [ ] ___ Check here [ ] if you are a
non U.S.
Citizen or
resident and
not subject to
back-up
withholding.
See certification in Step 4.
- --------------------------------------------------------------------------------
C. INVESTMENT DEALER OR BROKER: (Important -- to be competed by Dealer or
Broker)
- --------------------------------------------------------------------------------
Dealer Name Branch Office Address Branch Office City/State Branch #
( )
- --------------------------------------------------------------------------------
Representative's Name Rep # Area Code Telephone # [Agent User Dealer # /
Branch #]
- --------------------------------------------------------------------------------
STEP 2 PURCHASE OF SHARES
A. INITIAL INVESTMENT
Make check payable to: Pacific Capital Funds Minimum Initial Investment
in any Fund is $1,000. Subsequent Investments, $50.
<TABLE>
<S> <C> <C>
U.S. Treasury Securities Fund $ --------- Tax-Free Short Intermediate Securities $ ---------
Fund
Short Intermediate U.S. Treasury Securities Fund $ --------- Growth Stock Fund $ ---------
Diversified Fixed Income Fund $ --------- Balanced Fund $ ---------
Tax-Free Securities Fund $ --------- Growth and Income Fund $ ---------
New Asia Growth Fund $ --------- Total Investment $ ---------
</TABLE>
- --------------------------------------------------------------------------------
B. DISTRIBUTIONS: All income dividends and capital gains distributions will be
REINVESTED in additional shares at net asset value unless otherwise indicated
below.
Dividends are to be: [ ] Reinvested [ ] Paid in cash* Capital Gains are
to be: [ ] Reinvested [ ] Paid in cash*
*FOR CASH DIVIDENDS, PLEASE CHOOSE ONE OF THE FOLLOWING OPTIONS:
[ ] Wire directly into my financial institutional account. ATTACHED IS A
VOIDED CHECK showing the account information where I would like the
dividend deposited.
[ ] Mail check to my address listed in Step 1B.
[ ] Mail check as requested in Step 3F.
<PAGE> 127
- --------------------------------------------------------------------------------
C. LETTER OF INTENT
(See Terms of Escrow
for Letter
of Intent at the end of
this
application).
- -----------------------
Check appropriate box
[ ] YES [ ] NO
I/we intend to invest in shares of one or more of the Pacific
Capital Funds during the 13-month period from the date of my
first purchase pursuant to this Letter (which purchase cannot
be more than 90 days prior to the date of this Letter), an
aggregate amount (excluding any reinvestment of dividends or
distributions) of at least $25,000 which, together with my
present holdings of Pacific Capital Fund shares (at public
offering price on date of this Letter), will equal or exceed
the minimum amount checked below:*
[ ] $ 25,000 [ ] $ 50,000 [ ] $ 100,000
[ ] $250,000 [ ] $500,000 [ ] $1,000,000
*Accumulated investments must aggregate at least $100,000 for
reduced sales charges to apply to purchases of shares of the
Short-Intermediate U.S. Treasury Securities Fund or the
Tax-Free Short Intermediate Securities Fund.
- --------------------------------------------------------------------------------
STEP 3 SPECIAL FEATURES
A. AUTOMATIC INVEST PROGRAM
- -----------------------
Check appropriate box
[ ] YES [ ] NO
This option provides you with a convenient way to have
amounts automatically drawn on your financial institution
account and invested in your Pacific Capital Fund account. To
establish this program, please complete Step 4, Sections A &
B of this Application.
I wish to make regular monthly investments. The minimum
initial purchase is reduced to $100 per Fund when you use
this service. Subsequent minimum purchase is $50 for each
Fund. YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED
CHECK.
<TABLE>
<S> <C> <C>
Amount
Please select how often you
would like to have the
----------- Fund $ --------- amount(s) shown above
withdrawn from your checking
----------- Fund $ ---------
account and invested into the
above selected Fund(s).
----------- Fund $ --------- [ ] Once each month -- on the
1st
Total $ --------- [ ] Once each month -- on the
16th
<CAPTION>
<S> <C>
----------- Fund
----------- Fund
----------- Fund [ ] Twice each month on the 1st and
the 16th
Total [ ] Once each quarter on the 1st
beginning in the month of
-----------------.
</TABLE>
- --------------------------------------------------------------------------------
B. TELEPHONE INVESTMENT
- -----------------------
Check appropriate box
[ ] YES [ ] NO
This option provides you with a convenient way to add to your
account at any time you wish by simply calling Administrative
Data Management Corp. toll-free at 1-800-258-9232. To
establish this program, please complete Step 4, Sections A &
B of this Application. YOU MUST ATTACH A PRE-PRINTED DEPOSIT
SLIP OR VOIDED CHECK.
- --------------------------------------------------------------------------------
C. AUTOMATIC WITHDRAWAL PLAN
Application must be
received in good order
at least two weeks
prior to 1st actual
liquidation date.
- -----------------------
Check appropriate box
[ ] YES [ ] NO
<TABLE>
<S> <C>
$ ---------------------------
------------------------- Fund
$ ---------------------------
------------------------- Fund
Total $ ---------------------------
</TABLE>
Please establish an Automatic Withdrawal Plan for this
account, subject to the terms of the Automatic Withdrawal
Plan Provisions set forth below. To realize the amount stated
below, Administrative Data Management Corp. (the "Agent") is
authorized to redeem sufficient shares from this account at
the then current Net Asset Value, in accordance with the
terms below:
The minimum Automatic Withdrawal amount is $100 per Fund.
Please select how often you would like to have payments made
from your account under the Automatic Withdrawal Plan.
<TABLE>
<S> <C>
[ ] Once each month -- on the [ ] Twice each month on the 1st and 16th
1st
[ ] Once each month -- on the [ ] Once each quarter on the 1st beginning in
16th the month of -------------------- .
</TABLE>
Please choose one of the following options:
[ ] Mail check to my address listed in Step 1a.
[ ] Mail check as requested in Step 3f.
<PAGE> 128
- --------------------------------------------------------------------------------
D. 1. TELEPHONE EXCHANGE
This option allows you
to effect exchanges
among accounts in your
name within the Pacific
Capital group of Funds,
as described in the
Prospectus, by
telephone.
- -----------------------
Check appropriate box
[ ] YES [ ] NO
The Agent is authorized to accept and act upon my/our or any
other person's telephone instructions to execute the exchange
of shares of one Pacific Capital Fund for one of the funds
into which exchange is permitted, as designated in the
Prospectus, with identical shareholder registration. The
exchange will be executed at the relative net asset values of
the two funds as next determined following receipt of such
instructions.
Except for gross negligence in acting upon such telephone
instructions to execute an exchange and subject to the
conditions set forth herein, I (we) understand and agree to
hold harmless the Agent, each of the Pacific Capital Funds,
and their respective officers, directors, trustees,
employees, agents and affiliates against any liability,
damage, expense, claim or loss, including reasonable costs
and attorney's fees resulting from acceptance of or acting or
failure to act upon this Authorization.
TO MAKE A TELEPHONE EXCHANGE, CALL THE AGENT AT 1-800-258-9232.
2. TELEPHONE REDEMPTION
This option allows you
to effect telephone
redemptions, as
described in the
Prospectus.
- -----------------------
Check appropriate box
[ ] YES [ ] NO
The Agent is authorized to accept and act upon my/our or any
other person's telephone instructions to execute a redemption
of shares of one or more Pacific Capital Funds. The
redemption will be executed at net asset value next
determined following receipt of such instructions.
Except for gross negligence in acting upon such telephone
instructions to execute a redemption and subject to the
conditions set forth herein, I (we) understand and agree to
hold harmless the Agent, each of the Pacific Capital Funds,
and their respective officers, directors, trustees,
employees, agents and affiliates against any liability,
damage, expense, claim or loss, including reasonable costs
and attorney's fees resulting from acceptance of or acting or
failure to act upon this Authorization.
TO MAKE A TELEPHONE REDEMPTION, CALL THE AGENT AT 1-800-258-9232.
- --------------------------------------------------------------------------------
E. EXPEDITED REDEMPTION
The proceeds will be
deposited to your
financial institution
account listed.
- -----------------------
Check appropriate box
[ ] YES [ ] NO
TO MAKE AN EXPEDITED
REDEMPTION, CALL THE
AGENT AT
1-800-258-9232.
Cash proceeds in any amount from the redemption of shares
will be mailed or wired, whenever possible, upon request, if
in an amount of $1,000 or more to my (our) account at a
financial institution. The financial institution account must
be in the same name(s) as this Pacific Capital Fund account
is registered. YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR
VOIDED CHECK.
<TABLE>
<S> <C>
-------------------------------------------- ---------------------------------------
Financial Institution Account Registration Financial Institution Account Number
-------------------------------------------- ---------------------------------------
Name of Financial Institution Financial Institution Transit/Routing Number
-------------------------------------------- ---------------------------------------
Street City State Zip Code
</TABLE>
- --------------------------------------------------------------------------------
F. SECONDARY ADDRESS
- -----------------------
Check appropriate box
[ ] YES [ ] NO
Checks should be made payable as indicated below. If check is
payable to a financial institution, i.e., a commercial bank,
savings bank or credit union, for your account, indicate
financial institution name, address and your account number.
<TABLE>
<S> <C>
-------------------------------------------- ---------------------------------------
First Name Middle Initial Last Name Name of Financial Institution
-------------------------------------------- ---------------------------------------
First Name Middle Initial Last Name Street
-------------------------------------------- ---------------------------------------
Street City State Zip Code
-------------------------------------------- ---------------------------------------
City State Zip Code Financial Institution Account Number
</TABLE>
<PAGE> 129
- --------------------------------------------------------------------------------
STEP 4 DEPOSITORS AUTHORIZATION TO HONOR DEBITS
SECTION A IF YOU SELECTED AUTOMATIC INVESTMENT OR TELEPHONE INVESTMENT YOU
MUST ALSO COMPLETE STEP 4, SECTIONS A & B.
I/We authorize the Financial Institution listed below to charge my/our account
for any drafts or debits drawn on my/our account initiated by the Agent,
Administrative Data Management Corp., and to pay such sums in accordance
therewith, provided my/our account has sufficient funds to cover such drafts or
debits. I/We further agree that your treatment of such orders will be the same
as if I/we personally signed or initiated the drafts or debits.
I/We understand that this authority will remain in effect until you receive
my/our written instructions to cancel this service. I/We also agree that if any
such drafts or debits are dishonored, for any reason, you shall have no
liabilities.
FINANCIAL INSTITUTION ACCOUNT NUMBER
<TABLE>
<S> <C>
NAME AND ADDRESS ------------------------------------------------------------------------
WHERE MY/OUR NAME OF FINANCIAL INSTITUTION
ACCOUNT IS ------------------------------------------------------------------------
MAINTAINED STREET ADDRESS
------------------------------------------------------------------------
CITY STATE ZIP
CODE
NAME(S) AND ---------------------------------------------------- ------------------
SIGNATURE(S) OF PLEASE PRINT DATE
DEPOSITOR(S) AS ---------------------------------------------------- ------------------
THEY APPEAR WHERE SIGNATURE DATE
ACCOUNT IS ----------------------------------------------------
REGISTERED PLEASE PRINT
----------------------------------------------------
SIGNATURE
</TABLE>
- --------------------------------------------------------------------------------
SECTION B SHAREHOLDER AUTHORIZATION / SIGNATURE(S) REQUIRED
- I/We authorize the Pacific Capital Funds and its agents to act upon these
Instructions for the features that have been checked.
- I/We acknowledge that in connection with an Automatic Investment or
Telephone Investment, if my/our account at the Financial Institution has
insufficient funds, Pacific Capital Funds and its agents may cancel the
purchase transaction and are authorized to liquidate other shares or
fractions thereof held in my/our Pacific Capital Fund account to make up any
deficiency resulting from any decline in the net asset value of shares so
purchased and any dividends paid on those shares. I/We understand that in
the event of such deficiency, Pacific Capital Funds and its agents will
first liquidate shares of the Pacific Capital Fund to which the purchase
transaction relates, and then, in the discretion of Pacific Capital Funds
and its agents, shares of any other Pacific Capital Fund in my/our account
at the Financial Institution. I/We authorize Pacific Capital Funds and its
agents to correct any transfer error by a debit or credit to my/our
financial Institution account and/or Fund account and to charge the account
for any related charges.
- I/We acknowledge that shares purchased either through Automatic Investment
or Telephone Investment are subject to applicable sales charges.
- The undersigned warrants that he/she has full authority and is of legal age
to purchase shares of the Pacific Capital Fund(s) designated above and has
received and read a current Prospectus of such Fund(s) and agrees to its
terms. Pacific Capital Funds, Agent and the Distributor and their Trustees,
directors, employees and agents will not be liable for acting upon
instructions believed to be genuine, and will not be responsible for any
losses resulting from unauthorized telephone transactions if the Agent
follows reasonable procedures designed to verify the identity of the caller.
The Agent will request some or all of the following information: account
name and number, name(s) and social security number registered to the
account and personal identification; the Agent may also record calls.
Shareholders should verify the accuracy of confirmation statements
immediately upon receipt. Under penalties of perjury, the undersigned whose
Social Security (Tax I.D.) Number is shown above certifies(I) that Number is
my correct taxpayer identification number and (II) currently I am not under
IRS notification that I am subject to backup withholding (line out (II) if
under notification). If no such Number is shown, the undersigned further
certifies, under penalties of perjury, that either (a) no such Number has
been issued, and a Number has been or will soon be applied for. If a Number
is not provided to you within sixty days, the undersigned understands that
all payments (including liquidations) are subject to 31% withholding under
federal tax law, until a Number is provided and the undersigned may be
subject to a $50 I.R.S. penalty; or (b) that the undersigned is not a
citizen resident of the U.S.; and either does not expect to be in the U.S.
for more than 182 days during each calendar year and does not conduct a
business in the U.S. which would receive any gain from the Fund, or is
exempt under an income tax treaty. NOTE: ALL REGISTERED OWNERS OF THE
ACCOUNT MUST SIGN BELOW. FOR A TRUST, ALL TRUSTEES MUST SIGN*
<TABLE>
<S> <C> <C>
- ------------------------------------------ ------------------------------------------ ------------------
INDIVIDUAL (OR CUSTODIAN) JOINT REGISTRANT, IF ANY DATE
- ------------------------------------------
CORPORATE OFFICER, PARTNER, TRUSTEE(S), ------------------------------------------ ------------------
ETC. TITLE DATE
*FOR A TRUST, CORPORATION OR ASSOCIATION, THIS FORM MUST BE ACCOMPANIED BY PROOF OF AUTHORITY TO SIGN, SUCH AS A
CERTIFIED COPY OF THE CORPORATE RESOLUTION OR A CERTIFICATE OF INCUMBENCY UNDER THE TRUST INSTRUMENT.
</TABLE>
<PAGE> 130
SPECIAL INFORMATION
- Certain features (Automatic Investment, Telephone Investment, Expedited
Redemption and Direct Deposit of Dividends) are effective 15 days after this
form is received in good order by the Fund's Agent.
- You may cancel any feature at any time, effective 3 days after the Agent
receives notice from you.
- Either the Fund or the Agent may cancel any feature, without prior notice,
if in its judgment your use of any feature involves unusual effort or
difficulty in the administration of your account.
- The Fund reserves the right to alter, amend or terminate any or all features
or to charge a service fee upon 30 days' written notice to shareholders
except if additional notice is specifically required by the terms of the
Prospectus.
BANKING INFORMATION
- If your Financial Institution account changes, you must complete a Ready
Access Features form which may be obtained from the Agent at 1-800-258-9232
and send it to the Agent together with a "voided" check or pre-printed
deposit slip from the new account. The new Financial Institution change is
effective in 15 days after this form is received in good order by the Fund's
Agent.
TERMS OF LETTER OF INTENT AND ESCROW
By checking Box 2c and signing the Application, the investor is entitled to
make each purchase at the public offering price applicable to a single
transaction of the dollar amount checked above, and agrees to be bound by the
terms and conditions applicable to Letters of Intent appearing below.
The investor is making no commitment to purchase shares, but if the
investor's purchases within thirteen months from the date of the investor's
first purchase do not aggregate $25,000, or, if such purchases added to the
investor's present holdings do not aggregate the minimum amount specified
above, the investor will pay the increased amount of sales charge prescribed
in the terms of escrow below.
The commission to the dealer or broker, if any, named herein shall be at the
rate applicable to the minimum amount of the investor's specified intended
purchases checked above. If the investor's actual purchases do not reach this
minimum amount, the commissions previously paid to the dealer will be adjusted
to the rate applicable to the investor's total purchases. If the investor's
purchases exceed the dollar amount of the investor's intended purchases and
pass the next commission break-point, the investor shall receive the lower
sales charge, provided that the dealer returns to the Distributor the excess
of commissions previously allowed or paid to him over that which would be
applicable to the amount of the investor's total purchases.
The investor's dealer or broker shall refer to this Letter of Intent in
placing any future purchase orders for the investor while this Letter is in
effect.
The escrow shall operate as follows:
1. Out of the initial purchase (or subsequent purchases if necessary), 3%
of the dollar amount specified in the Letter of Intent shall be held in
escrow in shares of the Fund by the Agent. All dividends and any capital
distributions on the escrowed shares will be credited to the investor's
account.
2. If the total minimum investment specified under the Letter is completed
within a thirteen-month period, the escrowed shares will be promptly
released to the investor. However, shares disposed of prior to
completion of the purchase requirement under the Letter will be deducted
from the amount required to complete the investment commitment.
3. If the total purchases pursuant to the Letter are less than the amount
specified in the Letter as the intended aggregate purchase, the investor
must remit to the Agent an amount equal to the difference between the
dollar amount of sales charges actually paid and the amount of sales
charges which would have been paid if the total amount purchased had
been made at a single time. If such difference in sales charges is not
paid within twenty days after receipt of a request from the Agent or the
dealer, the Agent will, within sixty days after the expiration of the
Letter, redeem the number of escrowed shares necessary to realize such
difference in sales charges. Any shares remaining after such redemption
will be released to the investor. The escrow of shares will not be
released until any additional sales charge due has been paid as stated
in this section.
4. By checking Box 2c and signing the Application, the investor irrevocably
constitutes and appoints the Agent or the Distributor as his attorney to
surrender for redemption any or all escrowed shares on the books of the
Fund.
AUTOMATIC WITHDRAWAL PLAN PROVISIONS
By requesting an Automatic Withdrawal Plan, the applicant agrees to the
terms and conditions applicable to such plans, as stated below.
1. The Agent will administer the Automatic Withdrawal Plan (the "Plan") as
agent for the person (the "Planholder") who executed the Plan
authorization.
2. Certificates will not be issued for shares of the Fund purchased for and
held under the Plan, but the Agent will credit all such shares to the
Planholder on the records of the Fund. Any share certificates now held
by the Planholder may be surrendered unendorsed to the Agent with the
application so that the shares represented by the certificate may be
held under the Plan.
3. Dividends and distributions will be reinvested in shares of the Fund at
the Net Asset Value.
4. Redemptions of shares in connection with disbursement payments will be
made at the Net Asset Value per share in effect at the close of business
on the first business day of the month or quarter.
5. The amount and the interval of disbursement payments and the address to
which checks are to be mailed may be changed, at any time, by the
Planholder on written notification to the Agent. The Planholder should
allow at least two weeks' time in mailing such notification before the
requested change can be put in effect.
6. The Planholder may, at any time, instruct the Agent by written notice
(in proper form in accordance with the requirements of the then current
prospectus of the Fund) to redeem all, or any part of, the shares held
under the Plan. In such case the Agent will redeem the number of shares
requested at the Net Asset Value per share in effect in accordance with
the Fund's usual redemption procedures and will mail a check for the
proceeds of such redemption to the Planholder.
7. The Plan may, at any time, be terminated by the Planholder on written
notice to the Agent, or by the Agent upon receiving directions to that
effect from the Fund. The Agent will also terminate the Plan upon
receipt of evidence satisfactory to it of the death or legal incapacity
of the Planholder. Upon termination of the Plan by the Agent or the
Fund, shares remaining unredeemed will be held in an uncertificated
account in the name of the Planholder, and the account will continue as
a dividend-reinvestment, uncertificated account unless and until proper
instructions are received from the Planholder, his executor or guardian,
or as otherwise appropriate.
8. The Agent shall incur no liability to the Planholder for any action
taken or omitted by the Agent in good faith.
9. In the event that the Agent shall cease to act as transfer agent for the
Fund, the Planholder will be deemed to have appointed any successor
transfer agent to act as his Agent in administering the Plan.
10. Purchases of additional shares concurrently with withdrawals are
undesirable because of sales charges when purchases are made.
Accordingly, a Planholder may not maintain this Plan while
simultaneously making regular purchases. While an occasional lump sum
investment may be made, such investment should normally be an amount
equivalent to three times the annual withdrawal or $5,000, whichever is
less.
<PAGE> 131
[PACIFIC CAPITAL FUNDS LOGO]
NEW ASIA GROWTH FUND
CLASS A AND CLASS B
INVESTMENT ADVISER
Pacific Century Trust
111 S. King Street
Honolulu, Hawaii 96813
SUB-ADVISOR
Nicholas - Applegate
Capital Management (Hong Kong) LLC
8 Connaught Place
Hong Kong
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219-3035
LEGAL COUNSEL
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
AUDITORS
Ernst & Young LLP
One Columbus, Suite 2300
10 West Broad Street
Columbus, Ohio 43215
TRANSFER AGENT
Administrative Data Management Corp.
581 Main Street
Woodbridge, New Jersey 07095
<PAGE> 132
PACIFIC CAPITAL FUNDS
3435 Stelzer Road
Columbus, Ohio 43219-3035
Pacific Capital Funds (the "Trust") is a professionally managed, open-end,
management investment company with multiple funds available for investment. This
Prospectus contains information about each of the nine funds comprising the
Trust (each a "Fund" and collectively, the "Funds"):
<TABLE>
<S> <C>
Short Intermediate U.S. Treasury
Balanced Fund Securities Fund
Diversified Fixed Income Fund Tax-Free Securities Fund
Growth and Income Fund Tax-Free Short Intermediate Securities
Growth Stock Fund Fund
New Asia Growth Fund U.S.Treasury Securities Fund
</TABLE>
The Funds are advised by Pacific Century Trust ("Pacific Century"), a
division of Bank of Hawaii and sponsored, administered and distributed by BISYS
Fund Services ("BISYS" or the "Distributor"). Nicholas-Applegate Capital
Management (Hong Kong) LLC ("Nicholas-Applegate") serves as sub-adviser (the
"Sub-Adviser") to the New Asia Growth Fund. Pacific Century and the Sub-Adviser
may each be referred to herein as the "Investment Adviser.") The Balanced Fund
has not yet commenced operations.
This Prospectus relates only to the "Class Y" shares of each Fund; certain
investors may not qualify to invest in a Fund's Class Y shares, but may invest
in a Fund's Class A and Class B shares which is not offered hereby. See,
"General Information--Description of the Trust and its Shares." This Prospectus
sets forth concisely the information a prospective investor should know before
investing in any of the Funds. Investors should read this Prospectus carefully
and retain it for future reference. A Statement of Additional Information
("SAI") dated November 29, 1997, containing additional and more detailed
information about the Funds has been filed with the Securities and Exchange
Commission (the "Commission") and is hereby incorporated by reference into this
Prospectus. The SAI is available without charge and can be obtained by writing
to the Funds at the address printed above or calling 800-258-9232.
FOR PURCHASE, REDEMPTION, ACCOUNT OR GENERAL INQUIRIES, CONTACT THE TRUST'S
TRANSFER AGENT: ADMINISTRATIVE DATA MANAGEMENT CORPORATION, 581 MAIN STREET,
WOODBRIDGE, NEW JERSEY 07095
800-258-9232
THIS PROSPECTUS SHOULD BE READ
AND RETAINED FOR FUTURE REFERENCE
------------------------
SHARES OF PACIFIC CAPITAL FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED BY, BANK OF HAWAII OR ANY OF ITS AFFILIATES. SUCH SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
AGENCY. AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
PROSPECTUS DATED NOVEMBER 29, 1997
<PAGE> 133
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Highlights............................................................................ 1
Fund Expenses......................................................................... 5
Financial Highlights.................................................................. 7
Investment Objectives and Policies of the Funds....................................... 10
Additional Discussion Regarding Permitted Investment Activities....................... 13
Additional Risk Disclosure............................................................ 26
Additional Investment Restrictions.................................................... 30
Management, Advisory and Other Service Arrangements................................... 31
Valuation of Class Y Shares........................................................... 34
How to Purchase Class Y Shares........................................................ 34
How to Redeem Class Y Shares.......................................................... 36
Dividend and Tax Information.......................................................... 37
General Information................................................................... 40
</TABLE>
<PAGE> 134
HIGHLIGHTS
This Prospectus describes the Funds, each of which has its own distinct
investment objectives and policies, which are described and summarized here.
BALANCED FUND--The primary investment objective of Balanced Fund, a
diversified portfolio, is to seek current income. A secondary objective of
Balanced Fund is long-term capital appreciation. Balanced Fund pursues these
objectives by investing in a diversified portfolio of common stocks, preferred
stocks, bonds and securities that are convertible into common stocks. Common
stocks will be selected on the basis of strong earnings, growth trends,
above-average prospects for future earnings growth, and diversification among
industries and companies. Preferred stocks, bonds and convertible securities
will be selected on the basis of strong earnings and credit record, the ability
to provide current income, and the other characteristics described above with
respect to common stocks.
DIVERSIFIED FIXED INCOME FUND--The investment objective of Diversified
Fixed Income Fund, a diversified portfolio, is to seek a high level of current
income. Diversified Fixed Income Fund seeks to achieve this objective by
investing primarily in obligations issued or guaranteed by the U.S. Government,
its agencies, or instrumentalities ("U.S. Government Obligations") and in
investment grade debt securities. Pacific Century will monitor Diversified Fixed
Income Fund's portfolio performance on an ongoing basis and reallocate assets in
response to actual and anticipated market and economic changes. This approach
may result in significant variations in the dollar-weighted average remaining
maturity of Diversified Fixed Income Fund's portfolio.
GROWTH AND INCOME FUND--The primary investment objective of Growth and
Income Fund, a diversified portfolio, is to seek current income. A secondary
objective of Growth and Income Fund is long-term capital appreciation. Growth
and Income Fund pursues these objectives by investing primarily in a diversified
portfolio of high quality, dividend paying common stocks and securities that are
convertible into common stocks.
GROWTH STOCK FUND--The primary investment objective of Growth Stock Fund, a
diversified portfolio, is to provide investors with long-term capital
appreciation. Income generation is a secondary objective of Growth Stock Fund.
Growth Stock Fund pursues these objectives by investing primarily in common
stocks and securities that are convertible into common stocks of both domestic
and foreign companies. Growth Stock Fund may invest in securities issued by
large, well-established companies, as well as those issued by smaller companies,
subject to a minimum market capitalization of $50 million. There may be some
additional risks associated with investments in smaller companies. See "Certain
Risks" below.
NEW ASIA GROWTH FUND--New Asia Growth Fund's investment objective is
long-term growth of capital. New Asia Growth Fund seeks to achieve this
objective primarily through direct or indirect investments in equity securities
of companies located in the developing countries of Asia. New Asia Growth Fund
invests indirectly in the equity securities of companies located in developing
Asian countries by purchasing interests in other foreign investment companies or
trusts which themselves invest in the developing countries of Asia. New Asia
Growth Fund may invest to a lesser degree in debt securities and other
instruments (i.e., warrants and securities convertible into equity or debt
securities) if the investment adviser believes that such investments would help
achieve New Asia Growth Fund's investment objective. Current income from
dividends and interest will not be an important consideration in selecting
portfolio securities. Because of its emphasis on the economies of the developing
countries of Asia, New Asia Growth Fund should be considered a vehicle for
diversification of an individual's portfolio and not a balanced investment
program.
PROSPECTUS
1
<PAGE> 135
SHORT INTERMEDIATE U.S.TREASURY SECURITIES FUND--The primary investment
objective of Short Intermediate U.S.Treasury Securities Fund, a diversified
portfolio, is to provide investors with a high level of current income
consistent with prudent risk of capital. Capital appreciation is a secondary
objective of Short Intermediate U.S. Treasury Securities Fund. Short
Intermediate U.S. Treasury Securities Fund seeks to achieve these objectives by
investing primarily in U.S. Treasury bonds, notes and bills ("U.S. Treasury
Securities") and repurchase agreements that are collateralized by U.S. Treasury
Securities. Under normal market conditions, the dollar-weighted average
remaining maturity of Short Intermediate U.S. Treasury Securities Fund's
portfolio will be from two to five years.
TAX-FREE SECURITIES FUND--The investment objective of Tax-Free Securities
Fund, a non-diversified portfolio, is to provide investors with a high level of
current income exempt from federal income tax and Hawaii income Tax. Tax-Free
Securities Fund pursues this objective by investing, under normal market
conditions, at least 80% of the Fund's net assets in debt obligations of issuers
that pay interest that, in the opinion of counsel to the issuer, is exempt from
federal income tax and is not subject to the federal alternative minimum tax
("Municipal Obligations"). In addition, Tax-Free Securities Fund intends to
invest at least 50%, and no more than 60%, of the market value of its securities
in debt obligations issued by or on behalf of the State of Hawaii and its
political subdivisions, agencies and instrumentalities and other issuers which
pay interest that is exempt from Hawaii personal income tax and exempt from
federal income tax, but which, subject to the guidelines discussed above, may be
subject to the federal alternative minimum tax ("Hawaiian Municipal
Obligations"). Pacific Century will monitor Tax-Free Securities Fund's portfolio
performance on an ongoing basis and will reallocate assets in response to actual
and anticipated market and economic changes. This approach may result in
significant variations in the dollar-weighted average remaining maturity of Tax-
Free Securities Fund's portfolio.
TAX-FREE SHORT INTERMEDIATE SECURITIES FUND--The investment objectives of
Tax-Free Short Intermediate Securities Fund, a non-diversified portfolio, are to
provide investors with a high level of current income, exempt from federal
income tax and Hawaii income tax, and to provide greater price stability than a
long-term bond fund. Tax-Free Short Intermediate Securities Fund pursues these
objectives by investing, under normal market conditions, at least 80% of its net
assets in Municipal Obligations. In addition, Tax-Free Short Intermediate
Securities Fund intends to invest at least 50%, and no more than 60%, of the
market value of its securities in Hawaiian Municipal Obligations. Under normal
market conditions, the dollar-weighted average remaining maturity of Tax-Free
Short Intermediate Securities Fund's portfolio will be from two to five years.
U.S. TREASURY SECURITIES FUND--The primary investment objective of U.S.
Treasury Securities Fund, a diversified portfolio, is to provide investors with
a high level of current income consistent with prudent risk of capital. Capital
appreciation is a secondary investment objective of U.S. Treasury Securities
Fund. U.S. Treasury Securities Fund seeks to achieve these objectives by (i)
investing primarily in U.S. Treasury Securities and repurchase agreements that
are collateralized by U.S. Treasury Securities; and (ii) varying the
dollar-weighted average remaining maturity of its portfolio to take advantage of
changes in interest rates.
CERTAIN RISKS
To the extent a Fund invests in fixed income securities, the Fund is
subject to default risk (i.e., the risk that the issuers of securities in which
the Fund invests may default in the payment of principal and/or interest). A
fund investing in fixed income securities is also subject to interest rate risk
(i.e., the risk that increases in market interest rates may adversely affect the
value of the debt securities in which a Fund invests and hence the value of an
investment in such Fund).
PROSPECTUS
2
<PAGE> 136
To the extent a Fund invests in equity securities, its portfolio is subject
to market risk (i.e., the possibility that common stock prices will decline over
short or even extended periods). Equity securities are more volatile and carry
more risk than some other forms of investment, such as short-term high-grade
fixed income securities.
Investments in the securities of smaller and newer companies may present
greater opportunities for capital appreciation because of high potential
earnings growth, but they may also involve greater risk. Such companies,
relative to larger concerns, may have limited product lines, markets or
financial resources, or may depend on a small group of key managers. Their
securities may trade less frequently or in limited volume, or only in the
over-the-counter market or on a regional securities exchange. As a result, these
securities may fluctuate in value more than those of larger, more established
companies and, as a group, may suffer more severe price declines during periods
of generally declining equity prices.
New Asia Growth Fund invests primarily in equity securities located in
developing countries of Asia. Investments in securities of companies located in
the developing countries of Asia involve special considerations and risks not
typically associated with investments in securities of United States issuers,
including: the risks associated with international investing generally, such as
currency fluctuations; the risks of investing in countries with smaller capital
markets, such as limited liquidity, price volatility and restrictions on foreign
investment; and the risks associated with the undeveloped economies of the
developing countries of Asia, including significant political and social
uncertainties, government involvement in the economies, overburdened
infrastructures, archaic legal systems, environmental problems, and obsolete
financial systems. The operating expense ratio of New Asia Growth Fund can be
expected to be higher than that of an investment company investing exclusively
in United States securities because the expenses of the Fund, such as custodial
and brokerage costs, are higher. Investors are reminded that in certain
circumstances, their right to redeem shares in New Asia Growth Fund may be
suspended.
There can, of course, be no assurance that any Fund will achieve its
investment objective. In addition, unlike insured bank deposits, no investment
in a Fund is insured against loss of principal. Furthermore, depending upon the
performance of a Fund's investments, the net asset value per share of that Fund
may decrease instead of increase.
------------------------
For additional information concerning the investment policies and practices
of the Funds, see "Investment Objectives and Policies of the Funds," "Additional
Discussion Regarding Permitted Investment Activities," "Additional Risk
Disclosure" and "Additional Investment Restrictions" in this Prospectus. Further
information also is provided in the SAI.
PURCHASE OF SHARES
Class Y shares of the Funds are offered at net asset value. See "Valuation
of Class Y Shares" and "How to Purchase Class Y Shares." Only institutions
(including Bank of Hawaii and its affiliated and correspondent banks)
("Institutions") acting on behalf of customers having a qualified trust account,
employee benefit account or other qualifying account at such Institution are
eligible to invest in the Class Y shares of each Fund's shares. Direct purchases
of Fund shares by individual investors, including purchases through SIPC insured
brokerage accounts, are not permitted. Investors not eligible to invest in a
Fund's Class Y shares may invest in such Fund's Class A and Class B shares,
which shares are not offered hereby. See "General Information." Class Y shares
of each Fund are sold on a continuous basis and purchases may be made by mail or
by wire.
PROSPECTUS
3
<PAGE> 137
DIVIDENDS AND DISTRIBUTIONS
Diversified Fixed Income Fund, Short Intermediate U.S. Treasury Securities
Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities Fund and
U.S. Treasury Securities Fund will declare dividends of substantially all of
their net income daily and will pay such dividends monthly. Balanced Fund,
Growth and Income Fund and Growth Stock Fund will declare and pay dividends of
substantially all of their net income monthly. New Asia Growth Fund will declare
and pay dividends of substantially all of its net income quarterly. Any net
capital gains of a Fund will be distributed at least annually. At an investor's
choice, dividends are paid by mail, directly deposited into a bank account, or
automatically reinvested in additional shares at the then-current net asset
value. If no election is made, dividends will be automatically reinvested. See
"Dividend and Tax Information."
PACIFIC CENTURY, THE SUB-ADVISER AND BISYS
For its services as investment adviser to the Funds, Pacific Century
receives a fee from each Fund at annual rates that are based on the Fund's
average daily net assets. See, "Fund Expenses" and "Management, Advisory and
Other Service Arrangements." A division of Bank of Hawaii, Pacific Century was
founded in 1898 and is the oldest and largest trust company in Hawaii. It has
investment authority over approximately $7.5 billion in client financial assets,
including having investment authority over approximately $1.5 billion in
municipal obligations. Pacific Century is not authorized to and does not carry
on a banking business.
Pacific Century has retained the Sub-Adviser to provide investment advisory
services with respect to management of the foreign component of New Asia Growth
Fund's portfolio. For its services, Pacific Century pays the Sub-Adviser a fee
at an annual rate based on New Asia Growth Fund's average daily net assets.
BISYS provides certain administrative services to the Funds, for which each
Fund pays it a fee at an annual rate based on the Fund's average daily net
assets. BISYS also distributes the Funds' shares. See "Management, Advisory and
Other Service Arrangements."
REDEMPTION OF CLASS Y SHARES
An Institution may redeem Class Y shares on behalf of its customers without
charge on any day that the net asset value of the relevant Fund is calculated
(see, "Valuation of Class Y Shares") and Class Y shares may ordinarily be
redeemed by mail or by telephone.
PROSPECTUS
4
<PAGE> 138
FUND EXPENSES
The following Table of Expenses lists the costs and expenses that a
shareholder can expect to incur as an investor in the Class Y shares of a Fund.
Certain investors may not qualify to invest in a Fund's Class Y shares, but may
invest in a Fund's Class A and Class B shares, which are not offered hereby.
TABLE OF EXPENSES*
<TABLE>
<CAPTION>
SHORT
INTERMEDIATE
DIVERSIFIED GROWTH NEW U.S.
FIXED AND GROWTH ASIA TREASURY TAX-FREE
BALANCED INCOME INCOME STOCK GROWTH SECURITIES SECURITIES
FUND FUND FUND FUND FUND FUND FUND
-------- ----------- ------ ------ ------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees........................ 0.80% 0.60% 0.80% 0.80% 0.90% 0.30%+ 0.60%
Other Expenses (after waivers and
reimbursements)...................... 0.27% 0.30% 0.27% 0.27% 0.82% 0.32% 0.27%
Total Fund Operating Expenses (after
waivers and reimbursements).......... 1.07% 0.90% 1.07% 1.07% 1.72% 0.62% 0.87%
<CAPTION>
TAX-FREE
SHORT U.S.
INTERMEDIATE TREASURY
SECURITIES SECURITIES
FUND FUND
------------ ----------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees........................ 0.50% 0.60%
Other Expenses (after waivers and
reimbursements)...................... 0.34% 0.31%
Total Fund Operating Expenses (after
waivers and reimbursements).......... 0.84% 0.91%
</TABLE>
- ---------------
+REFLECTS WAIVER. SEE "EXPLANATION OF TABLE" BELOW.
EXAMPLE
A shareholder would pay the following expenses on a $1,000 investment in
Class Y shares assuming (1) 5% annual return** and (2) redemption at the end of
each time period:
<TABLE>
<CAPTION>
SHORT
INTERMEDIATE
DIVERSIFIED GROWTH NEW U.S.
FIXED AND GROWTH ASIA TREASURY TAX-FREE
BALANCED INCOME INCOME STOCK GROWTH SECURITIES SECURITIES
FUND FUND FUND FUND FUND FUND FUND
-------- ----------- ------ ------ ------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Time Period
- -----------------------------------------
1 year.............................. $ 11 $ 9 $ 11 $ 11 $ 17 $ 6 $ 9
3 years............................. $ 34 $ 29 $ 34 $ 34 $ 54 $ 20 $ 28
5 years............................. $ 59 $ 50 $ 59 $ 59 $ 93 $ 35 $ 48
10 years............................. $131 $ 111 $131 $131 $203 $ 77 $107
<CAPTION>
TAX-FREE
SHORT U.S.
INTERMEDIATE TREASURY
SECURITIES SECURITIES
FUND FUND
------------ ----------
<S> <C> <C>
Time Period
- -----------------------------------------
1 year.............................. $ 9 $ 9
3 years............................. $ 27 $ 29
5 years............................. $ 47 $ 50
10 years............................. $104 $112
</TABLE>
- ------------
* Investors who purchase shares through an Institution (as defined above) may
be charged account-level fees for additional services provided to them by
such Institution in connection with an investment in a Fund.
** The assumed 5% annual return is hypothetical and should not be considered a
representation of past or future annual return. The actual rate of return may
be greater or less than the assumed rate. The Example should not be
considered a representation of past or future expenses, and actual expenses
may be greater or lesser than those shown.
PROSPECTUS
5
<PAGE> 139
EXPLANATION OF TABLE
The purpose of the foregoing table is to assist shareholders in
understanding the various costs and expenses that an investor in the Class Y
shares of a Fund will bear directly or indirectly. The amounts set forth under
"Annual Fund Operating Expenses--Other Expenses," as well as the expense amounts
used in the Example, are based on actual amounts for the most recent fiscal
year. The Example set forth above assumes reinvestment of all dividends and
distributions and utilizes a 5% annual rate of return as mandated by Securities
and Exchange Commission regulations.
Pacific Century, the Sub-Adviser and BISYS each may elect, in its sole
discretion, to otherwise waive or reimburse its respective fees. Any such
waivers or reimbursements will reduce the total expenses of the Fund to which
they apply, thereby increasing yield or total return. As described above, the
percentages shown above under "Management Fees" (Short Intermediate U.S.
Treasury Securities Fund only), "Other Expenses" and "Total Fund Operating
Expenses" for the Funds reflect certain estimated voluntary fee waivers and
expense reimbursements. Absent such waivers and reimbursements, the percentages
under "Other Expenses" and "Total Fund Operating Expenses" would be (i) 0.34%
and 0.94% for Diversified Fixed Income Fund; (ii) 0.31% and 1.11% for Growth and
Income Fund; (iii) 0.31% and 1.11% for Growth Stock Fund; and (iv) 0.92% and
1.82% for New Asia Growth Fund; (v) 0.37% and 0.87% for Short Intermediate U.S.
Treasury Securities Fund; (vi) 0.39% and 0.89% for Tax-Free Short Intermediate
Securities Fund; (vii) 0.31% and 0.91% for Tax-Free Securities Fund; (viii)
0.35% and 0.95% for U.S. Treasury Securities Fund; and (ix) 0.31% and 1.11% for
Balanced Fund. With respect to Short Intermediate U.S. Treasury Fund, absent
waivers and reimbursements, the percentage under "Management Fees" would be
0.50%. There can be no assurance that the foregoing waivers and expense
reimbursements will continue to apply.
PROSPECTUS
6
<PAGE> 140
FINANCIAL HIGHLIGHTS
The Financial Highlights in the table below set forth certain financial
data and investment results of the Class Y shares of the Funds since inception,
expressed in one share outstanding throughout the period. The Financial
Highlights are derived from the financial statements of Pacific Capital Funds
which have been audited by Ernst & Young LLP, independent auditors. The
Financial Highlights should be read in conjunction with the financial
statements, related notes, and other financial information included in the
Statement of Additional Information. Further information about the performance
of the Funds is contained in the Funds' most recent report to shareholders which
may be obtained without charge by calling or writing the Funds at the telephone
number or address on the front cover of this Prospectus.
<TABLE>
<CAPTION>
Growth and
Income Fund
Diversified Fixed -----------------------------
Income Fund Oct.
--------------------------------------- Year 14,
OCT. 14, Ended 1994 to
YEAR ENDED YEAR ENDED 1994 TO Year Ended July July
JULY 31, JULY 31, JULY 31, July 31, 31, 31,
1997 1996 1995(a) 1997 1996 1995(a)
---------- ---------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........ $10.53 $10.84 $10.00 $12.32 $11.43 $10.00
-------- -------- ------- -------- ------- -------
Investment Activities
Net investment income (loss)............. 0.60 0.58 0.55 0.11 0.17 0.20
Net realized and unrealized gain (loss)
on investments......................... 0.34 (0.16) 0.78 5.58 1.21 1.42
-------- -------- ------- -------- ------- -------
Total from Investment Activities..... 0.94 0.42 1.33 5.69 1.38 1.62
-------- -------- ------- -------- ------- -------
Distributions
Net investment income.................... (0.60) (0.61) (0.49) (0.11) (0.17) (0.19)
In excess of net investment income....... -- (0.02) -- -- (0.01) --
In excess of net realized gains.......... (0.09) (0.10) -- -- -- --
Net realized gains....................... -- -- -- (0.63) (0.31) --
-------- -------- ------- -------- ------- -------
Total Distributions.................. (0.69) (0.73) (0.49) (0.74) (0.49) (0.19)
-------- -------- ------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD.............. $10.78 $10.53 $10.84 $17.27 $12.32 $11.43
======== ======== ======= ======== ======= =======
TOTAL RETURN (EXCLUDES SALES CHARGE)........ 9.30% 3.85% 13.70%(b) 47.96% 12.29% 16.41%(b)
RATIOS/SUPPLEMENTARY DATA:
Net assets at end of period (000)........ $132,583 $161,742 $54,827 $123,821 $74,427 $41,771
Ratio of expenses to average net
assets................................. 0.90% 0.88% 0.93%(c) 1.07% 1.11% 1.14%(c)
Ratio of net investment income (loss) to
average net assets..................... 5.67% 5.56% 6.71%(c) 0.79% 1.43% 2.47%(c)
Ratio of expenses to average net
assets*................................ 0.94% 0.92% 1.01%(c) 1.12% 1.15% 1.22%(c)
Ratio of net investment income (loss) to
average net assets*.................... 5.63% 5.52% 6.63%(c) 0.75% 1.39% 2.39%(c)
Portfolio Turnover(d)....................... 80.98% 58.86% 60.47% 74.83% 80.83% 12.78%
Average Commission Rate paid(e)............. -- -- -- $0.0874 $0.0921 --
<CAPTION>
Growth Stock Fund
---------------------------------------
Oct. 14,
Year Ended Year Ended 1994 to
July 31, July 31, July 31,
1997 1996 1995(a)
---------- ---------- ---------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........ $11.89 $11.71 $ 9.89
-------- -------- --------
Investment Activities
Net investment income (loss)............. 0.07 0.10 0.11
Net realized and unrealized gain (loss)
on investments......................... 5.55 0.89 1.83
-------- -------- --------
Total from Investment Activities..... 5.62 0.99 1.94
-------- -------- --------
Distributions
Net investment income.................... (0.07) (0.10) (0.12)
In excess of net investment income....... -- -- --
In excess of net realized gains.......... -- (0.49) --
Net realized gains....................... -- (0.22) --
-------- -------- --------
Total Distributions.................. (0.07) (0.81) (0.12)
-------- -------- --------
NET ASSET VALUE, END OF PERIOD.............. $17.44 $11.89 $11.71
======== ======== ========
TOTAL RETURN (EXCLUDES SALES CHARGE)........ 47.39% 8.53% 20.64%(g)
RATIOS/SUPPLEMENTARY DATA:
Net assets at end of period (000)........ $198,407 $172,565 $136,837
Ratio of expenses to average net
assets................................. 1.07% 1.09% 1.13%(c)
Ratio of net investment income (loss) to
average net assets..................... 0.45% 0.86% 1.30%(c)
Ratio of expenses to average net
assets*................................ 1.11% 1.13% 1.21%(c)
Ratio of net investment income (loss) to
average net assets*.................... 0.41% 0.82% 1.23%(c)
Portfolio Turnover(d)....................... 32.20% 61.30% 32.40%
Average Commission Rate paid(e)............. $0.0893 $0.0895 --
</TABLE>
- ------------
See footnotes on next page.
PROSPECTUS
7
<PAGE> 141
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
Short Intermediate
U.S. Treasury
Securities Fund
New Asia -----------------------------
Growth Fund Oct.
--------------------------------------- Year 14,
FEB. 15, Ended 1994 to
YEAR ENDED YEAR ENDED 1995 TO Year Ended July July
JULY 31, JULY 31, JULY 31, July 31, 31, 31,
1997 1996 1995(a) 1997 1996 1995(f)
---------- ---------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........ $11.14 $11.22 $10.00 $ 9.42 $ 9.61 $ 9.30
-------- ------- ------- ------- ------- -------
Investment Activities
Net investment income (loss)............. 0.06 (0.01) 0.04 0.52 0.53 0.44
Net realized and unrealized gain (loss)
on investments......................... 2.87 0.22 1.18 0.14 (0.13) 0.31
-------- ------- ------- ------- ------- -------
Total from Investment Activities..... 2.93 0.21 1.22 0.66 0.40 0.75
-------- ------- ------- ------- ------- -------
Distributions
Net investment income.................... (0.01) -- -- (0.52) (0.53) (0.44)
In excess of net investment income....... -- (0.03) -- -- (0.04) --
In excess of net realized gains.......... -- -- -- -- (0.02) --
Net realized gains....................... (0.12) (0.26) -- -- -- --
-------- ------- ------- ------- ------- -------
Total Distributions.................. (0.13) (0.29) -- (0.52) (0.59) (0.44)
-------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD.............. $13.94 $11.14 $11.22 $9.56 $9.42 $9.61
======== ======= ======= ======= ======= =======
TOTAL RETURN (EXCLUDES SALES CHARGE)........ 26.50% 1.99% 12.20%(b) 7.19% 4.18% 6.57%(g)
RATIOS/SUPPLEMENTARY DATA:
Net assets at end of period (000)........ $18,376 $8,469 $2,861 $26,722 $23,545 $16,214
Ratio of expenses to average net
assets................................. 1.72% 1.98% 1.97%(c) 0.62% 0.67% 0.75%(c)
Ratio of net investment income (loss) to
average net assets..................... 0.46% (0.02%) 1.18%(c) 5.47% 5.40% 5.84%(c)
Ratio of expenses to average net
assets*................................ 1.82% 2.84% 2.74%(c) 0.87% 0.92% 0.99%(c)
Ratio of net investment income (loss) to
average net assets..................... 0.36% (0.88%) 0.42%(c) 5.22% 5.15% 5.61%(c)
Portfolio Turnover(d)....................... 134.89% 86.53% 55.62% 51.56% 47.17% 62.73%
Average Commission Rate paid(e)............. $0.0059 $0.0069 -- -- -- --
<CAPTION>
Tax-Free Securities Fund
---------------------------------------
Oct. 14,
Year Ended Year Ended 1994 to
July 31, July 31, July 31,
1997 1996 1995(a)
---------- ---------- ---------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........ $10.46 $10.56 $10.00
-------- -------- --------
Investment Activities
Net investment income (loss)............. 0.51 0.52 0.42
Net realized and unrealized gain (loss)
on investments......................... 0.46 0.07 0.51
-------- -------- --------
Total from Investment Activities..... 0.97 0.59 0.93
-------- -------- --------
Distributions
Net investment income.................... (0.51) (0.52) (0.37)
In excess of net investment income....... -- (0.04) --
In excess of net realized gains.......... -- (0.04) --
Net realized gains....................... (0.06) (0.09) --
-------- -------- --------
Total Distributions.................. (0.57) (0.69) (0.37)
-------- -------- --------
NET ASSET VALUE, END OF PERIOD.............. $10.86 $10.46 $10.56
======== ======== ========
TOTAL RETURN (EXCLUDES SALES CHARGE)........ 9.58% 5.73% 9.54%(b)
RATIOS/SUPPLEMENTARY DATA:
Net assets at end of period (000)........ $296,764 $288,934 $281,646
Ratio of expenses to average net
assets................................. 0.87% 0.89% 0.89%(c)
Ratio of net investment income (loss) to
average net assets..................... 4.86% 4.92% 5.16%(c)
Ratio of expenses to average net
assets*................................ 0.91% 0.93% 0.98%(c)
Ratio of net investment income (loss) to
average net assets..................... 4.82% 4.88% 5.07%(c)
Portfolio Turnover(d)....................... 11.07% 24.78% 49.17%
Average Commission Rate paid(e)............. -- -- --
</TABLE>
- ------------
See footnotes on next page.
PROSPECTUS
8
<PAGE> 142
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
Tax-Free Short
Intermediate
Securities Fund
---------------------------------------
OCT. 14
YEAR ENDED YEAR ENDED 1994 TO
JULY 31, JULY 31, JULY 31,
1997 1996 1995(a)
---------- ---------- ---------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................................................. $10.08 $10.14 $10.00
------- ------- -------
Investment Activities
Net investment income (loss)....................................................... 0.39 0.40 0.32
Net realized and unrealized gain (loss) on investments............................. 0.14 (0.03) 0.11
------- ------- -------
Total from Investment Activities............................................... 0.53 0.37 0.43
------- ------- -------
Distributions
Net investment income.............................................................. (0.39) (0.40) (0.29)
In excess of net investment income................................................. -- (0.03) --
In excess of net realized gains.................................................... -- -- --
Net realized gains................................................................. (0.01) -- --
------- ------- -------
Total Distributions............................................................ (0.40) (0.43) (0.29)
------- ------- -------
NET ASSET VALUE, END OF PERIOD........................................................ $10.21 $10.08 $10.14
======= ======= =======
TOTAL RETURN (EXCLUDES SALES CHARGE).................................................. 5.36% 3.67% 4.36%(b)
RATIOS/SUPPLEMENTARY DATA:
Net assets at end of period (000).................................................. $37,410 $39,472 $39,993
Ratio of expenses to average net assets............................................ 0.84% 0.83% 0.85%(c)
Ratio of net investment income (loss) to average net assets........................ 3.82% 3.90% 4.03%(c)
Ratio of expenses to average net assets*........................................... 0.89% 0.88% 0.94%(c)
Ratio of net investment income (loss) to average net assets*....................... 3.77% 3.85% 3.94%(c)
Portfolio Turnover(d)................................................................. 29.46% 54.70% 89.98%
Average Commission Rate paid(e)....................................................... -- -- --
<CAPTION>
U.S. Treasury
Securities Fund
---------------------------------------
Oct. 14
Year Ended Year Ended 1994 to
July 31, July 31, July 31,
1997 1996 1995(f)
---------- ---------- ---------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................................................. $ 9.14 $ 9.43 $ 8.66
------- ------- -------
Investment Activities
Net investment income (loss)....................................................... 0.53 0.59 0.44
Net realized and unrealized gain (loss) on investments............................. 0.26 (0.24) 0.76
------- ------- -------
Total from Investment Activities............................................... 0.79 0.35 1.20
------- ------- -------
Distributions
Net investment income.............................................................. (0.54) (0.55) (0.43)
In excess of net investment income................................................. (0.01) (0.09) --
In excess of net realized gains.................................................... -- -- --
Net realized gains................................................................. -- -- --
------- ------- -------
Total Distributions............................................................ (0.55) (0.64) (0.43)
------- ------- -------
NET ASSET VALUE, END OF PERIOD........................................................ $9.38 $9.14 $9.43
======= ======= =======
TOTAL RETURN (EXCLUDES SALES CHARGE).................................................. 8.92% 3.71% 10.49%(g)
RATIOS/SUPPLEMENTARY DATA:
Net assets at end of period (000).................................................. $23,832 $23,248 $51,264
Ratio of expenses to average net assets............................................ 0.91% 0.95% 1.02%(c)
Ratio of net investment income (loss) to average net assets........................ 5.85% 5.81% 5.78%(c)
Ratio of expenses to average net assets*........................................... 0.95% 0.99% 1.09%(c)
Ratio of net investment income (loss) to average net assets*....................... 5.81% 5.77% 5.71%(c)
Portfolio Turnover(d)................................................................. 44.90% 15.75% 80.98%
Average Commission Rate paid(e)....................................................... -- -- --
</TABLE>
- ------------
* During the period, certain fees were voluntarily reduced. In addition, with
respect to Growth Stock Fund, Short Intermediate U.S. Treasury Securities
Fund and U.S. Treasury Securities Fund, the investment adviser reimbursed
expenses. If such voluntary fee reductions and expense reimbursements had
not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not Annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund, as a whole,
without distinguishing between the classes of shares issued.
(e) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and sold
for which commissions were charged.
(f) On October 13, 1994, the Trust identified those Institutional shareholders
that were part of the Class A and transferred these shareholders into Class
Y at the prevailing net asset value effective October 14, 1994. The
Financial Highlights presented for Class Y reflects operations and
distributions for the period from October 14, 1994 through July 31, 1995.
(g) Represents total return for the Fund, as a whole, for the period from August
1, 1994 through October 13, 1994 plus total return for the Class Y shares
for the period from October 14, 1994 through July 31, 1995.
PROSPECTUS
9
<PAGE> 143
INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS
Each Fund has its own investment objectives, as described earlier in this
Prospectus. Each Fund also follows its own investment policies and practices,
subject to certain investment restrictions, all described further below and in
"Additional Discussion Regarding Permitted Investment Activities." The SAI also
contains more specific descriptions of investment restrictions which govern the
investments of each of the Funds.
BALANCED FUND
Balanced Fund will invest primarily in common stocks, preferred stocks,
bonds, and securities that are convertible into common stocks. Under normal
market conditions, Balanced Fund will invest in common stocks and securities
convertible into common stocks, fixed income securities (i.e., warrants,
convertible preferred stock, fixed rate preferred stock, convertible
fixed-income securities, options and rights). At least 25% of the value of
Balanced Fund's assets will be invested in senior fixed income securities.
Balanced Fund will invest in common stocks of issuers that exhibit strong
earnings growth trends and that are believed by the Fund to have above-average
prospects for future earnings growth. Balanced Fund will maintain a portfolio of
common stocks diversified among industries and companies. Balanced Fund may
invest in common stocks of large companies (i.e., those companies with more than
$750 million in capitalization) which the Fund believes offer the potential for
long-term earnings growth and/or above-average dividend yield. Some investments
may also be made in common stocks of medium and smaller sized companies (i.e.,
those companies with at least $250 million, but less than $750 million in
capitalization) which have the potential to generate high levels of future
revenue and earnings growth and where the investment opportunity may not be
fully reflected in the price of the securities but which may involve greater
volatility than investments in larger companies.
Balanced Fund intends to invest less than 50% of its total assets in the
securities of medium and smaller sized companies and the remainder in securities
of larger sized companies. However, the actual percentage may vary according to
changes in market conditions and the judgment of Pacific Century of how best to
achieve Balanced Fund's investment objective. For risk disclosure regarding
investments in medium and smaller-sized companies see, "Highlights--Certain
Risks."
DIVERSIFIED FIXED INCOME FUND
Diversified Fixed Income Fund invests in U.S. Government Obligations and in
investment grade debt obligations. Most obligations acquired by Diversified
Fixed Income Fund will be issued by companies or governmental entities located
within the United States. Up to 25% of the total assets of Diversified Fixed
Income Fund may, however, be invested in dollar-denominated debt obligations of
foreign issuers. Under normal market conditions, at least 65% of the value of
the total assets of Diversified Fixed Income Fund will be invested in fixed
income securities.
GROWTH AND INCOME FUND
Growth and Income Fund invests primarily in a diversified portfolio of high
quality, dividend-paying common stocks and securities convertible into common
stocks. Growth and Income Fund anticipates investing in securities that
currently have in the aggregate an above average dividend yield, with the
anticipation that the dividend will remain constant or be increased in the
future. These securities generally represent the core holdings of Growth and
Income Fund. However, these holdings may be balanced with lower yielding but
higher growth-oriented securities to achieve more growth potential. Under normal
market conditions, Growth and Income Fund will invest at least 65% of the value
of its total assets in income producing common stocks and securities convertible
into common stocks.
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GROWTH STOCK FUND
Growth Stock Fund invests primarily in common stocks and securities that
are convertible into common stocks of both domestic and foreign companies. Under
normal market conditions, Growth Stock Fund will invest at least 65% of its
total assets in common stocks or securities convertible into common stocks.
NEW ASIA GROWTH FUND
New Asia Growth Fund is designed for U.S. investors seeking diversification
of their respective investment portfolios by participating in the economies of
developing Asian countries. New Asia Growth Fund's investment objective is to
seek long-term growth of capital. New Asia Growth Fund seeks to achieve this
objective primarily through direct or indirect investments in equity securities
of companies located in the developing countries of Asia. New Asia Growth Fund
invests indirectly in the equity securities of companies located in developing
Asian countries by purchasing interests in other foreign investment companies or
trusts which themselves invest in the developing countries of Asia. For purposes
of its investment objective, New Asia Growth Fund considers such developing
countries to be all countries in Asia other than Japan. New Asia Growth Fund may
invest to a lesser degree in debt securities and other instruments (i.e.,
warrants and securities convertible into equity or debt securities) if the
investment adviser believes they would help achieve the Fund's objective.
Current income from dividends and interest will not be an important
consideration in selecting portfolio securities.
It is anticipated that under normal market conditions New Asia Growth Fund
will invest at least 70% of its total assets directly or indirectly in common
stock, common stock equivalents (such as preferred or debt securities
convertible into common stocks) and preferred stocks of companies located in the
developing countries of Asia which the investment adviser believes have
potential for capital appreciation. New Asia Growth Fund will consider an issuer
of securities to be located in a developing country of Asia if it is organized
under the laws of a developing Asian country, if it derives 50% or more of its
total revenues from business in a developing Asian country, or if its equity
securities are traded principally on a securities exchange in a developing Asian
country.
Developing countries in which New Asia Growth Fund may invest include, but
are not limited to: Hong Kong, China, India, Indonesia, South Korea, Malaysia,
the Philippines, Singapore, Taiwan, Pakistan, Bangladesh, Sri Lanka and
Thailand.
The criteria which the investment adviser uses to select and maintain a
portfolio of investments in any country depends on its view as to the upside
potential of the stock markets in such country and, more specifically, the
investment instruments therein. In determining the upside potential for each
market, the investment adviser will consider the economic, political and social
factors affecting each country and the prospects for improvements in these
factors in the short, medium and long term.
New Asia Growth Fund will not limit its investments to any particular type
of company. New Asia Growth Fund may invest in companies, large or small, whose
earnings are believed to be in a relatively strong growth trend, or in companies
in which significant further growth is not anticipated but whose market value
per share is thought to be undervalued. New Asia Growth Fund may invest in small
and relatively less well-known companies. Investing in small and relatively less
well-known companies involves certain risks. See, "Highlights--Certain Risks."
Subject to New Asia Growth Fund's investment objective, up to 35% of the
Fund's total assets may be invested in any combination of equity, debt and
convertible securities of issuers located outside Asia, including money market
instruments of the United States, should opportunities in these markets occur.
In addition, this portion of New Asia Growth Fund's portfolio will consist of
various other financial instruments such as forward foreign exchange contracts,
futures contracts and options. At
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times the investment adviser may judge that conditions in the securities markets
make pursuing New Asia Growth Fund's basic investment strategy inconsistent with
the best interests of its shareholders. At such times, the investment adviser
may temporarily use alternative strategies, primarily designed to reduce
fluctuations in the value of the Fund's assets. In implementing these
"defensive" strategies, New Asia Growth Fund may invest without limit in cash
(foreign currency or U.S. dollars) and in domestic, Eurodollar and foreign
short-term money market instruments. It is impossible to predict when, or for
how long, New Asia Growth Fund will use such alternative strategies.
SHORT INTERMEDIATE U.S. TREASURY SECURITIES FUND
Short Intermediate U.S. Treasury Securities Fund invests primarily in U.S.
Treasury Securities and in repurchase agreements collateralized by U.S. Treasury
Securities. Short Intermediate U.S. Treasury Securities Fund seeks to enhance
its total return by shortening the average maturity of portfolio securities when
interest rates are anticipated to increase and lengthening the maturity of such
portfolio securities to take advantage of anticipated interest rate declines.
Due to the dollar-weighted average maturity of Short Intermediate U.S. Treasury
Securities Fund, it is expected to be less volatile than U.S. Treasury
Securities Fund. Under normal market conditions, at least 65% of the value of
the total assets of Short Intermediate U.S. Treasury Securities Fund will be
invested in U.S. Treasury Securities.
TAX-FREE SECURITIES FUND
Tax-Free Securities Fund purchases primarily Hawaiian Municipal Obligations
and Municipal Obligations. As a matter of fundamental policy, Tax-Free
Securities Fund will have, under normal market conditions, at least 80% of its
net assets invested in Municipal Obligations. As a matter of operating policy,
under normal market conditions, at least 50%, and no more than 60%, of the
market value of Tax-Free Securities Fund's securities will be invested in
Hawaiian Municipal Obligations. For temporary defensive purposes, Pacific
Century may invest more than 20% of Tax-Free Securities Fund's net assets in
securities that are subject to federal income tax or the federal alternative
minimum tax.
TAX-FREE SHORT INTERMEDIATE SECURITIES FUND
Tax-Free Short Intermediate Securities Fund purchases primarily Hawaiian
Municipal Obligations and Municipal Obligations. As a matter of fundamental
policy, Tax-Free Short Intermediate Securities Fund will have, under normal
market conditions, at least 80% of its net assets invested in Municipal
Obligations. As a matter of operating policy, under normal market conditions at
least 50%, and no more than 60%, of the market value of Tax-Free Short
Intermediate Securities Fund's securities will be invested in Hawaiian Municipal
Obligations. For temporary defensive purposes, Pacific Century may invest more
than 20% of Tax-Free Short Intermediate Securities Fund's net assets in
securities that are subject to federal income tax or the federal alternative
minimum tax.
U.S. TREASURY SECURITIES FUND
U.S. Treasury Securities Fund invests primarily in U.S. Treasury Securities
and in repurchase agreements collateralized by U.S. Treasury Securities. U.S.
Treasury Securities Fund seeks to enhance its total return by shortening the
average maturity of portfolio securities when interest rates are anticipated to
increase and lengthening the maturity of such portfolio securities to take
advantage of anticipated interest rate declines. Under normal market conditions,
at least 65% of the value of the total assets of U.S. Treasury Securities Fund
will be invested in U.S. Treasury Securities.
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ADDITIONAL DISCUSSION REGARDING
PERMITTED INVESTMENT ACTIVITIES
MUNICIPAL OBLIGATIONS
The Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities
Fund invest primarily in Municipal Obligations, which includes Municipal Bonds,
Municipal Notes and Municipal Commercial Paper.
MUNICIPAL BONDS--Municipal bonds generally have a maturity at the time of
issuance of up to thirty years. They are principally classified either as
"general obligation" bonds, which are secured by the pledge of the
municipality's faith, credit and taxing power for the payment of principal and
interest, or as "revenue" bonds, which are payable only from the revenues
derived from a particular project or facility and generally are dependent solely
on a specific revenue source.
The Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities
Fund may invest in municipal bonds which are covered by insurance guaranteeing
the scheduled payment of principal and interest until their maturity ("Insured
Municipal Bonds"). The insurance can be purchased either by the issuing
government entity or by the Fund purchasing the bond. This insurance is
primarily written by two organizations: Ambac Indemnity Corporation (formerly
called American Municipal Bond Assurance Corporation), a unit of Citicorp, and
Municipal Bond Insurance Association, a pool of private insurers, but may be
written by certain other large insurance companies. This insurance feature
minimizes the risks to the Tax-Free Securities Fund and the Tax-Free Short
Intermediate Securities Fund and its shareholders associated with payment delays
or defaults in these portfolio securities, but does not guarantee the market
value of these portfolio securities or the value of the shares of the Tax-Free
Securities Fund and the Tax-Free Short Intermediate Securities Fund. An issuer
would likely purchase insurance in order to obtain a higher rating by an NRSRO
(defined below) than it would receive without the insurance thereby reducing the
issuer's borrowing costs. The price paid or received for an Insured Municipal
Bond may be higher than the price that would otherwise be paid or received for
the municipal bond absent the insurance.
The Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities
Fund may invest in moral obligation bonds ("Moral Obligation Bonds") which are
tax-exempt bonds issued by a municipality or a state financial intermediary and
backed by the moral obligation pledge of a state government. Under a moral
obligation pledge, a state government indicates its intent to appropriate funds
in the future if the primary obligor, the municipality or intermediary,
defaults. The state's obligation to honor the pledge is moral rather than legal
because future legislatures cannot be legally obligated to appropriate the funds
required.
MUNICIPAL NOTES--Municipal notes generally have maturities at the time of
issuance of three years or less. Subject to its respective investment objective
and policies, the Tax-Free Securities Fund and the Tax-Free Short Intermediate
Securities Fund may invest in municipal notes that are rated at the date of
purchase in one of the two highest rating categories assigned by an NRSRO, or
not rated but are considered by Pacific Century to be of comparable quality.
Municipal notes generally are issued in anticipation of the receipt of tax
funds, of the proceeds of bond placements or of other revenues. The ability of
an issuer to make payments is, therefore, dependent on such tax receipts,
proceeds from bond sales or other revenues, as the case may be.
The Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities
Fund also may invest in certain "private activity" bonds or notes. Such Funds
may not be an appropriate investment for entities which are "substantial users,"
or certain "related persons" of substantial users, of facilities financed by
private activity bonds. "Substantial users" are defined under U.S. Treasury
Regulations
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to include a non-exempt person who regularly uses a part of such facilities in
his trade or business and whose gross revenues derived with respect to the
facilities financed by the issuance of bonds are more than 5% of the total
revenues derived by all users of such facilities, or who occupies more than 5%
of the usable area of such facilities or for whom such facilities, or a part
thereof, were specifically constructed, reconstructed or acquired. "Related
persons" include certain related natural persons, affiliated corporations,
partnerships and their partners and S corporations and their shareholders.
MUNICIPAL COMMERCIAL PAPER--Municipal commercial paper is a debt obligation
with a stated maturity of 270 days or less that is issued to finance seasonal
working capital needs or as short-term financing in anticipation of longer-term
debt. Subject to its respective investment objective and policies, the Tax-Free
Securities Fund and the Tax-Free Short Intermediate Securities Fund may invest
in municipal commercial paper that is rated at the date of purchase in one of
the two highest rating categories by an NRSRO or not rated but is considered by
Pacific Century to be of comparable quality.
U.S. GOVERNMENT OBLIGATIONS
Each of the Funds may invest in U.S. Government Obligations which include,
in addition to U.S. Treasury Securities, the obligations of the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Government National Mortgage Association
("GNMA"), Student Loan Marketing Association ("SLMA"), Federal National Mortgage
Association ("FNMA"), Resolution Trust Corporation and Federal Home Loan
Mortgage Corporation ("FHLMC"). U.S. Treasury Securities and certain other
obligations of certain agencies and instrumentalities of the U.S. Government,
such as those of the GNMA, are supported by the full faith and credit of the
U.S. Treasury; others, such as those of the Export-Import Bank of the United
States, are supported by the right of the issuer to borrow from the U.S.
Treasury; others, such as those of FNMA, are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; still
others, such as those of the SLMA, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government would
provide financial support to U.S. Government sponsored instrumentalities if it
is not obligated to do so by law. Some of these instruments may be variable or
floating rate instruments. The Funds will invest in the obligations of such
instrumentalities only when Pacific Century believes that the credit risk with
respect to the instrumentality is minimal.
BANK AND SAVINGS AND LOAN OBLIGATIONS
Each of the Funds may invest in Bank and Savings and Loan obligations.
These obligations include negotiable certificates of deposit, fixed time
deposits, bankers' acceptances, and interest bearing demand accounts. The Funds
limit their bank investments to dollar-denominated obligations of U.S.,
Canadian, Asian, Australian or European banks which have more than $500 million
in total assets at the time of investment or of United States savings and loan
associations which have more than $1 billion in total assets at the time of
investment and, in the case of U.S. banks, are members of the Federal Reserve
System or are examined by the Comptroller of the Currency or whose deposits are
insured by the Federal Deposit Insurance Corporation.
COMMERCIAL PAPER
Balanced Fund, Diversified Fixed Income Fund, Growth and Income Fund,
Growth Stock Fund, Short Intermediate U.S. Treasury Securities Fund, Tax-Free
Securities Fund, Tax-Free Short Intermediate Securities Fund and U.S. Treasury
Securities Fund may invest in commercial paper that is rated at the date of
purchase in the highest rating category assigned by a nationally recognized
statistical rating organization (an "NRSRO") or unrated if considered by Pacific
Century to be of comparable quality. New Asia Growth Fund may invest in
commercial paper that is rated at the time
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of purchase in the two highest short-term rating categories by an NRSRO or
unrated if considered by the investment adviser to be of comparable quality.
Commercial paper includes short-term unsecured promissory notes, and variable
floating rate demand notes issued by domestic and foreign bank holding
companies, corporations and financial institutions as well as similar taxable
and tax-exempt instruments issued by government agencies and instrumentalities.
DEBT SECURITIES
Each of the Funds may invest in debt securities issued by foreign and
domestic corporations or financial institutions, and Yankee bonds. Foreign debt
securities in which the Funds may invest include global fixed income securities,
described below. Balanced Fund, Diversified Fixed Income Fund, Growth and Income
Fund, Growth Stock Fund, Short Intermediate U.S. Treasury Securities Fund,
Tax-Free Securities Fund, Tax-Free Short Intermediate Securities Fund and U.S.
Treasury Securities Fund may only invest in U.S. dollar-denominated foreign debt
securities.
Global fixed-income securities include government obligations issued or
guaranteed by U.S. and foreign governments and their political subdivisions,
authorities, agencies or instrumentalities and by supranational entities (such
as the World Bank, The European Economic Community, the Asian Development Bank
and the European Coal and Steel Community), Eurobonds and corporate bonds with
varying maturities denominated in various currencies. Yankee bonds are U.S.
dollar-denominated obligations issued by foreign governments or companies. New
Asia Growth Fund may invest in the fixed income securities of developing Asian
countries. Developing Asian fixed-income securities are debt securities or
obligations issued or guaranteed by governments in such countries (including
their agencies, instrumentalities or political subdivisions) ("sovereign debt"),
debt securities or obligations of entities organized to restructure outstanding
debt of such issuers, and debt securities of issuers located in such developing
countries.
The debt securities in which the Funds will invest (including convertible
securities, as applicable) will be of investment grade (i.e., rated in the top
four rating categories by an NRSRO, or, if unrated, determined to be of
comparable quality by the investment adviser). See SAI, "Appendix."
Notwithstanding the foregoing, up to 10% of the New Asia Growth Fund's net
assets may be invested in securities rated below investment grade by an NRSRO or
determined to be of comparable quality by the investment adviser. Debt
securities rated below investment grade or of comparable quality are commonly
referred to as "junk bonds." For a description of the risks associated with
investment in debt securities, including lower-rated debt securities and
sovereign debt, see "Additional Risk Disclosure--Risk Factors Associated with
Investment in Certain Debt Securities."
PREFERRED STOCK
Each of the Funds may invest in preferred stock which is a class of capital
stock that pays dividends at a specified rate and that has preference over
common stock in the payment of dividends and the liquidation of assets.
Preferred stock does not ordinarily carry voting rights.
ILLIQUID SECURITIES
Each of the Funds may invest in illiquid securities. The Funds will not
knowingly invest more than 15% of the value of their respective net assets in
securities that are illiquid. Repurchase agreements with a duration of seven
days or more, time deposits that do not provide for payment to a Fund within
seven days after notice and Guaranteed Investment Contracts ("GICs") and most
commercial paper issued in reliance upon the exemption in Section 4(2) of the
Securities Act of 1933 (the "1933 Act") (other than variable amount master
demand notes with maturities of nine months or less) are subject to this 15%
limit.
If otherwise consistent with its investment objective and policies, any of
the Funds may purchase securities which are not registered under the 1933
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Act but which can be sold to "qualified institutional buyers" in accordance with
Rule 144A under the 1933 Act. Any such security will not be considered illiquid
so long as it is determined by Pacific Century, acting under guidelines and
procedures that are developed, established and monitored by the Board of
Trustees, that an adequate trading market exists for that security. This
investment practice could have the effect of increasing the level of illiquidity
in a Fund during any period that qualified institutional buyers become
uninterested in purchasing these restricted securities. The ability to sell to
qualified institutional buyers under Rule 144A is a recent development, and it
is not possible to predict how this market will develop.
The staff of the Commission has taken the position that OTC options that
are purchased and the assets used as cover for written OTC options should
generally be treated as illiquid securities. However, if a dealer recognized by
the Federal Reserve Bank as a primary dealer in U.S. Government securities is
the other party to an option contract written by a Fund and the Fund has the
absolute right to repurchase the option from the dealer at a formula price
established in a contract with the dealer, the Commission staff has agreed that
the Fund needs to treat as illiquid only that amount of the cover assets equal
to the formula price less the amount by which the market value of the security
subject to the option exceeds the exercise price of the option (the amounts by
which the option is in-the-money). Although Pacific Century does not believe
that OTC options are generally illiquid, pending resolution of this issue, each
Fund will conduct their operations in conformity with the views of the
Commission staff.
BORROWINGS
Each of Balanced Fund, Diversified Fixed Income Fund, Growth and Income
Fund, Growth Stock Fund, New Asia Fund, Short Intermediate U.S. Treasury
Securities Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate
Securities Fund, and U.S. Treasury Securities Fund may borrow from banks up to
20% of the current value of its net assets for temporary purposes only in order
to meet redemptions, and these borrowings may be secured by the pledge of up to
20% of the current value of its net assets (but investments may not be purchased
while such outstanding borrowings in excess of 5% of its net assets exists).
New Asia Growth Fund may borrow an amount equal to no more than 33% of the
value of its total assets (calculated at the time of the borrowing) from banks
for temporary, extraordinary or emergency purposes, for the clearance of
transactions, to hedge against currency movements or for investment purposes.
New Asia Growth Fund may pledge up to 33% of its total assets to secure these
borrowings. If New Asia Growth Fund's asset coverage for borrowings falls below
300%, the Fund will take prompt action to reduce its borrowings. If the 300%
asset coverage should decline as a result of market fluctuations or other
reasons, New Asia Growth Fund may be required to sell portfolio securities to
reduce the debt and restore the 300% asset coverage, even though it may be
disadvantageous from an investment standpoint to sell securities at that time.
Borrowing for investment purposes is generally known as "leveraging."
Leveraging may exaggerate the effect on net asset value of any increase or
decrease in the market value of the Fund's portfolio. Money borrowed for
leveraging will be subject to interest costs which may or may not be recovered
by appreciation of the securities purchased. In addition, New Asia Growth Fund
may be required to maintain minimum average balances in connection with such
borrowing or pay a commitment fee to maintain a line of credit, which would
increase the cost of borrowing over the stated interest rate.
Each Fund may borrow funds for temporary purposes by entering into reverse
repurchase agreements which are considered to be borrowings under the Investment
Company Act of 1940 (the "1940 Act"). At the time a Fund enters into a reverse
repurchase agreement (an agreement under which the Fund sells portfolio
securities and agrees to repurchase them at an agreed-upon date and price),
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it will place in a segregated custodial account cash or liquid assets having a
value equal to or greater than the repurchase price (including accrued interest)
and will subsequently monitor the account so that such value is maintained.
Reverse repurchase agreements involve the risk that the market value of the
securities sold by a Fund may decline below the price of the securities it is
obligated to repurchase. The Funds would pay interest on amounts obtained
pursuant to a reverse repurchase agreement.
LOANS OF PORTFOLIO SECURITIES
Each of the Funds may lend securities from its portfolio to brokers,
dealers and financial institutions (but not individuals) if liquid assets equal
to the current market value of the securities loaned (including accrued interest
thereon) plus the interest payable to the Fund with respect to the loan is
maintained with the Fund. In determining whether to lend a security to a
particular broker, dealer or financial institution, Pacific Century will
consider all relevant facts and circumstances, including the creditworthiness of
the broker, dealer or financial institution. Any loans of portfolio securities
will be fully collateralized based on values that are marked to market daily by
Pacific Century. No Fund will enter into any portfolio security lending
arrangement having a duration of longer than one year. Any securities that a
Fund may receive as collateral will not become part of such Fund's portfolio at
the time of the loan and, in the event of a default by the borrower, the Fund
will, if permitted by law, dispose of such collateral except for such part
thereof that is a security in which such Fund may invest. During the time
securities are on loan, the borrower will pay the Fund any accrued income on
those securities, and the Fund may invest the cash collateral and earn
additional income or receive an agreed-upon fee from a borrower that had
delivered cash-equivalent collateral. No Fund will lend securities having a
value that exceeds 30% (33% with respect to New Asia Growth Fund) of the current
value of its total assets. Loans of securities by a Fund will be subject to
termination at the Fund's or the borrower's option. The Funds may pay reasonable
administrative and custodial fees in connection with a securities loan and may
pay a negotiated portion of the interest or fee earned with respect to the
collateral to the borrower or the placing broker. Borrowers and placing brokers
may not be affiliated, directly or indirectly, with the Trust, Pacific Century,
BISYS, or, with respect to New Asia Growth Fund, the Sub-Adviser.
HEDGING STRATEGIES
Each Fund may engage in various portfolio strategies including derivative
transactions to reduce certain risks of its investments. These strategies
currently include the use of options and futures contracts and options thereon
and, with respect to New Asia Growth Fund, the use of foreign currency exchange
contracts. Balanced Fund, Diversified Fixed Income Fund, Growth and Income Fund,
Growth Stock Fund, Short Intermediate U.S. Treasury Securities Fund, Tax-Free
Securities Fund, Tax-Free Short Intermediate Securities Fund, and U.S. Treasury
Securities Fund may also use futures and options thereon to manage cash flow
into the Funds, and may use options to enhance income. A Fund's ability to use
these strategies may be limited by market conditions, regulatory limits and tax
considerations and there can be no assurance that any of these strategies will
succeed. See "Additional Information on Fund Investments" and "Tax Information"
in the SAI. New financial products and risk management techniques continue to be
developed and the Fund may use these new investments and techniques to the
extent consistent with its investment objective and policies.
Options. Each of Balanced Fund, Diversified Fixed Income Fund, Growth and
Income Fund, Growth Stock Fund, Short Intermediate U.S. Treasury Securities
Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities Fund, and
U.S. Treasury Securities Fund may purchase put and call options and write
covered put and call options on securities in which such Fund may invest,
provided such options do not exceed 5% of the Fund's net assets in the aggregate
and (1) are traded on registered domestic securities exchanges
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or (2) result from separate privately negotiated transactions in the OTC market
with primary U.S. government securities dealers recognized by the Board of
Governors of the Federal Reserve System. These options may be employed to hedge
a Fund's portfolio against market risk or to enhance income (e.g., to attempt to
realize through the receipt of premiums a greater current return than would be
realized on the underlying securities alone).
New Asia Growth Fund may purchase put and call options and write covered
put and call options on securities, securities indexes and on currencies that
are traded on U.S. or foreign securities exchanges or in the OTC market. Options
which New Asia Growth Fund may purchase and/or write in the OTC market include
privately negotiated transactions with primary U.S. Government securities
dealers to hedge the Fund's portfolio. New Asia Growth Fund may purchase put
options in an effort to protect the value of securities (or currencies) that it
owns against a decline in market value and purchase call options in an effort to
protect against an increase in the price of securities (or currencies) it
intends to purchase. New Asia Growth Fund may also purchase put and call options
to offset previously written put and call options of the same series. See SAI,
"Additional Information on Fund Investments."
A call option gives the purchaser, in exchange for a premium paid, the
right for a specified period of time to purchase securities or currency subject
to the option at a specified price (the exercise price or strike price). A put
option gives the purchaser in return for a premium, the right for a specified
time, to sell the securities or currency subject to the option of the writer of
the put at the exercise price.
The aggregate value of the exercise price or strike price of call options
written by New Asia Growth Fund may not exceed 25% of the Fund's net asset
value.
Forward Currency Exchange Contracts. New Asia Growth Fund may enter into
forward foreign currency exchange contracts to protect the value of its assets
against future changes in the level of currency exchange rates. New Asia Growth
Fund may enter into such contracts on a spot, i.e., cash, basis at the rate then
prevailing in the currency exchange market or on a forward basis, by entering
into a forward contract to purchase or sell currency. A forward contract on
foreign currency is an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days agreed upon by the parties
from the date of the contract at a price set on the date of the contract.
New Asia Growth Fund's dealings in forward contracts will be limited to
hedging involving either specific transactions or portfolio positions.
Transaction hedging is the purchase or sale of a forward contract with respect
to specific receivables or payables of the New Asia Growth Fund generally
arising in connection with the purchase or sale of its portfolio securities,
accruals of interest or dividends receivable and Fund expenses. Position hedging
is the sale of a foreign currency with respect to portfolio security positions
denominated or quoted in that currency or in a different currency (cross hedge).
Although there are no limits on the number of forward contracts which the Fund
may enter into, the Fund may not position hedge (including cross hedges) with
respect to a particular currency for an amount greater than the aggregate market
value (determined at the time of making any sale of forward currency) of the
securities being hedged. See SAI, "Additional Information on Fund Investments."
Futures Contracts and Related Options. Each of the Funds may enter into
contracts for the future delivery of specific securities, classes of securities
and financial indices, may purchase or sell exchange-listed or OTC options on
any such futures contracts and may engage in related closing transactions. In
addition, New Asia Growth Fund may engage in currency futures contracts and
related options. A financial futures contract is an agreement to purchase or
sell an agreed amount of securities or currency at a set price for delivery in
the future. A futures contract on a securities index is an agreement obligating
either party to pay, and entitling the
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other party to receive, while the contract is
outstanding, cash payments based on the level of a specified securities index.
The acquisition of put and call options on futures contracts will, respectively,
give the Fund the right (but not the obligation), for a specified price, to sell
or to purchase the underlying futures contract, upon exercise of the option, at
any time during the option period.
Each Fund may engage in futures contracts and related options in an effort
to hedge against market (or, with respect to New Asia, currency) risks. For
example, with respect to market risk, when interest rates are expected to rise
or market values of portfolio securities are expected to fall, a Fund can seek
through the sale of futures contracts to offset a decline in the value of its
portfolio securities. When interest rates are expected to fall or market values
are expected to rise, a Fund, through the purchase of such contracts, can
attempt to secure better rates or prices for the Fund than might later be
available in the market when it effects anticipated purchases. With respect to
currency risk, by entering into currency futures and options thereon on U.S. and
foreign exchanges, New Asia Growth Fund can seek to establish the rate at which
it will be entitled to exchange U.S. dollars for another currency at a future
time. By selling currency futures, New Asia Growth Fund can seek to establish
the number of dollars it will receive at delivery for a certain amount of a
foreign currency. In this way, whenever New Asia Growth Fund anticipates a
decline in the value of a foreign currency against the U.S. dollar, the Fund can
attempt to "lock in" the U.S. dollar value of some or all of the securities held
in its portfolio that are denominated in that currency. By purchasing currency
futures, New Asia Growth Fund can establish the number of dollars it will be
required to pay for a specified amount of a foreign currency in a future month.
Thus if New Asia Growth Fund intends to buy securities in the future and expects
the U.S. dollar to decline against the relevant foreign currency during the
period before the purchase is effected, the Fund can attempt to "lock in" the
price in U.S. dollars of the securities it intends to acquire.
Futures may also be used to manage cash flows into and out of Balanced
Fund, Diversified Fixed Income Fund, Growth and Income Fund, Growth Stock Fund,
Short Intermediate U.S. Treasury Securities Fund, Tax-Free Securities Fund,
Tax-Free Short Intermediate Securities Fund and U.S. Treasury Securities Fund.
For example, the investment manager may wish to be fully invested in a
particular asset class. Through the use of futures, the manager can achieve this
objective immediately while temporarily deferring industry and security
selection, in the interest of timeliness.
Each Fund is subject to the limitations set forth in the Commodity Futures
Trading Commission ("CFTC") regulations with respect to the futures contracts
and related options in which it may invest. Accordingly, each Fund may not
purchase and sell futures contracts and related options for other than bona fide
hedging purposes (as defined in CFTC regulations) if, immediately thereafter,
aggregate initial margin deposits for futures contracts, and premiums paid for
related options, would exceed five percent (5%) of the liquidation value of the
Fund's total assets. Each Fund may purchase and sell futures contracts and
related options, without limitation, for bona fide hedging purposes. As a matter
of operating policy, however, aggregate initial margin deposits for futures
contracts, and premiums paid for related options, may not exceed five percent
(5%) of the total assets of Balanced Fund, Diversified Fixed Income Fund, Growth
and Income Fund, Growth Stock Fund, Short Intermediate U.S. Treasury Securities
Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities Fund and
U.S. Treasury Securities Fund, and the value of securities that are the subject
of such futures and options (both for receipt and delivery) may not exceed
one-third of the market value of each Fund's total assets. Futures transactions
will be limited to the extent necessary to maintain a Fund's qualification as a
regulated investment company.
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Futures transactions involve brokerage costs and require a Fund to
segregate assets to cover its obligations under futures, or to cover its
obligations by owning the assets underlying open futures contracts. A Fund may
lose the expected benefit of futures transactions if interest rates, exchange
rates or securities prices move in an unanticipated manner. Such losses are
potentially significant and unanticipated changes may result in poorer overall
performance than if the Fund had not entered into any futures transactions. In
addition, the value of a Fund's futures positions may not prove to be perfectly
or even highly correlated with the value of its portfolio securities, limiting
the Fund's ability to hedge effectively against interest rate, exchange rate
and/or market risk and giving rise to additional risks. There is no assurance of
liquidity in the secondary market for purposes of closing out future positions.
Where a liquid secondary market does not exist, a Fund is unlikely to be able to
control losses by closing out futures positions. Gains and losses on investments
in options and futures depend on Pacific Century's ability to predict correctly
the direction of stock prices, interest rates and other economic factors.
Certain futures exchanges or boards of trade have established daily limits on
the amount that the price of futures contracts or related options may vary,
either up or down, from the previous day's settlement price. These daily limits
may restrict a Fund's ability to purchase or sell certain futures contracts or
related options on any particular day. For additional discussion of certain
risks associated with the use of futures contracts and options thereon, see
"Additional Risk Disclosure-- Risks of Hedging Strategies."
ASSET BACKED SECURITIES
Each of the Funds may invest in Asset Backed Securities. Asset Backed
Securities arise through the grouping by governmental, government-related, and
private organizations of loans, receivables, and other assets originated by
various lenders. Asset Backed Securities acquired by a Fund consist of both
mortgage and non-mortgage backed securities. Interest in pools of these assets
differ from other forms of debt securities, which normally provide for periodic
payment of interest in fixed amounts with principal paid at maturity or
specified call dates. Instead, Asset Backed Securities provide periodic payments
which generally consist of both interest and principal payments.
The life of an Asset Backed Security varies with the prepayment experience
with respect to the underlying debt instruments. The rate of such prepayments,
and hence the life of an Asset Backed Security, will be primarily a function of
current market interest rates, although other economic and demographic factors
may be involved. For example, falling interest rates generally result in an
increase in the rate of prepayments of mortgage loans while rising interest
rates generally decrease the rate of prepayments. An acceleration in prepayments
in response to sharply falling interest rates will shorten the security's
average maturity and limit the potential appreciation in the security's value
relative to a conventional debt security. Consequently, Asset Backed Securities
are not as effective in locking in high, long-term yields. Conversely, in
periods of sharply rising rates, prepayments are generally slow, increasing the
security's average life and its potential for price depreciation.
Mortgage Backed Securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself.
One such type of Mortgage Backed Security is a GNMA Certificate. GNMA
Certificates are backed as to the timely payment of principal and interest by
the full faith and credit of the U.S. Government. Another type is a FNMA
Certificate; the principal and interest of which are guaranteed only by FNMA
itself, not by the full faith and credit of the U.S. Government. Another type is
a FHLMC Participation Certificate. This type of obligation is guaranteed by
FHLMC as to timely payment of principal and interest. However, like a FNMA
security, it is not guaranteed by the full
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faith and credit of the U.S. Government. Mortgage Backed Securities issued by
private issuers, whether or not such obligations are subject to guarantees by
the private issuer, may entail greater risk than obligations directly or
indirectly guaranteed by the U.S. Government. Such securities will be purchased
for the Funds only when Pacific Century determines that they are readily
marketable at the time of purchase.
The average life of Mortgage Backed Securities varies with the maturities
of the underlying mortgage instruments, which have maximum maturities of 40
years. The average life is likely to be substantially less than the original
maturity of the mortgage pools underlying the securities as the result of
mortgage prepayments, mortgage refinancings, or foreclosures. The rate of
mortgage prepayments, and hence the average life of the certificates, will be a
function of the level of interest rates, general economic conditions, the
location and age of the mortgage and other social and demographic conditions.
Such prepayments are passed through to the registered holder with the regular
monthly payments of principal and interest and have the effect of reducing
future payments. As a result of the pass-through of prepayments of principal on
the underlying securities, Mortgage Backed Securities are often subject to more
rapid prepayments of principal than their stated maturity would indicate.
Because the prepayment characteristics of the underlying mortgages vary, it is
not possible to predict accurately the realized yield or the average life of a
particular issue of pass-through certificates. As a result of these principal
payment features, Mortgage Backed Securities are generally more volatile than
other U.S. Government securities.
Estimated average life will be determined by Pacific Century and used for
the purpose of determining, respectively, the average weighted maturity of the
Funds. Various independent mortgage backed securities dealers publish average
remaining life data using proprietary models and, in making such determinations
for the Funds, Pacific Century might deem such data unreasonable if such data
appeared to present a significantly different average remaining expected life
for a security when compared to data relating to the average remaining life of
comparable securities as provided by other independent mortgage backed
securities dealers.
The Funds also may invest in non-mortgage backed securities including
interests in pools of receivables, such as motor vehicle installment purchase
obligations and credit card receivables. Such securities are generally issued as
pass-through certificates, which represent undivided fractional ownership
interests in the underlying pool of assets. Such securities also may be debt
instruments, which also are known as collateralized obligations and are
generally issued as the debt of a special purpose entity organized solely for
the purpose of owing such assets and issuing such debt.
Non-mortgage backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities. Non-mortgage backed securities will be purchased
by the Funds only when such securities are readily marketable and rated at the
time of purchase in one of the two highest rating categories assigned by an
NRSRO or, if unrated, considered by the investment adviser to be of comparable
quality. In addition, such securities generally will have remaining estimated
lives at the time of purchase of five years or less. See SAI, "Additional
Information on Fund Investments."
REPURCHASE AGREEMENTS
Each of the Funds may enter into repurchase agreements wherein the seller
of a security to the Fund agrees to repurchase that security from the Fund at a
mutually agreed-upon time and price. The period of maturity is usually quite
short, often overnight or a few days, although it may extend over a number of
months. A Fund may enter into repurchase agreements only with respect to
obligations
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that could otherwise be purchased by the Fund. All repurchase agreements will be
fully collateralized based on values that are marked to market daily by Pacific
Century. If the seller defaults and the value of the underlying securities has
declined, the Fund may incur a loss. In addition, if bankruptcy proceedings are
commenced with respect to the seller of the security, the Fund's disposition of
the security may be delayed or limited.
OTHER INVESTMENT COMPANIES
In connection with the management of its daily cash position, Balanced
Fund, Diversified Fixed Income Fund, Growth and Income Fund, Growth Stock Fund,
New Asia Growth Fund, Short Intermediate U.S. Treasury Securities Fund, Tax-Free
Securities Fund, Tax-Free Short Intermediate Securities Fund and U.S. Treasury
Securities Fund may also invest in securities issued by other investment
companies, including (to the extent permitted by the 1940 Act) other investment
companies managed by Pacific Century. New Asia Growth Fund may also invest in
securities issued by other investment companies by purchasing the securities of
certain foreign investment funds or trusts called passive foreign investment
companies, which have been the only or primary way to invest in certain
developing countries of Asia.
Securities of other investment companies will be acquired by a Fund within
the limits prescribed by the 1940 Act. Each of the Funds intends to limit its
investments so that, as determined immediately after a securities purchase is
made: (a) not more than 5% of the value of its total assets will be invested in
the securities of any one investment company; (b) not more than 10% of the value
of its total assets will be invested in the aggregate in securities of
investment companies as a group; (c) not more than 3% of the outstanding voting
stock of any one investment company will be owned by the Fund; and (d) the Fund,
together with other investment companies having the same investment adviser and
companies controlled by such companies, owns not more than 10% of the total
stock of any one closed-end company.
As a shareholder of another investment company, a Fund would bear, along
with other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. Accordingly, in addition to bearing their
proportionate share of the relevant Fund's expenses (i.e., management fees and
operating expenses), shareholders will also indirectly bear similar expenses of
such other investment companies or trusts. However, Pacific Century has
undertaken to waive or reimburse the Funds its advisory fees with respect to
Fund assets so invested (except when such purchase is part of a plan of merger,
consolidation, reorganization or acquisition).
Investments by New Asia Growth Fund in wholly-owned investment entities
created under the laws of certain countries will not be deemed the making of an
investment in other investment companies.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS
Each of the Funds may invest in Real Estate Mortgage Investment Conduits
("REMICs"). REMICs are a pass-through vehicle created to issue multiclass
Mortgage Backed Securities. REMICs may be organized as corporations,
partnerships, or trusts and those meeting certain qualifications are not subject
to double taxation. Interests in REMICs may be senior or junior, regular (debt
instruments) or residual (equity interests).
FLOATING AND VARIABLE RATE DEBT INSTRUMENTS
Each of the Funds may invest in floating and variable rate debt
instruments. Floating and variable rate debt instruments bear interest at rates
that are not fixed, but vary with changes in specified market rates or indices
or at specified intervals. Certain of these instruments may carry a demand
feature that would permit the holder to tender them back to the issuer at a par
value prior to maturity. The floating and variable rate instruments that the
Funds may purchase include certificates of participation in such obligations
purchased from banks. Pacific Century will monitor on an ongoing basis the
ability of an
PROSPECTUS
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issuer of a demand instrument to make payment when due, which could be affected
by events occurring between the date the Funds elect to demand payment and the
date payment is due, except when such demand instruments permit same-day
settlement. In this regard, Pacific Century, pursuant to direction of the Board
of Trustees, will determine the liquidity of those instruments with demand
features that cannot be exercised within seven days.
WHEN-ISSUED SECURITIES AND FORWARD
COMMITMENTS
Each of the Funds may purchase securities on a "when-issued" basis and may
also purchase or sell securities on a "forward commitment" basis. These
transactions, which involve a commitment by a Fund to purchase or sell
particular securities with payment and delivery taking place at a future date
(perhaps one or two months later), permit a Fund to lock-in a price or yield on
a security it owns or intends to purchase, regardless of future changes in
interest rates. When-issued and forward commitment transactions involve the
risk, however, that the yield obtained in a transaction may be less favorable
than the yield available in the market when the securities delivery takes place.
The Funds do not intend to engage in when-issued purchases and forward
commitments for speculative purposes but only in furtherance of their investment
objectives. The forward commitments and when-issued purchases are not expected
to exceed 25% of the value of any of the Funds' total assets absent unusual
market conditions.
The Funds will not start earning interest or dividends on when-issued
securities until they are received. The value of the securities underlying a
when-issued purchase or a forward commitment to purchase securities, and any
subsequent fluctuations in their value, is taken into account when determining
the net asset value of a Fund starting on the date such Fund agrees to purchase
the securities. Each Fund will establish a segregated account in which it will
maintain liquid assets in an amount at least equal in value to such Fund's
commitment to purchase securities on a when-issued or forward commitment basis.
If the value of these assets declines, the Fund will replace additional liquid
assets in the account on a daily basis so that the value of the assets in the
account is equal to the amount of such commitments.
LETTERS OF CREDIT AND LIQUIDITY AGREEMENTS
Each of the Funds may purchase debt obligations that are backed by an
irrevocable letter of credit or liquidity agreement of a bank, savings and loan
association or insurance company which assumes the obligation for payment of
principal and interest in the event of default by the issuer. Only banks,
savings and loan associations and insurance companies which, in the opinion of
Pacific Century, are of investment quality comparable to other permitted
investments of such Fund, may be used for letter of credit and liquidity
agreement backed investments.
FOREIGN SECURITIES
Balanced Fund, Diversified Fixed Income Fund, Growth and Income Fund,
Growth Stock Fund, Short Intermediate U.S. Treasury Securities Fund, Tax-Free
Securities Fund, Tax-Free Short Intermediate Securities Fund and U.S. Treasury
Securities Fund may invest directly in securities of foreign governmental and
private issuers that are denominated in and pay interest in U.S. dollars.
New Asia Growth Fund may invest in the securities of foreign issuers
directly or in the form of American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs") or other
Depositary Receipts (which, together with ADRs, GDRs and EDRs, are hereinafter
collectively referred to as "Depositary Receipts") to the extent such Depositary
Receipts become available. ADRs (which include American Depositary Shares and
New York Shares) are publicly traded on exchanges or over-the-counter ("OTC") in
the United States. GDRs, EDRs and other types of Depositary Receipts are
typically issued by foreign depositaries, although they may also be issued by
U.S. depositaries, and
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evidence ownership interests in a security or pool of securities issued by
either a U.S. or foreign corporation. Depositary Receipts may be "sponsored" or
"unsponsored." In a sponsored arrangement, the foreign issuer assumes the
obligation to pay some or all of the depositary's transaction fees, whereas in
an unsponsored arrangement, the foreign issuer assumes no obligation and the
depositary's transaction fees are paid by the holders of the Depositary
Receipts. Foreign issuers in respect of whose securities unsponsored Depositary
Receipts have been issued are not necessarily obligated to disclose material
information in the markets in which the unsponsored Depositary Receipts are
traded, and, therefore, there may not be correlation between such information
and the market value of such securities.
New Asia Growth Fund may hold foreign currency in connection with the
purchase and sale of foreign securities. To the extent the foreign currency is
so held, there may be a risk due to foreign currency exchange rate fluctuations.
Such foreign currency will be held with the Fund's custodian bank or by an
approved foreign subcustodian.
Investing in the securities of foreign issuers involves special risks and
considerations not typically associated with investing in the United States. See
"Additional Risk Disclosure" below. For additional discussion concerning
investment in foreign debt securities, see "Debt Securities" below.
CONVERTIBLE SECURITIES
Each of Balanced Fund, Growth and Income Fund, Growth Stock Fund and New
Asia Growth Fund may invest in convertible securities that provide current
income and are issued by companies with the characteristics described above. The
Funds may purchase convertible securities that are fixed-income debt securities
or preferred stocks, and which may be converted at a stated price within a
specified period of time into a certain quantity of the common stock of the same
or other issuers. Convertible securities, while usually subordinated to
nonconvertible debt securities of the same issuer, are senior to common stocks
in an issuer's capital structure. Convertible securities may offer more
flexibility by providing the investor with a steady income stream (generally
yielding a lower amount than nonconvertible securities of the same issuer and a
higher amount than common stocks) as well as the opportunity to take advantage
of increases in the price of the issuer's common stock through the conversion
feature. Convertible security prices tend to be influenced by changes in the
market value of the common stock as well as changes in interest rates.
Convertible securities in which the Funds may invest are subject to the rating
criteria and limitations discussed below under "Debt Securities."
WARRANTS
Balanced Fund, Growth and Income Fund, Growth Stock Fund and New Asia
Growth Fund may invest in warrants. A warrant gives the holder thereof the right
to subscribe by a specified date to a stated number of shares of stock of the
issuer at a fixed price. Warrants tend to be more volatile than the underlying
stock, and if at a warrant's expiration date the stock is trading at a price
below the price set in the warrant, the warrant will expire worthless.
Conversely, if at the expiration date the stock is trading at a price higher
than the price set in the warrant, a Fund can acquire the stock at a price below
its market value. No Fund may invest more than 10% of its net assets in
warrants.
INTEREST ONLY OR PRINCIPAL ONLY OBLIGATIONS
Each of the Funds may make limited investments (not exceeding 5% of the
relevant Fund's net assets) in separately traded principal and interest
components of securities issued by the United States Treasury. The principal and
interest components or selected securities are traded independently under the
Separate Trading of Registered Interest and Principal of Securities program
("STRIPs"). Under the STRIPs program, the principal and interest components are
individually numbered and separately issued by the U.S. Treasury at the request
of
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depository financial institutions, which then trade the component parts
independently.
GUARANTEED INVESTMENT CONTRACTS
Each of the Funds may invest up to 5% of its net assets in Guaranteed
Investment Contracts ("GICs") issued by highly rated U.S. insurance companies.
GICs are considered to be illiquid, and accordingly, are subject to the Fund's
15% limitation on investment in illiquid securities. See the SAI, "Additional
Information on Fund Investments."
PORTFOLIO TURNOVER
Generally, the Funds will purchase portfolio securities for capital
appreciation or investment income, or both, and not for short-term trading
profits. However, a Fund may sell a portfolio investment soon after its
acquisition if Pacific Century believes that such a disposition is consistent
with attaining the investment objective of the particular Fund. Portfolio
investments may be sold for a variety of reasons, such as a more favorable
investment opportunity or other circumstances bearing on the desirability of
continuing to hold such investments. The annual portfolio turnover rate is not
expected to exceed 100% for any Fund. For the fiscal years ended July 31, 1997
and July 31, 1996, the portfolio turnover rate for the Funds were as follows:
PORTFOLIO TURNOVER RATE FOR FISCAL YEARS ENDED
JULY 31, 1997 AND JULY 31, 1996
<TABLE>
<CAPTION>
FUND 1997 1996
------------------------------------------------------------------ ------ -----
<S> <C> <C>
Diversified Fixed Income Fund..................................... 80.98% 58.86%
Growth and Income Fund............................................ 74.83% 80.83%
Growth Stock Fund................................................. 32.20% 61.30%
New Asia Growth Fund.............................................. 134.89% 86.53%
Short Intermediate U.S. Treasury Securities Fund.................. 51.56% 47.17%
Tax-Free Securities Fund.......................................... 11.07% 24.78%
Tax-Free Short Intermediate Securities Fund....................... 29.46% 54.70%
U.S. Treasury Securities Fund..................................... 44.90% 15.75%
</TABLE>
See "Portfolio Transactions" in the Statement of Additional Information for
additional information relating to portfolio turnover rate.
INVESTMENT POLICIES
Each Fund's investment objectives, as set forth in the first paragraph of
the description of each Fund in the "Highlights" section, are fundamental; that
is, they may not be changed without approval by vote of the holders of a
majority of the relevant Fund's outstanding voting securities, as described
under "Capital Stock" in the SAI. If the Trust's Board of Trustees determines,
however, that a Fund's investment objective can best be achieved by a
substantive change in a non-fundamental investment policy or strategy, the
Trust's Board may make such change without shareholder approval and will
disclose any such material changes in the then-current prospectus. Any policy
that is not specified in a Fund's Prospectus, or in the SAI, as being
fundamental, is nonfundamental.
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ADDITIONAL RISK DISCLOSURE
RISK FACTORS AND SPECIAL CONSIDERATIONS OF
INVESTING IN FOREIGN SECURITIES GENERALLY AND
IN COUNTRIES WITH SMALLER CAPITAL MARKETS
Investing on an international basis involves certain risks not involved in
domestic investments, including fluctuations in foreign exchange rates, future
political and economic developments, and the possible imposition of exchange
controls or other foreign governmental laws or restrictions. In addition, with
respect to certain foreign countries, there is the possibility of expropriation
of assets, confiscatory taxation, political or social instability or diplomatic
developments which could affect investments in those countries. Moreover,
individual foreign economies may differ favorably or unfavorably from the U.S.
economy in such respect as growth of gross national product, rates of inflation,
capital reinvestment, resources, self-sufficiency and balance of payments
position. Certain foreign investments may also be subject to foreign withholding
taxes. Most of the foreign securities held by the Funds will not be registered
with the Securities and Exchange Commission, nor will the issuers thereof be
subject to the reporting requirements of such agency. Accordingly, there may be
less publicly available information about a foreign company than about a U.S.
company, and such foreign companies may not be subject to accounting, auditing
and financial reporting standards and requirements comparable to those to which
U.S. companies are subject. As a result, traditional investment measurements,
such as price/earnings ratios, as used in the United States, may not be
applicable to certain smaller capital markets. Foreign companies are not
generally subject to uniform accounting, auditing and financial reporting
standards or to practices and requirements comparable to those applicable to
domestic companies. Foreign markets also have different clearance and settlement
procedures, and in certain markets there have been times when settlements have
failed to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Brokerage commissions and other
transaction costs on foreign securities exchanges are generally higher than in
the United States. There is generally less government supervision and regulation
of exchanges, brokers and issuers in foreign countries than there is in the
United States. The foregoing risks are often heightened for investments in
smaller capital markets and developing countries.
To the extent a Fund invests in foreign securities, its operating expense
ratio can be expected to be higher than that of an investment company investing
exclusively in U.S. securities since certain expenses of the Fund, such as
management and advisory fees and custodial costs, may be higher.
New Asia Growth Fund will invest heavily in securities denominated or
quoted in currencies other than the U.S. dollar. Accordingly, changes in foreign
currency exchange rates will affect the value of securities in the portfolio and
the unrealized appreciation or depreciation of investments insofar as U.S.
investors are concerned.
RISKS OF HEDGING STRATEGIES
Participation in the options or 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. If the investment
adviser's predictions of movements in the direction of the securities, foreign
currency and interest rate markets are inaccurate, the adverse consequences to a
Fund may leave the Fund in a worse position than if such strategies were not
used. Risks inherent in the use of options, foreign currency and futures
contracts and options on futures contracts include (1) dependence on the
investment adviser's ability to predict correctly movements in the direction of
interest rates, securities prices and currency markets; (2) imperfect
correlation between the price of options and futures contracts and options
thereon and movements in the prices of the securities or currencies being
hedged; (3) the fact that skills needed to use these strategies are different
from those needed to select portfolio
PROSPECTUS
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securities; (4) the possible absence of a liquid secondary market for any
particular instrument at any time; (5) the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences; and (6) the possible
inability of the Fund to purchase or sell a portfolio security at a time that
otherwise would be favorable for it to do so, or the possible need for the Fund
to sell a portfolio security at a disadvantageous time, due to the need for the
Fund to maintain "cover" or to segregate securities in connection with hedging
transactions. See SAI, "Additional Information on Fund Investments" and "Tax
Information."
A Fund will generally purchase options and futures on an exchange only if
there appears to be a liquid secondary market for such options or futures; a
Fund will generally purchase over-the-counter options only if management
believes that the other party to the options will continue to make a market for
such options. However, there can be no assurance that a liquid secondary market
will continue to exist or that the other party will continue to make a market.
Thus, it may not be possible to close an options or futures transaction. The
inability to close options and futures positions also could have an adverse
impact on a Fund's ability to effectively hedge its portfolio. There is also the
risk of loss by a Fund of margin deposits or collateral in the event of
bankruptcy of a broker with whom the Fund has an open position in an option, a
futures contract or related option.
RISK FACTORS ASSOCIATED WITH
INVESTMENT IN CERTAIN DEBT SECURITIES
Lowest Category of Investment Grade. Obligations rated in the lowest of the
top four rating categories by an NRSRO have speculative characteristics, and
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity to make principal and interest payments than is the case
with higher grade bonds. Subsequent to its purchase by a Fund, an issue of
securities may cease to be rated or its rating category may be reduced below the
minimum rating required for purchase by the respective Fund. The investment
adviser will consider such an event in determining whether the relevant Fund
should continue to hold the obligation.
Lower Rated Debt Securities (New Asia Growth Fund only). New Asia Growth
Fund may invest in securities rated in the medium to low rating categories of
NRSROs such as Standard & Poor's Corporation ("S&P") and Moody's Investors
Service, Inc. ("Moody's") and unrated securities of comparable quality (referred
to herein as "high yield/high risk securities"). These securities are
predominantly speculative with respect to the capacity to pay interest and repay
principal in accordance with the terms of the security, generally involve a
greater volatility of price than securities in higher rating categories, may
have call or redemption features which would permit the issuer to repurchase
securities from New Asia Growth Fund, are less liquid than higher rated
securities, and may have their value and liquidity negatively impacted by
adverse publicity and investor perceptions. See "Appendix" in the SAI. These
securities are commonly referred to as "junk bonds." In purchasing such
securities, New Asia Growth Fund will rely on the investment adviser's judgment,
analysis and experience in evaluating the creditworthiness of an issuer of such
securities. The investment adviser will take into consideration, among other
things, the issuer's financial resources, its sensitivity to economic conditions
and trends, its operating history, the quality of the issuer's management and
regulatory matters. New Asia Growth Fund is not authorized to purchase debt
securities that are in default, except that the Fund may invest in sovereign
debt which is in default, provided that not more than 5% of its total assets is
invested in sovereign debt (including sovereign debt which is in default). For a
further discussion of the risks associated with investment in high yield/high
risk securities, see SAI, "Additional Information Fund Investments."
Sovereign Debt (New Asia Growth Fund only). The sovereign debt instruments
in which New Asia Growth Fund may invest involve great risk and are deemed to be
the equivalent in terms of quality to high yield high risk securities. New Asia
Growth
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Fund may have difficulty disposing of certain sovereign debt obligations because
there may be no liquid secondary trading market for such securities. New Asia
Growth Fund may invest up to 5% of its total assets in sovereign debt, including
sovereign debt which is in default.
SPECIAL CONCERNS FOR NEW ASIA GROWTH FUND
Investing in Developing Asian Securities Markets and Economies. Because New
Asia Growth Fund intends to invest primarily in securities of companies located
in developing Asian countries, an investor in the Fund should be aware of
certain risk factors and special considerations relating to investing in these
developing economies. More generally, the investor should also be aware of risks
and considerations related to international investing and investing in smaller
capital markets, each of which may involve risks which are not typically
associated with investments in securities of U.S. issuers. Consequently, the
Fund should be considered as a means of diversifying an investment portfolio and
not in itself a balanced investment program.
New Asia Growth Fund invests primarily in the securities of companies
located in the developing countries of Asia. The securities markets of
developing Asian countries are not as large as the U.S. securities markets and
have substantially less trading volume, resulting in a lack of liquidity and
high price volatility. Certain markets, such as those of China, are in only the
earliest stages of development. There is also a high concentration of market
capitalization and trading volume in a small number of issuers representing a
limited number of industries, as well as a high concentration of investors and
financial intermediaries. Many of such markets also may be affected by
developments with respect to more established markets in the region, such as in
Japan. Developing Asian brokers typically are fewer in number and less
capitalized than brokers in the United States. These factors, combined with the
U.S. regulatory requirements for open-end investment companies and the
restrictions on foreign investments discussed below, result in potentially fewer
investment opportunities for New Asia Growth Fund and may have an adverse impact
on the investment performance of the Fund.
The investment objective of New Asia Growth Fund reflects the belief that
the economies of the developing Asian countries will continue to grow in such a
fashion as to provide attractive investment opportunities. At the same time,
emerging economies present certain risks that do not exist in more established
economies. Especially significant is that political and social uncertainties
exist for some of these developing Asian countries. In addition, the governments
of many of such countries have a heavy role in regulating and supervising the
economy. Another risk common to most such countries is that the economy is
heavily export oriented and, accordingly, is dependent upon international trade.
The existence of overburdened infrastructure and obsolete financial systems also
presents risks in certain countries, as do environmental problems. Certain
economies also depend to a significant degree upon exports of primary
commodities and, therefore, are vulnerable to changes in commodity prices which,
in turn, may be affected by a variety of factors.
Archaic legal systems in certain developing Asian countries also may have
an adverse impact on New Asia Growth Fund. For example, while the potential
liability of a shareholder in a U.S. corporation with respect to the acts of the
corporation is generally limited to the amount of the shareholder's investment,
the notion of limited liability is less clear in certain developing Asian
countries. Similarly, the rights of investors in developing Asian companies may
be more limited than those of shareholders of U.S. corporations.
Certain of the risks associated with international investments and
investing in smaller capital markets are heightened for investments in
developing Asian countries. For example, some of the currencies of developing
Asian countries have experienced devaluations relative to the U.S. dollar, and
major adjustments have been made periodically in certain of such currencies.
Certain countries, such as India, face serious exchange constraints.
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Inflation accounting rules in some developing Asian countries require, for
companies that keep accounting records in the local currency, for both tax and
accounting purposes, that certain assets and liabilities be restated on the
company's balance sheet in order to express items in terms of currency of
constant purchasing power. Inflation accounting may indirectly generate losses
or profits for certain developing Asian companies.
Satisfactory custodial services for investment securities may not be
available in some developing Asian countries, which may result in the Fund
incurring additional costs and delays in providing transportation and custody
services for such securities outside such countries.
Certain developing Asian countries, such as the Philippines and India, are
especially large debtors to commercial banks and foreign governments. In
addition, trading in sovereign debt issued or guaranteed by governmental
entities in developing Asian countries involves a high degree of risk. These
risks are discussed below in "Risk Factors Associated with Investment in Certain
Debt Securities."
Restrictions on Foreign Investments. Some developing Asian countries
prohibit or impose substantial restrictions on investments in their capital
markets, particularly their equity markets, by foreign entities such as New Asia
Growth Fund. As illustrations, certain countries may require governmental
approval prior to investments by foreign persons or limit the amount of
investment by foreign persons in a particular company or limit the investment by
foreign persons to only a specific class of securities of a company which may
have less advantageous terms (including price) than securities of the company
available for purchase by nationals. Certain countries may restrict investment
opportunities in issuers or industries deemed important to national interests.
The manner in which foreign investors may invest in companies in certain
developing Asian countries, as well as limitations on such investments, also may
have an adverse impact on the operations of New Asia Growth Fund. For example,
New Asia Growth Fund may be required in certain of such countries to invest
initially through a local broker or other entity and then have the shares that
were purchased reregistered in the name of New Asia Growth Fund. Re-registration
may in some instances not be able to occur on a timely basis, resulting in a
delay during which New Asia Growth Fund may be denied certain of its rights as
an investor, including rights as to dividends or to be made aware of certain
corporate actions. There also may be instances where New Asia Growth Fund places
a purchase order but is subsequently informed, at the time of re-registration,
that the permissible allocation of the investment to foreign investors has been
filled, depriving the Fund of the ability to make its desired investment at that
time.
Substantial limitations may exist in certain countries with respect to the
Fund's ability to repatriate investment income, capital or the proceeds of sales
of securities by foreign investors. New Asia Growth Fund could be adversely
affected by delays in, or a refusal to grant, any required governmental approval
for repatriation of capital, as well as by the application to the Fund of any
restrictions on investments. In addition, even where there is no outright
restriction on repatriation of capital, the mechanics of repatriation may affect
certain aspects of the operations of the Fund. For example, funds may be
withdrawn from China only in U.S. or Hong Kong dollars and only at an exchange
rate established by the government once each week.
A number of publicly traded closed-end investment companies have been
organized to facilitate indirect foreign investment in developing Asian
countries, and certain of such countries, such as Thailand and South Korea, have
specifically authorized such funds. There also are investment opportunities in
certain of such countries in pooled vehicles that resemble open-end investment
companies. As discussed above, the Fund's investment in these companies will be
subject to certain percentage limitations of the 1940 Act. See "Additional
Discussion Regarding Permitted Investment Activities--Other Investment
Companies." This restriction on investments in securities of investment
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companies may limit opportunities for New Asia Growth Fund to invest indirectly
in certain developing Asian countries. Shares of certain investment companies
may at times be acquired only at market prices representing premiums to their
net asset values.
In certain countries, banks or other financial institutions may be among
the leading companies or have actively traded securities. The 1940 Act restricts
New Asia Growth Fund's investments in any equity securities of an issuer which,
in its most recent fiscal year, derived more than 15% of its revenues from
"securities-related activities," as defined by the rules thereunder. These
provisions may restrict the Fund's investments in certain foreign banks and
other financial institutions.
Limitations on Share Transactions. To permit New Asia Growth Fund to invest
the net proceeds from the sale of its shares in an orderly manner, the Fund may,
from time to time, suspend the sale of its shares, except for dividend
reinvestment. The Fund also reserves the right to limit the number of its shares
that may be purchased by a person during a specified period of time or in the
aggregate.
SPECIAL CONCERNS FOR THE TAX-FREE FUNDS
Tax-Free Securities Fund and Tax-Free Short Intermediate Securities Fund
are non-diversified, which means that their assets may be invested among fewer
issuers and therefore the value of their assets may be subject to greater impact
by events affecting one of their investments.
Since Tax-Free Securities Fund and Tax-Free Short Intermediate Securities
Fund invest significantly in obligations of issuers located in Hawaii, the
marketability, and market value of these obligations may be affected by certain
Hawaiian constitutional provisions, legislative measures, executive orders,
administrative regulations, and vote initiatives.
The Hawaiian economy is concentrated in tourism, agriculture and military
operations. Tourism is the strongest factor with tourists from a variety of
nations cushioning any adverse economic situations in a single country. Hawaiian
agriculture is diversifying into an expanded range of agricultural products,
away from the dominant pineapple and sugar production that has been subject to
increased foreign competition.
Governmental activities, including activities usually administered on a
municipal or county level such as public education, are the responsibility of
the state. This concentration aggravates an otherwise high level of state debt
obligations. The state General Fund has operated either within planned deficits
or with ending fund balances since December 1962. Revenue is derived primarily
from general excise taxes and individual and corporate income tax.
ADDITIONAL INVESTMENT RESTRICTIONS
As matters of fundamental policy, each of the Funds may not:
1. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in the securities of such issuer, or more than 10% of
the issuer's outstanding voting securities would be owned by the Fund, except
that up to 25% of the value of the Fund's total assets may be invested without
regard to these limitations, and except that this restriction does not apply to
Tax-Free Securities Fund or Tax-Free Short Intermediate Securities Fund, which
are non-diversified funds.
2. Purchase any securities which would cause 25% or more of the value of
the Fund's total assets at the time of purchase to be invested in the securities
of one or more issuers conducting their principal business activities in the
same industry, provided that (a) there is no limitation with respect
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to U.S. Government Obligations and repurchase
agreements secured by such obligations; (b) with respect to Tax-Free Securities
Fund and Tax-Free Short Intermediate Securities Fund, there is no limitation
with respect to Municipal Obligations (for purposes of this limitation, private
activity bonds that are backed only by the assets and revenues of a
non-governmental user shall not be deemed to be Municipal Obligations); (c)
wholly owned finance companies will be considered to be in the industries of
their parents if their activities are primarily related to financing the
activities of the parents; and (d) utilities will be divided according to their
services, for example, gas, gas transmission, electric and gas, electric and
telephone will each be considered a separate industry.
3. Make loans, borrow money or issue senior securities, except under
certain circumstances, and subject to certain percentage limitations, specified
above and in the SAI.
If a percentage limitation is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in the value of
a Fund's portfolio securities will not constitute a violation of such
limitation.
MANAGEMENT, ADVISORY AND OTHER SERVICE ARRANGEMENTS
THE BOARD OF TRUSTEES
The business and affairs of the Trust are managed under the direction and
control of its Board of Trustees. The names and principal occupations of the
Trustees of the Trust are listed below. Trustees deemed to be "interested
persons" of the Trust for purposes of the 1940 Act are indicated by an asterisk.
<TABLE>
<CAPTION>
POSITION(S) HELD
NAME AND ADDRESS WITH THE TRUST PRINCIPAL ORGANIZATION
- ----------------------------------------------- --------------------------------------------
<S> <C> <C>
Deborah G. Patterson* Trustee and Chairperson Senior Vice President of Bank of
Hawaii--Asset Management and Private Client
Group (1994-present); Director of KPMG Peat
Marwick (1993-1994); Senior Vice President
and Manager of Wells Fargo Bank (1987-1992)
Irigma McKay* Trustee and President Senior Vice President of BISYS Fund Services
(1994-present); Senior Vice President of
Concord Financial Group (1986-1994)
Douglas Philpotts* Trustee Chairman of the Board of Directors
(1992-1994), President (1986-1992), and
Director (1984-present) of Pacific Century
Richard W. Gushman, II Trustee President and Chief Executive Officer of
OKOA, Inc. (1985-present); Adviser to
RAMPAC, Inc.
Stanley W. Hong Trustee President and Chief Executive Officer of the
Chamber of Commerce of Hawaii
(1996-present); Business Consultant
(1994-present)
Russell K. Okata Trustee Executive Director of Hawaii Government
Employees Association (1981-present)
Oswald K. Stender Trustee Trustee of Bernice Pauahi Bishop Estate
(1990-present); Director of Hawaiian
Electric Industries, Inc. (1993-present)
</TABLE>
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Trustees of the Trust who are not officers or employees of the Trust, BISYS
or Pacific Century are entitled to receive from the Trust a quarterly retainer
and a fee for each Board of Trustees meeting attended. All Trustees are
reimbursed for all reasonable out-of-pocket expenses relating to attendance at
meetings.
THE ADVISER
Pursuant to an Advisory Agreement, the Funds are advised by Pacific
Century, whose address is Financial Plaza of the Pacific, 111 S. King Street,
Honolulu, Hawaii 96813. Pacific Century is a Hawaii corporation organized in
1898 and is the largest trust company in the State of Hawaii, both in terms of
assets under administration and assets under management. As of July 31, 1997,
Pacific Century had approximately $7.5 billion of client financial assets under
management. Pacific Century is a division of Bank of Hawaii, the largest banking
organization headquartered in the State of Hawaii, with approximately $12.6
billion of assets as of July 31, 1997, and branches and offices throughout the
Pacific Basin, including Guam, Singapore, Tokyo, Seoul and Taiwan. All shares of
Bank of Hawaii are owned by Pacific Century Financial Corporation (formerly
Bancorp Hawaii, Inc., "Pacific Century Financial") and Bank of Hawaii's
Directors (each of whom owns qualifying shares as required by Hawaii law).
Pacific Century Financial is a bank holding company, registered under the Bank
Holding Company Act of 1956, as amended, and its common stock is listed and
traded on the New York Stock Exchange (the "Exchange"). Pacific Century
Financial files annual and periodic reports with the Commission and the
Exchange, which are available for public inspection. Pacific Century is not
authorized to and does not carry on a banking business.
The actual management of the portfolios of the Trust is coordinated by
Pacific Century's investment unit, which is staffed with more than 40 people,
including 5 Chartered Financial Analysts and 9 M.B.A.'s. All investment
decisions of the Funds are made by a committee, and no person(s) is primarily
responsible for making recommendations to the committee. Pacific Century has
served as investment adviser to other investment companies since 1984. These
include the Hawaiian Tax-Free Trust, with assets exceeding $660 million as of
July 31, 1997 and the Cash Assets Trust, with assets of approximately $736
million as of July 31, 1997.
Subject to the supervision of the Board of Trustees, Pacific Century will
provide a continuous investment program for the Funds, including investment
research and management with respect to all securities and investments and cash
equivalents in the Funds. Pacific Century will determine from time to time what
securities and other investments will be purchased, retained or sold by the
Trust with respect to the Funds. Pacific Century will provide the services under
the Advisory Agreement in accordance with each of the Fund's investment
objectives, policies, and restrictions.
For its services, Pacific Century is entitled to monthly advisory fees
based on a percentage of each Fund's average daily net assets. The following
table sets forth the rate of advisory fee payable by each Fund under the
Advisory Agreement as a percentage of average daily net assets.
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ADVISORY FEE PAYABLE UNDER ADVISORY AGREEMENT
<TABLE>
<CAPTION>
ADVISORY FEE ADVISORY FEE
(% OF AVERAGE (% OF AVERAGE
FUND DAILY NET ASSETS) FUND DAILY NET ASSETS)
- ------------------------------ ----------------- --------------------------------- -----------------
<S> <C> <C> <C>
Diversified Fixed Income Fund 0.60% Short Intermediate U.S. Treasury
Growth and Income Fund 0.80% Securities Fund 0.50%
Growth Stock Fund 0.80% Tax-Free Securities Fund 0.60%
New Asia Growth Fund 0.90% Tax-Free Short Intermediate Fund 0.50%
U.S. Treasury Securities Fund 0.60%
</TABLE>
For the fiscal year ended July 31, 1997, the advisory fees paid by the
Funds to Pacific Century under the Advisory Agreement as a percentage of average
daily net assets were as follows: Diversified Fixed Income Fund--0.60%; Growth
and Income Fund--0.80%; Growth Stock Fund--0.80%; New Asia Growth Fund--0.90%;
Tax-Free Securities Fund--0.60%; Tax-Free Short Intermediate Securities
Fund--0.50%; Short Intermediate U.S. Treasury Securities Fund--0.30% (after
advisory fee waiver); and U.S. Treasury Securities Fund--0.60%. Balanced Fund
has not commenced operations as of the date of this Prospectus.
THE SUB-ADVISER
Nicholas-Applegate Capital Management (Hong Kong) LLC has been retained as
Sub-Adviser to New Asia Growth Fund. Pursuant to a separate sub-advisory
agreement with Pacific Century (the "Sub-Advisory Agreement"), the Sub-Adviser
provides investment advisory services with respect to management of the foreign
component of New Asia Growth Fund's portfolio, including investment research
with respect to all foreign securities, currencies and cash equivalents in New
Asia Growth Fund.
The Sub-Adviser is a California limited liability company, located at Room
604-6, Three Exchange Square, 8 Connaught Place, Central, Hong Kong, and is part
of an investment management organization which together manage approximately $31
billion as of July 31, 1997 through a variety of investment products and
services. The Sub-Adviser is registered as an investment adviser with the
Commission under the Investment Advisers Act of 1940. The Sub-Adviser
specializes in the management of equities in Asia.
For its services to New Asia Growth Fund under the Sub-Advisory Agreement,
Pacific Century pays the Sub-Adviser a fee equal to 0.50% of the Fund's average
daily net assets, computed daily and payable quarterly. The fee payable by
Pacific Century to the Sub-Adviser represents a portion of the 0.90% investment
advisory fee paid to Pacific Century. New Asia Growth Fund does not pay any
incremental fee for the services of the Sub-Adviser.
All investment decisions of the Sub-Adviser with respect to New Asia Growth
Fund are made by a committee, and no person is responsible for making
recommendations to the committee.
THE SPONSOR, ADMINISTRATOR AND DISTRIBUTOR
BISYS is the administrator for each Fund, and also acts as the Trust's
principal underwriter and distributor. BISYS generally assists in all aspects of
the administration and operation of the Funds. For expenses assumed and services
provided as administrator pursuant to its Administration Agreement with the
Trust, BISYS is entitled to receive a fee from the Funds, computed daily and
paid monthly, at an annual rate equal to 0.20% of the average daily net assets
of each Fund.
In addition, BISYS, as the principal underwriter of the Funds within the
meaning of the 1940 Act, has entered into a Distribution Agreement with the
Trust pursuant to which BISYS has the responsibility for distributing shares of
the Funds. The
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Distribution Agreement provides that BISYS shall
act as agent for the Funds for the sale of their shares and may enter into
selling agreements with banks, broker/dealers or other financial institutions to
market and make available shares to their respective customers.
BISYS is a broker-dealer registered with the Commission, and is a member of
the National Association of Securities Dealers ("NASD").
For the fiscal year ended July 31, 1997, the ratio of total expenses to
average net assets (excluding waivers) for the Funds were as follows:
Diversified Fixed Income Fund--0.94%, Growth and Income Fund--1.11%, Growth
Stock Fund--1.11%, New Asia Growth Fund--1.82%, Short Intermediate U.S. Treasury
Securities Fund--0.87%, Tax-Free Securities Fund--0.91%, Tax-Free Short
Intermediate Securities Fund--0.89%, and U.S. Treasury Securities Fund--0.95%.
OTHER SERVICE ARRANGEMENTS
Administrative Data Management Corporation ("ADM" or the "Transfer Agent"),
581 Main Street, Woodbridge, New Jersey 07095, serves as the Trust's transfer
agent and dividend disbursing agent. Ernst & Young LLP, One Columbus, Suite
2300, 10 West Broad Street, Columbus, Ohio 43215, serves as independent auditors
for the Trust.
VALUATION OF CLASS Y SHARES
The net asset value of the Class Y shares for each Fund is determined and
its shares are priced as of the close of the Exchange (currently 4:00 p.m.,
Eastern Time) (the "Valuation Time") each Business Day. As used herein, a
"Business Day" is a day on which the Exchange is open for trading and any other
day (other than a day on which no shares of that Fund are tendered for
redemption and no order to purchase shares received) during which there is
sufficient trading in the Fund's portfolio securities that the Fund's net asset
value per share might be materially affected. The Exchange will not be open in
observance of the following holidays: New Year's Day, Presidents' Day, Martin
Luther King Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day,
Christmas Day and Good Friday.
Net asset value per share for Class Y is calculated by determining the
value of Class Y's proportional interest in the securities and other assets of
each Fund, less (i) such class's proportional share of general liabilities and
(ii) liabilities allocable only to such class, and dividing such amount by the
number of shares of the Class outstanding. The net asset value per share for
each Fund will fluctuate as the value of its investment portfolio changes.
Except for debt obligations with remaining maturities of 60 days or less,
which are valued at amortized cost, assets are valued at current market prices,
or if such prices are not readily available, at fair value as determined in good
faith by the Board of Trustees. Prices used for such valuations may be provided
by independent pricing services. For further information about valuation of
investments in the Funds, see the SAI.
HOW TO PURCHASE CLASS Y SHARES
PURCHASE OF SHARES
Class Y shares of each Fund are sold on a continuous basis by BISYS. The
principal office of BISYS is located at 3435 Stelzer Road, Columbus, Ohio
43219-3035. If you wish to purchase shares contact BISYS at 800-258-9232. Only
Institutions acting on behalf of customers having a qualified trust account,
employee benefit account or other qualifying account at such Institution are
eligible to
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invest in Class Y of each Fund's shares. Direct purchases of Fund shares by
individual investors, including purchases through SIPC insured brokerage
accounts, are not permitted.
Class Y shares of any Fund acquired by persons through qualifying accounts
may continue to be held in separate accounts in the name of the person or
persons so acquiring the shares, but dividends and distributions relating to
such shares may not be reinvested and no additional Class Y shares of such Fund
may be purchased for such separate accounts unless the account holder qualifies
to purchase additional Class Y shares. Persons who have acquired shares of any
Fund, as described above, and do not qualify for purchasing additional Class Y
shares, may make an additional investment in the Fund by purchasing Class A and
Class B shares, which are not offered hereby. Persons who have acquired Class Y
shares, as described above, but no longer qualify to make an additional
investment in such shares will have their holdings converted to Class A shares
of the same Fund. As shareholders of Class A shares, such former Class Y
shareholders will be permitted to reinvest dividends and distributions relating
to their share holdings, but will be subject to the higher expenses associated
with Class A shares. See "Exchange Privileges and Conversion Feature" below.
Class Y shares of the Funds may be purchased through procedures established
by BISYS in connection with requirements of qualified accounts maintained by or
on behalf of certain persons ("Customers") by an Institution. These procedures
may include instructions under which a Customer's account is "swept"
automatically no less frequently than weekly and amounts in excess of a minimum
amount agreed upon by an Institution and its Customer are invested by BISYS in
shares of a Fund.
Class Y shares of a Fund sold to an Institution acting in a fiduciary,
advisory, custodial or other similar capacity on behalf of a customer will
normally be held of record by such Institution. With respect to shares so sold,
it is the responsibility of the particular Institution to transmit purchase or
redemption orders to BISYS and to deliver federal funds for purchase on a timely
basis. Beneficial ownership of shares of a Fund will be recorded by such
Institution and reflected in the account statements provided by the Institution
to the customer.
Class Y shares of each Fund are purchased at the public offering price per
share, which is the net asset value per Class Y share (see "Valuation of Class Y
Shares") next determined after receipt by the Transfer Agent of an order to
purchase Class Y shares. BISYS and the Institutions are responsible for the
prompt transmission of purchase orders to the Transfer Agent. Purchases of Class
Y shares of a Fund will be effected only on a Business Day of such Fund. An
order received by the Transfer Agent prior to the Valuation Time on any Business
Day will be executed based on the net asset value determined as of the Valuation
Time on the date of receipt. An order received by the Transfer Agent after the
Valuation Time on any Business Day will be executed based on the net asset value
determined as of the next Business Day.
There is no sales charge imposed by the Trust in connection with the
purchase of Class Y shares in the Funds. Sales charges may apply to purchases of
the other series or classes of the Trust's shares. Depending upon the terms of a
particular Customer account, an Institution may charge a Customer's account fees
for services provided in connection with investment in the Funds. Information
concerning these services and any charges will be provided by the Institutions.
This Prospectus should be read in conjunction with any such information received
from the Institutions.
The Trust reserves the right to reject any order for the purchase of its
shares in whole or in part.
Every shareholder will receive a confirmation of each new transaction in
the Shareholder's account. Certificates representing shares will not be issued.
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EXCHANGE PRIVILEGES AND CONVERSION FEATURE
Class Y shareholders may exchange shares of any Fund on the basis of the
relative net asset value of the shares exchanged for Class Y shares of any other
Fund, Class Y shares of any other series of the Trust or for shares of the Cash
Assets Trust, the Tax-Free Cash Assets Trust, the U.S. Treasuries Cash Asset
Trust or the Hawaiian Tax-Free Trust so long as they maintain the respective
minimum account balance in each Fund in which they own shares. For federal
income tax purposes, such an exchange of shares is deemed a sale on which a
shareholder may realize capital gain or loss. Before an exchange can be
effected, a shareholder must receive a prospectus of the fund into which the
subject shares are to be exchanged. An exchange can be made by calling the Trust
at 800-258-9232. Exchange privileges may be exercised only in those states where
Class Y shares of such other Fund or series may be legally sold, and may be
amended or terminated at any time upon 60 days' notice.
Class Y shareholders of any Fund who terminate their qualified trust
account, employee benefit account or other qualifying relationship with an
Institution are no longer eligible to make additional investments in a Fund's
Class Y shares. Effective February 15, 1997, such Class Y shareholders will have
their Class Y shares of a Fund converted to Class A shares of the same Fund on
the basis of the relative net asset values of the shares of the two classes on
the conversion date, without incurring any fee, sales load or other charge. As
Class A shareholders of a Fund, such former Class Y shareholders will be able to
reinvest dividends and distributions relating to their share holdings, but will
be subject to the higher expenses associated with Class A shares. A conversion
of Class Y shares for Class A shares will be a tax free transaction for any
Class Y shareholder involved in such conversion. Class Y shareholders who are no
longer eligible to make additional investments in a Fund's Class Y shares and
who do not wish to have their holdings converted to Class A shares may choose to
redeem their shares.
HOW TO REDEEM CLASS Y SHARES
An Institution may redeem Class Y shares on behalf of its Customers without
charge on any day that the net asset value is calculated (see, "Valuation of
Class Y Shares") and Class Y shares may ordinarily be redeemed by mail or by
telephone.
REDEMPTION BY MAIL OR TELEPHONE
A written or telephone (available only if the shareholder has elected the
telephone redemption option) request for redemption must be received by BISYS in
order to constitute a valid tender for redemption. BISYS and the Institutions
are responsible for the prompt transmission of redemption requests to the
Transfer Agent. The Trust, the Fund, the Distributor and the Transfer Agent are
not liable for damages resulting from following instructions communicated by
telephone that any of them reasonably believed to be genuine. The Trust will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. If the Trust fails to do so, it may be liable for any
losses due to unauthorized or fraudulent instructions. A description of the
procedures employed by the Trust to confirm instructions communicated by
telephone is contained in the SAI. This policy places the entire risk of loss
for unauthorized or fraudulent transactions on the shareholder, except that if
the Fund, the Transfer Agent, BISYS or their affiliates do not follow reasonable
procedures, some or all of them may be liable for any such losses.
During times of drastic economic or market changes, telephone exchanges or
redemptions may be difficult to implement. If you experience difficulty in
making a telephone exchange or redemption, your exchange or redemption request
may be
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made by regular or express mail, and it will be implemented at the next
determined net asset value following receipt by the Transfer Agent.
PAYMENTS TO CLASS Y SHAREHOLDERS
Redemption orders are effected at the net asset value per Class Y share
next determined after the shares are properly tendered for redemption, as
described above. The proceeds paid upon redemption of shares in a Fund may be
more or less than the amount invested. Payment to shareholders for shares
redeemed will be made within seven days after receipt by the Transfer Agent of
the request for redemption. However, to the greatest extent possible, the Trust
will attempt to honor requests from shareholders for next Business Day payments
upon redemption of Class Y shares if the request for redemption is received by
the Transfer Agent before 4:00 p.m., Eastern Time, on a Business Day or, if the
request for redemption is received after 4:00 p.m., Eastern Time, to honor
requests for payment within two Business Days, unless it would be
disadvantageous to the Trust or the shareholders of the particular Fund to sell
or liquidate portfolio securities in an amount sufficient to satisfy requests
for payments in such manner.
DIVIDEND AND TAX INFORMATION
DIVIDENDS AND DISTRIBUTIONS
Diversified Fixed Income Fund, Short Intermediate U.S. Treasury Securities
Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities Fund and
U.S. Treasury Securities Fund will declare dividends of substantially all of
their net income daily and will pay such dividends monthly. Balanced Fund,
Growth and Income Fund and Growth Stock Fund will declare and pay dividends of
substantially all of their net income monthly. New Asia Growth Fund will declare
and pay dividends of substantially all of its net income quarterly.
Distributable net realized capital gains are distributed at least annually to
shareholders of record. A shareholder will automatically receive all income
dividends and capital gains distributions in additional full and fractional
shares of the same Class of shares held unless the shareholder elects to receive
such dividends or distributions in cash. Dividends and distributions are
reinvested as of the ex-dividend date using the net asset value determined on
that date and are credited to a shareholder's account on the payment date.
Reinvested dividends and distributions receive the same tax treatment as
dividends and distributions paid in cash. Dividends are generally taxable when
received. However, dividends declared in October, November or December to
shareholders of record during those months and paid during the following January
are treated for tax purposes as if they were received by each shareholder on
December 31 of the prior year. Elections to receive dividends or distributions
in cash, or any revocation thereof, must be made in writing to BISYS at 3435
Stelzer Road, Columbus, Ohio 43219-3035, and will become effective with respect
to dividends and distributions having record dates after receipt by the Transfer
Agent.
TAX INFORMATION
Each Fund intends to qualify as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (the "Code"). If a Fund does so
qualify, it will not be liable for federal income taxes to the extent that it
distributes its income to its shareholders as dividends and capital gain
distributions. However, the Code contains a number of complex tests relating to
such qualification and it is possible, although not likely, that a Fund might
not meet one or more of these tests in any particular year. If it does not so
qualify, it would be treated for tax purposes as an ordinary corporation, would
receive no tax deduction for payments made to shareholders and would be unable
to pass through foreign tax credits or to pay dividends or distributions which
would qualify as "exempt-inter-
PROSPECTUS
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<PAGE> 171
est dividends" or "capital gains dividends," as discussed below.
The Tax-Free Securities Fund and Tax-Free Short Intermediate Securities
Fund each intends to qualify during each fiscal year under the Code to pay
exempt-interest dividends to shareholders of exempt-interest dividends.
Exempt-interest dividends which are derived from net interest income earned by a
Fund on tax-exempt securities will be excludable from gross income of the
shareholders of Tax-Free Securities Fund and Tax-Free Short Intermediate
Securities Fund for regular federal income tax purposes. Capital gains dividends
and distributions of short-term capital gains and accrued market discount on
taxable securities and municipal obligations are taxable and are not included in
exempt-interest dividends. Dividends from interest on taxable short-term
obligations, and income from repurchase agreements and securities loans are
reportable by shareholders of Tax-Free Securities Fund and Tax-Free Short
Intermediate Securities Fund as ordinary income. Although tax-exempt dividends
are not taxed, each taxpayer must report the total amount of tax-exempt interest
(including exempt-interest dividends from the Trust) received or acquired during
the year.
Capital gains dividends (net gains from the sale of capital assets held for
more than 12 months over net short-term losses which a Fund distributes) are
reportable by shareholders as long-term capital gains. This is the case whether
the shareholder takes his or her distribution in cash or elects to have the
distribution reinvested in Fund shares and regardless of the length of time the
shareholder has held his or her shares. The maximum capital gains rate for
individuals is 28% with respect to assets held for more than 12 months, but not
more than 18 months ("mid-term gains"), and 20% with respect to assets held for
more than 18 months ("long-term gains"). The maximum capital gains rate for
corporate shareholders currently is the same as the maximum tax rate for
ordinary income.
Short-term gains, when distributed, are taxed to shareholders as ordinary
income. Capital losses of a Fund are not claimed by shareholders but carried
forward by the Fund to offset gains in later years and thereby lessen the
later-year capital gains distributions and amounts taxed to shareholders.
A Fund's gains or losses on sales of securities will be long-term, mid-term
or short-term depending upon the length of time the Fund has held such
securities. Capital gains and losses of the Fund will also include gains and
losses on futures and options, if any, including gains and losses actually
realized on sales and exchanges and gains and losses deemed to be realized.
Those deemed to be realized are on futures and options held by a Fund at
year-end, which are "marked to the market," that is, deemed sold for fair market
value. Net gains or losses realized and deemed realized on Section 1256 futures
and options contracts will be reportable by the Fund as long-term to the extent
of 60% of the gains or losses and short-term to the extent of 40% regardless of
the actual holding period of such investments.
Corporate shareholders may be entitled to a dividends received deduction
with respect to dividends paid by a Fund to the extent they relate to dividends
received by such Fund from domestic corporations.
Information as to the federal tax status of the Funds' dividends and
distributions will be mailed to shareholders annually.
The Trust will be required to withhold, subject to certain exemptions, at a
rate of 31% on dividends paid and redemption proceeds (including proceeds from
exchanges) paid or credited to non-exempt shareholders of the Funds if a correct
Taxpayer Identification Number, certified when required, is not on file with the
Trust or the Transfer Agent.
Under the Code, dividends (but not capital gain distributions) paid to a
non-resident alien or other foreign shareholder may be subject to U.S.
withholding tax at the rate of 30% (or a lower treaty rate).
PROSPECTUS
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SPECIAL TAX CONCERNS FOR NEW ASIA GROWTH FUND
New Asia Growth Fund may, from time to time, invest in passive foreign
investment companies ("PFICs"). PFICs are foreign corporations which derive a
majority of their income from passive sources. For tax purposes, New Asia Growth
Fund's investments in PFICs are subject to special tax provisions that may
result in the taxation of certain gains realized by the Fund as ordinary income,
plus an interest liability on such gains or on distributions from the PFIC. See
SAI, "Tax Information."
Gains or losses on disposition of debt securities denominated in a foreign
currency attributable to fluctuations in the value of foreign currency between
the date of acquisition of the security and the date of disposition are treated
as ordinary gain or loss. These gains or losses increase or decrease the amount
of New Asia Growth Fund's investment company taxable income available to be
distributed to shareholders as ordinary income, rather than increasing or
decreasing the amount of the Fund's net capital gain. If currency fluctuation
losses exceed other investment company taxable income during a taxable year,
distributions made by New Asia Growth Fund during the year would be
characterized as a return of capital to shareholders, reducing the shareholder's
basis in his, her or its Fund shares.
New Asia Growth Fund may incur foreign income taxes in connection with some
of its foreign investments. Certain of these taxes may be credited to
shareholders. See SAI, "Tax Information."
SPECIAL CONCERNS FOR THE TAX-FREE FUNDS
Persons who are "substantial users" (or persons related thereto) of
facilities financed by industrial development bonds or private activity bonds
should consult their own tax advisers before purchasing shares of either
Tax-Free Securities Fund or Tax-Free Short Intermediate Securities Fund.
While interest from Municipal Obligations, held by Tax-Free Securities Fund
and Tax-Free Short Intermediate Securities Fund, is tax-exempt for purposes of
computing the shareholder's regular tax, interest from so-called private
activity bonds issued after August 7, 1986, constitutes a tax preference for
both individuals and corporations and thus will enter into the computation of
the alternative minimum tax. All tax-exempt income distributed to corporate
shareholders will enter into the computation of the alternative minimum tax.
Whether or not these computations will result in a tax will depend on many
factors, and shareholders should consult their tax advisers as to the possible
alternative minimum tax, if any, they may incur.
Under the Code, interest on loans incurred by shareholders to enable them
to purchase shares of a Fund may not be deducted for federal or Hawaii tax
purposes to the extent the shareholders receive tax-exempt dividends from the
Fund. In addition, under rules used by the Internal Revenue Service for
determining when borrowed funds are deemed used for the purpose of purchasing or
carrying particular assets, the purchase of shares of the Fund may be considered
to have been made with borrowed funds even though the borrowed funds are not
directly traceable to the purchase of shares.
The receipt of exempt-interest dividends from a Fund by an individual
shareholder may result in some portion of any social security payments or
railroad retirement benefits received by the shareholder or the shareholder's
spouse being included in taxable income.
TAX EFFECTS OF REDEMPTIONS
A shareholder who redeems his or her shares or exchanges his or her shares
for shares of another Fund generally will have a capital gain or loss (depending
on whether the proceeds of the redemption are more or less than their tax basis,
which is usually cost). In the case of an individual, any such capital gain will
be treated as short-term capital gain if the shares were held for not more than
12 months, mid-term gain, taxable at the maximum rate of 28%, if such shares
were held for more than 12, but not more than 18 months, and long-term
PROSPECTUS
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<PAGE> 173
capital gain, taxable at the maximum rate of 20%, if such shares were held for
more than 18 months. In the case of a corporation, any such capital gain will be
treated as long-term capital gain, taxable at the same rates as ordinary income,
if such shares were held for more than 12 months. Any such capital loss will be
treated as long-term capital loss if such shares were held for more than 12
months, and otherwise will be treated as short term capital loss. However, if
the shares redeemed or sold were held for six months or less, any capital loss
is disallowed to the extent of any exempt-interest dividends on these shares and
is otherwise treated as long-term to the extent of capital gains distributions
received on such shares.
HAWAIIAN TAX INFORMATION
If at the close of each quarter of Tax-Free Short Intermediate Securities
Fund's and Tax-Free Securities Fund's taxable year at least 50% of the value of
its total assets consists of obligations the interest on which, if such
obligations were held by an individual, would be exempt from Hawaii personal
income tax (under either the laws of Hawaii or of the United States), Tax-Free
Securities Fund and Tax-Free Short Intermediate Securities Fund will be entitled
to pay dividends to its shareholders which will be exempt from Hawaii personal
income tax to the extent derived from such obligations. Similar exemptions may
be available in other states with regard to the portion of tax-exempt dividends
attributable to interest exempt from state taxation under federal law.
The Funds, and dividends and distributions made by the Funds to Hawaii
residents, will generally be treated for Hawaii income tax purposes in the same
manner as they are treated under the Code for federal income tax purposes. Under
Hawaii law, interest derived from obligations of states (and their political
subdivisions) other than Hawaii will not be exempt from Hawaii income taxation.
Persons or entities who are not Hawaii residents should not be subject to
Hawaii income taxation on dividends and distributions made by the Trust but will
be subject to other state and local taxes.
For further information regarding taxation, see "Tax Information" in the
SAI.
The foregoing is a general and abbreviated summary of the applicable
provisions of the Code and Treasury regulations presently in effect, and state
taxation.
Shareholders are urged to consult their own tax advisers regarding specific
questions as to federal, state, local or foreign taxes. Foreign investors should
consider applicable foreign taxes in their evaluation of an investment in a
Fund.
GENERAL INFORMATION
PERFORMANCE
From time to time performance for the Class Y shares of the Funds showing
each Fund's average annual total return, aggregate total return, yield, and
tax-equivalent yield where appropriate may be presented in advertisements, sales
literature and in reports to Class Y Shareholders. Such performance figures are
based on historical earnings and are not intended to indicate future
performance. Average annual total return will be calculated for the period since
the establishment of the Funds. Average annual total return is measured by
comparing the value of an investment in the Class Y shares of a Fund at the
beginning of the relevant period to the redemption value of the investment,
after reflecting the reinvestment of any dividends or capital gains
distributions and annualizing the difference. Aggregate total return is
calculated similarly to average annual return except that the return figure is
aggregated over the relevant period instead of annualized. Yield will be
computed by dividing such Fund's net investment income per Class Y share earned
during a recent 30-day period by such Fund's per Class Y
PROSPECTUS
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<PAGE> 174
share maximum offering price (reduced by any undeclared earned income expected
to be paid shortly as a dividend) on the last day of the period and annualizing
the result. Tax-equivalent yield for Tax-Free Securities Fund and Short
Intermediate Tax-Free Securities Fund will be computed assuming a stated income
tax rate has been applied to non-exempt income to derive the tax-exempt portion
of the Funds' yield.
Class Y shareholders may also be provided with information comparing the
performance of the Class Y shares of the Funds to the performance of other
mutual funds or mutual fund portfolios with comparable investment objectives and
policies. This information may be based on data relating to various mutual fund
or market indices such as those prepared by Dow Jones & Co., Inc. and Standard &
Poor's Corporation or data prepared by Lipper Analytical Services, Inc.
Comparisons may also be made to indices or data published in Money Magazine,
Forbes, Barron's, The Wall Street Journal, The New York Times, Business Week,
American Banker, Institutional Investor, Pensions and Investments, USA Today,
Fortune, CDA/Wiesenberger, Ibbotson Associates, Inc., Morningstar and local
newspapers and periodicals. In addition to yield information, general
information about the Funds that appears in a publication such as those
mentioned above may also be quoted or reproduced in advertisements or in reports
to shareholders. Reports to shareholders may contain performance information on
any Fund.
Yield and total return are functions of the type and quality of instruments
held in the portfolio, operating expenses, and market conditions. Consequently,
current yields and total return will fluctuate and are not necessarily
representative of future results. Any fees charged by an affiliate of Pacific
Century or an Institution with respect to customer accounts for investing in
shares of the Funds will not be included in performance calculations; such fees,
if charged, would reduce the actual yield and total return from that quoted.
Because of differences in the fees and/or expenses borne by the Class A and
Class B shares of the Funds, the average annual total return, aggregate total
return, yield, and tax-equivalent yield, as the case may be, can be expected, at
any given time, to be lower than the average annual total return, aggregate
total return, yield, and tax-equivalent yield, respectively, on Class Y shares.
Standardized yield and total return quotations will be computed separately for
Class A, Class B and Class Y shares.
DESCRIPTION OF THE TRUST AND ITS SHARES
CAPITALIZATION--The Trust was organized as a Massachusetts business trust
on October 30, 1992, and currently consists of nine separately managed series.
The Board of Trustees may establish additional series in the future. The series
of the Trust are: Balanced Fund, Diversified Fixed Income Fund, Growth and
Income Fund, Growth Stock Fund, New Asia Growth Fund, Short Intermediate U.S.
Treasury Securities Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate
Securities Fund and U.S. Treasury Securities Fund, each with unlimited
transferable shares of beneficial interest, no par value. When issued in
accordance with the terms and procedures described in their respective
Prospectuses, shares of the Funds are fully paid, non-assessable and freely
transferable.
Each series is comprised of three classes of shares--Class Y, Class A, and
Class B. The classes have identical rights with respect to the series of which
they are a part, provided that there are certain matters which affect one class
but not another. Currently, the only such matters are the existence of
Distribution and Shareholder Service Plans with respect to each of Class A and
Class B shares but not any Class Y shares, the absence of any sales load with
regard to the purchase of the Class Y shares, and the fact that a salesperson or
any other person entitled to receive compensation for selling or servicing Class
A, Class B or Class Y shares may receive different compensation with respect to
one such Class over the other Class in the same Fund. On all such matters,
shareholders vote as a class, and not by series. Class A and Class B
PROSPECTUS
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<PAGE> 175
shares have different sales charges and other expenses which may effect
performance. A separate Prospectus applies to the Class A and Class B shares of
each series. Prospectuses relating to the Class A and Class B shares of each
series may be obtained by calling the telephone number listed on the first page
of this Prospectus.
VOTING--Shareholders have the right to vote on the election of Trustees and
on any and all matters as to which, by law or the provisions of the Declaration
of Trust of the Trust, they may be entitled to vote. All shares of the Trust
have equal voting rights and will be voted in the aggregate, and not by class or
series, except where voting by class or series is required by law or where the
matter involved affects only one class or series. The Trust is not required to
hold annual meetings of the Funds' shareholders, and does not intend to do so,
in any fiscal year in which it is not required by law to elect Trustees. The
Trustees are required to call a meeting for the purpose of considering the
removal of persons serving as Trustee, if requested in writing to do so by the
holders of not less than 10% of the outstanding shares of the Trust.
SHAREHOLDER LIABILITY--Under Massachusetts law, shareholders of the Funds
could, under certain circumstances, be held personally liable for the
obligations of the Trust. However, the Trust's Declaration of Trust disclaims
shareholder liability for acts or obligations of the Trust. The Declaration of
Trust provides for indemnification out of a Fund's property for any losses and
expenses of any shareholder of such Fund held liable on account of being or
having been a shareholder. Thus, the risk of a shareholder incurring financial
loss on account of shareholder liability is limited to circumstances in which a
Fund would be unable to meet its obligations.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to a Fund at the address or
telephone number set forth on the cover page of this Prospectus.
PROSPECTUS
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<PAGE> 176
INVESTMENT ADVISER
Pacific Century Trust
111 S. King Street
Honolulu, Hawaii 96813
SUB-ADVISER
Nicholas-Applegate Capital
Management (Hong Kong) LLC
8 Connaught Place
Hong Kong
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219-3035
LEGAL COUNSEL
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
INDEPENDENT AUDITORS
Ernst & Young LLP
One Columbus, Suite 2300
10 West Broad Street
Columbus, Ohio 43215
TRANSFER AGENT
Administrative Data Management Corp.
581 Main Street
Woodbridge, New Jersey 07095
[PACIFIC CAPITAL FUNDS LOGO]
------------------------
Diversified Fixed Income Fund
Growth and Income Fund
Growth Stock Fund
New Asia Growth Fund
Short Intermediate U.S. Treasury Securities Fund
Tax-Free Securities Fund
Tax-Free Short Intermediate Securities Fund
U.S. Treasury Securities Fund
------------------------
Class Y
November 29, 1997
<PAGE> 177
PACIFIC CAPITAL FUNDS
Telephone: 800-258-9232
STATEMENT OF ADDITIONAL INFORMATION DATED NOVEMBER 29, 1997
BALANCED FUND
DIVERSIFIED FIXED INCOME FUND
GROWTH AND INCOME FUND
GROWTH STOCK FUND
NEW ASIA GROWTH FUND
SHORT INTERMEDIATE U.S. TREASURY SECURITIES FUND
TAX-FREE SECURITIES FUND
TAX-FREE SHORT INTERMEDIATE SECURITIES FUND
U.S. TREASURY SECURITIES FUND
Pacific Capital Funds (the "Trust") is a professionally managed,
open-end, management investment company with multiple funds available for
investment. This Statement of Additional Information ("SAI") contains
information about the "Class A, Class B and Class Y" shares of all nine of the
Trust's investment portfolios -- Balanced Fund, Diversified Fixed Income Fund,
Growth and Income Fund, Growth Stock Fund (formerly the Income Stock Fund), New
Asia Growth Fund, Short Intermediate U.S. Treasury Securities Fund, Tax-Free
Securities Fund, Tax-Free Short Intermediate Securities Fund and U.S. Treasury
Securities Fund (each, a "Fund" and collectively, the "Funds"). The various
Funds and Classes of shares of the Funds are offered through separate
Prospectuses. Balanced Fund has not commenced operations as of the date of this
Statement of Additional Information.
This SAI is not a prospectus and should be read in conjunction
with the applicable Prospectus, dated November 29, 1997. All terms used in this
SAI that are defined in the applicable Prospectus will have the meanings
assigned therein. Copies of the Prospectuses for the Funds may be obtained
without charge by writing to BISYS Fund Services ("BISYS") the Trust's sponsor,
administrator and distributor, at 3435 Stelzer Road, Columbus, Ohio 43219-3035
or calling the Transfer Agent at the telephone number indicated above.
----------------------------------
<PAGE> 178
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Cross
Reference
Page to Prospectus
---- -------------
<S> <C> <C>
Investment Restrictions........................... 3................. Additional Investment
Restrictions
Additional Information on Fund Investments........ 7................. Additional Discussion
Regarding Permitted
Investment Activities
Management........................................ 21................. Management, Advisory and
Other Service Arrangements
Distribution and Shareholder Service Plans........ 28................. Management, Advisory and
Other Service Arrangements
Calculation of Yield and Total Return............. 29................. General Information
Determination of Net Asset Value.................. 43................. Valuation of Class A and Class
B Shares, Valuation of Class Y
Shares
Purchase of Shares ............................... 43................. How to Purchase Class A and
Class B Shares
Redemption of Shares.............................. 44................. How to Redeem Class A and
Class B Shares; How to
Redeem Class Y Shares
Portfolio Transactions............................ 44................. Management, Advisory, and
Other Service Arrangements
Federal and Hawaiian Tax Information.............. 47................. Dividend and Tax Information
Capital Stock..................................... 52................. General Information
Custodian......................................... 56................. Management, Advisory, and
Other Service Arrangements
Other............................................. 57
Independent Auditors.............................. 57
Financial Information............................. 57
Appendix A........................................ A-1
Appendix B ....................................... B-1
</TABLE>
2
<PAGE> 179
INVESTMENT RESTRICTIONS
The Funds are subject to the following investment
restrictions, all of which are fundamental policies. As stated in each of the
Fund's Prospectuses under "Additional Discussion Regarding Permitted Investment
Activities -- Investment Policies," a fundamental investment policy may not be
changed without approval by vote of the holders of a majority of the relevant
Fund's outstanding voting securities. Also see "Capital Stock" in this SAI.
Investment Restrictions for All Funds except New Asia Growth Fund
Each of Balanced Fund, Diversified Fixed Income Fund, Growth
and Income Fund, Growth Stock Fund, Short Intermediate U.S. Treasury Fund,
Tax-Free Securities Fund, Tax-Free Short Intermediate Securities Fund and U.S.
Treasury Securities Fund may not:
(1) purchase securities of any issuer (except Municipal
Obligations and securities issued or guaranteed by the U.S. Government, its
agencies and instrumentalities) if, as a result, with respect to 75% of its
total assets, more than 5% of the value of the Fund's total assets would be
invested in the securities of any one issuer or, with respect to 100% of its
total assets the Fund's ownership would be more than 10% of the outstanding
voting securities of such issuer except that this restriction does not apply to
the Tax-Free Securities Fund or the Tax-Free Short Intermediate Fund (the
"TaxFree Funds"), which are non-diversified funds;
(2) purchase the securities of issuers conducting their
principal business activity in the same industry if, immediately after the
purchase and as a result thereof, the value of any Fund's investments in that
industry would be 25% or more of the current value of such Fund's total assets,
provided that there is no limitation with respect to investments in (a) U.S.
Government Obligations and repurchase agreements secured by such obligations and
(b) with respect to the Tax-Free Funds, Municipal Obligations (for purposes of
this limitation, private activity bonds that are backed only by the assets and
revenues of a non-governmental user shall not be deemed to be Municipal
Obligations);
(3) borrow money or issue senior securities as defined in the
Investment Company Act of 1940, as amended (the "1940 Act") (except, with regard
to senior securities, as permitted pursuant to an order and/or a rule issued by
the Securities and Exchange Commission (the "Commission")), except that each of
the Funds, may borrow from banks up to 20% of the current value of its net
assets for temporary purposes only in order to meet redemptions, and these
borrowings may be secured by the pledge of up to 20% of the current value of its
net assets (but investments may not be purchased while any such outstanding
borrowing in excess of 5% of its net assets exists);
(4) purchase or sell real estate or real estate limited
partnerships (other than obligations or other securities secured by real estate
or interests therein or securities issued by companies that invest in real
estate or interests therein);
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<PAGE> 180
(5) purchase commodities or commodity contracts; except that
each Fund may enter into futures contracts and may write call options and
purchase call and put options on futures contracts in accordance with its
investment objective and policies; See "Additional Discussion Regarding
Permitted Investment Activities -- Futures Contracts and Related Options" or
"Additional Discussion Regarding Permitted and Investment Activities -- Hedging
Strategies", as applicable, in each Fund's Prospectus;
(6) purchase securities on margin (except for short-term
credits necessary for the clearance of transactions and except for margin
payments in connection with options, futures and options on futures) or make
short sales of securities;
(7) underwrite securities of other issuers, except to the
extent that the purchase of permitted investments directly from the issuer
thereof or from an underwriter for an issuer and the later disposition of such
securities in accordance with the Fund's investment program may be deemed to be
an underwriting;
(8) purchase interests, leases, or limited partnership
interests in oil, gas, or other mineral exploration or development programs;
(9) make investments for the purpose of exercising control or
management; or
(10) lend money or portfolio securities, except that each of
the Funds may enter into repurchase agreements and lend portfolio securities to
certain brokers, dealers and financial institutions aggregating up to 30% of the
current value of the lending Fund's total assets.
In addition, each of Balanced Fund, Diversified Fixed Income
Fund, Growth and Income Fund, Growth Stock Fund, Short Intermediate U.S.
Treasury Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities
Fund and U.S. Treasury Securities Fund will comply with the following
non-fundamental restrictions, which may be changed by the Board of Trustees
without shareholder approval:
1. No Fund will purchase securities of unseasoned
issuers, including their predecessors, that have been in operation for less
than three years, if by reason thereof the value of the Fund's investment in
such classes of securities would exceed 15% of the Fund's total assets.
2. No Fund will invest more than 10% of its net assets
in warrants.
3. Each Fund reserves the right to invest up to 15%
of the current value of its net assets in repurchase agreements having
maturities of more than seven days and other illiquid securities. For purposes
of this restriction, illiquid securities shall not include securities which may
be resold under Rule 144A under the Securities Act that the Board of Trustees,
or its delegate, determines to be liquid, based upon the trading markets for
the specific security.
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<PAGE> 181
4. Each Fund may purchase put and call options and write
covered put and call options on securities in which such Fund may invest
directly and that are traded on registered domestic securities exchanges or that
result from separate, privately negotiated transactions with primary U.S.
Government securities dealers recognized by the Board of Governors of the
Federal Reserve System in an amount not exceeding 5% of the Fund's net assets.
INVESTMENT RESTRICTIONS FOR NEW ASIA GROWTH FUND
New Asia Growth Fund is subject to the following investment
restrictions, all of which are fundamental policies. New Asia Growth Fund may
not:
(1) purchase securities of any issuer (other than securities
issued or guaranteed by the U.S. Government, its agencies and instrumentalities)
if, as a result, with respect to 75% of its total assets, more than 5% of the
value of the Fund's total assets would be invested in the securities of any one
issuer or, with respect to 100% of its total assets, the Fund's ownership would
be more than 10% of the outstanding voting securities of such issuer;
(2) purchase the securities of issuers conducting their
principal business activity in the same industry if, immediately after the
purchase and as a result thereof, the value of the Fund's investments in that
industry would be 25% or more of the current value of the Fund's total assets,
provided that there is no limitation with respect to investments in U.S.
Government Obligations and repurchase agreements secured by such obligations;
(3) borrow money or issue senior securities as defined in the
1940 Act (except, with regard to senior securities, as permitted pursuant to an
order and/or a rule issued by the Commission), except that the Fund may borrow
from banks up to 33-1/3% the current value of its net assets for temporary,
extraordinary or emergency purposes, for clearance of transactions, to hedge
against currency movements or for investment purposes, and these borrowings may
be secured by the pledge of up to 33-1/3% current value of its net assets;
(4) purchase or sell real estate or real estate
limited partnerships (other than obligations or other securities secured by
real estate or interests therein or securities issued by companies that invest
in real estate or interests therein);
(5) purchase commodities or commodity contracts;
except that the Fund may deal in forward foreign exchange between currencies of
the different countries in which it may invest, may enter into futures
contracts and may write call options and purchase call and put options on
futures contracts in accordance with its investment objective and policies;
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<PAGE> 182
(6) purchase securities on margin (except for short-term
credits necessary for the clearance of transactions and except for margin
payments in connection with options, futures and options on futures) or make
short sales of securities;
(7) underwrite securities of other issuers, except to
the extent that the purchase of permitted investments directly from the issuer
thereof or from an underwriter for an issuer and the later disposition of such
securities in accordance with the Fund's investment program may be deemed to be
an underwriting;
(8) purchase interests, leases, or limited partnership
interests in oil, gas, or other mineral exploration or development programs;
(9) make investments for the purpose of exercising
control or management. Investments by the Fund in wholly-owned investment
entities created under the laws of certain countries will not be deemed the
making of investments for the purpose of exercising control of management; or
(10) lend money or portfolio securities, except that the Fund
may enter into repurchase agreements and lend portfolio securities to certain
brokers, dealers and financial institutions aggregating up to 33-1/3% of the
current value of the Fund's total assets.
In addition, New Asia Growth Fund will comply with the
following nonfundamental restrictions, which may be changed by the Board of
Trustees without shareholder approval:
a. The Fund will not purchase securities of unseasoned
issuers, including their predecessors, that have been in operation for less than
three years, if by reason thereof the value of the Fund's investment in such
classes of securities would exceed 15% of such Fund's total assets.
b. The Fund reserves the right to invest up to 15% of the
current value of its net assets in repurchase agreements having maturities of
more than seven days and other illiquid securities. For purposes of this
restriction, illiquid securities shall not include securities which may be
resold under Rule 144A under the Securities Act that the Board of Trustees, or
its delegate, determines to be liquid, based upon the trading markets for the
specific security.
c. To the extent required by the Commission or its staff, the
Fund will for purposes of fundamental investment restrictions (1) and (2), treat
securities issued or guaranteed by the government of any one foreign country
(including governmental agencies and instrumentalities thereof) as the
obligations of a single issuer.
d. The Fund may not invest more than 10% of its net assets in
warrants.
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e. The aggregate value of the exercise price or strike price
of call options written by the Fund may not exceed 25% of the Fund's net asset
value.
------------------
If a percentage limitation is satisfied at the time of
investment, a later increase or decrease in such percentage resulting from a
change in the value of a Fund's portfolio securities or resulting from
reconstructions, consolidations, payments out of assets of the Fund or
realization of units will not constitute a violation of such limitation.
ADDITIONAL INFORMATION ON FUND INVESTMENTS
CHANGES IN INVESTMENT RATINGS.
To the extent the ratings given by a nationally recognized
statistical rating organization (an "NRSRO") may change as a result of changes
in such organizations or their rating systems, each Fund will attempt to use
comparable ratings as standards for investments in accordance with the
investment policies contained in its Prospectus and in this Statement of
Additional Information. The ratings of the NRSROs currently used by the Funds
are more fully described in Appendix A to this Statement of Additional
Information.
FOREIGN SECURITIES
Each of the Funds may invest in foreign securities. Investing
in foreign securities involves certain risks described in the applicable
Prospectus.
Foreign markets have different settlement and clearance
procedures, and in certain markets there have been times when settlements have
failed to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. For example, delays in settlement could
result in temporary periods when assets of a Fund are uninvested and no return
is earned thereon. The inability of a Fund to make intended security purchases
due to settlement problems could cause the Fund to miss attractive investment
opportunities. The inability to dispose of a portfolio security due to
settlement problems could result either in losses to a Fund due to subsequent
declines in the value of such portfolio security or, if the Fund has entered
into a contract to sell the security, could result in possible liability to the
purchaser.
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DEBT SECURITIES
Sovereign Debt (New Asia Growth Fund only). New Asia Growth
Fund may invest in sovereign debt. Certain developing Asian countries, such as
the Philippines, owe significant amounts of debt to commercial banks and
foreign governments. Investment in sovereign debt involves a high degree of
risk. The governmental entity that controls the repayment of sovereign debt may
not be able or willing to repay the principal and/or interest when due in
accordance with the terms of such debt. A governmental entity's willingness or
ability to repay principal and interest due in a timely manner may be affected
by, among other factors, its cash flow situation, the extent of its foreign
reserves, the availability of sufficient foreign exchange on the date a payment
is due, the relative size of the debt service burden to the economy as a
whole, the governmental entity's policy towards the International Monetary Fund
and the political constraints to which a governmental entity may be subject.
Governmental entities may also be dependent on expected disbursements from
foreign governments, multilateral agencies and others abroad to reduce
principal and interest arrearage on their debt. The commitment on the part of
these governments, agencies and others to make such disbursements may be
conditioned on a governmental entity's implementation of economic reforms
and/or economic performance and the timely service of such debtor's
obligations. Failure to implement such reforms, achieve such levels of economic
performance or repay principal or interest when due may result in the
cancellation of such third party's commitments to lend funds to the
governmental entity, which may further impair such debtor's ability or
willingness to timely service its debts. Consequently, governmental entities
may default on their sovereign debt.
Holders of sovereign debt, including New Asia Growth Fund,
may be requested to participate in the rescheduling of such debt and to extend
further loans to governmental entities. There is no bankruptcy proceeding by
which sovereign debt on which a governmental entity has defaulted may be
collected in whole or in part.
The sovereign debt instruments in which New Asia Growth Fund
may invest involve great risk and are deemed to be the equivalent in terms of
quality to high yield/high risk securities discussed below and are subject to
many of the same risks as such securities. Similarly, New Asia Growth Fund may
have difficulty disposing of certain sovereign debt obligations because there
may be a thin trading market for such securities. New Asia Growth Fund will not
invest more than 5% of its total assets in sovereign debt, including sovereign
debt which is in default.
Lower Rated Debt Securities (New Asia Growth Fund only). New
Asia Growth Fund may invest in lower rated debt securities. Securities rated in
the medium to low rating categories of NRSROs such as Standard & Poor's
Corporation ("S&P") and Moody's Investors Service, Inc. ("Moody's") and unrated
securities of comparable quality (referred to herein as "high yield/high risk
securities") are predominantly speculative with respect to the capacity to pay
interest and repay principal in accordance with the terms of the security and
generally involve a greater volatility of price than securities in higher
rating categories. See "Appendix A." These securities are commonly referred to
as "junk bonds." In purchasing such securities, New Asia Growth Fund will rely
on the investment adviser's judgment, analysis and experience in evaluating the
creditworthiness
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of an issuer of such securities. The investment adviser will take into
consideration, among other things, the issuer's financial resources, its
sensitivity to economic conditions and trends, its operating history, the
quality of the issuer's management and regulatory matters. New Asia Growth Fund
is not authorized to purchase debt securities that are in default, except that
the Fund may invest in sovereign debt (discussed above) which is in default,
provided that not more than 5% of the Fund's total assets are invested in
sovereign debt (including sovereign debt securities which are in default).
The market values of high yield/high risk securities tend to
reflect individual issuer developments to a greater extent than do higher rated
securities, which react primarily to fluctuations in the general level of
interest rates. Issuers of high yield/high risk securities may be highly
leveraged and may not have available to them more traditional methods of
financing. Therefore, the risk associated with acquiring the
securities of such issuers generally is greater than is the case with higher
rated securities. For example, during an economic downturn or a sustained
period of rising interest rates, issues of high yield/high risk securities may
be more likely to experience financial stress, especially if such issuers are
highly leveraged. During such periods, such issuers may not have sufficient
revenues to meet their interest payment obligations. The issuer's ability to
service its debt obligations also may be adversely affected by specific issuer
developments, or the issuer's inability to meet specific projected business
forecasts, or the unavailability of additional financing. The risk of loss due
to default by the issuer is significantly greater for the holders of high
yield/high risk securities because such securities may be unsecured and may be
subordinated to the creditors of the issuer.
High yield/high risk securities may have call or redemption
features which would permit an issuer to repurchase the securities from New
Asia Growth Fund. If a call were exercised by the issuer during a period of
declining interest rates, New Asia Growth Fund likely would have to replace
such called securities with lower yielding securities, thus decreasing the net
investment income to the Fund and dividends to shareholders.
New Asia Growth Fund may have difficulty disposing of certain
high yield/high risk securities because there may be a thin trading market for
such securities. To the extent that a secondary trading market for high
yield/high risk securities does exist, it is generally not as liquid as the
secondary market for higher rated securities. Reduced secondary market
liquidity may have an adverse impact on market price and New Asia Growth Fund's
ability to dispose of particular issues when necessary to meet the Fund's
liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the issuer. Reduced secondary market
liquidity for certain high yield/high risk securities also may make it more
difficult for New Asia Growth Fund to obtain accurate market quotations for
purposes of valuing the Fund's portfolio. Market quotations are generally
available on many high yield/high risk securities only from a limited number of
dealers and may not necessarily represent firm bids of such dealers of prices
for actual sales. The Trustees, or the investment adviser, will carefully
consider the factors affecting the market for high yield/high risk, lower rated
securities in determining whether any particular security is liquid or illiquid
and whether current market quotations are readily available.
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Adverse publicity and investor perceptions, which may not be
based on fundamental analysis, also may decrease the value and liquidity of
high yield/high risk securities, particularly in a thinly traded market.
Factors adversely affecting the market value of high yield/high risk securities
are likely to adversely affect New Asia Growth Fund's net asset value. In
addition, New Asia Growth Fund may incur additional expenses to the extent it
is required to seek recovery upon a default on a portfolio holding or
participate in the restructuring of the obligation.
MUNICIPAL BONDS
The Tax-Free Funds may invest in municipal bonds. As
discussed in the Prospectus, the two principal classifications of municipal
bonds are "general obligation" and "revenue" bonds. Municipal bonds are debt
obligations issued to obtain funds for various public purposes, including the
construction of a wide range of public facilities such as bridges, highways,
housing, hospitals, mass transportation, schools, streets, and water and sewer
works. Other purposes for which municipal bonds may be issued include the
refunding of outstanding obligations and obtaining funds for general operating
expenses or to loan to other public institutions and facilities. Industrial
development bonds are a specific type of revenue bond backed by the credit and
security of a private user. Certain types of industrial development bonds are
issued by or on behalf of public authorities to obtain funds to provide
privately-operated housing facilities, sports facilities, convention or trade
show facilities, airport, mass transit, port or parking facilities, air or water
pollution control facilities and certain local facilities for water supply, gas,
electricity, or sewage or solid waste disposal. Assessment bonds, wherein a
specially created district or project area levies a tax (generally on its
taxable property) to pay for an improvement or project, may be considered a
variant of either category. There are, of course, other variations in the types
of municipal bonds, both within a particular classification and between
classifications, depending on numerous factors.
MUNICIPAL NOTES
The Tax-Free Funds may invest in municipal notes. Municipal
notes include, but are not limited to, tax anticipation notes ("TANs"), bond
anticipation notes ("BANs"), revenue anticipation notes ("RANs") and
construction loan notes. Notes sold as interim financing in anticipation of
collection of taxes, a bond sale or receipt of other revenues are usually
general obligations of the issuer.
TANs. Uncertainty in a municipal issuer's capacity to raise
taxes as a result of such events as a decline in its tax base or a rise in
delinquencies, could adversely affect the issuer's ability to meet its
obligations on outstanding TANs. Furthermore, some municipal issuers mix
various tax proceeds into a general fund that is used to meet obligations other
than those of the outstanding TANs. Use of such a general fund to meet various
obligations could affect the likelihood of making payments on TANs.
BANs. The ability of a municipal issuer to meet its
obligations on its BANs is primarily dependent on the issuer's adequate access
to the longer term municipal
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bond market and the likelihood that the proceeds of such bond sales will be used
to pay the principal of, and interest on, BANs.
RANs. A decline in the receipt of certain revenues, such as
anticipated revenues from another level of government, could adversely affect
an issuer's ability to meet its obligations on outstanding RANs. In addition,
the possibility that the revenues would, when received, be used to meet other
obligations could affect the ability of the issuer to pay the principal of, and
interest on, RANs.
The values of outstanding municipal securities will vary as a
result of changing market evaluations of the ability of their issuers to meet
the interest and principal payments (i.e., credit risk). Such values will also
change in response to changes in the interest rates payable on new issues of
municipal securities (i.e., market risk). Should such interest rates rise, the
values of outstanding securities, including those held in the Tax-Free Funds'
portfolios, will decline and (if purchased at par value) they would sell at a
discount. If interest rates fall, the values of outstanding securities will
generally increase and (if purchased at par value) they would sell at a premium.
Changes in the value of municipal securities held in the Funds' portfolios
arising from these or other factors will cause changes in the net asset value
per share of the Tax-Free Funds.
The taxable securities market is a broader and more liquid
market with a greater number of investors, issuers and market makers than the
market for municipal securities. The more limited marketability of municipal
securities may make it difficult in certain circumstances to dispose of large
investments advantageously.
WARRANTS
Each Fund may invest in warrants. Any limitations on a Fund's
investment in warrants are set forth above in "Investment Restrictions."
Warrants represent rights to purchase securities at a specific price valid for
a specific period of time. The prices of warrants do not necessarily correlate
with the prices of the underlying securities. A Fund may only purchase warrants
on securities in which such Fund may invest directly.
GUARANTEED INVESTMENT CONTRACTS
Each of the Funds may make limited investments in Guaranteed
Investment Contracts ("GICs") issued by highly rated U.S. insurance companies.
Pursuant to such contracts, the Funds make cash contributions to a deposit fund
of the insurance company's general account. The insurance company then credits
to the respective Fund on a monthly basis guaranteed interest which is based on
an index. The GICs provide that this guaranteed interest will not be less than
a certain minimum rate. Generally, a GIC allows a purchaser to buy an annuity
with the monies accumulated under the contract; however, the Funds will not
purchase any such annuities. The insurance company may assess periodic charges
against a GIC for expense and service costs allocable to it, and the charges
will be deducted from the value of the deposit fund. A GIC is a general
obligation of the issuing insurance company and not a separate
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account. The purchase price paid for a GIC becomes part of the general assets of
the issuer, and the contract is paid from the general assets of the issuer.
Each Fund will only purchase GICs from issuers which, at the
time of purchase, are rated "A" or higher by A.M. Best Company, have assets of
$1 billion or more, and meet quality and credit standards established by
Hawaiian Trust. Generally, GICs are not assignable or transferable without the
permission of the issuing insurance companies, and an active secondary market
in GICs does not currently exist. Also, a Fund may not receive the principal
amount of a GIC from the insurance company on seven days' notice or less.
Therefore, GICs are considered by the Funds to be illiquid investments.
OPTIONS, FUTURES AND OTHER HEDGING STRATEGIES
As discussed in the applicable Prospectus, the Funds may use
a variety of financial instruments to hedge a Fund's investments and, in
certain limited cases, to enhance income or manage a Fund's cash flow ("Hedging
Instruments"). The particular Hedging Instruments are described in Appendix B
to this Statement of Additional Information.
Hedging strategies can be broadly categorized as short hedges
and long hedges. A short hedge is a purchase or sale of a Hedging Instrument
intended partially or fully to offset potential declines in the value of one or
more investments held by a Fund. Thus, in a short hedge a Fund takes a position
in a Hedging Instrument whose price is expected to move in the opposite
direction of the price of the investment being hedged. For example, a Fund
might purchase a put option on a security to hedge against a potential decline
in the value of that security. If the price of the security declines below the
exercise price of the put, the Fund could exercise the put and thus limit its
loss below the exercise price to the premium paid plus transaction costs. In
the alternative, because the value of the put option can be expected to
increase as the value of the underlying security declines, a Fund might be able
to close out the put option and realize a gain to offset the decline in the
value of the security.
Conversely, a long hedge is a purchase or sale of a Hedging
Instrument intended partially or fully to offset potential increases in the
acquisition cost of one or more investments that a Fund intends to acquire.
Thus, in a long hedge a Fund takes a position in a Hedging Instrument whose
price is expected to move in the same direction as the price of the prospective
investment being hedged. For example, the Fund might purchase a call option on
a security it intends to purchase in order to hedge against an increase in the
cost of the security. If the price of the security increased above the exercise
price of the call, the Fund could exercise the call and thus limit its
acquisition cost to the exercise price plus the premium paid and transaction
costs. Alternatively, a Fund might be able to offset the price increase by
closing out an appreciated call option and realizing a gain.
Hedging Instruments on securities generally are used to hedge
against price movements in one or more particular securities positions that a
Fund owns or intends to acquire. Hedging Instruments on stock indices, in
contrast, generally are used
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to hedge against price movements in broad equity market sectors in which a Fund
has invested or expects to invest. Hedging Instruments on debt securities may be
used to hedge either individual securities or broad fixed income market sectors.
The use of Hedging Instruments is subject to applicable
regulations of the Commission, the several options and futures exchanges upon
which they are traded and the Commodity Futures Trading Commission ("CFTC").
In addition, a Fund's ability to use Hedging Instruments will be limited by tax
considerations. See "Federal and Hawaiian Tax Information."
In addition to the products, strategies and risks described
below and in the Prospectus, the investment adviser expects to discover
additional opportunities in connection with options, future contracts, foreign
currency forward contracts and other hedging techniques. These new
opportunities may become available as the investment adviser develops new
techniques, as regulatory authorities broaden the range of permitted
transactions and as new options, futures contracts, foreign currency forward
contracts or other techniques are developed. The investment adviser may utilize
these opportunities to the extent that they are consistent with a Fund's
investment objectives and permitted by the Fund's investment limitations and
applicable regulatory authorities. The applicable Prospectus and this Statement
of Additional Information will be supplemented to the extent that new products
or techniques involve materially different risks than those described below or
in the Prospectus.
Special Risks of Hedging Strategies. The use of Hedging
Instruments involves special considerations and risks, as described below.
Risks pertaining to particular Hedging Instruments are described in the
sections that follow.
(1) Successful use of most Hedging Instruments depends upon
the investment adviser's ability to predict movements of the
overall securities and interest rate markets, which requires
different skills than predicting changes in the price of
individual securities. There can be no assurance that any
particular hedging strategy adopted will succeed.
(2) There might be imperfect correlation, or even no
correlation, between price movements of a Hedging Instrument
and price movements of the investments being hedged. For
example, if the value of a Hedging Instrument used in a short
hedge increased by less than the decline in value of the
hedged investment, the hedge would not be fully successful.
Such a lack of correlation might occur due to factors
unrelated to the value of the investments being hedged, such
as speculative or other pressures on the markets in which
Hedging Instruments are traded. The effectiveness of hedges
using Hedging Instruments on indices will depend on the
degree of correlation between price movements in the index
and price movements in the securities being hedged.
(3) Hedging strategies, if successful, can reduce risk of
loss by wholly or partially offsetting the negative effect of
unfavorable price movements in the investments being hedged.
However, hedging strategies can also reduce opportunity for
gain by offsetting the positive effect of favorable
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price movements in the hedged investments. For example, if a
Fund entered into a short hedge because the investment adviser
projected a decline in the price of a security held by the
Fund, and the price of that security increased instead, the
gain from that increase might be wholly or partially offset by
a decline in the price of the Hedging Instrument. Moreover, if
the price of the Hedging Instrument declined by more than the
increase in the price of the security, the Fund could suffer a
loss. In either such case, the Fund would have been in a
better position had it not hedged at all.
(4) As described below, a Fund might be required to maintain
assets as "cover," maintain segregated accounts or make
margin payments when it takes positions in Hedging
Instruments involving obligations to third parties (i.e.,
Hedging Instruments other than purchased options). If a Fund
were unable to close out its positions in such Hedging
Instruments, it might be required to continue to maintain
such assets or accounts or make such payments until the
position expired or matured. These requirements might impair
a Fund's ability to sell a portfolio security or make an
investment at a time when it would otherwise be favorable to
do so, or require that the Fund sell a portfolio security at
a disadvantageous time. A Fund's ability to close out a
position in a Hedging Instrument prior to expiration or
maturity depends on the existence of a liquid secondary
market or, in the absence of such a market, the ability and
willingness of a contra party to enter into a transaction
closing out the position. Therefore, there is no assurance
that any hedging position can be closed out at a time and
price that is favorable to the Fund.
Cover for Hedging Strategies. Transactions using Hedging
Instruments, other than purchased options, expose a Fund to an obligation to
another party. A Fund will not enter into any such transactions unless, to the
extent required by law, it (1) owns an offsetting covered position in
securities or other options or futures contracts or (2) segregates liquid
assets with a value sufficient at all times to cover its potential obligations
to the extent not covered as provided in (1) above. Each Fund will comply with
Commission guidelines regarding cover for hedging transactions.
Assets used as cover or held in a segregated account cannot
be sold while the position in the corresponding Hedging Instrument is open,
unless they are replaced with similar assets. As a result, the commitment of a
large portion of a Fund's assets to cover or to segregated accounts could
impede portfolio management or the Fund's ability to meet redemption requests
or other current obligations.
Options. As described in the applicable Prospectus, each Fund
may engage in options for hedging purposes, and each of Balanced Fund,
Diversified Fixed Income Fund, Growth and Income Fund, Growth Stock Fund, Short
Intermediate U.S. Treasury Fund, Tax-Free Securities Fund, Tax-Free Short
Intermediate Securities Fund and U.S. Treasury Securities Fund may engage in
options to enhance income.
The purchase of call options serves as a long hedge, and the
purchase of put options serves as a short hedge. Writing covered put or call
options can enable a
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Fund to enhance income by reason of the premiums paid by the purchasers of such
options. However, if the market price of the security underlying a covered put
option declines to less than the exercise price of the option, minus the premium
received, a Fund would expect to suffer a loss. Writing covered call options
serves as a limited short hedge, because declines in the value of the hedged
investment would be offset to the extent of the premium received for writing the
option. However, if the security appreciates to a price higher than the exercise
price of the call option, it can be expected that the option will be exercised
and a Fund will be obligated to sell the security at less than its market value.
Options may be used to enhance income since the receipt of
premiums by a Fund's options positions may enable the Fund to realize a greater
return than would be realized on the underlying securities alone. In return for
the premium received for a call option, a Fund forgoes the opportunity for
profit from a price increase in the underlying security above the exercise
price so long as the option remains open, but retains the risk of loss should
the price of the security decline. In return for the premium received for a put
option, a Fund assumes the risk that the price of the underlying security will
decline below the exercise price, in which case the put would be exercised and
the Fund would suffer a loss. A Fund may purchase put options in an effort to
protect the value of a security it owns against a possible decline in market
value.
The value of an option position will reflect, among other
things, the current market value of the underlying investment, the time
remaining until expiration, the relationship of the exercise price to the
market price of the underlying investment, the historical price volatility of
the underlying investment and general market conditions. Options normally have
expiration dates of up to nine months. Options that expire unexercised have no
value.
A Fund may effectively terminate its right or obligation
under an option by entering into a closing transaction. For example, a Fund may
terminate its obligation under a call option that it had written by purchasing
an identical call option; this is known as a closing purchase transaction.
Conversely, a Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a
closing sale transaction.
Currently, many options on equity securities are
exchange-traded. Exchange markets for options on debt securities and foreign
currencies exist but are relatively new, and these instruments are primarily
traded on the OTC market. Exchange-traded options in the United States are
issued by a clearing organization affiliated with the exchange on which the
option is listed which, in effect, guarantees completion of every
exchange-traded option transaction. In contrast, OTC options are contracts
between a Fund and its contra party (usually a securities dealer or a bank, as
required by the Fund's policies) with no clearing organization guarantee. Thus,
when a Fund purchases or writes an OTC option, it relies on the party from whom
it purchased the option or to whom it has written the option (the contra party)
to make or take delivery of the underlying investment upon exercise of the
option. Failure by the contra party to do so would result in the loss of any
premium paid by a Fund as well as the loss of any expected benefits of the
transaction.
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Generally, foreign currency options (New Asia Growth Fund
only) and OTC debt options used by a Fund may be European-style options or
American style options. A European style option is only exercisable immediately
prior to its expiration. American-style options are exercisable at any time
prior to the expiration date of the option.
A Fund's ability to establish and close out positions in
exchange-listed options depends on the existence of a liquid market. The Fund
intends to purchase or write only those exchange-traded options for which there
appears to be a liquid secondary market. However, there can be no assurance that
such a market will exist at any particular time. Closing transactions can be
made for OTC options only by negotiating directly with the contra party, or by a
transaction in the secondary market if any such market exists. Although a Fund
will enter into OTC options only with contra parties that are expected to be
capable of entering into closing transactions with the Fund, there is no
assurance that the Fund will in fact be able to close out an OTC option position
at a favorable price prior to expiration. In the event of insolvency of the
contra party, a Fund might be unable to close out an OTC option position at any
time prior to its expiration.
If a Fund were unable to effect a closing transaction for an
option it had purchased, it would have to exercise the option to realize any
profit. The inability to enter into a closing purchase transaction for a
covered call option written by a Fund could cause material losses because the
Fund would be unable to sell the investment used as cover for the written
option until the option expires or is exercised.
The staff of the Commission has taken the position that
purchased options not traded on registered domestic securities exchanges and
the assets used as cover for written options not traded on such exchanges are
generally illiquid securities. However, the staff has also opined that, to the
extent a mutual fund sells an OTC option to a primary dealer that it considers
creditworthy and contracts with such primary dealer to establish a formula
price at which the fund would have the absolute right to repurchase the option,
the fund would only be required to treat as illiquid the portion of the assets
used to cover such option equal to the formula price minus the amount by which
the option is "in-the-money." In accordance with this view, the Funds will
treat such options and, except to the extent permitted through the procedure
described in the preceding sentence, assets as subject to such Fund's
limitation on investments in securities that are not readily marketable.
Futures. The purchase of futures or call options thereon can
serve as a long hedge, and the sale of futures or the purchase of put options
thereon can serve as a short hedge. Writing covered call options on futures
contracts can serve as a limited short hedge, using a strategy similar to that
used for writing covered call options on securities and indices.
Futures strategies also can be used to manage the average
duration of a Fund. If the investment adviser wishes to shorten the average
duration of a Fund, the Fund may sell a futures contract or a call option
thereon, or purchase a put option on that futures contract. If the investment
adviser wishes to lengthen the average duration of a Fund, the Fund may buy a
futures contract or a call option thereon.
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No price is paid upon entering into a futures contract.
Instead, at the inception of a futures contract each Fund is required to
deposit in a segregated account with its custodian, in the name of the futures
broker through whom the transaction was effected, initial margin consisting of
cash, U.S. Government securities or other liquid, high-grade debt securities,
in an amount generally equal to 10% or less of the contract value. Margin must
also be deposited when writing a call option on a futures contract, in
accordance with applicable exchange rules. Unlike margin in securities
transactions, initial margin on futures contracts does not represent a
borrowing, but rather is in the nature of a performance bond or good-faith
deposit that is returned to a Fund at the termination of the transaction if all
contractual obligations have been satisfied. Under certain circumstances, such
as periods of high volatility, a Fund may be required by an exchange to increase
the level of its initial margin payment, and initial margin requirements might
be increased generally in the future by regulatory action.
Subsequent variation margin payments are made to and from the
futures broker daily as the value of the futures position varies, a process
known as marking to market. Variation margin does not involve borrowing, but
rather represents a daily settlement of a Fund's obligations to or from a
futures broker. When a Fund purchases an option on a future, the premium paid
plus transaction costs is all that is at risk. In contrast, when a Fund
purchases or sells a futures contract or writes a call option thereon, it is
subject to daily variation margin calls that could be substantial in the event
of adverse price movements. If a Fund has insufficient cash to meet daily
variation margin requirements, it might need to sell securities at a time when
such sales are disadvantageous.
Holders and writers of futures positions and options on
futures can enter into offsetting closing transactions, similar to closing
transactions on options, by selling or purchasing, respectively, an instrument
identical to the instrument held or written. Positions in futures and options
on futures may be closed only on an exchange or board of trade that provides a
secondary market. The Funds intend to enter into futures transactions only on
exchanges or boards of trade where there appears to be a liquid secondary
market. However, there can be no assurance that such a market will exist for a
particular contract at a particular time. Secondary markets for options on
futures are currently in the development stage, and a Fund will not trade
options on futures on any exchange or board of trade unless, in the Hawaiian
Trust's opinion, the markets for such options have developed sufficiently that
the liquidity risks for such options are not greater than the corresponding
risks for futures.
Under certain circumstances, futures exchanges may establish
daily limits on the amount that the price of a future or related option can
vary from the previous day's settlement price; once that limit is reached, no
trades may be made that day at a price beyond the limit. Daily price limits do
not limit potential losses because prices could move to the daily limit for
several consecutive days with little or no trading, thereby preventing
liquidation of unfavorable positions.
If a Fund were unable to liquidate a futures or related
options position due to the absence of a liquid secondary market or the
imposition of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In
addition, except in the case of purchased options, the Fund
17
<PAGE> 194
would continue to be required to make daily variation margin payments and might
be required to maintain the position being hedged by the future or option or to
maintain cash or securities in a segregated account.
Certain characteristics of the futures market might increase
the risk that movements in the prices of futures contracts or related options
might not correlate perfectly with movements in the prices of the investments
being hedged. For example, all participants in the futures and related options
markets are subject to daily variation margin calls and might be compelled to
liquidate futures or related options positions whose prices are moving
unfavorably to avoid being subject to further calls. These liquidations could
increase price volatility of the instruments and distort the normal price
relationship between the futures or options and the investments being hedged.
Also, because initial margin deposit requirements in the futures market are less
onerous than margin requirements in the securities markets, there might be
increased participation by speculators in the futures markets. This
participation also might cause temporary price distortions. In addition,
activities of large traders in both the futures and securities markets involving
arbitrage, program trading and other investment strategies might result in
temporary price distortions.
Limitations on the Use of Futures. In accordance with current
CFTC regulations, each Fund may use futures contracts and options thereon
traded on a commodities exchange in bona fide hedging transactions without
regard to percentage limitations but may not enter into other types of futures
contracts and options thereon for which the aggregate initial margin and
premiums exceed 5% of the Fund's total assets (calculated in accordance with
CFTC regulations). Furthermore, as a matter of operating policy, aggregate
initial margin deposits for all futures contracts and premiums paid for related
options for each of Balanced Fund, Diversified Fixed Income Fund, Growth and
Income Fund, Growth Stock Fund, Short Intermediate U.S. Treasury Securities
Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities Fund and
U.S. Treasury Securities Fund may not exceed 5% of each Fund's total assets
(calculated in accordance with CFTC regulations) and the value of the
securities that are subject to futures and options thereon (both for receipt
and delivery) may not exceed one-third of the market value of each Fund's total
assets.
Foreign Currency Hedging Strategies -- Special Considerations
(New Asia Growth Fund Only). New Asia Growth Fund may use options and futures
on foreign currencies, and foreign currency forward contracts as described
below to hedge against movements in the values of the foreign currencies in
which the Fund's securities are denominated. Such currency hedges can protect
against price movements in a security that the New Asia Growth Fund owns or
intends to acquire that are attributable to changes in the value of the
currency in which it is denominated. Such hedges do not, however, protect
against price movements in the securities that are attributable to other
causes.
New Asia Growth Fund might seek to hedge against changes in
the value of a particular currency when no Hedging Instruments on that currency
are available or such Hedging Instruments are more expensive than certain other
Hedging Instruments. In such cases, New Asia Growth Fund may hedge against
price movements in that currency by entering into transactions using Hedging
Instruments on other currencies, the values of
18
<PAGE> 195
which the investment adviser believes will have a high degree of positive
correlation to the value of the currency being hedged. The risk that movements
in the price of the Hedging Instrument will not correlate perfectly with
movements in the price of the currency being hedged is magnified when this
strategy is used.
The value of Hedging Instruments on foreign currencies
depends on the value of the underlying currency relative to the U.S. dollar.
Because foreign currency transactions occurring in the interbank market might
involve substantially larger amounts than those involved in the use of such
Hedging Instruments, the Fund could be disadvantaged by having to deal in the
odd lot market (generally consisting of transactions of less than $1 million)
for the underlying foreign currencies at prices that are less favorable than for
round lots.
There is no systematic reporting of last sale information for
foreign currencies or any regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis.
Quotation information generally is representative of very large transactions in
the interbank market and thus might not reflect odd-lot transactions where
rates might be less favorable. The interbank market in foreign currencies is a
global, round-the-clock market. To the extent the U.S. options or futures
markets are closed while the markets for the underlying currencies remain open,
significant price and rate movements might take place in the underlying markets
that cannot be reflected in the markets for the Hedging Instruments until they
reopen.
Settlement of hedging transactions involving foreign
currencies might be required to take place within the country issuing the
underlying currency. Thus, the New Asia Growth Fund might be required to accept
or make delivery of the underlying foreign currency in accordance with any U.S.
or foreign regulations regarding the maintenance of foreign banking
arrangements by U.S. residents and might be required to pay any fees, taxes and
charges associated with such delivery assessed in the issuing country.
Foreign Currency Forward Contracts (New Asia Growth Fund
Only). New Asia Growth Fund may enter into foreign currency forward contracts
to purchase or sell foreign currencies for a fixed amount of U.S. dollars or
another foreign currency. New Asia Growth Fund also may use foreign currency
forward contracts for cross-hedging. Under this strategy, New Asia Growth Fund
would increase its exposure to foreign currencies that the investment adviser
believes might rise in value relative to the U.S. dollar, or shift its exposure
to foreign currency fluctuations from one country to another. For example, if
New Asia Growth Fund owned securities denominated in a foreign currency and the
investment adviser believed that currency would decline relative to another
currency, it might enter into a forward contract to sell an appropriate amount
of the first foreign currency, with payment to be made in the second foreign
currency.
The cost to New Asia Growth Fund engaging in foreign currency
forward contracts varies with factors such as the currency involved, the length
of the contract period and the market conditions then prevailing. Because
foreign currency forward contracts are usually entered into on a principal
basis, no fees or commissions are involved. When New Asia Growth Fund enters
into a foreign currency forward contract, it relies on the contra party to make
or take delivery of the underlying currency at the
19
<PAGE> 196
maturity of the contract. Failure by the contra party to do so would result in
the loss of any expected benefit of the transaction.
As is the case with futures contracts, holders and writers of
foreign currency forward contracts can enter into offsetting closing
transactions, similar to closing transactions on futures, by selling or
purchasing, respectively, an instrument identical to the instrument held or
written. Secondary markets generally do not exist for foreign currency forward
contracts, with the result that closing transactions generally can be made for
foreign currency forward contracts only by negotiating directly with the contra
party. Thus, there can be no assurance that New Asia Growth Fund will in fact be
able to close out a foreign currency forward contract at a favorable price prior
to maturity. In addition, in the event of insolvency of the contra party, New
Asia Growth Fund might be unable to close out a foreign currency forward
contract at any time prior to maturity. In either event, New Asia Growth Fund
would continue to be subject to market risk with respect to the position, and
would continue to be required to maintain a position in securities denominated
in the foreign currency or to maintain cash or securities in a segregated
account.
The precise matching of foreign currency forward contract
amounts and the value of the securities involved generally will not be possible
because the value of such securities, measured in the foreign currency, will
change after the foreign currency forward contract has been established. Thus,
New Asia Growth Fund might need to purchase or sell foreign currencies in the
spot (cash) market to the extent such foreign currencies are not covered by
forward contracts. The projection of short-term currency market movements is
extremely difficult, and the successful execution of a short-term hedging
strategy is highly uncertain.
Limitations on the Use of Foreign Currency Forward Contracts
(New Asia Growth Fund Only). New Asia Growth Fund may enter into foreign
currency forward contracts or maintain a net exposure to such contracts only if
(1) the consummation of the contracts would not obligate the Fund to deliver an
amount of foreign currency in excess of the value of its portfolio securities
or other assets denominated in that currency or (2) New Asia Growth Fund
maintains cash, U.S. Government securities or liquid, high-grade debt
securities in a segregated account in an amount not less than the value of its
total assets committed to the consummation of the contract and not covered as
provided in (1) above, as marked to market daily. Under normal circumstances,
consideration of the prospect for currency parities will be incorporated into
the longer term investment decisions made with regard to overall
diversification strategies. However, the investment adviser believes that it
is important to have the flexibility to enter into such forward contracts when
it determines that the best interests of New Asia Growth Fund will be served.
ASSET BACKED SECURITIES
The purchase of non-mortgage backed securities raise
considerations peculiar to the financing of the instruments underlying such
securities. For example, most organizations that issue Asset Backed Securities
relating to motor vehicle installment purchase obligations perfect their
interest in their respective obligations only
20
<PAGE> 197
by filing a financing statement and by having the servicer of the obligations,
which is usually the originator, take custody thereof. In such circumstances, if
the servicer were to sell the same obligations to another party, in violation of
its duty to do so, there is a risk that such party could acquire an interest in
the obligations superior to that of the holders of the Asset Backed Securities.
Also, although most such obligations grant a security interest in the motor
vehicle being financed, in most states the security interest in a motor vehicle
must be noted on the certificate of title to perfect such security interest
against competing claims of other parties. Due to the large number of vehicles
involved, however, the certificate of title to each vehicle financed, pursuant
to the obligations underlying the Asset Backed Securities, usually is not
amended to reflect the assignment of the seller's security interest for the
benefit of the holders of the Asset Backed Securities. Therefore, there is the
possibility that recoveries on repossessed collateral may not, in some cases, be
available to support payments on those securities. In addition, various state
and Federal laws give the motor vehicle owner the right to assert against the
holder of the owner's obligation certain defenses such owner would have against
the seller of the motor vehicle. The assertion of such defenses could reduce
payments on the related Asset Backed Securities. Insofar as credit card
receivables are concerned, credit card holders are entitled to the protection of
a number of state and Federal consumer credit laws, many of which give such
holder the right to set off certain amounts against balances owed on the credit
card, thereby reducing the amounts paid on such receivables. In addition, unlike
most other Asset Backed Securities, credit card receivables are unsecured
obligations of the cardholders.
MANAGEMENT
Trustees and Officers. The name, age and principal occupation
during the past five years of each of the Trustees and executive officers of
the Trust are listed below. The address of each, unless otherwise indicated, is
3435 Stelzer Road, Columbus, Ohio 43219-3035. Trustees deemed to be "interested
persons" of the Trust for purposes of the 1940 Act are indicated by an asterisk
(*).
Deborah G. Patterson* (43), Trustee and Chairperson - Senior
Vice President of Bank of Hawaii - Asset Management and Private Client Group
(1994- present); Director of KPMG Peat Marwick (1993-1994); Senior Vice
President and Manager of Wells Fargo Bank (1987-1992); Vice President and
Manager of Citibank NA - Private Banking and Investment Division (1980-1987);
Officer of Bank Securities Association; Member of the Advisory Board of Hawaii
Family Stress Center; Director of American Red Cross, Hawaii State Chapter;
Director of the Honolulu Symphony Society; Member of the Strategic Planning
Committee - Aloha United Way; Member of the Rotary Club of Honolulu; Member of
the Advisory Board of Leadership Council of Marin (1992-1994); Member of the
American Arbitration Association (1988-1992).
Irimga McKay* (37), Trustee and President - 1230 Columbia
Street, San Diego, California 92101. Senior Vice President of BISYS Fund
Services (1994-present); Senior Vice President of Concord Financial Group
(1986-1994).
21
<PAGE> 198
Douglas Philpotts* (66), Trustee - Financial Plaza of the
Pacific, P.O. Box 3170, Honolulu, Hawaii 96802. Chairman of the Board of
Directors (1992-1994), President (1986-1992) and Director (1984-present) of
Pacific Century Trust; Director of Victoria Ward; Trustee of The Strong
Foundation and Seabury Hall; Trustee of Cash Assets Trust, U.S. Treasuries Cash
Assets Trust, Hawaiian Tax-Free Trust and Tax-Free Cash Assets Trust
(1992-present); Affiliated with The Pacific Club, Ohu Country Club, Maui
Country Club, Punahou O-Mens Club, and University of Hawaii Foundation
President's Club. Formerly a Director and Officer of various cultural,
educational, community and professional organizations.
Richard W. Gushman II (51), Trustee - 700 Bishop Street,
Suite 200, Honolulu, Hawaii 96813. President and Chief Executive Officer of
OKOA, INC., a private Hawaii corporation involved in commercial real estate
(1985-present); Adviser to RAMPAC, Inc., a wholly owned subsidiary of the Bank
of Hawaii, involved with commercial real estate finance; Trustee of Cash Assets
Trust, Tax-Free Cash Assets Trust and U.S. Treasuries Cash Assets Trust
(1993-present); Member of the Boards of Aloha United Way Downtown Improvement
Association, Boys and Girls Club of Honolulu and Oceanic Cablevision, Inc.
Stanley W. Hong (61), Trustee -1132 Bishop Street, Honolulu,
Hawaii 96813. President and Chief Executive Officer of the Chamber of Commerce
of Hawaii (1996-present); Business Consultant (1994-present); Senior Vice
President of McCormack Properties, Ltd. (1993-1995); President and Chief
Executive Officer of the Hawaii Visitors Bureau (1984-1993); Vice President,
General Counsel and Corporate Secretary at TheoDavies & Co., Ltd., a multiple
business company (1973-1984); formerly Legislative Assistant to U.S. Senator
Hiram L. Fong; Member of the Boards of Directors of several community
organizations; Trustee of Cash Assets Trust, Tax-Free Cash Assets Trust and
U.S. Treasuries Cash Assets Trust (1993-present); Director of Capital
Investment of Hawaii, Inc. (Real Estate and Wholesale Bakery) (1995-present);
Director of Central Pacific Bank (1995-present); Trustee of the Nature
Conservancy of Hawaii (1990-present); Regent of Chaminade University of
Honolulu (1990-present).
Russell K. Okata (53), Trustee - 888 Mililani Street, Suite
601, Honolulu, Hawaii 96813-2991. Executive Director, Deputy Executive
Director, Administration Officer or Research Statistician of Hawaii Government
Employees Association AFSCME Local 152, AFL-CIO (1970-present); Trustee of Cash
Assets Trust, Tax-Free Cash Assets Trust and U.S. Treasuries Cash Assets Trust
(1993-present); Chairman of the Royal State Insurance Group (1988-present);
Trustee of several charitable organizations.
Oswald K. Stender (65), Trustee - P.O. Box 3466, Honolulu,
Hawaii 96801. Trustee of Bernice Pauahi Bishop Estate (1990-present); Director
of Hawaiian Electric Industries, Inc., a public utility holding company
(1993-present); Senior Advisor to the Trustees of The Estate of James Campbell
(1987-1989); and Chief Executive Officer (1976-1988); Director of several
housing and real estate associations; Director, member or trustee of several
community organizations; Trustee of Cash Assets Trust, Tax-Free Cash Assets
Trust and U.S. Treasuries Cash Assets Trust (1993-present).
Craig Warren (35), Treasurer - 111 South King Street,
Honolulu, Hawaii 96813. Vice President of Bank of Hawaii - Asset Management and
Private Client Group
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<PAGE> 199
(1994-present); Senior Financial Analyst of Federal Home Loan Bank of San
Francisco Marketing Strategies and Analysis Division (1993-1994); Chief
Financial Officer of Wells Fargo Securities, Inc. (1990-1992); Vice President of
Wells Fargo Bank - Private Banking Group (1987-1992).
Gregory Maddox (29), Secretary - 1230 Columbia Street, San
Diego, California 92101. Director of BISYS Fund Services (1991-present).
Thresa Dewar (43), Assistant Secretary - Vice President and
Treasurer, Financial Administration of BISYS Fund Services (March,
1997-present); Vice President and Controller of Federated Administrative
Services (1972-1994).
Alaina Metz (30), Vice President - Chief Administrative
Officer of BISYS Fund Services - Blue Sky Compliance (1995 - present); Alliance
Capital Management, L.P. (1989-1995).
William J. Tomko (39), Vice President - Senior Vice President
of BISYS Fund Services (1987-present).
Eileen Walther (44), Vice President - Vice President of
Accounting Services of BISYS Fund Services (1996-present); Assistant Vice
President of Templeton International (1984-1995).
As of the date of this SAI, Trustees and officers of the
Trust as a group beneficially owned less than 1% of the outstanding shares of
each Fund.
Trustees of the Trust who are not officers or employees of
the Trust, BISYS or Pacific Century Trust, the adviser to the Funds ("Pacific
Century") are entitled to receive from the Trust a quarterly retainer and a fee
for each Board of Trustees meeting attended. All Trustees are reimbursed for
all reasonable out-of-pocket expenses relating to attendance at meetings. The
following table sets forth the fees and expenses paid by each Fund to the
Trustees for the fiscal year ended July 31, 1997:
<TABLE>
<CAPTION>
Aggregate Trustees' Fees
and Expenses for the
Fiscal Year Ended
Fund July 31, 1997
---- -------------
<S> <C>
Diversified Fixed Income Fund $ 15,638
Growth and Income Fund $ 8,622
Growth Stock Fund $ 21,030
New Asia Growth Fund $ 958
Short Intermediate U.S. Treasury Securities $ 2,646
Fund
Tax-Free Securities Fund $ 32,709
Tax-Free Short Intermediate Securities Fund $ 4,623
U.S. Treasury Securities Fund $ 2,007
- ----------
</TABLE>
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<PAGE> 200
The following table sets forth the aggregate compensation
paid by the Trust to the Trustees who are not officers and employees of the
Trust, BISYS or Pacific Century and the aggregate compensation paid to such
Trustees by all investment companies (including the Trust) advised by Pacific
Century for the periods indicated.
<TABLE>
<CAPTION>
Pension or Total Compensation
Retirement Estimated from Trust and
Aggregate Benefits Accrued Benefits Other Funds
Compensation as Part Upon Advised by Pacific
Name of Trustee From Trust(1) of Fund Expenses Retirement Century (2)
- --------------- ------------- ---------------- ---------- -----------
<S> <C> <C> <C> <C>
Richard W. Gushman II $10,500 None None $43,700
Stanley W. Hong $10,500 None None $44,788
Russell K. Okata $10,500 None None $44,137.50
Douglas Philpotts $10,500 None None $46,900
Oswald K. Stender $10,500 None None $43,755.23
</TABLE>
- ---------
(1) Provided for the fiscal year ended July 31, 1997.
(2) Provided for the calendar year ended December 31, 1996. In
addition to the Funds, each of the Trustees served on the boards of
one other trust advised by Pacific Century, comprising four separate
funds.
24
<PAGE> 201
Investment Adviser. Pursuant to an Investment Advisory
Agreement (the "Advisory Agreement"), each of the Funds is advised by Pacific
Century. Subject to the supervision of the Board of Trustees, Pacific Century
will provide a continuous investment program for the Funds, including
investment research and management with respect to all securities and
investments and cash equivalents in the Funds. Pacific Century will determine
from time to time what securities and other investments will be purchased,
retained or sold by the Trust with respect to the Funds. From time to time, the
Funds, to the extent consistent with their investment objectives, policies and
restrictions, may invest in securities of companies with which Pacific Century
has a lending relationship. Pacific Century will provide the services under the
Advisory Agreement in accordance with each of the Fund's investment objectives,
policies, and restrictions.
For its services under the Advisory Agreement, Pacific
Century receives compensation from each Fund based on a percentage of the
Fund's average daily net assets. The rate of advisory fees payable by each Fund
to Pacific Century is set forth in the prospectus. The following table sets
forth the aggregate fees paid by each Fund pursuant to its Advisory Agreement
for the fiscal years July 31, 1997 ended July 31, 1996 and July 31, 1995:
Compensation Paid to Pacific Century
Under the Advisory Agreement
<TABLE>
<CAPTION>
For the Fiscal Year For the Fiscal Year For the Fiscal Year
Ended July 31,1997 Ended July 31, 1996 Ended July 31, 1995
--------------------------- ------------------------------ -----------------------------
Aggregate Aggregate Aggregate
Advisory Fee Advisory Advisory
Paid Fee Paid Aggregate Fee Paid Aggregate
(After Waiver Aggregate (After Waiver, as Fee (After Waiver, as Fee
Fund as applicable) Fee Waived applicable) Waived applicable) Waived
---- -------------- ---------- ----------------- ---------- ----------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Diversified Fixed $867,869 N/A $ 814,802 N/A $208,807* $ 2,102*
Income Fund
Growth and Income $768,642 N/A $ 503,952 N/A $217,059* $ 2,099*
Fund
Growth Stock Fund $1,499,559 N/A $ 1,359,262 N/A $869,719 $ 1,855
New Asia Growth $141,522 $ 7,778 $ 52,972 N/A $1,722* $ 6,789*
Fund
Short Intermediate $71,646 $47,940 $ 61,600 $41,079 $37,281 $26,093
U.S. Treasury
Securities Fund
Tax-Free Securities $1,756,304 N/A $ 1,724,513 N/A $1,242,045* $11,920*
Fund
Tax-Free Short $195,480 N/A $ 202,701 N/A $ 149,902* $1,569*
Intermediate Securities
Fund
U.S. Treasury $145,470 N/A $ 172,954 N/A $ 349,687 --
Securities Fund
- --------------------
</TABLE>
* Period from commencement of operations through July 31, 1995. Diversified
Fixed Income Fund, Growth and Income Fund, Tax-Free Securities Fund and
Tax-Free Short Intermediate Securities Fund commenced operations on October
14, 1994. New Asia Growth Fund commenced operations on February 15, 1995.
25
<PAGE> 202
The Advisory Agreement provides that Pacific Century shall
not be liable for any error of judgment or mistake of law or for any loss
suffered by the Funds in connection with the performance of the Advisory
Agreement, except a loss resulting from a breach of fiduciary duty with respect
to the receipt of compensation for services or loss resulting from willful
misfeasance, bad faith or gross negligence on its part in the performance of
its duties or from reckless disregard by it of its obligations and duties under
the Advisory Agreement.
The Advisory Agreement will continue in effect beyond its
initial two year term provided the continuance is approved annually (i) by the
holders of a majority of the respective Fund's outstanding voting securities or
by the Trust's Board of Trustees and (ii) by a majority of the Trustees of the
Trust who are not parties to the Advisory Agreement or "interested persons" (as
defined in the 1940 Act) of any such party. The Advisory Agreement may be
terminated on 60 days' written notice by either party and will terminate
automatically if assigned.
The Trust has been advised that Pacific Century should be
able to perform the services contemplated by the Advisory Agreement, the
Custodian Agreement, and the Prospectuses, without violation of the
Glass-Steagall Act. However, there are no controlling judicial or
administrative interpretations or decisions and future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes and regulations relating to the permissible activities of banks
and their subsidiaries or affiliates, as well as future changes in federal or
state statutes and regulations and judicial or administrative decisions or
interpretations thereof, could prevent Pacific Century from continuing to
perform, in whole or in part, such services. If Pacific Century were prohibited
from performing any of such services, it is expected that new agreements would
be entered into with another entity or entities qualified to perform such
services.
26
<PAGE> 203
The Sub-Adviser (New Asia Growth Fund only). Nicholas
Applegate Capital Management (Hong Kong) LLC serves as Sub-Adviser to New Asia
Growth Fund. Pursuant to a separate sub-advisory agreement with Pacific Century
(the "Sub-Advisory Agreement"), the SubAdviser provides investment advisory
services with respect to management of the foreign component of New Asia Growth
Fund's portfolio, including investment research with respect to all foreign
securities, currencies and cash equivalents in New Asia Growth Fund. For its
services, Pacific Century pays the Sub-Adviser a fee, computed daily and
payable quarterly, equal on an annual basis, to 0.50% of New Asia Growth Fund's
average daily net assets. The Sub-Adviser's fee is paid by Pacific Century, and
New Asia Growth Fund does not pay any incremental fee for the services of the
Sub-Adviser. For the fiscal years ended July 31, 1997, July 31, 1996 and July
31, 1995, Pacific Century paid sub-advisory fees to the predecessor sub-adviser
in the amount of $141,522, $29,567 and $4,728, respectively, for services
provided to New Asia.
The Sub-Adviser is a California limited liability company.
The Sub-Advisory Agreement will continue in effect beyond its
initial two year term provided its continuance is approved annually in the same
manner as the Advisory Agreement. The Sub-Advisory Agreement may be terminated
at any time without penalty on 60 days' written notice by either party, by the
Board of Trustees or by the vote of a majority of the Fund's outstanding voting
securities. The Sub-Advisory Agreement will terminate automatically if
assigned.
Administrator and Distributor. The Trust has retained BISYS
as administrator and distributor on behalf of each of its Funds. See,
"Management, Advisory and Other Services" in the applicable Prospectus.
Under the Administration Agreement with the Trust, BISYS, in
connection therewith, furnishes the Trust with office facilities, together with
those ordinary clerical and bookkeeping services that are not being furnished
by Pacific Century. For expenses assumed and services provided as administrator
pursuant to the Administration Agreement, BISYS is entitled to receive a fee
from the Funds, computed daily and paid monthly, at an annual rate equal to
0.20% of the average daily net assets of each Fund. The following table sets
forth the aggregate fees paid, after giving effect to fee waivers, as
applicable, by each Fund to BISYS for services provided pursuant to the
Administration Agreement for the fiscal years ended July 31, 1997, July 31,
1996 and July 31, 1995:
27
<PAGE> 204
Compensation Paid to BISYS
Under the Administration Agreement
<TABLE>
<CAPTION>
Aggregate Fees Paid Aggregate Fees Aggregate Fees
under Paid under Paid under
Administration Administration Administration
Agreement for Agreement for Agreement for
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
July 31, 1997 July 31, 1996 July 31, 1995
Fund (after waiver) (after waiver) (after waiver)
---- -------------- -------------- --------------
<S> <C> <C> <C>
Diversified Fixed Income Fund $231,432 $216,788 $ 52,202*
Growth and Income Fund $153,729 $100,430 $ 40,700*
Growth Stock Fund $299,912 $270,656 $169,099
New Asia Growth Fund $ 24,883 $ 8,807 $ 1,405*
Short Intermediate U.S. Treasury $ 35,823 $ 30,800 $ 33,598
Securities Fund
Tax-Free Securities Fund $486,348 $457,502 $310,511*
Tax-Free Short Intermediate $ 58,644 $ 60,810 $ 44,970*
Securities Fund
U.S. Treasury Securities Fund $ 38,792 $ 45,683 $ 93,618
</TABLE>
* Period from commencement of operations through July 31, 1995. Diversified
Fixed Income Fund, Growth and Income Fund, Tax-Free Securities Fund and
Tax-Free Short Intermediate Securities Fund commenced operations on October
14, 1994. New Asia Growth Fund commenced operations on February 15, 1995.
BISYS has entered into a Distribution Agreement with the
Trust pursuant to which it has the responsibility of distributing shares of the
Funds. For its services, BISYS is entitled to a distribution fee, as set forth
in the Distribution and Shareholder Service Plans for each of the Class A and
Class B shares ("Class A Distribution Plan" and "Class B Distribution Plan,"
respectively). The Class A Distribution Plan and the Class B Distribution Plan
have been adopted pursuant to Rule 12b-1 under the 1940 Act. See "Distribution
and Shareholder Service Plans" below.
Transfer Agent. Administrative Data Management Corporation
("ADM"), serves as Transfer Agent for each of the Funds.
28
<PAGE> 205
Code of Ethics. The Board of Trustees of the Trust has
adopted a Code of Ethics under Rule 17j-1 of the Investment Company Act (the
"Code"). The Code restricts the investing activities of Fund officers,
Trustees and advisory persons and, as described below, imposes additional, more
onerous restrictions on Fund investment personnel.
All persons covered by the Code are required to preclear any
personal securities investment (with limited exceptions, such as government
securities) and must comply with ongoing requirements concerning recordkeeping
and disclosure of personal securities investments. The preclearance requirement
and associated procedures are designed to identify any prohibition or
limitation applicable to a proposed investment. In addition, all persons
covered by the Code are prohibited from purchasing or selling any security
which, to such person's knowledge, is being purchased or sold (as the case may
be), or is being considered for purchase or sale, by a Fund. Investment
personnel are subject to additional restrictions such as a ban on acquiring
securities in an initial public offering, "blackout periods" which prohibit
trading by investment personnel of a Fund within periods of trading by the Fund
in the same security and a ban on short-term trading in securities.
DISTRIBUTION AND SHAREHOLDER SERVICE PLANS
As indicated above, the Trust has adopted for the Class A and
Class B shares of each of the Funds the Class A Distribution Plan and the Class
B Distribution Plan under Section 12(b) of the 1940 Act and Rule 12b-1
thereunder. The Class A Distribution Plan and the Class B Distribution Plan of
each of the Funds were adopted by the Board of Trustees, including a majority
of the trustees who were not "interested persons" (as defined in the 1940 Act)
of the Funds and who had no direct or indirect financial interest in the
operation of the Distribution Plans or in any agreement related to the
Distribution Plans (the "Qualified Trustees"). The Class A Distribution Plan
provides that with respect to the Class A shares, BISYS is entitled to receive
a fee in an amount not to exceed on an annual basis 0.75% of the average daily
net asset value of the Fund attributable to the Fund's Class A shares. The
Class B Distribution Plan provides that with respect to the Class B Shares,
BISYS is entitled to receive a fee in an amount not to exceed on an annual
basis 1.00% of the average daily net asset value of the Fund attributable to
the Fund's Class B shares. The distribution fee compensates BISYS for the
following: (a) payments BISYS makes to banks and other institutions and
industry professionals, such as broker/dealers, including Pacific Century,
BISYS and their affiliates or subsidiaries, pursuant to an agreement in
connection with providing sales and/or administrative support services to the
holders of a Fund's Class A and Class B shares; or (b) payments to financial
institutions and industry professionals (such as insurance companies,
investment counselors, and BISYS' affiliates and subsidiaries) in consideration
for the distribution services provided and expenses assumed in connection with
distribution assistance, including, but not limited to, printing and
distributing prospectuses to persons other than current Class A and Class B
shareholders of a Fund, printing and distributing advertising and sales
literature and reports to Class A and Class B shareholders in connection with
the sale of a Fund's shares, and providing personnel and communication
equipment used in servicing shareholder accounts and prospective Class A and
Class B shareholder inquiries.
The distribution fees shall be paid to BISYS only to
compensate or to reimburse it for actual payments or expenses incurred as
described above. The distribution fees paid by the Funds to BISYS for services
provided under the Class A Distribution Plan for the fiscal year ended July 31,
1997, restated to reflect fee waivers, are set forth in the table below. The
Class B shares
29
<PAGE> 206
had not yet been publicly offered as of the date of this Statement of Additional
Information. Accordingly, no distribution fees have been paid to BISYS to date
under the Class B Distribution Plan.
Distribution Fees Paid to BISYS Under the Class A Distribution Plan
<TABLE>
<CAPTION>
Aggregate Distribution
Fees Paid for Fiscal
Year Ended July 31, 1997
Fund (after waiver)
---- --------------
<S> <C>
Diversified Fixed Income Fund $ 2,805
Growth and Income Fund $ 5,247
Growth Stock Fund $16,369
New Asia Growth Fund $ 6,793
Short Intermediate U.S. Treasury Securities Fund $ 1,865
Tax-Free Securities Fund $ 3,161
Tax-Free Short Intermediate Securities Fund $ 1,996
U.S. Treasury Securities Fund $ 2,630
</TABLE>
The Class A Distribution Plan and Class B Distribution Plan
will continue in effect from year to year if such continuance is approved by a
majority vote of both the Trustees of the Trust and the Qualified Trustees.
Agreements related to the Distribution Plans also must be approved by such vote
of the Trustees and the Qualified Trustees. Such agreements will terminate
automatically if assigned, and may be terminated at any time, without payment
of any penalty, by a vote of a majority of the outstanding voting securities of
the proper Fund. The Distribution Plans relating to a Fund may not be amended
to increase materially the amounts payable thereunder without the approval of a
majority of the outstanding voting securities of the proper Fund, and no
material amendment to the Distribution Plans may be made except by a majority
of both the Trustees of the Trust and the Qualified Trustees.
CALCULATION OF YIELD AND TOTAL RETURN
As indicated in the Prospectuses, the Funds may advertise
certain yield information. As and to the extent required by the Commission,
yield will be calculated based on a 30-day (or one month) period, computed by
dividing the net investment income per share earned during the period by the
maximum offering price per share on the last day of the period, according to
the following formula: YIELD = 2[((a-b)cd)+1)(6)-1], where a = dividends and
interest earned during the period;
30
<PAGE> 207
b = expenses accrued for the period (net of reimbursements); c = the average
daily number of shares outstanding during the period that were entitled to
receive dividends; and d = the maximum offering price per share on the last day
of the period. The net investment income of the Funds includes actual interest
income, plus or minus amortized purchase discount (which may include original
issue discount) or premium, less accrued expenses. Realized and unrealized
gains and losses on portfolio securities are not included in the Funds' net
investment income. For purposes of sales literature, yield on Class A shares
also may be calculated on the basis of the net asset value per share rather than
the public offering price, provided that the yield data derived pursuant to the
calculation described above also are presented.
The tax-equivalent yield for the Tax-Free Funds also may be
computed by dividing that portion of the yield of the Funds which is tax-exempt
by one minus a stated income tax rate and adding the product to that portion,
if any, of the yield of the Funds that is not tax-exempt.
The yield for the Funds will fluctuate from time to time,
unlike bank deposits or other investments that pay a fixed yield for a stated
period of time, and does not provide a basis for determining future yields
since it is based on historical data. Yield is a function of portfolio quality,
composition, maturity and market conditions as well as the expenses allocated
to the Fund.
In addition, investors should recognize that changes in the
net asset values of shares of the Funds will affect the yield of such Funds for
any specified period, and such changes should be considered together with the
Fund's yield in ascertaining the Fund's total return to shareholders for the
period. Yield information for the Funds may be useful in reviewing the
performance of the Fund and for providing a basis for comparison with
investment alternatives. The yield of a Fund, however, may not be comparable to
the yields from investment alternatives because of differences in the foregoing
variables and differences in the methods used to value portfolio securities,
compute expenses and calculate yield.
As indicated in the Prospectuses, the Funds may advertise
certain total return information. As and to the extent required by the
Commission, an average annual compound rate of return ("T") will be computed by
using the value at the end of a specified period ("ERV") of a hypothetical
initial investment ("P") over a period of years ("n") according to the
following formula: P(1+T)(n) = ERV. Aggregate total return will be calculated
similarly to average annual total return except that the return figure is
aggregated over the relevant period rather than annualized. In addition, as
indicated in the Prospectuses, the Funds may also, at times, calculate total
return of Class A shares based on net asset value per share (rather than the
public offering price), in which case the figures would not reflect the effect
of any sales charges that would have been paid by an investor, or based on the
assumption that a sales charge other than the maximum sales charge (reflecting
a Volume Discount) was assessed, provided that total return data for the Class
A shares derived pursuant to the calculation described above also are
presented.
From time to time, the Trust may include the following types
of information in advertisements, supplemental sales literature and reports to
Shareholders: (1) discussions of general economic or financial principles (such
as the effects of compounding and the benefits of dollar-cost averaging); (2)
discussions of general economic trends; (3) presentations of statistical data
to supplement such discussions; (4) descriptions of past or anticipated
portfolio holdings for one or more of the Funds; (5) descriptions of investment
strategies for one or more of the Funds; (6) descriptions or comparisons of
various savings and investment products (including, but not limited to, insured
bank products, annuities, qualified retirement plans and individual
31
<PAGE> 208
stocks and bonds), which may or may not include the Funds; (7) comparisons of
investment products (including the Funds) with relevant market or industry
indices or other appropriate benchmarks; (8) discussions of fund rankings or
ratings by recognized rating organizations; and (9) testimonials describing the
experience of persons that have invested in one or more of the Funds. The Trust
may also include calculations, such as hypothetical compounding examples, which
describe hypothetical investment results in such communications. Such
performance examples will be based on an express set of assumptions and are not
indicative of the performance of any of the Funds.
From time to time, the Trust may also quote the Funds'
performance in advertising and other types of literature as compared to the
performance of the S&P Index, the Dow Jones Industrial Average, indices of
bonds, stocks or government securities, and other mutual funds or mutual fund
portfolios with comparable investment objectives and policies. This information
may be based on data relating to various mutual fund or market indices such as
those prepared by Dow Jones & Co., Inc. and Standard & Poor's Corporation or
data prepared by Lipper Analytical Services, Inc. Comparisons may also be made
to indices or data published in Money Magazine, Forbes, Barron's, The Wall
Street Journal, The New York Times, Business Week, American Banker,
Institutional Investor, Pensions and Investments, USA Today, Fortune,
CDA/Wiesenberger, Ibbotson Associates, Inc., Morningstar and local newspapers
and periodicals.
The S&P Index and the Dow Jones Industrial Average are
unmanaged indices of selected common stock prices. The U.S. Treasury Securities
Fund, the Short Intermediate U.S. Treasury Securities Fund, the Diversified
Fixed Income Fund, the Tax-Free Securities Fund or the Tax-Free Short
Intermediate Securities Fund also may be compared, in reports and promotional
literature, to the Consumer Price Index, the Salomon One Year Treasury
Benchmark Index, the Ten Year U.S. Government Bond Average, S&P's Corporate
Bond Yield Averages, the Schabacker Investment Management Indices, the Salomon
Brothers High Grade Bond Index, the Lehman Brothers Long-Term High Quality
Government/Corporate Bond Index, the Lehman Brothers 20+ Treasury Index, the
Lehman Brothers 5-7 Year Treasury Index, and Bank Averages (which are
calculated from figures supplied by the U.S. League of Savings Institutions
based on effective annual rates of interest on both passbook and certificate
accounts). This comparative performance could be expressed as a ranking
prepared by Lipper Analytical Services, Inc., CDA/Wiesenberger or Morningstar,
Inc., independent services which monitor the performance of mutual funds. The
Funds' performance will be calculated by relating net asset value per share at
the beginning of a stated period to the net asset value of the investment,
assuming reinvestment of all gains distributions and dividends paid, at the end
of the period. Any such comparisons may be useful to investors who wish to
compare a Fund's past performance with that of its competitors. Of course, past
performance cannot be a guarantee of future results.
The Trust also may discuss in advertising and other types of
literature that one or more of the Funds has been assigned a rating by an
NRSRO, such as Standard & Poor's Corporation. Such rating would assess the
creditworthiness of the investments held by a Fund. The assigned rating would
not be a recommendation to purchase, sell or hold the Fund's shares since the
rating would not comment on the market price of the Fund's shares or the
suitability of the Fund for a particular investor. In addition, the assigned
rating would be subject to change, suspension or withdrawal as a result of
changes in, or unavailability of, information relating to a Fund or its
investments. The Trust may compare a Fund's performance with other investments
which are assigned ratings by NRSROs. Any such comparisons may be useful to
investors who wish to compare the Fund's past performance with other rated
investments.
32
<PAGE> 209
Set forth below is total return and yield information for the
Class A and Class Y shares of the Funds, other than Balanced Fund, which has
not yet commenced operations as of the date of this Statement of Additional
Information. Information for Class B shares of the Funds is not presented
because these shares have not yet been offered at the date of this Statement
of Additional Information.
33
<PAGE> 210
Diversified Fixed Income Fund
The average annual and aggregate total return for the Diversified Fixed Income
Fund includes the performance of certain common trust fund ("Commingled")
accounts advised by Pacific Century and managed the same as the Fund in all
material respects, for periods dating back to October 31, 1977, as applicable,
and prior to commencement of operations of the Fund's Class A and Y shares.
(See note "*"). Such performance is adjusted to reflect the expenses associated
with the Fund. The Commingled accounts were not registered with the Commission
under the 1940 Act, and therefore were not subject to the investment
restrictions imposed by law on registered mutual funds. If the Commingled
accounts had been registered, the Commingled accounts' performance may have
been adversely affected.
<TABLE>
<CAPTION>
Class A* Class Y*
-------------------------------- ---------------------------------
Redeemable Redeemable
Expressed as value of a Expressed as value of a
a percentage hypothetical a percentage hypothetical
based on a $1000 based on a $1000
hypothetical investment hypothetical investment
$1000 at the end of $1000 at the end of
Period investment the period investment the period
------ ---------- ------------ ---------- ----------
Average Annual Total Return
(including maximum applicable sales charge)**
<S> <C> <C> <C> <C>
One Year Ended July 31, 1997 4.79% $1,048 9.30% $1,093
Five Years ended July 31, 1997 5.46% $1,304 6.68% $1,382
Ten Years ended July 31, 1997 7.80% $2,119 8.55% $2,272
Aggregate Total Return
(including maximum applicable sales charge)**
One Year Ended July 31, 1997 4.79% $1,048 9.30% $1,093
Five Years ended July 31, 1997 30.43% $1,304 38.18% $1,382
Ten Years ended July 31, 1997 111.90% $2,119 127.21% $2,272
Inception (October 31, 1977) 109.81% $2,098 130.47% $2,305
to July 31, 1997
Yield
(including maximum applicable sales charge)**
30 Days Ended July 31, 1997 5.16% 5.63%
</TABLE>
- -------------------
* Class A and Class Y shares of the Fund commenced operations on October 14,
1994.
** The maximum applicable sales charge on the Class A shares is 4.0%. There is
no sales charge imposed in connection with the purchase of Class Y shares.
34
<PAGE> 211
Growth and Income Fund
The average annual and aggregate total return for the Growth and Income Fund
includes the performance of certain common trust fund ("Commingled") accounts
advised by Pacific Century and managed the same as the Fund in all material
respects, for periods dating back to October 31, 1977, as applicable, and prior
to commencement of operations of the Fund's Class A and Y shares. (See note
"*"). Such performance is adjusted to reflect the expenses associated with the
Fund. The Commingled accounts were not registered with the Commission under the
1940 Act, and therefore were not subject to the investment restrictions imposed
by law on registered mutual funds. If the Commingled accounts had been
registered, the Commingled accounts' performance may have been adversely
affected.
<TABLE>
<CAPTION>
Class A* Class Y*
-------------------------------- ---------------------------------
Redeemable Redeemable
Expressed as value of a Expressed as value of a
a percentage hypothetical a percentage hypothetical
based on a $1000 based on a $1000
hypothetical investment hypothetical investment
$1000 at the end of $1000 at the end of
Period investment the period investment the period
------ ---------- ------------ ---------- ----------
Average Annual Total Return
(including maximum applicable sales charge)**
<S> <C> <C> <C> <C>
One Year Ended July 31, 1997 41.72% $1,417 47.96% $1,480
Five Years ended July 31, 1997 14.61% $1,978 15.82% $2,084
Ten Years ended July 31, 1997 11.27% $2,909 11.98% $3,099
Aggregate Total Return
(including maximum applicable sales charge)**
One Year Ended July 31, 1997 41.72% $1,417 47.96% $1,480
Five Years ended July 31, 1997 97.79% $1,978 108.41% $2,084
Ten Years ended July 31, 1997 190.85% $2,909 209.94% $3,099
Inception (October 31, 1977) to 653.93% $7,539 724.66% $8,247
July 31, 1997
Yield
(including maximum applicable sales charge)**
30 Days Ended July 31, 1997 .21% .44%
- -------------------
</TABLE>
* The Class A and Class Y Shares of the Fund commenced operations on
October 14, 1994.
** The maximum applicable sales charge on the Class A shares is 4.0%. There is
no sales charge imposed in connection with the purchase of Class Y shares.
35
<PAGE> 212
Growth Stock Fund
The average annual and aggregate total return for the Growth Stock Fund
includes the performance of certain common trust fund ("Commingled") accounts
advised by Pacific Century and managed the same as the Fund in all material
respects, for periods dating back to October 31, 1977, as applicable, and prior
to commencement of operations of the Fund's Class A and Y shares. (See note
"*"). Such performance is adjusted to reflect the expenses associated with the
Fund. The Commingled accounts were not registered with the Commission under
the 1940 Act, and therefore were not subject to the investment restrictions
imposed by law on registered mutual funds. If the Commingled accounts had been
registered, the Commingled accounts' performance may have been adversely
affected.
<TABLE>
<CAPTION>
Class A* Class Y*
-------------------------------- ---------------------------------
Redeemable Redeemable
Expressed as value of a Expressed as value of a
a percentage hypothetical a percentage hypothetical
based on a $1000 based on a $1000
hypothetical investment hypothetical investment
$1000 at the end of $1000 at the end of
Period investment the period investment the period
------ ---------- ------------ ---------- ----------
Average Annual Total Return
(including maximum applicable sales charge)**
<S> <C> <C> <C> <C>
One Year Ended July 31, 1997 41.08% $1,411 47.39% $1,474
Five Years ended July 31, 1997 15.39% $2,046 16.58% $2,153
Ten Years ended July 31, 1997 11.70% $3,025 12.45% $3,233
Aggregate Total Return
(including maximum applicable sales charge)**
One Year Ended July 31, 1997 41.08% $1,411 47.39% $1,474
Five Years ended July 31, 1997 104.59% $2,046 115.38% $2,153
Ten Years ended July 31, 1997 202.48% $3,025 223.27% $3,233
Inception (October 31, 1977) to 953.61% $10,536 1,056.68% $11,567
July 31, 1997
Yield
(including maximum applicable sales charge)**
30 Days Ended July 31, 1997 N/A N/A
- -------------------
</TABLE>
* The Class A shares of the Fund commenced operations on November 1, 1993. The
Class Y shares of the Fund commenced operations on October 14, 1994.
** The maximum applicable sales charge on the Class A shares is 4.0%. There is
no sales charge imposed in connection with the purchase of Class Y shares.
36
<PAGE> 213
<TABLE>
<CAPTION>
Short Intermediate U.S. Treasury Securities Fund
------------------------------------------------------------
Class A Class Y
---------------------------- ----------------------------
Redeemable Redeemable
Expressed as value of a Expressed as value of a
a percentage hypothetical a percentage hypothetical
based on a $1000 based on a $1000
hypothetical investment hypothetical investment
$1000 at the end of $1000 at the end of
Period investment the period investment the period
------ ------------ ------------- ------------ -------------
Average Annual Total Return
(including maximum applicable sales charge)**
<S> <C> <C> <C> <C>
One Year 4.47% $1,045 7.19% $1,072
Ended July 31,
1997
Inception* 3.22% $1,122 4.10% $1,157
to July 31,
1997
Aggregate Total Return
(including maximum applicable sales charge)**
One Year 4.47% $1,045 7.19% $1,072
Ended July 31,
1997
Inception* 12.23% $1,122 15.73% $1,157
to July 31,
1997
Yield
(including maximum applicable sales charge)**
30 Days 5.03% 5.40%
Ended July 31,
1997
<CAPTION>
New Asia Growth Fund
------------------------------------------------------------
Class A Class Y
---------------------------- ----------------------------
Redeemable
Redeemable value of a
Expressed as value of a Expressed as hypothetical
a percentage hypothetical a percentage $1000
based on a $1000 based on a investment
hypothetical investment hypothetical at the end
$1000 at the end of $1000 of
Period investment the period investment the period
------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
One Year 19.64% $1,196 26.50% $1,265
Ended July 31,
1997
Inception* 13.48% $1,365 16.23% $1,448
to July 31,
1997
Aggregate Total Return
(including maximum applicable sales charge)**
One Year 19.64% $1,196 26.50% $1,265
Ended July 31,
1997
Inception* 36.51% $1,365 44.77% $1,448
to July 31,
1997
Yield
(including maximum applicable sales charge)**
30 Days N/A
Ended July 31,
1997
</TABLE>
- -----------------------
* Short Intermediate U.S. Treasury Securities Fund commenced operations of its
Class A shares on November 1, 1993 and its Class Y shares on October 14,
1994. The New Asia Growth Fund commenced operations of its Class A and
Class Y shares on February 15, 1995.
** The maximum applicable sales charge on the Class A of the Short-Intermediate
U.S. Treasury Securities Fund is 2.25%. The maximum applicable sales charge
on the Class A shares of the New Asia Growth Fund is 5.25%. There is no sales
charge imposed in connection with the purchase of Class Y shares of either
Fund.
37
<PAGE> 214
Tax Free Securities Fund
The average annual and aggregate total return for the Tax Free Securities Fund
includes the performance of certain common trust fund ("Commingled") accounts
advised by Pacific Century and managed the same as the Fund in all material
respects, for periods dating back to October 31, 1977, as applicable, and prior
to commencement of operations of the Fund's Class A and Y shares. (See note
"*"). Such performance is adjusted to reflect the expenses associated with the
Fund. The Commingled accounts were not registered with the Commission under the
1940 Act, and therefore were not subject to the investment restrictions imposed
by law on registered mutual funds. If the Commingled accounts had been
registered, the Commingled accounts' performance may have been adversely
affected.
<TABLE>
<CAPTION>
Class A* Class Y*
------------------------------- ------------------------------
Redeemable Redeemable
Expressed as value of a Expressed as value of a
a percentage hypothetical a percentage hypothetical
based on a $1000 based on a $1000
hypothetical investment hypothetical investment
$1000 at the end of $1000 at the end of
Period investment the period investment the period
------ ---------- ---------- ---------- ----------
Average Annual Total Return
(including maximum applicable sales charge)**
<S> <C> <C> <C> <C>
One Year Ended July 31, 1997 4.93% $1,049 9.58% $1,096
Five Years ended July 31, 1997 4.96% $1,274 6.12% $1,346
Ten Years ended July 31, 1997 6.88% $1,945 7.60% $2,080
Aggregate Total Return
(including maximum applicable sales charge)**
One Year Ended July 31, 1997 4.93% $1,049 9.58% $1,096
Five Years ended July 31, 1997 27.39% $1,274 34.58% $1,346
Ten Years ended July 31, 1997 94.54% $1,945 108.04% $2,080
Inception (October 31, 1997) 70.32% $1,703.15 86.64% $1,866
to July 31, 1997
Yield
(including maximum applicable sales charge)**
30 Days Ended July 31, 1997 4.05% 4.47%
- -------------------
</TABLE>
* The Class A and Class Y shares of the Fund commenced operations on
October 14, 1994.
** The maximum applicable sales charge on the Class A shares is 4.0%. There is
no sales charge imposed in connection with the purchase of Class Y shares.
38
<PAGE> 215
Tax Free Short Intermediate Securities Fund
The average annual and aggregate total return for the Tax Free
Short-Intermediate Securities Fund includes the performance of certain common
trust fund ("Commingled") accounts advised by Pacific Century and managed the
same as the Fund in all material respects, for periods dating back to March 31,
1988, as applicable, and prior to commencement of operations of the Fund's
Class A and Y shares. (See note "*"). Such performance is adjusted to reflect
the expenses associated with the Fund. The Commingled accounts were not
registered with the Commission under the 1940 Act, and therefore were not
subject to the investment restrictions imposed by law on registered mutual
funds. If the Commingled accounts had been registered, the Commingled accounts'
performance may have been adversely affected.
<TABLE>
<CAPTION>
Class A* Class Y*
------------------------------ ------------------------------
Redeemable Redeemable
Expressed as value of a Expressed as value of a
a percentage hypothetical a percentage hypothetical
based on a $1000 based on a $1000
hypothetical investment hypothetical investment
$1000 at the end of $1000 at the end of
Period investment the period investment the period
------ ---------- ---------- ---------- ----------
Average Annual Total Return
(including maximum applicable sales charge)**
<S> <C> <C> <C> <C>
One Year Ended July 31, 1997 2.71% $1,027 5.36% $1,054
Five Years ended July 31, 1997 3.10% $1,165 3.91% $1,211
Inception (March 31, 1988)
to July 31, 1997 4.33% $1,485 4.87% $1,559
Aggregate Total Return
(including maximum applicable sales charge)**
One Year Ended July 31, 1997 2.71% $1,027 5.36% $1,054
Five Years ended July 31, 1997 16.49% $1,165 21.13% $1,211
Inception (March 31, 1988)
to July 31, 1997 48.53% $1,485 55.96% $1,560
Yield
(including maximum applicable sales charge)**
30 Days Ended July 31, 1997 3.05% 3.37%
- -------------------
</TABLE>
* The Class A and Class Y shares of the Fund commenced operations on
October 14, 1994.
** The maximum applicable sales charge on the
Class A shares is 2.25%. There is no sales charge imposed in
connection with the purchase of Class Y Shares.
39
<PAGE> 216
U.S. Treasury Securities Fund
The average annual and aggregate total return for the U.S. Treasury Securities
Fund includes the performance of certain common trust fund ("Commingled")
accounts advised by Pacific Century and managed the same as the Fund in all
material respects, for periods dating back to December 31, 1984, as applicable,
and prior to commencement of operations of the Fund's Class A and Y shares.
(See note "*"). Such performance is adjusted to reflect the expenses associated
with the Fund. The Commingled accounts were not registered with the Commission
under the 1940 Act, and therefore were not subject to the investment
restrictions imposed by law on registered mutual funds. If the Commingled
accounts had been registered, the Commingled accounts' performance may have
been adversely affected.
<TABLE>
<CAPTION>
Class A* Class Y*
------------------------------ ------------------------------
Redeemable Redeemable
Expressed as value of a Expressed as value of a
a percentage hypothetical a percentage hypothetical
based on a $1000 based on a $1000
hypothetical investment hypothetical investment
$1000 at the end of $1000 at the end of
Period investment the period investment the period
------ ---------- ---------- ---------- ----------
Average Annual Total Return
(including maximum applicable sales charge)**
<S> <C> <C> <C> <C>
One Year Ended July 4.33% $1,043 8.92% $1,089
31, 1997
Five Years ended July 5.09% $1,282 6.17% $1,349
31, 1997
Ten Years ended July 7.09% $1,984 7.72% $2,105
31, 1997
Aggregate Total Return
(including maximum applicable sales charge)**
One Year Ended July 4.33% $1,043 8.92% $1,089
31, 1997
Five Years ended July 28.20% $1,282 34.90% $1,349
31, 1997
Ten Years ended July 98.37% $1,984 110.45% $2,105
31, 1997
Inception (December 175.72% $2,757 194.16% $2,942
31, 1984) to July 31,
1997
Yield
(including maximum applicable sales charge)**
30 Days Ended July 31, 4.87% 5.32%
1997
- -------------------
</TABLE>
* The Class A Shares of the Fund commenced operations on November 1, 1993
and the Class Y shares commenced operations on October 14, 1994.
** The maximum applicable sales charge on the Class A shares is 4.0%. There is
no sales charge imposed in connection with the purchase of Class Y shares.
40
<PAGE> 217
DETERMINATION OF NET ASSET VALUE
Net asset value per share of the Class A and Class B shares
for each Fund is determined on each day that the New York Stock Exchange (the
"Exchange") is open for trading and any other day (other than a day on which no
Shares of that Fund are tendered for redemption and no order to purchase shares
is received) during which there is sufficient trading in the Fund's portfolio
securities that the Fund's net asset value per share might be materially
affected. The Exchange is closed on the following holidays: New Year's Day,
Martin Luther King Day, Presidents' Day, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, Christmas Day and Good Friday.
Securities of the Funds for which market quotations are
available are valued at latest reported prices. Securities of the Funds for
which the primary market is a national securities exchange or the National
Association of Securities Dealers Automated Quotations National Market System
are valued at last reported sale prices. In the absence of any sale of such
securities on the valuation date and in the case of other securities, including
U.S. Government securities but excluding money market instruments maturing in
60 days or less, the valuations are based on the mean between the bid and asked
prices. Money market instruments and other debt securities maturing in 60 days
or less are valued at amortized cost. The assets of the Funds, other than debt
securities maturing in 60 days or less, are valued at the mean between the bid
and asked prices. Futures contracts and options listed on a national exchange
are valued at the last sale price on the exchange on which they are traded at
the close of the Exchange, or, in the absence of any sale on the valuation
date, at mean between the bid and asked prices. Options not listed on a
national exchange are valued at the mean between the bid and asked prices.
Quotation of foreign securities in a foreign currency shall be converted to
U.S. dollar equivalents at the current rate obtained from a recognized bank or
dealer. Foreign currency exchange contracts shall be valued at the current
cost of covering or offsetting such contracts.
In all cases, bid prices will be furnished by reputable
independent pricing services approved by the Board of Trustees. Prices provided
by an independent pricing service may be determined without exclusive reliance
on quoted prices and may take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data. All other securities and other assets of the Funds for which current
market quotations are not readily available are valued at fair value as
determined in good faith by Pacific Century in accordance with procedures
adopted by the Trustees and subject to ratification by the Trustees. If Pacific
Century is unable to make such a determination in accordance with such
procedures, the securities and assets will be valued at fair value as
determined in good faith by the Trustees.
PURCHASE OF SHARES
Reference is made to "How to Purchase Class A and Class B Shares" and
"How to Purchase Class Y Shares" in the Prospectuses for certain information as
to the purchase of Fund shares.
Each Fund offers three classes of shares: Shares of Class A are sold
with an initial sales charge, shares of Class B are sold with a CDSC and shares
of Class Y are sold to eligible investors without a sales charge. Class A and
Class B shares each have exclusive
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<PAGE> 218
voting rights with respect to the Rule 12b-1 distribution plan adopted with
respect to such class pursuant to which the distribution fees are paid. Class B
shares automatically convert to Class A shares after approximately eight years.
See "Conversion of Class B shares to Class A shares."
Class Y shareholders of any Fund who terminate their qualified trust
account, employee benefit account or other qualifying relationship with an
institution are no longer eligible to make additional investments in a Fund's
Class Y shares. The Board of Trustees has approved an automatic conversion
feature whereby Class Y shares held by shareholders who have terminated their
qualifying relationship on or after February 15, 1997 will be converted to
Class A shares of the same Fund on the basis of the relative net asset values
of the shares of the two classes on the conversion date, without incurring any
fee, sales load or other charge. As Class A shareholders in a Fund, such former
Class Y shareholders will be able to reinvest dividends and distributions
relating to their shareholdings, but will be subject to the higher expenses
associated with Class A shares. A conversion of Class Y shares for Class A
shares will be a tax-free transaction for any Class Y shareholder involved in
such conversion. Class Y shareholders who plan to terminate their qualified
trust account, employee benefit account or other qualifying relationship and
who do not wish to have their holdings converted to Class A shares may choose
to redeem their shares.
Class Y shareholders whose qualified trust account, employee benefit
account or other qualifying relationship was terminated prior to February 15,
1997 are permitted to remain as Class Y shareholders; however, such
shareholders may not make additional purchases of Class Y shares, nor may such
shareholders reinvest dividends and distributions in respect of their Class Y
shareholdings.
REDEMPTION OF SHARES
Reference is made to the sections in the Prospectus(es)
entitled "How to Redeem Class A and Class B Shares" and "How to Redeem Class Y
Shares." The Trust will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. The Trust uses the
following procedures to process telephone redemptions: (1) obtaining some or
all of the following information: account number, name(s), social security
number registered to the account, and personal identification; (2) recording
all telephone transactions; and (3) sending written confirmation of each
transaction to the registered owner.
PORTFOLIO TRANSACTIONS
The Trust has no obligation to deal with any broker-dealer or
group of broker-dealers in the execution of transactions in portfolio
securities. In connection with its duties to arrange for the purchase and sale
of each Fund's portfolio securities, Pacific Century will select such
broker-dealers ("Broker-Dealers") as will, in Pacific Century's judgment,
implement the policy of the Trust to achieve quality execution at the most
favorable prices through responsible Broker-Dealers, and in the case of agency
transactions, at competitive commission rates. Pacific Century shall cause the
Trust to deal directly with the selling or purchasing principal or market maker
without incurring brokerage commissions unless Pacific Century determines that
better price or execution may be obtained by paying such commissions.
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<PAGE> 219
In allocating transactions to Broker-Dealers, Pacific Century is authorized to
consider, in determining whether a particular Broker-Dealer will provide best
execution, the Broker-Dealer's reliability, integrity, financial condition and
risk in positioning the securities involved, as well as the difficulty of the
transaction in question, and thus need not pay the lowest spread or commission
where it is believed that another Broker-Dealer would offer greater reliability
or provide a better price or execution. In addition, Pacific Century has adopted
a brokerage allocation policy in reliance on Section 28(e) of the Securities and
Exchange Act of 1934, permitting Pacific Century to cause a Fund to pay
commission rates in excess of those another Broker-Dealer would have charged if
Pacific Century determines in good faith that the amount of commission is
reasonable in relation to the value of the brokerage and research services
provided by the Broker-Dealer, viewed either in terms of the particular
transaction or Pacific Century's overall responsibilities as to the accounts
over which it exercises investment discretion. Such research may be in written
form or through direct contact with individuals and may include quotations on
portfolio securities and information on particular issuers and industries, as
well as on market, economic or institutional activities. If, on the foregoing
basis, the transaction in question could be allocated to two or more
Broker-Dealers, Pacific Century is authorized, in allocating portfolio trades,
to consider whether a Broker-Dealer has sold shares of the Trust or any other
investment company or companies having Pacific Century as its investment adviser
or having the same administrator or principal underwriter as the Trust.
Each year, Pacific Century assesses the contribution of the
brokerage and research services provided by the Broker-Dealers, and attempts to
allocate a portion of its brokerage business in response to these assessments.
Research analysts, counselors, and various investment committees each seek to
evaluate the brokerage and research services they receive from BrokerDealers
and make judgments as to the level of business which would recognize such
services. In addition, Brokers-Dealers sometimes suggest a level of business
they would like to receive in return for the various brokerage and research
services they provide. Actual brokerage received by any firm may be less than
the suggested allocations but can, and often does, exceed the suggestions,
because the total business is allocated on the basis of all the considerations
described above. In no case is a Broker-Dealer excluded from receiving business
from Pacific Century because it has not been identified as providing research
services.
Purchases and sales of securities by U.S. Treasury Securities
Fund, Short Intermediate U.S. Treasury Securities Fund, Diversified Fixed
Income Fund, Tax-Free Securities Fund and Tax-Free Short Intermediate
Securities Fund usually will be principal transactions. Each of the Funds also
will purchase portfolio securities in underwritten offerings and may purchase
securities directly from the issuer. Generally, debt securities, taxable money
market securities and over the counter equities are traded on a net basis and
do not involve brokerage commissions. The cost of executing a Fund's portfolio
securities transactions will consist primarily of dealer spreads and
underwriting commissions.
Purchases and sales of equity securities on a securities
exchange are effected through brokers who charge a negotiated commission for
their services. In the over-the-counter market, securities are generally traded
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 that
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<PAGE> 220
includes an amount of compensation to the underwriter, generally referred to as
the underwriter's concession or discount.
BISYS and certain affiliates of the Sub-Adviser are registered
broker-dealers. From time to time, a portion of a Fund's brokerage transactions
may be conducted with such broker-dealers, subject to the criteria for
allocation of brokerage described above. The Trust's Board of Trustees has
adopted procedures pursuant to Rule 17e-1 under the 1940 Act to ensure that all
brokerage commissions paid to such broker-dealers are fair and reasonable.
As a result of its investment policies, each Fund may engage
in a substantial number of portfolio transactions. Accordingly, while each Fund
anticipates that its annual portfolio turnover rate should not exceed 100%,
under normal conditions, it is impossible to predict portfolio turnover rates.
A high portfolio turnover rate involves correspondingly greater transaction
costs in the form of dealer spreads and brokerage commissions, which are borne
directly by the Fund. The portfolio turnover rate will not be a limiting factor
when Pacific Century deems portfolio changes appropriate.
For the fiscal years ended July 31, 1997, July 31, 1996 and
July 31, 1995, purchase and sale transactions by U.S. Treasury Securities Fund,
Short Intermediate U.S. Treasury Securities Fund, Diversified Fixed Income
Fund, Tax-Free Securities Fund and Tax-Free Short Intermediate Securities Fund
did not involve brokerage commissions. The total brokerage commissions paid by
Growth and Income Fund, Growth Stock Fund and New Asia Growth Fund for the
fiscal years ended July 31, 1997, July 31, 1996 and July 31, 1995, are set
forth in the table below:
Brokerage Commissions Paid By Certain Funds
-------------------------------------------
<TABLE>
<CAPTION>
Total Total Total
Commission Commission Commission
Paid for Fiscal Paid for Fiscal Paid for Fiscal
Year Ended Year Ended Year Ended
Fund July 31, 1997 July 31, 1996 July 31, 1995
---- ------------- ------------- -------------
<S> <C> <C> <C>
Growth and Income $237,637 $269,961.90 $37,693.60*
Fund
Growth Stock Fund $241,913 $355,375.96 $130,066.20
New Asia Growth $243,253 $ 95,781.41 $21,682.82*
Fund
</TABLE>
- --------------------
* Period from commencement of operations through July 31, 1995. Growth and
Income Fund commenced operations on October 14, 1994. New Asia Growth Fund
commenced operations on February 15, 1995.
With respect to the Growth and Income Fund, the total amount of commissions
paid by the Fund for the fiscal year ended July 31, 1997 differed materially
from the amount paid by the Fund for the fiscal year ended July 31, 1995
because the Fund increased in size by more than 150% during that period. As a
result, the size of the transactions and the number of transactions were also
increased. With respect to the New Asia Growth Fund, the total amount of
commissions paid by the Fund for the fiscal year ended July 31, 1997 differed
materially from the amount paid by the Fund for the fiscal year ended July 31,
1995 because the Fund more than doubled in size during that period, and because
of volatility in the South East Asian market. As a result, the number of
transactions were also increased.
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<PAGE> 221
For the fiscal years ended July 31, 1997, July 31, 1996, and
the period February 15, 1995 (commencement of operations) to July 31, 1995, the
New Asia Growth Fund paid brokerage commissions of $10,992, $7,457, and $1,600,
respectively, to Credit Lyonnais Securities, an affiliate of Credit Lyonnais,
which served as Sub-Adviser to the New Asia Growth Fund until July 31, 1997.
Nicholas-Applegate, the current Sub-Adviser to the New Asia Growth Fund is not
affiliated with any Broker-Dealer which effects portfolio transactions for the
Funds. For the fiscal year ended July 31, 1997, the percentage of the Funds'
aggregate brokerage commissions paid to Credit Lyonnais Securities was 4.5%, and
the percentage of the Funds' aggregate dollar amount of transactions involving
the payment of commissions effected through Credit Lyonnais Securities was
8.54%.
The percentage of total portfolio transactions placed with,
and related commissions paid to, firms which provided research, statistical, or
other services to Pacific Century in connection with the management of the
Funds, or in some cases, to the Funds, for the fiscal year ended July 31, 1997
are set forth below:
<TABLE>
<CAPTION>
Fund Percentage of Total Total Commissions Paid to
---- Portfolio Transactions Provider of Research,
---------------------- Statistical and Other
Services
--------
<S> <C> <C>
Growth Stock Fund 100% $209,198
Growth and Income Fund 100% $151,532
</TABLE>
The portfolio turnover rates for each Fund for the fiscal
years ended July 31, 1997 and July 31, 1996 are set forth in the table below:
Portfolio Turnover Rates Of The Funds
-------------------------------------
<TABLE>
<CAPTION>
Year Year
Fund Ended July 31, 1997 Ended July 31, 1996
---- ------------------- -------------------
<S> <C> <C>
Diversified Fixed Income Fund 80.98% 58.86%
Growth and Income Fund 74.83% 80.83%
Growth Stock Fund 32.20% 61.30%
New Asia Growth Fund 134.89% 86.53%
Short Intermediate U.S. 51.56% 47.17%
Treasury Securities Fund
Tax-Free Securities Fund 11.07% 24.78%
Tax-Free Short Intermediate 29.46% 54.70%
Securities Fund
U.S. Treasury Securities Fund 44.90% 15.75%
</TABLE>
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<PAGE> 222
FEDERAL AND HAWAIIAN TAX INFORMATION
The Prospectus describes generally the federal and certain
Hawaiian tax treatment of distributions by the Funds. This section of the SAI
includes certain additional information concerning federal and Hawaiian income
taxes.
Qualification as a "regulated investment company" under the
Code generally requires, among other things, that (a) at least 90% of each
Fund's annual gross income be derived from interest, payments with respect to
securities loans, dividends, gains from the sale or other disposition of
securities or options thereon, and certain related income; (b) for tax years
beginning on or before August 5, 1997, each Fund derives less than 30% of its
gross income from gains from the sale or other disposition of securities or
options thereon, or certain other financial investments, held for less than
three months; and (c) each Fund diversifies its holdings so that, at the end of
each quarter of the taxable year, (i) at least 50% of the market value of the
Fund's assets is represented by cash, U.S. Government securities, securities of
other regulated investment companies and other securities limited in respect of
any one issuer to an amount not greater than 5% 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 and the securities of other regulated investment
companies), or of two or more issuers which the Fund controls (i.e., owns,
directly or indirectly, 20% of the voting stock) and which are determined to be
engaged in the same or similar trades or businesses or related trades or
businesses. As regulated investment companies, the Funds will not be subject to
federal income tax on their net investment income and net capital gains
distributed to their shareholders, provided that they distribute to their
shareholders at least 90% of their net investment income and tax-exempt income
earned in each year.
A 4% nondeductible excise tax will be imposed on each Fund to
the extent it does not meet certain minimum distribution requirements by the
end of each calendar year. This excise tax would not apply to tax-exempt income
of the Tax-Free Funds. For this purpose, any income or gain retained by a Fund
that is subject to tax will be considered to have been distributed by year-end.
In addition, dividends and distributions declared payable as of a date in
October, November or December of any calendar year are deemed under the Code to
have been received by the shareholders on December 31 of that calendar year
(and also will be taxable to shareholders in such year) if the dividend is
actually paid in the following January. Each Fund intends to distribute
substantially all of its net investment income and net capital gains and, thus,
expects not to be subject to the excise tax.
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<PAGE> 223
Income and dividends received by any of the Funds from sources
within foreign countries may be subject to withholding and other taxes imposed
by such countries. Tax conventions between certain countries and the United
States may reduce or eliminate such taxes. Shareholders may be able to claim
U.S. foreign tax credits with respect to such taxes, subject to certain
conditions and limitations contained in the Code. For example, certain
retirement accounts cannot claim foreign tax credits on investments in foreign
securities held in the Fund. Because each of Balanced Fund, Growth and Income
Fund, Growth Stock Fund, Diversified Fixed Income Fund, Short Intermediate U.S.
Treasury Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities
Fund and U.S. Treasury Securities Fund is expected to limit their investment in
foreign securities, these Funds will not be eligible to elect to "pass through"
foreign tax credits to shareholders. New Asia Growth Fund invests primarily in
foreign securities. If more than 50% in value of New Asia Growth Fund's total
assets at the close of its taxable year consists of securities of foreign
corporations, New Asia Growth Fund will be eligible and intends to file an
election with the Internal Revenue Service pursuant to which shareholders of
New Asia Growth Fund will be required to include their proportionate shares of
such withholding taxes in their U.S. income tax returns as gross income, treat
such proportionate shares as taxes paid by them, and deduct such proportionate
shares in computing their taxable incomes or, alternatively, use them as
foreign tax credits against their U.S. income taxes. No deductions for foreign
taxes, however, may be claimed by noncorporate shareholders who do not itemize
deductions. A shareholder that is a nonresident alien individual or a foreign
corporation may be subject to U.S. withholding tax on the income resulting from
New Asia Growth Fund's election described in this paragraph but may not be able
to claim a credit or deduction against such U.S. tax for the foreign taxes
treated as having been paid by such shareholder. New Asia Growth Fund will
report annually to its shareholders the amount per share of such withholding
taxes.
Gains or losses on sales of portfolio securities by a Fund will
be mid-term or long-term capital gains or losses if the securities have been
held by it for more than one year or more than 18 months, respectively, except
in certain cases where a Fund acquires a put or writes a call thereon or
otherwise engages in a transaction that "tolls" the Fund's holding period. Other
gains or losses on the sale of securities will be short-term capital gains or
losses. The amount of tax payable by an individual or corporation will be
affected by a combination of tax laws covering, for example, deductions,
credits, deferrals, exemptions, sources of income and other matters.
A capital gains distribution or dividend will be a return of
invested capital to the extent the net asset value of an investor's shares is
thereby reduced below his or her cost, even though the distribution would be
taxable to the shareholder. A redemption of shares by a shareholder under these
circumstances could result in a capital loss for federal tax purposes.
If a shareholder exchanges or otherwise disposes of shares of
the Fund within 90 days of having acquired such shares, and if, as a result of
having acquired those shares, the shareholder subsequently pays a reduced sales
charge for shares of the Fund, or of a different fund, the sales charge
previously incurred acquiring the Fund's shares shall not be taken into account
(to the extent such previous sales charges do not exceed the reduction in sales
charges) for the purpose of determining the amount of gain or loss on the
exchange, but will be treated as having been incurred in the acquisition of
such other shares.
Any loss realized on a redemption or exchange of shares of a
Fund will be disallowed to the extent shares are reacquired within the 61-day
period beginning 30 days before and ending 30 days after the shares are
disposed of.
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<PAGE> 224
If an option written by a Fund lapses or is terminated through
a closing transaction, such as a repurchase by the Fund of the option from its
holder, such Fund will realize a short-term capital gain or loss, depending on
whether the premium income is greater or less than the amount paid by the Fund
in the closing transaction.
If securities are sold by a Fund pursuant to the exercise of a
call option written by it, such Fund will add the premium received to the sale
price of the securities delivered in determining the amount of gain or loss on
the sale. If securities are purchased by a Fund pursuant to the exercise of a
put option written by it, such Fund will subtract the premium received from its
cost basis in the securities purchased. The requirement (which applies solely
to tax years beginning on or before September 5, 1997) that each Fund derive
less than 30% of its gross income from gains from the sale of securities held
for less than three months may limit the Fund's ability to write options.
The amount of any gain or loss realized by a Fund on closing
out a futures contract will generally result in a realized capital gain or loss
for tax purposes. Regulated futures contracts held at the end of each fiscal
year will be required to be "marked to market" for federal income tax purposes.
In this regard, they will be deemed to have been sold at market value. Sixty
percent (60%) of any net gain or loss recognized on these deemed sales and
sixty percent (60%) of any net realized gain or loss from any actual sales,
will be treated as long-term capital gain or loss, and the remainder will be
treated as short-term capital gain or loss. Transactions that qualify as
designated hedges are excepted from the marked to market rule and the "60%/40%"
rule. Newly-enacted Code Section 1259 will require the recognition of gain (but
not loss) if a Fund makes a "constructive sale" of an appreciated financial
position (e.g. debt instruments and stock). A Fund generally will be considered
to make a constructive sale of an appreciated financial position if it sells
the same or substantially identical property short, enters into a futures or
forward contract to deliver the same or substantially identical property, or
enters into certain other similar transactions.
Currency transactions may be subject to Section 988 of the
Code, under which foreign currency gains or losses would generally be computed
separately and treated as ordinary income or losses. The Funds will attempt to
monitor Section 988 transactions to avoid an adverse tax impact.
Class B Shareholders. No gain or loss will be recognized by a
shareholder upon the conversion of Class B shares to Class A shares.
Foreign Shareholders. Under the Code, distributions of net
investment income (including distributions of short-term capital gains) by a
Fund to a nonresident alien individual, nonresident alien fiduciary of a trust
or estate, foreign corporation, or foreign partnership (a "foreign shareholder")
will be subject to U.S. withholding tax (at the rate of 30% or a lower treaty
rate). Withholding will not apply if a dividend paid by a Fund to a foreign
shareholder is "effectively connected" with a U.S. trade or business, in which
case the reporting and withholding requirements applicable to U.S. citizens or
domestic corporations will apply. Distributions of net capital gains derived by
non-resident aliens or foreign entities that are not effectively connected with
a U.S. trade or business are not subject to tax withholding, but in the case of
a foreign shareholder who is a nonresident alien individual, such distributions
ordinarily will be subject to U.S. income tax if the individual is physically
present in the U.S. for more than 182 days during the taxable year (in which
case the individual may be treated as a U.S. resident in any event).
Other Matters. Investors should be aware that the investments
to be made by the Funds may involve sophisticated tax rules such as the
original issue discount, marked to market and real estate mortgage investment
conduit ("REMIC") rules that would result in income or gain recognition by the
Funds without corresponding current cash receipts. Although the Funds will seek
to avoid significant noncash income, such noncash income could be recognized by
the Funds, in which case a Fund may distribute cash derived from other sources
in order to meet the minimum distribution requirements described above.
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<PAGE> 225
Special Tax Considerations For New Asia Growth Fund
Due to investment laws in certain developing countries in
Asia, it is anticipated that New Asia Growth Fund's investments in equity
securities in such countries will consist primarily of shares of investment
companies (or similar investment entities) organized under foreign law or of
ownership interests in special accounts, trusts or partnerships. New Asia
Growth Fund may invest up to 10% of its total assets in securities of
closed-end investment companies. If New Asia Growth Fund purchases shares of an
investment company (or similar investment entity) organized under foreign law,
New Asia Growth Fund will be treated as owning shares in a passive foreign
investment company ("PFIC") for U.S. federal income tax purposes. New Asia
Growth Fund may be subject to U.S. federal income tax, and an additional tax in
the nature of interest, on a portion of the distributions from such a company
and on gain from the disposition of the shares of such company (collectively
referred to as "excess distributions"), even if such excess distributions are
paid by New Asia Growth Fund as a dividend to its shareholders. New Asia Growth
Fund may be eligible to make an election with respect to certain PFICs in which
it owns shares that will allow it to avoid the taxes on excess distributions.
However, such election may cause New Asia Growth Fund to recognize income in a
particular year in excess of the distributions received from such PFICs.
Alternatively, New Asia Growth Fund may elect to "mark-to-market" at the end of
each taxable year all shares that it holds in PFICs. If it makes this election,
New Asia Growth Fund will recognize as ordinary income any increase in the
value of such shares. Unrealized losses, however, will not be recognized. By
making the mark-to-market election, New Asia Growth Fund can avoid imposition
of the interest charge with respect to its distributions from PFICs, but in any
particular year may be required to recognize income in excess of the
distributions it receives from PFICs and its proceeds from dispositions of PFIC
stock.
Special Tax Considerations for the Tax-Free Funds.
Federal -- The portion of total dividends paid by the Tax-Free
Funds with respect to any taxable year that qualifies for exclusion from gross
income ("exempt-interest dividends") will be the same for all shareholders
receiving dividends during such year. In order for the Tax-Free Funds to pay
exempt-interest dividends during any taxable year, at the close of each fiscal
quarter at least 50% of the aggregate value of the Tax-Free Funds assets,
respectively, must consist of tax-exempt securities. In addition, the Tax-Free
Funds must distribute 90% of the aggregate interest excludable from gross
income (net of non-deductible expenses) and 90% of the investment company
taxable income earned by it during the taxable year. Not later than 60 days
after the close of its taxable year, the Tax-Free Funds will notify each
shareholder of the portion of the dividends paid with respect to such taxable
year which constitutes exempt-interest dividends. The aggregate amount of
dividends so designated cannot exceed the excess of the amount of interest
excludable from gross income under Section 103 of the Code received by such
Funds during the taxable year over any amounts disallowed as deductions under
Sections 265 and 171(a)(2) of the Code. In addition, market discount earned on
tax-exempt obligations will not qualify as tax-exempt income.
The Code treats interest on private activity bonds, as defined
therein, as an item of tax preference subject to an alternative minimum tax on
individuals and corporations at the applicable tax rates. Further,
exempt-interest dividends are includable in adjusted current earnings in
calculating corporate alternative minimum taxable income. Except for temporary
defensive purposes, the Trust will not invest in the types of Municipal
Obligations which would give rise to interest that would be treated as a
preference
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<PAGE> 226
subject to alternative minimum taxation if more than 20% of its net assets would
be so invested, and may refrain from investing in that type of bond completely.
In addition, any loss realized by a shareholder upon the sale
or redemption of shares of a Fund held less than six months is disallowed to
the extent of any exempt-interest dividends received by the shareholder.
Shareholders who may be "substantial users" (or related
persons of substantial users) with respect to municipal securities held by the
Tax-Free Funds should consult their tax advisers to determine whether
exempt-interest dividends paid by the Funds with respect to such obligations
retain their federal exclusions.
Hawaiian Tax Information. The Tax-Free Funds, and dividends
and distributions made by the Tax-Free Funds to Hawaii residents, will
generally be treated for Hawaii income tax purposes in the same manner as they
are treated under the Code for federal income tax purposes. If at the close of
each quarter of the Tax-Free Funds' taxable year at least 50% of the value of
its total assets consists of obligations the interest on which, if such
obligations were held by an individual, would be exempt from Hawaii personal
income tax (under either the laws of Hawaii or of the United States), the
TaxFree Funds will be entitled to pay dividends to its shareholders which will
be exempt from Hawaii personal income tax. Similar exemptions may be available
in other states with regard to the portion of tax-exempt dividends attributable
to interest exempt from state taxation under federal law. Under Hawaii law,
however, interest derived from obligations of states (and their political
subdivisions) other than Hawaii will not be exempt from Hawaii income taxation.
(Interest derived from bonds or obligations issued by or under the authority of
the following is exempt from Hawaii income taxation: Guam, Northern Mariana
Islands, Puerto Rico, and the Virgin Islands.)
Interest on Hawaiian Municipal Obligations, tax-exempt
obligations of states other than Hawaii and their political subdivisions, and
obligations of the United States or its possessions is not exempt from the
Hawaii Franchise Tax. This tax applies to banks, building and loan associations,
industrial loan companies, financial corporations, and small business investment
companies.
Persons or entities who are not Hawaii residents should not be
subject to Hawaii income taxation on dividends and distributions made by the
Trust but will be subject to other state and local taxes.
Other Matters. Shares of the Tax-Free Funds would not be
suitable for tax-exempt institutions and may not be suitable for retirement
plans qualified under Section 401 of the Code, H.R. 10 plans and IRAs since
such plans and accounts are generally tax-exempt and, therefore, would not
benefit from the exempt status of dividends from such Funds. Such dividends
would be ultimately taxable to the beneficiaries when distributed to them.
CAPITAL STOCK
Each Fund is comprised of three classes of shares -- "Class
A", "Class B" and "Class Y" -- each comprised of an unlimited number of units
of beneficial interest in the Trust. When certain matters affect one class but
not another, the shareholders will vote as a class regarding such matters.
Subject to the foregoing, on any matter submitted to a vote of shareholders,
all shares then entitled to vote will be voted separately by Fund unless
otherwise required by the 1940 Act, in which
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<PAGE> 227
case all shares will be voted in the aggregate. For example, a change in a
Fund's fundamental investment policies would be voted upon only by shareholders
of the Fund involved. Additionally, approval of the advisory agreement is a
matter to be determined separately by Fund. Approval by the shareholders of one
Fund is effective as to that Fund whether or not sufficient votes are received
from the shareholders of the other Funds to approve the proposal as to those
Funds. As used in the Prospectus and in this SAI, the term "majority," when
referring to approvals to be obtained from shareholders of a Fund means the vote
of the lesser of (i) 67% of the shares of the Fund represented at a meeting if
the holders of more than 50% of the outstanding shares of the Fund are present
in person or by proxy, or (ii) more than 50% of the outstanding shares of the
Fund. The term "majority," when referring to the approvals to be obtained from
shareholders of the Trust as a whole means the vote of the lesser of (i) 67% of
the Trust's shares represented at a meeting if the holders of more than 50% of
the Trust's outstanding shares are present in person or by proxy, or (ii) more
than 50% of the Trust's outstanding shares. Shareholders are entitled to one
vote for each full share held and fractional votes for fractional shares held.
The Trust may dispense with annual meetings of shareholders in
any year in which it is not required to elect Trustees under the 1940 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 1940 Act.
Each share of a class of a Fund represents an equal
proportional interest in that Fund or portfolio with each other share of the
same class and is entitled to such dividends and distributions out of the
income earned on the assets belonging to that Fund or portfolio as are declared
in the discretion of the Trustees. In the event of the liquidation or
dissolution of the Trust, shareholders of a Fund or portfolio are entitled to
receive the assets attributable to that Fund or portfolio that are available for
distribution, and a distribution of any general assets not attributable to a
particular Fund or portfolio 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 non-assessable by the Trust.
As of September 1, 1997 the persons set forth below were known
by the Trust to own of record or beneficially 5% or more of the Class A or
Class Y shares, as applicable, of the indicated Fund. Unless otherwise
indicated, the address of STROBRO, REINCO and HAWCO is Pacific Century Trust,
P.O. Box 3170, Honolulu, HI 96802. In addition, unless otherwise indicated, the
address of BHC Securities, Inc. is Attn: Mutual Funds, 1 Commerce Street, 2005
Market Street, Suite 12000, Philadelphia, PA 19103.
51
<PAGE> 228
<TABLE>
<CAPTION>
Percentage of
Shares Held of
CLASS Y SHARES Record Or Beneficially
- -------------- ----------------------
<S> <C>
Diversified Fixed Income Securities Fund
STROBRO 47.4%
HAWCO 51.8%
Growth and Income Fund
STROBRO 50.7%
HAWCO 45.9%
Growth Stock Fund
REINCO 7.1%
STROBRO 50.0%
HAWCO 39.7%
New Asia Growth Fund
Vanguard Fiduciary Trust Company 8.4%
P.O. Box 2600
V.M. 421
Valley Forge, PA 19482
HAWCO 42.2%
REINCO 18.8%
STROBRO 26.1%
Short Intermediate U.S. Treasury
Securities Fund
HAWCO 65.8%
REINCO 5.3%
STROBRO 28.6%
</TABLE>
52
<PAGE> 229
<TABLE>
<S> <C>
Tax-Free Securities Fund
STROBRO 95.2%
Tax-Free Short Intermediate
Securities Fund
STROBRO 86.5%
HAWCO 11.2%
U.S. Treasury Securities Fund
REINCO 87.6%
CLASS A SHARES
Diversified Fixed Income Fund
BHC Securities, Inc. 90.9%
Growth and Income Fund
BHC Securities, Inc. 86.9%
Growth Stock Fund
BHC Securities, Inc. 72.8%
Arrow & Co 16.3%
New Asia Growth Fund
Merrill Lynch Pierce Fenner & Smith Incorporated 11.8%
4800 Deer Lake Drive East, 3rd Floor
Mutual Fund Operations
Jacksonville, Florida 32246
</TABLE>
53
<PAGE> 230
<TABLE>
<S> <C>
BHC Securities, Inc. 84.4%
Short-Intermediate U.S. Treasury
Securities Fund
BHC Securities, Inc. 81.3%
Merrill Lynch Pierce Fenner & Smith Incorporated 8.3%
4800 Deer Lake Drive East, 3rd Floor
Mutual Fund Operations
Jacksonville, Florida 32246
Tax-Free Short Intermediate
Securities Fund
Douglas Philpotts Trustee 26.8%
c/o Douglas Philpotts
94B Polipoli
Kula, Hawaii 96790
BHC Securities, Inc. 61.9%
Wedbush Morgan Securities, Inc. 8.0%
P.O. Box 71584
Los Angeles, California 90071
Tax-Free Securities Fund
Douglas Philpotts Trustee 20.7%
c/o Douglas Philpotts
94B Polipoli
Kula, Hawaii 96790
BHC Securities, Inc. 18.7%
Elizabeth Godfrey 5.0%
Arrow & Co. 40.4%
P.O. Box 30010
Durham, Gort Carolina 27702
Wedbush Morgan Securities Inc. 10.2%
U.S. Treasury Securities Fund
Hugh Shearer Trustee 6.3%
P.O. Box 3196
Honolulu, HI 96801
BHC Securities, Inc. 73.1%
Merrill Lynch Pierce Fenner & Smith Incorporated 12.0%
4800 Deer Lake Drive East, 3rd Floor
Mutual Fund Operations
Jacksonville, Florida 32246
</TABLE>
54
<PAGE> 231
CUSTODIAN
Bank One Trust Company, N.A. ("Bank One") has been retained
to act as Custodian for Balanced Fund, Diversified Fixed Income Fund, Growth
and Income Fund, Growth Stock Fund, Short Intermediate U.S. Treasury Securities
Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities Fund and
U.S. Treasury Securities Fund. Union Bank of California, formerly Mitsubishi
("Bank of California") has been retained as Custodian for New Asia Growth Fund.
With regard to each Fund, the relevant Custodian, among other things, maintains
a custody account or accounts in the name of the Fund; receives and delivers
all assets for the Fund upon purchase and upon sale or maturity; collects and
receives all income and other payments and distributions on account of the
assets of each Fund and pays all expenses of the Fund. For its services as
Custodian, each of Bank One and Bank of California, respectively, receives an
asset-based fee.
OTHER
The Registration Statement, including the Prospectus, the
Statement of Additional Information and the exhibits filed therewith, may be
examined at the office of the Commission in Washington, D.C. Statements
contained in the Prospectus or the Statement of Additional Information as to
the contents of any contract or other document referred to herein or in the
Prospectus are not necessarily complete, and, in each instance, reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
INDEPENDENT AUDITORS
The financial statements of Pacific Capital Funds as of July
31, 1997, appearing in this Statement of Additional Information, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and is included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
Ernst & Young LLP has been selected as the independent
auditors for the Pacific Capital Funds. Ernst & Young LLP provides audit
services, tax return preparation and
55
<PAGE> 232
assistance and consultation in connection with certain Commission filings. Ernst
& Young LLP is located at One Columbus, Suite 2300, 10 West Broad Street,
Columbus, Ohio 43215.
FINANCIAL INFORMATION
Included in this Statement of Additional Information are the
audited financial statements for the Class A and Class Y shares of each Fund at
July 31, 1997. Financial statements are not provided for Class B shares of each
Fund or for Balanced Fund since Class B shares of each Fund and Balanced Fund
had not yet commenced operations as of the date of this Statement of Additional
Information.
56
<PAGE> 233
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Trustees of
Pacific Capital Funds
We have audited the accompanying statements of assets and liabilities,
including the schedules of portfolio investments, of the Pacific Capital Funds
(comprising, respectively, the Growth Stock Fund, U.S. Treasury Securities
Fund, Short Intermediate U.S. Treasury Securities Fund, Growth and Income
Fund, Diversified Fixed Income Fund, Tax-Free Securities Fund, Tax-Free Short
Intermediate Securities Fund, and New Asia Growth Fund) as of July 31, 1997,
and the related statements of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period
then ended, and the financial highlights presented herein for each of the
respective years or periods in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of July 31, 1997, by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the respective funds constituting the Pacific Capital Funds as of July 31,
1997, the results of their operations for the year then ended, the changes in
their net assets for each of the two years in the period then ended, and the
financial highlights presented herein for each of the respective years or
periods in the period ended July 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Columbus, Ohio
September 12, 1997
57
<PAGE> 234
PACIFIC CAPITAL FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
JULY 31, 1997
<TABLE>
<CAPTION>
SHORT INTERMEDIATE
GROWTH U.S. TREASURY U.S. TREASURY
STOCK SECURITIES SECURITIES GROWTH AND
FUND FUND FUND INCOME FUND
------------ ------------- ------------------ ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value
(Cost $125,420,032;
$22,918,222;
$26,669,931; and
$90,175,740,
respectively).......... $208,844,861 $24,392,861 $26,968,639 $127,413,189
Interest and dividends
receivable.............. 152,073 545,520 383,909 175,774
Receivable for capital
shares issued........... 14,381 13,740 16,616 70,210
Prepaid expenses and
other assets............ -- -- 81 291
------------ ----------- ----------- ------------
Total Assets.......... 209,011,315 24,952,121 27,369,245 127,659,464
------------ ----------- ----------- ------------
LIABILITIES:
Dividends payable....... -- 7,508 8,046 --
Payable to brokers for
investments purchased... 666,002 -- -- --
Accrued expenses and
other payables:
Investment advisory
fees................... 137,104 12,374 6,810 83,957
Administration fees.... 5,424 632 660 3,324
Distribution fees--
Retail Class........... 1,992 226 127 733
Fund accounting fees... 1,199 29 460 1,041
Transfer agent fees.... 3,558 2,452 2,124 1,902
Trustees' fees......... 5,738 748 774 2,315
Custodian fees......... 1,289 534 856 --
Legal fees............. 8,864 2,817 3,591 6,273
Audit fees............. 19,380 2,548 2,775 8,065
Printing costs......... 10,564 2,765 2,110 4,285
Other.................. 995 300 465 212
------------ ----------- ----------- ------------
Total Liabilities..... 862,109 32,933 28,798 112,107
------------ ----------- ----------- ------------
NET ASSETS:
Capital................. 110,174,854 27,582,163 27,193,087 83,775,351
Undistributed
(distributions in excess
of) net investment
income.................. (14,687) (35,524) 40 44,608
Accumulated
undistributed net
realized gains (losses)
from investment
transactions........... 14,564,210 (4,102,090) (151,388) 6,489,949
Unrealized appreciation
from investments........ 83,424,829 1,474,639 298,708 37,237,449
------------ ----------- ----------- ------------
Net Assets............ $208,149,206 $24,919,188 $27,340,447 $127,547,357
============ =========== =========== ============
Net Assets
Retail Class........... $ 9,742,529 $ 1,087,438 $ 618,637 $ 3,725,915
Institutional Class.... 198,406,677 23,831,750 26,721,810 123,821,442
------------ ----------- ----------- ------------
Total................. $208,149,206 $24,919,188 $27,340,447 $127,547,357
============ =========== =========== ============
Outstanding units of
beneficial interest
(shares)
Retail Class........... 559,075 116,045 64,800 215,980
Institutional Class.... 11,375,655 2,541,120 2,793,910 7,171,253
------------ ----------- ----------- ------------
Total................. 11,934,730 2,657,165 2,858,710 7,387,233
============ =========== =========== ============
Net Asset Value
Retail Class--
redemption price per
share.................. $ 17.43 $ 9.37 $ 9.55 $ 17.25
============ =========== =========== ============
Retail Class--maximum
sales charge........... 4.00% 4.00% 2.25% 4.00%
------------ ----------- ----------- ------------
Retail Class--maximum
offering price per
share
(100%/(100%-maximum
sales charge) of net
asset value adjusted
to nearest cent)...... $ 18.16 $ 9.76 $ 9.77 $ 17.97
============ =========== =========== ============
Institutional Class--
offering and redemption
price per share......... $ 17.44 $ 9.38 $ 9.56 $ 17.27
============ =========== =========== ============
</TABLE>
See notes to financial statements.
58
<PAGE> 235
PACIFIC CAPITAL FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
JULY 31, 1997
<TABLE>
<CAPTION>
TAX-FREE
DIVERSIFIED TAX-FREE SHORT INTERMEDIATE
FIXED INCOME SECURITIES SECURITIES NEW ASIA
FUND FUND FUND GROWTH FUND
------------ ------------ ------------------ -----------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value
(Cost $127,758,477;
$273,111,775;
$38,681,464; and
$19,750,749,
respectively).......... $131,523,476 $296,205,350 $39,279,168 $21,426,264
Foreign currency (Cost
$700,940).............. -- -- -- 689,471
Interest and dividends
receivable............. 2,302,810 3,421,498 404,664 35,121
Receivable for capital
shares issued.......... 19,834 -- -- 10,502
Receivable from brokers
for investments sold... -- -- -- 290,000
Prepaid expenses and
other assets........... -- 4,947 -- 19,636
------------ ------------ ----------- -----------
Total Assets.......... 133,846,120 299,631,795 39,683,832 22,470,994
------------ ------------ ----------- -----------
LIABILITIES:
Dividends payable....... 40,594 75,538 7,732 --
Payable to brokers for
investments purchased.. -- -- 1,500,000 586,740
Unrealized losses on
forward foreign
currency contracts..... -- -- -- 644
Accrued expenses and
other payables:
Investment advisory
fees.................. 66,691 150,656 16,238 16,230
Administration fees.... 3,460 7,839 935 536
Distribution fees--
Retail Class.......... 225 533 155 712
Fund accounting fees... 1,400 1,354 347
Transfer agent fees.... 3,447 3,250 2,536 1,613
Trustees' fees......... 4,113 8,744 1,140 290
Custodian fees......... 2,221 5,413 1,448 11,974
Legal fees............. 9,655 15,578 5,016 --
Audit fees............. 14,654 30,019 4,300 2,782
Printing costs......... 13,110 23,995 2,959 14,319
Other.................. 471 934 5,657 208
------------ ------------ ----------- -----------
Total Liabilities..... 160,041 322,499 1,549,470 636,395
------------ ------------ ----------- -----------
NET ASSETS:
Capital................. 132,482,157 275,206,266 37,363,214 18,399,844
Undistributed
(distributions in
excess of) net
investment income...... -- -- -- (64,536)
Accumulated
undistributed net
realized gains (losses)
from investment and
foreign currency
transactions........... (2,561,077) 1,009,455 173,444 1,836,687
Unrealized appreciation
from investments....... 3,764,999 23,093,575 597,704 1,675,515
Unrealized depreciation
from translation of
assets
and liabilities in
foreign currency....... -- -- -- (12,911)
------------ ------------ ----------- -----------
Net Assets............ $133,686,079 $299,309,296 $38,134,362 $21,834,599
============ ============ =========== ===========
Net Assets
Retail Class........... $ 1,103,189 $ 2,544,893 $ 724,724 $ 3,458,603
Institutional Class.... 132,582,890 296,764,403 37,409,638 18,375,996
------------ ------------ ----------- -----------
Total................. $133,686,079 $299,309,296 $38,134,362 $21,834,599
============ ============ =========== ===========
Outstanding units of
beneficial interest
(shares)
Retail Class........... 103,034 234,871 71,289 249,040
Institutional Class.... 12,296,236 27,323,380 3,664,505 1,318,129
------------ ------------ ----------- -----------
Total................. 12,399,270 27,558,251 3,735,794 1,567,169
============ ============ =========== ===========
Net Asset Value
Retail Class--
redemption price per
share................. $ 10.71 $ 10.84 $ 10.17 $ 13.89
============ ============ =========== ===========
Retail Class--maximum
sales charge.......... 4.00% 4.00% 2.25% 5.25%
------------ ------------ ----------- -----------
Retail Class--maximum
offering price per
share
(100%/(100%-maximum
sales charge) of net
asset value adjusted
to nearest cent)...... $ 11.16 $ 11.29 $ 10.40 $ 14.66
============ ============ =========== ===========
Institutional Class--
offering and
redemption price per
share................. $ 10.78 $ 10.86 $ 10.21 $ 13.94
============ ============ =========== ===========
</TABLE>
See notes to financial statements.
59
<PAGE> 236
PACIFIC CAPITAL FUNDS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1997
<TABLE>
<CAPTION>
SHORT INTERMEDIATE
U.S. TREASURY U.S. TREASURY GROWTH AND
GROWTH STOCK SECURITIES SECURITIES INCOME
FUND FUND FUND FUND
------------ ------------- ------------------ -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income......... $ 53,417 $1,624,911 $1,443,919 $ 3,116
Dividend income......... 2,796,184 15,979 13,758 1,791,271
----------- ---------- ---------- -----------
Total Income.......... 2,849,601 1,640,890 1,457,677 1,794,387
----------- ---------- ---------- -----------
EXPENSES:
Investment advisory
fees.................. 1,499,559 145,470 119,586 768,642
Administration fees..... 375,496 48,551 47,835 192,634
Distribution fees--
Retail Class.......... 49,247 7,902 5,592 15,806
Custodian fees.......... 10,274 -- -- 4,338
Accounting fees......... 58,423 8,369 8,990 31,379
Legal fees.............. 34,886 5,787 7,072 18,996
Audit fees.............. 21,398 2,555 2,783 10,083
Trustees' fees and
expenses.............. 21,030 2,007 2,646 8,622
Transfer agent fees..... 20,668 13,733 13,140 14,874
Registration and filing
fees.................... 11,744 661 2,572 9,216
Printing costs.......... 29,881 1,789 3,152 12,956
Other................... 4,702 776 548 1,963
----------- ---------- ---------- -----------
Total expenses before
voluntary fee
reductions........ 2,137,308 237,600 213,916 1,089,509
Expenses voluntarily
reduced........... (108,462) (15,031) (63,679) (49,464)
----------- ---------- ---------- -----------
Net Expenses.......... 2,028,846 222,569 150,237 1,040,045
----------- ---------- ---------- -----------
Net Investment Income... 820,755 1,418,321 1,307,440 754,342
----------- ---------- ---------- -----------
REALIZED/UNREALIZED
GAINS (LOSSES) ON
INVESTMENTS:
Net realized gains
(losses) on investment
transactions........... 18,904,660 (192,623) (52,500) 7,101,576
Net change in unrealized
appreciation
(depreciation) on
investments............ 54,151,452 873,271 504,853 31,411,841
----------- ---------- ---------- -----------
Net realized/unrealized
gains (losses) on
investments.......... 73,056,112 680,648 452,353 38,513,417
----------- ---------- ---------- -----------
Change in net assets
resulting from
operations......... $73,876,867 $2,098,969 $1,759,793 $39,267,759
=========== ========== ========== ===========
</TABLE>
See notes to financial statements.
60
<PAGE> 237
PACIFIC CAPITAL FUNDS
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JULY 31, 1997
<TABLE>
<CAPTION>
TAX-FREE
DIVERSIFIED TAX-FREE SHORT INTERMEDIATE NEW ASIA
FIXED INCOME SECURITIES SECURITIES GROWTH
FUND FUND FUND FUND
------------ ----------- ------------------ ----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Interest income......... $ 9,405,764 $16,734,532 $1,804,935 $ --
Dividend income......... 108,622 51,542 16,239 391,949
Foreign tax withholding. -- -- -- (28,545)
----------- ----------- ---------- ----------
Total Income.......... 9,514,386 16,786,074 1,821,174 363,404
----------- ----------- ---------- ----------
EXPENSES:
Investment advisory
fees................... 867,869 1,756,304 195,480 149,300
Administration fees..... 289,515 586,170 78,274 33,272
Distribution fees--
Retail Class........... 8,426 9,531 6,001 20,429
Custodian fees.......... 7,941 24,869 9,080 57,856
Accounting fees......... 48,581 98,573 17,205 11,733
Legal fees.............. 31,260 55,302 10,433 1,825
Audit fees.............. 16,480 32,850 4,608 2,783
Organization costs...... -- -- -- 12,728
Trustees' fees and
expenses............... 15,638 32,709 4,653 958
Transfer agent fees..... 19,117 25,322 14,326 12,182
Registration and filing
fees................... 34,949 4,609 5,948 2,829
Printing costs.......... 22,301 41,181 6,250 17,611
Other................... 3,926 7,305 1,050 136
----------- ----------- ---------- ----------
Total expenses before
voluntary fee
reductions and
reimbursements....... 1,366,003 2,674,725 353,308 323,642
Expenses voluntarily
reduced............... (63,704) (124,192) (23,635) (29,803)
----------- ----------- ---------- ----------
Net Expenses.......... 1,302,299 2,550,533 329,673 293,839
----------- ----------- ---------- ----------
Net Investment Income... 8,212,087 14,235,541 1,491,501 69,565
----------- ----------- ---------- ----------
REALIZED/UNREALIZED
GAINS (LOSSES) ON
INVESTMENTS
AND FOREIGN CURRENCIES:
Net realized gains
(losses) on investment
transactions........... (2,549,993) 1,060,114 240,632 1,836,689
Net realized gains
(losses) on foreign
currency transactions.. -- -- -- (80,544)
Net change in unrealized
appreciation
(depreciation) on
investments............ 7,498,463 11,477,661 306,192 2,113,745
Net change in unrealized
appreciation
(depreciation) on
translation
of assets and
liabilities in foreign
currencies............. -- -- -- (13,022)
----------- ----------- ---------- ----------
Net realized/unrealized
gains (losses) on
investments and
foreign currencies..... 4,948,470 12,537,775 546,824 3,856,868
----------- ----------- ---------- ----------
Change in net assets
resulting from
operations.............. $13,160,557 $26,773,316 $2,038,325 $3,926,433
=========== =========== ========== ==========
</TABLE>
See notes to financial statements.
61
<PAGE> 238
PACIFIC CAPITAL FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SHORT INTERMEDIATE
GROWTH STOCK FUND U.S. TREASURY SECURITIES FUND U.S. TREASURY SECURITIES FUND
---------------------------- ------------------------------- -------------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
JULY 31, 1997 JULY 31, 1996 JULY 31, 1997 JULY 31, 1996 JULY 31, 1997 JULY 31, 1996
------------- ------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES:
OPERATIONS:
Net investment income.. $ 820,755 $ 1,444,330 $ 1,418,321 $ 1,665,167 $ 1,307,440 $ 1,106,083
Net realized gains
(losses) on investment
transactions.......... 18,904,660 2,853,413 (192,623) 610,897 (52,500) (66,180)
Net change in
unrealized
appreciation
(depreciation) on
investments........... 54,151,452 9,013,715 873,271 (980,793) 504,853 (370,513)
------------ ------------ -------------- -------------- -------------- --------------
Change in net assets
resulting from
operations............. 73,876,867 13,311,458 2,098,969 1,295,271 1,759,793 669,390
------------ ------------ -------------- -------------- -------------- --------------
DISTRIBUTIONS TO RETAIL
CLASS SHAREHOLDERS:
From net investment
income................ (13,022) (26,967) (52,996) (58,924) (38,945) (44,406)
In excess of net
investment income..... (3,861) -- (7,810) (9,639) -- (3,140)
From net realized
gains................. (24) (73,928) -- -- -- --
In excess of net
realized gains........ -- (168,943) -- -- -- (2,008)
DISTRIBUTIONS TO
INSTITUTIONAL CLASS
SHAREHOLDERS:
From net investment
income................ (857,427) (1,401,180) (1,365,325) (1,606,243) (1,268,495) (1,061,677)
In excess of net
investment income..... (17,466) -- (32,190) (262,742) -- (75,078)
From net realized
gains................. (777) (2,779,485) -- -- -- --
In excess of net
realized gains........ -- (6,351,795) -- -- -- (35,758)
------------ ------------ -------------- -------------- -------------- --------------
Change in net assets
from shareholder
distributions.......... (892,577) (10,802,298) (1,458,321) (1,937,548) (1,307,440) (1,222,067)
------------ ------------ -------------- -------------- -------------- --------------
CAPITAL TRANSACTIONS:
Proceeds from shares
issued................ 39,726,376 133,828,085 1,643,143 1,647,781 12,120,256 18,121,546
Dividends reinvested... 92,112 6,438,745 1,415,273 1,902,174 92,421 158,516
Cost of shares
redeemed.............. (82,478,968) (105,692,774) (3,007,324) (30,979,541) (10,025,991) (9,729,562)
------------ ------------ -------------- -------------- -------------- --------------
Change in net assets
from share
transactions........... (42,660,480) 34,574,056 51,092 (27,429,586) 2,186,686 8,550,500
------------ ------------ -------------- -------------- -------------- --------------
Change in net assets.... 30,323,810 37,083,216 691,740 (28,071,863) 2,639,039 7,997,823
NET ASSETS:
Beginning of period.... 177,825,396 140,742,180 24,227,448 52,299,311 24,701,408 16,703,585
------------ ------------ -------------- -------------- -------------- --------------
End of period.......... $208,149,206 $177,825,396 $24,919,188 $24,227,448 $27,340,447 $24,701,408
============ ============ ============== ============== ============== ==============
SHARE TRANSACTIONS:
Issued................. 2,786,983 11,098,985 178,092 173,866 1,287,668 1,882,513
Reinvested............. 6,775 541,450 153,769 200,813 9,773 16,520
Redeemed............... (5,810,150) (8,707,702) (325,626) (3,272,020) (1,060,313) (1,016,011)
------------ ------------ -------------- -------------- -------------- --------------
Change in shares........ (3,016,392) 2,932,733 6,235 (2,897,341) 237,128 883,022
============ ============ ============== ============== ============== ==============
</TABLE>
See notes to financial statements.
62
<PAGE> 239
PACIFIC CAPITAL FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND DIVERSIFIED FIXED INCOME FUND TAX-FREE SECURITIES FUND
---------------------------- ------------------------------- ----------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
JULY 31, 1997 JULY 31, 1996 JULY 31, 1997 JULY 31, 1996 JULY 31, 1997 JULY 31, 1996
------------- ------------- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES:
OPERATIONS:
Net investment income.. $ 754,342 $ 897,198 $ 8,212,087 $ 7,564,301 $ 14,235,541 $ 14,113,815
Net realized gains
(losses) on investment
transactions.......... 7,101,576 4,517,339 (2,549,993) 1,793,439 1,060,114 2,578,744
Net change in
unrealized
appreciation
(depreciation) on
investments........... 31,411,841 1,140,677 7,498,463 (6,350,290) 11,477,661 (505,505)
------------ ----------- -------------- -------------- ------------ ------------
Change in net assets
resulting from
operations............. 39,267,759 6,555,214 13,160,557 3,007,450 26,773,316 16,187,054
------------ ----------- -------------- -------------- ------------ ------------
DISTRIBUTIONS TO RETAIL
CLASS SHAREHOLDERS:
From net investment
income................ (9,645) (6,661) (61,085) (29,853) (58,439) (36,401)
In excess of net
investment income..... (2,559) (198) -- (1,073) -- (3,016)
From net realized
gains................. (74,382) (10,087) -- -- (3,793) (5,488)
In excess of net
realized gains........ -- -- (10,239) (5,216) -- (2,095)
DISTRIBUTIONS TO
INSTITUTIONAL CLASS
SHAREHOLDERS:
From net investment
income................ (719,837) (890,537) (8,151,002) (7,534,448) (14,177,102) (14,077,414)
In excess of net
investment income..... -- (26,449) -- (270,854) -- (1,166,451)
From net realized
gains................. (3,890,622) (1,430,857) -- -- (1,632,634) (2,573,256)
In excess of net
realized gains........ -- -- (1,342,055) (1,188,466) -- (982,014)
------------ ----------- -------------- -------------- ------------ ------------
Change in net assets
from shareholder
distributions.......... (4,697,045) (2,364,789) (9,564,381) (9,029,910) (15,871,968) (18,846,135)
------------ ----------- -------------- -------------- ------------ ------------
CAPITAL TRANSACTIONS:
Proceeds from shares
issued................ 45,972,983 51,831,280 45,518,283 199,818,303 33,235,182 29,212,660
Dividends reinvested... 2,407,024 1,252,724 669,521 891,166 1,633,767 3,570,050
Cost of shares
redeemed.............. (30,990,437) (23,786,655) (78,932,125) (86,706,905) (35,963,665) (22,829,691)
------------ ----------- -------------- -------------- ------------ ------------
Change in net assets
from share
transactions........... 17,389,570 29,297,349 (32,744,321) 114,002,564 (1,094,716) 9,953,019
------------ ----------- -------------- -------------- ------------ ------------
Change in net assets.... 51,960,284 33,487,774 (29,148,145) 107,980,104 9,806,632 7,293,938
NET ASSETS:
Beginning of period.... 75,587,073 42,099,299 162,834,224 54,854,120 289,502,664 282,208,726
------------ ----------- -------------- -------------- ------------ ------------
End of period.......... $127,547,357 $75,587,073 $133,686,079 $162,834,224 $299,309,296 $289,502,664
============ =========== ============== ============== ============ ============
SHARE TRANSACTIONS:
Issued................. 3,234,048 4,307,112 4,316,676 18,193,814 3,152,571 2,767,223
Reinvested............. 178,441 105,986 62,706 80,018 153,874 333,366
Redeemed............... (2,162,896) (1,958,541) (7,448,705) (7,867,181) (3,412,859) (2,160,738)
------------ ----------- -------------- -------------- ------------ ------------
Change in shares........ 1,249,593 2,454,557 (3,069,323) 10,406,651 (106,414) 939,851
============ =========== ============== ============== ============ ============
</TABLE>
See notes to financial statements.
63
<PAGE> 240
PACIFIC CAPITAL FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
TAX-FREE SHORT INTERMEDIATE
SECURITIES FUND NEW ASIA GROWTH FUND
--------------------------- ---------------------------
FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED
JULY 31, 1997 JULY 31, 1996 JULY 31, 1997 JULY 31, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
FROM INVESTMENT
ACTIVITIES:
OPERATIONS:
Net investment income
(loss)................ $ 1,491,501 $ 1,577,123 $ 69,565 $ (4,037)
Net realized gains
(losses) on investment
transactions.......... 240,632 247,802 1,836,689 187,718
Net realized gains
(losses) on foreign
currency transactions. -- -- (80,544) (55,916)
Net change in
unrealized
appreciation
(depreciation) on
investments........... 306,192 (381,865) 2,113,745 (603,577)
Net change in
unrealized
appreciation
(depreciation) on
translation
of assets and
liabilities in foreign
currencies............ -- -- (13,022) 3,412
----------- ----------- ----------- -----------
Change in net assets
resulting from
operations.............. 2,038,325 1,443,060 3,926,433 (472,400)
----------- ----------- ----------- -----------
DISTRIBUTIONS TO RETAIL
CLASS SHAREHOLDERS:
From net investment
income................ (28,544) (12,490) (770) --
In excess of net
investment income..... -- (1,065) (714) (1,121)
From net realized
gains................. (986) -- (24,563) (15,201)
DISTRIBUTIONS TO
INSTITUTIONAL CLASS
SHAREHOLDERS:
From net investment
income................ (1,462,957) (1,564,633) (15,241) --
In excess of net
investment income..... -- (133,354) -- (7,846)
From net realized
gains................. (49,244) -- (130,393) (63,590)
----------- ----------- ----------- -----------
Change in net assets
from shareholder
distributions........... (1,541,731) (1,711,542) (171,681) (87,758)
----------- ----------- ----------- -----------
CAPITAL TRANSACTIONS:
Proceeds from shares
issued................ 6,196,477 7,865,169 11,076,770 10,749,362
Dividends reinvested... 67,282 9,183 103,064 59,730
Cost of shares
redeemed.............. (8,549,132) (7,982,805) (3,558,390) (2,981,295)
----------- ----------- ----------- -----------
Change in net assets
from share transactions. (2,285,373) (108,453) 7,621,444 7,827,797
----------- ----------- ----------- -----------
Change in net assets.... (1,788,779) (376,935) 11,376,196 7,267,639
NET ASSETS:
Beginning of period.... 39,923,141 40,300,076 10,458,403 3,190,764
----------- ----------- ----------- -----------
End of period.......... $38,134,362 $39,923,141 $21,834,599 $10,458,403
=========== =========== =========== ===========
SHARE TRANSACTIONS:
Issued................. 613,972 773,603 902,626 910,887
Reinvested............. 6,643 907 8,369 5,614
Redeemed............... (845,154) (788,553) (283,285) (261,382)
----------- ----------- ----------- -----------
Change in shares........ (224,539) (14,043) 627,710 655,119
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
64
<PAGE> 241
PACIFIC CAPITAL FUNDS
GROWTH STOCK FUND
SCHEDULE OF INVESTMENTS
JULY 31, 1997
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- ----------------------------------------------------- ------------
<C> <S> <C>
COMMON STOCKS (98.2%):
Aerospace/Defense (1.0%):
35,925 General Motors Corp., Class H........................ $ 2,171,217
------------
Banks (2.4%):
39,000 BankAmerica Corp..................................... 2,944,500
17,850 Chase Manhattan Corp................................. 2,027,091
------------
4,971,591
------------
Beverages (6.5%):
68,575 Anheuser Busch Co., Inc.............................. 2,944,439
85,925 Coca-Cola Co......................................... 5,950,306
120,850 PepsiCo, Inc......................................... 4,630,066
------------
13,524,811
------------
Chemicals (2.0%):
48,075 Avery Dennison Corp.................................. 2,121,310
58,250 Sigma-Aldrich........................................ 2,016,906
------------
4,138,216
------------
Computers & Peripherals (7.4%):
70,500 Cisco Systems (b).................................... 5,609,155
95,500 Compaq Computer Corp. (b)............................ 5,455,438
27,050 Hewlett Packard Co................................... 1,895,191
52,200 Sun Microsystems, Inc. (b)........................... 2,384,888
------------
15,344,672
------------
Electrical Equipment (7.1%):
45,525 C-Cube Microsystems Inc. (b)......................... 1,098,291
144,800 General Electric Co.................................. 10,163,149
44,500 SCI Systems, Inc. (b)................................ 3,534,969
------------
14,796,409
------------
Electronic & Electrical (1.5%):
52,875 Emerson Electric Co.................................. 3,119,625
------------
Entertainment (1.4%):
35,400 Walt Disney Co....................................... 2,860,763
------------
Financial Services (2.6%):
57,025 Paine Webber Group, Inc.............................. 2,281,000
21,350 Student Loan Marketing Assoc......................... 3,201,166
------------
5,482,166
------------
Food Distributors (1.6%):
89,000 Sysco Corp........................................... 3,320,813
------------
Food Processing & Packaging (7.3%):
65,450 ConAgra, Inc. ...................................... $ 4,601,953
46,325 Pioneer Hi-Bred International, Inc.................. 3,428,050
117,900 Sara Lee Corp....................................... 5,165,493
25,000 Wm. Wrigley Jr. Co.................................. 1,923,438
------------
15,118,934
------------
Funeral Services (1.8%):
109,950 Service Corp. International......................... 3,738,300
------------
Health Care (3.2%):
85,075 Columbia HCA Healthcare............................. 2,743,668
46,200 Health Management Assoc. (b)........................ 1,475,513
28,450 Oxford Health Plans Inc. (b)........................ 2,391,578
------------
6,610,759
------------
Insurance (2.9%):
55,875 American International Group, Inc................... 5,950,688
------------
Manufacturing (2.0%):
39,100 Illinois Tool Works, Inc............................ 2,028,313
21,700 Minnesota Mining &
Manufacturing Co................................... 2,056,075
------------
4,084,388
------------
Medical Supplies (1.3%):
30,000 Medtronic, Inc...................................... 2,617,500
------------
Metal & Mineral Production (0.6%):
52,775 Barrick Gold Corp................................... 1,203,930
------------
Oil & Gas Exploration, Production, &
Services (1.8%):
49,000 Mobil Corp.......................................... 3,748,500
------------
Oilfield Equipment & Services (0.7%):
17,800 Schlumberger Ltd.................................... 1,359,475
------------
Paint, Varnishes, Enamels (1.4%):
93,650 Sherwin Williams Co................................. 3,002,653
------------
Pharmaceuticals (12.9%):
64,950 Abbott Laboratories................................. 4,250,166
44,550 American Home Products Corp......................... 3,672,591
40,000 Eli Lilly & Co...................................... 4,519,999
89,000 Johnson & Johnson, Inc.............................. 5,545,812
58,150 Merck & Co. Inc..................................... 6,043,965
</TABLE>
Continued
65
<PAGE> 242
PACIFIC CAPITAL FUNDS
GROWTH STOCK FUND
SCHEDULE OF INVESTMENTS, CONTINUED
JULY 31, 1997
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
----------- ---------------------------------------------------- ------------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Pharmaceuticals, continued
52,300 Pfizer, Inc......................................... $ 3,118,388
------------
27,150,921
------------
Retail (4.2%):
71,950 Dollar General Corp................................. 3,165,800
37,975 Kohl's Corp. (b).................................... 2,392,425
85,400 Wal-Mart Stores, Inc................................ 3,207,838
------------
8,766,063
------------
Retail--Grocery Stores (1.5%):
85,300 Albertsons, Inc..................................... 3,161,431
------------
Semiconductors (2.0%):
46,300 Intel Corp.......................................... 4,250,919
------------
Services (Commercial/Consumer) (1.1%):
123,500 Sothebys Holdings, Inc., Class A.................... 2,223,000
------------
Soaps & Cleaning Agents (2.1%):
28,075 Procter & Gamble Co................................. 4,270,909
------------
Software & Computer Services (7.7%):
26,675 BMC Software Inc. (b)............................... 1,607,169
41,000 Computer Associates International, Inc.............. 2,790,563
55,725 Microsoft Corp. (b)................................. 7,885,087
72,475 Oracle Systems Corp. (b)............................ 3,945,357
------------
16,228,176
------------
Steel (0.5%):
15,875 Nucor Corp........................................... $ 985,242
------------
Technology--Services (Data Processing) (1.2%):
52,550 Automatic Data Processing, Inc....................... 2,601,225
------------
Telecommunications (0.8%):
51,150 Alltel Corp.......................................... 1,681,556
------------
Tobacco & Tobacco Products (2.0%):
93,975 Philip Morris Cos., Inc.............................. 4,240,622
------------
Transportation--Air (1.2%):
87,575 Southwest Airlines Co................................ 2,556,095
------------
Utilities--Telecommunications (4.5%):
55,825 Century Telephone Enterprises, Inc................... 2,051,569
42,825 GTE Corp............................................. 1,991,363
32,050 Northern Telecom Ltd................................. 3,351,227
32,100 SBC Communications................................... 1,899,919
------------
9,294,078
------------
Total Common Stocks 204,575,647
------------
INVESTMENT COMPANY (2.1%):
4,269,214 The One Group Prime Money Market Fund, (Fiduciary
Shares)............................................ 4,269,214
------------
Total Investment Company 4,269,214
------------
Total (Cost--$125,420,032) (a) $208,844,861
============
</TABLE>
- --------
Percentages indicated are based on net assets of $208,149,206.
(a) Represents cost for financial reporting purposes and differs from cost
basis for federal income tax purposes by the amount of losses recognized
for financial reporting in excess of federal income tax reporting of
$4,655. Cost for federal income tax purposes differs from market value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.. $84,748,254
Unrealized depreciation.. (1,328,080)
-----------
Net unrealized
appreciation............. $83,420,174
===========
</TABLE>
(b) Non income producing securities.
See notes to financial statements.
66
<PAGE> 243
PACIFIC CAPITAL FUNDS
U.S. TREASURY SECURITIES FUND
SCHEDULE OF INVESTMENTS
JULY 31, 1997
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- ------------------------------------------------------- -----------
<C> <S> <C>
U.S. TREASURY NOTES (53.5%):
2,350,000 5.50%, 9/30/97......................................... $ 2,350,234
1,900,000 7.13%, 9/30/99......................................... 1,953,390
2,000,000 7.13%, 2/29/00......................................... 2,063,440
4,000,000 7.75%, 2/15/01......................................... 4,246,119
980,000 8.00%, 5/15/01......................................... 1,051,217
1,000,000 7.50%, 2/15/05......................................... 1,089,220
550,000 6.50%, 5/15/05......................................... 566,154
-----------
Total U.S. Treasury Notes 13,319,774
-----------
U.S. TREASURY BONDS (43.1%):
2,150,000 7.63%, 2/15/07........................................ $ 2,281,688
7,700,000 7.25%, 5/15/16........................................ 8,470,924
-----------
Total U.S. Treasury Bonds 10,752,612
-----------
INVESTMENT COMPANY (1.3%):
320,475 The One Group US Treasury Securities Money Market
Fund (Fiduciary Shares).............................. 320,475
-----------
Total Investment Company 320,475
-----------
Total (Cost--$22,918,222) (a) $24,392,861
===========
</TABLE>
- --------
Percentages indicated are based on net assets of $24,919,188.
(a) Represents cost for financial reporting purposes and differs from cost
basis for federal income tax purposes by the amount of losses recognized
for financial reporting in excess of federal income tax reporting of
$55,550. Cost for federal income tax purposes differs from market value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation... $1,474,639
Unrealized depreciation... (55,550)
----------
Net unrealized
appreciation.............. $1,419,089
==========
</TABLE>
See notes to financial statements.
67
<PAGE> 244
PACIFIC CAPITAL FUNDS
SHORT INTERMEDIATE U.S. TREASURY SECURITIES FUND
SCHEDULE OF INVESTMENTS
JULY 31, 1997
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------- -----------
<C> <S> <C>
U.S. TREASURY NOTES (97.6%):
2,000,000 5.50%, 9/30/97......................................... $ 2,000,200
2,000,000 6.00%, 12/31/97........................................ 2,004,640
1,100,000 7.25%, 2/15/98......................................... 1,109,625
250,000 5.13%, 12/31/98........................................ 248,288
200,000 6.75%, 6/30/99......................................... 203,780
1,000,000 7.88%, 11/15/99........................................ 1,045,040
5,000,000 6.25%, 5/31/00......................................... 5,060,100
2,000,000 6.13%, 7/31/00......................................... 2,017,660
3,000,000 6.50%, 5/31/01......................................... 3,065,760
4,000,000 6.25%, 2/15/03......................................... 4,063,280
5,700,000 6.50%, 5/15/05......................................... 5,867,409
-----------
Total U.S. Treasury Notes 26,685,782
-----------
INVESTMENT COMPANY (1.0%):
282,857 The One Group US Treasury Securities Money Market Fund
(Fiduciary Shares).................................... $ 282,857
-----------
Total Investment Company 282,857
-----------
Total (Cost--$26,669,931) (a) $26,968,639
===========
</TABLE>
- --------
Percentages indicated are based on net assets of $27,340,447.
(a)Represents cost for federal income tax purposes and differs from market
value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation........ $299,125
Unrealized depreciation........ (417)
--------
Net unrealized appreciation.... $298,708
========
</TABLE>
See notes to financial statements.
68
<PAGE> 245
PACIFIC CAPITAL FUNDS
GROWTH AND INCOME FUND
SCHEDULE OF INVESTMENTS
JULY 31, 1997
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
----------- ---------------------------------------------------- ------------
<C> <S> <C>
COMMON STOCKS (97.0%):
Aerospace/Defense (1.1%):
23,000 Boeing Co........................................... $ 1,352,688
------------
Automotive (0.9%):
28,800 Ford Motor Co....................................... 1,177,200
------------
Automotive Parts (1.3%):
35,825 Lear Corp. (b)...................................... 1,715,122
------------
Banks (4.6%):
44,550 BankAmerica Corp.................................... 3,363,525
29,675 BankBoston.......................................... 2,520,520
------------
5,884,045
------------
Beverages (1.9%):
63,000 PepsiCo, Inc........................................ 2,413,688
------------
Chemicals (2.3%):
18,700 E.I. Du Pont De Nemours Co.......................... 1,251,731
50,225 Sigma-Aldrich....................................... 1,739,041
------------
2,990,772
------------
Computers & Peripherals (8.4%):
34,025 Cisco Systems (b)................................... 2,707,114
86,875 Compaq Computer Corp. (b)........................... 4,962,734
63,425 Sun Microsystems, Inc. (b).......................... 2,897,730
------------
10,567,578
------------
Containers--Metal, Glass, Paper, Plastic (0.9%):
26,325 Bemis, Inc.......................................... 1,209,305
------------
Electrical Equipment (5.4%):
65,600 General Electric Co................................. 4,604,300
29,450 SCI Systems, Inc. (b)............................... 2,339,434
------------
6,943,734
------------
Electronic & Electrical (1.0%):
20,875 Emerson Electric Co. ............................... 1,231,625
------------
Financial Services (6.6%):
50,425 Paine Webber Group, Inc............................. 2,017,000
21,000 Student Loan Marketing Assoc........................ 3,148,688
46,462 Washington Mutual................................... 3,211,685
------------
8,377,373
------------
Food Processing & Packaging (2.2%):
21,375 ConAgra, Inc. ...................................... 1,502,930
Food Processing & Packaging, continued:
44,325 Hormel Foods Corp................................... $ 1,252,181
------------
2,755,111
------------
Footwear (0.9%):
18,800 Nike, Inc........................................... 1,171,475
------------
Funeral Services (1.2%):
43,475 Service Corp. International......................... 1,478,150
------------
Heavy Machinery--Industrial, Farm,
Construction (1.3%):
24,150 Ingersoll-Rand Co. ................................. 1,643,709
------------
Household Products (1.0%):
29,775 Newell Co........................................... 1,248,689
------------
Insurance (5.2%):
21,112 American International Group, Inc................... 2,248,481
30,225 Travelers Property Casualty......................... 1,299,675
43,350 Travelers, Inc...................................... 3,118,491
------------
6,666,647
------------
Leisure--Recreation, Gaming (1.3%):
40,600 Carnival Corp. Cruise Lines......................... 1,710,275
------------
Medical Supplies (1.0%):
14,675 Medtronic, Inc. .................................... 1,280,394
------------
Metal & Mineral Production (0.5%):
27,950 Barrick Gold Corp................................... 637,609
------------
Oil & Gas Exploration, Production, &
Services (5.8%):
18,250 Amoco Corp. ........................................ 1,715,500
41,150 Exxon Corp.......................................... 2,643,887
23,950 Mobil Corp. ........................................ 1,832,175
47,950 Union Pacific Resources............................. 1,183,766
------------
7,375,328
------------
Oilfield Equipment & Services (2.3%):
26,350 Schlumberger Ltd.................................... 2,012,481
11,475 Transocean Offshore Inc............................. 937,364
------------
2,949,845
------------
Paint, Varnishes, Enamels (0.9%):
37,550 Sherwin Williams Co................................. 1,203,947
------------
</TABLE>
Continued
69
<PAGE> 246
PACIFIC CAPITAL FUNDS
GROWTH AND INCOME FUND
SCHEDULE OF INVESTMENTS, CONTINUED
JULY 31, 1997
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
----------- ---------------------------------------------------- ------------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Pharmaceuticals (8.6%):
25,200 American Home Products Corp......................... $ 2,077,425
37,450 Johnson & Johnson, Inc.............................. 2,333,603
35,650 Merck & Co. Inc..................................... 3,705,373
20,750 Pfizer, Inc......................................... 1,237,219
40,100 Pharmacia & Upjohn.................................. 1,513,775
------------
10,867,395
------------
Publishing (1.4%):
26,225 McGraw Hill, Inc.................................... 1,778,383
------------
Restaurants (1.7%):
90,625 Wendy's International............................... 2,214,648
------------
Retail (4.4%):
41,737 Dollar General Corp................................. 1,836,428
53,750 Wal-Mart Stores, Inc................................ 2,018,984
31,000 Walgreen Co......................................... 1,751,500
------------
5,606,912
------------
Semiconductors (1.1%):
15,950 Intel Corp.......................................... 1,464,409
------------
Software & Computer Services (7.4%):
33,975 Computer Associates
International, Inc................................. 2,312,423
24,325 Microsoft Corp. (b)................................. 3,441,988
68,425 Oracle Systems Corp. (b)............................ 3,724,886
------------
9,479,297
------------
Steel (0.7%):
14,375 Nucor Corp.......................................... $ 892,148
------------
Tobacco & Tobacco Products (3.9%):
109,775 Philip Morris Cos., Inc............................. 4,953,597
------------
Toys & Bicycles--Manufacturing (1.5%):
55,425 Mattel, Inc......................................... 1,926,019
------------
Transportation (1.1%):
51,650 Comair Holdings, Inc................................ 1,391,322
------------
Utilities--Electric (2.5%):
50,000 Illinova Corp....................................... 1,178,125
93,775 Southern Co......................................... 2,057,189
------------
3,235,314
------------
Utilities--Telecommunications (4.7%):
31,225 Century Telephone
Enterprises, Inc................................... 1,147,519
49,350 GTE Corp............................................ 2,294,775
42,050 SBC Communications.................................. 2,488,834
------------
5,931,128
------------
Total Common Stocks 123,724,881
------------
INVESTMENT COMPANY (2.9%):
3,688,308 The One Group Prime Money Market Fund, (Fiduciary
Shares)............................................ 3,688,308
------------
Total Investment Company 3,688,308
------------
Total (Cost--$90,175,740) (a) $127,413,189
============
</TABLE>
- --------
Percentages indicated are based on net assets of $127,547,357.
(a) Represents cost for financial reporting purposes and differs from cost
basis for federal income tax purposes by the amount of losses recognized
for financial reporting in excess of federal income tax reporting of
$52,014. Cost for federal income tax purposes differs from market value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation..... $37,764,210
Unrealized depreciation..... (578,775)
-----------
Net unrealized appreciation. $37,185,435
===========
</TABLE>
(b)Non income producing securities.
See notes to financial statements.
70
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PACIFIC CAPITAL FUNDS
DIVERSIFIED FIXED INCOME FUND
SCHEDULE OF INVESTMENTS
JULY 31, 1997
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- ------------------------ ------------
<C> <S> <C>
CORPORATE BONDS (43.5%):
Automotive (0.8%):
1,000,000 Ford Motor Co., 7.25%,
10/1/08................ $ 1,050,000
------------
Banking (4.4%):
700,000 Interamerica Development
Bank, 8.50%, 3/15/11... 831,250
4,900,000 Suntrust Bank, 6.90%, 5,004,125
7/01/07................ ------------
5,835,375
------------
Banking--Foreign (11.6%):
5,000,000 Abbey National PLC,
6.69%, 10/17/05........ 5,037,500
3,425,000 Bayerische Landesbk--NY,
6.38%, 8/31/00......... 3,459,250
5,000,000 Dresdner Bank--NY,
6.63%, 9/15/05......... 5,031,250
2,000,000 Swiss Bank Corp.--NY,
6.75%, 7/15/05......... 2,030,000
------------
15,558,000
------------
Electric Utility (2.3%):
1,500,000 Duke Power Co., 8.00%,
11/1/99................ 1,558,125
1,500,000 National Rural Utility,
6.45%, 4/1/01.......... 1,513,125
------------
3,071,250
------------
Financial Services (14.0%):
5,000,000 General Electric Capital
Corp., 7.88%, 12/1/06.. 5,512,499
5,000,000 JPM Capital Corp.,
7.54%, 1/15/27,
Callable 1/15/07
@ 104.................. 5,056,250
2,000,000 Merrill Lynch & Co.
Inc., 7.00%, 1/15/07... 2,065,000
3,000,000 Merrill Lynch & Co.
Inc., 7.00%, 4/27/08... 3,093,750
3,000,000 Salomon Inc., 6.70%, 3,030,000
7/5/00................. ------------
18,757,499
------------
Health Care (3.6%):
4,300,000 Johnson & Johnson,
8.72%, 11/1/24......... 4,821,375
------------
Insurance (0.8%):
1,000,000 St. Paul Cos., Inc.,
7.29%, 8/28/07......... 1,042,500
------------
Oil & Gas--Exploration & Production
Services (1.1%):
1,050,000 Amoco Canada Petroleum Co.,
7.95%, 10/1/22......... $ 1,130,063
350,000 Societe Nationale
Elf Aquitaine,
8.00%, 10/15/01........ 373,625
------------
1,503,688
------------
Retail (1.2%):
1,400,000 Wal-Mart Stores, Inc.,
8.00%, 9/15/06......... 1,554,000
------------
Telecommunications (3.7%):
4,750,000 Bellsouth
Telecommunications, Inc.,
7.00%, 2/1/05.......... 4,940,000
------------
Total Corporate Bonds 58,133,687
------------
U.S. GOVERNMENT AGENCIES (14.0%):
Federal Home Loan Bank (4.8%):
2,500,000 6.30%, 4/29/99.......... 2,513,575
3,000,000 6.50%, 6/18/99.......... 3,000,630
935,000 6.70%, 7/22/02.......... 938,478
------------
6,452,683
------------
Federal National Mortgage
Association (9.2%):
2,500,000 5.49%, 8/12/97.......... 2,495,505
1,300,000 6.38%, 8/14/01.......... 1,319,045
7,000,000 7.69%, 9/13/06.......... 7,378,490
1,000,000 6.76%, 7/16/07.......... 1,017,320
------------
12,210,360
------------
Total U.S. Government Agencies 18,663,043
------------
U.S. TREASURY NOTES (28.0%):
3,250,000 5.63%, 8/31/97.......... 3,250,363
1,000,000 5.50%, 9/30/97.......... 1,000,100
8,000,000 6.75%, 4/30/00.......... 8,191,520
5,000,000 6.63%, 7/31/01.......... 5,134,550
3,500,000 6.25%, 2/15/03.......... 3,555,370
8,200,000 7.25%, 8/15/04.......... 8,795,730
7,300,000 6.50%, 5/15/05.......... 7,514,401
------------
Total U.S. Treasury Notes 37,442,034
------------
U.S. TREASURY BONDS (10.9%):
10,000,000 7.25%, 5/15/16.......... 11,001,200
3,650,000 6.25%, 8/15/23.......... 3,599,083
------------
Total U.S. Treasury Bonds 14,600,283
------------
</TABLE>
Continued
71
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PACIFIC CAPITAL FUNDS
DIVERSIFIED FIXED INCOME FUND
SCHEDULE OF INVESTMENTS, CONTINUED
JULY 31, 1997
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------ ------------
<C> <S> <C>
PRIVATE PLACEMENT (0.8%):
1,000,000 MIC Financing Trust I, 8.38%,
2/1/27............................................... $ 1,058,750
------------
Total Private Placement 1,058,750
------------
INVESTMENT COMPANY (1.2%):
1,625,679 The One Group Prime Money Market Fund (Fiduciary
Shares).............................................. $ 1,625,679
------------
Total Investment Company 1,625,679
------------
Total (Cost--$127,758,477) (a) $131,523,476
============
</TABLE>
- --------
Percentages indicated are based on net assets of $133,686,079.
(a) Represents cost for financial reporting purposes and differs from cost
basis for federal income tax purposes by the amount of losses recognized
for financial reporting in excess of federal income tax reporting of
$39,129. Cost for federal income tax purposes differs from market value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation..... $3,890,609
Unrealized depreciation..... (164,739)
----------
Net unrealized appreciation. $3,725,870
==========
</TABLE>
PLC--Public Limited Company
See notes to financial statements.
72
<PAGE> 249
PACIFIC CAPITAL FUNDS
TAX-FREE SECURITIES FUND
SCHEDULE OF INVESTMENTS
JULY 31, 1997
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- ----------------------------------------------------- ------------
<C> <S> <C>
ALTERNATIVE MINIMUM TAX PAPER (17.8%):
Hawaii (17.8%):
2,320,000 Hawaii Airports System Revenue, 7.50%, 7/1/20, Second
Series, FGIC, AMT................................... $ 2,557,800
320,000 Hawaii Airports System Revenue, 7.50%, 7/1/09, Second
Series, FGIC, AMT................................... 353,600
740,000 Hawaii Airports System Revenue, 7.00%, 7/1/10, FGIC,
AMT................................................. 822,325
510,000 Hawaii Airports System Revenue, 7.38%, 7/1/11, AMBAC,
AMT................................................. 561,000
10,585,000 Hawaii Airports System Revenue, 6.90%, 7/1/12, Second
Series, MBIA, AMT................................... 12,569,687
1,890,000 Hawaii Airports System Revenue, 7.00%, 7/1/18, Second
Series, MBIA, AMT................................... 2,081,363
640,000 Hawaii Airports System Revenue, 7.30%, 7/1/20, AMBAC,
AMT................................................. 702,400
1,500,000 Hawaii Airports System Revenue, 6.75%, 7/1/21, Second
Series, MBIA........................................ 1,629,375
3,205,000 Hawaii Department of Budget & Finance, Special
Purpose Mortgage Revenue, Citizens Utilities Co.
Project, 6.60%, 7/1/22, AMT......................... 3,417,331
7,000,000 Hawaii Department of Budget & Finance, Special
Purpose Mortgage Revenue, Hawaii Electric Co.,
6.60%, 1/1/25, Series A, MBIA, AMT.................. 7,726,250
1,475,000 Hawaii Department of Budget & Finance, Special
Purpose Mortgage Revenue, Hawaiian Electric Co. &
Subsidiaries, 6.55%, 12/1/22, MBIA, AMT............. 1,589,313
3,000,000 Hawaii Department of Budget & Finance, Special
Purpose Revenue, Hawaii Electric Co., 6.20%, 5/1/26,
Series A, MBIA, AMT................................. 3,198,750
1,825,000 Hawaii Harbor Capital Improvement Revenue, 6.10%,
7/1/07, FGIC, AMT................................... 2,000,656
Hawaii, continued:
1,605,000 Hawaii Harbor Capital Improvement Revenue, 7.25%,
7/1/10, MBIA, AMT................................... $ 1,759,481
2,245,000 Hawaii Harbor Capital Improvement Revenue, 7.00%,
7/1/17, MBIA, AMT................................... 2,438,631
1,350,000 Hawaii Harbor Capital Improvement Revenue, 6.50%,
7/1/19, FGIC, AMT................................... 1,458,000
3,205,000 Hawaii Harbor Capital Improvement Revenue, 6.38%,
7/1/24, FGIC, AMT................................... 3,449,381
3,205,000 Hawaii Housing Finance & Development Corp., Single
Family Mortgage Revenue, 6.00%, 7/1/26, Series A,
AMT................................................. 3,281,119
1,445,000 Honolulu City & County, 7.25%, 2/1/08, Series B,
Callable 2/1/00
@ 102 and 2/1/02 @ 100, FGIC,
AMT................................................. 1,564,213
------------
53,160,675
------------
Total Alternative Minimum Tax Paper 53,160,675
------------
MUNICIPAL BONDS (79.5%):
Arizona (0.9%):
1,000,000 Arizona Unified School District, Maricopa County, GO,
5.40%, 7/1/12....................................... 1,033,750
1,650,000 Phoenix Arizona Civic Improvement Corp., 5.25%,
7/1/16, Callable 7/1/07 @ 100, MBIA................. 1,654,125
------------
2,687,875
------------
California (7.5%):
1,500,000 Metropolitan Water District, 5.00%, 7/1/15, MBIA..... 1,494,375
3,000,000 Metropolitan Water District, Southern California,
5.75%, 7/1/21, MBIA................................. 3,120,000
2,565,000 Northern California Transmission, Oregon Transmission
Project, 7.00%, 5/1/13, Series A, MBIA.............. 3,145,331
</TABLE>
Continued
73
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PACIFIC CAPITAL FUNDS
TAX-FREE SECURITIES FUND
SCHEDULE OF INVESTMENTS, CONTINUED
JULY 31, 1997
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------------------------------------------------- ------------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
California, continued:
5,450,000 San Diego Public Facilities, 5.38%, 5/15/17, Callable
5/15/07 @ 101 and 5/15/09 @ 100..................... $ 5,531,750
1,745,000 San Francisco California C&C Airport Community,
International Airport Revenues, 5.63%, 5/1/21,
Callable 5/1/06 @ 101 and 5/1/07 @ 100, FGIC........ 1,790,806
1,735,000 San Francisco, Bay Area Rapid Transit, District Sales
Tax Revenue, 5.50%, 7/1/15, FGIC.................... 1,780,544
5,000,000 State Department Water, 6.00%, 12/1/20, Series P,
Callable 6/1/06 @ 101 and 6/1/07 @ 100.............. 5,356,250
------------
22,219,056
------------
Colorado (0.3%):
1,000,000 Adams & Arapaho County, 5.35%, 12/1/15, FGIC......... 1,028,750
------------
Connecticut (0.4%):
1,000,000 Connecticut State, Special Tax Obligation Revenue,
6.25%, 10/1/14, FGIC................................ 1,086,250
------------
Florida (5.3%):
2,000,000 Dade County, Water & Sewer, 5.50%, 10/1/15, FGIC..... 2,032,500
2,000,000 Florida State, Bond Finance Department, General
Services Environmental Revenue, 5.75%, 7/1/13,
AMBAC............................................... 2,115,000
3,500,000 Florida State, Turnpike Authority Revenue, Department
of Transportation, 5.50%, 7/1/17, FGIC.............. 3,600,624
2,000,000 Florida State, Turnpike Revenue, Department of
Transportation, 5.50%, 7/1/21, Series A, FGIC....... 2,050,000
2,875,000 Orange County, Public Tax Service, 6.00%, 10/1/24,
FGIC................................................ 3,083,438
Florida, continued:
2,565,000 Orlando, Utilities Community Water & Electric Revenue
Refunding, 6.75%, 10/1/17, Series D................. $ 3,126,094
------------
16,007,656
------------
Georgia (2.9%):
1,285,000 Georgia State, Municipal Electric Authority Revenue,
6.13%, 1/1/14, Series B, FGIC....................... 1,373,344
1,605,000 Metropolitan Atlanta, Rapid Transportation Authority,
Sales Tax Revenue, 6.25%, 7/1/11, Series P, AMBAC... 1,827,694
4,690,000 Municipal Electric Authority, Special Obligation
Third Crossover, 6.60%, 1/1/18, MBIA................ 5,557,650
------------
8,758,688
------------
Hawaii (37.7%):
2,000,000 Hawaii County, 5.50%, 5/1/08,
Series A, FGIC...................................... 2,145,000
1,375,000 Hawaii County, GO, 4.50%, 2/1/04, Series A, FGIC..... 1,383,594
1,305,000 Hawaii County, GO, 7.30%, 6/1/10, Series A, Pre-
refunded 6/1/00
@ 101, FGIC, (b).................................... 1,432,238
2,095,000 Hawaii County, GO, 5.10%, 2/1/13, Series A, FGIC..... 2,115,950
415,000 Hawaii County, GO, 5.60%, 5/1/13, Series A, FGIC..... 443,013
2,320,000 Hawaii County, GO, 5.20%, 2/1/15..................... 2,343,200
1,810,000 Hawaii County, GO, 5.00%, 2/1/10, Series A, FGIC..... 1,828,100
1,455,000 Hawaii Department Budget & Finance, Queens Health
System, 5.88%, 7/1/11............................... 1,540,481
1,745,000 Hawaii Department Budget & Finance, Queens Health
System, 6.05%, 7/01/16.............................. 1,858,425
2,535,000 Hawaii Department Budget & Finance, Special Purpose
Mortgage Revenue, Hawaii Electric Co., 6.88%,
4/1/12, MBIA........................................ 2,596,727
</TABLE>
Continued
74
<PAGE> 251
PACIFIC CAPITAL FUNDS
TAX-FREE SECURITIES FUND
SCHEDULE OF INVESTMENTS, CONTINUED
JULY 31, 1997
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------- ------------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Hawaii, continued:
2,820,000 Hawaii Department Budget & Finance, Special Purpose
Mortgage Revenue, Hawaii Electric Light Co. Project,
7.20%, 12/1/14, MBIA.................................. $ 3,084,375
1,285,000 Hawaii Department Budget & Finance, Special Purpose
Mortgage Revenue, Kaiser Permanente, 6.25%, 3/1/21,
Series A.............................................. 1,355,675
965,000 Hawaii Department Budget & Finance, Special Purpose
Mortgage Revenue, Maui Electric Co. Project, 6.88%,
4/1/12, MBIA.......................................... 988,498
1,170,000 Hawaii Department Budget & Finance, Special Purpose
Mortgage, Kapiolani Health Care System, 6.30%, 7/1/08,
Callable 7/1/03 @ 102, MBIA........................... 1,285,538
2,535,000 Hawaii Department Budget & Finance, Special Purpose
Mortgage, Kapiolani Health Care System, 6.40%, 7/1/13,
Callable 7/1/03 @ 102, MBIA........................... 2,782,163
965,000 Hawaii Department Transportation, Special Facility
Revenue, 5.75%, 3/1/13................................ 996,363
965,000 Hawaii Harbor Capital Improvement Revenue, 6.20%,
7/1/08, MBIA.......................................... 1,045,819
4,525,000 Hawaii Housing Finance & Development Corp., 5.85%,
7/1/17................................................ 4,649,437
1,925,000 Hawaii Housing Finance & Development Corp., Federal
National Mortgage Assoc., 5.70%,7/1/13................ 1,989,969
4,185,000 Hawaii Housing Finance & Development Corp., Federal
National Mortgage Assoc., 7.00%, 7/1/31............... 4,441,330
1,580,000 Hawaii Housing Finance & Development Corp., Single
Family Mortgage Purchase Revenue, 6.90%, 7/1/16,
Series B.............................................. 1,676,775
Hawaii, continued:
2,340,000 Hawaii Housing Finance & Development Corp., University
of Hawaii Housing, 5.70%, 10/1/25, AMBAC............. $ 2,439,450
2,000,000 Hawaii State, 6.00%, 10/1/12, Series BZ, FGIC......... 2,237,500
2,000,000 Hawaii State, 6.50%, 12/1/13, Series CM, FGIC......... 2,350,000
3,000,000 Hawaii State, 5.50%, 3/1/16, Series CN, FGIC.......... 3,082,500
5,000,000 Hawaii, GO, 6.05%, 1/1/08, FGIC....................... 5,531,249
640,000 Hawaii, GO, 5.50%, 6/1/08, FGIC....................... 671,200
1,345,000 Hawaii, GO, 6.38%, 2/1/09,
Series BT, Pre-refunded 2/1/01
@ 101, (b)........................................... 1,455,963
640,000 Hawaii, GO, 5.50%, 6/1/09, FGIC....................... 668,000
1,035,000 Hawaii, GO, 5.00%, 7/1/09, FGIC....................... 1,049,231
4,490,000 Hawaii, GO, 6.13%, 2/1/10,
Series BT, Pre-refunded 2/1/01
@ 101, (b)........................................... 4,821,137
640,000 Hawaii, GO, 5.50%, 6/1/10, Series CE, FGIC............ 664,800
4,000,000 Hawaii, GO, 5.25%, 9/1/10, Series CK, FGIC............ 4,099,999
3,145,000 Hawaii, GO, 5.25%, 6/1/13, FGIC....................... 3,200,038
1,000,000 Hawaii, GO, 5.25%, 3/1/16, Series CL, FGIC............ 1,010,000
1,480,000 Honolulu City & County, 7.15%, 6/1/10, Series C,
Prefunded 6/1/00 @ 101, (b).......................... 1,618,750
2,565,000 Honolulu City & County, 7.35%, 7/1/06, Series A, FGIC. 3,090,825
3,000,000 Honolulu City & County, 6.00%, 1/1/11, Series A, FGIC. 3,344,999
3,000,000 Honolulu City & County, 5.75%, 4/1/11, Series A, FGIC. 3,243,750
1,605,000 Honolulu City & County, 5.75%, 4/1/12, FGIC........... 1,759,481
2,890,000 Honolulu City & County, 5.75%, 4/1/13, Series A, FGIC. 3,128,425
2,000,000 Honolulu City & County, 5.63%, 9/1/13, Series A,
Callable 9/1/06 @ 102 and 9/1/08 @ 100,.............. 2,100,000
</TABLE>
Continued
75
<PAGE> 252
PACIFIC CAPITAL FUNDS
TAX-FREE SECURITIES FUND
SCHEDULE OF INVESTMENTS, CONTINUED
JULY 31, 1997
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------ ------------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Hawaii, continued:
1,280,000 Honolulu City & County Refunding & Improvement, 5.50%,
10/1/11, Series B, FGIC.............................. $ 1,360,000
640,000 Honolulu City & County Refunding & Improvement, 5.25%,
10/1/12, Series B, FGIC.............................. 664,800
1,055,000 Honolulu City & County Water, 6.00%, 12/1/10, FGIC.... 1,180,281
1,595,000 Honolulu City & County Water, 6.00%, 12/1/11, FGIC.... 1,786,400
640,000 Honolulu City & County Water, 6.00%, 12/1/14, FGIC.... 715,200
1,380,000 Honolulu City & County, GO, 5.00%, 11/1/12, Series A,
MBIA................................................. 1,386,900
695,000 Kauai County, 5.55%, 8/1/04........................... 743,650
740,000 Kauai County, 5.65%, 8/1/05........................... 800,125
780,000 Kauai County, 5.75%, 8/1/06........................... 852,150
925,000 Kauai County, 5.90%, 8/1/09, Series C, AMBAC.......... 1,023,281
1,005,000 Maui County, 5.10%, 9/1/11, Series A, Callable 9/1/07
@ 101................................................ 1,020,075
645,000 Maui County Refunding, 5.25%, 9/1/06.................. 674,025
890,000 Maui County Refunding, 5.13%, 12/15/10................ 904,463
355,000 Maui County Water, 6.10%, 12/1/02, Series A, Pre-
refunded 12/1/01
@ 101, FGIC, (b)..................................... 386,506
375,000 Maui County Water, 6.20%, 12/1/03, Series A, FGIC..... 409,688
400,000 Maui County Water, 6.30%, 12/1/04, Series A, Pre-
refunded 12/1/01
@ 101, FGIC, (b)..................................... 438,500
425,000 Maui County Water, 6.40%, 12/1/05, Series A, Pre-
refunded 12/1/01
@ 101, FGIC, (b)..................................... 468,031
390,000 Maui County Water, 6.50%, 12/1/06, Series A, Pre-
refunded 12/1/01
@ 101, FGIC, (b)..................................... 430,950
380,000 Maui County Water, 6.60%, 12/1/07, Series A, Pre-
refunded 12/1/01
@ 101, FGIC, (b)..................................... 421,325
Hawaii, continued:
520,000 Maui County Water, 6.65%, 12/1/08, Series A, Pre-
refunded 12/1/01
@ 101, FGIC, (b).................................... $ 577,200
455,000 Maui County Water, 6.65%, 12/1/09, Series A, Pre-
refunded 12/1/01
@ 101, FGIC, (b).................................... 505,050
595,000 Maui County Water, 6.70%, 12/1/10, Series A, Pre-
refunded 12/1/01
@ 101, FGIC, (b).................................... 661,938
535,000 Maui County Water, 6.70%, 12/1/11, Series A, Pre-
refunded 12/1/01
@ 101, FGIC, (b).................................... 595,188
1,020,000 Maui County, GO, 5.90%, 6/1/14....................... 1,085,025
------------
112,640,718
------------
Kansas (1.7%):
2,565,000 Burlington Pollution Control Refunding, Kansas Gas &
Electric Co. Project, 7.00%, 6/1/31................. 2,843,944
2,000,000 Kansas City, Utilities System, Revenue Refunding &
Improvement, 6.38%, 9/1/23.......................... 2,200,000
------------
5,043,944
------------
Maine (0.7%):
1,925,000 Maine State Turnpike Authority, Turnpike Revenue,
6.00%, 7/1/14....................................... 2,069,375
------------
Massachusetts (1.6%):
3,790,000 Commonwealth of Massachusetts, 5.50%, 7/1/15, Series
B................................................... 3,889,488
1,000,000 Massachusetts State Water Pollution Abatement Trust,
5.70%, 2/1/13....................................... 1,047,500
------------
4,936,988
------------
Michigan (2.4%):
4,000,000 Michigan Environmental Protection Program, GO, 5.40%,
11/1/19............................................. 4,074,999
1,545,000 Michigan Strategic Obligations Revenue, 6.95%,
5/1/11.............................................. 1,875,244
1,250,000 Saline Area Schools, GO, 5.50%, 5/1/15, FGIC......... 1,289,063
------------
7,239,306
------------
</TABLE>
Continued
76
<PAGE> 253
PACIFIC CAPITAL FUNDS
TAX-FREE SECURITIES FUND
SCHEDULE OF INVESTMENTS, CONTINUED
JULY 31, 1997
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------------------------------------------------- ------------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Minnesota (0.8%):
2,000,000 North St. Paul, Maplewood, Independent School
District, No. 622, 6.88%, 2/1/15, Series A,
Prefunded 2/1/05 @ 100.............................. $ 2,327,500
------------
New Jersey (1.3%):
2,000,000 New Jersey Wastewater Treatment Trust, 6.38%, 4/1/14,
Series B............................................ 2,212,500
1,500,000 South Brunswick Township Board of Education, 6.40%,
8/1/14, FGIC........................................ 1,700,625
------------
3,913,125
------------
New Mexico (2.0%):
2,000,000 Rio Rancho Water & Waste Water Systems Revenue,
5.90%, 5/15/15, Series A, FSA....................... 2,095,000
2,085,000 Santa Fe Revenue, 6.25%, 6/1/15, Prefunded 6/1/04 @
100................................................. 2,316,956
1,625,000 Sante Fe, New Mexico, Gross Receipts Tax Revenue,
5.63%, 6/1/16....................................... 1,677,813
------------
6,089,769
------------
New York (0.7%):
2,000,000 Triborough Bridge & Tunnel Authority, New York
Revenues, General Purpose, 5.30%, 1/1/17............ 2,012,500
------------
North Carolina (1.2%):
3,085,000 Easton Municipal Power Agency, 6.50%, 1/1/18, (b).... 3,644,156
------------
Ohio (1.5%):
2,320,000 Cleveland Package Facilities Revenue, 5.50%, 9/15/16. 2,372,200
1,120,000 Cleveland Waterworks Revenue, 6.25%, 1/1/16, MBIA.... 1,191,400
1,000,000 Ohio Water Development Authority, Pollution Control,
5.50%, 12/1/15, MBIA................................ 1,026,250
------------
4,589,850
------------
Oregon (0.6l%):
1,605,000 Umatilla County, School District Number 016R,
Pendleton, 6.00%, 7/1/14, AMBAC..................... $ 1,727,381
------------
Pennsylvania (1.1%):
3,150,000 Southeastern Pennsylvania Transportation Authority,
6.00%, 3/1/15, Series A, Callable 3/1/05 @ 101,
FGIC................................................ 3,350,813
------------
South Carolina (0.8%):
1,960,000 Piedmont Municipal Power Agency, South Carolina
Electric Refunding, 6.50%, 1/1/14, Series A, FGIC... 2,288,300
------------
Tennessee (2.6%):
1,000,000 Johnson City, School Sales Tax, 6.70%, 5/1/21........ 1,161,250
6,300,000 Shelby County Refunding, 5.63%, 4/1/15, Series A..... 6,544,125
------------
7,705,375
------------
Texas (1.7%):
1,520,000 Harris County, Certificates of Obligation, 6.00%,
10/1/15............................................. 1,634,000
2,000,000 Texas State Refunding, Public Finance Authority,
5.95%, 10/1/15, Series A............................ 2,115,000
1,280,000 Texas State, Public Financial Authority, 6.00%,
10/1/12,
Series A............................................ 1,366,400
------------
5,115,400
------------
Virginia (3.8%):
3,500,000 Commonwealth of Virginia Public School Authority,
Special Obligation, Chesapeake School, 5.63%,
6/1/15.............................................. 3,644,375
2,995,000 Fairfax County Public Improvement, 5.50%, 6/1/14,
Series A............................................ 3,096,081
2,750,000 Norfolk Water Revenue, 5.75%, 11/1/13, MBIA.......... 2,894,375
</TABLE>
Continued
77
<PAGE> 254
PACIFIC CAPITAL FUNDS
TAX-FREE SECURITIES FUND
SCHEDULE OF INVESTMENTS, CONTINUED
JULY 31, 1997
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------------------------------------------------- ------------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Virginia, continued:
1,750,000 Richmond Refunding, 5.20%, 1/15/14................... $ 1,776,250
------------
11,411,081
------------
Total Municipal Bonds 237,893,856
------------
MUNICIPAL VARIABLE RATE DEMAND OBLIGATIONS (1.6%):
Indiana (0.6%):
1,700,000 Purdue University, 3.50%*, 7/1/11, Series E.......... 1,700,000
------------
New York (0.9%):
1,000,000 New York City Municipal Water Fin. Auth., Water &
Sewer Sys Revenues, 3.60%*, 6/15/25................. 1,000,000
1,800,000 New York, New York, 3.60%*, 10/1/23................... $ 1,800,000
------------
2,800,000
------------
Washington (0.1%):
400,000 Washington State Health Care, 3.70%*, 1/1/18.......... 400,000
------------
Total Municipal Variable Rate Demand Obligations 4,900,000
------------
INVESTMENT COMPANY (0.1%):
250,819 Nuveen Tax Free Money Market Fund..................... 250,819
------------
Total Investment Company 250,819
------------
Total (Cost--$273,111,775) (a) $296,205,350
============
</TABLE>
- --------
Percentages indicated are based on net assets of $299,309,296.
* Variable rate security. Rate presented represents rate in effect at July 31,
1997. Maturity reflects final maturity date.
(a)Represents cost for federal income tax purposes and differs from market
value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.. $23,106,595
Unrealized depreciation.. (13,020)
-----------
Net unrealized
appreciation............. $23,093,575
===========
</TABLE>
(b) Collateralized by various U.S. Government Securities.
AMBAC--AMBAC Indemnity Corporation
AMT--Alternative Minimum Tax Paper
FGIC--Insured by Financial Guaranty Insurance Corporation
FSA--Insured by Financial Security Assurance
GO--General Obligation
MBIA--Insured by Municipal Bond Insurance Association
See notes to financial statements.
78
<PAGE> 255
PACIFIC CAPITAL FUNDS
TAX-FREE SHORT INTERMEDIATE SECURITIES FUND
SCHEDULE OF INVESTMENTS
JULY 31, 1997
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
---------- ----------------------------------------------------- -----------
<C> <S> <C>
ALTERNATIVE MINIMUM TAX PAPER (15.8%):
Hawaii (10.3%):
2,000,000 Hawaii State Airports System, Revenue, 5.45%, 7/1/00,
Second Series, MBIA................................. $ 2,074,999
1,270,000 Hawaii State Airports Systems Revenue, 5.60%, 7/1/01. 1,335,088
500,000 Hawaii State Housing Fin & Dev Single Family, 4.55%,
7/1/02, Series A, AMT............................... 500,625
-----------
3,910,712
-----------
Illinois (1.3%):
500,000 Chicago Illinois O'Hare International Airport, 4.90%,
1/1/01.............................................. 508,750
-----------
Texas (4.2%):
550,000 Brazos, Higher Education Authority, 5.60%, 6/1/99,
Series A-2.......................................... 563,063
1,000,000 El Paso Texas Apartment Revenue, 5.00%, 8/15/01...... 1,025,000
-----------
1,588,063
-----------
Total Alternative Minimum Tax Paper 6,007,525
-----------
MUNICIPAL BONDS (82.5%):
Alaska (2.7%):
1,000,000 Alaska State Housing Finance Corp., 4.60%, 6/1/00.... 1,013,750
-----------
Arizona (3.6%):
750,000 Arizona State Transportation Board, 5.50%, 7/1/00.... 780,938
600,000 Salt River Project, Arizona Agricultural, 4.45%,
1/1/00,
Series B............................................ 606,000
-----------
1,386,938
-----------
Hawaii (45.4%):
2,500,000 Hawaii State Airport System Revenue, 5.55%, 7/1/00,
MBIA................................................ 2,612,499
120,000 Hawaii State Community Development Authority,
District #1, Special Tax Assessment, 4.45%, 7/1/98.. 120,641
165,000 Hawaii State Community Development Authority,
District #2, Special Tax Assessment, 4.45%, 7/1/98.. $ 165,881
1,000,000 Hawaii State Housing Fin & Dev Single Family, 4.80%,
7/1/07, Series B.................................... 1,002,500
3,000,000 Hawaii State, GO, 5.50%, 1/1/00...................... 3,101,249
2,500,000 Hawaii State, GO, 4.60%, 2/1/00, Series Cd........... 2,534,374
1,500,000 Hawaii State, GO, 5.00%, 9/1/00, Series Ck........... 1,541,250
1,200,000 Hawaii State, GO, 4.50%, 3/1/01, Series Cl........... 1,215,000
850,000 Honolulu, City & County, 4.70%, 9/1/01, Series A..... 868,063
800,000 Honolulu, City & County, 5.25%, 9/1/02, Series A,
FGIC................................................ 837,000
700,000 Honolulu, City & County GO, 5.10%, 1/1/00, Series A,
FGIC................................................ 716,625
750,000 Honolulu, City & County GO, 5.10%, 6/1/00, Series B.. 771,563
375,000 Honolulu, City & County Improvement District, 5.85%,
10/15/97............................................ 376,328
370,000 Honolulu, City & County Improvement District, 6.05%,
10/15/98............................................ 378,788
370,000 Honolulu, City & County Improvement District, 6.20%,
10/15/99............................................ 383,875
620,000 Maui County, GO, 5.35%, 6/1/00....................... 641,700
-----------
17,267,336
-----------
Illinois (4.0%):
1,500,000 Metropolitan Pier & Exposition, 4.60%, 12/15/00...... 1,522,500
-----------
Maryland (2.7%):
1,000,000 Maryland State and Local Facilities, GO, 5.00%,
3/1/03.............................................. 1,040,000
-----------
</TABLE>
Continued
79
<PAGE> 256
PACIFIC CAPITAL FUNDS
TAX-FREE SHORT INTERMEDIATE SECURITIES FUND
SCHEDULE OF INVESTMENTS, CONTINUED
JULY 31, 1997
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------ -----------
<C> <S> <C>
MUNICIPAL BONDS, CONTINUED:
Massachusetts (3.4%):
1,265,000 Massachusetts State Construction, 5.13%, 11/1/00,
Series D............................................. $ 1,302,950
-----------
Michigan (2.7%):
1,000,000 Ypsilanti Michigan School District Ref., GO, 4.60%,
5/1/01, FGIC......................................... 1,013,750
-----------
Minnesota (5.9%):
1,500,000 Minnesota State Revenue, 5.00%, 6/30/01, Series A..... 1,546,875
700,000 Minnesota State, GO, 5.00%, 8/1/00.................... 721,000
-----------
2,267,875
-----------
Missouri (2.8%):
1,000,000 Kansas City Water Revenue, 5.50%, 12/1/02............. 1,063,750
-----------
Rhode Island (3.3%):
1,250,000 Rhode Island Housing & Mortgage Financial Corporation,
5.00%, 7/1/00........................................ 1,275,000
-----------
Texas (1.3%):
500,000 Tarrant County Texas Health Facilities Development,
4.75%, 9/1/00, AMBAC................................. 508,750
-----------
Virginia (2.0%):
750,000 Virginia State Public School Authority, 4.50%, 1/1/01. $ 758,438
-----------
Wisconsin (2.7%):
1,000,000 Milwaukee, GO, 5.00%, 2/1/01.......................... 1,032,500
-----------
Total Municipal Bonds 31,453,537
-----------
MUNICIPAL VARIABLE RATE DEMAND
OBLIGATIONS (3.9%):
Washington (3.9%):
1,500,000 Washington State Health Care Facility Hutchinson,
3.70%*, 1/1/18....................................... 1,500,000
-----------
Total Municipal Variable Rate
Demand Obligations 1,500,000
-----------
INVESTMENT COMPANY (0.8%):
318,106 Nuveen Tax Free Money
Market Fund.......................................... 318,106
-----------
Total Investment Company 318,106
-----------
Total (Cost--$38,681,464) (a) $39,279,168
===========
</TABLE>
- --------
Percentages indicated are based on net assets of $38,134,362.
* Variable rate security. Rate presented represents rate in effect at July 31,
1997. Maturity reflects final maturity date.
(a) Represents cost for federal income tax purposes and differs from market
value by net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation..... $597,704
Unrealized depreciation..... 0
--------
Net unrealized appreciation. $597,704
========
</TABLE>
AMBAC--AMBAC Indemnity Corporation
AMT--Alternative Minimum Tax Paper
FGIC--Insured by Financial Guaranty Insurance Corporation
GO--General Obligation
MBIA--Insured by Municipal Bond Insurance Association
See notes to financial statements.
80
<PAGE> 257
PACIFIC CAPITAL FUNDS
NEW ASIA GROWTH FUND
SCHEDULE OF INVESTMENTS
JULY 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------- -----------
<C> <S> <C>
COMMON STOCKS (81.6%):
Hong Kong (42.3%):
Chemicals (0.2%):
200,000 Ngai Hing Hong Co. Ltd................................. $ 53,729
-----------
Construction (5.7%):
70,000 Cheung Kong Infrastructure............................. 242,298
170,600 New World Infrastructure Ltd. (b)...................... 542,039
1,500,000 Wai Kee Holdings Ltd................................... 450,434
-----------
1,234,771
-----------
Containers & Packaging (1.4%):
136,000 Cosco Pacific Limited.................................. 304,758
-----------
Diversified--Conglomerates, Holding Companies (10.1%):
62,000 Citic Pacific Limited.................................. 393,179
78,000 Hutchison Whampoa Ltd.................................. 760,604
111,000 Swire Pacific Ltd., Class A............................ 1,053,724
-----------
2,207,507
-----------
Electrical & Electronic (1.0%):
590,000 Elec & Eltek International Holdings Ltd. .............. 213,367
-----------
Financial Services (1.6%):
53,200 Dah Sing Financial Group............................... 339,434
-----------
Forest Products (0.5%):
514,000 Ta Fu International Ltd................................ 100,908
-----------
Real Estate (14.0%):
37,000 Cheung Kong Holdings Ltd............................... 410,977
438,000 China Resources Beijing Land........................... 347,909
186,000 China Resources Enterprise Ltd. ....................... 929,696
794,000 Fairyoung Holdings Ltd. (b)............................ 328,161
289,000 Lai Sun Development Co. Ltd............................ 324,739
60,000 New World Development Co. Ltd.......................... 432,029
120,000 Wheelock & Co. Ltd..................................... 289,828
-----------
3,063,339
-----------
Telecommunications (2.2%):
161,500 Asia Satellite Telecom Holdings, Ltd. ................. 484,967
-----------
Textile/Apparel (0.6%):
865,000 Chaifa Holdings Ltd.................................... 139,651
-----------
Transportation--Air (0.7%):
246,000 China Southern Airlines Co............................. 151,714
-----------
Utilities--Electric (4.3%):
42,000 China Light & Power Co. Ltd............................ $ 240,851
480,000 Guangdong Electric Power............................... 359,572
85,500 Hong Kong Electric Holdings Ltd........................ 348,956
-----------
949,379
-----------
9,243,524
-----------
India (2.8%):
Engineering (2.8%):
35,000 Larsen & Toubro--GDR................................... 612,500
-----------
Indonesia (6.5%):
Automotive (1.3%):
73,000 PT Astra International................................. 279,159
-----------
Chemicals (0.2%):
36,000 PT Lautan Luas (b)..................................... 49,904
-----------
Fisheries (2.0%):
263,000 PT Daya Guna Samudera.................................. 434,980
-----------
Food Products (0.7%):
165,100 PT Fiskar Agung Perkasa................................ 156,261
-----------
Hotels & Lodging (1.5%):
490,000 PT Sona Topas Tourism.................................. 318,547
-----------
Utilities--Telecommunications (0.8%):
120,000 PT Telekomunikasi...................................... 183,556
-----------
1,422,407
-----------
Korea (4.7%):
Machinery & Equipment (1.7%):
42,000 Daewoo Heavy Industries................................ 364,314
-----------
Steel (1.3%):
3,360 Pohang Iron & Steel Co................................. 287,959
-----------
Utilities--Electric (1.7%):
12,500 Korea Electric Power Corp.............................. 365,169
-----------
1,017,442
-----------
Malaysia (7.0%):
Construction (0.8%):
100,000 Metacorp Berhad........................................ 173,714
-----------
</TABLE>
Continued
81
<PAGE> 258
PACIFIC CAPITAL FUNDS
NEW ASIA GROWTH FUND
SCHEDULE OF INVESTMENTS, CONTINUED
JULY 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------- -----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
Malaysia, continued:
Diversified--Conglomerates, Holding Companies (1.9%):
130,000 Multi-Purpose Holdings Berhad.......................... $ 161,728
200,000 Renong Berhad.......................................... 256,398
-----------
418,126
-----------
Engineering (1.1%):
120,000 IJM Corp Berhad........................................ 232,124
-----------
Financial Services (1.0%):
170,000 Public Finance Berhad.................................. 224,387
-----------
Real Estate (0.8%):
175,000 Hong Leong Properties Berhad........................... 179,214
-----------
Telecommunications (0.8%):
135,000 Time Engineering Berhad................................ 171,021
-----------
Transportation (0.6%):
112,000 Johor Port Berhad...................................... 125,742
-----------
1,524,328
-----------
Philippines (1.6%):
Real Estate (1.6%):
1,332,000 Belle Corporation (b).................................. 298,551
325,000 Fil - Estate Land, Inc. (b)............................ 58,276
-----------
356,827
-----------
Singapore (5.3%):
Beverages (1.2%):
40,000 Fraser & Neave Ltd. ................................... 271,920
-----------
Diversified--Conglomerates, Holding Companies (0.6%):
32,500 Keppel Corporation..................................... 139,189
-----------
Electrical Equipment (2.1%):
60,000 Elec & Eltek International Co. Ltd..................... 450,000
-----------
Hotels & Lodging (1.2%):
150,000 Hotel Properties Ltd................................... 257,984
-----------
Real Estate (0.2%):
33,600 Orchard Parade Holdings Ltd............................ 47,281
-----------
1,166,374
-----------
Taiwan (7.2%):
Banks (1.0%):
148,350 Chinatrust Commercial Bank............................. $ 223,394
-----------
Computers & Peripherals (2.9%):
15,000 Asustek Computer Inc. (b).............................. 311,628
36,000 Inventec Co. Ltd.(b)................................... 294,897
-----------
606,525
-----------
Electrical & Electronic (2.5%):
26,400 Compal Electronics (b)................................. 126,534
96,000 Siliconware Precision Industries
Co. (b)............................................... 426,659
-----------
553,193
-----------
Real Estate (0.8%):
82,500 Kindom Construction Co., Ltd. (b)...................... 181,173
-----------
1,564,285
-----------
Thailand (1.2%):
Oil & Gas Exploration, Production, & Services (1.2%):
17,500 PTT Exploration & Production PLC....................... 258,039
-----------
United States (3.0%):
Computers & Peripherals (2.4%):
8,450 Lite-On Technology Corp. GDR (b)....................... 252,951
10,000 Synnex Technology International Corp.--GDR (b)......... 289,500
-----------
542,451
-----------
Construction & Housing (0.6%):
14,938 Dong-Ah Construction Industrial Co. EDR................ 120,624
-----------
663,075
-----------
Total Common Stocks 17,828,801
-----------
WARRANTS (0.2%):
Hong Kong (0.2%):
Construction (0.2%):
225,000 Wai Kee Holdings Ltd., 6/30/00......................... 36,616
-----------
Total Warrants 36,616
-----------
</TABLE>
Continued
82
<PAGE> 259
PACIFIC CAPITAL FUNDS
NEW ASIA GROWTH FUND
SCHEDULE OF INVESTMENTS, CONTINUED
JULY 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ------------------------------------------------------- -----------
<C> <S> <C>
COMMON STOCKS, CONTINUED:
INVESTMENT COMPANY (16.3%):
United States (16.3%):
3,560,847 Union Bank of California Money Market Fund............. $ 3,560,847
-----------
Total Investment Company 3,560,847
-----------
Total (Cost--$19,750,749) (a) $21,426,264
===========
</TABLE>
- --------
Percentages indicated are based on net assets of $21,834,599.
Forward Currency Contracts:
<TABLE>
<CAPTION>
DELIVERY CONTRACT CONTRACT VALUE
DATE PRICE (U.S. DOLLARS) DEPRECIATION
-------- -------- -------------- ------------
<S> <C> <C> <C> <C>
Currency Purchased:
Hong Kong Dollar.............. 8/4/97 $ 7.74 $586,932 $(219)
Currency Sold:
Indonesia Rupee............... 8/4/97 $2,620.00 $278,408 $(425)
</TABLE>
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
<TABLE>
<S> <C>
Unrealized appreciation.... $ 3,227,362
Unrealized depreciation.... (1,551,847)
-----------
Net unrealized
appreciation............... $ 1,675,515
===========
</TABLE>
(b) Non income producing securities.
EDR--European Depository Receipt
GDR--Global Depository Receipt
PLC--Public Limited Company
See notes to financial statements.
83
<PAGE> 260
PACIFIC CAPITAL FUNDS
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1997
1. ORGANIZATION
Pacific Capital Funds (the "Trust") was organized on October 30, 1992, and
is registered under the Investment Company Act of 1940, as amended, ("the
1940 Act"), as a diversified, open-end management investment company
established as a Massachusetts business trust. The Trust currently consists
of the following investment portfolios (individually, a "Fund" and
collectively, the "Funds"): Growth Stock Fund, U.S. Treasury Securities
Fund, Short Intermediate U.S. Treasury Securities Fund, Growth and Income
Fund, Diversified Fixed Income Fund, Tax-Free Securities Fund, Tax-Free
Short Intermediate Securities Fund, and New Asia Growth Fund. The Trust is
authorized to issue an unlimited number of shares without par value in two
classes of shares for each Fund: Retail Class and Institutional Class. The
Institutional Class commenced operations October 14, 1994 when the Trust
identified those Institutional Shareholders that were part of the Retail
Class (as of October 13, 1994) and transferred the Shareholders into the
Institutional Class. Retail Class Shares are subject to initial sales
charges, imposed at the time of purchase, in accordance with the Funds'
prospectuses. Each class of shares for each Fund has identical rights and
privileges except with respect to distribution (12b-1) fees paid by Retail
Class Shares, voting rights on matters affecting a single class of shares
and the exchange privileges of each class of shares.
The Funds' investment objectives are as follows: Growth Stock Fund seeks
long-term capital appreciation; U.S. Treasury Securities Fund and Short
Intermediate U.S. Treasury Securities Fund seek a high level of current
income consistent with prudent risk of capital. Growth and Income Fund seeks
primarily current income and secondarily capital appreciation. Diversified
Fixed Income Fund seeks a high level of current income. Tax-Free Securities
Fund and Tax-Free Short Intermediate Securities Fund seek a high level of
current income exempt from federal and Hawaii income taxes. New Asia Growth
Fund seeks long-term growth of capital.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed by
the Trust in the preparation of its financial statements. The policies are
in conformity with generally accepted accounting principles. The preparation
of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses for the period. Actual results could differ from those estimates.
SECURITIES VALUATION
Investments of the Funds for which the primary market is a national
securities exchange or the National Association of Securities Dealers
Automated Quotation National Market System ("NASDAQ") are valued at last
reported sale price on the day of valuation. In the absence of any sale of
such securities on the valuation date, the valuations are based on the mean
of the latest quoted bid and asked prices. Securities, including thinly
traded, unlisted, and restricted securities, for which market quotations are
not readily available, are valued at fair market value by the investment
adviser under the supervision of the Funds' Board of Trustees. Investments
in investment companies are valued at their respective net asset values as
reported by such companies. Money market instruments and other debt
securities maturing in 60 days or less are valued at amortized cost, which
approximates market value. Investments in foreign securities, currency
holdings and other assets and liabilities of New Asia Growth Fund are valued
based on quotations from the primary market in which they are traded and
translated from the local currency into U.S. dollars using current exchange
rates. The differences between the cost and market values of securities are
reflected as either unrealized appreciation or depreciation.
Continued
84
<PAGE> 261
PACIFIC CAPITAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1997
SECURITIES TRANSACTIONS AND RELATED INCOME
Securities transactions are accounted for on the date the security is
purchased or sold (trade date). Interest income is recognized on the accrual
basis and includes, where applicable, the pro rata amortization of premium
or accretion of discount. Dividend income is recorded on the ex-dividend
date and is reduced by applicable foreign taxes withheld. Gains or losses
realized from sales of securities are determined by comparing the identified
cost of the security lot sold with the net sales proceeds.
FOREIGN CURRENCY TRANSLATION
The New Asia Growth Fund isolates that portion of the results of operations
resulting from changes in currency exchange rates from the fluctuation
arising from changes in market prices of securities held.
Purchases and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the exchange rate on the dates of the
transactions. Reported net realized foreign exchange gains or losses arise
from sales and maturities of portfolio securities, sales of foreign
currencies, currency exchange fluctuations between the trade and settlement
dates of securities transactions, and the difference between the amounts of
assets and liabilities recorded and the U.S. dollar equivalent of the
amounts actually received or paid. Net unrealized foreign currency
appreciation or depreciation arises from changes in the value of assets and
liabilities, including investments in securities, resulting from changes in
currency exchange rates.
RISKS ASSOCIATED WITH FOREIGN SECURITIES AND CURRENCIES
Investments in securities of foreign issuers carry certain risks not
ordinarily associated with investments in securities of domestic issuers.
Such risks include future political and economic developments, and the
possible imposition of exchange controls or other foreign governmental laws
and restrictions. In addition, with respect to certain countries, there is
the possibility of expropriation of assets, confiscatory taxation, political
or social instability or diplomatic developments which could adversely
affect investments in those countries.
Certain countries may also impose substantial restrictions on investments in
their capital markets by foreign entities, including restrictions on
investments in issuers of industries deemed sensitive to relevant national
interests. These factors may limit the investment opportunities available in
the New Asia Growth Fund and result in a lack of liquidity and a high price
volatility with respect to securities of issuers from developing countries.
Withholding taxes on foreign dividends have been provided for in accordance
with the New Asia Growth Fund's understanding of applicable countries' tax
rules and rates.
FORWARD CURRENCY EXCHANGE CONTRACTS
The New Asia Growth Fund may from time to time enter into foreign currency
exchange transactions to convert to and from different foreign currencies.
The Fund may enter into currency exchange transactions on a spot (i.e.,
cash) basis at the spot rate prevailing in the foreign currency exchange
market, or use forward currency contracts to purchase or to sell foreign
currencies. A forward foreign currency contract is an obligation by the Fund
to purchase or to sell a specific currency at a future date at a price set
at the time of the contract. The Fund may use forward foreign currency
exchange contracts in order to protect against uncertainty in fluctuations
of future foreign exchange rates. The use of such forward
Continued
85
<PAGE> 262
PACIFIC CAPITAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1997
contracts is limited to hedging against movements in the value of foreign
currencies relative to the U.S. dollar in connection with specific portfolio
transactions or with respect to portfolio positions. The forward foreign
currency exchange contracts are adjusted by the daily exchange rate of the
underlying currency and any appreciation or depreciation is recorded for
financial statement purposes as unrealized until the contract settlement
date, at which time the Fund records realized gains or losses equal to the
difference between the value of the contract at the time it was opened and
the value at the time it was closed. The Fund could be exposed to risk if a
counterparty is unable to meet the terms of a forward foreign exchange
currency contract or if the value of the foreign currency changes
unfavorably.
WHEN-ISSUED AND FORWARD COMMITMENTS
The Funds may purchase securities on a "when-issued" basis and may also
purchase or sell securities on a forward commitment. The Funds record when-
issued securities on the trade date and maintain security positions such
that sufficient liquid assets will be available to make payment for the
securities purchased. The value of securities underlying when-issued or
forward commitments to purchase securities, and any subsequent fluctuation
in their value, is taken into account when determining the net asset value
of the Funds commencing with the date the Funds agree to purchase the
securities. The Funds do not accrue interest or dividends on when-issued
securities until the underlying securities are received.
REPURCHASE AGREEMENTS
The Funds may acquire securities from member banks of the Federal Deposit
Insurance Corporation and from registered broker-dealers which Hawaiian
Trust Company, Limited ("Hawaiian Trust") deems creditworthy under
guidelines approved by the Board of Trustees, subject to the seller's
agreement to repurchase such securities at a mutually agreed-upon date and
price ("repurchase agreement"). The repurchase price generally equals the
price paid by a 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 securities. The seller, under a repurchase agreement, is required
to maintain the value of collateral held pursuant to the agreement at not
less than 102% of the repurchase price (including accrued interest).
Securities subject to repurchase agreements will be held by the Trust's
custodian or another qualified custodian or in the Federal Reserve/Treasury
book-entry system. Repurchase agreements are considered to be loans by a
Fund under the 1940 Act.
DIVIDENDS TO SHAREHOLDERS
Dividends from net investment income are declared daily and paid monthly for
the U.S. Treasury Securities Fund, Short Intermediate U.S. Treasury
Securities Fund, Diversified Fixed Income Fund, Tax-Free Securities Fund and
Tax-Free Short Intermediate Securities Fund. Dividends from net investment
income are declared and paid monthly for the Growth Stock Fund and Growth
and Income Fund. Dividends from net investment income are declared and paid
quarterly for the New Asia Growth Fund. Distributable net realized capital
gains, if any, are declared and distributed annually.
Dividends from net investment income and net realized capital gains are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. These differences are primarily
due to differing treatments of foreign currency transactions and deferrals
of certain losses. Permanent book and tax basis differences are reflected in
the components of net assets.
Continued
86
<PAGE> 263
PACIFIC CAPITAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1997
FEDERAL INCOME TAXES
Each Fund intends to continue to qualify as a regulated investment company
by complying with the provisions available to certain investment companies
as defined in applicable sections of the Internal Revenue Code, and to make
distributions of net investment income and net realized capital gains
sufficient to relieve it from all, or substantially all, federal income
taxes.
ORGANIZATION COSTS
Costs incurred by the Trust in connection with organization, registration
and the initial public offering of shares have been deferred and are
amortized using the straight-line method over a period of two years from the
commencement of the public offering of shares of each Fund.
CONCENTRATION OF CREDIT RISK
The Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities
Fund have a majority of their investments in the securities of issuers in
Hawaii. Such concentration may subject the Fund to the effects of economic
changes occurring within that State.
OTHER
Expenses that are directly related to one Fund are charged directly to that
Fund. Other operating expenses for the Funds or the Trust are prorated to
the Funds on the basis of relative net assets or other appropriate basis.
3. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities (excluding short-term securities) for the
year ended July 31, 1997 are as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Growth Stock Fund.................................... $ 58,249,346 $ 92,090,700
U.S. Treasury Securities Fund........................ 10,008,609 10,750,239
Short Intermediate U.S. Treasury Securities Fund..... 13,308,723 11,193,471
Growth and Income Fund............................... 81,708,653 70,234,365
Diversified Fixed Income Fund........................ 110,382,175 147,784,788
Tax-Free Securities Fund............................. 31,839,329 35,193,262
Tax-Free Short Intermediate Securities Fund.......... 11,321,459 12,977,684
New Asia Growth Fund................................. 24,575,698 19,365,912
</TABLE>
4. RELATED PARTY TRANSACTIONS
Investment advisory services are provided to the Trust by Hawaiian Trust
(the "Adviser"). Under the terms of the investment advisory agreement with
the Trust, the Adviser is entitled to receive fees based on a percentage of
the average net assets of the Fund.
Continued
87
<PAGE> 264
PACIFIC CAPITAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1997
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS"),
an Ohio Limited Partnership, and BISYS Fund Services Ohio, Inc. ("BISYS
Services") are subsidiaries of The BISYS Group, Inc. BISYS, with whom
certain officers and a trustee of the Trust are affiliated, serves the Trust
as principal underwriter and administrator. Such officers and trustee are
not paid any fees directly by the Funds for serving as officers and trustee
of the Trust. Under the terms of the management and administration
agreement, BISYS' fees are computed at an annual rate of 0.20% of the
average daily net assets of each Fund.
BISYS also serves as the Trust's distributor and receives fees for providing
distribution services in accordance with a Distribution Agreement (the
"Agreement") pursuant to Rule 12b-1 under the 1940 Act. Under the Agreement,
Retail Class Shares pay BISYS a fee not to exceed, on an annual basis, 0.75%
of the average daily net assets attributable to the Retail Class of shares
of each Fund for payments BISYS makes to banks, including the Advisor, other
institutions and broker/dealers, and for expenses BISYS and any of its
affiliates or subsidiaries incur for providing distribution or shareholder
service assistance. For the year ended July 31, 1997, BISYS, as the Trust's
principal underwriter, received approximately $231,831 from commissions on
sales of Retail Class shares of which $210,914 was reallowed to dealers
affiliated with the Advisor and $15,602 was reallowed to other dealers.
BISYS Services serves the Trust as fund accountant. Under the terms of the
fund accounting agreement, BISYS Services is entitled to receive fees based
on a percentage of the average net assets of each Fund and is reimbursed for
certain out-of-pocket expenses incurred in providing fund accounting
services.
Fees may be voluntarily reduced or expenses reimbursed to assist the Funds
in maintaining competitive expense ratios.
Information regarding these transactions for the year ended July 31, 1997 is
as follows:
<TABLE>
<CAPTION>
INVESTMENT ADVISORY FEES
----------------------------
ANNUAL FEE AS A ADMINISTRATION 12b-1 FEES
PERCENTAGE FEES FEES VOLUNTARILY
OF AVERAGE VOLUNTARILY VOLUNTARILY REDUCED-- ACCOUNTING
DAILY NET ASSETS REDUCED REDUCED RETAIL CLASS FEES*
---------------- ----------- -------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Growth Stock Fund...... 0.80% $ -- $ 75,584 $32,878 $56,233
U.S. Treasury
Securities Fund........ 0.60% -- 9,759 5,272 7,274
Short Intermediate U.S.
Treasury
Securities Fund....... 0.50% 47,940 12,012 3,727 7,165
Growth and Income Fund. 0.80% -- 38,905 10,559 28,824
Diversified Fixed
Income Fund............ 0.60% -- 58,083 5,621 43,393
Tax-Free Securities
Fund................... 0.60% -- 117,822 6,370 87,816
Tax-Free Short
Intermediate
Securities Fund....... 0.50% -- 19,630 4,005 11,729
New Asia Growth Fund... 0.90% 7,778 8,389 13,636 4,977
</TABLE>
--------
* Accounting fees do not include out-of-pocket expenses.
Continued
88
<PAGE> 265
PACIFIC CAPITAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1997
5. CAPITAL SHARE TRANSACTIONS:
Transactions in capital shares for the Trust were as follows:
<TABLE>
<CAPTION>
U.S. TREASURY
GROWTH STOCK FUND SECURITIES FUND
------------------------- ------------------------
AMOUNT SHARES AMOUNT SHARES
------------- ---------- ------------ ----------
FOR THE YEAR ENDED FOR THE YEAR ENDED
JULY 31, 1997 JULY 31, 1997
------------------------- ------------------------
<S> <C> <C> <C> <C>
RETAIL CLASS SHARES:
Shares issued........... $ 3,204,633 224,887 $ 262,172 28,434
Dividends reinvested.... 16,102 1,191 48,799 5,310
Shares redeemed......... (1,497,916) (109,496) (228,130) (24,896)
------------- ---------- ------------ ----------
Net increase/(decrease). $ 1,722,819 116,582 $ 82,841 8,848
============= ========== ============ ==========
INSTITUTIONAL CLASS
SHARES:
Shares issued........... $ 36,521,743 2,562,096 $ 1,380,971 149,658
Dividends reinvested.... 76,010 5,584 1,366,474 148,459
Shares redeemed......... (80,981,052) (5,700,654) (2,779,194) (300,730)
------------- ---------- ------------ ----------
Net increase/(decrease). $ (44,383,299) (3,132,974) $ (31,749) (2,613)
============= ========== ============ ==========
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
JULY 31, 1996 JULY 31, 1996
------------------------- ------------------------
<S> <C> <C> <C> <C>
RETAIL CLASS SHARES:
Shares issued........... $ 2,212,900 181,079 $ 120,008 12,543
Dividends reinvested.... 269,722 22,667 60,138 6,342
Shares redeemed......... (1,174,009) (94,879) (205,941) (21,534)
------------- ---------- ------------ ----------
Net increase/(decrease). $ 1,308,613 108,867 $ (25,795) (2,649)
============= ========== ============ ==========
INSTITUTIONAL CLASS
SHARES:
Shares issued........... $ 131,615,185 10,917,906 $ 1,527,773 161,323
Dividends reinvested.... 6,169,023 518,783 1,842,036 194,471
Shares redeemed......... (104,518,765) (8,612,823) (30,773,600) (3,250,486)
------------- ---------- ------------ ----------
Net increase/(decrease). $ 33,265,443 2,823,866 $(27,403,791) (2,894,692)
============= ========== ============ ==========
</TABLE>
Continued
89
<PAGE> 266
PACIFIC CAPITAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1997
5. CAPITAL SHARE TRANSACTIONS (CONTINUED):
<TABLE>
<CAPTION>
SHORT INTERMEDIATE U.S.
TREASURY SECURITIES FUND GROWTH AND INCOME FUND
-------------------------- ------------------------
AMOUNT SHARES AMOUNT SHARES
------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
RETAIL CLASS SHARES:
Shares issued........... $ 140,921 14,898 $ 2,191,642 153,432
Dividends reinvested.... 36,426 3,858 81,348 6,075
Shares redeemed......... (728,488) (76,854) (527,062) (37,700)
------------ ----------- ------------ ----------
Net increase/(decrease). $ (551,141) (58,098) $ 1,745,928 121,807
============ =========== ============ ==========
INSTITUTIONAL CLASS
SHARES:
Shares issued........... $11,979,335 1,272,770 $ 43,781,341 3,080,616
Dividends reinvested.... 55,995 5,915 2,325,676 172,366
Shares redeemed......... (9,297,503) (983,459) (30,463,375) (2,125,196)
------------ ----------- ------------ ----------
Net increase/(decrease). $ 2,737,827 295,226 $ 15,643,642 1,127,786
============ =========== ============ ==========
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
JULY 31, 1996 JULY 31, 1996
-------------------------- ------------------------
<S> <C> <C> <C> <C>
RETAIL CLASS SHARES:
Shares issued........... $ 747,638 76,883 $ 924,629 74,394
Dividends reinvested.... 47,554 4,976 16,890 1,409
Shares redeemed......... (95,449) (9,947) (128,162) (10,325)
------------ ----------- ------------ ----------
Net increase/(decrease). $ 699,743 71,912 $ 813,357 65,478
============ =========== ============ ==========
INSTITUTIONAL CLASS
SHARES:
Shares issued........... $17,373,908 1,805,630 $ 50,906,651 4,232,718
Dividends reinvested.... 110,962 11,544 1,235,834 104,577
Shares redeemed......... (9,634,113) (1,006,064) (23,658,493) (1,948,216)
------------ ----------- ------------ ----------
Net increase/(decrease). $ 7,850,757 811,110 $ 28,483,992 2,389,079
============ =========== ============ ==========
</TABLE>
Continued
90
<PAGE> 267
PACIFIC CAPITAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1997
5. CAPITAL SHARE TRANSACTIONS (CONTINUED):
<TABLE>
<CAPTION>
DIVERSIFIED FIXED TAX-FREE
INCOME FUND SECURITIES FUND
------------------------ ------------------------
AMOUNT SHARES AMOUNT SHARES
------------ ---------- ------------ ----------
FOR THE YEAR ENDED FOR THE YEAR ENDED
JULY 31, 1997 JULY 31, 1997
------------------------ ------------------------
<S> <C> <C> <C> <C>
RETAIL CLASS SHARES:
Shares issued........... $ 748,361 71,630 $ 2,100,119 201,633
Dividends reinvested.... 70,514 6,720 20,004 1,896
Shares redeemed......... (829,853) (79,822) (241,385) (23,123)
------------ ---------- ------------ ----------
Net increase/(decrease). $ (10,978) (1,472) $ 1,878,738 180,406
============ ========== ============ ==========
INSTITUTIONAL CLASS
SHARES:
Shares issued........... $ 44,769,922 4,245,046 $ 31,135,063 2,950,938
Dividends reinvested.... 599,007 55,986 1,613,763 151,978
Shares redeemed......... (78,102,272) (7,368,883) (35,722,280) (3,389,736)
------------ ---------- ------------ ----------
Net increase/(decrease). $(32,733,343) (3,067,851) $ (2,973,454) (286,820)
============ ========== ============ ==========
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
JULY 31, 1996 JULY 31, 1996
------------------------ ------------------------
<S> <C> <C> <C> <C>
RETAIL CLASS SHARES:
Shares issued........... $ 1,199,728 107,934 $ 619,694 58,332
Dividends reinvested.... 35,296 3,293 17,516 1,652
Shares redeemed......... (100,216) (9,260) (608,257) (58,984)
------------ ---------- ------------ ----------
Net increase/(decrease). $ 1,134,808 101,967 $ 28,953 1,000
============ ========== ============ ==========
INSTITUTIONAL CLASS
SHARES:
Shares issued........... $198,618,575 18,085,880 $ 28,592,966 2,708,891
Dividends reinvested.... 855,870 76,725 3,552,534 331,714
Shares redeemed......... (86,606,689) (7,857,921) (22,221,434) (2,101,754)
------------ ---------- ------------ ----------
Net increase/(decrease). $112,867,756 10,304,684 $ 9,924,066 938,851
============ ========== ============ ==========
</TABLE>
Continued
91
<PAGE> 268
PACIFIC CAPITAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1997
5. CAPITAL SHARE TRANSACTIONS (CONTINUED):
<TABLE>
<CAPTION>
TAX-FREE
SHORT INTERMEDIATE NEW ASIA
SECURITIES FUND GROWTH FUND
--------------------- ---------------------
AMOUNT SHARES AMOUNT SHARES
----------- -------- ----------- --------
FOR THE YEAR ENDED FOR THE YEAR ENDED
JULY 31, 1997 JULY 31, 1997
--------------------- ---------------------
<S> <C> <C> <C> <C>
RETAIL CLASS SHARES:
Shares issued................... $ 741,966 73,793 $ 1,372,902 111,117
Dividends reinvested............ 15,130 1,502 21,601 1,764
Shares redeemed................. (491,902) (48,887) (527,801) (42,850)
----------- -------- ----------- --------
Net increase/(decrease)......... $ 265,194 26,408 $ 866,702 70,031
=========== ======== =========== ========
INSTITUTIONAL CLASS SHARES:
Shares issued................... $ 5,454,511 540,179 $ 9,703,868 791,509
Dividends reinvested............ 52,152 5,141 81,463 6,605
Shares redeemed................. (8,057,230) (796,267) (3,030,589) (240,435)
----------- -------- ----------- --------
Net increase/(decrease)......... $(2,550,567) (250,947) $ 6,754,742 557,679
=========== ======== =========== ========
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED
JULY 31, 1996 JULY 31, 1996
--------------------- ---------------------
<S> <C> <C> <C> <C>
RETAIL CLASS SHARES:
Shares issued................... $ 194,515 19,329 $ 1,841,034 156,856
Dividends reinvested............ 2,672 265 13,647 1,284
Shares redeemed................. (52,273) (5,147) (101,353) (8,592)
----------- -------- ----------- --------
Net increase/(decrease)......... $ 144,914 14,447 $ 1,753,328 149,548
=========== ======== =========== ========
INSTITUTIONAL CLASS SHARES:
Shares issued................... $ 7,670,654 754,274 $ 8,908,328 754,031
Dividends reinvested............ 6,511 642 46,083 4,330
Shares redeemed................. (7,930,532) (783,406) (2,879,942) (252,790)
----------- -------- ----------- --------
Net increase/(decrease)......... $ (253,367) (28,490) $ 6,074,469 505,571
=========== ======== =========== ========
</TABLE>
6. FEDERAL INCOME TAXES (UNAUDITED)
For federal income tax purposes, the following Funds have capital loss
carryforwards as of July 31, 1997, which are available to offset future
capital gains, if any:
<TABLE>
<CAPTION>
AMOUNT EXPIRES
---------- -------
<S> <C> <C>
U.S. Treasury Securities Fund.............................. $ 288,915 2002
U.S. Treasury Securities Fund.............................. 326,761 2003
U.S. Treasury Securities Fund.............................. 3,238,241 2004
U.S. Treasury Securities Fund.............................. 58,103 2005
Short Intermediate U.S. Treasury Securities Fund........... 151,388 2005
Diversified Fixed Income Fund.............................. 405,487 2005
</TABLE>
Continued
92
<PAGE> 269
PACIFIC CAPITAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1997
Under current tax law, capital losses realized after October 31 may be
deferred and treated as occurring on the first day of the fiscal year ended
July 31, 1998. Diversified Fixed Income Fund and U.S. Treasury Fund deferred
such losses of $2,116,461 and $134,520, respectively. Similarly, New Asia
Growth Fund deferred foreign currency losses of $76,177.
The following table presents distributions from long-term capital gains for
the following Funds for the year ended July 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
Growth Stock....................................................... $ 6,971
Growth and Income Fund............................................. 3,674,369
Diversified Fixed Income Fund...................................... 1,347,352
Tax Free Securities Fund........................................... 1,589,719
Tax Free Short Intermediate Securities Fund........................ 50,230
New Asia Growth Fund............................................... 91,852
</TABLE>
Pacific Capital Funds designates the following eligible distribution for the
dividends received deduction for corporations for the Fund's taxable year
ended July 31, 1997.
<TABLE>
<CAPTION>
GROWTH AND
GROWTH STOCK INCOME
FUND FUND
------------ ----------
RETAIL CLASS:
<S> <C> <C>
Dividend income...................................... $ 82,325 $ 32,902
Dividend income per share............................ $ 0.179 $ 0.224
INSTITUTIONAL CLASS:
Dividend income...................................... $2,328,521 $1,519,228
Dividend income per share............................ $ 0.181 $ 0.230
</TABLE>
The Pacific Capital Funds designate the following exempt-interest dividends
for the Fund's taxable year ended July 31, 1997.
<TABLE>
<CAPTION>
TAX-FREE TAX-FREE
SECURITIES SHORT INTERMEDIATE
FUND SECURITIES FUND
----------- ------------------
RETAIL CLASS:
<S> <C> <C>
Exempt-interest distributions.................. $ 61,303 $ 30,354
Exempt-interest distributions per share........ $ 0.505 $ 0.382
INSTITUTIONAL CLASS:
Exempt-interest distributions.................. $14,097,576 $1,454,175
Exempt-interest distributions per share........ $ 0.510 $ 0.384
</TABLE>
Continued
93
<PAGE> 270
PACIFIC CAPITAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
JULY 31, 1997
The percentage break-down of the exempt-interest income by state for the
Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities Fund
for the taxable year ended July 31, 1997 were as follows:
<TABLE>
<CAPTION>
TAX-FREE SHORT
TAX-FREE INTERMEDIATE
STATE SECURITIES FUND SECURITIES FUND
----- --------------- ---------------
<S> <C> <C>
Alaska....................................... -- % 2.4%
Arizona...................................... 0.2 5.0
California................................... 6.0 --
Colorado..................................... 0.3 --
Connecticut.................................. 0.4 --
Florida...................................... 6.4 2.5
Georgia...................................... 2.9 --
Hawaii....................................... 57.5 57.1
Idaho........................................ 0.1 --
Illinois..................................... 0.1 4.0
Kansas....................................... 1.8 --
Maine........................................ 0.7 --
Maryland..................................... -- 1.0
Massachusetts................................ 2.0 3.4
Michigan..................................... 2.3 1.7
Minnesota.................................... 0.8 5.8
Missouri..................................... -- 1.2
New Jersey................................... 1.3 1.3
New Mexico................................... 1.9 --
New York..................................... 0.6 --
North Carolina............................... 1.2 --
Ohio......................................... 1.4 --
Oregon....................................... 1.0 1.3
Pennsylvania................................. 1.1
Puerto Rico.................................. -- 0.8
Rhode Island................................. -- 3.3
South Carolina............................... 0.8 --
Tennessee.................................... 3.2
Texas........................................ 2.1 5.2
Virginia..................................... 3.9 --
Washington................................... -- 1.2
West Virginia................................ -- 0.2
Wisconsin.................................... -- 2.6
----- -----
Total..................................... 100.0% 100.0%
===== =====
</TABLE>
7. SPECIAL MEETING
A special meeting was held on May 19, 1997 to approve the change in the sub-
adviser of New Asia Growth Fund (the fund). Credit Lyonnais International
Asset Management (HK) Ltd was acquired in February 1997 by Nicholas
Applegate Capital Management (Hong Kong) LLC. Presented in person or
represented by proxy at the meeting were holders of 907,018 shares of the
fund, who represented a majority and consequently a quorum of the 1,460,284
outstanding shares. All 907,018 voted unanimously for the change in sub-
adviser.
Continued
94
<PAGE> 271
PACIFIC CAPITAL FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
GROWTH STOCK FUND
---------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED NOVEMBER 1,
JULY 31, 1997 JULY 31, 1996 JULY 31, 1995 1993 TO
----------------------- ---------------------- ---------------------------- JULY 31,
RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL RETAIL (c) INSTITUTIONAL (b) 1994 (a)
------- ------------- ------- ------------- ---------- ----------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $11.89 $11.89 $11.71 $11.71 $ 9.83 $ 9.89 $10.00
------- -------- ------- -------- ------ -------- -------
Investment Activities
Net investment income.. 0.03 0.07 0.07 0.10 0.12 0.11 0.07
Net realized and
unrealized gain (loss)
from investments...... 5.55 5.55 0.89 0.89 1.87 1.83 (0.18)
------- -------- ------- -------- ------ -------- -------
Total from Investment
Activities........... 5.58 5.62 0.96 0.99 1.99 1.94 (0.11)
------- -------- ------- -------- ------ -------- -------
Distributions
Net investment income.. (0.03) (0.07) (0.07) (0.10) (0.11) (0.12) (0.06)
In excess of net
investment income..... (0.01) -- -- -- -- -- --
Net realized gains..... -- -- (0.22) (0.22) -- -- --
In excess of net
realized gains........ -- -- (0.49) (0.49) -- -- --
------- -------- ------- -------- ------ -------- -------
Total Distributions... (0.04) (0.07) (0.78) (0.81) (0.11) (0.12) (0.06)
------- -------- ------- -------- ------ -------- -------
NET ASSET VALUE, END OF
PERIOD................. $17.43 $17.44 $11.89 $11.89 $11.71 $11.71 $ 9.83
======= ======== ======= ======== ====== ======== =======
Total Return (excludes
sales charges)......... 47.02% 47.39% 8.25% 8.53% 20.43% 20.64%(d) (1.05%)(f)
ANNUALIZED RATIOS/
SUPPLEMENTARY DATA:
Net assets at end of
period (000)........... $9,742 $198,407 $5,261 $172,565 $3,905 $136,837 $56,121
Ratio of expenses to
average net assets..... 1.32% 1.07% 1.34% 1.09% 1.36% 1.13%(e) 1.41%(e)
Ratio of net investment
income to average net
assets................. 0.16% 0.45% 0.60% 0.86% 1.12% 1.30%(e) 0.98%(e)
Ratio of expenses to
average net assets*.... 1.86% 1.11% 1.88% 1.13% 1.98% 1.21%(e) 2.31%(e)
Ratio of net investment
income to average net
assets*................ (0.38%) 0.41% 0.06% 0.82% 0.50% 1.23%(e) 0.07%(e)
Portfolio Turnover (g).. 32.20% 32.20% 61.30% 61.30% 32.40% 32.40% 25.89%
Average Commission Rate
paid (h)............... $0.0893 $0.0893 $0.0895 $0.0895 -- -- --
</TABLE>
- --------
* During the period, certain fees were voluntarily reduced. In addition, the
investment adviser reimbursed expenses. If such voluntary fee reductions
and expense reimbursements had not occurred, the ratios would have been as
indicated.
(a) Period from commencement of operations.
(b) On October 13, 1994, the Trust identified those Institutional shareholders
that were part of the Retail Class and transferred these shareholders into
the Institutional Class at the prevailing net asset value effective
October 14, 1994. The Financial Highlights presented for the Institutional
Class reflects operations and distributions for the period from October
14, 1994 through July 31, 1995.
(c) The Financial Highlights presented for the Retail Class reflects
operations and distributions for the Fund, as a whole, for the period from
August 1, 1994 through October 13, 1994 combined with the operations and
distributions of the Retail Class only for the period from October 14,
1994 through July 31, 1995.
(d) Represents total return for the Fund, as a whole, for the period from
August 1, 1994 through October 13, 1994 plus total return for the
Institutional Class for the period from October 14, 1994 through July 31,
1995.
(e) Annualized.
(f) Not annualized.
(g) Portfolio turnover is calculated on the basis of the Fund, as a whole,
without distinguishing between the classes of shares issued.
(h) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and
sold for which commissions were charged.
See notes to financial statements.
95
<PAGE> 272
PACIFIC CAPITAL FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
U.S TREASURY SECURITIES FUND
------------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED NOVEMBER 1,
JULY 31, 1997 JULY 31, 1996 JULY 31, 1995 1993 TO
--------------------------- --------------------- ---------------------------- JULY 31,
RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL RETAIL (c) INSTITUTIONAL (b) 1994 (a)
--------------------------- ------ ------------- ---------- ----------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $ 9.13 $ 9.14 $ 9.42 $ 9.43 $ 9.04 $ 8.66 $10.00
------- ------- ------ ------- ------ ------- -------
Investment Activities
Net investment income... 0.52 0.53 0.53 0.59 0.50 0.44 0.31
Net realized and
unrealized gain (loss)
from investments....... 0.25 0.26 (0.20) (0.24) 0.38 0.76 (1.00)
------- ------- ------ ------- ------ ------- -------
Total from Investment
Activities............ 0.77 0.79 0.33 0.35 0.88 1.20 (0.69)
------- ------- ------ ------- ------ ------- -------
Distributions
Net investment income... (0.46) (0.54) (0.53) (0.55) (0.50) (0.43) (0.27)
In excess of net
investment income...... (0.07) (0.01) (0.09) (0.09) -- -- --
------- ------- ------ ------- ------ ------- -------
Total Distributions.... (0.53) (0.55) (0.62) (0.64) (0.50) (0.43) (0.27)
------- ------- ------ ------- ------ ------- -------
NET ASSET VALUE, END OF
PERIOD.................. $ 9.37 $ 9.38 $ 9.13 $ 9.14 $ 9.42 $ 9.43 $ 9.04
======= ======= ====== ======= ====== ======= =======
Total Return (excludes
sales charges).......... 8.68% 8.92% 3.43% 3.71% 10.18% 10.49%(d) (6.95%)(f)
ANNUALIZED RATIOS/
SUPPLEMENTARY DATA:
Net assets at end of
period (000)............ $1,087 $23,832 $979 $23,248 $1,035 $51,264 $60,125
Ratio of expenses to
average net assets...... 1.16% 0.91% 1.20% 0.95% 1.19% 1.02%(e) 1.15%(e)
Ratio of net investment
income to
average net assets...... 5.60% 5.85% 5.55% 5.81% 5.57% 5.78%(e) 4.62%(e)
Ratio of expenses to
average net assets*..... 1.70% 0.95% 1.74% 0.99% 1.81% 1.09%(e) 2.09%(e)
Ratio of net investment
income to
average net assets*..... 5.06% 5.81% 5.01% 5.77% 4.96% 5.71%(e) 3.68%(e)
Portfolio Turnover (g)... 44.90% 44.90% 15.75% 15.75% 80.98% 80.98% 11.36%
</TABLE>
- --------
* During the period, certain fees were voluntarily reduced. In addition, the
investment adviser reimbursed expenses. If such voluntary fee reductions
and expense reimbursements had not occurred, the ratios would have been as
indicated.
(a) Period from commencement of operations.
(b) On October 13, 1994, the Trust identified those Institutional shareholders
that were part of the Retail Class and transferred these shareholders into
the Institutional Class at the prevailing net asset value effective
October 14, 1994. The Financial Highlights presented for the Institutional
Class reflects operations and distributions for the period from October
14, 1994 through July 31, 1995.
(c) The Financial Highlights presented for the Retail Class reflects
operations and distributions for the Fund, as a whole, for the period from
August 1, 1994 through October 13, 1994 combined with the operations and
distributions of the Retail Class only for the period from October 14,
1994 through July 31, 1995.
(d) Represents total return for the Fund, as a whole, for the period from
August 1, 1994 through October 13, 1994 plus total return for the
Institutional Class for the period from October 14, 1994 through July 31,
1995.
(e) Annualized.
(f) Not annualized.
(g) Portfolio turnover is calculated on the basis of the Fund, as a whole,
without distinguishing between the classes of shares issued.
See notes to financial statements.
96
<PAGE> 273
PACIFIC CAPITAL FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SHORT INTERMEDIATE U.S. TREASURY SECURITIES FUND
-------------------------------------------------------------------------------------------
FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 13,
JULY 31, 1997 JULY 31, 1996 JULY 31, 1995 1993 TO
--------------------------- --------------------- ---------------------------- JULY 31,
RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL RETAIL (c) INSTITUTIONAL (b) 1994 (a)
--------------------------- ------ ------------- ---------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $ 9.41 $ 9.42 $ 9.60 $ 9.61 $ 9.52 $ 9.30 $10.00
------- ------- ------ ------- ------ ------- ------
Investment Activities
Net investment income... 0.49 0.52 0.48 0.53 0.52 0.44 0.24
Net realized and
unrealized gain (loss)
from investments....... 0.14 0.14 (0.11) (0.13) 0.05 0.31 (0.52)
------- ------- ------ ------- ------ ------- ------
Total from Investment
Activities............ 0.63 0.66 0.37 0.40 0.57 0.75 (0.28)
------- ------- ------ ------- ------ ------- ------
Distributions
Net investment income... (0.49) (0.52) (0.50) (0.53) (0.49) (0.44) (0.20)
In excess of net
investment income...... -- -- (0.04) (0.04) -- -- --
Net realized gains...... -- -- -- -- -- -- --
In excess of net
realized gains......... -- -- (0.02) (0.02) -- -- --
------- ------- ------ ------- ------ ------- ------
Total Distributions.... (0.49) (0.52) (0.56) (0.59) (0.49) (0.44) (0.20)
------- ------- ------ ------- ------ ------- ------
NET ASSET VALUE, END OF
PERIOD.................. $ 9.55 $ 9.56 $ 9.41 $ 9.42 $ 9.60 $ 9.61 $ 9.52
======= ======= ====== ======= ====== ======= ======
Total Return (excludes
sales charges).......... 6.92% 7.19% 3.90% 4.18% 6.28% 6.57%(d) (2.76%)(f)
ANNUALIZED RATIOS/
SUPPLEMENTARY DATA:
Net assets at end of
period (000)............ $618 $26,722 $1,156 $23,545 $489 $16,214 $3,419
Ratio of expenses to
average
net assets.............. 0.87% 0.62% 0.92% 0.67% 0.99% 0.75%(e) 1.00%(e)
Ratio of net investment
income
to average net assets... 5.22% 5.47% 5.14% 5.40% 5.51% 5.84%(e) 3.96%(e)
Ratio of expenses to
average
net assets*............. 1.62% 0.87% 1.67% 0.92% 1.78% 0.99%(e) 5.39%(e)
Ratio of net investment
income
to average net assets*.. 4.47% 5.22% 4.39% 5.15% 4.72% 5.61%(e) (0.43%)(e)
Portfolio Turnover (g)... 51.56% 51.56% 47.17% 47.17% 62.73% 62.73% 0.00%
</TABLE>
- --------
* During the period, certain fees were voluntarily reduced. In addition, the
investment adviser reimbursed expenses. If such voluntary fee reductions
and expense reimbursements had not occurred, the ratios would have been as
indicated.
(a) Period from commencement of operations.
(b) On October 13, 1994, the Trust identified those Institutional shareholders
that were part of the Retail Class and transferred these shareholders into
the Institutional Class at the prevailing net asset value effective
October 14, 1994. The Financial Highlights presented for the Institutional
Class reflects operations and distributions for the period from October
14, 1994 through July 31, 1995.
(c) The Financial Highlights presented for the Retail Class reflects
operations and distributions for the Fund, as a whole, for the period from
August 1, 1994 through October 13, 1994 combined with the operations and
distributions of the Retail Class only for the period from October 14,
1994 through July 31, 1995.
(d) Represents total return for the Fund, as a whole, for the period from
August 1, 1994 through October 13, 1994 plus total return for the
Institutional Class for the period from October 14, 1994 through July 31,
1995.
(e) Annualized.
(f) Not annualized.
(g) Portfolio turnover is calculated on the basis of the Fund, as a whole,
without distinguishing between the classes of shares issued.
See notes to financial statements.
97
<PAGE> 274
PACIFIC CAPITAL FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND
-----------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED OCTOBER 14, 1994 TO
JULY 31, 1997 JULY 31, 1996 JULY 31, 1995 (a)
----------------------- ---------------------- ------------------------
RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL
------- ------------- ------- ------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $12.32 $12.32 $11.44 $11.43 $10.00 $10.00
------- -------- ------- ------- ------ -------
Investment Activities
Net investment income.. 0.08 0.11 0.16 0.17 0.17 0.20
Net realized and
unrealized gain from
investments........... 5.57 5.58 1.19 1.21 1.44 1.42
------- -------- ------- ------- ------ -------
Total from Investment
Activities........... 5.65 5.69 1.35 1.38 1.61 1.62
------- -------- ------- ------- ------ -------
Distributions
Net investment income.. (0.08) (0.11) (0.15) (0.17) (0.17) (0.19)
In excess of net
investment income..... (0.01) -- (0.01) (0.01) -- --
Net realized gains..... (0.63) (0.63) (0.31) (0.31) -- --
------- -------- ------- ------- ------ -------
Total Distributions... (0.72) (0.74) (0.47) (0.49) (0.17) (0.19)
------- -------- ------- ------- ------ -------
NET ASSET VALUE, END OF
PERIOD................. $17.25 $17.27 $12.32 $12.32 $11.44 $11.43
======= ======== ======= ======= ====== =======
Total Return (excludes
sales charges)......... 47.59% 47.96% 11.96% 12.29% 16.35%(b) 16.41%(b)
ANNUALIZED RATIOS/
SUPPLEMENTARY DATA:
Net assets at end of
period (000)........... $3,726 $123,821 $1,160 $74,427 $328 $41,771
Ratio of expenses to
average net assets..... 1.32% 1.07% 1.37% 1.11% 1.40%(c) 1.14%(c)
Ratio of net investment
income to average net
assets................. 0.48% 0.79% 1.03% 1.43% 2.08%(c) 2.47%(c)
Ratio of expenses to
average net assets*.... 1.86% 1.12% 1.91% 1.15% 1.99%(c) 1.22%(c)
Ratio of net investment
income to average net
assets*................ (0.06)% 0.75% 0.49% 1.39% 1.49%(c) 2.39%(c)
Portfolio Turnover (d).. 74.83% 74.83% 80.83% 80.83% 12.78% 12.78%
Average Commission Rate
Paid (e)............... $0.0874 $0.0874 $0.0921 $0.0921
</TABLE>
- --------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund, as a whole,
without distinguishing between the classes of shares issued.
(e) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and
sold for which commissions were charged.
See notes to financial statements.
98
<PAGE> 275
PACIFIC CAPITAL FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
DIVERSIFIED FIXED INCOME FUND
--------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED OCTOBER 14, 1994 TO
JULY 31, 1997 JULY 31, 1996 JULY 31, 1995 (a)
--------------------------- --------------------- ------------------------
RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL
--------------------------- ------ ------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $10.45 $10.53 $10.75 $10.84 $10.00 $10.00
------- -------- ------ -------- ------ -------
Investment Activities
Net investment income... 0.57 0.60 0.59 0.58 0.49 0.55
Net realized and
unrealized gain from
investments............ 0.35 0.34 (0.19) (0.16) 0.74 0.78
------- -------- ------ -------- ------ -------
Total from Investment
Activities............ 0.92 0.94 0.40 0.42 1.23 1.33
------- -------- ------ -------- ------ -------
Distributions
Net investment income... (0.57) (0.60) (0.58) (0.61) (0.48) (0.49)
In excess of net
investment income...... -- -- (0.02) (0.02) -- --
In excess of net
realized gains......... (0.09) (0.09) (0.10) (0.10) -- --
------- -------- ------ -------- ------ -------
Total Distributions.... (0.66) (0.69) (0.70) (0.73) (0.48) (0.49)
------- -------- ------ -------- ------ -------
NET ASSET VALUE, END OF
PERIOD.................. $10.71 $10.78 $10.45 $10.53 $10.75 $10.84
======= ======== ====== ======== ====== =======
Total Return (excludes
sales charges).......... 9.20% 9.30% 3.69% 3.85% 12.66%(b) 13.70%(b)
ANNUALIZED RATIOS/
SUPPLEMENTARY DATA:
Net assets at end of
period (000)............ $1,103 $132,583 $1,093 $161,742 $27 $54,827
Ratio of expenses to
average net assets...... 1.15% 0.90% 1.15% 0.88% 1.18%(c) 0.93%(c)
Ratio of net investment
income
to average net assets... 5.44% 5.67% 5.31% 5.56% 6.25%(c) 6.71%(c)
Ratio of expenses to
average net assets*..... 1.69% 0.94% 1.69% 0.92% 1.77%(c) 1.01%(c)
Ratio of net investment
income
to average net assets*.. 4.90% 5.63% 4.77% 5.52% 5.66%(c) 6.63%(c)
Portfolio Turnover (d)... 80.98% 80.98% 58.86% 58.86% 60.47% 60.47%
</TABLE>
- --------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund, as a whole,
without distinguishing between the classes of shares issued.
See notes to financial statements.
99
<PAGE> 276
PACIFIC CAPITAL FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
TAX-FREE SECURITIES FUND
--------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED OCTOBER 14, 1994 TO
JULY 31, 1997 JULY 31, 1996 JULY 31, 1995 (a)
--------------------------- --------------------- ------------------------
RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL
--------------------------- ------ ------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $10.44 $10.46 $10.53 $10.56 $10.00 $10.00
------- -------- ------ -------- ------ --------
Investment Activities
Net investment income... 0.49 0.51 0.50 0.52 0.39 0.42
Net realized and
unrealized gain from
investments............ 0.46 0.46 0.07 0.07 0.50 0.51
------- -------- ------ -------- ------ --------
Total from Investment
Activities............ 0.95 0.97 0.57 0.59 0.89 0.93
------- -------- ------ -------- ------ --------
Distributions
Net investment income... (0.49) (0.51) (0.49) (0.52) (0.36) (0.37)
In excess of net
investment income...... -- -- (0.04) (0.04) -- --
Net realized gains...... (0.06) (0.06) (0.09) (0.09) -- --
In excess of net
realized gains......... -- -- (0.04) (0.04) -- --
------- -------- ------ -------- ------ --------
Total Distributions.... (0.55) (0.57) (0.66) (0.69) (0.36) (0.37)
------- -------- ------ -------- ------ --------
NET ASSET VALUE, END OF
PERIOD.................. $10.84 $10.86 $10.44 $10.46 $10.53 $10.56
======= ======== ====== ======== ====== ========
Total Return (excludes
sales charges).......... 9.35% 9.58% 5.54% 5.73% 9.06%(b) 9.54%(b)
ANNUALIZED RATIOS/
SUPPLEMENTARY DATA:
Net assets at end of
period (000)............ $2,545 $296,764 $569 $288,934 $563 $281,646
Ratio of expenses to
average net assets...... 1.12% 0.87% 1.14% 0.89% 1.15%(c) 0.89%(c)
Ratio of net investment
income
to average net assets... 4.60% 4.86% 4.66% 4.92% 4.93%(c) 5.16%(c)
Ratio of expenses to
average net assets*..... 1.66% 0.91% 1.68% 0.93% 1.74%(c) 0.98%(c)
Ratio of net investment
income
to average net assets*.. 4.06% 4.82% 4.12% 4.88% 4.34%(c) 5.07%(c)
Portfolio Turnover (d)... 11.07% 11.07% 24.78% 24.78% 49.17% 49.17%
</TABLE>
- --------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund, as a whole,
without distinguishing between the classes of shares issued.
See notes to financial statements.
100
<PAGE> 277
PACIFIC CAPITAL FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
TAX-FREE SHORT INTERMEDIATE SECURITIES FUND
--------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED OCTOBER 14, 1994 TO
JULY 31, 1997 JULY 31, 1996 JULY 31, 1995 (a)
--------------------------- --------------------- ------------------------
RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL
--------------------------- ------ ------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $10.05 $10.08 $10.11 $10.14 $10.00 $10.00
------- ------- ------ ------- ------ -------
Investment Activities
Net investment income... 0.37 0.39 0.37 0.40 0.30 0.32
Net realized and
unrealized gain from
investments............ 0.13 0.14 (0.03) (0.03) 0.08 0.11
------- ------- ------ ------- ------ -------
Total from Investment
Activities............ 0.50 0.53 0.34 0.37 0.38 0.43
------- ------- ------ ------- ------ -------
Distributions
Net investment income... (0.37) (0.39) (0.37) (0.40) (0.27) (0.29)
In excess of net
investment income...... -- -- (0.03) (0.03) -- --
Net realized gains...... (0.01) (0.01) -- -- -- --
------- ------- ------ ------- ------ -------
Total Distributions.... (0.38) (0.40) (0.40) (0.43) (0.27) (0.29)
------- ------- ------ ------- ------ -------
NET ASSET VALUE, END OF
PERIOD.................. $10.17 $10.21 $10.05 $10.08 $10.11 $10.14
======= ======= ====== ======= ====== =======
Total Return (excludes
sales charges).......... 5.06% 5.36% 3.41% 3.67% 3.90%(b) 4.36%(b)
ANNUALIZED RATIOS/
SUPPLEMENTARY DATA:
Net assets at end of
period (000)............ $724 $37,410 $451 $39,472 $308 $39,993
Ratio of expenses to
average net assets...... 1.09% 0.84% 1.08% 0.83% 1.05%(c) 0.85%(c)
Ratio of net investment
income
to average net assets... 3.57% 3.82% 3.64% 3.90% 3.82%(c) 4.03%(c)
Ratio of expenses to
average net assets*..... 1.64% 0.89% 1.63% 0.88% 1.64%(c) 0.94%(c)
Ratio of net investment
income
to average net assets*.. 3.02% 3.77% 3.09% 3.85% 3.23%(c) 3.94%(c)
Portfolio Turnover (d)... 29.46% 29.46% 54.70% 54.70% 89.98% 89.98%
</TABLE>
- --------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund, as a whole,
without distinguishing between the classes of shares issued.
See notes to financial statements.
101
<PAGE> 278
PACIFIC CAPITAL FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
NEW ASIA GROWTH FUND
-------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED FEBRUARY 15, 1995 TO
JULY 31, 1997 JULY 31, 1996 JULY 31, 1995(a)
----------------------- ----------------------- -------------------------
RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL
------- ------------- ------- ------------- ------ -------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $11.11 $11.14 $11.21 $11.22 $10.00 $10.00
------- ------- ------- ------- ------ ------
Investment Activities
Net investment income
(loss)................ 0.03 0.06 (0.02) (0.01) 0.02 0.04
Net realized and
unrealized gain from
investments........... 2.88 2.87 0.20 0.22 1.19 1.18
------- ------- ------- ------- ------ ------
Total from Investment
Activities........... 2.91 2.93 0.18 0.21 1.21 1.22
------- ------- ------- ------- ------ ------
Distributions
Net investment income.. (0.01) (0.01) -- -- -- --
In excess of net
investment income..... -- -- 0.02 0.03 -- --
Net realized gains..... (0.12) (0.12) (0.26) (0.26) -- --
------- ------- ------- ------- ------ ------
Total Distributions... (0.13) (0.13) (0.28) (0.29) -- --
------- ------- ------- ------- ------ ------
NET ASSET VALUE, END OF
PERIOD................. $13.89 $13.94 $11.11 $11.14 $11.21 $11.22
======= ======= ======= ======= ====== ======
Total Return (excludes
sales charges)......... 26.31% 26.50% 1.71% 1.99% 12.10%(b) 12.20%(b)
ANNUALIZED RATIOS/
SUPPLEMENTARY DATA:
Net assets at end of
period (000)........... $3,459 $18,376 $1,990 $8,469 $330 $2,861
Ratio of expenses to
average net assets..... 1.98% 1.72% 2.22% 1.98% 2.24%(c) 1.97%(c)
Ratio of net investment
income (loss)
to average net assets.. 0.20% 0.46% (0.28%) (0.02%) 0.80%(c) 1.18%(c)
Ratio of expenses to
average net assets*.... 2.58% 1.82% 3.58% 2.84% 3.51%(c) 2.74%(c)
Ratio of net investment
income (loss)
to average net assets*. (0.40%) 0.36% (1.64%) (0.88%) (0.47%)(c) 0.42%(c)
Portfolio Turnover (d).. 134.89% 134.89% 86.53% 86.53% 55.62% 55.62%
Average Commission Rate
Paid (e)............... $0.0059 $0.0059 $0.0069 $0.0069 -- --
</TABLE>
- --------
* During the period, certain fees were voluntarily reduced. If such voluntary
fee reductions had not occurred, the ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund, as a whole,
without distinguishing between the classes of shares issued.
(e) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of portfolio shares purchased and
sold for which commissions were charged.
See notes to financial statements.
102
<PAGE> 279
APPENDIX A
RATINGS OF FIXED INCOME SECURITIES
The following is a description of the ratings given by
Moody's Investor Service, Inc. ("Moody's"), Duff & Phelps, Inc. ("D&P"), Fitch
Investor Service ("Fitch"), Standard & Poor's Corporation ("S&P"), IBCA Limited
("IBCA") and Thompson Bank Watch ("Thompson"), each an NRSRO, to corporate
bonds and commercial paper.
Corporate Bond Ratings
Moody's:
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-edged." 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 as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds rated Aa are judged to be of 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 there may be other elements
present which make the long term risk 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 as 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 as 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 longer period of time may
be small.
A-1
<PAGE> 280
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 which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
C - Bonds which are rated C are the lowest rated class of
bonds, and issues so rated can be regarded as having extremely poor prospects
of ever attaining any real investment standing.
Note: Moody's may apply numerical modifiers 1, 2 and 3 in each generic
rating classification from Aa through B in its corporate bond rating system.
The modifier 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.
S&P:
AAA - This is the highest rating assigned by Standard &
Poor's to a debt obligation and indicates an extremely strong capacity to pay
principal and interest.
AA - Bonds rated AA also qualify as high-quality debt
obligations. Capacity to pay principal and interest is very strong, and in the
majority of instances they differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and
interest, although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher rated
categories.
BBB - Bonds rated BBB are regarded as having an adequate
capability to pay principal and interest. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay principal
and interest for bonds in this category than for bonds in higher rated
categories.
BB - Bonds rated BB have less near-term vulnerability to
default than other speculative issues. However, they face 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.
B - Bonds rated B have a greater vulnerability to default but
currently have 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.
CCC - Bonds rated CCC have a currently identifiable
vulnerability to default and are 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,
they are not likely to have the capacity to pay interest and repay principal.
A-2
<PAGE> 281
CC - The rating CC is typically applied to debt subordinated
to senior debt which is assigned an actual or implied CCC 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 default. The D rating is assigned on
the day an interest or principal payment is missed. The D rating also will be
used upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or minus (-): 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 ratings categories.
Provisional ratings: The letter "p" indicates that the rating is
provisional. A provisional rating assumes the successful completion of the
project being financed by the debt being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion of the project, makes no comment on the
likelihood or risk of default upon failure of such completion. The investor
should exercise judgment with respect to such likelihood and risk.
L - The letter "L" indicates that the rating pertains to the
principal amount of those bonds to the extent that the underlying deposit
collateral is insured by the Federal Savings & Loan Insurance Corp. or the
Federal Deposit Insurance Corp. and interest is adequately collateralized.
* - Continuance of the rating is contingent upon Standard &
Poor's receipt of an executed copy of the escrow agreement or closing
documentation confirming investments and cash flows.
NR - Indicates that no rating has been requested, that there
is insufficient information on which to base a rating or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.
Debt Obligations of Issuers outside the United States and its
territories are rated on the same basis as domestic corporate and municipal
issues. The ratings measure the creditworthiness of the obligor but do not take
into account currency exchange and related uncertainties.
D&P:
AAA - Bonds rated AAA are judged to be of highest credit
quality and carry the smallest amount of investment risk.
A-3
<PAGE> 282
AA - Bonds rated AA are of high credit quality, but modest
risk may vary over time due to economic conditions.
A - Bonds rated A have average but adequate protection, but
risk is more variable and greater in periods of economic stress.
BBB - Bonds rated BBB offer below average protection which is
still considered sufficient for prudent investment.
The ratings from AA to BBB may be modified by the addition of
a plus or minus sign to show a security's relative standing within its
category.
Fitch:
AAA - Bonds rated AAA are 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 rated AA are 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 rated A are 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 - Bonds rated BBB are considered to be investment grade
and of satisfactory credit quality. The obligor's ability to pay interest and
repay principal is considered to be adequate. Adverse changes in economic
conditions and circumstances, however, are more likely to have adverse impact
on these bonds, and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher than for
bonds with higher ratings.
BB - Bonds rated BB are considered speculative. The obligor's
ability to pay interest and repay principal may be affected over time by
adverse economic changes. However, business and financial alternatives can be
identified which could assist the obligor in satisfying its debt service
requirements.
B - Bonds rated B are considered highly speculative. While
bonds in this class are currently meeting debt service requirements, the
probability of continued timely payment of principal and interest reflects the
obligor's limited margin of safety and the need for reasonable business and
economic activity throughout the life of the issue.
CCC - Bonds rated CCC have certain identifiable
characteristics which, if not remedied, may lead to default. The ability to
meet obligations requires an advantageous business and economic environment.
A-4
<PAGE> 283
CC - Bonds rated CC are minimally protected. Default in
payment of interest and/or principal seems probable over time.
C - Bonds rated C are in imminent default in payment of
interest or principal.
DDD-DD- and D - Bonds are in default on interest and/or
principal payments. Such bonds are extremely speculative and should be valued
on the basis of their ultimate recovery value in liquidation or reorganization
of the obligor. "DDD" represents the highest potential for recovery on these
bonds, and "D" represents the lowest potential for recovery.
Thomson:
Thomson rates only bank debt.
AAA - Bonds rated AAA have a very high ability to pay interest and
principal on a timely basis.
AA - Bonds rated AA have a superior ability to pay interest
and repay principal with limited incremental risk versus AAA bonds.
A - Bonds rated A have a strong ability to repay principal
and interest, but could be more vulnerable to adverse internal and external
developments.
BBB - Bonds rated BBB have an acceptable capacity to pay
interest and repay principal and are more vulnerable to risk than higher-rated
obligations.
BB, B, CCC, and CC, designations are assigned by Thomson to
non-investment grade long-term debt. Such issues are regarded as having
speculative characteristics regarding the likelihood of timely payment of
principal and interest. BB indicates the lowest degree of speculation and CC
the highest degree of speculation. The D designation indicates that the
long-term debt is in default.
The ratings from AAA through CC may include a plus or minus
sign designation which indicates where within the respective category the issue
is placed.
IBCA:
AAA - Bonds rated AAA have the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial, such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA - Bonds rated AA have 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-5
<PAGE> 284
A - Bonds rated A have 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 - Bonds rated BBB have a low expectation of investment
risk. Capacity for timely repayment of principal and interest is adequate,
although adverse changes in business, economic or financial conditions are more
likely to lead to increased investment risk than for obligations in higher
categories.
BB, B, CCC, CC, and C Bonds are speculative. 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 a relative status within major rating categories.
CORPORATE COMMERCIAL PAPER RATINGS
MOODY'S:
The term "commercial paper" as used by Moody's means
promissory obligations not having an original maturity in excess of nine
months. Moody's makes no representations as to whether such commercial paper
is by any other definition "commercial paper" or is exempt from registration
under the Securities Act of 1933, as amended.
Moody's commercial paper ratings are opinions of the ability
of issuers to repay punctually promissory obligations not having an original
maturity in excess of nine months. Moody's makes no representation that such
obligations are exempt from registration under the Securities Act of 1933, nor
does it represent that any specific note is a valid obligation of a rated
issuer or issued in conformity with any applicable law. Moody's employs the
following three designations, all judged to be investment grade, to indicate
the relative repayment capacity of rated issuers:
P-1 (Prime-1) - Issuers rated P-1 have a superior capacity
for repayment of short-term promissory obligations. P-1 repayment capacity will
normally be evidenced by the following characteristics:
- Leading market positions in well established
industries
- High rates of return on funds employed
- Conservative capitalization structures with
moderate reliance on debt and ample asset
protection
- Broad margins in earnings coverage of fixed
financial charges and high internal cash
generation
- Well established access to a range of financial
markets and assured sources of alternate
liquidity.
A-6
<PAGE> 285
P-2 (Prime-2) - Issuers rated P-2 have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be subject to more variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
P-3 (Prime-3) - Issuers rated P-3 have an acceptable capacity
for repayment of short-term promissory obligations. The effect of industry
characteristics and market composition may be more pronounced. Variability in
earnings and profitability may result in changes in level of debt protection
measurements and the requirement for relatively high financial leverage.
Adequate alternate liquidity is maintained.
Issuers rated Not Prime do not fall within any of the Prime
rating categories.
If an issuer represents to Moody's that its commercial paper
obligations are supported by the credit of another entity or entities, then the
name or names of such supporting entity or entities are listed within
parentheses beneath the name of the issuer, or there is a footnote referring
the reader to another page for the name or names of the supporting entity or
entities. In assigning ratings to such issuers, Moody's evaluates the financial
strength of the indicated affiliated corporations, commercial banks, insurance
companies, foreign governments or other entities, but only as one factor in the
total rating assessment. Moody's makes no representation and gives no opinion
on the legal validity or enforceability of any support arrangement. You are
cautioned to review with your counsel any questions regarding particular
support arrangements.
S&P:
A Standard & Poor's commercial paper rating is a current
assessment of the likelihood of timely payment of debt having an original
maturity of no more than 365 days. Ratings are graded into four categories,
ranging from "A" for the highest quality obligations to "D" for the lowest. The
four categories are as follows:
A - Issues rated A are regarded as having the greatest
capacity for timely payment. Bonds in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1 - Issues rated A-1 indicates that the degree of safety
regarding timely payment is either overwhelming or very strong. Commercial
paper with overwhelming safety characteristics will be rated A-1+.
A-2 - Issues rated A-2 have a strong capacity for timely
payments on issues. However, the relative degree of safety is not as high as
for issues designated "A-1."
A-3 - Issues rated A-3 have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
A-7
<PAGE> 286
B - Issues rated B are regarded as having only adequate
capacity for timely payment. However, such capacity may be damaged by changing
conditions or short-term adversities.
C - Issues rated C are short-term debt obligations with a
doubtful capacity for payment.
D - This rating indicates that the issue is either in default
or is expected to be in default upon maturity.
D&P:
Duff 1+ - The Duff 1+ rating for corporate commercial paper
indicates the highest certainty of timely payment. Corporate commercial paper
with very high certainty of payment, excellent liquidity and minor risk will be
rated Duff 1. Corporate commercial paper with high certainty of timely payment,
strong liquidity and very small risk will be rated Duff 1- .
Duff 2 - The Duff 2 rating for corporate commercial paper
indicates good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital market is good. Risk factors are
small.
FITCH:
F-1 - The highest rating for corporate paper is F-1+. Issuers
so rated have exceptionally strong credit quality. Issuers rated F-1 have very
strong credit quality, reflecting assurance of timely payment only slightly
less in degree than F-1+ issues.
F-2 - Issuers rated F-2 have good credit quality and
satisfactory degree of assurance of timely payment, reflecting the obligor's
limited margin of safety and the need for reasonable business and economic
activity throughout the life of the issue.
THOMSON:
TBW-1 - The TBW-1 rating reflects a very high degree of
likelihood that principal and interest will be timely repaid and paid.
TBW-2 - Bank commercial paper rated TBW-2 has a strong degree
of safety regarding payment.
TBW-3 - Bank commercial paper rated TBW-3 is the lowest
investment grade category, reflecting an adequate capacity to timely service
principal and interest but more exposure to adverse internal and external
developments than higher-rated issues.
TBW-4 - Bank commercial paper rated TBW-4 indicates that the
debt is regarded as non-investment grade and therefore speculative.
A-8
<PAGE> 287
CORPORATE NOTE RATINGS
S&P:
The two highest ratings for corporate notes are SP-1 and
SP-2.
SP-1 - Notes rated SP-1 reflect a very strong or strong
capacity to pay principal and interest. Note issues with overwhelming safety
characteristics will be rated SP-1+.
SP-2 - Notes rated SP-2 reflect a satisfactory capacity to
pay principal and interest.
A-9
<PAGE> 288
APPENDIX B
OPTIONS AND FUTURES
The following instruments may be used by a Fund for hedging purposes or to
enhance income to the extent described in the applicable Prospectus and this
Statement of Additional Information.
Options on Equity and Debt Securities -- A call option is a short-term contract
pursuant to which the purchaser of the option, in return for a premium, has the
right to buy the security or currency underlying the option at a specified
price at any time during the term of the option. The writer of the call option,
who receives the premium, has the obligation, upon exercise of the option
during the option term, to deliver the underlying security or currency against
payment of the exercise price. A put option is a similar contact that gives its
purchaser, in return for a premium, the right to sell the underlying security
or currency at a specified price during the option term. The writer of the put
option, who receives the premium, has the obligation, upon exercise of the
option during the option term, to buy the underlying security or currency at
the exercise price.
Options on Securities Indexes -- A securities index assigns relative values to
the securities included in the index and fluctuates with changes in the market
values of those securities. A securities index option operates in the same way
as a more traditional stock option, except that exercise of a securities index
option is effected with cash payment and does not involve delivery of
securities. Thus, upon exercise of a securities index option, the purchaser
will realize, and the writer will pay, an amount based on the difference
between the exercise price and the closing price of the securities index.
Stock Index Futures Contracts -- A stock index futures contract is a bilateral
agreement pursuant to which one party agrees to accept, and the other party
agrees to make, delivery of an amount of cash equal to a specified dollar
amount times the difference between the stock index value at the close of
trading of the contract and the price at which the futures contract is
originally struck. No physical delivery of the stocks comprising the index is
made. Generally, contracts are closed out prior to the expiration date of the
contract.
Interest Rate Futures Contracts -- Interest rate futures contracts are
bilateral agreements pursuant to which one party agrees to make, and the other
party agrees to accept, delivery of a specified type of debt security at a
specified future time and at a specified price. Although such futures contracts
by their terms call for actual delivery or acceptance of debt securities, in
most cases, the contracts are closed out before the settlement date without the
making or taking of delivery.
Options on Future Contracts -- Put and call options on futures contracts will,
respectively, give a Fund the right (but not the obligation), for a specified
price, to sell or to purchase the underlying futures contract, upon exercise of
the option, at any time during the option period.
Forward Contracts on Foreign Currencies -- A forward contract on a foreign
currency is an obligation to purchase or sell a specific currency at a future
date, which may be any number of days agreed upon by the parties from the date
of the contract at a price set on the date of the contract.
B-1
<PAGE> 289
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits.
(a) (1) Included in the Prospectuses (Part A) for Growth Stock
Fund, U.S. Treasury Securities Fund, and Short-
Intermediate U.S. Treasury Securities Fund:
Financial Highlights (selected per share data and
ratios) for the fiscal period from commencement of
operations through July 31, 1994 and for the fiscal
years ended July 31, 1995, 1996 and 1997.
(2) Included in the Prospectuses (Part A) for Diversified
Fixed Income Fund, Growth and Income Fund, New Asia
Growth Fund, Tax-Free Securities Fund and Tax-Free
Short Intermediate Securities Fund:
Financial Highlights (selected per share data and
ratios) for the fiscal period from commencement of
operations through July 31, 1995 and for the fiscal
year ended July 31, 1996 and 1997.
(3) Included in the Statement of Additional Information
(Part B) for Growth Stock Fund, U.S. Treasury
Securities Fund and Short-Intermediate U.S. Treasury
Securities Fund:
Audited Financial Statements:
Schedule of Portfolio Investments as of July 31,
1997.
Statement of Assets and Liabilities as of July
31, 1997.
Statement of Operations for the year ended July
31, 1997.
Statement of Changes in Net Assets for the years
ended July 31, 1996 and 1997.
Financial Highlights for the period from
commencement of operations through July 31, 1994
and for the years ended July 31, 1995, 1996 and
1997.
(4) Included in the Statement of Additional Information
(Part B) for Diversified Fixed Income Fund, Growth and
Income Fund, New Asia Growth Fund, Tax-Free Securities
Fund and Tax Free Short Intermediate Securities Fund:
<PAGE> 290
Audited Financial Statements:
Schedule of Portfolio Investments as of July 31,
1997.
Statement of Assets and Liabilities as of July
31, 1997.
Statement of Operations for the year ended July
31, 1997.
Statement of Changes in Net Assets for the years
ended July 31, 1996 and 1997.
Financial Highlights for the period from
commencement of operations through July 31, 1995
and for the years ended July 31, 1996 and 1997.
(b) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
1(a)* - Declaration of Trust
(b)o - Amendment No. 1 to Declaration of Trust
(c)++ - Amendment No. 2 to Declaration of Trust
2* - By-Laws
3 - Not applicable
4 - Instruments Defining Rights of Shareholders
(Incorporated by reference to Exhibits 1 and 2
above.)
5(a)** - Investment Advisory Agreement between Hawaiian
Trust Company, Limited and the Registrant, dated
as of October 29, 1993 ("Investment Advisory
Agreement")
(b)+ - Addendum and Amended Schedule A to Investment
Advisory Agreement
(c) - Sub-Advisory Agreement between Pacific Century
Trust and Nicholas-Applegate Capital Management
(Hong Kong) LLC
6(a)** - Distribution Agreement between BISYS Fund
Services (formerly, The Winsbury Company
</TABLE>
C-2
<PAGE> 291
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
Limited Partnership) and the Registrant, dated as
of October 29, 1993 ("Distribution Agreement")
(b)o - Amended Schedules A and B to Distribution
Agreement
(c)*** - Form of Selling Agreement
(d) - Amended Distribution Agreement between BISYS
Fund Services (formerly, The Winsbury Company
Limited Partnership) and the Registrant, dated as
of October 29, 1993 as amended through September
26, 1997
7 - Not applicable
8(a)++ - Form of Custodian Agreement between Bank One
Trust Company, N.A. and the Registrant, on
behalf of Balanced Fund, Diversified Fixed
Income Fund, Growth and Income Fund, Growth
Stock Fund, Short Intermediate U.S. Treasury
Fund, Tax-Free Securities Fund, Tax-Free Short
Intermediate Securities Fund and U.S. Treasury
Securities Fund (the "Custodian Agreement")
(b)ooo - Custodian Agreement between Union Bank of
California and Hawaiian Trust Company, Limited, on
behalf of New Asia Growth Fund.
9(a)** - Administration Agreement between BISYS Fund
Services (formerly The Winsbury Company Limited
Partnership) and the Registrant, dated as of
October 29, 1993 ("Administration Agreement")
(b)o - Amended Schedule A to Administration Agreement
(c)** - Transfer Agency Agreement between Administrative
Data Management Corporation and the Registrant,
dated as of August 17, 1993 ("Transfer Agency
Agreement")
(d)o - Amended Appendix E to Transfer Agency Agreement
(e)** - Fund Accounting Agreement between BISYS Fund
Services (formerly, The Winsbury Service
Corporation) and the Registrant, dated as of
</TABLE>
C-3
<PAGE> 292
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
October 29, 1993 ("Fund Accounting Agreement")
(f)o - Amended Schedule A to the Fund Accounting
Agreement
10(a)** - Opinion and Consent of Counsel
10(b) - 24e-2 Opinion and Consent of Counsel
11 - Consent of Independent Auditors
12 - Not Applicable
13** - Form of Investment Letter
14 - Not Applicable
15(a) - Class A Distribution and Shareholder Service
Plan between the Registrant and BISYS Fund
Services (formerly, The Winsbury Company), dated
as of October 29, 1993
(b)o - Amended Appendix A to the Distribution and
Shareholder Service Plan
(c) - Class B Distribution and Shareholder Service
Plan between the Registrant and BISYS Fund
Services (formerly, The Winsbury Company), dated
as of September 26, 1997
16(a)oo - Schedule of computation of each performance
quotation provided in the Registration Statement
in response to Item 22 (relating to Class A Shares
of Pacific Capital Growth Stock Fund, Growth and
Income Fund, Diversified Fixed Income Fund, U.S.
Treasury Securities Fund, Short-Intermediate U.S.
Treasury Fund, Tax-Free Securities Fund and
Tax-Free Short-Intermediate Securities Fund).
(b)oo - Schedule of computation of each performance
quotation provided in the Registration Statement
in response to Item 22 (relating to Class Y Shares
of Pacific Capital Growth Stock Fund, Growth and
Income Fund, Diversified Fixed Income Fund, U.S.
Treasury Securities Fund, Short-Intermediate U.S.
Treasury Fund, Tax-Free Securities Fund and
Tax-Free Short-Intermediate Securities Fund).
</TABLE>
C-4
<PAGE> 293
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
16(c)ooo - Schedule of computation of each performance
quotation provided in the Registration Statement
in response to Item 22 (relating to Class A and
Class Y Shares of New Asia Growth Fund).
17(a) Financial Data Schedule for Diversified Fixed
Income Fund -- Class A
(b) Financial Data Schedule for Diversified Fixed
Income Fund -- Class Y
(c) Financial Data Schedule for Growth and Income Fund
-- Class A
(d) Financial Data Schedule for Growth and Income Fund
-- Class Y
(e) Financial Data Schedule for Growth Stock Fund --
Class A
(f) Financial Data Schedule for Growth Stock Fund --
Class Y
(g) Financial Data Schedule for New Asia Growth Fund
-- Class A
(h) Financial Data Schedule for New Asia Growth Fund
-- Class Y
(i) Financial Data Schedule for Short Intermediate
U.S. Treasury Securities Fund -- Class A
(j) Financial Data Schedule for Short Intermediate
U.S. Treasury Securities Fund -- Class Y
(k) Financial Data Schedule for Tax-Free Securities
Fund -- Class A
(l) Financial Data Schedule for Tax-Free Securities
Fund -- Class Y
(m) Financial Data Schedule for Tax-Free Short
Intermediate Securities Fund -- Class A
(n) Financial Data Schedule for Tax-Free Short
Intermediate Securities Fund -- Class Y
(o) Financial Data Schedule for U.S. Treasury
Securities Fund -- Class A
</TABLE>
C-5
<PAGE> 294
<TABLE>
<S> <C>
(p) Financial Data Schedule for U.S. Treasury
Securities Fund -- Class Y
18 Not applicable
19[] Other Exhibits
o Power of Attorney
For Trustees and certain Officers:
Irimga McKay
Deborah G. Patterson
Douglas Philpotts
Richard W. Gushman, II
Stanley W. Hong
Russell G. Okata
Oswald K. Stender
Craig Warren
</TABLE>
- ----------------------------------
* Refiled electronically herein. Initially filed as an exhibit to
Registrant's Registration Statement on Form N-1A (File No. 33-57684),
filed on January 29, 1993.
** Refiled electronically herein. Initially filed as an exhibit to
Post-Effective Amendment No. 1 to Registrant's Registration Statement on
Form N-1A, filed on February 28, 1994.
*** Refiled electronically herein. Initially filed as an exhibit to
Pre-Effective Amendment No. 1 to Registrant's Registration Statement on
Form N-1A, filed on July 8, 1993.
+ Refiled electronically herein. Initially filed as an exhibit to
Post-Effective Amendment No. 2 to Registrant's Registration Statement on
Form N-14, filed on October 21, 1994.
++ Refiled electronically herein. Initially filed as an exhibit to
Post-Effective Amendment No. 4 to Registrant's Registration Statement on
Form N-1A, filed on December 28, 1994.
o Refiled electronically herein. Initially filed as an exhibit to
Post-Effective Amendment No. 5 to Registrant's Registration Statement on
Form N-1A, filed on April 7, 1995.
oo Refiled electronically herein. Initially filed as an exhibit to
Post-Effective Amendment No. 5 and Post-Effective Amendment No. 6 to
Registrant's Registration Statement on Form N-1A, filed on April 7, 1995
and July 14, 1995, respectively.
ooo Refiled electronically herein. Initially filed as an exhibit to
Post-Effective Amendment No. 6 to Registrant's Registration Statement on
Form N-1A, filed on July 14, 1995.
+ Refiled electronically herein. Initially filed as an exhibit to
+ Post-Effective Amendment No. 7 to Registrant's Registration Statement on
Form N-1A, filed on November 2, 1995.
[] Incorporated by reference to identically numbered Exhibit to
Post-Effective Amendment No. 8 to the Registrant's Registration
Statement on Form N-1A, filed on November 29, 1996.
C-6
<PAGE> 295
Item 25 Persons Controlled by or under Common Control with Registrant.
No person is controlled by or under common control with Registrant.
Item 26. Number of Holders of Securities.
As of September 11, 1997 the number of record holders of each class of
securities of the Registrant was as follows:
Fund Number of Record Holders
---- ------------------------
Balanced Fund
Retail Class 0
Institutional Class 0
Diversified Fixed Income Fund
Retail Class 5
Institutional Class 13
Growth and Income Fund
Retail Class 19
Institutional Class 15
Growth Stock Fund
Retail Class 60
Institutional Class 16
New Asia Growth Fund
Retail Class 25
Institutional Class 7
Short Intermediate U.S.
Treasury Securities Fund
Retail Class 7
Institutional Class 7
Tax-Free Securities Fund
Retail Class 12
Institutional Class 13
Tax-Free Short Intermediate
Securities Fund
Retail Class 8
Institutional Class 9
U.S. Treasury Securities Fund
Retail Class 10
Institutional Class 4
C-7
<PAGE> 296
Item 27. Indemnification.
Section 5.3 of Article V of the Registrant's Declaration of Trust
provides:
(a) Subject to the exceptions and limitations contained in
paragraph (b) below:
(i) The Trustees shall provide for indemnification by the Trust
(or by the appropriate Series thereof) to the fullest extent permitted
by law of every person who is, or has been, a Trustee or officer of
the Trust or any Series of the Trust against all liability and against
all expenses reasonably incurred or paid by him in connection with any
claim, action, suit or proceeding in which he becomes involved as a
party or otherwise by virtue of his being or having been a Trustee or
officer of the Trust or of any Series and against amounts paid or
incurred by him in the settlement thereof;
(ii) The words "claim," "action," "suit," or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil, criminal,
or other, including appeals), actual or threatened; and the words
"liability" and "expenses" shall include, without limitation,
attorneys' fees, costs, judgements, amounts paid in settlement, fines,
penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Trustee
or Officer:
(i) against any liability to the Trust or the Shareholders by
reason of a final adjudication by the court or other body before which
the proceeding was brought that he engaged in willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved
in the conduct of his office;
(ii) with respect to any matter as to which he shall have been
finally adjudicated not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Trust;
(iii) in the event of a settlement or other disposition not
involving a final adjudication as provided in paragraph (b)(i)
resulting in a payment by a Trustee or officer, unless there has been
a determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office:
(A) by the court or other body approving the settlement or
other disposition; or
(B) based upon a review of readily available facts (as
opposed to a full trial-type inquiry) by (x) vote of a majority of the
Disinterested Trustees acting on the matter (provided that a majority
of the Disinterested Trustees then in office act on the matter) or (y)
written opinion of independent legal counsel.
(C) The rights of indemnification herein provided may be
insured against by policies maintained by the Trust, shall be
severable, shall not affect any other rights to which any Trustee or
officer may now or hereafter be entitled, shall continue as to a
person who has ceased to be such Trustee or officer and shall inure to
the benefit of the heirs, executors, administrators and assigns of
such a person. Nothing contained
C-8
<PAGE> 297
herein shall affect any rights to indemnification to which personnel
of the Trust other than Trustees and officers may be entitled by
contract or otherwise under law.
(D) Expenses of preparation and presentation of a defense
to any claim, action, suit or proceeding of the character described in
paragraph (a) of this Section 5.3 may be advanced by the Trust prior
to final disposition thereof upon receipt of any undertaking by or on
behalf of the recipient to repay such amount if it is ultimately
determined that he is not entitled to indemnification under this
Section 5.3, provided that either:
(i) such undertaking is secured by a surety bond or
some other appropriate security provided by the recipient,
or the Trust shall be insured against losses arising out of
any such advances; or
(ii) a majority of the Disinterested Trustees acting
on the matter (provided that a majority of the
Disinterested Trustees act on the matter) or an independent
legal counsel in a written opinion shall determine, based
upon a review of readily available facts (as opposed to a
full trial-type inquiry), that there is reason to believe
that the recipient ultimately will be found entitled to
indemnification.
As used in this Section 5.3, a "Disinterested Trustee"
is one who is neither (i) an "Interested Person" of the
Trust (including anyone who has been exempted from being an
"Interested Person" by any rule, regulation or order of the
Commission), as defined in the 1940 Act, nor (ii) involved
in the claim, action, suit or proceeding.
Item 28. Business and Other Connections of Investment Adviser and Sub-Adviser.
a. Investment Adviser. Pacific Century Trust serves as investment
adviser to all of the Registrant's investment portfolios.
To the knowledge of Registrant, none of the trustees or executive
officers of Pacific Century Trust, except those set forth below, is or has been
at any time during the past two fiscal years engaged in any other business,
profession, vocation or employment of a substantial nature. Set forth below are
the names and principal businesses of the directors and executive officers of
Pacific Century Trust, who are or during the past two fiscal years have been
engaged in any other business, profession, vocation or employment of a
substantial nature for their own account or in the capacity of director,
officer, employee, partner or trustee.
<TABLE>
<S> <C> <C>
========================================================================================================
Principal Business(es) During at Least
Name Position(s) the Last Two Fiscal Years
- --------------------------------------------------------------------------------------------------------
William E. Aull Director President, Hawaii Pacific University
Owner/Manager, various Australian
cattle/sheep ranches.
- --------------------------------------------------------------------------------------------------------
Herbert M. Richards, Jr. Director President and Manager, Kahua Ranch,
Ltd.
- --------------------------------------------------------------------------------------------------------
K. Tim Yee Director President and Chief Executive Officer
Queen Emmu Foundation
</TABLE>
C-9
<PAGE> 298
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------
Frank McGee Senior Vice Riggs National Bank
President
- --------------------------------------------------------------------------------------------------------
</TABLE>
b. Sub-Adviser. Nicholas-Applegate Management (Hong Kong) LLC
("Nicholas- Applegate") serves as sub-adviser to New Asia Growth Fund.
To the knowledge of Registrant, none of the trustees or executive
officers of Nicholas-Applegate, except those set forth below, is or has been at
any time during the past two fiscal years engaged in any other business,
profession, vocation or employment of a substantial nature. Set forth below are
the names and principal businesses of the directors and executive officers of
Nicholas-Applegate who are or during the past two fiscal years have been
engaged in any other business, profession, vocation or employment of a
substantial nature for their own account or in the capacity of director,
officer, employee, partner or trustee.
<TABLE>
<CAPTION>
========================================================================================================
Principal Business(es) During at Least
Name Position(s) the Last Two Fiscal Years
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Ghassan Alain Director Member of the General Management
Hugues Hindie Committee of Credit Lyonnais S.A.;
Head of Asset Management and
Investor Relations Division
- --------------------------------------------------------------------------------------------------------
Thomas Douglas Tremayne Director Managing Director of CLIAM (HK),
Waring Ltd.
- --------------------------------------------------------------------------------------------------------
David Peter Wong Director Group Finance Director of CLIAM
(HK), Ltd.
- --------------------------------------------------------------------------------------------------------
Kim Teo Poh Jin Director Managing Director of CLIAM
Singapore
- --------------------------------------------------------------------------------------------------------
Henry Dominic Chicheley Director Group Investment Director of
Thornton CLIAM (HK), Ltd.
- --------------------------------------------------------------------------------------------------------
David Charles Robert Director Director of CLIAM North America
Harding
- --------------------------------------------------------------------------------------------------------
Paul Mack Director Managing Director of CLIAM Hong
Kong
- --------------------------------------------------------------------------------------------------------
</TABLE>
Item 29. Principal Underwriter.
(a) BISYS Fund Services (formerly known as The Winsbury Company) acts
as distributor and administrator for the Registrant. BISYS Fund Services also
distributes the securities of American Performance Funds, AmSouth Mutual Funds,
The ARCH Fund, Inc., The BB&T Mutual Funds Group, The Conventry Group, Empire
Builder Tax Free Bond Fund, First Choice Funds Trust, Fountain Square Funds,
Hirtle Callaghan Trust, HSBC Family of Funds, The Infinity Mutual Funds, Inc.,
Intrust Funds, The Kent Funds, Magna Funds, Marketwatch Funds,
C-10
<PAGE> 299
Meyers Sheppard Investment Trust, Minerva Funds, MMA Proxis Mutual Funds,
M.S.D.& T. Funds, Parkstone Group of Funds, The Parkstone Advantage Funds,
Pegasus Funds, Qualivest Funds, The Republic Funds Trust, The Republic Advisors
Funds Trust, The Riverfront Funds, Inc., SBSF Funds, Inc. dba Key Mutual Funds,
Sefton Funds, The Sessions Group, Summit Investment Trust, The Time Horizon
Funds, Variable Insurance Funds and The Victory Portfolios, each of which is a
management investment company. The parent of BISYS Fund Services, Inc. (the
sole general partner of BISYS Fund Services) is The BISYS Group, Inc.
(b) The following are the directors, officers and partners of BISYS
Fund Services:
<TABLE>
<CAPTION>
====================================================================================================
Positions and Positions and
Name and Principal Offices with Offices with
Business Addresses BISYS Fund Services the Registrant
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
The BISYS Group, Inc. Sole Shareholder None
150 Clove Road
Little Falls, NJ 07424
- ----------------------------------------------------------------------------------------------------
BISYS Fund Services, Inc. Sole General Partner None
3435 Stelzer Avenue
Columbus, OH 43219
- ----------------------------------------------------------------------------------------------------
WC Subsidiary Corporation Sole Limited Partner None
150 Clove Road
Little Falls, NJ 07424
- ----------------------------------------------------------------------------------------------------
</TABLE>
(c) Not applicable.
Item 30. Location of Accounts and Records.
Persons maintaining physical possession of accounts, books and other
documents required to be maintained by Section 31(a) of the Investment Company
Act of 1940 and the rules promulgated thereunder are as follows:
(1) Pacific Capital Funds
3435 Stelzer Avenue
Columbus, OH 43219-3035
Attention: Secretary
(Registrant)
(2) Pacific Century Trust
Financial Plaza of the Pacific
111 S. King Street
Honolulu, Hawaii 96813
Attention: Trust Investments
(Investment Adviser)
C-11
<PAGE> 300
(3) BISYS Fund Services
3435 Stelzer Avenue
Columbus, OH 43219-3035
(Manager, Administrator and Distributor)
(4) Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
(Declaration of Trust, Bylaws, Minute Book)
(5) Nicholas-Applegate Management (Hong Kong) LLC
8 Connaught Place
Hong Kong
Item 31. Management Services.
Other than as set forth under the captions "Management of the
Funds" and "Other Information" in the Prospectus constituting Part A of this
Registration Statement and "Management" and "Custodian" in the Statement of
Additional Information constituting Part B of this Registration Statement,
Registrant is not a party to any management-related service contract.
Item 32. Undertakings.
(a) Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers
and controlling persons of the Registrant pursuant to the
provisions set forth above in response to Item 27, or otherwise,
the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in such Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a trustee,
officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in
connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
(b) Registrant 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 Registrant's outstanding voting
securities, and to assist in communicating with other
shareholders as required by Section 16(c) of the Investment
Company Act of 1940.
(C) Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of Registrant's latest
annual report to shareholders, upon request and without charge.
C-12
<PAGE> 301
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 10 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of San
Diego, and State of California on the 30th day of September, 1997
PACIFIC CAPITAL FUNDS
By: /s/ Irimga McKay
--------------------
Irimga McKay
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date(s) indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Irimga McKay President September 30, 1997
- ------------------------------ (Principal Executive
(Irimga McKay) Officer)
* Treasurer (Principal
- ------------------------------ Financial and Accounting
(Craig Warren) Officer
* Trustee and Chairperson
- ------------------------------
(Deborah G. Patterson)
* Trustee
- ------------------------------
(Douglas Philpotts)
* Trustee
- ------------------------------
(Richard W. Gushman, II)
* Trustee
- ------------------------------
(Stanley W. Hong)
* Trustee
- ------------------------------
(Russell K. Okata)
* Trustee
- ------------------------------
(Oswald K. Stender)
*By: /s/ Irimga Mckay September 30, 1997
- ------------------------------
(Irimga McKay
Attorney-in-Fact)
</TABLE>
C-13
<PAGE> 302
EXHIBIT INDEX
<TABLE>
<S> <C>
5(c) Sub-Advisory Agreement between Pacific Century Trust and
Nicholas-Applegate Capital Management (Hong Kong) LLC
6(d) Amended Distribution Agreement between BISYS Fund Services
(formerly, The Winsbury Company Limited Partnership) and the
Registrant, dated as of October 29, 1993 as amended through
September 26, 1997
10(b) 24e-2 Opinion and Consent of Counsel
11 Consent of Independent Auditors
15(a) Class A Distribution and Shareholder Service Plan between
the Registrant and BISYS Fund Services (formerly, The
Winsbury Company), dated as of October 29, 1993
15(c) Class B Distribution and Shareholder Service Plan between
the Registrant and BISYS Fund Services (formerly, The
Winsbury Company), dated as of September 26, 1997
17(a) Financial Data Schedule for Diversified Fixed Income Fund--
Class A
(b) Financial Data Schedule for Diversified Fixed Income Fund -
- Class Y
(c) Financial Data Schedule for Growth and Income Fund -- Class
A
(d) Financial Data Schedule for Growth and Income Fund -- Class
Y
(e) Financial Data Schedule for Growth Stock Fund -- Class A
(f) Financial Data Schedule for Growth Stock Fund -- Class Y
(g) Financial Data Schedule for New Asia Growth Fund -- Class A
(h) Financial Data Schedule for New Asia Growth Fund -- Class Y
(i) Financial Data Schedule for Short Intermediate U.S. Treasury
Securities Fund -- Class A
(j) Financial Data Schedule for Short Intermediate U.S. Treasury
Securities Fund -- Class Y
(k) Financial Data Schedule for Tax-Free Securities Fund --
Class A
(l) Financial Data Schedule for Tax-Free Securities Fund --
Class Y
</TABLE>
C-14
<PAGE> 303
<TABLE>
<S> <C>
(m) Financial Data Schedule for Tax-Free Short Intermediate
Securities Fund -- Class A
(n) Financial Data Schedule for Tax-Free Short Intermediate
Securities Fund -- Class Y
(o) Financial Data Schedule for U.S. Treasury Securities Fund --
Class A
(p) Financial Data Schedule for U.S. Treasury Securities Fund --
Class Y
18 Rule 18f-3 Plan
</TABLE>
C-15
<PAGE> 1
Exhibit 5(c)
SUB-ADVISORY AGREEMENT
PACIFIC CAPITAL NEW ASIA GROWTH FUND
AGREEMENT made as of ____________, 1997 between Pacific
Century Trust (the "Adviser"), and Nicholas-Applegate Capital Management (Hong
Kong) LLC ("Sub- Adviser").
WHEREAS, Pacific Capital Funds (the "Trust") is registered as
an open-end, diversified management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Adviser has been appointed investment adviser
to the Trust's Pacific Capital New Asia Growth Fund (the "Fund"); and
WHEREAS, the Adviser desires to retain Sub-Adviser to assist
it in the provision of a continuous investment program for the Fund and
Sub-Adviser is willing to do so;
WHEREAS, the Board of Trustees of the Trust has approved
this Agreement, and Sub-Adviser is willing to furnish such services upon the
terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Adviser hereby appoints Sub-Adviser to
act as sub- adviser to the Fund as permitted by the Adviser's Advisory
Agreement with the Trust pertaining to the Fund. Intending to be legally bound,
Sub-Adviser accepts such appointment and agrees to render the services herein
set forth for the compensation herein provided.
2. Sub-Advisory Services. Subject to the supervision of the
Trust's Board of Trustees, Sub-Adviser will assist the Adviser in providing a
continuous investment program with respect to the foreign component of the
Fund's portfolio, including investment research and management with respect to
all foreign securities and investments and cash equivalents in the Fund.
Sub-Adviser will provide services under this Agreement in accordance with the
Fund's investment objective, policies and restrictions as stated in the Fund's
prospectus and resolutions of the Trust's Board of Trustees applicable to the
Fund.
Without limiting the generality of the foregoing, Sub-Adviser
further agrees that it:
(a) will prepare, subject to the Adviser's approval, lists of
foreign countries for investment by the Fund and determine from time
to time what securities and other investments will be purchased,
retained or sold for the Fund, including, with the assistance of the
Adviser, the Fund's investments in futures and forward currency
contracts;
1
<PAGE> 2
(b) will manage in consultation with the Adviser the Fund's
temporary investments in securities;
(c) will place orders pursuant to its investment
determinations for the Fund either directly with the issuer or with
any broker or dealer;
(d) will not purchase shares of the Fund for itself or for
accounts with respect to which it exercises sole investment discretion
in connection with such transactions except as permitted by the
Trust's Board of Trustees or by federal, state and local law;
(e) will manage the Fund's overall cash position, and
determine from time to time what portion of the Fund's assets will be
held in different currencies;
(f) will provide the Adviser with foreign broker research, a
quarterly review of international economic and investment
developments, and occasional "Spot Lights" on international investment
issues;
(g) will attend regular business and investment-related
meetings with the Trust's Board of Trustees and the Adviser if
requested to do so by the Trust and/or the Adviser; and
(h) will maintain books and records with respect to the
securities transactions for the Fund, furnish to the Adviser and the
Trust's Board of Trustees such periodic and special reports as they
may request with respect to the Fund, and provide in advance to the
Adviser all reports to the Board of Trustees for examination and
review within a reasonable time prior to the Trust's Board meetings.
3. Covenants by Sub-Adviser. Sub-Adviser agrees with respect
to the services provided to the Fund that it:
(a) will conform with all Rules and Regulations of the
Securities and Exchange Commission;
(b) will telecopy trade information to the Adviser on the
first business day following the day of the trade and cause broker
confirmations to be sent directly to the Adviser; and
(c) will treat confidentially and as proprietary information
of the Trust all records and other information relative to the Trust
and prior, present or potential shareholders, and will not use such
records and information for any purpose other than
2
<PAGE> 3
performance of its responsibilities and duties hereunder (except after
prior notification to and approval in writing by the Trust, which
approval shall not be unreasonably withheld and may not be withheld
and will be deemed granted where Sub-Adviser may be exposed to civil
or criminal contempt proceedings for failure to comply, when requested
to divulge such information by duly constituted authorities, or when
so requested by the Trust).
4. Services Not Exclusive. Except as provided herein, the
services furnished by Sub-Adviser hereunder are deemed not to be exclusive, and
nothing in this Agreement shall (i) prevent Sub-Adviser from acting as
investment adviser or manager for any other person or persons, including other
investment companies, except that the Sub-Adviser shall not provide primary
advisory or sub-advisory services of any nature to any registered investment
company (a) that has an investment objective or style substantially similar to
that of the Pacific Capital New Asia Growth Fund ("an Asia Fund") and (b) that
offers its shares (or any class thereof) in Hawaii, California, Guam or
Arizona. Notwithstanding the prohibited services described in the immediately
preceding sentence, in the event that the Sub-Adviser wishes to advise or
sub-advise another Asia Fund, it shall notify the Adviser and the Trust of such
desire, and, following such notification, the Adviser, the Sub-Adviser and the
Trust shall negotiate in good faith (for at least 30 days prior to any notice
of termination submitted arising from a disagreement on this prohibition), a
modification to this prohibition that will allow the Sub-Adviser to provide
services to another Asia Fund, such that the economic and other interests of
the Adviser, Sub-Adviser and the Trust are adequately addressed, or (ii) limit
or restrict Sub-Adviser from buying, selling or trading any securities or other
investments (including any securities or other investments which the Fund is
eligible to buy) for its or their own accounts or for the accounts of others
for whom it or they may be acting; provided, however, that Sub-Adviser agrees
that it will not undertake any activities which will adversely affect the
performance of its obligations to the Fund under this Agreement.
5. Portfolio Transactions. Investment decisions for the Fund
shall be made by Sub-Adviser independently from those for any other investment
companies and accounts advised or managed by Sub-Adviser. The Fund and such
investment companies and accounts may, however, invest in the same securities.
When a purchase or sale of the same security is made at substantially the same
time on behalf of the Fund and/or another investment company or account, the
transaction will be averaged as to price, and available investments allocated
as to amount, in a manner which Sub-Adviser believes to be equitable to the
Fund and such other investment company or account. In some instances, this
investment procedure may adversely affect the price paid or received by the
Fund or the size of the position obtained or sold by the Fund. To the extent
permitted by law, Sub-Adviser may aggregate the securities to be sold or
purchased for the Fund with those to be sold or purchased for other investment
companies or accounts in order to obtain best execution.
Sub-Adviser shall place orders for the purchase and sale of
portfolio securities and will solicit broker-dealers to execute transactions in
accordance with the Fund's policies and
3
<PAGE> 4
restrictions regarding brokerage allocations. Sub-Adviser shall place orders
pursuant to its investment determination for the Fund either directly with the
issuer or with any broker or dealer selected by Sub-Adviser. In executing
portfolio transactions and selecting brokers or dealers, Sub-Adviser shall use
its reasonable best efforts to seek the most favorable execution of orders,
after taking into account all factors Sub-Adviser deems relevant, including the
breadth of the market in the security, the price of the security, 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. Consistent with this obligation, Sub-Adviser may, to the
extent permitted by law, purchase and sell portfolio securities to and from
brokers and dealers who provide brokerage and research services (within the
meaning of Section 28(e) of the Securities Exchange Act of 1934) to or for the
benefit of the Fund and/or other accounts over which Sub-Adviser or any of its
affiliates exercises investment discretion. Sub-Adviser is authorized to pay to
a broker or dealer who provides such brokerage and research services a
commission for executing a portfolio transaction for the Fund which is in
excess of the amount of commission another broker or dealer would have charged
for effecting that transaction if Sub-Adviser determines in good faith that
such commission was reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer, viewed in terms of either
that particular transaction or Sub-Adviser's overall responsibilities to the
Fund and to the Company. In no instance will portfolio securities be purchased
from or sold to Sub-Adviser, or the Fund's principal underwriter, or any
affiliated person thereof except as permitted by the Securities and Exchange
Commission.
6. Books and Records. In compliance with the requirements of
Rule 31a-3 under the 1940 Act, Sub-Adviser hereby agrees that all records which
it maintains for the Trust are the property of the Trust and further agrees to
surrender promptly to the Trust any of such records upon the Trust's request.
Sub-Adviser further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act the records required to be maintained by Rule 31a-1 under
the 1940 Act.
7. Expenses. During the term of this Agreement, Sub-Adviser
will pay all expenses incurred by it in connection with its activities under
this Agreement other than the cost of securities, commodities and other
investments (including brokerage commissions and other transaction charges, if
any) purchased for the Fund.
8. Compensation. For the services provided and the expenses
assumed with respect to the Fund pursuant to this Agreement, the Sub-Adviser
will be entitled to a fee, computed daily and payable quarterly, from Adviser,
calculated at the annual rate of 0.50% of the Fund's average daily net assets.
9. Standard of Care; Limitation of Liability. Sub-Adviser
shall exercise due care and diligence and use the same skill and care in
providing its services hereunder as it uses in providing services to other
investment companies, but shall not be liable for any action taken or
4
<PAGE> 5
omitted by Sub-Adviser in performance of services rendered hereunder in the
absence of bad faith, willful misconduct, gross negligence or reckless
disregard of its duties.
10. Reference to Sub-Adviser. Neither the Adviser nor any
affiliate or agent of it shall make reference to or use the name of Sub-Adviser
or any of its affiliates, or any of their clients, except references concerning
the identity of and services provided by Sub-Adviser to the Fund, which
references shall not differ in substance from those included in the current
registration statement pertaining to the Fund, this Agreement and the Advisory
Agreement between the Adviser and the Trust with respect to the Fund, in any
advertising or promotional materials without the prior approval of Sub-Adviser,
which approval shall not be unreasonably withheld or delayed. The Adviser
hereby agrees to make all reasonable efforts to cause the Fund and any
affiliate thereof to satisfy the foregoing obligation.
11. Duration and Termination. Unless sooner terminated, this
Agreement shall continue until the second anniversary hereof and thereafter
shall continue automatically for successive annual periods, provided such
continuance is specifically approved at least annually by the Trust's Board of
Trustees or vote of the lesser of (a) 67% of the shares of the Fund represented
at a meeting if holders of more than 50% of the outstanding shares of the Fund
are present in person or by proxy or (b) more than 50% of the outstanding
shares of the Fund, provided that in either event its continuance also is
approved by a majority of the Trust's Trustees who are not "interested persons"
(as defined in the 1940 Act) of any party to this Agreement (the "Disinterested
Trustees"), by vote cast in person at a meeting called for the purpose of
voting on such approval. This Agreement is terminable at any time without
penalty, on 60 days' notice, by Adviser, Sub-Adviser or by the Trust's Board of
Trustees or by vote of the lesser of (a) 67% of the shares of the Fund
represented at a meeting if holders of more than 50% of the outstanding shares
of the Fund are present in person or by proxy or (b) more than 50% of the
outstanding shares of the Fund. This Agreement will terminate automatically in
the event of its assignment (as defined in the 1940 Act).
12. Amendment of this Agreement. No provision of Agreement
may be changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought. No amendment of this
Agreement shall be effective with respect to the Fund until approved by the
vote of (i) a majority of the outstanding voting securities of the Fund and
(ii) a majority of the Disinterested Trustees cast in person at a meeting
called for the purpose of voting on such approval.
13. Notice. Any notice, advice or report to be given pursuant
to this Agreement shall be delivered or mailed:
To Sub-Adviser at:
Nicholas-Applegate Capital Management (Hong Kong) LLC
Room 604-6, Three Exchange Square,
8 Connaught Place, Central
Hong Kong
5
<PAGE> 6
To the Adviser at:
Pacific Century Trust
111 S. King Street
Honolulu, Hawaii 96813
To the Trust at:
c/o BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219-3035
14. Miscellaneous. The captions in this Agreement are
included for convenience of reference only and in no way define or delimit any
of the provisions hereof or otherwise affect their construction or effect. If
any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby.
This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and shall be
governed by the laws of the Commonwealth of Massachusetts.
15. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
16. Personal Liability. The names "Pacific Capital Funds" and
"Trustees" refer respectively to the Trust created and to the Trustees, as
trustees but not individually or personally, acting from time to time under an
Agreement and Declaration of Trust dated as of October 30, 1992 to which
reference is hereby made and a copy of which is on file at the office of the
Secretary of State of The Commonwealth of Massachusetts and elsewhere as
required by law, and to any and all amendments thereto so filed or hereafter
filed. The obligations of "Pacific Capital Funds" entered into in the name or
on behalf hereof by any of the Trustees, representatives or agents are made not
individually, but in such capacities, and are not binding upon any of the
Trustees, shareholders or representatives of the Trust personally, but bind
only the assets of the Trust and all persons dealing with any series of shares
of the Trust must look solely to the assets of the Trust belonging to such
series for the enforcement of any claims against the Trust.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first above written.
Attest: PACIFIC CENTURY TRUST
___________________________ By:___________________________
Name:_________________________
Title:________________________
NICHOLAS-APPLEGATE CAPITAL
MANAGEMENT (HONG KONG) LLC
By:___________________________
Name:_________________________
Title:________________________
PACIFIC CAPITAL FUNDS
By:___________________________
Name:_________________________
Title:________________________
7
<PAGE> 1
Exhibit 6(d)
DISTRIBUTION AGREEMENT
PACIFIC CAPITAL FUNDS
BISYS Fund Services
3435 Stelzer Road
Columbus. Ohio 43219-3035
Gentlemen:
This is to confirm that, in consideration of the agreements
hereinafter contained, the undersigned, Pacific Capital Funds (the "Trust"), a
Massachusetts business trust, has agreed that BISYS Fund Services (formerly,
"The Winsbury Company Limited Partnership" d/b/a "The Winsbury Company") (the
"Distributor"), shall be, for the period of this Distribution Agreement (the
"Agreement"), the distributor of the units of beneficial interest of each of
the investment portfolios of the Trust identified on Schedule A hereto (the
"Funds"). Such units of beneficial interest are hereinafter called "Shares".
This Agreement is dated as of October 29, 1993 as amended through September 26,
1997.
1. Services as Distributor.
1.1 Distributor will act as agent for the distribution of the Shares
covered by the registration statement and prospectus of the Trust then in
effect under the Securities Act of 1933, as amended (the "Securities Act"). As
used in this Agreement, the term "registration statement" shall mean Parts A
(the prospectus), B (the Statement of Additional Information) and C of each
registration statement that is filed on Form N-lA, or any successor thereto,
with the Securities and Exchange Commission (the "Commission"), together with
any amendments thereto. The term "prospectus" shall mean each form of
prospectus and Statement of Additional Information used by the Funds for
delivery to shareholders and prospective shareholders after the effective dates
of the above referenced registration statements, together with any amendments
and supplements thereto.
1.2 Distributor agrees to use appropriate efforts to solicit orders
for the sale of the Shares and will undertake such advertising and promotion as
it believes reasonable in connection with such solicitation. The Trust
understands that Distributor is now and may in the future be the distributor of
the shares of several investment companies or series (together, "Companies")
including Companies having investment objectives similar to those of the Trust.
The Trust further understands that investors and potential investors in the
Trust may invest in shares of such other Companies. The Trust agrees that
Distributor's duties to such Companies shall not be deemed in conflict with its
duties to the Trust under this paragraph 1.2.
Distributor shall, at its own expense, finance appropriate activities
which it deems reasonable which are primarily intended to result in the sale of
the Shares, including, but not
<PAGE> 2
limited to, advertising, compensation of underwriters, dealers and sales
personnel, the printing and mailing of prospectuses to other than current
Shareholders, and the printing and mailing of sales literature.
1.3 In its capacity as distributor of the Shares, all activities of
Distributor and its partners, agents, and employees shall comply with all
applicable laws, rules and regulations, including, without limitation, the
Investment Company Act of 1940, as amended (the "1940 Act"), all rules and
regulations promulgated by the Commission thereunder and all rules and
regulations adopted by any securities association registered under the
Securities Exchange Act of 1934.
1.4 Distributor will provide one or more persons, during normal
business hours, to respond to telephone questions with respect to the Trust.
1.5 Distributor will transmit any orders received by it for purchase
or redemption of the Shares to the transfer agent and custodian for the Funds.
1.6 Whenever in their judgment such action is warranted by unusual
market, economic or political conditions, or by abnormal circumstances of any
kind, the Trust's officers may decline to accept any orders for, or make any
sales of, the Shares until such time as those officers deem it advisable to
accept such orders and to make such sales.
1.7 Distributor will act only as principal in entering into selling
agreements, if any, with selected dealers or others.
1.8 The Trust agrees at its own expense to execute any and all
documents and to furnish any and all information and otherwise to take all
actions that may be reasonably necessary in connection with the qualification
of the Shares for sale in such states as Distributor may designate.
1.9 The Trust shall furnish from time to time, for use in connection
with the sale of the Shares, such information with respect to the Funds and the
Shares as Distributor may reasonably request; and the Trust warrants that the
statements contained in any such information shall fairly show or represent
what they purport to show or represent. The Trust shall also furnish
Distributor upon request with: (a) unaudited semi-annual statements of the
Funds' books and accounts prepared by the Trust, (b) a monthly itemized list of
the securities in the Funds, (c) monthly balance sheets as soon as practicable
after the end of each month, and (d) from time to time such additional
information regarding the financial condition of the Funds as Distributor may
reasonably request.
1.10 The Trust represents to Distributor that, with respect to the
Shares, all registration statements and prospectuses filed by the Trust with
the Commission under the Securities Act have been carefully prepared in
conformity with requirements of said Act and rules and
2
<PAGE> 3
regulations of the Commission thereunder. The registration statement and
prospectus contain all statements required to be stated therein in conformity
with said Act and the rules and regulations of said Commission and all
statements of fact contained in any such registration statement and prospectus
are true and correct. Furthermore, neither any registration statement nor any
prospectus includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading to a purchaser of the Shares. The Trust may, but shall
not be obligated to, propose from time to time such amendment or amendments to
any registration statement and such supplement or supplements to any prospectus
as, in the light of future developments, may, in the opinion of the Trust's
counsel, be necessary or advisable. If the Trust shall not propose such
amendment or amendments and/or supplement or supplements within fifteen days
after receipt by the Trust of a written request from Distributor to do so,
Distributor may, at its option, terminate this Agreement. The Trust shall not
file any amendment to any registration statement or supplement to any
prospectus without giving Distributor reasonable notice thereof in advance;
provided, however, that nothing contained in this Agreement shall in any way
limit the Trust's right to file at any time such amendments to any registration
statement and/or supplements to any prospectus, of whatever character, as the
Trust may deem advisable, such right being in all respects absolute and
unconditional.
1.11 The Trust authorizes Distributor and dealers to use any
prospectus in the form furnished from time to time in connection with the sale
of the Shares. The Trust agrees to indemnify, defend and hold Distributor, its
several partners and employees, and any person who controls Distributor within
the meaning of Section 15 of the Securities Act free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which Distributor, its partners
and employees, or any such controlling person, may incur under the Securities
Act or under common law or otherwise, arising out of or based upon any untrue
statement, or alleged untrue statement, of a material fact contained in any
registration statement or any prospectus or arising out of or based upon any
omission, or alleged omission, to state a material fact required to be stated
in either any registration statement or any prospectus or necessary to make the
statements in either thereof not misleading; provided, however, that the
Trust's agreement to indemnify Distributor, its partners or employees, and any
such controlling person shall not be deemed to cover any claims, demands,
liabilities or expenses arising out of any statements or representations as are
contained in any prospectus and in such financial and other statements as are
furnished in writing to the Trust by Distributor and used in the answers to the
registration statement or in the corresponding statements made in the
prospectus, or arising out of or based upon any omission or alleged omission to
state a material fact in connection with the giving of such information
required to be stated in such answers or necessary to make the answers not
misleading; and further provided that the Trust's agreement to indemnify
Distributor and the Trust's representations and warranties hereinbefore set
forth in paragraph 1.10 shall not be deemed to cover any liability to the Trust
or its Shareholders to which Distributor would otherwise be subject by reason
of willful misfeasance, bad faith or gross negligence in the performance of its
duties, or by reason of Distributor's reckless disregard of its
3
<PAGE> 4
obligations and duties under this Agreement. The Trust's agreement to indemnify
Distributor, its partners and employees and any such controlling person, as
aforesaid, is expressly conditioned upon the Trust being notified of any action
brought against Distributor, its partners or employees, or any such controlling
person, such notification to be given by letter or by telegram addressed to the
Trust at its principal office and sent to the Trust by the person against whom
such action is brought, within 10 days after the summons or other first legal
process shall have been served. The failure to so notify the Trust of any such
action shall not relieve the Trust from any liability which the Trust may have
to the person against whom such action is brought by reason of any such untrue,
or allegedly untrue, statement or omission, or alleged omission, otherwise than
on account of the Trust's indemnity agreement contained in this paragraph 1.11.
The Trust will be entitled to assume the defense of any suit brought to enforce
any such claim, demand or liability, but, in such case, such defense shall be
conducted by counsel of good standing chosen by the Trust and approved by
Distributor, which approval shall not be unreasonably withheld. In the event
the Trust elects to assume the defense of any such suit and retain counsel of
good standing approved by Distributor, the defendant or defendants in such suit
shall bear the fees and expenses of any additional counsel retained by any of
them; but in case the Trust does not elect to assume the defense of any such
suit, or in case Distributor reasonably does not approve of counsel chosen by
the Trust, the Trust will reimburse Distributor, its partners and employees, or
the controlling person or persons named as defendant or defendants in such
suit, for the fees and expenses of any counsel retained by Distributor or them.
The Trust's indemnification agreement contained in this paragraph 1.11 and the
Trust's representations and warranties in this Agreement shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of Distributor, its partners and employees, or any controlling person,
and shall survive the delivery of any Shares.
This agreement of indemnity will inure exclusively to Distributor's
benefit, to the benefit of its several partners and employees, and their
respective estates, and to the benefit of the controlling persons and their
successors. The Trust agrees promptly to notify Distributor of the commencement
of any litigation or proceedings against the Trust or any of its officers or
Trustees in connection with the issue and sale of any Shares.
1.12 Distributor agrees to indemnify, defend and hold the Trust, its
several officers and Trustees and any person who controls the Trust within the
meaning of Section 15 of the Securities Act free and harmless from and against
any and all claims, demands, liabilities and expenses (including the costs of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which the Trust, its officers or
Trustees or any such controlling person, may incur under the Securities Act or
under common law or otherwise, but only to the extent that such liability or
expense incurred by the Trust, its officers or Trustees or such controlling
person resulting from such claims or demands, shall arise out of or be based
upon any untrue, or alleged untrue, statement of a material fact contained in
information furnished in writing by Distributor to the Trust and used in the
answers to any of the items of the registration statement or in the
corresponding statements made in the prospectus, or shall arise out of or be
based upon any omission, or alleged omission, to state a material fact in
4
<PAGE> 5
connection with such information furnished in writing by Distributor to the
Trust required to be stated in such answers or necessary to make such
information not misleading. Distributor's agreement to indemnify the Trust, its
officers and Trustees, and any such controlling person, as aforesaid, is
expressly conditioned upon Distributor being notified of any action brought
against the Trust, its officers or Trustees, or any such controlling person,
such notification to be given by letter or telegram addressed to Distributor at
its principal office and sent to Distributor by the person against whom such
action is brought, within 10 days after the summons or other first legal
process shall have been served. Distributor shall have the right of first
control of the defense of such action, with counsel of its own choosing,
satisfactory to the Trust, if such action is based solely upon such alleged
misstatement or omission on Distributor's part, and in any other event the
Trust, its officers or Trustees or such controlling person shall each have the
right to participate in the defense or preparation of the defense of any such
action. The failure to so notify Distributor of any such action shall not
relieve Distributor from any liability which Distributor may have to the Trust,
its officers or Trustees, or to such controlling person by reason of any such
untrue or alleged untrue statement, or omission or alleged omission, otherwise
than on account of Distributor's indemnity agreement contained in this
paragraph 1.12.
1.13 No Shares shall be offered by either Distributor or the Trust
under any of the provisions of this Agreement and no orders for the purchase or
sale of Shares hereunder shall be accepted by the Trust if and so long as the
effectiveness of the registration statement then in effect or any necessary
amendments thereto shall be suspended under any of the provisions of the
Securities Act or if and so long as a current prospectus as required by Section
l0(b)(2) of said Act is not on file with the Commission; provided, however,
that nothing contained in this paragraph 1.13 shall in any way restrict or have
an application to or bearing upon the Trust's obligation to repurchase Shares
from any Shareholder in accordance with the provisions of the Trust's
prospectus, Agreement and Declaration of Trust, or Bylaws.
1.14 The Trust agrees to advise Distributor as soon as reasonably
practical by a notice in writing delivered to Distributor or its counsel:
(a) of any request by the Commission for amendments to the
registration statement or prospectus then in effect or
for additional information;
(b) in the event of the issuance by the Commission of any
stop order suspending the effectiveness of the
registration statement or prospectus then in effect or
the initiation by service of process on the Trust of
any proceeding for that purpose;
(c) of the happening of any event that makes untrue any
statement of a material fact made in the registration
statement or prospectus then in effect or which
requires the
5
<PAGE> 6
making of a change in such registration statement or
prospectus in order to make the statements therein not
misleading; and,
(d) of all action of the Commission with respect to any
amendment to any registration statement or prospectus
which may from time to time be filed with the
Commission.
For purposes of this section, informal requests by or acts of the
Staff of the Commission shall not be deemed requests by or actions of the
Commission.
1.15 Distributor agrees on behalf of itself and its partners and
employees to treat confidentially and as proprietary information of the Trust
all records and other information relative to the Trust and its prior, present
or potential Shareholders, and not to use such records and information for any
purpose other than performance of its responsibilities and duties hereunder,
except, after prior notification to and approval in writing by the Trust, which
approval shall not be unreasonably withheld and may not be withheld where
Distributor may be exposed to civil or criminal contempt proceedings for
failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the Trust.
1.16 This Agreement shall be governed by the laws of the Commonwealth
of Massachusetts.
2. Fee.
2.1 The Distributor shall receive from the Funds identified on
Schedule A hereto (the "Distribution Plan Funds") a distribution fee at the
rate and upon the terms and conditions set forth in any Distribution and
Shareholder Services Plan adopted on behalf of any class of shares of such
Fund. A copy of each such Plan is attached as Schedule B hereto, and as amended
from time to time. The distribution fee shall be accrued daily and shall be
paid on the first business day of each month, or at such time(s) as the
Distributor shall reasonably request.
3. Offering Price.
All Shares shall be offered and sold at the public offering price
determined in accordance with the terms and provisions described in the
Prospectus.
4. Public Offering Price.
The public offering price of a Share of a Fund shall be the net asset
value of a Share, plus any applicable sales charge, all as set forth in the
current prospectus of the Fund. The net asset value of Shares shall be
determined in accordance with the provisions of the Agreement and
6
<PAGE> 7
Declaration of Trust and Bylaws of the Trust and the then current prospectus of
the Fund.
5. Issuance of Shares.
The Trust reserves the right to issue, transfer or sell Shares of the
Funds at net asset value without assessing any sales load (a) in connection
with the merger or consolidation of the Trust or the Fund(s) with any other
investment company or the acquisition by the Trust or the Fund(s) of all or
substantially all of the assets or of the outstanding Shares of any other
investment company; (b) in connection with a pro rata distribution directly to
the holders of Shares in the nature of a stock dividend or split; (c) upon the
exercise of subscription rights granted to the holders of Shares on a pro rata
basis; (d) in connection with the issuance of Shares pursuant to any exchange
and reinvestment privileges described in any then current prospectus of the
Fund; and (e) otherwise in accordance with any then current prospectus of the
Fund.
6. Term and Matter Relating to the Trust as a Massachusetts Business
Trust.
This Agreement shall become effective on October 29, 1993 and, unless
sooner terminated as provided herein, shall continue until the last day of
October, 1994, and thereafter shall continue automatically for successive
annual periods ending on the last day of October each year, provided such
continuance is specifically approved at least annually by (i) the Trust's Board
of Trustees or (ii) by vote of a majority of the outstanding voting securities
(as defined in the 1940 Act) of the Trust, provided, however, that in either
event the continuance is also approved by the majority of the Trust's Trustees
who are not parties to the Agreement or interested persons (as defined in the
1940 Act) of any party to this Agreement, by vote cast in person at a meeting
called for the purpose of voting on such approval. This Agreement is terminable
without penalty, on not less than sixty days' notice, by the Trust's Board of
Trustees, by vote of a majority of the outstanding voting securities (as
defined in the 1940 Act) of the Trust or by the Distributor. This Agreement
will also terminate automatically in the event of its assignment (as defined in
the 1940 Act).
The names "Pacific Capital Funds" and "Trustees of Pacific Capital
Funds" refer respectively to the Trust created and the Trustees, as trustees
but not individually or personally, acting from time to time under the
Agreement and Declaration of Trust dated as of October 30, 1992 to which
reference is hereby made and a copy of which is on file at the office of the
Secretary of State of the Commonwealth of Massachusetts and elsewhere as
required by law, and to any and all amendments thereto so filed or hereafter
filed. The obligations of "Pacific Capital Funds" entered into in the name or
on behalf thereof by any of the Trustees, representatives or agents are made
not individually, but in such capacities, and are not binding upon any of the
Trustees, Shareholders or representatives of the Trust personally, but bind
only the assets of the Trust, and all persons dealing with any series of Shares
of the Trust must look solely to the assets of the Trust belonging to such
series for the enforcement of any claims against the Trust.
7
<PAGE> 8
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place designated
below, whereupon it shall become a binding agreement between us.
Yours very truly,
PACIFIC CAPITAL FUNDS
By:
----------------------------
Name:
-----------------------
Title:
-----------------------
Accepted:
BISYS Fund Services (formerly,
"The Winsbury Company Limited Partnership")
By:
---------------------------------
Name:
--------------------------
Title:
--------------------------
8
<PAGE> 9
Dated:___________, 1997
SCHEDULE A
TO THE
DISTRIBUTION AGREEMENT
BETWEEN PACIFIC CAPITAL FUNDS AND
BISYS FUND SERVICES
Name of Distribution Plan Fund
- --------------------------------------------------------------------------------
U.S. Treasury Securities Fund
Short Intermediate U.S. Treasury Securities Fund
Diversified Fixed Income Fund
Tax-Free Short Intermediate Securities Fund
Tax-Free Securities Fund
Growth Stock Fund
Balanced Fund
Growth and Income Fund
New Asia Growth Fund
PACIFIC CAPITAL FUNDS
By:
--------------------------
Name:
Title:
BISYS FUND SERVICES
By:
--------------------------
Name:
Title:
A-1
<PAGE> 10
SCHEDULE B
TO THE
DISTRIBUTION AGREEMENT
BETWEEN PACIFIC CAPITAL FUNDS AND
BISYS FUND SERVICES
_________, 1997
CLASS A SHARES
DISTRIBUTION AND SHAREHOLDER SERVICE PLAN
This Plan (the "Plan") constitutes the distribution and shareholder
service plan of Pacific Capital Funds, a Massachusetts business trust (the
"Trust"), adopted pursuant to Rule 12b-1 under the Investment Company Act of
1940 (the "1940 Act"). The Plan relates to the Class A Shares of those
investment portfolios ("Funds") identified on Appendix A hereto as amended from
time to time (the "Distribution Plan Funds").
Section 1. Each Distribution Plan Fund shall pay to the distributor
(the "Distributor") of the Class A of the Trust's units of beneficial interest
(the "Shares"), a fee in an amount not to exceed on an annual basis 0.75% of
the average daily net asset value of such Fund attributable to the Shares of
such Fund (the "Distribution Fee") to compensate or reimburse the Distributor
for the following: (a) payments the Distributor makes to banks and other
institutions and industry professionals, such as broker/dealers, including the
Adviser, Distributor and their affiliates or subsidiaries (collectively
referred to as "Participating Organization(s)"), pursuant to an agreement in
connection with providing sales and/or administrative support services to the
holders of a Fund's Shares; or (b) payments to financial institutions and
industry professional (such as insurance companies, investment counselors, and
the Distributor's affiliates and subsidiaries) in consideration for the
distribution services provided and expenses assumed in connection with
distribution assistance, including but not limited to printing and distributing
Prospectuses to persons other than current Class A Shareholders of a Fund,
printing and distributing advertising and sales literature and reports to Class
A Shareholders used in connection with the sale of a Fund's Shares, and
personnel and communication equipment used in servicing shareholder accounts
and prospective Class A Shareholder inquiries.
Section 2. The Distribution Fee shall be paid by the Distribution
Plan Funds to the Distributor only to compensate or to reimburse the
Distributor for payments or expenses incurred pursuant to Section 1.
Notwithstanding anything herein to the contrary, the Distribution Plan Funds
shall not be obligated to make any payments under this Plan that exceed the
maximum amounts payable under Rule 2830 of the Conduct Rules of the National
Association of Securities Dealers, Inc.
Section 3. The Plan shall not take effect with respect to a
Distribution Plan Fund until it
B-1
<PAGE> 11
has been approved by a vote of at least a majority of the outstanding voting
securities of the Class A shares of such Fund.
Section 4. The Plan shall not take effect until it has been approved,
together with any related agreements, by votes of the majority (or whatever
greater percentage may, from time to time, be required by Section 12(b) of the
1940 Act or the rules and regulations thereunder) of both (a) the Trustees of
the Trust, and (b) the Independent Trustees of the Trust cast in person at a
meeting called for the purpose of voting on the Plan or such agreement.
Section 5. The Plan shall continue in effect for a period of more
than one year after it takes effect only so long as such continuance is
specifically approved at least annually in the manner provided for approval of
the Plan in Section 4.
Section 6. Any person authorized to direct the disposition of monies
paid or payable by the Distribution Plan Funds pursuant to the Plan or any
related agreement shall provide to the Trustees of the Trust, and the Trustees
shall review, at least quarterly, a written report of the amounts so expended
and the purposes for which such expenditures were made.
Section 7. The Plan may be terminated at any time by vote of a
majority of the Independent Trustees, or by vote of a majority of the
outstanding voting securities of the Class A shares of such Fund.
Section 8. All agreements with any person relating to implementation
of the Plan shall be in writing, and any agreement related to the Plan shall
provide:
(a) That such agreement may be terminated at any time,
without payment of any penalty, by vote of a majority
of the Independent Trustees or by vote of a majority of
the outstanding voting securities of the Class A shares
of the Distribution Plan Fund, on not more than 60
days' written notice to any other party to the
agreement; and
(b) That such agreement shall terminate automatically in
the event of its assignment.
Section 9. The Plan may not be amended to increase materially the
amount of distribution expenses permitted pursuant to Section 1 hereof without
approval in the manner provided in Section 3 hereof, and all material
amendments to the Plan shall be approved in the manner provided for approval of
the Plan in Section 4.
Section 10. As used in the Plan, (a) the term "Independent Trustees"
shall mean those Trustees of the Trust who are not interested persons of the
Trust, and have no direct or indirect financial interest in the operation of
the Plan or any agreements related to it, and (b) the terms "assignment",
"interested person" and "majority of the outstanding voting securities" shall
have
B-2
<PAGE> 12
the respective meanings specified in the 1940 Act and the rules and regulations
thereunder, subject to such exemptions as may be granted by the Securities and
Exchange Commission.
Adopted: September 16, 1993
B-3
<PAGE> 13
APPENDIX A
TO THE CLASS A
DISTRIBUTION AND SHAREHOLDER SERVICE PLAN OF
PACIFIC CAPITAL FUNDS
Name of Distribution Plan Fund
------------------------------
U.S. Treasury Securities Fund
Short Intermediate U.S. Treasury Securities Fund
Diversified Fixed Income Fund
Tax-Free Short Intermediate Securities Fund
Tax-Free Securities Fund
Growth Stock Fund
Balanced Fund
Growth and Income Fund
New Asia Growth Fund
Dated:__________, 1997
B-4
<PAGE> 14
CLASS B SHARES
DISTRIBUTION AND SHAREHOLDER SERVICE PLAN
This Plan (the "Plan") constitutes the distribution and shareholder
service plan of Pacific Capital Funds, a Massachusetts business trust (the
"Trust"), adopted pursuant to Rule 12b-1 under the Investment Company Act of
1940 (the "1940 Act"). The Plan relates to the Class B Shares of those
investment portfolios ("Funds") identified on Appendix A hereto as amended from
time to time (the "Distribution Plan Funds").
Section 1. Each Distribution Plan Fund shall pay to the distributor
(the "Distributor") of the Class B of the Trust's units of beneficial interest
(the "Shares"), a fee in an amount not to exceed on an annual basis 1% of the
average daily net asset value of such Fund attributable to the Shares of such
Fund (the "Distribution Fee") to compensate or reimburse the Distributor for
the following: (a) payments the Distributor makes to banks and other
institutions and industry professionals, such as broker/dealers, including the
Adviser, Distributor and their affiliates or subsidiaries (collectively
referred to as "Participating Organization(s)"), pursuant to an agreement in
connection with providing sales and/or administrative support services to the
holders of a Fund's Shares; or (b) payments to financial institutions and
industry professional (such as insurance companies, investment counselors, and
the Distributor's affiliates and subsidiaries) in consideration for the
distribution services provided and expenses assumed in connection with
distribution assistance, including but not limited to printing and distributing
Prospectuses to persons other than current Class B Shareholders of a Fund,
printing and distributing advertising and sales literature and reports to Class
B Shareholders used in connection with the sale of a Fund's Shares, and
personnel and communication equipment used in servicing shareholder accounts
and prospective Class B Shareholder inquiries.
Section 2. The Distribution Fee shall be paid by the Distribution
Plan Funds to the Distributor only to compensate or to reimburse the
Distributor for payments or expenses incurred pursuant to Section 1.
Notwithstanding anything herein to the contrary, the Distribution Plan Funds
shall not be obligated to make any payments under this Plan that exceed the
maximum amounts payable under Rule 2830 of the Conduct Rules of the National
Association of Securities Dealers, Inc.
Section 3. The Plan shall not take effect with respect to a
Distribution Plan Fund until it has been approved by a vote of at least a
majority of the outstanding voting securities of the Class B shares of such
Fund.
Section 4. The Plan shall not take effect until it has been approved,
together with any related agreements, by votes of the majority (or whatever
greater percentage may, from time to time, be required by Section 12(b) of the
1940 Act or the rules and regulations thereunder) of both (a) the Trustees of
the Trust, and (b) the Independent Trustees of the Trust cast in person at a
meeting called for the purpose of voting on the Plan or such agreement.
B-5
<PAGE> 15
Section 5. The Plan shall continue in effect for a period of more
than one year after it takes effect only so long as such continuance is
specifically approved at least annually in the manner provided for approval of
the Plan in Section 4.
Section 6. Any person authorized to direct the disposition of monies
paid or payable by the Distribution Plan Funds pursuant to the Plan or any
related agreement shall provide to the Trustees of the Trust, and the Trustees
shall review, at least quarterly, a written report of the amounts so expended
and the purposes for which such expenditures were made.
Section 7. The Plan may be terminated at any time by vote of a
majority of the Independent Trustees, or by vote of a majority of the
outstanding voting securities of the Class B shares of such Fund.
Section 8. All agreements with any person relating to implementation
of the Plan shall be in writing, and any agreement related to the Plan shall
provide:
(a) That such agreement may be terminated at any time,
without payment of any penalty, by vote of a majority
of the Independent Trustees or by vote of a majority of
the outstanding voting securities of the Class B shares
of the Distribution Plan Fund, on not more than 60
days' written notice to any other party to the
agreement; and
(b) That such agreement shall terminate automatically in
the event of its assignment.
Section 9. The Plan may not be amended to increase materially the
amount of distribution expenses permitted pursuant to Section 1 hereof without
approval in the manner provided in Section 3 hereof, and all material
amendments to the Plan shall be approved in the manner provided for approval of
the Plan in Section 4.
Section 10. As used in the Plan, (a) the term "Independent Trustees"
shall mean those Trustees of the Trust who are not interested persons of the
Trust, and have no direct or indirect financial interest in the operation of
the Plan or any agreements related to it, and (b) the terms "assignment",
"interested person" and "majority of the outstanding voting securities" shall
have the respective meanings specified in the 1940 Act and the rules and
regulations thereunder, subject to such exemptions as may be granted by the
Securities and Exchange Commission.
Adopted: September 26 1997, effective ________, 1997
B-6
<PAGE> 16
APPENDIX A
TO THE CLASS B
DISTRIBUTION AND SHAREHOLDER SERVICE PLAN OF
PACIFIC CAPITAL FUNDS
Name of Distribution Plan Fund
------------------------------
U.S. Treasury Securities Fund
Short Intermediate U.S. Treasury Securities Fund
Diversified Fixed Income Fund
Tax-Free Short Intermediate Securities Fund
Tax-Free Securities Fund
Growth Stock Fund
Balanced Fund
Growth and Income Fund
New Asia Growth Fund
Dated: _________, 1997
B-7
<PAGE> 1
EXHIBIT 10(b)
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
September 30, 1997
Pacific Capital Funds
3435 Stelzer Road
Columbus, Ohio 43219-3035
Gentlemen and Ladies:
Pacific Capital Funds (the "Fund"), is filing with the Securities and
Exchange Commission Post-Effective Amendment No. 10 to its Registration
Statement under the Securities Act of 1933, as amended (the "1933 Act") on Form
N-1A (File Nos. 33-57684 and 811-7454), relating to the registration under the
1933 Act of 4,296,001 additional shares of its beneficial interest, no par value
(the "Shares"), which are to be offered and sold by the Fund in the manner and
on the terms set forth in the prospectus of the Fund current and effective under
the 1933 Act at the time of sale. The Shares are previously outstanding shares
of the Fund's beneficial interest, no par value, which were redeemed by the Fund
during its fiscal year ended July 31, 1997. According to Post-Effective
Amendment No. 10 to the Fund's Registration Statement, none of the Shares have
previously been used by the Fund for reduction pursuant to paragraph (a) of Rule
24e-2 under the Investment Company Act of 1940, as amended (the "1940 Act") in
previous filings of post-effective amendments to the Fund's Registration
Statement during the current fiscal year, or for the reduction pursuant to
paragraph (c) of Rule 24f-2 under the 1940 Act during the Fund's current fiscal
year, of the registration fee payable by the Fund for the registration of shares
for sale under the 1933 Act.
We have, as counsel, participated in various proceedings relating to
the Fund and to the proposed issuance of the Additional Shares. We have
examined copies, either certified or otherwise proven to our satisfaction to be
genuine, of the Fund's Declaration of Trust and By-laws, as currently in
effect. We have received a certificate dated September 22, 1997 from the
Secretary of State of the Commonwealth of Massachusetts, certifying the
existence and good standing of the Fund. We are generally familiar with the
business affairs of the Fund.
Based upon the foregoing, it is our opinion that:
1. The Fund has been duly organized and is validly existing under
the laws of the Commonwealth of Massachusetts.
<PAGE> 2
2. The Fund is authorized to issue an unlimited number of shares.
3. Subject to the effectiveness of the above-mentioned
Post-Effective Amendment No. 10 to the Fund's Registration Statement and
compliance with applicable state securities laws, upon the issuance of the
Additional Shares for a consideration not less than the par value thereof as
required by the laws of Massachusetts, and not less than the net asset value
thereof as required by the 1940 Act and in accordance with the terms of the
Registration Statement, such shares will be legally issued and outstanding and
fully paid and non-assessable.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as a part of the above-mentioned Post-Effective Amendment
No. 10 to the Registration Statement and with any state securities commission
where such filing is required. In giving this consent we do not admit that we
come within the category of persons whose consent is required under Section 7
of the 1933 Act.
We are members of the Bar of the State of New York and do not hold
ourselves out as being conversant with the laws of any jurisdiction other than
those of the United States of America and the State of New York. We note that
we are not licensed to practice law in the Commonwealth of Massachusetts, and
to the extent that any opinion herein involves the laws of Massachusetts, such
opinion should be understood to be based solely upon our review of the
documents referred to above, the published statutes of that Commonwealth and,
where applicable, published cases, rules or regulations of regulatory bodies of
that Commonwealth.
Very truly yours,
/s/ Shereff, Friedman, Hoffman & Goodman, LLP
Shereff, Friedman, Hoffman & Goodman, LLP
<PAGE> 1
Exhibit 11
CONSENT OF INDEPENDENT AUDITORS
We consent i) to the reference to our firm under the caption "Independent
Auditors" in the Statement of Additional Information incorporated by reference
in Post-Effective Amendment No. 10 to the Registration Statement (Form N-1A No.
33-57684) of Pacific Capital Funds; ii) to the use of our report dated
September 12, 1997 appearing in the Statement of Additional Information
incorporated by reference in the Registration Statement; and, iii) to the
references to our firm under the captions "Financial Highlights" and "Other
Service Arrangements" in each of the Class A and Class B Prospectuses and in
the Class Y Prospectus incorporated by reference in the Registration Statement.
Ernst & Young LLP
Columbus, Ohio
September 29, 1997
<PAGE> 1
Exhibit 15(a)
CLASS A SHARES
DISTRIBUTION AND SHAREHOLDER SERVICE PLAN
This Plan (the "Plan") constitutes the distribution and
shareholder service plan of Pacific Capital Funds, a Massachusetts business
trust (the "Trust"), adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the "1940 Act"). The Plan relates to the Class A Shares of
those investment portfolios ("Funds") identified on Appendix A hereto as
amended from time to time (the "Distribution Plan Funds").
Section 1. Each Distribution Plan Fund shall pay to the
distributor (the "Distributor") of the Class A of the Trust's units of
beneficial interest (the "Shares"), a fee in an amount not to exceed on an
annual basis 0.75% of the average daily net asset value of such Fund
attributable to the Shares of such Fund (the "Distribution Fee") to compensate
or reimburse the Distributor for the following: (a) payments the Distributor
makes to banks and other institutions and industry professionals, such as
broker/dealers, including the Adviser, Distributor and their affiliates or
subsidiaries (collectively referred to as "Participating Organization(s)"),
pursuant to an agreement in connection with providing sales and/or
administrative support services to the holders of a Fund's Shares; or (b)
payments to financial institutions and industry professional (such as insurance
companies, investment counselors, and the Distributor's affiliates and
subsidiaries) in consideration for the distribution services provided and
expenses assumed in connection with distribution assistance, including but not
limited to printing and distributing Prospectuses to persons other than current
Class A Shareholders of a Fund, printing and distributing advertising and sales
literature and reports to Class A Shareholders used in connection with the sale
of a Fund's Shares, and personnel and communication equipment used in servicing
shareholder accounts and prospective Class A Shareholder inquiries.
Section 2. The Distribution Fee shall be paid by the
Distribution Plan Funds to the Distributor only to compensate or to reimburse
the Distributor for payments or expenses incurred pursuant to Section 1.
Notwithstanding anything herein to the contrary, the Distribution Plan Funds
shall not be obligated to make any payments under this Plan that exceed the
maximum amounts payable under Rule 2830 of the Conduct Rules of the National
Association of Securities Dealers, Inc.
Section 3. The Plan shall not take effect with respect to a
Distribution Plan Fund until it has been approved by a vote of at least a
majority of the outstanding voting securities of the Class A shares of such
Fund.
Section 4. The Plan shall not take effect until it has been
approved, together with any related agreements, by votes of the majority (or
whatever greater percentage may, from time to time, be required by Section
12(b) of the 1940 Act or the rules and regulations thereunder) of both (a) the
Trustees of the Trust, and (b) the Independent Trustees of the Trust cast in
person at a meeting called for the purpose of voting on the Plan or such
agreement.
<PAGE> 2
Section 5. The Plan shall continue in effect for a period of
more than one year after it takes effect only so long as such continuance is
specifically approved at least annually in the manner provided for approval of
the Plan in Section 4.
Section 6. Any person authorized to direct the disposition of
monies paid or payable by the Distribution Plan Funds pursuant to the Plan or
any related agreement shall provide to the Trustees of the Trust, and the
Trustees shall review, at least quarterly, a written report of the amounts so
expended and the purposes for which such expenditures were made.
Section 7. The Plan may be terminated at any time by vote of
a majority of the Independent Trustees, or by vote of a majority of the
outstanding voting securities of the Class A shares of such Fund.
Section 8. All agreements with any person relating to
implementation of the Plan shall be in writing, and any agreement related to
the Plan shall provide:
(a) That such agreement may be terminated at
any time, without payment of any penalty,
by vote of a majority of the Independent
Trustees or by vote of a majority of the
outstanding voting securities of the Class
A shares of the Distribution Plan Fund, on
not more than 60 days' written notice to
any other party to the agreement; and
(b) That such agreement shall terminate
automatically in the event of its
assignment.
Section 9. The Plan may not be amended to increase materially
the amount of distribution expenses permitted pursuant to Section 1 hereof
without approval in the manner provided in Section 3 hereof, and all material
amendments to the Plan shall be approved in the manner provided for approval of
the Plan in Section 4.
Section 10. As used in the Plan, (a) the term "Independent
Trustees" shall mean those Trustees of the Trust who are not interested persons
of the Trust, and have no direct or indirect financial interest in the
operation of the Plan or any agreements related to it, and (b) the terms
"assignment", "interested person" and "majority of the outstanding voting
securities" shall have the respective meanings specified in the 1940 Act and
the rules and regulations thereunder, subject to such exemptions as may be
granted by the Securities and Exchange Commission.
Adopted: September 16, 1993
<PAGE> 3
APPENDIX A
TO THE CLASS A
DISTRIBUTION AND SHAREHOLDER SERVICE PLAN OF
PACIFIC CAPITAL FUNDS
Name of Distribution Plan Fund
- --------------------------------------
U.S. Treasury Securities Fund
Short Intermediate U.S. Treasury Securities Fund
Diversified Fixed Income Fund
Tax-Free Short Intermediate Securities Fund
Tax-Free Securities Fund
Growth Stock Fund
Balanced Fund
Growth and Income Fund
New Asia Growth Fund
Dated: , 1997
--------
<PAGE> 1
Exhibit 15(c)
CLASS B SHARES
DISTRIBUTION AND SHAREHOLDER SERVICE PLAN
This Plan (the "Plan") constitutes the distribution and
shareholder service plan of Pacific Capital Funds, a Massachusetts business
trust (the "Trust"), adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940 (the "1940 Act"). The Plan relates to the Class B Shares of
those investment portfolios ("Funds") identified on Appendix A hereto as
amended from time to time (the "Distribution Plan Funds").
Section 1. Each Distribution Plan Fund shall pay to the
distributor (the "Distributor") of the Class B of the Trust's units of
beneficial interest (the "Shares"), a fee in an amount not to exceed on an
annual basis 1% of the average daily net asset value of such Fund attributable
to the Shares of such Fund (the "Distribution Fee") to compensate or reimburse
the Distributor for the following: (a) payments the Distributor makes to banks
and other institutions and industry professionals, such as broker/dealers,
including the Adviser, Distributor and their affiliates or subsidiaries
(collectively referred to as "Participating Organization(s)"), pursuant to an
agreement in connection with providing sales and/or administrative support
services to the holders of a Fund's Shares; or (b) payments to financial
institutions and industry professional (such as insurance companies, investment
counselors, and the Distributor's affiliates and subsidiaries) in consideration
for the distribution services provided and expenses assumed in connection with
distribution assistance, including but not limited to printing and distributing
Prospectuses to persons other than current Class B Shareholders of a Fund,
printing and distributing advertising and sales literature and reports to Class
B Shareholders used in connection with the sale of a Fund's Shares, and
personnel and communication equipment used in servicing shareholder accounts
and prospective Class B Shareholder inquiries.
Section 2. The Distribution Fee shall be paid by the
Distribution Plan Funds to the Distributor only to compensate or to reimburse
the Distributor for payments or expenses incurred pursuant to Section 1.
Notwithstanding anything herein to the contrary, the Distribution Plan Funds
shall not be obligated to make any payments under this Plan that exceed the
maximum amounts payable under Rule 2830 of the Conduct Rules of the National
Association of Securities Dealers, Inc.
Section 3. The Plan shall not take effect with respect to a
Distribution Plan Fund until it has been approved by a vote of at least a
majority of the outstanding voting securities of the Class B shares of such
Fund.
Section 4. The Plan shall not take effect until it has been
approved, together with any related agreements, by votes of the majority (or
whatever greater percentage may, from time to time, be required by Section
12(b) of the 1940 Act or the rules and regulations thereunder) of both (a) the
Trustees of the Trust, and (b) the Independent Trustees of the Trust cast in
person at a meeting called for the purpose of voting on the Plan or such
agreement.
<PAGE> 2
Section 5. The Plan shall continue in effect for a period of
more than one year after it takes effect only so long as such continuance is
specifically approved at least annually in the manner provided for approval of
the Plan in Section 4.
Section 6. Any person authorized to direct the disposition of
monies paid or payable by the Distribution Plan Funds pursuant to the Plan or
any related agreement shall provide to the Trustees of the Trust, and the
Trustees shall review, at least quarterly, a written report of the amounts so
expended and the purposes for which such expenditures were made.
Section 7. The Plan may be terminated at any time by vote of
a majority of the Independent Trustees, or by vote of a majority of the
outstanding voting securities of the Class B shares of such Fund.
Section 8. All agreements with any person relating to
implementation of the Plan shall be in writing, and any agreement related to
the Plan shall provide:
(a) That such agreement may be terminated at
any time, without payment of any penalty,
by vote of a majority of the Independent
Trustees or by vote of a majority of the
outstanding voting securities of the Class
B shares of the Distribution Plan Fund, on
not more than 60 days' written notice to
any other party to the agreement; and
(b) That such agreement shall terminate
automatically in the event of its
assignment.
Section 9. The Plan may not be amended to increase materially
the amount of distribution expenses permitted pursuant to Section 1 hereof
without approval in the manner provided in Section 3 hereof, and all material
amendments to the Plan shall be approved in the manner provided for approval of
the Plan in Section 4.
Section 10. As used in the Plan, (a) the term "Independent
Trustees" shall mean those Trustees of the Trust who are not interested persons
of the Trust, and have no direct or indirect financial interest in the
operation of the Plan or any agreements related to it, and (b) the terms
"assignment", "interested person" and "majority of the outstanding voting
securities" shall have the respective meanings specified in the 1940 Act and
the rules and regulations thereunder, subject to such exemptions as may be
granted by the Securities and Exchange Commission.
Adopted: September 26, 1997, effective , 1997
------------
<PAGE> 3
APPENDIX A
TO THE CLASS B
DISTRIBUTION AND SHAREHOLDER SERVICE PLAN OF
PACIFIC CAPITAL FUNDS
Name of Distribution Plan Fund
- --------------------------------------------------
U.S. Treasury Securities Fund
Short Intermediate U.S. Treasury Securities Fund
Diversified Fixed Income Fund
Tax-Free Short Intermediate Securities Fund
Tax-Free Securities Fund
Growth Stock Fund
Balanced Fund
Growth and Income Fund
New Asia Growth Fund
Dated: , 1997
----------
<PAGE> 1
Exhibit 18
PACIFIC CAPITAL FUNDS (THE "TRUST")
PLAN PURSUANT TO RULE 18f-3
The Trust hereby adopts this plan pursuant to Rule 18f-3 under the
Investment Company Act of 1940, as amended, on behalf of each of its series:
Balanced Fund, Diversified Fixed Income Fund, Growth and Income Fund, Growth
Stock Fund, New Asia Growth Fund, Short Intermediate U.S. Treasury Securities
Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities Fund and
U.S. Securities Treasury Fund (the "Funds"). This plan sets forth the separate
arrangement and expense allocation of each class of shares of the Funds. Any
material amendment to this plan is subject to prior approval of the Board of
Trustees, including a majority of the independent Trustees.
CLASS CHARACTERISTICS
Class A Shares: Class A shares bear the expenses of the ongoing
Rule 12b-1 fees applicable to that Class. Specific
shareholders within Class A may be subject to an
initial sales charge as set forth in each Fund's
current prospectus and statement of additional
information (together, the "prospectus").
Class B Shares: Class B shares bear the expenses of the ongoing Rule
12b-1 fees applicable to that Class. Specific
shareholders within Class B may be subject to a
contingent deferred sales charge as set forth in each
Fund's prospectus.
Class Y Shares: Class Y shares are not subject to any initial sales
charge, CDSC or Rule 12b-1 fee.
<PAGE> 2
INCOME AND EXPENSE ALLOCATIONS
Income, any realized and unrealized capital gains and losses, and
expenses not allocated to a particular class, will be allocated to each class
on the basis of the net asset value of that class in relation to the net asset
value of the Fund.
DIVIDENDS AND DISTRIBUTIONS
Dividends and other distributions paid by the Fund to each class of
shares, to the extent paid, will be paid on the same day and at the same time,
and will be determined in the same manner and will be in the same amount,
except that the amount of the dividends and other distributions declared and
paid by a particular class may be different from that paid by another class
because of Rule 12b-1 fees and other expenses borne exclusively by that class.
EXCHANGE PRIVILEGE
Holders of Class A, Class B and Class Y shares shall have such
exchange privileges as set forth in each Fund's current prospectus. Exchange
privileges may vary among Classes.
CONVERSION FEATURES
Effective February 15, 1997, holders of Class Y shares who terminate
their qualified trust account, employee benefit account or other qualifying
relationship with an Institution (as defined in the Class Y prospectus) shall
be subject to an automatic conversion feature whereby such
<PAGE> 3
Class Y shareholders will have their Class Y shares of a Fund converted to
Class A shares of the same Fund on the basis of the relative net asset value of
the shares of the two classes, without incurring any fee, sales load or other
charge. Class B shares convert to Class A shares approximately 8 years after
purchase, as set forth in each Fund's prospectus. There is no conversion
feature applicable to Class A shares.
OTHER RIGHTS AND OBLIGATIONS
Except as otherwise described above, in all respects, each Class shall
have the same rights and obligations as each other Class.
VOTING RIGHTS
Each Class has exclusive voting rights on any matter submitted to
shareholders that relates solely to its ongoing distribution fees of the Class.
Each Class shall have separate voting rights on any matter submitted to
shareholders in which the interests of one Class differ from the interests of
any other Class.
As amended: , 1997
-------------------------------
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<NAME> GROWTH STOCK FUND
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
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<INVESTMENTS-AT-VALUE> 208844861
<RECEIVABLES> 166454
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 209011315
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<OTHER-ITEMS-LIABILITIES> 196107
<TOTAL-LIABILITIES> 862109
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<OVERDISTRIBUTION-NII> 14687
<ACCUMULATED-NET-GAINS> 14564210
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 83424829
<NET-ASSETS> 208149206
<DIVIDEND-INCOME> 2796184
<INTEREST-INCOME> 53417
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<EXPENSES-NET> 2028846
<NET-INVESTMENT-INCOME> 820755
<REALIZED-GAINS-CURRENT> 18904660
<APPREC-INCREASE-CURRENT> 54151452
<NET-CHANGE-FROM-OPS> 73876867
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<DISTRIBUTIONS-OF-INCOME> 16883<F1>
<DISTRIBUTIONS-OF-GAINS> 24<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 224887<F1>
<NUMBER-OF-SHARES-REDEEMED> 109496<F1>
<SHARES-REINVESTED> 1191<F1>
<NET-CHANGE-IN-ASSETS> 30323810
<ACCUMULATED-NII-PRIOR> 49694
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 4333195
<GROSS-ADVISORY-FEES> 1499559
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2137308
<AVERAGE-NET-ASSETS> 6566311<F1>
<PER-SHARE-NAV-BEGIN> 11.89<F1>
<PER-SHARE-NII> 0.03<F1>
<PER-SHARE-GAIN-APPREC> 5.55<F1>
<PER-SHARE-DIVIDEND> 0.04<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 17.43<F1>
<EXPENSE-RATIO> 1.32<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Class A
</FN>
</TABLE>
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<NAME> PACIFIC CAPITAL FUNDS
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<NUMBER> 12
<NAME> GROWTH STOCK FUND
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 125420032
<INVESTMENTS-AT-VALUE> 208844861
<RECEIVABLES> 166454
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 209011315
<PAYABLE-FOR-SECURITIES> 666002
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 196107
<TOTAL-LIABILITIES> 862109
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 110174854
<SHARES-COMMON-STOCK> 11375655<F1>
<SHARES-COMMON-PRIOR> 14508629<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 14687
<ACCUMULATED-NET-GAINS> 14564210
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 83424829
<NET-ASSETS> 208149206
<DIVIDEND-INCOME> 2796184
<INTEREST-INCOME> 53417
<OTHER-INCOME> 0
<EXPENSES-NET> 2028846
<NET-INVESTMENT-INCOME> 820755
<REALIZED-GAINS-CURRENT> 18904660
<APPREC-INCREASE-CURRENT> 54151452
<NET-CHANGE-FROM-OPS> 73876867
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 874893<F1>
<DISTRIBUTIONS-OF-GAINS> 777<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 2562096<F1>
<NUMBER-OF-SHARES-REDEEMED> 5700654<F1>
<SHARES-REINVESTED> 5584<F1>
<NET-CHANGE-IN-ASSETS> 30323810
<ACCUMULATED-NII-PRIOR> 49694
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 4333195
<GROSS-ADVISORY-FEES> 1499559
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2137308
<AVERAGE-NET-ASSETS> 181179613<F1>
<PER-SHARE-NAV-BEGIN> 11.89<F1>
<PER-SHARE-NII> 0.07<F1>
<PER-SHARE-GAIN-APPREC> 5.55<F1>
<PER-SHARE-DIVIDEND> 0.07<F1>
<PER-SHARE-DISTRIBUTIONS> 0<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 17.44<F1>
<EXPENSE-RATIO> 1.07<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Class Y
</FN>
</TABLE>
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<CIK> 0000896647
<NAME> PACIFIC CAPITAL FUNDS
<SERIES>
<NUMBER> 21
<NAME> U.S. TREASURY SECURITIES FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 22918222
<INVESTMENTS-AT-VALUE> 24392861
<RECEIVABLES> 559260
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 24952121
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 32933
<TOTAL-LIABILITIES> 32933
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 27582163
<SHARES-COMMON-STOCK> 116045<F1>
<SHARES-COMMON-PRIOR> 107197<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 35524
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 4102090
<ACCUM-APPREC-OR-DEPREC> 1474639
<NET-ASSETS> 24919188
<DIVIDEND-INCOME> 15979
<INTEREST-INCOME> 1624911
<OTHER-INCOME> 0
<EXPENSES-NET> 222569
<NET-INVESTMENT-INCOME> 1418321
<REALIZED-GAINS-CURRENT> (192623)
<APPREC-INCREASE-CURRENT> 873271
<NET-CHANGE-FROM-OPS> 2098969
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 60806<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 28434<F1>
<NUMBER-OF-SHARES-REDEEMED> 24896<F1>
<SHARES-REINVESTED> 5310<F1>
<NET-CHANGE-IN-ASSETS> 691740
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 3909467
<GROSS-ADVISORY-FEES> 145470
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 237600
<AVERAGE-NET-ASSETS> 1053649<F1>
<PER-SHARE-NAV-BEGIN> 9.13<F1>
<PER-SHARE-NII> 0.52<F1>
<PER-SHARE-GAIN-APPREC> 0.25<F1>
<PER-SHARE-DIVIDEND> 0.53<F1>
<PER-SHARE-DISTRIBUTIONS> 0.00<F1>
<RETURNS-OF-CAPITAL> 0.00<F1>
<PER-SHARE-NAV-END> 9.37<F1>
<EXPENSE-RATIO> 1.16<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00<F1>
<FN>
<F1>Class A
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000896647
<NAME> PACIFIC CAPITAL FUNDS
<SERIES>
<NUMBER> 22
<NAME> U.S. TREASURY SECURITIES FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 22918222
<INVESTMENTS-AT-VALUE> 24392861
<RECEIVABLES> 559260
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 24952121
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 32933
<TOTAL-LIABILITIES> 32933
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 27582163
<SHARES-COMMON-STOCK> 2541120<F1>
<SHARES-COMMON-PRIOR> 2543733<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 35524
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 4102090
<ACCUM-APPREC-OR-DEPREC> 1474639
<NET-ASSETS> 24919188
<DIVIDEND-INCOME> 15979
<INTEREST-INCOME> 1624911
<OTHER-INCOME> 0
<EXPENSES-NET> 222569
<NET-INVESTMENT-INCOME> 1418321
<REALIZED-GAINS-CURRENT> (192623)
<APPREC-INCREASE-CURRENT> 873271
<NET-CHANGE-FROM-OPS> 2098969
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1397515<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 149658<F1>
<NUMBER-OF-SHARES-REDEEMED> 300730<F1>
<SHARES-REINVESTED> 148459<F1>
<NET-CHANGE-IN-ASSETS> 691740
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 3909467
<GROSS-ADVISORY-FEES> 145470
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 237600
<AVERAGE-NET-ASSETS> 23221189<F1>
<PER-SHARE-NAV-BEGIN> 9.14<F1>
<PER-SHARE-NII> 0.53<F1>
<PER-SHARE-GAIN-APPREC> 0.26<F1>
<PER-SHARE-DIVIDEND> 0.55<F1>
<PER-SHARE-DISTRIBUTIONS> 0.00<F1>
<RETURNS-OF-CAPITAL> 0.00<F1>
<PER-SHARE-NAV-END> 9.38<F1>
<EXPENSE-RATIO> 0.91<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00<F1>
<FN>
<F1>Class Y
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000896647
<NAME> PACIFIC CAPITAL FUNDS
<SERIES>
<NUMBER> 31
<NAME> SHORT INTERMEDIATE U.S. TREASURY SECURITIES FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 26669931
<INVESTMENTS-AT-VALUE> 26968639
<RECEIVABLES> 400525
<ASSETS-OTHER> 81
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 27369245
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 28798
<TOTAL-LIABILITIES> 28798
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 27193087
<SHARES-COMMON-STOCK> 64800<F1>
<SHARES-COMMON-PRIOR> 122898<F1>
<ACCUMULATED-NII-CURRENT> 40
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 151388
<ACCUM-APPREC-OR-DEPREC> 298708
<NET-ASSETS> 27340447
<DIVIDEND-INCOME> 13758
<INTEREST-INCOME> 1443919
<OTHER-INCOME> 0
<EXPENSES-NET> 150237
<NET-INVESTMENT-INCOME> 1307440
<REALIZED-GAINS-CURRENT> (52500)
<APPREC-INCREASE-CURRENT> 504853
<NET-CHANGE-FROM-OPS> 1759793
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 38945<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 14898<F1>
<NUMBER-OF-SHARES-REDEEMED> 76854<F1>
<SHARES-REINVESTED> 3858<F1>
<NET-CHANGE-IN-ASSETS> 2639039
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 98819
<GROSS-ADVISORY-FEES> 119586
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 213916
<AVERAGE-NET-ASSETS> 745591<F1>
<PER-SHARE-NAV-BEGIN> 9.41<F1>
<PER-SHARE-NII> 0.49<F1>
<PER-SHARE-GAIN-APPREC> 0.14<F1>
<PER-SHARE-DIVIDEND> 0.49<F1>
<PER-SHARE-DISTRIBUTIONS> 0.00<F1>
<RETURNS-OF-CAPITAL> 0.00<F1>
<PER-SHARE-NAV-END> 9.55<F1>
<EXPENSE-RATIO> 0.87<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00<F1>
<FN>
<F1>Class A
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000896647
<NAME> PACIFIC CAPITAL FUNDS
<SERIES>
<NUMBER> 32
<NAME> SHORT INTERMEDIATE U.S. TREASURY SECURITIES FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 26669931
<INVESTMENTS-AT-VALUE> 26968639
<RECEIVABLES> 400525
<ASSETS-OTHER> 81
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 27369245
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 28798
<TOTAL-LIABILITIES> 28798
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 27193087
<SHARES-COMMON-STOCK> 2793910<F1>
<SHARES-COMMON-PRIOR> 2498684<F1>
<ACCUMULATED-NII-CURRENT> 40
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 151388
<ACCUM-APPREC-OR-DEPREC> 298708
<NET-ASSETS> 27340447
<DIVIDEND-INCOME> 13758
<INTEREST-INCOME> 1443919
<OTHER-INCOME> 0
<EXPENSES-NET> 150237
<NET-INVESTMENT-INCOME> 1307440
<REALIZED-GAINS-CURRENT> (52500)
<APPREC-INCREASE-CURRENT> 504853
<NET-CHANGE-FROM-OPS> 1759793
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1268495<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 1272770<F1>
<NUMBER-OF-SHARES-REDEEMED> 983459<F1>
<SHARES-REINVESTED> 5915<F1>
<NET-CHANGE-IN-ASSETS> 2639039
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 98819
<GROSS-ADVISORY-FEES> 119586
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 213916
<AVERAGE-NET-ASSETS> 23171343<F1>
<PER-SHARE-NAV-BEGIN> 9.42<F1>
<PER-SHARE-NII> 0.52<F1>
<PER-SHARE-GAIN-APPREC> 0.14<F1>
<PER-SHARE-DIVIDEND> 0.52<F1>
<PER-SHARE-DISTRIBUTIONS> 0.00<F1>
<RETURNS-OF-CAPITAL> 0.00<F1>
<PER-SHARE-NAV-END> 9.56<F1>
<EXPENSE-RATIO> 0.62<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00<F1>
<FN>
<F1>Class Y
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000896647
<NAME> PACIFIC CAPITAL FUNDS
<SERIES>
<NUMBER> 41
<NAME> TAX-FREE SECURITIES FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 273111775
<INVESTMENTS-AT-VALUE> 296205350
<RECEIVABLES> 3421498
<ASSETS-OTHER> 4947
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 299631795
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 322499
<TOTAL-LIABILITIES> 322499
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 275206266
<SHARES-COMMON-STOCK> 234871<F1>
<SHARES-COMMON-PRIOR> 54465<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1009455
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 23093575
<NET-ASSETS> 299309296
<DIVIDEND-INCOME> 51542
<INTEREST-INCOME> 16734532
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<EXPENSES-NET> 2550533
<NET-INVESTMENT-INCOME> 14235541
<REALIZED-GAINS-CURRENT> 1060114
<APPREC-INCREASE-CURRENT> 11477661
<NET-CHANGE-FROM-OPS> 26773316
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 58439<F1>
<DISTRIBUTIONS-OF-GAINS> 3793<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 201633<F1>
<NUMBER-OF-SHARES-REDEEMED> 23123<F1>
<SHARES-REINVESTED> 1896<F1>
<NET-CHANGE-IN-ASSETS> 9806632
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1585768
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1756304
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2674725
<AVERAGE-NET-ASSETS> 1270789<F1>
<PER-SHARE-NAV-BEGIN> 10.44<F1>
<PER-SHARE-NII> 0.49<F1>
<PER-SHARE-GAIN-APPREC> 0.46<F1>
<PER-SHARE-DIVIDEND> 0.49<F1>
<PER-SHARE-DISTRIBUTIONS> 0.06<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 10.84<F1>
<EXPENSE-RATIO> 1.12<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00<F1>
<FN>
<F1>Class A
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000896647
<NAME> PACIFIC CAPITAL FUNDS
<SERIES>
<NUMBER> 42
<NAME> TAX-FREE SECURITIES FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 273111775
<INVESTMENTS-AT-VALUE> 296205350
<RECEIVABLES> 3421498
<ASSETS-OTHER> 4947
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 299631795
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 322499
<TOTAL-LIABILITIES> 322499
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 275206266
<SHARES-COMMON-STOCK> 27323380<F1>
<SHARES-COMMON-PRIOR> 27610200<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1009455
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 23093575
<NET-ASSETS> 299309296
<DIVIDEND-INCOME> 51542
<INTEREST-INCOME> 16734532
<OTHER-INCOME> 0
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<NET-INVESTMENT-INCOME> 14235541
<REALIZED-GAINS-CURRENT> 1060114
<APPREC-INCREASE-CURRENT> 11477661
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 14177102<F1>
<DISTRIBUTIONS-OF-GAINS> 1632634<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 2950938<F1>
<NUMBER-OF-SHARES-REDEEMED> 3389736<F1>
<SHARES-REINVESTED> 151978<F1>
<NET-CHANGE-IN-ASSETS> 9806632
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1585768
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<OVERDIST-NET-GAINS-PRIOR> 0
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<GROSS-EXPENSE> 2674725
<AVERAGE-NET-ASSETS> 291810928<F1>
<PER-SHARE-NAV-BEGIN> 10.46<F1>
<PER-SHARE-NII> 0.51<F1>
<PER-SHARE-GAIN-APPREC> 0.46<F1>
<PER-SHARE-DIVIDEND> 0.51<F1>
<PER-SHARE-DISTRIBUTIONS> 0.06<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 10.86<F1>
<EXPENSE-RATIO> 0.87<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00<F1>
<FN>
<F1>Class Y
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000896647
<NAME> PACIFIC CAPITAL FUNDS
<SERIES>
<NUMBER> 51
<NAME> TAX-FREE SHORT INTERMEDIATE SECURITIES FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 38681464
<INVESTMENTS-AT-VALUE> 39279168
<RECEIVABLES> 404664
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 39683832
<PAYABLE-FOR-SECURITIES> 1500000
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<OTHER-ITEMS-LIABILITIES> 49470
<TOTAL-LIABILITIES> 1549470
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 37363214
<SHARES-COMMON-STOCK> 71289<F1>
<SHARES-COMMON-PRIOR> 44881<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 173444
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 597704
<NET-ASSETS> 38134362
<DIVIDEND-INCOME> 16239
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<DISTRIBUTIONS-OF-INCOME> 28544<F1>
<DISTRIBUTIONS-OF-GAINS> 986<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 73793<F1>
<NUMBER-OF-SHARES-REDEEMED> 48887<F1>
<SHARES-REINVESTED> 1502<F1>
<NET-CHANGE-IN-ASSETS> (1788779)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (16958)
<GROSS-ADVISORY-FEES> 195480
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 353308
<AVERAGE-NET-ASSETS> 800168<F1>
<PER-SHARE-NAV-BEGIN> 10.05<F1>
<PER-SHARE-NII> 0.37<F1>
<PER-SHARE-GAIN-APPREC> 0.13<F1>
<PER-SHARE-DIVIDEND> 0.37<F1>
<PER-SHARE-DISTRIBUTIONS> 0.01<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 10.17<F1>
<EXPENSE-RATIO> 1.09<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00<F1>
<FN>
<F1>Class A
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000896647
<NAME> PACIFIC CAPITAL FUNDS
<SERIES>
<NUMBER> 52
<NAME> TAX-FREE SHORT INTERMEDIATE SECURITIES FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 38681464
<INVESTMENTS-AT-VALUE> 39279168
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<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 39683832
<PAYABLE-FOR-SECURITIES> 1500000
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<OTHER-ITEMS-LIABILITIES> 49470
<TOTAL-LIABILITIES> 1549470
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 37363214
<SHARES-COMMON-STOCK> 3664505<F1>
<SHARES-COMMON-PRIOR> 3915452<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 173444
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 597704
<NET-ASSETS> 38134362
<DIVIDEND-INCOME> 16239
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<EXPENSES-NET> 329673
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<REALIZED-GAINS-CURRENT> 240632
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<DISTRIBUTIONS-OF-INCOME> 1462957<F1>
<DISTRIBUTIONS-OF-GAINS> 49244<F1>
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<NUMBER-OF-SHARES-SOLD> 540179<F1>
<NUMBER-OF-SHARES-REDEEMED> 796267<F1>
<SHARES-REINVESTED> 5141<F1>
<NET-CHANGE-IN-ASSETS> (1788779)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (16958)
<GROSS-ADVISORY-FEES> 195480
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 353308
<AVERAGE-NET-ASSETS> 38336671<F1>
<PER-SHARE-NAV-BEGIN> 10.08<F1>
<PER-SHARE-NII> 0.39<F1>
<PER-SHARE-GAIN-APPREC> 0.14<F1>
<PER-SHARE-DIVIDEND> 0.39<F1>
<PER-SHARE-DISTRIBUTIONS> 0.01<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 10.21<F1>
<EXPENSE-RATIO> 0.84<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00<F1>
<FN>
<F1>Class Y
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000896647
<NAME> PACIFIC CAPITAL FUNDS
<SERIES>
<NUMBER> 61
<NAME> DIVERSIFIED FIXED INCOME FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
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<TOTAL-ASSETS> 133846120
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<OTHER-ITEMS-LIABILITIES> 160041
<TOTAL-LIABILITIES> 160041
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 132482157
<SHARES-COMMON-STOCK> 103034<F1>
<SHARES-COMMON-PRIOR> 104506<F1>
<ACCUMULATED-NII-CURRENT> 0
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<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 2561077
<ACCUM-APPREC-OR-DEPREC> 3764999
<NET-ASSETS> 133686079
<DIVIDEND-INCOME> 108622
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<EXPENSES-NET> 1302299
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<REALIZED-GAINS-CURRENT> (2549993)
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<NUMBER-OF-SHARES-REDEEMED> 79822<F1>
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<NET-CHANGE-IN-ASSETS> (29148145)
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<AVERAGE-NET-ASSETS> 1123504<F1>
<PER-SHARE-NAV-BEGIN> 10.45<F1>
<PER-SHARE-NII> 0.57<F1>
<PER-SHARE-GAIN-APPREC> 0.35<F1>
<PER-SHARE-DIVIDEND> 0.57<F1>
<PER-SHARE-DISTRIBUTIONS> 0.09<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 10.71<F1>
<EXPENSE-RATIO> 1.15<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00<F1>
<FN>
<F1>Class A
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000896647
<NAME> PACIFIC CAPITAL FUNDS
<SERIES>
<NUMBER> 62
<NAME> DIVERSIFIED FIXED INCOME FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 127758477
<INVESTMENTS-AT-VALUE> 131523476
<RECEIVABLES> 2322644
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 133846120
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 160041
<TOTAL-LIABILITIES> 160041
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 132482157
<SHARES-COMMON-STOCK> 12296236<F1>
<SHARES-COMMON-PRIOR> 15364087<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 2561077
<ACCUM-APPREC-OR-DEPREC> 3764999
<NET-ASSETS> 133686079
<DIVIDEND-INCOME> 108622
<INTEREST-INCOME> 9405764
<OTHER-INCOME> 0
<EXPENSES-NET> 1302299
<NET-INVESTMENT-INCOME> 8212087
<REALIZED-GAINS-CURRENT> (2549993)
<APPREC-INCREASE-CURRENT> 7498463
<NET-CHANGE-FROM-OPS> 13160557
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8151002<F1>
<DISTRIBUTIONS-OF-GAINS> 1342055<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 4245046<F1>
<NUMBER-OF-SHARES-REDEEMED> 7368883<F1>
<SHARES-REINVESTED> 55986<F1>
<NET-CHANGE-IN-ASSETS> (29148145)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1341210
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 867869
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1366003
<AVERAGE-NET-ASSETS> 143632490<F1>
<PER-SHARE-NAV-BEGIN> 10.53<F1>
<PER-SHARE-NII> 0.60<F1>
<PER-SHARE-GAIN-APPREC> 0.34<F1>
<PER-SHARE-DIVIDEND> 0.60<F1>
<PER-SHARE-DISTRIBUTIONS> 0.09<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 10.78<F1>
<EXPENSE-RATIO> 0.90<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00<F1>
<FN>
<F1>Class Y
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000896647
<NAME> PACIFIC CAPITAL FUNDS
<SERIES>
<NUMBER> 71
<NAME> GROWTH AND INCOME FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 90175740
<INVESTMENTS-AT-VALUE> 127413189
<RECEIVABLES> 245984
<ASSETS-OTHER> 291
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 127659464
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 112107
<TOTAL-LIABILITIES> 112107
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 83775351
<SHARES-COMMON-STOCK> 215980<F1>
<SHARES-COMMON-PRIOR> 94173<F1>
<ACCUMULATED-NII-CURRENT> 44608
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 6489949
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 37237449
<NET-ASSETS> 127547357
<DIVIDEND-INCOME> 1791271
<INTEREST-INCOME> 3116
<OTHER-INCOME> 0
<EXPENSES-NET> 1040045
<NET-INVESTMENT-INCOME> 754342
<REALIZED-GAINS-CURRENT> 7101576
<APPREC-INCREASE-CURRENT> 31411841
<NET-CHANGE-FROM-OPS> 39267759
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 12204<F1>
<DISTRIBUTIONS-OF-GAINS> 74382<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 153432<F1>
<NUMBER-OF-SHARES-REDEEMED> 37700<F1>
<SHARES-REINVESTED> 6075<F1>
<NET-CHANGE-IN-ASSETS> 51960284
<ACCUMULATED-NII-PRIOR> 22307
<ACCUMULATED-GAINS-PRIOR> 3353377
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 768642
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1089509
<AVERAGE-NET-ASSETS> 2107548<F1>
<PER-SHARE-NAV-BEGIN> 12.32<F1>
<PER-SHARE-NII> 0.08<F1>
<PER-SHARE-GAIN-APPREC> 5.57<F1>
<PER-SHARE-DIVIDEND> 0.09<F1>
<PER-SHARE-DISTRIBUTIONS> 0.63<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 17.25<F1>
<EXPENSE-RATIO> 1.32<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00<F1>
<FN>
<F1>Class A
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000896647
<NAME> PACIFIC CAPITAL FUNDS
<SERIES>
<NUMBER> 72
<NAME> GROWTH AND INCOME FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 90175740
<INVESTMENTS-AT-VALUE> 127413189
<RECEIVABLES> 245984
<ASSETS-OTHER> 291
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 127659464
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 112107
<TOTAL-LIABILITIES> 112107
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 83775351
<SHARES-COMMON-STOCK> 7171253<F1>
<SHARES-COMMON-PRIOR> 6043467<F1>
<ACCUMULATED-NII-CURRENT> 44608
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 6489949
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 37237449
<NET-ASSETS> 127547357
<DIVIDEND-INCOME> 1791271
<INTEREST-INCOME> 3116
<OTHER-INCOME> 0
<EXPENSES-NET> 1040045
<NET-INVESTMENT-INCOME> 754342
<REALIZED-GAINS-CURRENT> 7101576
<APPREC-INCREASE-CURRENT> 31411841
<NET-CHANGE-FROM-OPS> 39267759
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 719837<F1>
<DISTRIBUTIONS-OF-GAINS> 3890622<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 3080616<F1>
<NUMBER-OF-SHARES-REDEEMED> 2125196<F1>
<SHARES-REINVESTED> 172366<F1>
<NET-CHANGE-IN-ASSETS> 51960284
<ACCUMULATED-NII-PRIOR> 22307
<ACCUMULATED-GAINS-PRIOR> 3353377
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 768642
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1089509
<AVERAGE-NET-ASSETS> 94208073<F1>
<PER-SHARE-NAV-BEGIN> 12.32<F1>
<PER-SHARE-NII> 0.11<F1>
<PER-SHARE-GAIN-APPREC> 5.58<F1>
<PER-SHARE-DIVIDEND> 0.11<F1>
<PER-SHARE-DISTRIBUTIONS> 0.63<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 17.27<F1>
<EXPENSE-RATIO> 1.07<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00<F1>
<FN>
<F1>Class Y
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000896647
<NAME> PACIFIC CAPITAL FUNDS
<SERIES>
<NUMBER> 81
<NAME> NEW ASIA GROWTH FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-31-1996
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 19750749
<INVESTMENTS-AT-VALUE> 21426264
<RECEIVABLES> 335623
<ASSETS-OTHER> 709107
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 22470994
<PAYABLE-FOR-SECURITIES> 586740
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 49655
<TOTAL-LIABILITIES> 49655
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 18399844
<SHARES-COMMON-STOCK> 249040<F1>
<SHARES-COMMON-PRIOR> 179009<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 64536
<ACCUMULATED-NET-GAINS> 1836687
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1662604
<NET-ASSETS> 21834599
<DIVIDEND-INCOME> 363404
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 293839
<NET-INVESTMENT-INCOME> 69565
<REALIZED-GAINS-CURRENT> 1756145
<APPREC-INCREASE-CURRENT> 2100723
<NET-CHANGE-FROM-OPS> 3926433
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1484<F1>
<DISTRIBUTIONS-OF-GAINS> 24563<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 111117<F1>
<NUMBER-OF-SHARES-REDEEMED> 42850<F1>
<SHARES-REINVESTED> 1764<F1>
<NET-CHANGE-IN-ASSETS> 11376196
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 143365
<OVERDISTRIB-NII-PRIOR> 25243
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 149300
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 323642
<AVERAGE-NET-ASSETS> 2723863<F1>
<PER-SHARE-NAV-BEGIN> 11.11<F1>
<PER-SHARE-NII> 0.03<F1>
<PER-SHARE-GAIN-APPREC> 2.88<F1>
<PER-SHARE-DIVIDEND> 0.01<F1>
<PER-SHARE-DISTRIBUTIONS> 0.12<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 13.89<F1>
<EXPENSE-RATIO> 1.98<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00<F1>
<FN>
<F1>Class A
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000896647
<NAME> PACIFIC CAPITAL FUNDS
<SERIES>
<NUMBER> 82
<NAME> NEW ASIA GROWTH FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-31-1996
<PERIOD-END> JUL-31-1997
<INVESTMENTS-AT-COST> 19750749
<INVESTMENTS-AT-VALUE> 21426264
<RECEIVABLES> 335623
<ASSETS-OTHER> 709107
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 22470994
<PAYABLE-FOR-SECURITIES> 586740
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 49655
<TOTAL-LIABILITIES> 49655
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 18399844
<SHARES-COMMON-STOCK> 1318129<F1>
<SHARES-COMMON-PRIOR> 760450<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 64536
<ACCUMULATED-NET-GAINS> 1836687
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1662604
<NET-ASSETS> 21834599
<DIVIDEND-INCOME> 363404
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 293839
<NET-INVESTMENT-INCOME> 69565
<REALIZED-GAINS-CURRENT> 1756145
<APPREC-INCREASE-CURRENT> 2100723
<NET-CHANGE-FROM-OPS> 3926433
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 15241<F1>
<DISTRIBUTIONS-OF-GAINS> 130393<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 791509<F1>
<NUMBER-OF-SHARES-REDEEMED> 240435<F1>
<SHARES-REINVESTED> 6605<F1>
<NET-CHANGE-IN-ASSETS> 11376196
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 143365
<OVERDISTRIB-NII-PRIOR> 25243
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 149300
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 323642
<AVERAGE-NET-ASSETS> 13911960<F1>
<PER-SHARE-NAV-BEGIN> 11.14<F1>
<PER-SHARE-NII> 0.06<F1>
<PER-SHARE-GAIN-APPREC> 2.87<F1>
<PER-SHARE-DIVIDEND> 0.01<F1>
<PER-SHARE-DISTRIBUTIONS> 0.12<F1>
<RETURNS-OF-CAPITAL> 0<F1>
<PER-SHARE-NAV-END> 13.94<F1>
<EXPENSE-RATIO> 1.72<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00<F1>
<FN>
<F1>Class Y
</FN>
</TABLE>
