<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON SEPTEMBER 16, 1998
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
EFFECTIVE AMENDMENT NO. 11 [X]
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 13 [X]
(CHECK APPROPRIATE BOX OR BOXES)
---------------------
PACIFIC CAPITAL FUNDS
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
3435 STELZER ROAD
COLUMBUS, OHIO 43219
(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:
MICHAEL GLAZER, ESQ.
PAUL, HASTINGS, JANOFSKY & WALKER LLP
555 SOUTH FLOWER STREET
LOS ANGELES, CALIFORNIA 90071
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)
[ ] 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)(i)
[ ] ON (DATE) PURSUANT TO PARAGRAPH (a)(i)
[X] 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
<PAGE> 2
PACIFIC CAPITAL FUNDS
Cross Reference Sheet
Part A Prospectus Caption
1 Cover Pages
2 Risk/Return Summary and Fund Expenses
3 Risk/Return Summary and Fund Expenses
4 Investment Objectives, Policies and Risks
5 Risk/Return Summary and Fund Expenses
6 Fund Management
7 Shareholder Information
8 Shareholder Information
9 Financial Highlights
Part B Statement of Additional Information Caption
10 Cover Pages
11 General Information
12 Investment Restrictions; Additional Information on Fund
Investments and Risks
13 Management
14 Management
15 Management
16 Purchase of Shares; Redemption of Shares; Distribution and
Shareholder Service Plans
17 General Information
18 Purchase of Shares; Redemption of Shares; Distribution and
Shareholder Service Plans
19 Federal and Hawaiian Tax Information
20 N/A
21 Calculation of Yield and Total Return
22 Financial Information
Part C Other Information
23-30 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
Cover Page
PACIFIC CAPITAL FUNDS
PROSPECTUS
DECEMBER 1, 1998
GROWTH AND INCOME FUND
GROWTH STOCK FUND
BALANCED FUND
NEW ASIA GROWTH FUND
SMALL CAP FUND
VALUE FUND
INTERNATIONAL STOCK FUND
CLASS A AND CLASS B
RETAIL SHARES
The Securities and Exchange Commission has not approved the shares described in
this prospectus or determined whether this prospectus is accurate or complete.
Anyone who tells you otherwise is committing a crime.
<PAGE> 4
PACIFIC CAPITAL FUNDS
---------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
RISK/RETURN SUMMARY AND FUND EXPENSES
Carefully review this important section, which summarizes
each Fund's investments, risks, past performance, and fees.
Growth and Income Fund
Growth Stock Fund
Balanced Fund
New Asia Growth Fund
Small Cap Fund
Value Fund
International Stock Fund
INVESTMENT OBJECTIVES, POLICIES AND RISKS
Review this section for details on each Fund's investment strategies and risks
FUND MANAGEMENT
Review this section for details on the people and organizations who oversee the
Fund
The Investment Adviser
The Sub-Adviser
Portfolio Managers
The Distributor and Administrator
SHAREHOLDER INFORMATION
Review this section for details on how shares are valued, how to purchase, sell
and exchange shares, related charges, and payments of dividends and
distributions.
Pricing of Fund Shares
Purchasing and Adding to Your Shares
Selling Your Shares
Exchanging Your Shares
Distribution Arrangements /Sales Charges
Dividends, Distributions and Taxes
FINANCIAL HIGHLIGHTS
BACK COVER
Where to learn more about the Funds.
</TABLE>
2
<PAGE> 5
GROWTH AND INCOME FUND
----------------------
RISK/RETURN SUMMARY
-------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE o Current income
o Secondarily, long term capital appreciation
PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in a diversified
portfolio of high quality, dividend paying common
stocks of U.S. companies and securities that are
convertible into such common stocks.
PRINCIPAL INVESTMENT RISKS
Because the value of the Fund's investments will
fluctuate with market conditions, so will the
value of your investment in the Fund. You could
lose money on your investment in the Fund, or the
Fund could underperform other investments.
The values of the Fund's investments fluctuate in
response to the activities of individual companies
and general stock market and economic conditions.
The values of its convertible securities are also
affected by movements in interest rates; if rates
rise, the values of convertible securities may
fall.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
o want current income
o want potential capital appreciation and are willing
to accept higher risks associated with investing in
stocks
o want professional portfolio management
This Fund is not appropriate for anyone seeking:
o safety of principal
o a short term investment
</TABLE>
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
3
<PAGE> 6
PERFORMANCE BAR CHART AND TABLE
-------------------------------
The two charts below show how the Growth and Income Fund has performed and how
its performance has varied from year to year. The bar chart shows changes in the
yearly performance of the Fund and its predecessor over a period of ten years to
demonstrate that they have gained and lost value at differing times. The table
below it compares the performance of the Fund and its predecessor over time to
that of the S&P 500(R) Index, a widely recognized, unmanaged index of common
stocks.
Both charts assume reinvestment of dividends and distributions. The bar chart
does not reflect the impact of any applicable sales charges. Of course, past
performance does not indicate how the Fund will perform in the future.
Year-by-Year Total Returns as of 12/31 for Class A Shares*
<TABLE>
<CAPTION>
Year Percent
<S> <C> <C>
1988 15.89%
1989 28.43%
1990 -1.82%
1991 24.01%
1992 0.75%
1993 4.67%
1994 0.23%
1995 26.30%
1996 18.39%
1997 33.58%
</TABLE>
<TABLE>
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Best quarter: Q2 1997 +18.02%
Worst quarter: Q4 1987 -19.12%
- ---------------------------------------------------------------------
</TABLE>
The returns for Class B shares differ from the Class A returns shown in the bar
chart because of differences in each Class' expenses. The table assumes that
Class B shareholders redeem all their fund shares at the end of the period
indicated.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS PERFORMANCE PAST PAST 5 PAST 10 SINCE 1/1/98-
(FOR THE PERIODS ENDING DECEMBER INCEPTION YEAR YEARS YEARS INCEPTION 7/31/98
31, 1997)
- ------------------------------------- --------------- ---------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Class A (with 4.00% sales charge) 10/31/77 28.28% 15.01% 13.90% 10.68% 11.34%
Class B (with CDSC) 10/31/77 28.28% 15.01% 13.90% 10.68% 10.68%
- ------------------------------------- --------------- ---------- ----------- ----------- ------------- -------------
S&P 500(R) Index
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* The quoted performance of the 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 January
31, 1988, and prior to the Fund's commencement of operations on October 14,
1994, as adjusted to reflect the expenses associated with the Fund. The
Commingled accounts were not registered with the Securities and Exchange
Commission under the Investment Company Act of 1940 and therefore were not
subject to the investment restrictions imposed by
4
<PAGE> 7
law on registered mutual funds. If the Commingled accounts had been
registered, the Commingled accounts' performance may have been adversely
affected.
FEES AND EXPENSES
As an investor in the Growth and Income Fund, you will pay the following fees
and expenses. Shareholder transaction fees are paid from your account. Annual
Fund operating expenses are paid out of Fund assets, and are reflected in the
share price. If you purchase shares through a bank, broker or other investment
representative, including an affiliate of Pacific Century, you may be charged an
account-level fee for additional services provided to you in connection with
your investment in the Fund.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES A SHARES B SHARES
(FEES PAID BY YOU DIRECTLY)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum sales charge (load) on
Purchases 4.00%(1) None
Maximum deferred sales charge (load) None(1) 5.00%(2)
<CAPTION>
- --------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES A SHARES B SHARES
(FEES PAID FROM FUND ASSETS)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Management Fee(3) 0.80% 0.80%
Distribution (12b-1) Fee(4) 0.75%(3) 1.00%
Other Expenses(3) 0.32% 0.32%
Total Fund Operating Expenses(3) 1.87% 2.12%
<FN>
1 Lower sales charges are available depending upon the amount invested. For investments of $1
million or more, a Contingent Deferred Sales Charge is applicable to redemptions within one
year of purchase.
2 A Contingent Deferred Sales Charge applies to your redemption of Class B shares before the
sixth anniversary of your purchase, declining from 5% within the first year to 0% after the
sixth year.
3 The Adviser is limiting the 12b-1 Fee (Class A shares only) and Other Expenses paid by the
Fund for the current fiscal year to 0.25% and 0.28%, respectively. Total Fund Operating
Expenses after fee waivers and expense reimbursements are 1.33% and 2.08% for A and B shares
respectively. The Adviser may revise or cancel these expense limitations at any time and
will notify you of the change.
4 Long-term shareholders may pay indirectly more than the equivalent of the maximum permitted
front-end sales charge due to the recurring nature of Distribution (12b-1) Fees.
</FN>
</TABLE>
- --------------------------------------------------------------------------------
CONTINGENT DEFERRED SALES CHARGE
Both Fund share classes impose a back end sales charge (load) if you sell your
shares before a certain period of time has elapsed. This is called a
Contingent Deferred Sales Charge ("CDSC").
- --------------------------------------------------------------------------------
5
<PAGE> 8
EXPENSE EXAMPLE
Use the table below to compare fees and expenses with those of other funds. It
illustrates the amount of fees and expenses you would pay assuming the
following:
o $10,000 investment
o 5% annual return
o redemption at the end of each period
o no changes in the Fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES $582 $964 $1,371 $2,503
CLASS B SHARES
ASSUMING REDEMPTION $715 $964 $1,339 $2,359
ASSUMING NO REDEMPTION $215 $664 $1,139 $2,359
</TABLE>
6
<PAGE> 9
GROWTH STOCK FUND
-----------------
RISK/RETURN SUMMARY
-------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE o Long term capital appreciation
o Secondarily, dividend income
PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in a diversified portfolio of
common stocks of U.S. and foreign companies, and
securities that are convertible into such common stocks.
The Fund may invest a significant portion of its assets
in smaller and newer companies.
PRINCIPAL INVESTMENT RISKS Because the value of the Fund's investments will
fluctuate with market conditions, so will the value of
your investment in the Fund. You could lose money on your
investment in the Fund, or the Fund could underperform
other investments.
The values of the Fund's investments fluctuate in
response to the activities of individual companies and
general stock market and economic conditions. Stock
prices of smaller and newer companies fluctuate more than
larger more established companies. In addition, the
performance of foreign securities depends on different
political and economic environments and other overall
economic conditions in countries where the Fund invests.
The values of the Fund's convertible securities are also
affected by movement in interest rates; if rates rise,
the values of convertible securities may fall.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
o are investing for long term goals
o want potential capital appreciation and are willing
to accept the higher risks associated with investing
in stocks
o want professional portfolio management
This Fund is not appropriate for anyone seeking:
o safety of principal
o regular income
o a short term investment
</TABLE>
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
7
<PAGE> 10
PERFORMANCE BAR CHART AND TABLE
-------------------------------
The two charts below show how the Growth Stock Fund has performed and how its
performance has varied from year to year. The bar chart shows changes in the
yearly performance of the Fund and its predecessor over a period of ten years to
demonstrate that they have gained and lost value at differing times. The table
below it compares the performance of the Fund and its predecessor over time to
that of the S&P 500(R), a widely recognized, unmanaged index of common stocks.
Both charts assume reinvestment of dividends and distributions. The bar chart
does not reflect the impact of any applicable sales charges. Of course, past
performance does not indicate how the Fund will perform in the future.
Year-by-Year Total Returns as of 12/31 for Class A Shares*
<TABLE>
<CAPTION>
Year Percent
<S> <C> <C>
1988 7.64%
1989 30.77%
1990 2.26%
1991 35.25%
1992 2.07%
1993 6.91%
1994 -1.22%
1995 29.79%
1996 14.75%
1997 30.19%
</TABLE>
<TABLE>
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Best quarter: Q2 1997 +18.67%
Worst quarter: Q4 1987 -22.15%
- ---------------------------------------------------------------------
</TABLE>
The returns for Class B shares differ from the Class A returns shown in the bar
chart because of differences in each Class' expenses. The table assumes that
Class B shareholders redeem all their fund shares at the end of the period
indicated.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS PERFORMANCE PAST PAST 5 PAST 10 SINCE 1/1/98-
(FOR THE PERIODS ENDING DECEMBER INCEPTION YEAR YEARS YEARS INCEPTION 7/31/98
31, 1997)
- ------------------------------------- --------------- ---------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Class A (with 4.00% sales charge) 10/31/77 25.02% 14.47% 14.59% 12.44% 13.64%
Class B (with CDSC) 10/31/77 25.02% 14.47% 14.59% 12.44% 13.13%
- ------------------------------------- --------------- ---------- ----------- ----------- ------------- -------------
S&P 500(R) Index
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* The quoted performance of the 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 January
31, 1988, and prior to the Fund's commencement of operations on November 1,
1993, as adjusted to reflect the expenses associated with the Fund. The
Commingled accounts were not registered with the Securities and Exchange
Commission under the
8
<PAGE> 11
Investment Company Act of 1940 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.
FEES AND EXPENSES
As an investor in the Growth Stock Fund, you will pay the following fees and
expenses. Shareholder transaction fees are paid from your account. Annual Fund
operating expenses are paid out of Fund assets, and are reflected in the share
price. If you purchase shares through a bank, broker or other investment
representative, including an affiliate of Pacific Century, you may be charged an
account-level fee for additional services provided to you in connection with
your investment in the Fund.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES A SHARES B SHARES
(FEES PAID BY YOU DIRECTLY)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum sales charge (load) on
Purchases 4.00%(1) None
Maximum deferred sales charge (load) None(1) 5.00%(2)
<CAPTION>
- --------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES A SHARES B SHARES
(FEES PAID FROM FUND ASSETS)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Management Fee(3) 0.80% 0.80%
Distribution (12b-1) Fee(4) 0.75%(3) 1.00%
Other Expenses(3) 0.29% 0.29%
Total Fund Operating Expenses(3) 1.84% 2.09%
<FN>
1 Lower sales charges are available depending upon the amount invested. For investments of $1
million or more, a Contingent Deferred Sales Charge is applicable to redemptions within one
year of purchase.
2 A Contingent Deferred Sales Charge applies to your redemption of Class B shares before the
sixth anniversary of your purchase, declining from 5% within the first year to 0% after the
sixth year.
3 The Adviser is limiting the 12b-1 Fee (Class A shares only) and Other Expenses paid by the
Fund for the current fiscal year to 0.25% and 0.25%, respectively. Total Fund Operating
Expenses after fee waivers and expense reimbursements are 1.30% and 2.05% for A and B
shares respectively. The Adviser may revise or cancel these expense limitations at any time
and will notify you of the change.
4 Long-term shareholders may pay indirectly more than the equivalent of the maximum permitted
front-end sales charge due to the recurring nature of Distribution (12b-1) Fees.
</FN>
</TABLE>
- --------------------------------------------------------------------------------
CONTINGENT DEFERRED SALES CHARGE
Both Fund share classes impose a back end sales charge (load) if you sell your
shares before a certain period of time has elapsed. This is called a
Contingent Deferred Sales Charge ("CDSC").
- --------------------------------------------------------------------------------
9
<PAGE> 12
EXPENSE EXAMPLE
Use the table below to compare fees and expenses with those of other funds. It
illustrates the amount of fees and expenses you would pay assuming the
following:
o $10,000 investment
o 5% annual return
o redemption at the end of each period
o no changes in the Fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES $579 $955 $1,356 $2,472
CLASS B SHARES
ASSUMING REDEMPTION $712 $955 $1,324 $2,328
ASSUMING NO REDEMPTION $212 $655 $1,124 $2,328
</TABLE>
10
<PAGE> 13
BALANCED FUND *
---------------
RISK/RETURN SUMMARY
-------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE o Current income
o Secondarily, long term capital appreciation
PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in a diversified
portfolio of common stocks, bonds and securities
that are convertible into common stocks. It
invests principally in U.S. companies. The Fund
may invest a significant portion of its assets in
medium and smaller-sized companies.
PRINCIPAL INVESTMENT RISKS Because the value of the Fund's investments will
fluctuate with market conditions, so will the
value of your investment in the Fund. You could
lose money on your investment in the Fund, or the
Fund could underperform other investments.
The values of the Fund's stock investments
fluctuate in response to the activities of
individual companies and general stock market and
economic conditions. Stock prices of medium and
smaller size companies fluctuate more than larger
more established companies. The values of the
Fund's bond investments fluctuate in response to
movements in interest rates. If rates rise, the
values of bonds generally fall; the longer the
remaining maturity of the bonds, the greater the
fluctuation. The values of the Fund's convertible
securities are also affected by interest rates.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
o want current income
o want potential capital appreciation and are
willing to accept the higher risks associated
with investing in stocks
o want professional portfolio management
This Fund is not appropriate for anyone seeking:
o safety of principal
o a short term investment
</TABLE>
* THIS FUND IS NOT CURRENTLY BEING OFFERED TO THE PUBLIC.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
11
<PAGE> 14
FEES AND EXPENSES
As an investor in the Balanced Fund, you will pay the following fees and
expenses. Shareholder transaction fees are paid from your account. Annual Fund
operating expenses are paid out of Fund assets, and are reflected in the share
price. If you purchase shares through a bank, broker or other investment
representative, including an affiliate of Pacific Century, you may be charged an
account-level fee for additional services provided to you in connection with
your investment in the Fund.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES A SHARES B SHARES
(FEES PAID BY YOU DIRECTLY)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum sales charge (load) on
Purchases 4.00%(1) None
Maximum deferred sales charge (load) None(1) 5.00% (2)
<CAPTION>
- --------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES A SHARES B SHARES
(FEES PAID FROM FUND ASSETS)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Management Fee(3) 1.00% 1.00%
Distribution (12b-1) Fee(4) 0.75%(3) 1.00%
Other Expenses(3) 0.46% 0.46%
Total Fund Operating Expenses(3) 2.21% 2.46%
<FN>
1 Lower sales charges are available depending upon the amount invested. For investments of
$1 million or more, a Contingent Deferred Sales Charge is applicable to redemptions
within one year of purchase.
2 A Contingent Deferred Sales Charge applies to your redemption of Class B shares before
the sixth anniversary of your purchase, declining from 5% within the first year to 0%
after the sixth year.
3 The Adviser is limiting the 12b-1 Fee (Class A shares only) and Other Expenses paid by
the Fund for the current fiscal year to 0.25% and 0.42%, respectively. Total Fund
Operating Expenses after fee waivers and expense reimbursements are 1.67% and 2.42% for A
and B shares respectively. The Adviser may revise or cancel these expense limitations at
any time and will notify you of the change.
4 Long-term shareholders may pay indirectly more than the equivalent of the maximum
permitted front-end sales charge due to the recurring nature of Distribution (12b-1)
Fees.
</FN>
</TABLE>
- --------------------------------------------------------------------------------
CONTINGENT DEFERRED SALES CHARGE
Both Fund share classes impose a back end sales charge (load) if you sell your
shares before a certain period of time has elapsed. This is called a
Contingent Deferred Sales Charge ("CDSC").
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
Use the table below to compare fees and expenses with those of other funds. It
illustrates the amount of fees and expenses you would pay assuming the
following:
o $10,000 investment
o 5% annual return
o redemption at the end of each period
o no changes in the Fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES $615 $1,064 $1,537 $2,842
CLASS B SHARES
ASSUMING REDEMPTION $749 $1,067 $1,511 $2,706
ASSUMING NO REDEMPTION $249 $ 767 $1,311 $2,706
</TABLE>
12
<PAGE> 15
NEW ASIA GROWTH FUND
--------------------
RISK/RETURN SUMMARY
-------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE o Long term growth of capital
PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in common and
preferred stocks of companies located in the
developing countries of Asia, and securities
that are convertible into such common stocks.
The Fund may invest in these securities
directly, or indirectly through other
investment companies or trusts. The Fund does
not limit its investments to any particular
type or size of company.
PRINCIPAL INVESTMENT RISKS Because the value of the Fund's investments
will fluctuate with market conditions, so will
the value of your investment in the Fund. You
could lose money on your investment in the
Fund, or the Fund could underperform other
investments.
The values of the Fund's investments fluctuate
in response to the activities of individual
companies and general stock market and
economic conditions. Stock prices of smaller
and newer companies fluctuate more than larger
more established companies. In addition, the
performance of foreign securities depends on
different political and economic environments
and other overall economic conditions in the
countries where the Fund invests. Emerging
country markets involve greater risk and
volatility then more developed markets. The
values of the Fund's convertible securities
are also affected by interest rates.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
o want potential capital appreciation and are
willing to accept the higher risks associated
with investing in stocks
o are investing for long-term goals
o want professional portfolio management
This Fund is not appropriate for anyone seeking:
o safety of principal
o regular income
o a short term investment
</TABLE>
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
14
<PAGE> 16
PERFORMANCE BAR CHART AND TABLE
-------------------------------
The two charts below show how the New Asia Growth Fund has performed and how its
performance has varied from year to year. The bar chart shows changes in the
Fund's yearly performance since its inception to demonstrate that the Fund has
gained and lost value at differing times. The table below it compares the Fund's
performance over time to that of the Morgan Stanley Capital International (MSCI)
Far East Index (excluding Japan), a widely recognized, unmanaged index of stock
markets in that region.
Both charts assume reinvestment of dividends and distributions. The bar chart
does not reflect the impact of any applicable sales charges. Of course, past
performance does not indicate how the Fund will perform in the future.
Year-by-Year Total Returns as of 12/31 for Class A Shares
<TABLE>
<CAPTION>
Year Percent
<S> <C> <C>
1996 16.00%
1997 -24.64%
</TABLE>
<TABLE>
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Best quarter: Q2 1996 + 8.98%
Worst quarter: Q4 1997 -25.01%
- ---------------------------------------------------------------------
</TABLE>
The returns for Class B shares differ from the Class A returns shown in the bar
chart because of differences in each Class' expenses. The table assumes that
Class B shareholders redeem all their fund shares at the end of the period
indicated.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS PERFORMANCE PAST SINCE 1/1/98-
(FOR THE PERIODS ENDING DECEMBER INCEPTION YEAR INCEPTION 7/31/98
31, 1997)
- ------------------------------------- --------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Class A (with 5.25% sales charge) 2/15/95 -28.60% -2.95% -27.92%
Class B (with CDSC) 2/15/95 -28.60% -2.95% -27.87%
- ------------------------------------- --------------- ---------- ----------- ----------- ------------- -------------
(MSCI) Far East Index (excluding Japan)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 17
FEES AND EXPENSES
As an investor in the New Asia Growth Fund, you will pay the following fees and
expenses. Shareholder transaction fees are paid from your account. Annual Fund
operating expenses are paid out of Fund assets, and are reflected in the share
price. If you purchase shares through a bank, broker or other investment
representative, including an affiliate of Pacific Century, you may be charged an
account-level fee for additional services provided to you in connection with
your investment in the Fund.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES A SHARES B SHARES
(FEES PAID BY YOU DIRECTLY)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum sales charge (load) on
Purchases 5.25%(1) None
Maximum deferred sales charge (load) None(1) 5.00%(2)
<CAPTION>
- --------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES A SHARES B SHARES
(FEES PAID FROM FUND ASSETS)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Management Fee(3) 0.90% 0.90%
Distribution (12b-1) Fee(4) 0.75%(3) 1.00%
Other Expenses(3) 1.28% 1.28%
Total Fund Operating Expenses(3) 2.93% 3.18%
<FN>
1 Lower sales charges are available depending upon the amount invested. For investments of
$1 million or more, a Contingent Deferred Sales Charge is applicable to redemptions
within one year of purchase.
2 A Contingent Deferred Sales Charge applies to your redemption of Class B shares before
the sixth anniversary of your purchase, declining from 5% within the first year to 0%
after the sixth year.
3 The Adviser is limiting the 12b-1 Fee (Class A shares only) and Other Expenses paid by
the Fund for the current fiscal year to 0.25% and 1.23%, respectively. Total Fund
Operating Expenses after fee waivers and expense reimbursements are 2.38% and 3.13% for A
and B shares respectively. The Adviser may revise or cancel these expense limitations at
any time and will notify you of the change.
4 Long-term shareholders may pay indirectly more than the equivalent of the maximum
permitted front-end sales charge due to the recurring nature of Distribution (12b-1)
Fees.
</FN>
</TABLE>
- --------------------------------------------------------------------------------
CONTINGENT DEFERRED SALES CHARGE
Both Fund share classes impose a back end sales charge (load) if you sell your
shares before a certain period of time has elapsed. This is called a
Contingent Deferred Sales Charge ("CDSC").
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
Use the table below to compare fees and expenses with those of other funds. It
illustrates the amount of fees and expenses you would pay assuming the
following:
o $10,000 investment
o 5% annual return
o redemption at the end of each period
o no changes in the Fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES $805 $1,384 $1,987 $3,606
CLASS B SHARES
ASSUMING REDEMPTION $821 $1,280 $1,864 $3,401
ASSUMING NO REDEMPTION $321 $ 980 $1,664 $3,401
</TABLE>
16
<PAGE> 18
SMALL CAP FUND
--------------
RISK/RETURN SUMMARY
-------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE o Long term growth of capital
PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in a diversified portfolio
of common stocks of smaller U.S. companies, and
securities that are convertible into such common
stocks.
PRINCIPAL INVESTMENT RISKS Because the value of the Fund's investments will
fluctuate with market conditions, so will the value of
your investment in the Fund. You could lose money on
your investment in the Fund, or the Fund could
underperform other investments.
The values of the Fund's investments fluctuate in
response to the activities of individual companies and
general stock market and economic conditions. Stock
prices of smaller and newer companies fluctuate more
than larger more established companies. The values of
the Fund's convertible securities are also affected by
movements in interest rates; if rates rise, the values
of convertible securities may fall.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
o are investing for long term goals
o want potential capital appreciation and are willing
to accept the higher risks associated with investing
in stocks
o want professional portfolio management
This is not appropriate for anyone seeking:
o safety of principal
o a short term investment
o regular income
</TABLE>
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
17
<PAGE> 19
FEES AND EXPENSES
As an investor in the Small Cap Fund, you will pay the following fees and
expenses. Shareholder transaction fees are paid from your account. Annual Fund
operating expenses are paid out of Fund assets, and are reflected in the share
price. If you purchase shares through a bank, broker or other investment
representative, including an affiliate of Pacific Century, you may be charged an
account-level fee for additional services provided to you in connection with
your investment in the Fund.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES A SHARES B SHARES
(FEES PAID BY YOU DIRECTLY)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum sales charge (load) on
Purchases 4.00%(1) None
Maximum deferred sales charge (load) None(1) 5.00%(2)
<CAPTION>
- ------------------------------------------------------------------------------ --------------------- ------------------
ANNUAL FUND OPERATING EXPENSES A SHARES B SHARES
(FEES PAID FROM FUND ASSETS)
- ------------------------------------------------------------------------------ --------------------- ------------------
<S> <C> <C>
Management Fee(3) 1.00% 1.00%
Distribution (12b-1) Fee(4) 0.75%(3) 1.00%
Other Expenses(3) 0.59% 0.59%
Total Fund Operating Expenses(3) 2.34% 2.59%
<FN>
1 Lower sales charges are available depending upon the amount invested. For investments of
$1 million or more, a Contingent Deferred Sales Charge is applicable to redemptions
within one year of purchase.
2 A Contingent Deferred Sales Charge applies to your redemption of Class B shares before
the sixth anniversary of your purchase, declining from 5% within the first year to 0%
after the sixth year.
3 The Adviser is limiting the 12b-1 Fee (Class A shares only) and Other Expenses paid by
the Fund for the current fiscal year to 0.25% and 0.55%, respectively. Total Fund
Operating Expenses after fee waivers and expense reimbursements are 1.80% and 2.55% for A
and B shares respectively. The Adviser may revise or cancel these expense limitations at
any time and will notify you of the change.
4 Long-term shareholders may pay indirectly more than the equivalent of the maximum
permitted front-end sales charge due to the recurring nature of Distribution (12b-1)
Fees.
</FN>
</TABLE>
- --------------------------------------------------------------------------------
CONTINGENT DEFERRED SALES CHARGE
Both Fund share classes impose a back end sales charge (load) if you sell your
shares before a certain period of time has elapsed. This is called a
Contingent Deferred Sales Charge ("CDSC").
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
Use the table below to compare fees and expenses with those of other funds. It
illustrates the amount of fees and expenses you would pay assuming the
following:
o $10,000 investment
o 5% annual return
o redemption at the end of each period
o no changes in the Fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------
1 YEAR 3 YEARS
- --------------------------------------------------------------------
<S> <C> <C>
CLASS A SHARES $628 $1,101
CLASS B SHARES
ASSUMING REDEMPTION $762 $1,105
ASSUMING NO REDEMPTION $262 $ 805
</TABLE>
18
<PAGE> 20
VALUE FUND
----------
RISK/RETURN SUMMARY
-------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE o Current income
o Secondarily, long term growth of capital
PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in a diversified portfolio
of dividend paying common stocks of U.S. companies,
and securities that are convertible into such common
stocks. The Fund does not limit its investments to any
particular size or type of company.
PRINCIPAL INVESTMENT RISKS Because the value of the Fund's investments will
fluctuate with market conditions, so will the value of
your investment in the Fund. You could lose money on
your investment in the Fund, or the Fund could
underperform other investments.
The values of the Fund's investments fluctuate in
response to the activities of individual companies and
general stock market and economic conditions. The
values of its convertible securities are also affected
by movements in interest rates; if rates rise, the
values of convertible securities may fall.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
o want current income
o want potential capital appreciation and are willing to accept the higher risks
associated with investing in stocks
o want professional portfolio management
This Fund is not appropriate for anyone seeking:
o safety of principal
o a short term investment
</TABLE>
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
19
<PAGE> 21
FEES AND EXPENSES
As an investor in the Value Fund, you will pay the following fees and expenses.
Shareholder transaction fees are paid from your account. Annual Fund operating
expenses are paid out of Fund assets, and are reflected in the share price. If
you purchase shares through a bank, broker or other investment representative,
including an affiliate of Pacific Century, you may be charged an account-level
fee for additional services provided to you in connection with your investment
in the Fund.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES A SHARES B SHARES
(FEES PAID BY YOU DIRECTLY)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum sales charge (load) on
Purchases 4.00%(1) None
Maximum deferred sales charge (load) None(1) 5.00%(2)
<CAPTION>
- --------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES A SHARES B SHARES
(FEES PAID FROM FUND ASSETS)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Management Fee(3) 1.00% 1.00%
Distribution (12b-1) Fee(4) 0.75%(3) 1.00%
Other Expenses(4) 0.37% 0.37%
Total Fund Operating Expenses(3) 2.12% 2.37%
<FN>
1 Lower sales charges are available depending upon the amount invested. For investments of
$1 million or more, a Contingent Deferred Sales Charge is applicable to redemptions
within one year of purchase.
2 A Contingent Deferred Sales Charge applies to your redemption of Class B shares before
the sixth anniversary of your purchase, declining from 5% within the first year to 0%
after the sixth year.
3 The Adviser is limiting the 12b-1 Fee (Class A shares only) and Other Expenses paid by
the Fund for the current fiscal year to 0.25% and 0.33%, respectively. Total Fund
Operating Expenses after fee waivers and expense reimbursements are 1.58% and 2.33% for A
and B shares respectively. The Adviser may revise or cancel these expense limitations at
any time and will notify you of the change.
4 Long-term shareholders may pay indirectly more than the equivalent of the maximum
permitted front-end sales charge due to the recurring nature of Distribution (12b-1)
Fees.
</FN>
</TABLE>
- --------------------------------------------------------------------------------
CONTINGENT DEFERRED SALES CHARGE
Both Fund share classes impose a back end sales charge (load) if you sell your
shares before a certain period of time has elapsed. This is called a
Contingent Deferred Sales Charge ("CDSC").
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
Use the table below to compare fees and expenses with those of other funds. It
illustrates the amount of fees and expenses you would pay assuming the
following:
o $10,000 investment
o 5% annual return
o redemption at the end of each period
o no changes in the Fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
1 YEAR 3 YEARS
- ------------------------------------------------------------------
<S> <C> <C>
CLASS A SHARES $606 $1,037
CLASS B SHARES
ASSUMING REDEMPTION $740 $1,039
ASSUMING NO REDEMPTION $240 $ 739
</TABLE>
20
<PAGE> 22
INTERNATIONAL STOCK FUND
------------------------
RISK/RETURN SUMMARY
-------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE o Long term growth of capital
PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in common and preferred
stocks of foreign companies and securities that are
convertible into common stocks. The Fund may invest in
these securities directly, or indirectly through other
investment companies or trusts. The Fund does not
limit its investments to any particular type or size
of company or to any region of the world..
PRINCIPAL INVESTMENT RISKS Because the value of the Fund's investments will
fluctuate with market conditions, so will the value of
your investment in the Fund. You could lose money on
your investment in the Fund, or the Fund could
underperform other investments.
The values of the Fund's investments fluctuate in
response to the activities of individual companies and
general stock market and economic conditions. Stock
prices of smaller and newer companies fluctuate more
than larger more established companies. In addition,
the performance of foreign securities depends on
different political and economic environments and
other overall economic conditions in the countries
where the Fund invests. Emerging country markets
involve greater risk and volatility than more
developed markets. The values of the Fund's
convertible securities are also affected by interest
rates..
WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
o want potential capital appreciation and are willing to accept the higher risks
associated with investing in stocks
o want professional portfolio management
o are investing for long-term goals
This Fund is not appropriate for anyone seeking:
o safety of principal
o a short term investment
o regular income
</TABLE>
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
21
<PAGE> 23
FEES AND EXPENSES
As an investor in the International Stock Fund, you will pay the following fees
and expenses. Shareholder transaction fees are paid from your account. Annual
Fund operating expenses are paid out of Fund assets, and are reflected in the
share price. If you purchase shares through a bank, broker or other investment
representative, including an affiliate of Pacific Century, you may be charged an
account-level fee for additional services provided to you in connection with
your investment in the Fund.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES A SHARES B SHARES
(FEES PAID BY YOU DIRECTLY)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum sales charge (load) on
Purchases 5.25%(1) None
Maximum deferred sales charge (load) None(1) 5.00%(2)
<CAPTION>
- --------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES A SHARES B SHARES
(FEES PAID FROM FUND ASSETS)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Management Fee(3) 1.00% 1.00%
Distribution (12b-1) Fee(4) 0.75%(3) 1.00%
Other Expenses(3) 0.97% 0.97%
Total Fund Operating Expenses(3) 2.72% 2.97%
<FN>
1 Lower sales charges are available depending upon the amount invested. For investments of
$1 million or more, a Contingent Deferred Sales Charge is applicable to redemptions
within one year of purchase.
2 A Contingent Deferred Sales Charge applies to your redemption of Class B shares before
the sixth anniversary of your purchase, declining from 5% within the first year to 0%
after the sixth year.
3 The Adviser is limiting the 12b-1 Fee (Class A shares only) and Other Expenses paid by
the Fund for the current fiscal year to 0.25% and 0.93%, respectively. Total Fund
Operating Expenses after fee waivers and expense reimbursements are 2.18% and 2.93% for A
and B shares respectively. The Adviser may revise or cancel these expense limitations at
any time and will notify you of the change.
4 Long-term shareholders may pay indirectly more than the equivalent of the maximum
permitted front-end sales charge due to the recurring nature of Distribution (12b-1)
Fees.
</FN>
</TABLE>
- --------------------------------------------------------------------------------
CONTINGENT DEFERRED SALES CHARGE
Both Fund share classes impose a back end sales charge (load) if you sell your
shares before a certain period of time has elapsed. This is called a
Contingent Deferred Sales Charge ("CDSC").
- --------------------------------------------------------------------------------
EXPENSE EXAMPLE
Use the table below to compare fees and expenses with those of other funds. It
illustrates the amount of fees and expenses you would pay assuming the
following:
o $10,000 investment
o 5% annual return
o redemption at the end of each period
o no changes in the Fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------
1 YEAR 3 YEARS
- ------------------------------------------------------------------
<S> <C> <C>
CLASS A SHARES $786 $1,325
CLASS B SHARES
ASSUMING REDEMPTION $800 $1,218
ASSUMING NO REDEMPTION $300 $ 918
</TABLE>
22
<PAGE> 24
INVESTMENT OBJECTIVES, POLICIES AND RISKS
-----------------------------------------
GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
The Growth and Income Fund seeks to provide you with current income, and
secondarily to make your investment grow over the long term.
Normally, the Fund invests at least 65% of its total assets in a diversified
portfolio of high quality, dividend paying common stocks of U.S. companies and
securities convertible into such common stocks. The Fund invests principally in
securities that currently have as a group an above average dividend yield, which
it expects to remain constant or increase in the future. However, it may balance
these with lower yielding but higher growth-oriented investments to achieve more
growth potential.
The Fund does not limit its investments to any particular type or size of
company. It can also invest in other types of equity and investment grade debt
instruments issued by domestic and foreign companies and governments, and can
use futures contracts, options and other investment techniques.
GROWTH STOCK FUND
- --------------------------------------------------------------------------------
The Growth Stock Fund seeks to make your investment grow over the long term, and
secondarily to provide you with current income.
Normally, the Fund invests at least 65% of its total assets in a diversified
portfolio of common stocks of U.S. and foreign companies and in securities that
are convertible into such common stocks. It may invest in securities issued by
large, well-established companies as well as smaller companies, subject to a
minimum market capitalization of $50 million at the time of purchase (market
capitalization is the total market price of a company's outstanding equity
securities). The Fund can also invest in other types of equity and investment
grade debt instruments issued by domestic and foreign companies and governments,
and can use futures contracts, options and other investment techniques.
BALANCED FUND
- --------------------------------------------------------------------------------
The Balanced Fund seeks to provide you with current income, and secondarily to
make your investment grow over the long term.
Normally, the Fund invests primarily in common stocks and bonds of U.S.
companies, and securities that are convertible into such common stocks (such as
warrants, convertible
23
<PAGE> 25
preferred stock, fixed rate preferred stock, convertible fixed-income
securities, options and rights). It invests at least 25% of the value of its
total assets in investment grade fixed-income securities that are senior to the
issuers' other debt securities. The Fund can also invest in non-convertible
preferred stocks and other types of equity and investment grade debt instruments
issued by domestic and foreign companies and governments, and can use futures
contracts, options and other investment techniques.
The Fund may invest in common stocks of large companies (with market
capitalizations of more than $750 million at the time of purchase) as well as
medium and smaller sized companies (with market capitalizations of at least $250
million but less than $750 million at the time of purchase). (Market
capitalization is the total market price of a company's outstanding equity
securities.) It seeks to invest no more than 50% of its total assets in the
securities of medium and smaller sized companies. However, the actual percentage
may vary according to changes in market conditions and Pacific Century's
judgment about how best to achieve the Fund's investment objective.
The Fund selects common stocks on the basis of companies' strong earnings
growth trends, above-average prospects for future earnings growth, and
diversification among industries and companies. In selecting preferred stocks,
bonds and convertible securities, it also considers companies' strong earnings
and credit records and their ability to provide current income.
NEW ASIA GROWTH FUND
- --------------------------------------------------------------------------------
The New Asia Growth Fund seeks to make your investment grow over the long term.
Normally, the Fund invests at least 70% of its total assets in common stock,
common stock equivalents (such as preferred or debt securities convertible into
common stock), and preferred stock of companies located in the developing
countries of Asia. The Fund invests in these securities directly, or indirectly
through other investment companies or trusts that invest the majority of their
assets in the developing countries of Asia.
For these purposes, developing countries of Asia include all countries in Asia
other than Japan. This includes but is not limited to Hong Kong, China, India,
Indonesia, South Korea, Malaysia, the Philippines, Singapore, Taiwan, Pakistan,
Bangladesh, Sri Lanka and Thailand. An issuer is located in a developing Asian
country if it is organized under the laws of the country, if it derives 50% or
more of its total revenues from business in the country, or if its equity
securities are traded principally on a securities exchange in the country.
The Fund does not limit its investments to any particular type or size of
company. It may invest in companies, large or small, whose earnings its
investment adviser believe have a relatively strong growth trend, or in
companies that it does not anticipate to grow but whose market value per share
it believes is undervalued. In selecting and maintaining a portfolio of
investments in any country, the Fund's investment adviser considers the
investment instruments traded in the country's stock markets and the upside
potential of such markets (including 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 does not give important consideration
to current income from dividends and interest in selecting portfolio securities.
The Fund may invest to a lesser degree in debt securities and other instruments
if its investment adviser believes they would help achieve the Fund's objective;
up to 10% of its net assets may be invested in debt securities rated below
investment grade. The Fund
24
<PAGE> 26
may also invest up to 35% of its total assets in any combination of equity,
investment grade debt and convertible securities of issuers located outside the
developing countries of Asia, including the United States, and can use futures
contracts, options and other investment techniques.
SMALL CAP FUND
- --------------------------------------------------------------------------------
The Small Cap Fund seeks to make your investment grow over the long term.
Normally, the Fund invests at least 65% of its total assets in a diversified
portfolio of common stocks of smaller U.S. companies, and in securities that are
convertible into such common stocks. These are companies with market
capitalizations of between $__ and $__ million at the time of purchase (market
capitalization is the total market price of a company's outstanding equity
securities). The Fund can also invest in other types of equity and investment
grade debt instruments issued by domestic and foreign companies and governments,
including securities issued by larger companies. In addition, it can use futures
contracts, options and other investment techniques.
VALUE FUND
- --------------------------------------------------------------------------------
The Value Fund seeks to provide you with current income, and secondarily to make
your investment grow over the long term.
Normally, the Fund invests primarily in dividend paying common stocks and bonds
of U.S. companies, and securities that are convertible into such common stocks
(such as warrants, convertible preferred stock, fixed rate preferred stock,
convertible fixed-income securities, options and rights). It does not limit its
investments to any particular size or type of company. The Fund can also invest
in non-convertible preferred stocks and other types of equity and investment
grade debt instruments issued by domestic and foreign companies and governments,
and can use futures contracts, options and other investment techniques.
INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------
The International Stock Fund seeks to make your investment grow over the long
term.
Normally, the Fund invests at least 65% of its total assets in common stock,
common stock equivalents (such as preferred or debt securities convertible into
common stock), and preferred stock of foreign companies. The Fund invests in
these securities directly, or indirectly through other investment companies or
trusts that invest the majority of their assets in foreign companies.
The Fund does not limit its investments to any particular country or type or
size of company. It may invest in companies, large or small, whose earnings its
investment adviser believe have a relatively strong growth trend, or in
companies that it does not anticipate to grow but whose market value per share
it believes is undervalued. In selecting and maintaining a portfolio of
investments in any country, the Fund's
25
<PAGE> 27
investment adviser considers the investment instruments traded in the country's
stock markets and the upside potential of such markets (including 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 does
not give important consideration to current income from dividends and interest
in selecting portfolio securities.
The Fund may invest to a lesser degree in investment grade debt securities and
other instruments if Pacific Century or its Sub-Adviser believes they would help
achieve the Fund's objective. The Fund may also invest up to 35% of its total
assets in any combination of equity, investment grade debt and convertible
securities of issuers located in the United States, and can use futures
contracts, options and other investment techniques.
MAIN RISKS
- --------------------------------------------------------------------------------
The value of your investment in any of the Funds will got up and down, which
means that you could lose money. You should consider an investment in any of the
Funds as a long-term investment.
STOCKS
The values of stocks fluctuate in response to the activities of individual
companies and general stock market and economic conditions, and stock prices may
decline over short or even extended periods. Stocks are more volatile and
riskier than some other forms of investment, such as short-term high-grade fixed
income securities.
SMALL COMPANIES
Securities of smaller and newer companies may present greater opportunities than
larger and more established companies for capital appreciation because of high
potential earnings growth. But they also involve greater risk. Such companies
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 stock
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 stock prices.
FOREIGN SECURITIES
Investments in foreign securities involve risks that are not typically
associated with domestic securities. Changes in foreign currency exchange rates
will affect the values of investments quoted or payable in currencies other than
the U.S. dollar. Less information may be publicly available about foreign
issuers. They also are not generally subject to the same accounting, auditing
and financial reporting standards as domestic issuers. Foreign stock markets
have different clearance and settlement procedures, and higher brokerage
commissions and transaction costs, than U.S. markets. In addition, foreign
exchanges, brokers and issuers generally are not supervised or regulated as
closely as in the United States. Furthermore, foreign income tax laws may
require witholding of interest, gains or dividends. Certain other adverse
developments could also occur, such as expropriation or confiscatory taxation,
political or social instability, or diplomatic developments that could adversely
affect investments and the ability to enforce contracts.
26
<PAGE> 28
EMERGING MARKETS
The securities markets of developing countries involve greater risks than more
developed markets. These securities markets are not as large as U.S. markets,
have substantially less trading volume, and have a high concentration of
investors and financial intermediaries, 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.
Substantial economic uncertainties exist for developing countries. They may have
overburdened infrastructures and obsolete financial systems as well as
environmental problems. Certain economies depend on exports of primary
commodities and are vulnerable to changes in commodity prices, which in turn may
be affected by a variety of factors. In addition, the governments of many such
countries have a heavy role in regulating and supervising their economies, and
their economies are heavily export oriented and dependent on international
trade. Certain developing countries are large debtors to commercial banks and
foreign governments. Some have experienced substantial and volatile rates of
inflation and currency devaluations.
Substantial social and political uncertainties also exist for many developing
countries. These may result from factors such as authoritarian governments;
popular unrest associated with demands for improved political, economic and
social conditions; internal insurgencies and terrorist activities; hostile
relationships with neighboring countries; and drug trafficking. This instability
could impair the financial conditions of issuers or disrupt their financial
markets.
A number of Asian countries are currently experiencing economic difficulties and
significant declines in values in their financial markets as a result of the
convergence of a number of these social, political and economic factors. The
unsettled condition of several Asian financial markets has also affected
emerging markets in other countries and regions. These conditions could continue
or deteriorate further in the future.
A variety of other factors may also adversely impact the Funds' investments in
countries with emerging securities markets. These include matters such as
archaic legal systems; inflation accounting rules that indirectly generate
losses or profits; less developed systems for registration, transfer and custody
of securities; restrictions on foreign investments in capital markets;
limitations on the manner in which the Funds may invest in securities; and
limitations on repatriation of income, capital, or the proceeds of sales of
securities.
CONVERTIBLE SECURITIES
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 common stock of the
same or other issuers. Convertible securities are usually subordinated in right
of payment to nonconvertible debt securities of the same issuer, but are senior
to common stocks in an issuer's capital structure. Their prices tend to be
influenced by changes in interest rates (in the same manner as described below
for debt securities) as well as changes in the market value of the common stock
into which they can be converted.
DEBT SECURITIES
The values of the debt securities held by the Funds fluctuate in response to
movements in interest rates. When rates rise, the values generally fall, and
when rates decline, the values generally increase. In addition, the issuers of
any of the debt securities held by the Funds may fail to pay interest or
principal when due.
27
<PAGE> 29
The Funds generally will only acquire bonds that are rated investment grade at
the time of purchase, which means they are rated in one of the top four
categories by a nationally recognized statistical rating organization, or
unrated obligations that Pacific Century or its subadviser determines are
comparable. However, obligations with the lowest of these ratings have some
speculative characteristics, and changes in economic conditions are more likely
to lead to the issuer's weakened capacity to make principal and interest
payments than higher rated securities. If the rating of a security decreases
after a Fund buys it, or it is no longer rated, Pacific Century or its
subadviser will decide whether the Fund should continue to hold the security.
The New Asia Growth Fund may invest up to 10% of its net assets in securities
rated below investment grade or of comparable quality, commonly referred to as
"junk bonds" or "high yield/high risk securities." These investments are
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal as required, and generally are less liquid and have greater
price volatility than higher rated securities. The Fund may not purchase debt
securities that are in default, except that it can invest up to 5% of its total
assets in sovereign (government) debt that is in default.
YEAR 2000
Like other funds and business organizations around the world, the Funds could be
adversely affected if the computer systems used by Pacific Century and the
Trust's other service providers do not properly process date-related information
for the year 2000 and beyond. The Trust understands that its key service
providers are taking steps to address this issue. In addition, the problem may
adversely affect the companies in which the Funds invest. For example, they may
incur substantial costs to correct the problem and may suffer losses cause by
data processing errors. Management of the Trust and Pacific Century will
continue to monitor developments relating to this issue.
The most recent information about each Fund's portfolio holdings can be found in
its annual or semi-annual report. For information about receiving this report,
see the back cover.
28
<PAGE> 30
FUND MANAGEMENT
---------------
THE INVESTMENT ADVISER
Pacific Century Trust, ("Pacific Century"), 111 S. King Street, Honolulu, Hawaii
96813, a division of Bank of Hawaii, is the adviser for the Funds. Pacific
Century has managed the financial assets of corporations and institutional
investors for nearly a century and has built a reputation as one of the largest,
most knowledgeable financial institutions in the Pacific Basin. Pacific Century
is among the top 50 trust firms in the United States and oversees more than $14
billion in client assets. The Pacific Century investment management team -
including portfolio managers, financial analysts and economists - is responsible
for over $8 billion of these assets.
For these advisory services, the Funds paid Pacific Century as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
PERCENTAGE OF
AVERAGE NET ASSETS
FOR YEAR ENDED
7/31/98
- ----------------------------------------------------------------------------------------
<S> <C>
Growth and Income Fund .____%*
- ----------------------------------------------------------------------------------------
Growth Stock Fund .____%*
- ----------------------------------------------------------------------------------------
Balanced Fund .____%*
- ----------------------------------------------------------------------------------------
New Asia Growth Fund .____%*
- ----------------------------------------------------------------------------------------
Small Cap Fund .____%*
- ----------------------------------------------------------------------------------------
Value Fund .____%*
- ----------------------------------------------------------------------------------------
International Stock Fund .____%*
- ----------------------------------------------------------------------------------------
</TABLE>
* Pacific Capital waived a portion of its fees for the fiscal year. Contractual
fees (without waivers) are: Growth and Income Fund, .___%; Growth Stock Fund,
.___%; Balanced Fund, .______%; New Asia Growth Fund, .____%; Small Cap Fund,
.____%; Value Fund, .____%; and International Stock Fund, .____%.
THE SUB-ADVISER
Nicholas-Applegate Capital Management, 600 W. Broadway, San Diego, California
92101, is the Sub-Adviser to the International Stock Fund and the Small Cap
Fund, and provides investment advisory services with respect to management of
those Funds' portfolios. Its affiliate Nicholas-Applegate Capital Management
(Hong Kong) LLC, located at the same address, is the Sub-Adviser to the New Asia
Growth Fund, and provides investment advisory services with respect to
management of the foreign component of that Fund's portfolio.
29
<PAGE> 31
PORTFOLIO MANAGERS
Management of the Funds 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 for the
Funds it advises are made by a committee, with individual portfolio managers
having day-to-day responsibility for managing the Funds.
GROWTH AND INCOME FUND. Clyde Powers, CFA serves as a Vice President and Team
Leader on the Equity Investment Team at Pacific Century and has been primarily
responsible for the management of the Fund since 1997. Mr. Powers has 26 years
of experience managing growth funds and growth oriented portfolios for
institutional investors. Prior to joining Pacific Century in 1997, Mr. Powers
served as a portfolio manager for Amcore Investment Group from 1995 to 1997, and
as Managing Director-Investment Operations for Union Capital Advisors from 1984
to 1995.
GROWTH STOCK FUND. Roger Khlopin, CFA, serves as a Vice President and Team
Leader on the Equity Investment Team at Pacific Century and has been primarily
responsible for the day-to-day management of the Fund since 1997. Prior to
joining Pacific Century in 1992, Mr. Khoplin served as a securities analyst with
Dean Witter from 1990 to 1991; Smith Barney from 1981-1989; and with Sanford C.
Bernstein & Company from 1980 to 1981.
BALANCED FUND.
NEW ASIA GROWTH FUND. Tim Greaton, Senior Portfolio Manager of
Nicholas-Applegate Capital Management (Hong Kong) LLC ("NACM Hong Kong"), has
been primarily responsible for the day-to-day management of the Fund since 1995.
Mr. Greaton joined NACM Hong Kong in 1997. Prior to joining NACM Hong Kong, Mr.
Greaton served as Senior Portfolio Manager of Credit Lyonnais International
Asset Management (HK) Limited from 1992 to 1997.
SMALL CAP FUND. A team of Catherine Somhegyi, Larry Speidell, Travis Prentice
and Mark Stuckelman is responsible for the day-to-day management of the Fund.
Ms. Somhegyi, as Partner of the firm, is its Chief Investment Officer - Global
Equity Management and joined the firm in 1987. Mr. Speidell, a Partner of the
firm, is its Director of Global/Systematic Portfolio Management and Research and
joined the firm in 1994; he has 23 years prior investment management experience
with Batterymarch Financial Management and Putnam Management Company. Mr.
Prentice joined the firm as Portfolio Manager in 1997, and had prior experience
with the Merrill Lynch Private Client Group. Mr. Stuckelman joined the firm as a
Portfolio Manger in 1995, and had prior experience with Wells Fargo Bank
Investment Management Group, Fidelity Management Trust Co., and BARRA.
VALUE FUND.
30
<PAGE> 32
INTERNATIONAL STOCK FUND. A team headed by Catherine Somhegyi, Larry Speidell
and Lorettta J. Morris is responsible for the day-to-day management of the Fund.
Ms. Somhegyi, a Partner of the firm, is its Chief Investment Officer - Global
Equity Management and joined the firm in 1987. Mr. Speidell, a Partner of the
firm, is its Director of Global/Systematic Portfolio Management and Research and
joined the firm in 1994; he has 23 years prior investment management experience
with Batterymarch Financial Management and Putnam Management Company. Ms.
Morris, a Partner of the firm, joined the firm as a Portfolio Manager in 1990,
and has ten years prior experience with Collins Associates.
The Statement of Additional Information has more detailed information about the
Investment Adviser and other service providers.
THE DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services is the Fund's distributor and administrator. Its address is
3435 Stelzer Road, Columbus, Ohio 43219.
31
<PAGE> 33
SHAREHOLDER INFORMATION
-----------------------
PRICING OF FUND SHARES
Each Fund's per share net asset value ("NAV") is determined and its shares are
priced at the close of regular trading on the New York Stock Exchange (normally
at 4 p.m. Eastern time) on days the Exchange is open. Your order will be priced
at the next NAV calculated after your order is accepted by the Fund (plus any
applicable sales charge).
The Fund's securities are valued at current market prices except for debt
obligations with remaining maturities of 60 days or less (which are valued at
amortized cost). If market quotations are not available or if special
circumstances warrant, securities will be valued by a method that the Board of
Trustees believes accurately reflects fair value.
- ------------------------------------------------------------------------------
HOW NAV IS CALCULATED
NAV is calculated by adding the total value of a Fund's investments and
other assets, subtracting its liabilities, and then dividing that
figure by the number of outstanding shares of the Fund:
NAV = Total Assets-Liabilities
----------------------------
Number of Shares Outstanding
You can find each Fund's NAV daily in The Wall Street Journal and other
newspapers.
- -------------------------------------------------------------------------------
32
<PAGE> 34
PURCHASING AND ADDING TO YOUR SHARES
- ------------------------------------
You can purchase Funds through the Pacific Capital Funds' Distributor or through
banks, brokers and other investment representatives, which may charge additional
fees and may require higher minimum investments or impose other limitations on
buying and selling shares. If you purchase shares through an investment
representative, it is responsible for transmitting orders to the Distributor by
the Fund's close of business and may have an earlier cut-off time for purchase
and sell requests. Consult your investment representative or institution for
specific information.
<TABLE>
<CAPTION>
MINIMUM INVESTMENTS
INITIAL INVESTMENT SUBSEQUENT
<S> <C> <C>
Regular (non-retirement) $1000 $50
Retirement (IRA) $250 $50
Auto Invest Plan $100 $50
</TABLE>
All purchases must be in U.S. dollars. A fee will be charged for any checks that
do not clear. Third-party checks are not accepted.
A FUND MAY WAIVE ITS MINIMUM PURCHASE REQUIREMENT, AND THE DISTRIBUTOR MAY
REJECT A PURCHASE ORDER, IF THE DISTRIBUTOR DECIDES THIS IS IN THE BEST INTEREST
OF A FUND'S SHAREHOLDERS.
- --------------------------------------------------------------------------------
AVOID 31% TAX WITHHOLDING
The Fund must withhold 31% of your taxable dividends, capital gains
distributions and redemptions if you have not provided the Fund your taxpayer
identification number in compliance with IRS rules. To avoid this, make sure you
provide your correct tax identification number (social security number for most
investors) on your account application.
- --------------------------------------------------------------------------------
33
<PAGE> 35
INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT
<TABLE>
<S> <C> <C>
INITIAL INVESTMENT SUBSEQUENT
By regular mail 1. Carefully read and complete the application. 1. Use the investment slip attached to your
Establishing your account privileges now saves account statement. Or, if unavailable
you the inconvenience of having to add them 2. Include the following information on a
latter. piece of paper:
2. Make check, bank draft or money order payable o Fund name
to "Pacific Capital Funds." o share class
3. Mail to: o amount invested
Pacific Capital Funds o account name
PO Box 182130 o account number
Columbus, OH 43218-2130 Include your account number on your check.
3. Mail to:
Pacific Capital Funds
PO Box 182130
Columbus, OH 43218-2130
<S> <C>
By overnight service See Instructions 1-2 above.
3. Send to
Pacific Capital Funds
c/o BISYS Fund Services
Attn: T.A. Operations
3435 Stelzer Road
Columbus, OH 43219
<S> <C> <C>
By electronic purchase Establish electronic purchase option on your
account application or call 800-258-9232. Your
Your bank must participate in the Automated account can generally be set up for electronic
Clearing House (ACH) and must be a U.S. bank. Your purchases within 15 days.
bank or broker may charge for this service.
Call 800-258-9232 to arrange a transfer from your
bank account.
By wire transfer FOR INITIAL INVESTMENT: Fax the
complete application, along
with a request for a
confirmation number, to
800-___-____. Follow
instructions below after
receiving your confirmation
number.
FOR INITIAL AND SUBSEQUENT
INVESTMENTS: Instruct your bank
to wire transfer your investment
to:
Name of Bank
Routing Number: ABA #xxxxxx
DDA#
o Include your name and
your confirmation umber.
After instructing your bank to wire
the funds, call 800-258-9232 to
tell us the amount being
transferred and the name of your
bank.
</TABLE>
- ----------------------------------------------------------------------
QUESTIONS?
Call 800-258-9232 or your investment representative.
- ----------------------------------------------------------------------
34
<PAGE> 36
- --------------------------------------------------------------------------------
ELECTRONIC VS. WIRE TRANSFER
Wire transfers allow financial institutions to send funds to each other, almost
instantaneously. With an electronic purchase or sale, your bank makes the
transaction through the Automated Clearing House (ACH) and may take up to eight
days to clear. There is generally no fee for ACH transactions.
- --------------------------------------------------------------------------------
AUTO INVEST PLAN
You can make automatic investments in the Funds from your bank account, through
payroll deduction, or from your federal employment, social security or other
regular government checks. Automatic investments can be as little as $50, once
you've invested the $100 minimum required to open the account.
To invest regularly from your bank account:
1) Complete the Auto Invest Plan portion of your Account Application. Make
sure you note:
- your bank name, address, and account number
- the amount you want to invest automatically (minimum $50)
- how often you want to invest (monthly or quarterly)
2) Attach a voided personal check.
To invest regularly from your pay check or government check, call 800-258-9232
for an enrollment form.
The Fund reserves the right to change or eliminate these privileges at any time
with 60 days notice.
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
Each Fund, except the New Asia Growth Fund, generally declares dividends of
substantially all of its net income daily and pays the dividends monthly. The
New Asia Growth Fund pays out its dividends quarterly. Each Fund distributes any
capital gains annually. Dividends payable on Class A shares of a Fund are more
than on Class B shares because Class B shares have higher distribution expenses.
We automatically reinvest all income dividends and capital gains distributions
by a Fund in additional shares of the same Fund and Class on the dividend record
date unless you request otherwise in writing to the Transfer Agent (at least 15
days prior to the distribution). You may elect to receive your
dividends/distributions in cash either by check sent to your address or by wire
to your bank account.
The value of your shares will be reduced by the amount of dividends and
distributions. If you purchase shares shortly before the record date for a
dividend or the distribution of capital gains, you will pay the full price for
the shares and receive some portion of the price back as a taxable dividend or
distribution.
The Distributor does not charge any fees or sales charges for reinvested
dividends.
- --------------------------------------------------------------------------------
35
<PAGE> 37
SELLING YOUR SHARES
- -------------------
You can sell your shares at any time. Your sales price will be the next NAV
after your sell order is received by the Fund or your investment representative.
Normally you will receive your proceeds within a week after your request is
received.
- --------------------------------------------------------------------------------
WITHDRAWING MONEY FROM YOUR FUND INVESTMENT
As a mutual fund shareholder, you are technically selling shares when you
request a withdrawal in cash. This is also known as redeeming shares or a
redemption of shares.
- --------------------------------------------------------------------------------
CONTINGENT DEFERRED SALES CHARGE
When you sell shares, you will be charged a fee for any shares that have not
been held for a sufficient length of time. These fees will be deducted from the
money paid to you. See the section on "Distribution Arrangements/Sales Charges"
below for details.
<TABLE>
<CAPTION>
INSTRUCTIONS FOR SELLING SHARES
<S> <C>
By telephone Call 800-258-9232 with instructions as to how you want to
(unless you have declined receive your funds (mail, wire, electronic transfer).
telephone sales privileges)
By mail 1. Call 800-258-9232 to request redemption forms, or write a
letter of instruction indicating:
o your Fund and account number
o amount you want to redeem
o address where your check should be sent
o account owner signature
2. Mail to:
Pacific Capital Funds
PO Box 182130
Columbus, OH 43218-2130
By overnight service 1. See instruction 1 above.
2. Send to
Pacific Capital Funds
Co/BISYS Fund Services
Attn: T.A. Operations
3435 Stelzer Road
Columbus, OH 43219
Wire transfer Call 800-258-9232 to request a wire transfer.
You must select this option on your Account
Application. If you call by 4 p.m. Eastern time, your payment will normally
be wired to your bank on the next
business day.
The Fund may charge a wire
transfer fee.
Note: Your financial institution
may also charge a separate fee.
Electronic Redemptions Call 800-258-9232 to request an electronic redemption.
Your bank must participate in If you call by 4 p.m. Eastern time, the NAV of your shares will
the Automated Clearing House normally be determined on the same day and the proceeds
(ACH) and must be a U.S. credited within 8 days.
bank.
Note: Your bank may charge
for this service.
</TABLE>
36
<PAGE> 38
AUTO WITHDRAWAL PLAN
You can receive automatic payments from your account on a monthly or quarterly
basis. The minimum withdrawal is $100. To activate this feature:
o Make sure you've checked the appropriate box on the Account Application. Or
call 800-258-9232.
o Include a voided personal check.
o Your account must have a value of $5,000 or more to start withdrawals.
o If the value of your account falls below $1,000, you may be asked to invest
more to bring the account back to $1,000, or we may close your account and
mail the proceeds to you.
37
<PAGE> 39
GENERAL POLICIES ON SELLING SHARES
- ----------------------------------
REDEMPTIONS IN WRITING REQUIRED
You must request redemption in writing in the following situations:
1. All requests for redemptions from individual retirement accounts
("IRA's") must be in writing.
2. Redemption requests require a signature guarantee when:
o You ask us to make the check payable to someone who is not
the owner of the account
o You ask us to mail the check to an address that is not the
address on your account
o You ask us to wire the proceeds to a commercial bank account
that is not designated on your account application
o The redemption proceeds exceed $50,000
You must obtain a signature guarantee from members of the STAMP (Securities
Transfer Agents Medallion Program), MSP (New York Stock Exchange Medallion
Signature Program) or SEMP (Stock Exchanges Medallion Program). Members are
subject to dollar limitations which must be considered when requesting their
guarantee. The Transfer Agent may reject any signature guarantee if it believes
the transaction would otherwise be improper.
VERIFYING TELEPHONE REDEMPTIONS
The Fund makes every effort to insure that telephone redemptions are only made
by authorized shareholders. All telephone calls are recorded for your protection
and you will be asked for information to verify your identity. Because of these
precautions, unless you have specifically indicated on your application that you
do not want the telephone redemption feature, you may be responsible for any
fraudulent telephone orders. If appropriate precautions have not been taken, the
Fund, Transfer Agent and/or the Distributor may be liable for losses due to
unauthorized transactions.
REDEMPTIONS WITHIN 15 DAYS OF INITIAL INVESTMENT
When you have made an investment by check, you cannot redeem any portion of the
same investment until the Transfer Agent is satisfied that the check has cleared
(which may require up to 15 business days). You can avoid this delay by
purchasing shares with a certified check.
REFUSAL OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the SEC in order to protect remaining shareholders.
REDEMPTION IN KIND
We reserve the right to make your redemption payment in securities rather than
cash, known as "redemption in kind." This could occur under extraordinary
circumstances, such as a very large redemption that could affect Fund operations
(for example, more than 1% of the Fund's net assets). If we deem it advisable
for the benefit of all shareholders, you will receive securities equal in market
value to your shares. When you convert these securities to cash, you will pay
brokerage charges.
38
<PAGE> 40
CLOSING OF SMALL ACCOUNTS
If your account falls below $250, we may ask you to increase your balance. If it
is still below $250 after 60 days, we may close your account and send you the
proceeds at the current NAV.
UNDELIVERABLE REDEMPTION CHECKS
If you choose to receive distributions in cash and distribution checks are
returned and marked as "undeliverable" or remain uncashed for six months, your
account will be changed automatically so that all future distributions are
reinvested in your account. Checks that remain uncashed for six months will be
canceled and the money reinvested in the Fund.
39
<PAGE> 41
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
---------------------------------------
This section describes the sales charges and fees you will pay as an investor in
different share classes offered by the Fund and ways to qualify for reduced
sales charges. Certain qualified institutional buyers are eligible to purchase
Class Y shares of the Funds. Class Y shares are offered by another prospectus
which is available by calling 800-258-9232.
<TABLE>
<CAPTION>
CLASS A CLASS B
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales Charge (Load) Front-end sales charge No front-end sales
(at the time of your charge. You may incur a
purchase); reduced sales contingent deferred sales
charges are available. charge on shares redeemed
within six years after
purchase; shares
automatically convert to
Class A shares after 8
years.
- ----------------------------------------------------------------------------------------------------------
Distribution (12b-1) Fees Subject to annual Subject to annual
distribution fees of up to distribution fees of up
.75% of the Fund's net to 1.00% of the Fund's
assets. net assets.
- ----------------------------------------------------------------------------------------------------------
Fund Expenses Lower annual expenses Higher annual expenses
then Class B shares. than Class A shares.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
40
<PAGE> 42
CALCULATION OF SALES CHARGES
CLASS A SHARES
The Distributor sells Class A shares at their public offering price. This price
includes the initial sales charge. Therefore, part of the money you invest will
be used to pay the sales charge. The remainder is invested in Fund shares. The
sales charge decreases with larger purchases. There is no sales charge on
reinvested dividends and distributions.
The current sales charge rates and commissions paid to investment
representatives are as follows:
<TABLE>
<CAPTION>
For all Funds except the New Asia Growth Fund and International Stock Fund
--------------------------------------------------------------------------
SALES CHARGE SALES CHARGE DEALER PAYMENT
AS A % OF AS A % OF AS A % OF
YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT OFFERING PRICE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Up to $25,000 4.00% 4.17% 3.60%
- ----------------------------------------------------------------------------------------------------------------------
$25,000 up to $50,000 3.75% 3.90% 3.38%
- ----------------------------------------------------------------------------------------------------------------------
$50,000 up to $100,000 3.50% 3.63% 3.15%
- ----------------------------------------------------------------------------------------------------------------------
$100,000 up to $250,000 3.25% 3.36% 2.93%
- ----------------------------------------------------------------------------------------------------------------------
$250,000 up to $500,000 3.00% 3.09% 2.70%
- ----------------------------------------------------------------------------------------------------------------------
$500,000 up to $1,000,000 2.50% 2.56% 2.25%
- ----------------------------------------------------------------------------------------------------------------------
$1,000,000 and above(1) 0.00% 0.00% 0.00%
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
For the New Asia Growth Fund and International Stock Fund
---------------------------------------------------------
SALES CHARGE SALES CHARGE DEALER PAYMENT
AS A % OF AS A % OF AS A % OF
YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT OFFERING PRICE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Up to $25,000 5.25% 5.54% 4.73%
- ----------------------------------------------------------------------------------------------------------------------
$25,000 up to $50,000 4.75% 4.99% 4.28%
- ----------------------------------------------------------------------------------------------------------------------
$50,000 up to $100,000 4.25% 4.44% 3.83%
- ----------------------------------------------------------------------------------------------------------------------
$100,000 up to $250,000 3.75% 3.90% 3.38%
- ----------------------------------------------------------------------------------------------------------------------
$250,000 up to $500,000 3.25% 3.36% 2.93%
- ----------------------------------------------------------------------------------------------------------------------
$500,000 up to $1,000,000 2.75% 2.83% 2.48%
- ----------------------------------------------------------------------------------------------------------------------
$1,000,000 and above(1) 0.00% 0.00% 0.00%
- ----------------------------------------------------------------------------------------------------------------------
<FN>
(1) You will pay a contingent deferred sales charge (CDSC) on these shares of up to 1.00% of the purchase price if you
redeem them in the first year after purchase. The Distributor will base this charge on the lower of your cost for the
shares or their NAV at the time of sale. The CDSC does not apply to reinvested distributions.
</FN>
</TABLE>
The Distributor pays securities dealers from its own resources up to 1.00% of
the offering price of Class A shares of the Funds for individual sales of $1
million to $5 million and 0.50% of the offering price of Class A shares of the
Funds for individual sales over $5 million.
The Distributor reserves the right to pay the entire sales charge to dealers. In
addition to the compensation paid to investment representatives, the Distributor
may provide promotional incentives in the form of travel expenses, lodging and
bonuses to licensed individuals who sell shares of the Funds, as well as
vacation trips (including lodging at luxury resorts), tickets to entertainment
events and merchandise. In some instances, the Distributor will make this
compensation available only to certain dealers whose
41
<PAGE> 43
representatives have sold a significant amount of such shares. None of the Funds
or their shareholders pay this promotional compensation.
CLASS B SHARES
The Distributor sells Class B shares at NAV, without any up-front sales charge.
Therefore, all the money you invest is used to purchase Fund shares. However, if
you sell your Class B shares of the Fund before the sixth anniversary of
purchase, you will have to pay a contingent deferred sales charge at the time of
sale. The CDSC will be based on the lower of the NAV at the time of purchase or
the NAV at the time of sale according to the schedule below. There is no CDSC on
reinvested dividends or distributions.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
CDSC AS A % OF DOLLAR
YEARS SINCE PURCHASE AMOUNT SUBJECT TO CHARGE
- ------------------------------------------------------- ------------------------------------------------------
<S> <C> <C>
0-1 5.00%
1-2 4.00%
2-3 3.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
more than 6 None
- --------------------------------------------------------------------------------------------------------------
</TABLE>
If you sell some but not all of your Class B shares, we will first redeem
certain shares not subject to the CDSC (i.e., shares purchased with reinvested
dividends) followed by shares subject to the lowest CDSC (typically shares you
have held for the longest time).
CONVERSION FEATURE - CLASS B SHARES
o Your Class B shares automatically convert to Class A shares of the same
Fund eight years after the end of the month of purchase. The dollar value
of Class A shares you receive will equal the dollar value of the B shares
converted.
o After conversion, your shares will be subject to the lower distribution
fees charged on Class A shares, which will increase your investment return.
o You will not pay any sales charge, fees or taxes when your shares convert.
o If you purchased Class B shares of one Fund which you exchanged for Class B
shares of another Fund, we will calculate your holding period from the time
of your original purchase of Class B shares.
42
<PAGE> 44
SALES CHARGE REDUCTIONS
You may qualify for reduced sales charges under the following circumstances.
1. Letter of Intent. You inform the Fund in writing that you intend to purchase
enough shares over a 13-month period to qualify for a reduced sales charge. You
must include a minimum of 5% of the total amount you intend to purchase with
your letter of intent.
2. Rights of Accumulation. When the value of shares you already own plus the
amount you intend to invest reaches the amount needed to qualify for reduced
sales charges, your added investment will qualify for the reduced sales charge.
3. Combination Privilege. You can combine accounts of multiple Funds or accounts
of immediate family household members (spouse and children under 21) to reduce
sales charges.
4. Reduced prices for investors who are members of certain qualified groups. A
qualified group is a group or association, or a category of purchasers which (i)
is 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) gives its endorsement or authorization to an investment program to assist
solicitation of its membership by a broker or dealer; and (iv) complies with the
conditions of purchase in any agreement entered into between the Trust and the
group, representative or broker or dealer. At the time of purchase you must
furnish the Transfer Agent, either directly or through a broker or dealer, with
information sufficient to permit it to verify that the purchase qualifies for a
reduced sales charge.
SALES CHARGE WAIVERS
Class A Shares
- --------------
The following qualify for waivers of sales charges:
1. Current and retired trustees, directors, employees, and family members of the
Trust, the Adviser and its affiliates or any other organization that provides
services to the Trust.
2. Investors for whom Pacific Century or one of its affiliates acts in a
fiduciary, advisory, custodial, agency or similar capacity (except those
investors for whom Pacific Century Investment Services provides custodial
services).
3. 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.
4. Other investment companies distributed by the Distributor.
5. Investors who purchase shares with the proceeds from the recent redemption of
shares of any non-money market mutual fund with a front-end or back-end sales
charge of equal or greater value.
43
<PAGE> 45
- --------------------------------------------------------------------------------
REINSTATEMENT PRIVILEGE
If you have sold Class A or B shares of a Fund and decide to reinvest in the
same Fund within a 120 day period, you will not be charged the applicable sales
load on amounts up to the value of the shares you sold. You must provide a
written reinstatement request and payment within 120 days of the date your
instructions to sell were processed.
- --------------------------------------------------------------------------------
Class B Shares
- --------------
The Distributor will waive the CDSC under certain circumstances, including the
following:
1. If the redemption follows the death or disability of a shareholder (or both
shareholders in the case of joint accounts).
2. If the redemption is made under an automatic withdrawal plan after the
participant reaches age 59 1/2, as long as the payments are no more than 10% of
the account value annually (measured from the date the Transfer Agent receives
the request).
3. If the redemption represents the minimum required distribution from a
retirement plan.
4. If the shares being redeemed were purchased with reinvested dividends and
distributions.
44
<PAGE> 46
DISTRIBUTION (12b-1) FEES
12b-1 fees compensate the Distributor and other dealers and investment
representatives for services and expenses relating to the sale and distribution
of a Fund's shares and for providing shareholder services. 12b-1 fees are paid
from Fund assets on an ongoing basis, and will increase the cost of your
investment.
o The 12b-1 fees paid by a Fund vary by share class as follows:
1. Class A shares pay a 12b-1 fee of up to .75% of the average daily
net assets of the Fund.
2. Class B shares pay a 12b-1 fee of up to 1.00% of the average
daily net assets of the Fund. This will cause expenses for Class
B shares to be higher and dividends to be lower than for Class A
shares.
o The higher 12b-1 fee on Class B shares, together with the CDSC, help the
Distributor sell Class B shares without an "up-front" sales charge. In
particular, these fees help the Distributor cover the cost of advancing
brokerage commissions to investment representatives.
o The Distributor may use up to .25% of the 12b-1 fee for shareholder
servicing and up to .75% for distribution.
45
<PAGE> 47
EXCHANGING YOUR SHARES
----------------------
You can exchange your shares in one Fund for shares of the same class of another
Pacific Capital Fund, usually without paying additional sales charges (see
"Notes" below). Class A shareholders may also exchange their shares for service
class shares of other investment companies for which Pacific Century serves as
Investment Adviser. These are the Cash Assets Trust, the Tax-Free Cash Assets
Trust and the U.S. Treasuries Cash Assets Trust. No transaction fees are charged
for exchanges.
You must meet the minimum investment requirements for the Fund into which you
are exchanging. Exchanges from one Fund to another are taxable.
You can make exchanges by sending a written request to Pacific Capital Funds, PO
Box 182130, Columbus OH 43218-2130, or by calling 800-258-9232. Please provide
the following information:
o Your name and telephone number
o The exact name on your account and account number
o Taxpayer identification number (usually your Social Security
number)
o Dollar value or number of shares you are exchanging
o The name of the Fund from which the exchange is to be made
o The name of the Fund into which the exchange is being made
See "Selling Your Shares" for important information about telephone
transactions.
To prevent disruption in the management of the Funds, due to market timing
strategies, exchange activity may be limited to _____ exchanges within a _____
period.
NOTES ON EXCHANGES
When exchanging from a Fund that has no sales charge or a lower sales charge to
a fund with a higher sales charge, you will pay the difference.
The registration and tax identification numbers of the two accounts must be
identical.
The Exchange Privilege may be changed or eliminated at any time after a 60-day
notice to shareholders.
Be sure to read carefully the Prospectus of any Fund into which you wish to
exchange shares.
46
<PAGE> 48
DIVIDENDS, DISTRIBUTIONS AND TAXES
----------------------------------
DIVIDENDS AND DISTRIBUTIONS
Any income the Funds receive in the form of dividends is paid out, less
expenses, to its shareholders monthly, except for the New Asia Growth Fund and
International Stock Fund, which pay out their dividends quarterly. Net capital
gains for all Funds are distributed to shareholders annually.
TAXES
Dividends generally are taxable as ordinary income. Taxes on capital gains vary
with the length of time the Fund has held the security--not how long you have
been in the Fund.
Dividends generally are taxable in the year in which they are paid, even if they
appear on your account statement the following year. Dividends and distributions
are treated the same for federal income tax purposes whether you receive them in
cash or in additional shares.
You will be notified in January each year about the federal tax status of
distributions made by the Funds. Depending on your residence for tax purposes,
distributions also may be subject to state and local taxes, including
withholding taxes.
An exchange of shares is considered a sale, and any related gains may be subject
to applicable taxes.
Foreign shareholders may be subject to special withholding requirements. A
penalty is charged on certain pre-retirement distributions from retirement
accounts. Consult your tax adviser about the federal, state and local tax
consequences in your particular circumstances.
NEW ASIA GROWTH FUND AND INTERNATIONAL STOCK FUND TAX INFORMATION
The New Asia Growth Fund and International Stock Fund may, from time to time,
invest in passive foreign investment companies ("PFICs"). PFICs are foreign
corporations which derive at least 75% of their gross income from passive
sources or at least 50% of assets are held for production of passive income. 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.
Gains or losses on sales of debt securities denominated in a foreign currency
due to fluctuations in the value of foreign currency between the date of buying
and selling the security are treated as ordinary income or loss. Such income 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, your distributions from the Fund during the year would be
characterized as a return of capital, thus reducing the basis in your 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.
47
<PAGE> 49
HAWAII TAX INFORMATION
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
for federal income tax purposes.
If you are not a Hawaii resident you should not be subject to Hawaii income
taxation on dividends and distributions made by the Funds, but you will be
subject to taxes of other states and localities.
FINANCIAL HIGHLIGHTS
--------------------
Insert past 5 years financial highlights from annual report.
48
<PAGE> 50
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> 51
back page
For more information about the Pacific Capital Funds, the following documents
are available free upon request:
ANNUAL/SEMIANNUAL REPORTS:
The Funds' annual and semi-annual reports to shareholders contain detailed
information on each Fund's investments. The annual report includes a discussion
of the market conditions and investment strategies that significantly affected
your Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Funds, including operations and investment policies. It is
incorporated by reference and is legally considered a part of this prospectus.
- --------------------------------------------------------------------------------
YOU CAN GET FREE COPIES OF REPORTS AND THE SAI, OR REQUEST OTHER INFORMATION AND
DISCUSS YOUR QUESTIONS ABOUT THE FUNDS, BY CONTACTING A BROKER OR BANK THAT
SELLS THE FUNDS. OR CONTACT US AT:
PACIFIC CAPITAL FUNDS
3435 STELZER ROAD
COLUMBUS, OHIO 43219
TELEPHONE: 1-800-258-9232
- --------------------------------------------------------------------------------
You can review the Funds' reports and SAIs at the Public Reference Room of the
Securities and Exchange Commission. You can also get copies:
o For a fee, by writing the Public Reference Section of the Commission,
Washington, D.C. 20549-6009 or calling 1-800-SEC-0330.
o Free from the Commission's Website at http://www.sec.gov.
Investment Company Act file no. 811-7454.
49
<PAGE> 52
Cover Page
PACIFIC CAPITAL FUNDS
PROSPECTUS
DECEMBER 1, 1998
DIVERSIFIED FIXED INCOME FUND
TAX-FREE SECURITIES FUND
TAX-FREE SHORT INTERMEDIATE SECURITIES FUND
U.S. TREASURY SECURITIES FUND
SHORT INTERMEDIATE U.S. TREASURY SECURITIES FUND
CLASS A AND CLASS B
RETAIL SHARES
The Securities and Exchange Commission has not approved the shares described in
this prospectus or determined whether this prospectus is accurate or complete.
Anyone who tells you otherwise is committing a crime.
<PAGE> 53
PACIFIC CAPITAL FUNDS
---------------------
TABLE OF CONTENTS
-----------------
PAGE
RISK/RETURN SUMMARY AND FUND EXPENSES
Carefully review this important section, which summarizes each Fund's
investments, risks, past performance, and fees.
DIVERSIFIED FIXED INCOME FUND
TAX-FREE SECURITIES FUND
TAX-FREE SHORT INTERMEDIATE SECURITIES FUND
U.S. TREASURY SECURITIES FUND
SHORT INTERMEDIATE U.S. TREASURY SECURITIES FUND
INVESTMENT OBJECTIVES, POLICIES AND RISKS
Review this section for details on each Fund's investment strategies
and risks
FUND MANAGEMENT
Review this section for details on the people and organizations
who oversee the Fund
The Investment Adviser
Portfolio Manager
The Distributor and Administrator
SHAREHOLDER INFORMATION
Review this section for details
on how shares are valued, how to purchase, sell and exchange shares, related
charges, and payments of dividends and distributions.
Pricing of Fund Shares
Purchasing and Adding to Your Shares
Selling Your Shares
Exchanging Your Shares
Distribution Arrangements/Sales Charges
Dividends, Distributions and Taxes
FINANCIAL HIGHLIGHTS
BACK COVER
Where to learn more about the Funds.
2
<PAGE> 54
DIVERSIFIED FIXED INCOME FUND
-----------------------------
RISK/RETURN SUMMARY
-------------------
INVESTMENT OBJECTIVE - High current income
PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in high
quality debt securities issued or
guaranteed by the U.S. Government and
its agencies and instrumentalities. It
may invest up to 20% of its total assets
in investment grade debt securities
issued by U.S. companies and state and
local government issuers. It may invest
up to 25% of its total assets in
dollar-denominated debt securities of
foreign companies and government
issuers. The Fund varies the average
maturity of its investment portfolio
from time to time in response to actual
and expected market and economic
changes.
PRINCIPAL INVESTMENT RISKS Because the value of the Fund's
investments will fluctuate with market
conditions, so will the value of your
investment in the Fund. You could lose
money on your investment in the Fund, or
the Fund could underperform other
investments.
The values of the Fund's investments
fluctuate in response to movements in
interest rates. If rates rise, the
values of debt securities generally
fall. The longer the average maturity of
the Fund's investment portfolio, the
greater the fluctuation. The values of
any of the Fund's investments may also
decline in response to events affecting
the issuer or its credit rating, and an
issuer may default in the payment of
principal or interest, resulting in a
loss to the Fund. In addition, the
performance of foreign securities
depends on different political and
economic environments and other overall
economic conditions in countries where
the Fund invests.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
- want current income
- want a high level of liquidity
- want professional portfolio
management
This Fund is not appropriate for anyone
seeking:
- safety of principal
- income exempt from federal and state
taxes
- capital appreciation
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
3
<PAGE> 55
PERFORMANCE BAR CHART AND TABLE
-------------------------------
The two charts below show how the Diversified Fixed Income Fund has performed
and how its performance has varied from year to year. The bar chart shows
changes in the yearly performance of the Fund and its predecessor over a period
of ten years to demonstrate that they have gained and lost value at differing
times. The table below it compares the performance of the Fund and its
predecessor over time to that of the Merrill Lynch Corporate & Government Master
Index, a widely recognized, unmanaged index of corporate and U.S.
Government bonds.
Both charts assume reinvestment of dividends and distributions. The bar chart
does not reflect the impact of any applicable sales charges. Of course, past
performance does not indicate how the Fund will perform in the future.
Year-by-Year Total Returns as of 12/31 for Class A Shares*
[Graph]
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
7.25% 9.30% 6.23% 17.99% 6.19% 13.63% -8.90% 23.24% -0.75% 8.43%
</TABLE>
- --------------------------------------------------------------------------------
Best quarter: Q2 1989 +8.72%
Worst quarter: Q1 1994 -5.86%
- --------------------------------------------------------------------------------
The returns for Class B shares differ from the Class A returns shown in the bar
chart because of differences in each Class' expenses. The table assumes that
Class B shareholders redeem all their fund shares at the end of the period
indicated.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS PERFORMANCE PAST YEAR PAST 5 PAST 10 SINCE 1/1/98-7/31/98
(FOR THE PERIODS ENDING DECEMBER INCEPTION YEARS YEARS INCEPTION
31, 1997)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A (with 4% sales charge) 10/31/77 4.10% 5.68% 7.88% 3.92% -0.21%
Class B (with CDSC) 10/31/77 4.10% 5.68% 7.88% 3.92% -1.29%
- ------------------------------------------------------------------------------------------------------------------------
Merrill Lynch Corporate &
Government Master Index
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 56
* The quoted performance of the Fund includes the performance of certain common
trust fund ("Commingled") accounts advised by Pacific Century t and managed the
same as the Fund in all material respects, for periods dating back to January
31, 1988, and prior to the Fund's commencement of operations on October 14,
1994, as adjusted to reflect the expenses associated with the Fund. The
Commingled accounts were not registered with the Securities and Exchange
Commission under the Investment Company Act of 1940 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.
FEES AND EXPENSES
As an investor in the Diversified Fixed Income Fund, you will pay the following
fees and expenses. Shareholder transaction fees are paid from your account.
Annual Fund operating expenses are paid out of Fund assets, and are reflected in
the share price. If you purchase shares through a bank, broker or other
investment representative, including an affiliate of Pacific Century, you may be
charged an account-level fee for additional services provided to you in
connection with your investment in the Fund.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES A SHARES B SHARES
(FEES PAID BY YOU DIRECTLY)
- --------------------------------------------------------------------------------
<S> <C> <C>
Maximum sales charge (load) on
Purchases 4.00%(1) None
Maximum deferred sales charge (load) None(1) 5.00%(2)
- --------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES A SHARES B SHARES
(FEES PAID FROM FUND ASSETS)
- --------------------------------------------------------------------------------
<S> <C> <C>
Management Fee(3) 0.60% 0.60%
Distribution (12b-1) Fee(4) 0.75%(3) 1.00%
Other Expenses(3) 0.31% 0.31%
Total Fund Operating Expenses(3) 1.66% 1.91%
<FN>
(1) Lower sales charges are available depending upon the amount invested. For
investments of $1 million or more, a Contingent Deferred Sales Charge is
applicable to redemptions within one year of purchase.
(2) A Contingent Deferred Sales Charge applies to your redemption of Class B
shares before the sixth anniversary of your purchase, declining from 5%
within the first year to 0% after the sixth year.
(3) The Adviser is limiting the Management Fees, 12b-1 Fee (Class A shares
only) and Other Expenses paid by the Fund for the current fiscal year to
0.45%; 0.25% and 0.31%, respectively. Total Fund Operating Expenses after
fee waivers and expense reimbursements are 0.97% and 1.72% for A and B
shares respectively. The Adviser may revise or cancel these expense
limitations at any time and will notify you of the change.
(4) Long-term shareholders may pay indirectly more than the equivalent of the
maximum permitted front-end sales charge due to the recurring nature of
Distribution (12b-1) Fees.
</TABLE>
- --------------------------------------------------------------------------------
CONTINGENT DEFERRED SALES CHARGE
- --------------------------------------------------------------------------------
Both Fund share classes impose a back end sales charge (load) if you sell your
shares before a certain period of time has elapsed. This is called a
Contingent Deferred Sales Charge ("CDSC").
- --------------------------------------------------------------------------------
5
<PAGE> 57
EXPENSE EXAMPLE
Use the table below to compare fees and expenses with those of other funds. It
illustrates the amount of fees and expenses you would pay assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the end of each period
- no changes in the Fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES $562 $902 $1,266 $2,287
CLASS B SHARES
ASSUMING REDEMPTION $694 $900 $1,232 $2,138
ASSUMING NO REDEMPTION $194 $600 $1,032 $2,138
</TABLE>
6
<PAGE> 58
TAX-FREE SECURITIES FUND
------------------------
RISK/RETURN SUMMARY
-------------------
INVESTMENT OBJECTIVE - High current income that is exempt
from federal and Hawaii income tax
PRINCIPAL INVESTMENT STRATEGIES The Fund normally invests at least 80%
of its net assets in municipal
obligations - debt securities that pay
interest, which is exempt from both
federal income tax and the federal
alternative minimum tax. In addition,
the Fund normally invests 50-60% of its
net assets in Hawaii municipal
obligations -- debt securities issued by
or on behalf of the State of Hawaii and
its political subdivisions, agencies and
instrumentalities that pay interest
which is exempt from Hawaii personal
income tax as well as federal income
tax. The Fund varies the average
maturity of its investment portfolio
from time to time in response to actual
and expected market and economic
changes.
PRINCIPAL INVESTMENT RISKS Because the value of the Fund's
investments will fluctuate with market
conditions, so will the value of your
investment in the Fund. You could lose
money on your investment in the Fund, or
the Fund could underperform other
investments.
The values of the Fund's investments
fluctuate in response to movements in
interest rates. If rates rise, the
values of debt securities generally
fall. The longer the average maturity of
the Fund's investment portfolio, the
greater the fluctuation. The values of
any of the Fund's investments may also
decline in response to events affecting
the issuer or its credit rating, and an
issuer may default in the payment of
principal or interest, resulting in a
loss to the Fund. In addition, a portion
of the Fund's net assets (normally not
more than 20%) may be invested in
securities that pay interest which is
subject to the federal alternative
minimum tax.
The Fund is non-diversified, which means
that its portfolio can be invested in
fewer issuers than most mutual funds. As
a result, the value of your shares may
be impacted more by events affecting one
or a few of the Fund's investments than
would otherwise be the case. Since the
Fund invests significantly in securities
of issuers in Hawaii, it also will be
affected by a variety of Hawaiian
economic and political factors.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
- want current income that is exempt
from federal and Hawaii income taxes
- want a high level of liquidity
- want professional portfolio
management
This Fund is not appropriate for anyone
seeking:
- guaranteed safety of principal
- income that is not subject to federal
alternative minimum tax
- capital appreciation
7
<PAGE> 59
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
8
<PAGE> 60
PERFORMANCE BAR CHART AND TABLE
-------------------------------
The two charts below show how the Tax-Free Securities Fund has performed and how
its performance has varied from year to year. The bar chart shows changes in the
yearly performance of the Fund and its predecessor over a period of ten years to
demonstrate that they have gained and lost value at differing times. The table
below it compares the performance of the Fund and its predecessor over time to
that of the Lehman Brothers Municipal Bond Index, a widely recognized, unmanaged
index of municipal bonds with a broad range of maturities.
Both charts assume reinvestment of dividends and distributions. The bar chart
does not reflect the impact of any applicable sales charges. Of course, past
performance does not indicate how the Fund will perform in the future.
Year-by-Year Total Returns as of 12/31 for Class A Shares*
[Graph]
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9.21% 9.30% 5.72% 11.70% 7.21% 11.87% -7.46% 17.46% 3.04% 8.10%
</TABLE>
- --------------------------------------------------------------------------------
Best quarter: Q1 1995 +7.42%
Worst quarter: Q1 1994 -6.10%
- --------------------------------------------------------------------------------
The returns for Class B shares differ from the Class A returns shown in the bar
chart because of differences in each Class' expenses. The table assumes that
Class B shareholders redeem all their fund shares at the end of the period
indicated.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS PERFORMANCE PAST YEAR PAST 5 YEARS PAST 10 SINCE 1/1/98-
(FOR THE PERIODS ENDING DECEMBER INCEPTION YEAR INCEPTION 7/31/98
31, 1997)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A (with 4% sales charge) 10/31/77 3.77% 5.39% 6.99% 2.80% -1.49%
Class B (with CDSC) 10/31/77 3.77% 5.39% 6.99% 2.80% -2.48%
- -------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Municipal Bond
Index
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 61
*The quoted performance of the 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 January
31, 1988, and prior to the Fund's commencement of operations on October 14,
1994, as adjusted to reflect the expenses associated with the Fund. The
Commingled accounts were not registered with the Securities and Exchange
Commission under the Investment Company Act of 1940 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.
FEES AND EXPENSES
As an investor in the Tax-Free Securities Fund, you will pay the following fees
and expenses. Shareholder transaction fees are paid from your account. Annual
Fund operating expenses are paid out of Fund assets, and are reflected in the
share price. If you purchase shares through a bank, broker or other investment
representative, including an affiliate of Pacific Century, you may be charged an
account-level fee for additional services provided to you in connection with
your investment in the Fund.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES A SHARES B SHARES
(FEES PAID BY YOU DIRECTLY)
- -------------------------------------------------------------------------------------
<S> <C> <C>
Maximum sales charge (load) on
Purchases 4.00%(1) None
Maximum deferred sales charge (load) None(1) 5.00%(2)
- -------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES A SHARES B SHARES
(FEES PAID FROM FUND ASSETS)
- -------------------------------------------------------------------------------------
Management Fee(3) 0.60% 0.60%
Distribution (12b-1) Fee(4) 0.75%(3) 1.00%
Other Expenses(3) 0.29% 0.29%
Total Fund Operating Expenses(3) 1.64% 1.89%
<FN>
(1) Lower sales charges are available depending upon the amount invested. For
investments of $1 million or more, a Contingent Deferred Sales Charge is
applicable to redemptions within one year of purchase.
(2) A Contingent Deferred Sales Charge applies to your redemption of Class B
shares before the sixth anniversary of your purchase, declining from 5%
within the first year to 0% after the sixth year.
(3) The Adviser is limiting the Management Fees, 12b-1 Fee (Class A shares
only) and Other Expenses paid by the Fund for the current fiscal year to
0.45%; 0.25% and 0.25%, respectively. Total Fund Operating Expenses after
fee waivers and expense reimbursements are 0.95% and 1.70% for A and B
shares respectively. The Adviser may revise or cancel these expense
limitations at any time and will notify you of the change.
(4) Long-term shareholders may pay indirectly more than the equivalent of the
maximum permitted front-end sales charge due to the recurring nature of
Distribution (12b-1) Fees.
</TABLE>
- --------------------------------------------------------------------------------
CONTINGENT DEFERRED SALES CHARGE
Both Fund share classes impose a back end sales charge (load) if you sell your
shares before a certain period of time has elapsed. This is called a
Contingent Deferred Sales Charge ("CDSC").
- --------------------------------------------------------------------------------
10
<PAGE> 62
EXPENSE EXAMPLE
Use the table below to compare fees and expenses with those of other funds. It
illustrates the amount of fees and expenses you would pay assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the end of each period
- no changes in the Fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES $560 $897 $1,256 $2,266
CLASS B SHARES
ASSUMING REDEMPTION $692 $894 $1,221 $2,117
ASSUMING NO REDEMPTION $192 $594 $1,021 $2,117
</TABLE>
11
<PAGE> 63
TAX-FREE SHORT INTERMEDIATE SECURITIES FUND
-------------------------------------------
RISK/RETURN SUMMARY
-------------------
INVESTMENT OBJECTIVE
- High current income that is exempt
from federal and Hawaii income tax,
with greater stability in the price of
your investment than a long-term bond
fund
PRINCIPAL INVESTMENT STRATEGIES Under normal market conditions, the Fund
invests at least 80% of its net assets
in municipal obligations - debt
securities that pay interest which is
exempt from both federal income tax and
the federal alternative minimum tax. In
addition, the Fund normally invests
50-60% of its net assets in Hawaii
municipal obligations - debt securities
issued by or on behalf of the State of
Hawaii and its political subdivisions,
agencies and instrumentalities that pay
interest which is exempt from Hawaii
personal income tax as well as federal
income tax. The Fund varies the average
maturity of its investment portfolio
from time to time in response to actual
and expected market and economic
changes. Under normal market conditions,
the average remaining maturity of its
investment portfolio (measured on a
dollar-weighted basis) will be from two
to five years.
PRINCIPAL INVESTMENT RISKS Because the value of the Fund's
investments will fluctuate with market
conditions, so will the value of your
investment in the Fund. You could lose
money on your investment in the Fund, or
the Fund could underperform other
investments.
The values of the Fund's investments
fluctuate in response to movements in
interest rates. If rates rise, the
values of debt securities generally
fall. The longer the average maturity of
the Fund's investment portfolio, the
greater the fluctuation. The values of
any of the Fund's investments may also
decline in response to events affecting
the issuer or its credit rating, and an
issuer may default in the payment of
principal or interest, resulting in a
loss to the Fund. In addition, a portion
of the Fund's net assets (normally not
more than 20%) may be invested in
securities that pay interest which is
subject to the federal alternative
minimum tax.
The Fund is non-diversified, which means
that its portfolio can be invested in
fewer issuers than most mutual funds. As
a result, the value of your shares may
be impacted more by events affecting one
or a few of the Fund's investments than
would otherwise be the case. Since the
Fund invests significantly in securities
of issuers in Hawaii, it also will be
affected by a variety of Hawaiian
economic and political factors.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
- want current income that is exempt
from federal and Hawaii income taxes
- want less fluctuation in the value
of your investment than a long-term
bond fund
- want a high level of liquidity
- want professional portfolio
management
12
<PAGE> 64
This Fund is not appropriate for anyone
seeking:
- guaranteed safety of principal
- income that is not subject to
federal alternative minimum tax
- capital appreciation
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
13
<PAGE> 65
PERFORMANCE BAR CHART AND TABLE
-------------------------------
The two charts below show how the Tax-Free Short Intermediate Securities Fund
has performed and how its performance has varied from year to year. The bar
chart shows changes in the yearly performance of the Fund and its predecessor
over a period of ten years to demonstrate that they have gained and lost value
at differing times. The table below it compares the performance of the Fund and
its predecessor over time to that of the Lehman Brothers 5-Year Municipal Bond
Index, a widely recognized, unmanaged index of municipal bonds with a maturity
range of four to six years.
Both charts assume reinvestment of dividends and distributions. The bar chart
below does not reflect the impact of any applicable sales charges. Of course,
past performance does not indicate how the Fund will perform in the future.
Year-by-Year Total Returns as of 12/31 for Class A Shares*
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5.42% 5.52% 8.20% 5.05% 5.54% -1.59% 7.32% 2.91% 4.60%
</TABLE>
- --------------------------------------------------------------------------------
Best quarter: Q1 1991 +2.50%
Worst quarter: Q1 1994 - 1.88%
- --------------------------------------------------------------------------------
The returns for Class B shares will differ from the Class A returns shown in the
bar chart because of differences in each Class' expenses.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS PERFORMANCE PAST YEAR PAST 5 SINCE 1/1/98-
(FOR THE PERIODS ENDING DECEMBER INCEPTION YEARS INCEPTION 7/31/98
31, 1997)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Class A (with 2.25% sales charge) 3/31/88 2.25% 3.24% 4.31% -0.58%
Class B (with CDSC)** N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------
Lehman Brothers 5-Year Municipal
Bond Index
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 66
* The quoted performance of the 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 January
31, 1988, and prior to the Fund's commencement of operations on October 14,
1994, as adjusted to reflect the expenses associated with the Fund. The
Commingled accounts were not registered with the Securities and Exchange
Commission under the Investment Company Act of 1940 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.
** Currently, the Class B shares of the Fund are not being offered to the
public.
FEES AND EXPENSES
As an investor in the Tax-Free Short Intermediate Securities Fund, you will pay
the following fees and expenses. Shareholder transaction fees are paid from your
account. Annual Fund operating expenses are paid out of Fund assets, and are
reflected in the share price. If you purchase shares through a bank, broker or
other investment representative, including an affiliate of Pacific Century, you
may be charged an account-level fee for additional services provided to you in
connection with your investment in the Fund.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES A SHARES B SHARES
(FEES PAID BY YOU DIRECTLY)
- ------------------------------------------------------------------------------------
<S> <C> <C>
Maximum sales charge (load) on
Purchases 2.25%(1) None
Maximum deferred sales charge (load) None(1) 5.00%(2)
- ------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES A SHARES B SHARES
(FEES PAID FROM FUND ASSETS)
- ------------------------------------------------------------------------------------
Management Fee(3) 0.50% 0.50%
Distribution (12b-1) Fee(4) 0.75%(3) 1.00%
Other Expenses(3) 0.39% 0.39%
Total Fund Operating Expenses(3) 1.64% 1.89%
<FN>
(1) Lower sales charges are available depending upon the amount invested. For
investments of $1 million or more, a Contingent Deferred Sales Charge is
applicable to redemptions within one year of purchase.
(2) A Contingent Deferred Sales Charge applies to your redemption of Class B
shares before the sixth anniversary of your purchase, declining from 5%
within the first year to 0% after the sixth year.
(3) The Adviser is limiting the Management Fees, 12b-1 Fee (Class A shares
only) and Other Expenses paid by the Fund for the current fiscal year to
0.40%; 0.25% and 0.34%, respectively. Total Fund Operating Expenses after
fee waivers and expense reimbursements are 0.99% and 1.74% for A and B
shares respectively. The Adviser may revise or cancel these expense
limitations at any time and will notify you of the change.
(4) Long-term shareholders may pay indirectly more than the equivalent of the
maximum permitted front-end sales charge due to the recurring nature of
Distribution (12b-1) Fees.
</TABLE>
- --------------------------------------------------------------------------------
CONTINGENT DEFERRED SALES CHARGE
Both Fund share classes impose a back end sales charge (load) if you sell your
shares before a certain period of time has elapsed. This is called a
Contingent Deferred Sales Charge ("CDSC").
- --------------------------------------------------------------------------------
15
<PAGE> 67
EXPENSE EXAMPLE
Use the table below to compare fees and expenses with those of other funds. It
illustrates the amount of fees and expenses you would pay assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the end of each period
- no changes in the Fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES $388 $731 $1,097 $2,125
CLASS B SHARES
ASSUMING REDEMPTION $692 $894 $1,221 $2,117
ASSUMING NO REDEMPTION $192 $594 $1,021 $2,117
</TABLE>
16
<PAGE> 68
U.S. TREASURY SECURITIES FUND
-----------------------------
RISK/RETURN SUMMARY
-------------------
INVESTMENT OBJECTIVE - High current income consistent with
prudent capital risk
- Secondarily, capital appreciation
PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in bonds,
notes and bills issued by the U.S.
Treasury, and in repurchase agreements
for which those securities are held as
collateral. The Fund varies the average
maturity of its investment portfolio
from time to time to take advantage of
expected changes in interest rates.
PRINCIPAL INVESTMENT RISKS Because the value of the Fund's
investments will fluctuate with market
conditions, so will the value of your
investment in the Fund. You could lose
money on your investment in the Fund, or
the Fund could underperform other
investments.
The values of the Fund's investments
fluctuate in response to movements in
interest rates. If rates rise, the
values of debt securities generally
fall. The longer the average maturity of
the Fund's investment portfolio, the
greater the fluctuation.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
- want current income
- want a high level of liquidity
- want professional portfolio
management
This Fund is not appropriate for anyone
seeking:
- guaranteed safety of principal
- income exempt from federal taxes
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
17
<PAGE> 69
PERFORMANCE BAR CHART AND TABLE
-------------------------------
The two charts below show how the U.S. Treasury Securities Fund has performed
and how its performance has varied from year to year. The bar chart shows
changes in the yearly performance of the Fund and its predecessor over a period
of ten years to demonstrate that they have gained and lost value at differing
times. The table below it compares the performance of the Fund and its
predecessor over time to that of the Merrill Lynch U.S. Treasuries All Maturity
Index, a widely recognized, unmanaged index of both short-term and long-term
U.S. Treasury bonds.
Both charts assume reinvestment of dividends and distributions. The bar chart
does not reflect the impact of any applicable sales charges. Of course, past
performance does not indicate how the Fund will perform in the future.
Year-by-Year Total Returns as of 12/31 for Class A Shares*
[Graph]
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
6.50% 13.22% 7.93% 15.12% 6.02% 11.46% -7.39% 24.07% -1.92% 8.17%
</TABLE>
- --------------------------------------------------------------------------------
Best quarter: Q2 1995 +8.69%
Worst quarter: Q1 196 -5.53%
- --------------------------------------------------------------------------------
The returns for Class B shares will differ from the Class A returns shown in the
bar chart because of differences in each Class' expenses.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS PERFORMANCE PAST YEAR PAST 5 PAST 10 SINCE 1/1/98-
(FOR THE PERIODS ENDING DECEMBER INCEPTION YEARS YEARS INCEPTION 7/31/98
31, 1997)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Class A (with 4% sales charge) 12/31/84 3.81% 5.45% 7.56% 8.42% -0.18%
Class B (with CDSC)** N/A N/A N/A N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------
Merrill Lynch U.S. Treasuries
All Maturity Index
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 70
*THE QUOTED PERFORMANCE OF THE 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 JANUARY
31, 1988, AND PRIOR TO THE FUND'S COMMENCEMENT OF OPERATIONS ON NOVEMBER 1,
1993, AS ADJUSTED TO REFLECT THE EXPENSES ASSOCIATED WITH THE FUND. THE
COMMINGLED ACCOUNTS WERE NOT REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION UNDER THE INVESTMENT COMPANY ACT OF 1940 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.
** Currently, the Class B shares of the Fund are not being offered to the
public.
FEES AND EXPENSES
As an investor in the U.S. Treasury Securities Fund, you will pay the following
fees and expenses. Shareholder transaction fees are paid from your account.
Annual Fund operating expenses are paid out of Fund assets, and are reflected in
the share price. If you purchase shares through a bank, broker or other
investment representative, including an affiliate of Pacific Century, you may be
charged an account-level fee for additional services provided to you in
connection with your investment in the Fund.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES A SHARES B SHARES
(FEES PAID BY YOU DIRECTLY)
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum sales charge (load) on
Purchases 4.00%(1) None
Maximum deferred sales charge (load) None(1) 5.00%(2)
- --------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES A SHARES B SHARES
(FEES PAID FROM FUND ASSETS)
- --------------------------------------------------------------------------------------
Management Fee(3) 0.60% 0.60%
Distribution (12b-1) Fee(4) 0.75%(3) 1.00%
Other Expenses(3) 0.47% 0.47%
Total Fund Operating Expenses(3) 1.82% 2.07%
<FN>
(1) Lower sales charges are available depending upon the amount invested. For
investments of $1 million or more, a Contingent Deferred Sales Charge is
applicable to redemptions within one year of purchase.
(2) A Contingent Deferred Sales Charge applies to your redemption of Class B
shares before the sixth anniversary of your purchase, declining from 5%
within the first year to 0% after the sixth year.
(3) The Adviser is limiting the Management Fees, 12b-1 Fee (Class A shares
only) and Other Expenses paid by the Fund for the current fiscal year to
0.35%; 0.25% and 0.43%, respectively. Total Fund Operating Expenses after
fee waivers and expense are 1.03% and 1.78% for A and B shares
respectively. The Adviser may revise or cancel these expense limitations at
any time and will notify you of the change.
(4) Long-term shareholders may pay indirectly more than the equivalent of the
maximum permitted front-end sales charge due to the recurring nature of
Distribution (12b-1) Fees.
</TABLE>
- --------------------------------------------------------------------------------
CONTINGENT DEFERRED SALES CHARGE
Both Fund share classes impose a back end sales charge (load) if you sell your
shares before a certain period of time has elapsed. This is called a
Contingent Deferred Sales Charge ("CDSC").
- --------------------------------------------------------------------------------
19
<PAGE> 71
EXPENSE EXAMPLE
Use the table below to compare fees and expenses with those of other funds. It
illustrates the amount of fees and expenses you would pay assuming the
following:
- $10,000 investment
- 5% annual return
- redemption at the end of each period
- no changes in the Fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES $577 $950 $1,346 $2,452
CLASS B SHARES
ASSUMING REDEMPTION $710 $949 $1,314 $2,307
ASSUMING NO REDEMPTION $210 $649 $1,114 $2,307
</TABLE>
20
<PAGE> 72
SHORT INTERMEDIATE U.S. TREASURY SECURITIES FUND
------------------------------------------------
RISK/RETURN SUMMARY
-------------------
INVESTMENT OBJECTIVE - High current income consistent with
prudent capital risk
- Secondarily, capital appreciation
PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in bonds,
notes and bills issued by the U.S.
Treasury, and in repurchase agreements
for which those securities are held as
collateral. The Fund varies the average
maturity of its investment portfolio
from time to time to take advantage of
expected changes in interest rates.
Under normal market conditions, the
average remaining maturity of its
investment portfolio (measured on a
dollar-weighted basis) will be from two
to five years.
PRINCIPAL INVESTMENT RISKS Because the value of the Fund's
investments will fluctuate with market
conditions, so will the value of your
investment in the Fund. You could lose
money on your investment in the Fund, or
the Fund could underperform other
investments.
The values of the Fund's investments
fluctuate in response to movements in
interest rates. If rates rise, the
values of debt securities generally
fall. The longer the average maturity of
the Fund's investment portfolio, the
greater the fluctuation.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
- want current income
- want less fluctuation in the value of
your investment than a long-term bond
fund
- want a high level of liquidity
- want professional portfolio
management
This Fund is not appropriate for anyone
seeking:
- guaranteed safety of principal
- income exempt from federal taxes
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
21
<PAGE> 73
PERFORMANCE BAR CHART AND TABLE
-------------------------------
The two charts below show how the Short Intermediate U.S. Treasury Securities
Fund has performed and how its performance has varied from year to year. The bar
chart shows changes in the Fund's yearly performance since its inception to
demonstrate that the Fund has gained and lost value at differing times. The
table below it compares the Fund's performance over time to that of the Merrill
Lynch 3-5-Year U.S. Treasury Index, a widely recognized, unmanaged index of
short-term Treasury bonds.
Both charts assume reinvestment of dividends and distributions. The bar chart
does not reflect the impact of any applicable sales charges. Of course, past
performance does not indicate how the Fund will perform in the future.
Year-by-Year Total Returns as of 12/31 for Class A Shares
[Graph]
<TABLE>
<CAPTION>
1994 1995 1996 1997
<S> <C> <C> <C> <C>
-4.94% 13.90% 1.92% 6.66%
</TABLE>
- --------------------------------------------------------------------------------
Best quarter: Q2 1995 +4.33%
Worst quarter: Q1 1994 -3.12%
- --------------------------------------------------------------------------------
The returns for Class B shares will differ from the Class A returns shown in the
bar chart because of differences in each Class' expenses.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS PERFORMANCE PAST SINCE 1/1/98-
(FOR THE PERIODS ENDING DECEMBER 31, 1997) INCEPTION YEAR INCEPTION 7/31/98
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A (with 2.25% sales charge) 12/13/93 4.26% 4.14% 1.12%
Class B (with CDSC)* N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------
Merrill Lynch 3-5-Year U.S. Treasury Index
- -----------------------------------------------------------------------------------------------------------
<FN>
* Currently, the Class B shares of the Fund are not being offered to the public.
</TABLE>
22
<PAGE> 74
FEES AND EXPENSES
As an investor in the Short Intermediate U.S. Treasury Securities Fund, you will
pay the following fees and expenses. Shareholder transaction fees are paid from
your account. Annual Fund operating expenses are paid out of Fund assets, and
are reflected in the share price. If you purchase shares through a bank, broker
or other investment representative, including an affiliate of Pacific Century,
you may be charged an account-level fee for additional services provided to you
in connection with your investment in the Fund.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES A SHARES B SHARES
(FEES PAID BY YOU DIRECTLY)
- ----------------------------------------------------------------------------------
<S> <C> <C>
Maximum sales charge (load) on
Purchases 2.25%(1) None
Maximum deferred sales charge (load) None(1) 5.00%(2)
- ----------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES A SHARES B SHARES
(FEES PAID FROM FUND ASSETS)
- ----------------------------------------------------------------------------------
Management Fee(3) 0.50% 0.50%
Distribution (12b-1) Fee(4) 0.75%(3) 1.00%
Other Expenses(3) 0.47% 0.47%
Total Fund Operating Expenses(3) 1.72% 1.97%
<FN>
(1) Lower sales charges are available depending upon the amount invested. For
investments of $1 million or more, a Contingent Deferred Sales Charge is
applicable to redemptions within one year of purchase.
(2) A Contingent Deferred Sales Charge applies to your redemption of Class B
shares before the sixth anniversary of your purchase, declining from 5%
within the first year to 0% after the sixth year.
(3) The Adviser is limiting the Management Fees, 12b-1 Fee (Class A shares
only) and Other Expenses paid by the Fund for the current fiscal year to
0.30%; 0.25% and 0.42%, respectively. Total Fund Operating Expenses after
fee waivers and expense reimbursements are 0.97% and 1.72% for A and B
shares respectively. The Adviser may revise or cancel these expense
limitations at any time and will notify you of the change.
(4) Long-term shareholders may pay indirectly more than the equivalent of the
maximum permitted front-end sales charge due to the recurring nature of
Distribution (12b-1) Fees.
</TABLE>
- --------------------------------------------------------------------------------
CONTINGENT DEFERRED SALES CHARGE
Both Fund share classes impose a back end sales charge (load) if you sell your
shares before a certain period of time has elapsed. This is called a
Contingent Deferred Sales Charge ("CDSC").
- --------------------------------------------------------------------------------
23
<PAGE> 75
EXPENSE EXAMPLE
Use the table below to compare fees and expenses with those of other funds. It
illustrates the amount of fees and expenses you would pay assuming the
following:
o $10,000 investment
o 5% annual return
o redemption at the end of each period
o no changes in the Fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS A SHARES $396 $755 $1,137 $2,209
CLASS B SHARES
ASSUMING REDEMPTION $700 $918 $1,262 $2,202
ASSUMING NO REDEMPTION $200 $618 $1,062 $2,202
</TABLE>
24
<PAGE> 76
INVESTMENT OBJECTIVES, POLICIES AND RISKS
-----------------------------------------
DIVERSIFIED FIXED INCOME FUND
- --------------------------------------------------------------------------------
The Diversified Fixed Income Fund seeks to provide you with high current income.
Normally, the Fund invests at least 80% of its total assets in high quality
fixed income securities. Most of its investments are debt securities issued or
guaranteed by the U.S. Government and its agencies and instrumentalities.
However, the Fund may invest up to 20% of its total assets in investment grade
debt securities issued by U.S. companies and state and local government issuers.
The Fund can also invest up to 25% of its total assets in securities of foreign
companies and government issuers that are payable in U.S. dollars. The Fund can
also invest in other kinds of debt instruments issued by foreign and domestic
companies and governments, and can use futures contracts, options, and other
investment techniques.
No maturity limitations apply to the Fund's investment portfolio, and the
average maturity of its portfolio can vary significantly. Pacific Century
monitors the Fund's portfolio performance and reallocates the Fund's assets in
response to actual and expected market and economic changes.
TAX-FREE SECURITIES FUND
- --------------------------------------------------------------------------------
The Tax-Free Securities Fund seeks to provide you with high current income that
is exempt from federal and Hawaii income tax.
The Fund normally invests most of its assets as follows:
At least 80% of
net assets Municipal obligations -- debt securities of
issuers that pay interest which, in the
opinion of counsel to the issuer, is exempt
from federal income tax and is not subject
to the federal alternative minimum tax. This
fundamental policy cannot be changed without
shareholder approval.
50%-60% of
net assets Hawaii municipal obligations -- debt
securities 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
federal income tax. Subject to the 80%
requirement above, the interest on some of
these investments may be subject to the
federal alternative minimum tax.
The Fund can also invest in other kinds of debt instruments issued by foreign
and domestic companies and governments, and can use futures contracts, options
and other investment techniques.
The Fund is non-diversified, which means that its assets may be invested among
fewer issuers than diversified funds. No maturity limitations apply to the
Fund's investment portfolio, and the average maturity of its portfolio can vary
significantly. Pacific Century
25
<PAGE> 77
monitors the Fund's portfolio performance and reallocates the Fund's assets in
response to actual and expected market and economic changes.
TAX-FREE SHORT INTERMEDIATE SECURITIES FUND
- --------------------------------------------------------------------------------
The Tax-Free Short Intermediate Securities Fund seeks to provide you with high
current income that is exempt from federal and Hawaii income tax, with greater
stability in the price of your investment than a long-term bond fund.
The Fund normally invests most of its assets as follows:
At least 80% of
net assets Municipal obligations -- debt securities of
issuers that pay interest which, in the
opinion of counsel to the issuer, is exempt
from federal income tax and is not subject
to the federal alternative minimum tax. This
fundamental policy cannot be changed without
shareholder approval.
50%-60% of
net assets Hawaii municipal obligations -- debt
securities 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
federal income tax. Subject to the 80%
requirement above, the interest on some of
these investments may be subject to the
federal alternative minimum tax.
The Fund can also invest in other kinds of debt instruments issued by foreign
and domestic companies and governments, and can use futures contracts, options
and other investment techniques.
The Fund is non-diversified, which means that its assets may be invested among
fewer issuers than diversified funds. Normally the average remaining maturity of
the Fund's portfolio (on a dollar-weighted basis) is from two to five years.
The Fund's share value is usually less volatile than the Tax-Free Securities
Fund, because the Fund generally has a shorter average portfolio maturity.
U.S. TREASURY SECURITIES FUND
- --------------------------------------------------------------------------------
The U.S. Treasury Securities Fund seeks to provide you with high current income
consistent with prudent capital risk, and secondarily to make your capital grow.
Normally, the Fund invests at least 65% of its total assets in U.S. Treasury
securities -- bonds, notes, and bills issued by the U.S. Treasury. It invests
the balance principally in repurchase agreements (agreements to buy U.S.
Treasury securities where the seller agrees to buy them back, usually within a
few days). The Fund can also invest in other kinds of debt instruments issued by
foreign and domestic companies and governments, and can use futures contracts,
options and other investment techniques.
26
<PAGE> 78
No maturity limitations apply to the Fund's investment portfolio, and the
average maturity of its portfolio can vary significantly. The Fund seeks to
increase its total return by shortening the average maturity of its portfolio
securities when it expects interest rates to increase, and lengthening the
average maturity to take advantage of expected interest rate declines.
SHORT INTERMEDIATE
U.S. TREASURY SECURITIES FUND
- --------------------------------------------------------------------------------
The Short Intermediate U.S. Treasury Securities Fund seeks to provide you with
high current income consistent with prudent capital risk, and secondarily to
make your capital grow.
Normally, the Fund invests at least 65% of its total assets in U.S. Treasury
securities -- bonds, notes, and bills issued by the U.S. Treasury. It invests
the balance principally in repurchase agreements (agreements to buy U.S.
Treasury securities where the seller agrees to buy them back, usually within a
few days). The Fund can also invest in other kinds of debt instruments issued by
foreign and domestic companies and governments, and can use futures contracts,
options and other investment techniques.
Normally the average remaining maturity of the Fund's portfolio (on a
dollar-weighted basis) is from two to five years. The Fund seeks to increase its
total return by shortening the average maturity of its portfolio securities when
it expects interest rates to increase, and lengthening the average maturity to
take advantage of expected interest rate declines. The Fund's share value is
usually less volatile than the U.S. Treasury Fund, because the Fund generally
has a shorter average portfolio maturity.
MAIN RISKS
- --------------------------------------------------------------------------------
The value of your investment in any of the Funds will got up and down, which
means that you could lose money. You should consider an investment in any of the
Funds as a long-term investment.
DEBT SECURITIES
The values of the debt securities held by the Funds fluctuate in response to
movements in interest rates. When rates rise, the values generally fall, and
when rates decline, the values generally increase. In addition, the issuers of
any of the debt securities held by the Funds may fail to pay interest or
principal when due, although the U.S. Treasury securities held by the U.S.
Treasury Securities Fund and Short Intermediate U.S. Treasury Securities Fund
are direct obligations of the U.S.
Government.
The Funds will only acquire bonds that are rated "investment grade" at the time
of purchase, which means they are rated in one of the top four categories by a
nationally recognized statistical rating organization, or unrated obligations
that Pacific Century determines are comparable. However, obligations with the
lowest of these ratings have some speculative characteristics, and changes in
economic conditions are more likely to lead to the issuer's weakened capacity to
make principal and interest payments than higher rated securities. If the rating
of a security decreases after a Fund buys it, or it is no
27
<PAGE> 79
longer rated, Pacific Century will decide whether the Fund should continue to
hold the security.
U.S. Government securities include not only U.S. Treasury obligations, but also
obligations of various agencies and instrumentalities of the U.S. Government.
Some of these are supported by the full faith and credit of the U.S. Treasury,
but others are supported only by the issuer's right to borrow from the U.S.
Treasury, by the discretionary authority of the U.S. Government to purchase the
agency's obligations, or by the instrumentalities' own credit. The U.S.
Government might not provide financial support to instrumentalities it sponsors
if it is not legally obligated to do so. However, the Funds will invest in the
obligations of such instrumentalities only when Pacific Century believes that
the credit risk is minimal.
MUNICIPAL OBLIGATIONS
The Funds may purchase not only "general obligation" municipal bonds (which are
secured by the pledge of a municipality's faith, credit and taxing power), but
also "revenue" bonds, which depend for payment of principal and interest on the
revenues obtained from a specific project or facility. In addition, the Tax-Free
Securities Fund and the Tax-Free Short Intermediate Securities Fund may invest
in municipal bonds covered by insurance and in "moral obligation" bonds.
Insurance minimizes the risks of payment delays or defaults, but does not
guarantee the market value of the insured bonds. Moral obligation bonds are
issued by a municipality or a state financial intermediary and backed by the
moral obligation pledge of a state government to appropriate funds in the future
if the primary issuer defaults, but the state is not legally bound to honor the
pledge.
The Tax Free Securities Fund and Tax-Free Short Intermediate Securities Fund may
purchase municipal notes with maturities at the time of issuance of three years
or less. These generally are issued in anticipation of the receipt of tax funds,
of the proceeds of bond placements, or of other revenues. The issuer's ability
to make payments therefore depends on such receipts.
The Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities Fund
invest significantly in municipal obligations of issuers located in Hawaii. The
values of shares of these Funds therefore will be affected by economic and
political developments in Hawaii.
FOREIGN SECURITIES
The Diversified Fixed Income Fund may invest up to 25% of its total assets in
securities of foreign governmental, private and international issuers that pay
principal and interest in U.S. dollars, and each of the other Funds may also
invest in these securities. Investments in foreign securities involve risks that
are not typically associated with domestic securities. Less information may be
publicly available about foreign issuers. They also are not generally subject to
the same accounting, auditing and financial reporting standards as domestic
issuers. In addition, foreign income tax laws may require withholding of
interest, gains or dividends. Certain other adverse developments could also
occur, such as expropriation or confiscatory taxation, political or social
instability, or diplomatic developments that could adversely affect investments
and the ability to enforce contracts.
YEAR 2000
Like other funds and business organizations around the world, the Funds could be
adversely affected if the computer systems used by Pacific Century and the
Trust's other service providers do not properly process date-related information
for the year 2000 and
28
<PAGE> 80
beyond. The Trust understands that its key service providers are taking steps to
address this issue. In addition, the problem may adversely affect the companies
in which the Funds invest. For example, they may incur substantial costs to
correct the problem and may suffer losses caused by data processing errors.
Management of the Trust and Pacific Century will continue to monitor
developments relating to this issue.
The most recent information about each Fund's portfolio holdings can be found in
its annual or semi-annual report. For information about receiving this report,
see the back cover.
29
<PAGE> 81
FUND MANAGEMENT
---------------
THE INVESTMENT ADVISER
Pacific Century Trust, ("Pacific Century"), 111 S. King Street, Honolulu, Hawaii
96813, a division of Bank of Hawaii, is the adviser for the Funds. Pacific
Century has managed the financial assets of corporations and institutional
investors for nearly a century and has built a reputation as one of the largest,
most knowledgeable financial institutions in the Pacific Basin. Pacific Century
is among the top 50 trust firms in the United States and oversees more than $14
billion in client assets. The Pacific Century investment management team -
including portfolio managers, financial analysts and economists - is responsible
for over $8 billion of these assets.
For these advisory services, the Funds paid Pacific Century as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
PERCENTAGE OF AVERAGE
NET ASSETS FOR YEAR
ENDED 7/31/98*
- -----------------------------------------------------------------------------------------------------------
<S> <C>
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 .____%
- --------------------------------------------------------------------------------- --------------------------
<FN>
* Pacific Century waived a portion of its fees for the fiscal year. Contractual fees (without waivers)
are: 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, .____%.
</TABLE>
PORTFOLIO MANAGERS
Management of the Funds 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 for the
Funds it advises are made by a committee, with individual portfolio managers
having day-to-day responsibility for managing the Funds.
U.S. TREASURY SECURITIES FUND AND SHORT INTERMEDIATE U.S. TREASURY SECURITIES
FUND. David Todani, Vice President and Team Leader on the Taxable Fixed-Income
Investment Team at Pacific Century, has been primarily responsible for the
day-to-day management of the Funds since 1995. Prior to joining the Fixed-Income
Investment Team, Mr. Todani served as a fixed income portfolio manager and
treasury officer for Bank of Hawaii from 1983 to 1994.
30
<PAGE> 82
DIVERSIFIED FIXED INCOME FUND. Janet E. Katakura, Vice President, Team Leader
and Manager of the Taxable Fixed Income Investment Team for Pacific Century, has
been primarily responsible for the day-to-day management of the Fund since its
inception. Ms. Katakura joined Pacific Century as a portfolio manager in 1983.
TAX-FREE SECURITIES FUND AND TAX-FREE SHORT INTERMEDIATE SECURITIES FUND. Yvonne
Lim, Vice President and Team Leader on the Tax-Exempt Fixed Income Investment
Team at Pacific Century, has been primarily responsible for the day-to-day
management of the Funds since 1993. Prior to managing the Funds, Ms. Lim served
as Cash Manager for Pacific Resources from 1989 to 1992.
The Statement of Additional Information has more detailed information about the
Investment Adviser and other service providers.
THE DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services is the Fund's distributor and administrator. Its address is
3435 Stelzer Road, Columbus, Ohio 43219.
31
<PAGE> 83
SHAREHOLDER INFORMATION
-----------------------
PRICING OF FUND SHARES
Each Fund's per share net asset value ("NAV") is determined and its shares are
priced at the close of regular trading on the New York Stock Exchange (normally
at 4 p.m. Eastern time) on days the Exchange is open. Your order will be priced
at the next NAV calculated after your order is accepted by the Fund (plus any
applicable sales charge).
The Fund's securities are valued at current market prices except for debt
obligations with remaining maturities of 60 days or less (which are valued at
amortized cost). If market quotations are not available or if special
circumstances warrant, securities will be valued by a method that the Board of
Trustees believes accurately reflects fair value.
- --------------------------------------------------------------------------------
HOW NAV IS CALCULATED
- --------------------------------------------------------------------------------
NAV is calculated by adding the total value of a Fund's investments and
other assets, subtracting its liabilities, and then dividing that
figure by the number of outstanding shares of the Fund:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NAV = Total Assets-Liabilities
------------------------
Number of Shares Outstanding
You can find each Fund's NAV daily in The Wall Street Journal and other
newspapers.
- --------------------------------------------------------------------------------
32
<PAGE> 84
PURCHASING AND ADDING TO YOUR SHARES
- ------------------------------------
You can purchase Funds through the Pacific Capital Funds, Distributor or through
banks, brokers and other investment representatives, which may charge additional
fees and may require higher minimum investments or impose other limitations on
buying and selling shares. If you purchase shares through an investment
representative, it is responsible for transmitting orders to the Distributor by
the Fund's close of business and may have an earlier cut-off time for purchase
and sell requests. Consult your investment representative or institution for
specific information.
<TABLE>
<CAPTION>
MINIMUM INVESTMENTS
INITIAL INVESTMENT SUBSEQUENT
<S> <C> <C>
Regular (non-retirement) $1000 $50
Retirement (IRA) $250 $50
Auto Invest Plan $100 $50
</TABLE>
All purchases must be in U.S. dollars. A fee will be charged for any checks that
do not clear. Third-party checks are not accepted.
A FUND MAY WAIVE ITS MINIMUM PURCHASE REQUIREMENT, AND THE DISTRIBUTOR MAY
REJECT A PURCHASE ORDER, IF THE DISTRIBUTOR DECIDES THIS IS IN THE BEST INTEREST
OF A FUND'S SHAREHOLDERS.
- --------------------------------------------------------------------------------
AVOID 31% TAX WITHHOLDING
The Fund must withhold 31% of your taxable dividends, capital gains
distributions and redemptions if you who have not provided the Fund with your
taxpayer identification number in compliance with IRS rules. To avoid this, make
sure you provide your correct tax identification number (social security number
for most investors) on your account application.
- --------------------------------------------------------------------------------
33
<PAGE> 85
INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT
<TABLE>
<CAPTION>
INITIAL INVESTMENT SUBSEQUENT
<S> <C> <C>
By regular mail 1. Carefully read and complete 1. Use the investment slip
the application. attached to your account
Establishing your account statement. Or, if
privileges now saves you the unavailable
inconvenience of having to 2. Include the following
add them latter. information on a piece of
2. Make check, bank draft or paper:
money order payable to - Fund name
"Pacific Capital Funds." - share class
3. Mail to: - amount invested
Pacific Capital Funds - account name
PO Box 182130 - account number
Columbus, OH 43218-2130 Include your account number
on your check.
3. Mail to:
Pacific Capital Funds
PO Box 182130
Columbus, OH 43218-2130
By overnight service See Instructions 1-2 above.
3. Send to
Pacific Capital Funds
c/o BISYS Fund Services
Attn: T.A. Operations
3435 Stelzer Road
Columbus, OH 43219
By electronic purchase Establish electronic purchase
option on your account
Your bank must participate in the application or call
Automated Clearing House (ACH) and 800-258-9232. Your account can
must be a U.S. bank. Your bank or generally be set up for
broker may charge for this service. electronic purchases within 15
days.
Call 800-258-9232 to arrange a
transfer from your bank account.
By wire transfer FOR INITIAL INVESTMENT: Fax the
complete application, along with
a request for a confirmation
number, to 800-___-____. Follow
instructions below after
receiving your confirmation
number.
FOR INITIAL AND SUBSEQUENT
INVESTMENTS: Instruct your bank
to wire transfer your investment
to:
Name of Bank
Routing Number: ABA #xxxxxx
DDA#
Include Your name and
your confirmation number
After instructing your bank to wire the
funds, call 800-258-9232 to tell us the
amount being transferred and the name of
your bank.
</TABLE>
- --------------------------------------------------------------------------------
QUESTIONS?
Call 800-258-9232 or your investment representative
- --------------------------------------------------------------------------------
34
<PAGE> 86
- --------------------------------------------------------------------------------
ELECTRONIC VS. WIRE TRANSFER
Wire transfers allow financial institutions to send funds to each other, almost
instantaneously. With an electronic purchase or sale, your bank makes the
transaction through the Automated Clearing House (ACH) and may take up to eight
days to clear. There is generally no fee for ACH transactions.
- --------------------------------------------------------------------------------
AUTO INVEST PLAN
You can make automatic investments in the Funds from your bank account, through
payroll deduction, or from your federal employment, social security or other
regular government checks. Automatic investments can be as little as $50, once
you've invested the $100 minimum required to open the account.
To invest regularly from your bank account:
1) Complete the Auto Invest Plan portion of your Account Application. Make
sure you note:
- your bank name, address, and account number
- the amount you want to invest automatically (minimum $50)
- how often you want to invest (monthly or quarterly)
2) Attach a voided personal check.
To invest regularly from your pay check or government check, call 800-258-9232
for an enrollment form.
The Fund reserves the right to change or eliminate these privileges at any time
with 60 days notice.
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
Each Fund generally declares dividends of substantially all of its net income
daily and pays the dividends monthly. It distributes any capital gains annually.
Dividends payable on Class A shares of a Fund are more than on Class B shares
because Class B shares have higher distribution expenses.
We automatically reinvest all income dividends and capital gains distributions
by a Fund in additional shares of the same Fund and Class on the dividend record
date unless you request otherwise in writing to the Transfer Agent (at least 15
days prior to the distribution).. You may elect to receive your
dividends/distributions in cash either by check sent to your address or by wire
to your bank account.
The value of your shares will be reduced by the amount of dividends and
distributions. If you purchase shares shortly before the record date for a
dividend or the distribution of capital gains, you will pay the full price for
the shares and receive some portion of the price back as a taxable dividend or
distribution.
The Distributor does not charge any fees or sales charges for reinvested
dividends.
- --------------------------------------------------------------------------------
35
<PAGE> 87
SELLING YOUR SHARES
- -------------------
You can sell your shares at any time. Your sales price will be the next NAV
after your sell order is received by the Fund or your investment representative.
Normally you will receive your proceeds within a week after your request is
received.
- --------------------------------------------------------------------------------
WITHDRAWING MONEY FROM YOUR FUND INVESTMENT
As a mutual fund shareholder, you are technically selling shares when you
request a withdrawal in cash. This is also known as redeeming shares or a
redemption of shares.
- --------------------------------------------------------------------------------
CONTINGENT DEFERRED SALES CHARGE
When you sell shares, you will be charged a fee for any shares that have not
been held for a sufficient length of time. These fees will be deducted from the
money paid to you. See the section on "Distribution Arrangements/Sales Charges"
below for details.
INSTRUCTIONS FOR SELLING SHARES
<TABLE>
<S> <C>
By telephone Call 800-258-9232 with instructions as to how you want to
(unless you have declined receive your funds (mail, wire, electronic transfer).
telephone sales privileges)
By mail 1. Call 800-258-9232 to request redemption forms, or write a
letter of instruction indicating:
- your Fund and account number
- amount you want to redeem
- address where your check should be sent
- account owner signature
2. Mail to:
Pacific Capital Funds
PO Box 182130
Columbus, OH 43218-2130
By overnight service 1. See instruction 1 above.
2. Send to
Pacific Capital Funds
co/BISYS Fund Services
Attn: T.A. Operations
3435 Stelzer Road
Columbus, OH 43219
Wire transfer Call 800-258-9232 to request a wire transfer.
You must select this option on
your Account Application. If you call by 4 p.m. Eastern time, your payment will normally
be wired to your bank on the next business day.
The Fund may charge a wire
transfer fee.
Note: Your financial
institution may also charge a
separate fee.
Electronic Redemptions Call 800-258-9232 to request an electronic redemption.
Your bank must participate in If you call by 4 p.m. Eastern time, the NAV of your shares
the Automated Clearing House will normally be determined on the same day and the proceeds
(ACH) and must be a U.S. bank. credited within 8 days.
Note: Your bank may charge for
this service.
</TABLE>
36
<PAGE> 88
AUTO WITHDRAWAL PLAN
You can receive automatic payments from your account on a monthly or quarterly
basis. The minimum withdrawal is $100. To activate this feature:
- - Make sure you've checked the appropriate box on the Account Application. Or
call 800-258-9232.
- - Include a voided personal check.
- - Your account must have a value of $5,000 or more to start withdrawals.
- - If the value of your account falls below $1,000, you may be asked to invest
more to bring the account back to $1,000, or we may close your account and
mail the proceeds to you.
37
<PAGE> 89
GENERAL POLICIES ON SELLING SHARES
- ----------------------------------
REDEMPTIONS IN WRITING REQUIRED
You must request redemption in writing in the following situations:
1. All requests for redemptions from individual retirement accounts
("IRA's") must be in writing.
2. Redemption requests require a signature guarantee when:
- You ask us to make the check payable to someone who is not the
owner of the account
- You ask us to mail the check to an address that is not the
address on your account
- You ask us to wire the proceeds to a commercial bank account
that is not designated on your account application
- The redemption proceeds exceed $50,000
You must obtain a signature guarantee from members of the STAMP (Securities
Transfer Agents Medallion Program), MSP (New York Stock Exchange Medallion
Signature Program) or SEMP (Stock Exchanges Medallion Program). Members are
subject to dollar limitations which must be considered when requesting their
guarantee. The Transfer Agent may reject any signature guarantee if it believes
the transaction would otherwise be improper.
VERIFYING TELEPHONE REDEMPTIONS
The Fund makes every effort to insure that telephone redemptions are only made
by authorized shareholders. All telephone calls are recorded for your protection
and you will be asked for information to verify your identity. Because of these
precautions, unless you have specifically indicated on your application that you
do not want the telephone redemption feature, you may be responsible for any
fraudulent telephone orders. If appropriate precautions have not been taken, the
Fund, Transfer Agent and/or the Distributor may be liable for losses due to
unauthorized transactions.
REDEMPTIONS WITHIN 15 DAYS OF INITIAL INVESTMENT
When you have made an investment by check, you cannot redeem any portion of the
same investment until the Transfer Agent is satisfied that the check has cleared
(which may require up to 15 business days). You can avoid this delay by
purchasing shares with a certified check.
REFUSAL OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the SEC in order to protect remaining shareholders.
REDEMPTION IN KIND
We reserve the right to make your redemption payment in securities rather than
cash, known as "redemption in kind." This could occur under extraordinary
circumstances, such as a very large redemption that could affect Fund operations
(for example, more than 1% of the Fund's net assets). If we deem it advisable
for the benefit of all shareholders, you will receive securities equal in market
value to your shares. When you convert these securities to cash, you will pay
brokerage charges.
38
<PAGE> 90
CLOSING OF SMALL ACCOUNTS
If your account falls below $250, we may ask you to increase your balance. If it
is still below $250 after 60 days, we may close your account and send you the
proceeds at the current NAV.
UNDELIVERABLE REDEMPTION CHECKS
If you choose to receive distributions in cash and distribution checks are
returned and marked as "undeliverable" or remain uncashed for six months, your
account will be changed automatically so that all future distributions are
reinvested in your account. Checks that remain uncashed for six months will be
canceled and the money reinvested in the Fund.
39
<PAGE> 91
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
---------------------------------------
This section describes the sales charges and fees you will pay as an investor in
different share classes offered by the Fund and ways to qualify for reduced
sales charges*. Certain qualified institutional buyers are eligible to purchase
Class Y shares of the Funds. Class Y shares are offered by another prospectus
which is available by calling 800-258-9232.
<TABLE>
<CAPTION>
CLASS A CLASS B
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales Charge (Load) Front-end sales charge (at No front-end sales charge. You
the time of your purchase); may incur a contingent
reduced sales charges are deferred sales charge on
available. shares redeemed within six years after
purchase; shares automatically convert to
Class A shares after 8 years.
- -----------------------------------------------------------------------------------------------------
Distribution (12b-1) Subject to annual distribution Subject to annual distribution
Fees fees of up to .75% of the fees of up to 1.00% of the
Fund's net assets. Fund's net assets.
- -----------------------------------------------------------------------------------------------------
Fund Expenses Lower annual expenses then Higher annual expenses than
Class B shares. Class A shares.
- -----------------------------------------------------------------------------------------------------
<FN>
*Currently, the Class B shares of the U.S. Treasury Securities Fund, Short Intermediate U.S. Treasury
Securities Fund and Tax-Free Short Intermediate Securities Fund are not being offered to the public.
</TABLE>
40
<PAGE> 92
CALCULATION OF SALES CHARGES
CLASS A SHARES
The Distributor sells Class A shares at their public offering price. This price
includes the initial sales charge. Therefore, part of the money you invest will
be used to pay the sales charge. The remainder is invested in Fund shares. The
sales charge decreases with larger purchases. There is no sales charge on
reinvested dividends and distributions.
The current sales charge rates and commissions paid to investment
representatives are as follows:
FOR THE U.S. TREASURY SECURITIES FUND, DIVERSIFIED FIXED INCOME FUND
AND TAX-FREE SECURITIES FUND
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE DEALER PAYMENT
AS A % OF AS A % OF AS A % OF
YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT OFFERING PRICE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Up to $25,000 4.00% 4.17% 3.60%
- -----------------------------------------------------------------------------------------------------------
$25,000 up to $50,000 3.75% 3.90% 3.38%
- -----------------------------------------------------------------------------------------------------------
$50,000 up to $100,000 3.50% 3.63% 3.15%
- -----------------------------------------------------------------------------------------------------------
$100,000 up to $250,000 3.25% 3.36% 2.93%
- -----------------------------------------------------------------------------------------------------------
$250,000 up to $500,000 3.00% 3.09% 2.70%
- -----------------------------------------------------------------------------------------------------------
$500,000 up to $1,000,000 2.50% 2.56% 2.25%
- -----------------------------------------------------------------------------------------------------------
$1,000,000 and above(1) 0.00% 0.00% 0.00%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
FOR THE SHORT INTERMEDIATE U.S. TREASURY SECURITIES FUND AND TAX-FREE
SHORT INTERMEDIATE SECURITIES FUND
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE DEALER PAYMENT
AS A % OF AS A % OF AS A % OF
YOUR INVESTMENT OFFERING PRICE YOUR INVESTMENT OFFERING PRICE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Up to $100,000 2.25% 2.30% 2.03%
- -----------------------------------------------------------------------------------------------------------
$100,000 up to $250,000 1.75% 1.78% 1.58%
- -----------------------------------------------------------------------------------------------------------
$250,000 up to $500,000 1.25% 1.27% 1.13%
- -----------------------------------------------------------------------------------------------------------
$500,000 up to $1,000,000 1.00% 1.01% 0.90%
- -----------------------------------------------------------------------------------------------------------
$1,000,000 and above(1) 0.00% 0.00% 0.00%
- -----------------------------------------------------------------------------------------------------------
<FN>
(1) You will pay a contingent deferred sales charge (CDSC) on these shares of up
to 1.00% of the purchase price if you redeem them in the first year after
purchase. The Distributor will base this charge on the lower of your cost for
the shares or their NAV at the time of sale. The CDSC does not apply to
reinvested distributions.
</TABLE>
The Distributor pays securities dealers from its own resources up to 1.00% of
the offering price of Class A shares of the Funds for individual sales of $1
million to $5 million and 0.50% of the offering price of Class A shares of the
Funds for individual sales over $5 million.
The Distributor reserves the right to pay the entire sales charge to dealers. In
addition to the compensation paid to investment representatives, the Distributor
may provide promotional incentives in the form of travel expenses, lodging and
bonuses to licensed individuals who sell shares of the Funds, as well as
vacation trips (including lodging at luxury resorts), tickets to entertainment
events and merchandise. In some instances, the Distributor will make this
compensation available only to certain dealers whose
41
<PAGE> 93
representatives have sold a significant amount of such shares. None of the Funds
or their shareholders pay this promotional compensation.
CLASS B SHARES
The Distributor sells Class B shares at NAV, without any up-front sales charge.
Therefore, all the money you invest is used to purchase Fund shares. However, if
you sell your Class B shares of the Fund before the sixth anniversary of
purchase, you will have to pay a contingent deferred sales charge at the time of
sale. The CDSC will be based on the lower of the NAV at the time of purchase or
the NAV at the time of sale according to the schedule below. There is no CDSC on
reinvested dividends or distributions.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CDSC AS A % OF DOLLAR
YEARS SINCE PURCHASE AMOUNT SUBJECT TO CHARGE
- --------------------------------------------------------------------------------
<S> <C> <C>
0-1 5.00%
1-2 4.00%
2-3 3.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
more than 6 None
- --------------------------------------------------------------------------------
</TABLE>
If you sell some but not all of your Class B shares, we will first redeem
certain shares not subject to the CDSC (i.e., shares purchased with reinvested
dividends) followed by shares subject to the lowest CDSC (typically shares you
have held for the longest time).
CONVERSION FEATURE - CLASS B SHARES
- - Your Class B shares automatically convert to Class A shares of the same
Fund eight years after the end of the month of purchase. The dollar
value of Class A shares you receive will equal the dollar value of the
B shares converted.
- - After conversion, your shares will be subject to the lower distribution
fees charged on Class A shares, which will increase your investment
return.
- - You will not pay any sales charge, fees or taxes when your shares
convert.
- - If you purchased Class B shares of one Fund which you exchanged for
Class B shares of another Fund, we will calculate your holding period
from the time of your original purchase of Class B shares.
42
<PAGE> 94
SALES CHARGE REDUCTIONS
You may qualify for reduced sales charges under the following circumstances.
1. Letter of Intent. You inform the Fund in writing that you intend to purchase
enough shares over a 13-month period to qualify for a reduced sales charge. You
must include a minimum of 5% of the total amount you intend to purchase with
your letter of intent.
2. Rights of Accumulation. When the value of shares you already own plus the
amount you intend to invest reaches the amount needed to qualify for reduced
sales charges, your added investment will qualify for the reduced sales charge.
3. Combination Privilege. You can combine accounts of multiple Funds or accounts
of immediate family household members (spouse and children under 21) to reduce
sales charges.
4. Reduced prices for investors who are members of certain qualified groups. A
qualified group is a group or association, or a category of purchasers which (i)
is 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) gives its endorsement or authorization to an investment program to assist
solicitation of its membership by a broker or dealer; and (iv) complies with the
conditions of purchase in any agreement entered into between the Trust and the
group, representative or broker or dealer. At the time of purchase you must
furnish the Transfer Agent, either directly or through a broker or dealer, with
information sufficient to permit it to verify that the purchase qualifies for a
reduced sales charge.
SALES CHARGE WAIVERS
Class A Shares
- --------------
The following qualify for waivers of sales charges:
1. Current and retired trustees, directors, employees, and family members of the
Trust, the Adviser and its affiliates or any other organization that provides
services to the Trust.
2. Investors for whom Pacific Century or one of its affiliates acts in a
fiduciary, advisory, custodial, agency or similar capacity (except those
investors for whom Pacific Century Investment Services provides custodial
services).
3. 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.
4. Other investment companies distributed by the Distributor.
5. Investors who purchase shares with the proceeds from the recent redemption of
shares of any non-money market mutual fund with a front-end or back-end sales
charge of equal or greater value.
- --------------------------------------------------------------------------------
REINSTATEMENT PRIVILEGE
If you have sold Class A or B shares of a Fund and decide to reinvest in the
same Fund within a 120 day period, you will not be charged the applicable sales
load on amounts up to the value of the shares you sold. You must provide a
written reinstatement request and payment within 120 days of the date your
instructions to sell were processed.
- --------------------------------------------------------------------------------
43
<PAGE> 95
Class B Shares
- --------------
The Distributor will waive the CDSC under certain circumstances, including the
following:
1. If the redemption follows the death or disability of a shareholder (or both
shareholders in the case of joint accounts).
2. If the redemption is made under an automatic withdrawal plan after the
participant reaches age 59 1/2, as long as the payments are no more than 10% of
the account value annually (measured from the date the Transfer Agent receives
the request).
3. If the redemption represents the minimum required distribution from a
retirement plan. 4. If the shares being redeemed were purchased with reinvested
dividends and distributions.
44
<PAGE> 96
DISTRIBUTION (12b-1) FEES
12b-1 fees compensate the Distributor and other dealers and investment
representatives for services and expenses relating to the sale and distribution
of a Fund's shares and for providing shareholder services. 12b-1 fees are paid
from Fund assets on an ongoing basis, and will increase the cost of your
investment.
- - The 12b-1 fees paid by a Fund vary by share class as follows:
1. Class A shares pay a 12b-1 fee of up to .75% of the average
daily net assets of the Fund.
2. Class B shares pay a 12b-1 fee of up to 1.00% of the average
daily net assets of the Fund. This will cause expenses for
Class B shares to be higher and dividends to be lower than for
Class A shares.
- - The higher 12b-1 fee on Class B shares, together with the CDSC, help the
Distributor sell Class B shares without an "up-front" sales charge. In
particular, these fees help the Distributor cover the cost of advancing
brokerage commissions to investment representatives.
- - The Distributor may use up to .25% of the 12b-1 fee for shareholder
servicing and up to .75% for distribution.
45
<PAGE> 97
EXCHANGING YOUR SHARES
----------------------
You can exchange your shares in one Fund for shares of the same class of another
Pacific Capital Fund, usually without paying additional sales charges (see
"Notes" below). Class A shareholders may also exchange their shares for service
class shares of other investment companies for which Pacific Century serves as
Investment Adviser. These are the Cash Assets Trust, the Tax-Free Cash Assets
Trust and the U.S. Treasuries Cash Assets Trust. No transaction fees are charged
for exchanges.
You must meet the minimum investment requirements for the Fund into which you
are exchanging. Exchanges from one Fund to another are taxable.
You can make exchanges by sending a written request to Pacific Capital Funds, PO
Box 182130, Columbus OH 43218-2130, or by calling 800-258-9232. Please provide
the following information:
- Your name and telephone number
- The exact name on your account and account number
- Taxpayer identification number (usually your Social Security number)
- Dollar value or number of shares you are exchanging
- The name of the Fund from which the exchange is to be made
- The name of the Fund into which the exchange is being made
See "Selling Your Shares" for important information about telephone
transactions.
To prevent disruption in the management of the Funds, due to market timing
strategies, exchange activity may be limited to _____ exchanges within a _____
period.
NOTES ON EXCHANGES
When exchanging from a Fund that has no sales charge or a lower sales charge to
a fund with a higher sales charge, you will pay the difference.
The registration and tax identification numbers of the two accounts must be
identical.
The Exchange Privilege may be changed or eliminated at any time after a 60-day
notice to shareholders.
Be sure to read carefully the Prospectus of any Fund into which you wish to
exchange shares.
46
<PAGE> 98
DIVIDENDS, DISTRIBUTIONS AND TAXES
----------------------------------
DIVIDENDS AND DISTRIBUTIONS
Each Fund pays out any income it receives in the form of dividends, less
expenses, to its shareholders monthly. The Funds distribute net capital gains to
shareholders annually.
TAXES
Dividends generally are taxable as ordinary income. Taxation on capital gains
will vary with the length of time the Fund has held the security--NOT how long
the shareholder has been in the Fund.
Dividends are taxable in the year in which they are paid, even if they appear on
your account statement the following year. Dividends and distributions are
treated the same for federal income tax purposes whether you receive them in
cash or in additional shares.
You will be notified in January each year about the federal tax status of
distributions made by the Funds. Depending on your residence for tax purposes,
distributions also may be subject to state and local taxes, including
withholding taxes.
An exchange of shares is considered a sale, and any related gains may be subject
to applicable taxes.
Foreign shareholders may be subject to special withholding requirements. A
penalty is charged on certain pre-retirement distributions from retirement
accounts. Consult your tax adviser about the federal, state and local tax
consequences in your particular circumstances.
HAWAII TAX INFORMATION
The Funds expect that some dividends and distributions paid by the Tax-Free
Securities Fund and the Tax-Free Short Intermediate Securities Fund will be
exempt from Hawaii personal income tax. Interest derived from obligations of
other states (and their political subdivisions) will not be exempt from Hawaii
income taxation.
If you are not a Hawaii resident you should not be subject to Hawaii income
taxation on dividends and distributions made by the Funds, but you will be
subject to taxes of other states and localities.
FINANCIAL HIGHLIGHTS
--------------------
Insert past 5 years financial highlights from annual report.
47
<PAGE> 99
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> 100
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> 101
back page
For more information about the Pacific Capital Funds, the following documents
are available free upon request:
ANNUAL/SEMIANNUAL REPORTS:
The Funds' annual and semi-annual reports to shareholders contain detailed
information on each Fund's investments. The annual report includes a discussion
of the market conditions and investment strategies that significantly affected
your Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Funds, including operations and investment policies. It is
incorporated by reference and is legally considered a part of this prospectus.
- --------------------------------------------------------------------------------
YOU CAN GET FREE COPIES OF REPORTS AND THE SAI, , OR REQUEST OTHER INFORMATION
AND DISCUSS YOUR QUESTIONS ABOUT THE FUNDS, BY CONTACTING A BROKER OR BANK THAT
SELLS THE FUNDS. OR CONTACT US AT:
PACIFIC CAPITAL FUNDS
3435 STELZER ROAD
COLUMBUS, OHIO 43219
TELEPHONE: 1-800-258-9232
- --------------------------------------------------------------------------------
You can review the Funds' reports and SAIs at the Public Reference Room of the
Securities and Exchange Commission. You can also get copies:
- - For a fee, by writing the Public Reference Section of the Commission,
Washington, D.C. 20549-6009 or calling 1-800-SEC-0330.
- - Free from the Commission's Website at http://www.sec.gov.
Investment Company Act file no. 811-7454.
48
<PAGE> 102
Cover Page
PACIFIC CAPITAL FUNDS
PROSPECTUS
MONTH/DAY, 199__
GROWTH STOCK FUND
GROWTH AND INCOME FUND
VALUE FUND
SMALL CAP FUND
NEW ASIA GROWTH FUND
INTERNATIONAL STOCK FUND
TAX-FREE SECURITIES FUND
TAX-FREE SHORT INTERMEDIATE SECURITIES FUND
DIVERSIFIED FIXED INCOME FUND
U. S. TREASURY SECURITIES FUND
SHORT INTERMEDIATE U.S. TREASURY SECURITIES FUND
BALANCED FUND
CLASS Y
INSTITUTIONAL SHARES
The Securities and Exchange Commission has not approved the shares described in
this prospectus or determined whether this prospectus is accurate or complete.
Anyone who tells you otherwise is committing a crime.
<PAGE> 103
PACIFIC CAPITAL FUNDS
---------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
RISK/RETURN SUMMARY AND FUND EXPENSES
Carefully review this important section,
which summarizes each Fund's investments,
risks, past performance, and fees.
Growth Stock Fund
Growth and Income Fund
Value Fund
Small Cap Fund
New Asia Growth Fund
International Stock Fund
Tax-Free Securities Fund
Tax-Free Short Intermediate Securities Fund
Diversified Fixed Income Fund
U. S. Treasury Securities Fund
Short Intermediate U.S. Treasury Securities Fund
Balanced Fund
INVESTMENT OBJECTIVES, POLICIES AND RISKS
Review this section for details on each Fund's investment strategies
and risks
FUND MANAGEMENT
Review this section for details on the people and organizations
who oversee the Fund
The Investment Advisor
The Sub-Adviser
Portfolio Manager
The Distributor and Administrator
SHAREHOLDER INFORMATION
Review this section for details
on how shares are valued, how to purchase, sell and exchange shares, related
charges, and payments of dividends and distributions.
Pricing of Fund Shares
Distribution Arrangements /Sales Charges
Dividends, Distributions and Taxes
FINANCIAL HIGHLIGHTS
BACK COVER
Where to learn more about the Funds.
</TABLE>
<PAGE> 104
GROWTH STOCK FUND
-----------------
RISK/RETURN SUMMARY
-------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE o Long term capital appreciation
o Secondarily, dividend income
PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in a diversified portfolio of common stocks of U.S. and
foreign companies, and securities that are convertible into such common stocks. The
Fund may invest a significant portion of its assets in smaller and newer companies.
PRINCIPAL INVESTMENT RISKS Because the value of the Fund's investments will
fluctuate with market conditions, so will the value of
your investment in the Fund. You could lose money on
your investment in the Fund, or the Fund could
underperform other investments.
The values of the Fund's investments fluctuate in
response to the activities of individual companies and
general stock market and economic conditions. Stock
prices of smaller and newer companies fluctuate more
than larger more established companies. In addition,
the performance of foreign securities depends on
different political and economic environments and
other overall economic conditions in countries where
the Fund invests. The values of the Fund's convertible
securities are also affected by movement in interest
rates; if rates rise, the values of convertible
securities may fall.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
o are investing for long term goals
o want potential capital appreciation and are willing to
accept the higher risks associated with investing in
stocks
o want professional portfolio management
This Fund is not appropriate for anyone seeking:
o safety of principal
o regular income
o a short term investment
</TABLE>
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
3
<PAGE> 105
PERFORMANCE BAR CHART AND TABLE
-------------------------------
The two charts below show how the Growth Stock Fund has performed and how its
performance has varied from year to year. The bar chart shows changes in the
yearly performance of the Fund and its predecessor over a period of ten years to
demonstrate that they have gained and lost value at differing times. The table
below it compares the performance of the Fund and its predecessor over time to
that of the S&P 500(R), a widely recognized, unmanaged index of common stocks.
Both charts assume reinvestment of dividends and distributions. Of course,
past performance does not indicate how the Fund will perform in the future.
Year-by-Year Total Returns as of 12/31 for Class Y Shares*
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Percentage 8.22% 31.00% 2.75% 35.36% 2.41% 7.26% -1.17% 30.10% 15.03% 30.52%
</TABLE>
<TABLE>
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Best quarter: Q2 1997 +18.77%
Worst quarter: Q4 1987 - 22.22%
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS PERFORMANCE PAST PAST 5 PAST 10 SINCE 1/1/98-
(FOR THE PERIODS ENDING DECEMBER INCEPTION YEAR YEARS YEARS INCEPTION 7/31/98
31, 1997)
- ------------------------------------- --------------- ---------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Class Y 10/31/77 30.52% 15.67% 15.38% 12.98% 18.58%
- ------------------------------------- --------------- ---------- ----------- ----------- ------------- -------------
S&P 500(R) Index
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* The quoted performance of the Fund includes the performance of certain common
trust fund ("Commingled") accounts advised by Pacific Century Trust and managed
the same as the Fund in all material respects, for periods dating back to
January 31, 1988, and prior to the Fund's commencement of operations on October
14, 1994, as adjusted to reflect the expenses associated with the Fund. The
Commingled accounts were not registered with the Securities and Exchange
Commission under the Investment Company Act of 1940 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.
4
<PAGE> 106
FEES AND EXPENSES
- -----------------
As an investor in the Growth Stock Fund, you will pay the following fees and
expenses. Annual Fund operating expenses are paid out of Fund assets, and are
reflected in the share price. If you purchase shares through a bank, broker or
other investment representative, including an affiliate of Pacific Century, you
may be charged an account-level fee for additional services provided to you in
connection with your investment in the Fund.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (1) Y SHARES
(FEES PAID FROM FUND ASSETS)
- ------------------------------------------------------------------------------------
<S> <C>
Management Fee 0.80%
Other Expenses 0.29%
Total Fund Operating Expenses 1.09%
<FN>
(1) The Adviser is limiting the Other Expenses paid by the Fund for the current
fiscal year to 0.24%. Total Fund Operating Expenses after fee waivers and
expense reimbursements for Class Y shares are 1.05%.
</FN>
</TABLE>
EXPENSE EXAMPLE
Use the table below to compare fees and expenses with those of other funds. It
illustrates the amount of fees and expenses you would pay assuming the
following:
o $10,000 investment
o 5% annual return
o redemption at the end of each period
o no changes in the Fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS Y SHARES $111 $347 $601 $1,329
</TABLE>
5
<PAGE> 107
GROWTH AND INCOME FUND
----------------------
RISK/RETURN SUMMARY
-------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE o Current income
o Secondarily, long term capital appreciation
PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in a diversified portfolio
of high quality, dividend paying common stocks of
U.S. companies and securities that are convertible
into such common stocks.
PRINCIPAL INVESTMENT RISKS Because the value of the Fund's investments will
fluctuate with market conditions, so will the value of
your investment in the Fund. You could lose money on
your investment in the Fund, or the Fund could
underperform other investments.
The values of the Fund's investments fluctuate in
response to the activities of individual companies and
general stock market and economic conditions. The
values of its convertible securities are also affected
by movements in interest rates; if rates rise, the
value of convertible securities may fall.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
o want current income
o want potential capital appreciation and are willing
to accept higher risks associated with investing in
stocks
o want professional portfolio management
This Fund is not appropriate for anyone seeking:
o safety of principal
o a short term investment
</TABLE>
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
6
<PAGE> 108
PERFORMANCE BAR CHART AND TABLE
-------------------------------
The two charts below show how the Growth and Income Fund has performed and how
its performance has varied from year to year. The bar chart shows changes in the
yearly performance of the Fund and its predecessor over a period of ten years to
demonstrate that they have gained and lost value at differing times. The table
below it compares the performance of the Fund and its predecessor over time to
that of the S&P 500(R), a widely recognized, unmanaged index of common stocks.
Both charts assume reinvestment of dividends and distributions. Of course,
past performance does not indicate how the Fund will perform in the future.
Year-by-Year Total Returns as of 12/31 for Class Y Shares*
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Percentage 16.17% 28.86% -1.58% 24.23% 1.08% 4.90% 0.46% 26.48% 18.68% 33.87%
</TABLE>
<TABLE>
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Best quarter: Q2 1997 +18.13%
Worst quarter: Q4 1987 - 19.14%
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS PERFORMANCE PAST PAST 5 PAST 10 SINCE 1/1/98-
(FOR THE PERIODS ENDING DECEMBER INCEPTION YEAR YEARS YEARS INCEPTION 7/31/98
31, 1997)
- ------------------------------------- --------------- ---------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Class Y 10/31/77 33.87% 16.19% 14.63% 11.16% 16.17%
- ------------------------------------- --------------- ---------- ----------- ----------- ------------- -------------
S&P 500(R) Index
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* The quoted performance of the Fund includes the performance of certain common
trust fund ("Commingled") accounts advised by Pacific Century Trust and managed
the same as the Fund in all material respects, for periods dating back to
January 31, 1988, and prior to the Fund's commencement of operations on October
14, 1994, as adjusted to reflect the expenses associated with the Fund. The
Commingled accounts were not registered with the Securities and Exchange
Commission under the Investment Company Act of 1940 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.
7
<PAGE> 109
FEES AND EXPENSES
- -----------------
As an investor in the Growth and Income Fund, you will pay the following fees
and expenses. Annual Fund operating expenses are paid out of Fund assets, and
are reflected in the share price. If you purchase shares through a bank, broker
or other investment representative, including an affiliate of Pacific Century,
you may be charged an account-level fee for additional services provided to you
in connection with your investment in the Fund.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (1) Y SHARES
(FEES PAID FROM FUND ASSETS)
- ------------------------------------------------------------------------------------
<S> <C>
Management Fee 0.80%
Other Expenses 0.32%
Total Fund Operating Expenses 1.12%
<FN>
(1) The Adviser is limiting the Other Expenses paid by the Fund for the current
fiscal year to 0.28%. Total Fund Operating Expenses after fee waivers and
expense reimbursements for Class Y shares are 1.08%.
</FN>
</TABLE>
EXPENSE EXAMPLE
Use the table below to compare fees and expenses with those of other funds. It
illustrates the amount of fees and expenses you would pay assuming the
following:
o $10,000 investment
o 5% annual return
o redemption at the end of each period
o no changes in the Fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS Y SHARES $114 $356 $617 $1,363
</TABLE>
8
<PAGE> 110
VALUE FUND
----------
RISK/RETURN SUMMARY
-------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE o Current income
o Secondarily, long term growth of capital
PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in a diversified portfolio
of dividend paying common stocks of U.S. companies,
and securities that are convertible into such common
stocks. The Fund does not limit its investments to any
particular size or type of company.
PRINCIPAL INVESTMENT RISKS Because the value of the Fund's investments will
fluctuate with market conditions, so will the value of
your investment in the Fund. You could lose money on
your investment in the Fund, or the Fund could
underperform other investments.
The values of the Fund's investments fluctuate in
response to the activities of individual companies and
general stock market and economic conditions. The
values of its convertible securities are also affected
by movements in interest rates; if rates rise, the
values of convertible securities may fall.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
o want current income
o want potential capital appreciation and are willing to
accept the higher risks associated with investing in
stocks
o want professional portfolio management
This Fund is not appropriate for anyone seeking:
o safety of principal
o a short term investment
</TABLE>
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
9
<PAGE> 111
FEES AND EXPENSES
- -----------------
As an investor in the Value Fund, you will pay the following fees and expenses.
Annual Fund operating expenses are paid out of Fund assets, and are reflected in
the share price. If you purchase shares through a bank, broker or other
investment representative, including an affiliate of Pacific Century, you may be
charged an account-level fee for additional services provided to you in
connection with your investment in the Fund.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (1) Y SHARES
(FEES PAID FROM FUND ASSETS)
- ------------------------------------------------------------------------------------
<S> <C>
Management Fee 1.00%
Other Expenses 0.37%
Total Fund Operating Expenses 1.37%
<FN>
(1) The Adviser is limiting the Other Expenses paid by the Fund for the current
fiscal year to 0.33%. Total Fund Operating Expenses after fee waivers and
expense reimbursements for Class Y shares are 1.33%.
</FN>
</TABLE>
EXPENSE EXAMPLE
Use the table below to compare fees and expenses with those of other funds. It
illustrates the amount of fees and expenses you would pay assuming the
following:
o $10,000 investment
o 5% annual return
o redemption at the end of each period
o no changes in the Fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
1 YEAR 3 YEARS
- -------------------------------------------------------------------
<S> <C> <C>
CLASS Y SHARES $139 $434
</TABLE>
10
<PAGE> 112
SMALL CAP FUND
--------------
RISK/RETURN SUMMARY
-------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE o Long term growth of capital
PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in a diversified portfolio
of common stocks of smaller U.S. companies, and
securities that are convertible into such common
stocks.
PRINCIPAL INVESTMENT RISKS Because the value of the Fund's investments will
fluctuate with market conditions, so will the value of
your investment in the Fund. You could lose money on
your investment in the Fund, or the Fund could
underperform other investments.
The values of the Fund's investments fluctuate in
response to the activities of individual companies and
general stock market and economic conditions. Stock
prices of smaller and newer companies fluctuate more
than larger more established companies. The values of
the Fund's convertible securities are also affected by
movements in interest rates; if rates rise, the values
of convertible securities may fall.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
o are investing for long term goals
o want potential capital appreciation and are willing to
accept the higher risks associated with investing in
stocks
o want professional portfolio management
This Fund is not appropriate for anyone seeking:
o safety of principal
o a short term investment
o regular income
</TABLE>
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
11
<PAGE> 113
FEES AND EXPENSES
- -----------------
As an investor in the Small Cap Fund, you will pay the following fees and
expenses. Annual Fund operating expenses are paid out of Fund assets, and are
reflected in the share price. If you purchase shares through a bank, broker or
other investment representative, including an affiliate of Pacific Century, you
may be charged an account-level fee for additional services provided to you in
connection with your investment in the Fund.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (1) Y SHARES
(FEES PAID FROM FUND ASSETS)
- ------------------------------------------------------------------------------------
<S> <C>
Management Fee 1.00%
Other Expenses 0.59%
Total Fund Operating Expenses 1.59%
<FN>
(1) The Adviser is limiting the Other Expenses paid by the Fund for the current
fiscal year to 0.55%. Total Fund Operating Expenses after fee waivers and
expense reimbursements for Class Y shares are 1.55%.
</FN>
</TABLE>
EXPENSE EXAMPLE
Use the table below to compare fees and expenses with those of other funds. It
illustrates the amount of fees and expenses you would pay assuming the
following:
o $10,000 investment
o 5% annual return
o redemption at the end of each period
o no changes in the Fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
1 YEAR 3 YEARS
- -------------------------------------------------------------------
<S> <C> <C>
CLASS Y SHARES $162 $502
</TABLE>
12
<PAGE> 114
NEW ASIA GROWTH FUND
--------------------
RISK/RETURN SUMMARY
-------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE o Long term growth of capital
PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in common and preferred
stocks of companies located in the developing
countries of Asia, and securities that are convertible
into such common stocks. The Fund may invest in these
securities directly, or indirectly through other
investment companies or trust that invest the majority
of their assets in the developing countries of Asia.
The Fund does not limit its investments to any
particular type or size of company.
PRINCIPAL INVESTMENT RISKS Because the value of the Fund's investments will
fluctuate with market conditions, so will the value of
your investment in the Fund. You could lose money on
your investment in the Fund, or the Fund could
underperform other investments.
The values of the Fund's investments fluctuate in
response to the activities of individual companies and
general stock market and economic conditions. Stock
prices of smaller and newer companies fluctuate more
than larger more established companies. In addition,
the performance of foreign securities depends on
different political and economic environments and
other overall economic conditions in the countries
where the Fund invests. Emerging country markets
involve greater risk and volatility then more
developed markets. The values of the Fund's
convertible securities are also affected by interest
rates.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
o want potential capital appreciation and are willing to
accept the higher risks associated with investing in
stocks
o are investing for long-term goals
o want professional portfolio management
This Fund is not appropriate for anyone seeking:
o safety of principal
o regular income
o a short term investment
</TABLE>
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
13
<PAGE> 115
PERFORMANCE BAR CHART AND TABLE
-------------------------------
The two charts below show how the New Asia Growth Fund has performed and how its
performance has varied from year to year. The bar chart shows changes in the
Fund's yearly performance since its inception to demonstrate that the Fund has
gained and lost value at differing times. The Table below it compares the Fund's
performance over time to that of the Morgan Stanley Capital International (MSCI)
Far East Index (excluding Japan), a widely recognized, unmanaged index of stock
markets in that region.
Both charts assume reinvestment of dividends and distributions. Of course,
past performance does not indicate how the Fund will perform in the future.
Year-by-Year Total Returns as of 12/31 for Class Y Shares
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Percentage 16.13% -24.50%
</TABLE>
<TABLE>
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Best quarter: Q1 1996 + 8.87%
Worst quarter: Q4 1997 -24.98%
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS PERFORMANCE PAST SINCE 1/1/98-
(FOR THE PERIODS ENDING DECEMBER INCEPTION YEAR INCEPTION 7/31/98
31, 1997)
- ------------------------------------- --------------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Class Y 2/15/95 -24.50% -0.91% -23.90%
- ------------------------------------- --------------- ---------- ------------- -------------
(MSCI) Far East Index (excluding Japan)
- --------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE> 116
FEES AND EXPENSES
- -----------------
As an investor in the New Asia Growth Fund, you will pay the following fees and
expenses. Annual Fund operating expenses are paid out of Fund assets, and are
reflected in the share price. If you purchase shares through a bank, broker or
other investment representative, including an affiliate of Pacific Century, you
may be charged an account-level fee for additional services provided to you in
connection with your investment in the Fund.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (1) Y SHARES
(FEES PAID FROM FUND ASSETS)
- ------------------------------------------------------------------------------------
<S> <C>
Management Fee 0.90%
Other Expenses 1.28%
Total Fund Operating Expenses 2.18%
<FN>
(1) The Adviser is limiting the and Other Expenses paid by the Fund for the current
fiscal year to 1.23%. Total Fund Operating Expenses after fee waivers and
expense reimbursements for Class Y shares are 2.13%.
</FN>
</TABLE>
EXPENSE EXAMPLE
Use the table below to compare fees and expenses with those of other funds. It
illustrates the amount of fees and expenses you would pay assuming the
following:
o $10,000 investment
o 5% annual return
o redemption at the end of each period
o no changes in the Fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS Y SHARES $221 $682 $1,169 $2,513
</TABLE>
15
<PAGE> 117
INTERNATIONAL STOCK FUND
------------------------
RISK/RETURN SUMMARY
-------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE o Long term growth of capital
PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in common and preferred
stocks of foreign companies and securities that are
convertible into common stocks. The Fund may invest in
these securities directly, or indirectly through other
investment companies or trusts that invest the
majority of their assets in foreign companies. The
Fund does not limit its investments to any particular
type or size of company or to any region of the
world.
PRINCIPAL INVESTMENT RISKS Because the value of the Fund's investments will
fluctuate with market conditions, so will the value of
your investment in the Fund. You could lose money on
your investment in the Fund, or the Fund could
underperform other investments.
The values of the Fund's investments fluctuate in
response to the activities of individual companies and
general stock market and economic conditions. Stock
prices of smaller and newer companies fluctuate more
than larger more established companies. In addition,
the performance of foreign securities depends on
different political and economic environments and
other overall economic conditions in the countries
where the Fund invests. Emerging country markets
involve greater risk and volatility than more
developed markets. The values of the Fund's
convertible securities are also affected by interest
rates.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
o want potential capital appreciation and are willing
to accept the higher risks associated with investing
in stocks
o want professional portfolio management
o are investing for long-term goals
This Fund is not appropriate for anyone seeking:
o safety of principal
o a short term investment
o regular income
</TABLE>
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
16
<PAGE> 118
FEES AND EXPENSES
- -----------------
As an investor in the International Stock Fund, you will pay the following fees
and expenses. Annual Fund operating expenses are paid out of Fund assets, and
are reflected in the share price. If you purchase shares through a bank, broker
or other investment representative, including an affiliate of Pacific Century,
you may be charged an account-level fee for additional services provided to you
in connection with your investment in the Fund.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (1) Y SHARES
(FEES PAID FROM FUND ASSETS)
- ------------------------------------------------------------------------------------
<S> <C>
Management Fee 1.00%
Other Expenses 0.97%
Total Fund Operating Expenses 1.97%
<FN>
(1) The Adviser is limiting the Other Expenses paid by the Fund for the current
fiscal year to 0.93%. Total Fund Operating Expenses after fee waivers and
expense reimbursements for Class Y shares are 1.93%.
</FN>
</TABLE>
EXPENSE EXAMPLE
Use the table below to compare fees and expenses with those of other funds. It
illustrates the amount of fees and expenses you would pay assuming the
following:
o $10,000 investment
o 5% annual return
o redemption at the end of each period
o no changes in the Fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
1 YEAR 3 YEARS
- -------------------------------------------------------------------
<S> <C> <C>
CLASS Y SHARES $200 $618
</TABLE>
17
<PAGE> 119
TAX-FREE SECURITIES FUND
------------------------
RISK/RETURN SUMMARY
-------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE o High current income that is exempt from federal and
Hawaii income tax
PRINCIPAL INVESTMENT STRATEGIES The Fund normally invests at least 80% of its net
assets in municipal obligations - debt securities that
pay interest, which is exempt from both federal income
tax and the federal alternative minimum tax. In
addition, the Fund normally invests 50-60% of its net
assets in Hawaii municipal obligations -- debt
securities issued by or on behalf of the State of
Hawaii and its political subdivisions, agencies and
instrumentalities that pay interest which is exempt
from Hawaii personal income tax as well as federal
income tax. The Fund varies the average maturity of
its investment portfolio from time to time in response
to actual and expected market and economic changes.
PRINCIPAL INVESTMENT RISKS Because the value of the Fund's investments will
fluctuate with market conditions, so will the value of
your investment in the Fund. You could lose money on
your investment in the Fund, or the Fund could
underperform other investments.
The values of the Fund's investments fluctuate in
response to movements in interest rates. If rates
rise, the values of debt securities generally fall.
The longer the average maturity of the Fund's
investment portfolio, the greater the fluctuation. The
values of any of the Fund's investments may also
decline in response to events affecting the issuer or
its credit rating, and an issuer may default in the
payment of principal or interest, resulting in a loss
to the Fund. In addition, a portion of the Fund's net
assets (normally not more than 20%) may be invested in
securities that pay interest which is subject to the
federal alternative minimum tax.
The Fund is non-diversified, which means that its
portfolio can be invested in fewer issuers than most
mutual funds. As a result, the value of your shares
may be impacted more by events affecting one or a few
of the Fund's investments than would otherwise be the
case. Since the Fund invests significantly in
securities of issuers in Hawaii, it also will be
affected by a variety of Hawaiian economic and
political factors.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
o want current income that is exempt from federal and
Hawaii income taxes
o want a high level liquidity
o want professional portfolio management
This Fund is not appropriate for anyone seeking:
o guaranteed safety of principal
o income that is not subject to federal alternative
minimum tax
o capital appreciation
</TABLE>
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
18
<PAGE> 120
PERFORMANCE BAR CHART AND TABLE
-------------------------------
The two charts below show how the Tax-Free Securities Fund has performed and how
its performance has varied from year to year. The bar chart shows changes in the
yearly performance of the Fund and its predecessor over a period of ten years to
demonstrate that they have gained and lost value at differing times. The Table
below it compares the performance of the Fund and its predecessor over time to
that of the Lehman Brothers Municipal Bond Index, a widely recognized, unmanaged
index of a broad range of maturities.
Both charts assume reinvestment of dividends and distributions. Of course,
past performance does not indicate how the fund will perform in the future.
Year-by-year total returns as of 12/31 for Class Y shares*
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Percentage 9.53% 9.59% 6.06% 11.93% 7.48% 12.03% -6.88% 17.69% 3.21% 8.54%
</TABLE>
<TABLE>
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Best quarter: Q1 1995 +7.44%
Worst quarter: Q1 1994 - 6.03%
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS PERFORMANCE PAST PAST 5 PAST 10 SINCE 1/1/98-
(FOR THE PERIODS ENDING DECEMBER INCEPTION YEAR YEARS YEARS INCEPTION 7/31/98
31, 1997)
- ------------------------------------- --------------- ---------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Class Y 10/31/77 8.54% 6.58% 7.73% 3.28% 2.74%
- ------------------------------------- --------------- ---------- ----------- ----------- ------------- -------------
Lehman Brothers Municipal Bond Index
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* The quoted performance of the Fund includes the performance of certain common
trust fund ("Commingled") accounts advised by Pacific Century Trust and managed
the same as the Fund in all material respects, for periods dating back to
January 31, 1988, and prior to the Fund's commencement of operations on October
14, 1994, as adjusted to reflect the expenses associated with the Fund. The
Commingled accounts were not registered with the Securities and Exchange
Commission under the Investment Company Act of 1940 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.
19
<PAGE> 121
FEES AND EXPENSES
- -----------------
As an investor in the Tax-Free Securities Fund, you will pay the following fees
and expenses. Annual Fund operating expenses are paid out of Fund assets, and
are reflected in the share price. If you purchase shares through a bank, broker
or other investment representative, including an affiliate of Pacific Century,
you may be charged an account-level fee for additional services provided to you
in connection with your investment in the Fund.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (1) Y SHARES
(FEES PAID FROM FUND ASSETS)
- ------------------------------------------------------------------------------------
<S> <C>
Management Fee 0.60%
Other Expenses 0.29%
Total Fund Operating Expenses 1.14%
<FN>
(1) The Adviser is limiting the Management Fees and Other Expenses paid by the Fund
for the current fiscal year to 0.45% and 0.25%. Total Fund Operating Expenses
after fee waivers and expense reimbursements for Class Y shares are 0.70%.
</FN>
</TABLE>
EXPENSE EXAMPLE
Use the table below to compare fees and expenses with those of other funds. It
illustrates the amount of fees and expenses you would pay assuming the
following:
o $10,000 investment
o 5% annual return
o redemption at the end of each period
o no changes in the Fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS Y SHARES $116 $362 $628 $1,386
</TABLE>
20
<PAGE> 122
TAX-FREE SHORT INTERMEDIATE SECURITIES FUND
-------------------------------------------
RISK/RETURN SUMMARY
-------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE o High current income that is exempt from federal and
Hawaii income tax, with greater stability in the price
of your investment than a long-term bond fund
PRINCIPAL INVESTMENT STRATEGIES Under normal market conditions, the Fund invests at
least 80% of its net assets in municipal obligations -
debt securities that pay interest, which is exempt
from both federal income tax and the federal
alternative minimum tax. In addition, the Fund
normally invests 50-60% of its net assets in Hawaii
municipal obligations -- debt securities issued by or
on behalf of the State of Hawaii and its political
subdivisions, agencies and instrumentalities that pay
interest which is exempt from Hawaii personal income
tax as well as federal income tax. The Fund varies the
average maturity of its investment portfolio from time
to time in response to actual and expected market and
economic changes. Under normal market conditions, the
average remaining maturity of its investment portfolio
(measured on a dollar-weighted basis) will be from two
to five years.
PRINCIPAL INVESTMENT RISKS Because the value of the Fund's investments will
fluctuate with market conditions, so will the value of
your investment in the Fund. You could lose money on
your investment in the Fund, or the Fund could
underperform other investments.
The values of the Fund's investments fluctuate in
response to movements in interest rates. If rates
rise, the values of debt securities generally fall.
The longer the average maturity of the Fund's
investment portfolio, the greater the fluctuation. The
values of any of the Fund's investments may also
decline in response to events affecting the issuer or
its credit rating, and an issuer may default in the
payment of principal or interest, resulting in a loss
to the Fund. In addition, a portion of the Fund's net
assets (normally not more than 20%) may be invested in
securities that pay interest which is subject to the
federal alternative minimum tax.
The Fund is non-diversified, which means that its
portfolio can be invested in fewer issuers than most
mutual funds. As a result, the value of your shares
may be impacted more by events affecting one or a few
of the Fund's investments than would otherwise be the
case. Since the Fund invests significantly in
securities of issuers in Hawaii, it also will be
affected by a variety of Hawaiian economic and
political factors.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
o want current income that is exempt from federal and
Hawaii income taxes
o want less fluctuation in the value of your
investment than a long-term bond fund
o want a high level liquidity
o want professional
portfolio management
</TABLE>
21
<PAGE> 123
<TABLE>
<S> <C>
This Fund is not appropriate for anyone seeking:
o guaranteed safety of principal
o income that is not subject to federal alternative
minimum tax
o capital appreciation
</TABLE>
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
22
<PAGE> 124
PERFORMANCE BAR CHART AND TABLE
-------------------------------
The two charts below show how the Tax-Free Short Intermediate Securities Fund
has performed and how its performance has varied from year to year. The bar
chart shows changes in the yearly performance of the Fund and its predecessor
over a period of ten years to demonstrate that they have gained and lost value
at differing times. The Table below it compares the performance of the Fund and
its predecessor over time to that of the Lehman Brothers 5-Year Municipal Bond
Index, a widely recognized, unmanaged index of bonds with a maturity range of
four to six years.
Both charts assume reinvestment of dividends and distributions. Of course, past
performance does not indicate how the Fund will perform in the future.
Year-by-Year Total Returns as of 12/31 for Class Y Shares*
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Percentage 5.77% 5.71% 8.52% 5.31% 5.78% -1.05% 7.56% 3.20% 5.08%
</TABLE>
<TABLE>
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Best quarter: Q1 1991 +2.52%
Worst quarter: Q1 1994 -1.89%
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS PERFORMANCE PAST PAST 5 SINCE 1/1/98-
(FOR THE PERIODS ENDING DECEMBER INCEPTION YEAR YEARS INCEPTION 7/31/98
31, 1997)
- ------------------------------------- --------------- ---------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Class Y 3/31/88 5.08% 4.07% 4.87% 1.83%
- ------------------------------------- --------------- ---------- ----------- ----------- ------------- -------------
Lehman Brothers 5-Year Municipal Bond Index
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* The quoted performance of the Fund includes the performance of certain common
trust fund ("Commingled") accounts advised by Pacific Century Trust and managed
the same as the Fund in all material respects, for periods dating back to
January 31, 1988, and prior to the Fund's commencement of operations on October
14, 1994, as adjusted to reflect the expenses associated with the Fund. The
Commingled accounts were not registered with the Securities and Exchange
Commission under the Investment Company Act of 1940 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.
23
<PAGE> 125
FEES AND EXPENSES
- -----------------
As an investor in the Tax-Free Short Intermediate Securities Fund, you will pay
the following fees and expenses. Annual Fund operating expenses are paid out of
Fund assets, and are reflected in the share price. If you purchase shares
through a bank, broker or other investment representative, including an
affiliate of Pacific Century, you may be charged an account-level fee for
additional services provided to you in connection with your investment in the
Fund.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (1) Y SHARES
(FEES PAID FROM FUND ASSETS)
- ------------------------------------------------------------------------------------
<S> <C>
Management Fee 0.50%
Other Expenses 0.39%
Total Fund Operating Expenses 0.89%
<FN>
(1) The Adviser is limiting the Management Fees and Other Expenses paid by the Fund
for the current fiscal year to 0.40% and 0.34%. Total expenses after fee waivers
and expense reimbursements for Class Y shares are 0.74%.
</FN>
</TABLE>
EXPENSE EXAMPLE
Use the table below to compare fees and expenses with those of other funds. It
illustrates the amount of fees and expenses you would pay assuming the
following:
o $10,000 investment
o 5% annual return
o redemption at the end of each period
o no changes in the Fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS Y SHARES $91 $284 $493 $1,096
</TABLE>
24
<PAGE> 126
DIVERSIFIED FIXED INCOME FUND
-----------------------------
RISK/RETURN SUMMARY
-------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE o High current income
PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in high quality debt
securities issued or guaranteed by the U.S. Government
and its agencies and instrumentalities. It may invest
up to 20% of its total assets in investment grade debt
securities issued by U.S. companies and state and
local government issuers. It may invest up to 25% of
its total assets in dollar-denominated debt securities
of foreign companies and government issuers. The Fund
varies the average maturity of its investment
portfolio from time to time in response to actual and
expected market and economic changes.
PRINCIPAL INVESTMENT RISKS Because the value of the Fund's investments will
fluctuate with market conditions, so will the value of
your investment in the Fund. You could lose money on
your investment in the Fund, or the Fund could
underperform other investments.
The values of the Fund's investments fluctuate in
response to movements in interest rates. If rates
rise, the values of debt securities generally fall.
The longer the average maturity of the Fund's
investment portfolio, the greater the fluctuation. The
values of any of the Fund's investments may also
decline in response to events affecting the issuer or
its credit rating, and an issuer may default in the
payment of principal or interest, resulting in a loss
to the Fund. In addition, the performance of foreign
securities depends on different political and economic
environments and other overall economic conditions in
countries where the Fund invests.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
o want current income
o want a high level liquidity
o want professional portfolio management
This Fund is not appropriate for anyone seeking:
o safety of principal
o income exempt from federal and state taxes
o capital appreciation
</TABLE>
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
25
<PAGE> 127
PERFORMANCE BAR CHART AND TABLE
-------------------------------
The two charts below show how the Diversified Fixed Income Fund has performed
and how its performance has varied from year to year. The bar chart shows
changes in the yearly performance of the Fund and its predecessor over a period
of ten years to demonstrate that they have gained and lost value at differing
times. The table below it compares the performance of the Fund and its
predecessor over time to that of the Merrill Lynch Corporate & Government Master
Index, a widely recognized, unmanaged index of corporate and U.S. Government
bonds.
Both charts assume reinvestment of dividends and distributions. Of course, past
performance does not indicate how the Fund will perform in the future.
Year-by-Year Total Returns as of 12/31 for Class Y Shares
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Percentage 7.55% 13.72% 6.59% 18.16% 6.46% 13.91% -7.99% 23.54% -0.66% 8.74%
</TABLE>
<TABLE>
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Best quarter: Q2 1989 +8.69%
Worst quarter: Q1 1994 -5.79%
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS PERFORMANCE PAST PAST 5 PAST 10 SINCE 1/1/98-
(FOR THE PERIODS ENDING DECEMBER INCEPTION YEAR YEARS YEARS INCEPTION 7/31/98
31, 1997)
- ------------------------------------- --------------- ---------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Class Y 10/31/77 8.74% 6.94% 8.66% 4.41% 4.08%
- ------------------------------------- --------------- ---------- ----------- ----------- ------------- -------------
Merrill Lynch Corporate
& Government Master Index
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* The quoted performance of the Fund includes the performance of certain common
trust fund ("Commingled") accounts advised by Pacific Century Trust and managed
the same as the Fund in all material respects, for periods dating back to
January 31, 1988, and prior to the Fund's commencement of operations on October
14, 1994, as adjusted to reflect the expenses associated with the Fund. The
Commingled accounts were not registered with the Securities and Exchange
Commission under the Investment Company Act of 1940 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.
26
<PAGE> 128
FEES AND EXPENSES
- -----------------
As an investor in the Diversified Fixed Income Fund, you will pay the following
fees and expenses. Annual Fund operating expenses are paid out of Fund assets,
and are reflected in the share price. If you purchase shares through a bank,
broker or other investment representative, including an affiliate of Pacific
Century, you may be charged an account-level fee for additional services
provided to you in connection with your investment in the Fund.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES(1) Y SHARES
(FEES PAID FROM FUND ASSETS)
- ------------------------------------------------------------------------------------
<S> <C>
Management Fee 0.60%
Other Expenses 0.31%
Total Fund Operating Expenses 0.91%
<FN>
(1) The Adviser is limiting the Management Fees and Other Expenses paid by the Fund
for the current fiscal year to 0.45% and 0.27%. Total Fund Operating Expenses
after fee waivers and expense reimbursements for Class Y shares are 0.72%.
</FN>
</TABLE>
EXPENSE EXAMPLE
Use the table below to compare fees and expenses with those of other funds. It
illustrates the amount of fees and expenses you would pay assuming the
following:
o $10,000 investment
o 5% annual return
o redemption at the end of each period
o no changes in the Fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS Y SHARES $93 $290 $504 $1,120
</TABLE>
27
<PAGE> 129
U.S. TREASURY SECURITIES FUND
-----------------------------
RISK/RETURN SUMMARY
-------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE o High current income consistent with prudent capital
risk
o Secondarily, capital appreciation
PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in bonds, notes and bills
issued by the U.S. Treasury, and in repurchase
agreements for which those securities are held as
collateral. The Fund varies the average maturity of
its investment portfolio from time to time to take
advantage of expected changes in interest rates.
PRINCIPAL INVESTMENT RISKS Because the value of the Fund's investments will
fluctuate with market conditions, so will the value of
your investment in the Fund. You could lose money on
your investment in the Fund, or the Fund could
underperform other investments.
The values of the Fund's investments fluctuate in
response to movements in interest rates. If rates
rise, the values of debt securities generally fall.
The longer the average maturity of the Fund's
investment portfolio, the greater the fluctuation.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
o want current income
o want a high level of liquidity
o want professional portfolio management
This Fund is not appropriate for anyone seeking:
o guaranteed safety of principal
o income exempt from federal taxes
</TABLE>
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
28
<PAGE> 130
PERFORMANCE BAR CHART AND TABLE
-------------------------------
The two charts below show how the U.S. Treasury Securities Fund has performed
and how its performance has varied from year to year. The bar chart shows
changes in the yearly performance of the Fund and its predecessor over a period
of ten years to demonstrate that they have gained and lost value at differing
times. The table below it compares the performance of the Fund and its
predecessor over time to that of the Merrill Lynch U.S. Treasuries All Maturity
Index, a widely recognized, unmanaged index of both short-term and long-term
U.S. Treasury bonds.
Both charts assume reinvestment of dividends and distributions. Of course, past
performance does not indicate how the Fund will perform in the future.
Year-by-Year Total Returns as of 12/31 for Class Y Shares*
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Percentage 6.75% 13.50% 8.13% 15.18% 6.29% 11.59% -7.34% 24.47% -1.68% 8.31%
</TABLE>
<TABLE>
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Best quarter: Q2 1995 +8.75%
Worst quarter: Q1 1996 -5.57%
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS PERFORMANCE PAST PAST 5 PAST 10 SINCE 1/1/98-
(FOR THE PERIODS ENDING DECEMBER INCEPTION YEAR YEARS YEARS INCEPTION 7/31/98
31, 1997)
- ------------------------------------- --------------- ---------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Class Y 12/31/84 8.31% 6.51% 8.20% 8.96% 4.27%
- ------------------------------------- --------------- ---------- ----------- ----------- ------------- -------------
Merrill Lynch U.S. Treasuries
All Maturity Index
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* The quoted performance of the Fund includes the performance of certain common
trust fund ("Commingled") accounts advised by Pacific Century Trust and managed
the same as the Fund in all material respects, for periods dating back to
January 31, 1988, and prior to the Fund's commencement of operations on October
14, 1994, as adjusted to reflect the expenses associated with the Fund. The
Commingled accounts were not registered with the Securities and Exchange
Commission under the Investment Company Act of 1940 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.
29
<PAGE> 131
FEES AND EXPENSES
- -----------------
As an investor in the U.S. Treasury Securities Fund, you will pay the following
fees and expenses. Annual Fund operating expenses are paid out of Fund assets,
and are reflected in the share price. If you purchase shares through a bank,
broker or other investment representative, including an affiliate of Pacific
Century, you may be charged an account-level fee for additional services
provided to you in connection with your investment in the Fund.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES(1) Y SHARES
(FEES PAID FROM FUND ASSETS)
- ------------------------------------------------------------------------------------
<S> <C>
Management Fee 0.60%
Other Expenses 0.47%
Total Fund Operating Expenses 1.07%
<FN>
(1) The Adviser is limiting the Management Fees and Other Expenses paid by the Fund
for the current fiscal year to 0.35% and 0.43%. Total expenses after fee waivers
and expense reimbursements for Class Y shares are 0.78%.
</FN>
</TABLE>
EXPENSE EXAMPLE
Use the table below to compare fees and expenses with those of other funds. It
illustrates the amount of fees and expenses you would pay assuming the
following:
o $10,000 investment
o 5% annual return
o redemption at the end of each period
o no changes in the Fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS Y SHARES $109 $340 $590 $1,306
</TABLE>
30
<PAGE> 132
SHORT INTERMEDIATE U.S. TREASURY SECURITIES FUND
------------------------------------------------
RISK/RETURN SUMMARY
-------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE o High current income consistent with prudent capital
risk
o Secondarily, capital appreciation
PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in bonds, notes and bills
issued by the U.S. Treasury, and in repurchase
agreements for which those securities are held as
collateral. The Fund varies the average maturity of
its investment portfolio from time to time to take
advantage of expected changes in interest rates. Under
normal market conditions, the average remaining
maturity of its investment portfolio (measured on a
dollar-weighted basis) will be from two to five years.
PRINCIPAL INVESTMENT RISKS Because the value of the Fund's investments will
fluctuate with market conditions, so will the value of
your investment in the Fund. You could lose money on
your investment in the Fund, or the Fund could
underperform other investments.
The values of the Fund's investments fluctuate in
response to movements in interest rates. If rates
rise, the values of debt securities generally fall.
The longer the average maturity of the Fund's
investment portfolio, the greater the fluctuation.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
o want current income
o want less fluctuation in the value of your investment
than a long-term bond fund
o want a high level liquidity
o want professional portfolio management
This Fund is not appropriate for anyone seeking:
o guaranteed safety of principal
o income exempt from federal taxes
</TABLE>
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
31
<PAGE> 133
PERFORMANCE BAR CHART AND TABLE
-------------------------------
The two charts below show how the Short Intermediate U.S. Treasury Securities
Fund has performed and how its performance has varied from year to year. The bar
chart shows changes in the Fund's yearly performance since its inception to
demonstrate that the Fund has gained and lost value at differing times. The
Table below it compares the Fund's performance over time to that of the Merrill
Lynch 3-5-Year U.S. Treasury Index, a widely recognized, unmanaged index of
short-term Treasury bonds.
Both charts assume reinvestment of dividends and distributions. Of course, past
performance does not indicate how the Fund will perform in the future.
Year-by-Year Total Returns as of 12/31 for Class Y Shares
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Percentage -4.79% 14.30% 2.28% 6.94%
</TABLE>
<TABLE>
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Best quarter: Q2 1995 +4.39%
Worst quarter: Q1 1994 -3.12%
- ---------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS PERFORMANCE PAST SINCE 1/1/98-
(FOR THE PERIODS ENDING DECEMBER INCEPTION YEAR INCEPTION 7/31/98
31, 1997)
- ------------------------------------- --------------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Class Y 12/31/93 6.94% 4.44% 3.58%
- ------------------------------------- --------------- ---------- ------------- -------------
Merrill Lynch 3-5-Year
U.S. Treasury Index
- --------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE> 134
FEES AND EXPENSES
- -----------------
As an investor in the Short Intermediate U.S. Treasury Securities Fund, you will
pay the following fees and expenses. Annual Fund operating expenses are paid out
of Fund assets, and are reflected in the share price. If you purchase shares
through a bank, broker or other investment representative, including an
affiliate of Pacific Century, you may be charged an account-level fee for
additional services provided to you in connection with your investment in the
Fund.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES(1) Y SHARES
(FEES PAID FROM FUND ASSETS)
- ------------------------------------------------------------------------------------
<S> <C>
Management Fee 0.50%
Other Expenses 0.47%
Total Fund Operating Expenses 0.97%
<FN>
(1) The Adviser is limiting the Management Fees and Other Expenses paid by the Fund
for the current fiscal year to 0.30% and 0.42%. Total expenses after fee waivers
and expense reimbursements for Class Y shares are 0.72%.
</FN>
</TABLE>
EXPENSE EXAMPLE
Use the table below to compare fees and expenses with those of other funds. It
illustrates the amount of fees and expenses you would pay assuming the
following:
o $10,000 investment
o 5% annual return
o redemption at the end of each period
o no changes in the Fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS Y SHARES $99 $309 $536 $1,190
</TABLE>
33
<PAGE> 135
BALANCED FUND*
--------------
RISK/RETURN SUMMARY
-------------------
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE o Current income
o Secondarily, long term capital appreciation
PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in a diversified portfolio
of common stocks, bonds and securities that are
convertible into common stocks. It invests principally
in U.S. companies. The Fund may invest a significant
portion of its assets in medium and smaller-sized
companies.
PRINCIPAL INVESTMENT RISKS Because the value of the Fund's investments will
fluctuate with market conditions, so will the value of
your investment in the Fund. You could lose money on
your investment in the Fund, or the Fund could
underperform other investments.
The values of the Fund's investments in stocks
fluctuate in response to the activities of individual
companies and general stock market and economic
conditions. Stock prices of medium and smaller size
companies fluctuate more than larger more established
companies. The values of the Fund's bonds fluctuate in
response to movements in interest rates. If rates
rise, the values of bonds generally fall; the longer
the remaining maturity of the bonds, the greater the
fluctuation. The values of the Fund's convertible
securities are also affected by interest rates.
WHO MAY WANT TO INVEST? Consider investing in the Fund if you:
o want current income
o want potential capital appreciation and are willing to
accept the higher risks associated with investing in
stocks
o want professional portfolio management
This Fund is not appropriate for anyone seeking:
o safety of principal
o a short term investment
</TABLE>
*THIS FUND IS NOT CURRENTLY BEING OFFERED TO THE PUBLIC.
An investment in the Fund is not a bank deposit and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
34
<PAGE> 136
FEES AND EXPENSES
- -----------------
As an investor in the Balanced Fund, you will pay the following fees and
expenses. Annual Fund operating expenses are paid out of Fund assets, and are
reflected in the share price. If you purchase shares through a bank, broker or
other investment representative, including an affiliate of Pacific Century, you
may be charged an account-level fee for additional services provided to you in
connection with your investment in the Fund.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES(1) Y SHARES
(FEES PAID FROM FUND ASSETS)
- ------------------------------------------------------------------------------------
<S> <C>
Management Fee 1.00%
Other Expenses 0.46%
Total Fund Operating Expenses 1.46%
<FN>
(1) The Adviser is limiting the Other Expenses paid by the Fund for the current
fiscal year to 0.42%. Total Fund Operating Expenses after fee waivers and
expense reimbursements for Class Y shares are 1.42%.
</FN>
</TABLE>
EXPENSE EXAMPLE
Use the table below to compare fees and expenses with those of other funds. It
illustrates the amount of fees and expenses you would pay assuming the
following:
o $10,000 investment
o 5% annual return
o redemption at the end of each period
o no changes in the Fund's operating expenses
Because this example is hypothetical and for comparison only, your actual costs
will be different.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CLASS Y SHARES $149 $462 $797 $1,746
</TABLE>
35
<PAGE> 137
INVESTMENT OBJECTIVES, POLICIES AND STRATEGY
--------------------------------------------
GROWTH STOCK FUND
- --------------------------------------------------------------------------------
The Growth Stock Fund seeks to make your investment grow over the long term, and
secondarily to provide you with current income.
Normally, the Fund invests at least 65% of its total assets in a diversified
portfolio of common stocks of U.S. and foreign companies and in securities that
are convertible into such common stocks. It may invest in securities issued by
large, well-established companies as well as smaller companies, subject to a
minimum market capitalization of $50 million (market capitalization is the total
market price of a company's outstanding equity securities). The Fund can also
invest in other types of equity and investment grade debt instruments issued by
domestic and foreign companies and governments, and can use futures contracts,
options and other investment techniques.
GROWTH AND INCOME FUND
- --------------------------------------------------------------------------------
The Growth and Income Fund seeks to provide you with current income, and
secondarily to make your investment grow over the long term.
Normally, the Fund invests at least 65% of its total assets in a diversified
portfolio of high quality, dividend paying common stocks of U.S. companies and
securities convertible into such common stocks. The Fund invests principally in
securities that currently have as a group an above average dividend yield, which
it expects to remain constant or increase in the future. However, it may balance
these with lower yielding but higher growth-oriented investments to achieve more
growth potential.
The Fund does not limit its investments to any particular type or size of
company. It can also invest in other types of equity and investment grade debt
instruments issued by domestic and foreign companies and governments, and can
use futures contracts, options and other investment techniques.
VALUE FUND
- --------------------------------------------------------------------------------
The Value Fund seeks to provide you with current income, and secondarily to make
your investment grow over the long term.
Normally, the Fund invests primarily in dividend common stocks and bonds of U.S.
companies, and securities that are convertible into such common stocks (such as
warrants, convertible preferred stock, fixed rate preferred stock, convertible
fixed-income securities, options and rights). It does not limit its investments
to any particular size or type of company. The Fund can also invest in preferred
stocks and other types of equity and investment grade debt instruments issued by
domestic and foreign companies and governments, and can use futures contracts,
options and other investment techniques.
36
<PAGE> 138
SMALL CAP FUND
- --------------------------------------------------------------------------------
The Small Cap Fund seeks to make your investment grow over the long term.
Normally, the Fund invests at least 65% of its total assets in a diversified
portfolio of common stocks of smaller U.S. companies, and in securities that are
convertible into such common stocks. These are companies with market
capitalizations of between $__ and $__ million at the time of purchase (market
capitalization is the total market price of a company's outstanding equity
securities). The Fund can also invest in other types of equity and investment
grade debt instruments issued by domestic and foreign companies and governments,
including securities issued by larger companies. In addition, it can use futures
contracts, options and other investment techniques.
NEW ASIA GROWTH FUND
- --------------------------------------------------------------------------------
The New Asia Growth Fund seeks to make your investment grow over the long term.
Normally, the Fund invests at least 70% of its total assets in common stock,
common stock equivalents (such as preferred or debt securities convertible into
common stock), and preferred stock of companies located in the developing
countries of Asia. The Fund invests in these securities directly, or indirectly
through other investment companies or trusts that invest the majority of their
assets in the developing countries of Asia.
For these purposes, developing countries of Asia include all countries in Asia
other than Japan, including but not limited to Hong Kong, China, India,
Indonesia, South Korea, Malaysia, the Philippines, Singapore, Taiwan, Pakistan,
Bangladesh, Sri Lanka and Thailand. An issuer is located in a developing Asian
country if it is organized under the laws of the country, if it derives 50% or
more of its total revenues from business in the country, or if its equity
securities are traded principally on a securities exchange in the country.
The Fund does not limit its investments to any particular type or size of
company. It may invest in companies, large or small, whose earnings its
investment adviser believe have a relatively strong growth trend, or in
companies that it does not anticipate to grow but whose market value per share
it believes is undervalued. In selecting and maintaining a portfolio of
investments in any country, the Fund's investment adviser considers the
investment instruments traded in the country's stock markets and the upside
potential of such markets (including 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 does not give important consideration
to current income from dividends and interest in selecting portfolio securities.
The Fund may invest to a lesser degree in debt securities and other instruments
if Pacific Century believes they would help achieve the Fund's objective; up to
10% of its net assets may be invested in debt securities rated below investment
grade. The Fund may also invest up to 35% of its total assets in any combination
of equity, investment grade debt and convertible securities of issuers located
outside the developing countries of Asia, including the United States, and can
use futures contracts, options and other investment techniques.
37
<PAGE> 139
INTERNATIONAL STOCK FUND
- --------------------------------------------------------------------------------
The International Stock Fund seeks to make your investment grow over the long
term.
Normally, the Fund invests at least 65% of its total assets in common stock,
common stock equivalents (such as preferred or debt securities convertible into
common stock), and preferred stock of foreign companies. The Fund invests in
these securities directly, or indirectly through other investment companies or
trusts that invest the majority of their assets in foreign companies.
The Fund does not limit its investments to any particular country or type or
size of company. It may invest in companies, large or small, whose earnings its
investment adviser believe have a relatively strong growth trend, or in
companies that it does not anticipate to grow but whose market value per share
it believes is undervalued. In selecting and maintaining a portfolio of
investments in any country, the Fund's investment adviser considers the
investment instruments traded in the country's stock markets and the upside
potential of such markets (including 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 does not give important consideration
to current income from dividends and interest in selecting portfolio securities.
The Fund may invest to a lesser degree in investment grade debt securities and
other instruments if Pacific Century believes they would help achieve the Fund's
objective. The Fund may also invest up to 35% of its total assets in any
combination of equity, investment grade debt and convertible securities of
issuers located in the United States, and can use futures contracts, options and
other investment techniques.
TAX-FREE SECURITIES FUND
- --------------------------------------------------------------------------------
The Tax-Free Securities Fund seeks to provide you with high current income that
is exempt from federal and Hawaii income tax.
The Fund normally invests most of its assets as follows:
At least 80% of
net assets Municipal obligations -- debt securities of
issuers that pay interest which, in the
opinion of counsel to the issuer, is exempt
from federal income tax and is not subject
to the federal alternative minimum tax. This
fundamental policy cannot be changed without
shareholder approval.
50%-60% of
net assets Hawaii municipal obligations -- debt
securities 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
federal income tax. Subject to the 80%
requirement above, the interest on some of
these investments may be subject to the
federal alternative minimum tax.
38
<PAGE> 140
The Fund can also invest in other kinds of debt instruments issued by foreign
and domestic companies and governments, and can use futures contracts, options
and other investment techniques.
The Fund is non-diversified, which means that its assets may be invested among
fewer issuers than diversified funds. No maturity limitations apply to the
Fund's investment portfolio, and the average maturity of its portfolio can vary
significantly. Pacific Century monitors the Fund's portfolio performance and
reallocates the Fund's assets in response to actual and expected market and
economic changes.
TAX-FREE SHORT INTERMEDIATE SECURITIES FUND
- --------------------------------------------------------------------------------
The Tax-Free Short Intermediate Securities Fund seeks to provide you with high
current income that is exempt from federal and Hawaii income tax, with greater
stability in the price of your investment than a long-term bond fund.
The Fund normally invests most of its assets as follows:
At least 80% of
net assets Municipal obligations -- debt securities of
issuers that pay interest which, in the
opinion of counsel to the issuer, is exempt
from federal income tax and is not subject
to the federal alternative minimum tax. This
fundamental policy cannot be changed without
shareholder approval.
50%-60% of
net assets Hawaii municipal obligations -- debt
securities 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
federal income tax. Subject to the 80%
requirement above, the interest on some of
these investments may be subject to the
federal alternative minimum tax.
The Fund can also invest in other kinds of debt instruments issued by foreign
and domestic companies and governments, and can use futures contracts, options
and other investment techniques.
The Fund is non-diversified, which means that its assets may be invested among
fewer issuers than diversified funds. Normally the average remaining maturity of
the Fund's portfolio (on a dollar-weighted basis) will be from two to five
years. The Fund's share value will likely be less volatile than the Tax-Free
Securities Fund, because the Fund generally has a shorter average portfolio
maturity.
DIVERSIFIED FIXED INCOME FUND
- --------------------------------------------------------------------------------
The Diversified Fixed Income Fund seeks to provide you with high current income.
Normally, the Fund invests at least 80% of its total assets in high quality
fixed income securities. Most of its investments will be debt securities issued
or guaranteed by the U.S. Government and its agencies and instrumentalities.
However, the Fund may invest
39
<PAGE> 141
up to 20% of its total assets in investment grade debt securities issued by U.S.
companies and state and local government issuers. The Fund can also invest up to
25% of its total assets in securities of foreign companies and government
issuers that are payable in U.S. dollars. The Fund can also invest in other
kinds of debt instruments issued by foreign and domestic companies and
governments, and can use futures contracts, options, and other investment
techniques.
No maturity limitations apply to the Fund's investment portfolio, and the
average maturity of its portfolio can vary significantly. Pacific Century
monitors the Fund's portfolio performance and reallocates the Fund's assets in
response to actual and expected market and economic changes.
U.S. TREASURY SECURITIES FUND
- --------------------------------------------------------------------------------
The U.S. Treasury Securities Fund seeks to provide you with high current income
consistent with prudent capital risk, and secondarily to make your capital grow.
Normally, the Fund invests at least 65% of its total assets in U.S. Treasury
securities -- bonds, notes, and bills issued by the U.S. Treasury. It invests
the balance principally in repurchase agreements (agreements to buy U.S.
Treasury Securities where the seller agrees to buy them back, usually within a
few days). The Fund can also invest in other kinds of debt instruments issued by
foreign and domestic companies and governments, and can use futures contracts,
options and other investment techniques.
No maturity limitations apply to the Fund's investment portfolio, and the
average maturity of its portfolio can vary significantly. The Fund seeks to
increase its total return by shortening the average maturity of its portfolio
securities when it expects interest rates to increase, and lengthening the
average maturity to take advantage of expected interest rate declines.
40
<PAGE> 142
SHORT INTERMEDIATE
U.S. TREASURY SECURITIES FUND
- --------------------------------------------------------------------------------
The Short Intermediate U.S. Treasury Securities Fund seeks to provide you with
high current income consistent with prudent capital risk, and secondarily to
make your capital grow.
Normally, the Fund invests at least 65% of its total assets in U.S. Treasury
securities -- bonds, notes, and bills issued by the U.S. Treasury. It invests
the balance principally in repurchase agreements (agreements to buy U.S.
Treasury Securities where the seller agrees to buy them back, usually within a
few days). The Fund can also invest in other kinds of debt instruments issued by
foreign and domestic companies and governments, and can use futures contracts,
options and other investment techniques.
Normally the average remaining maturity of the Fund's portfolio (on a
dollar-weighted basis) will be from two to five years. The Fund seeks to
increase its total return by shortening the average maturity of its portfolio
securities when it expects interest rates to increase, and lengthening the
average maturity to take advantage of expected interest rate declines. The
Fund's share value will likely be less volatile than the U.S. Treasury Fund,
because the Fund generally has a shorter average portfolio maturity.
BALANCED FUND
- --------------------------------------------------------------------------------
The Balanced Fund seeks to provide you with current income, and secondarily to
make your investment grow over the long term.
Normally, the Fund invests primarily in common stocks and bonds of U.S.
companies, and securities that are convertible into such common stocks (such as
warrants, convertible preferred stock, fixed rate preferred stock, convertible
fixed-income securities, options and rights). It invests at least 25% of the
value of its total assets in investment grade fixed-income securities that are
senior to the issuers' other debt securities. The Fund can also invest in
preferred stocks and other types of equity and investment grade debt instruments
issued by domestic and foreign companies and governments, and can use futures
contracts, options and other investment techniques.
The Fund may invest in common stocks of large companies (with market
capitalizations of more than $750 million) as well as medium and smaller sized
companies (with market capitalizations of at least $250 million but less than
$750 million). It seeks to invest less than 50% of its total assets in the
securities of medium and smaller sized companies. However, the actual percentage
may vary according to changes in market conditions and Pacific Century's
judgment about how best to achieve the Fund's investment objective.
The Fund selects common stocks on the basis of companies' strong earnings
growth trends, above-average prospects for future earnings growth, and
diversification among industries and companies. In selecting preferred stocks,
bonds and convertible securities, it also considers companies' strong earnings
and credit records and their ability to provide current income.
41
<PAGE> 143
MAIN RISKS
- --------------------------------------------------------------------------------
The value of your investment in any of the Funds will got up and down, which
means that you could lose money. You should consider an investment in any of the
Funds as a long-term investment.
STOCKS
The values of stocks fluctuate in response to the activities of individual
companies and general stock market and economic conditions, and stock prices may
decline over short or even extended periods. Stocks are more volatile and
riskier than some other forms of investment, such as short-term high-grade fixed
income securities.
SMALL COMPANIES
Securities of smaller and newer companies may present greater opportunities than
larger and more established companies for capital appreciation because of high
potential earnings growth. But they also involve greater risk. Such companies
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 stock
exchange. As a result, these securities may fluctuate in value more than those
or larger, more established companies and, as a group, may suffer more sever
price declines during periods of generally declining stock prices.
FOREIGN SECURITIES
Investments in foreign securities involve risks that are not typically
associated with domestic securities. Changes in foreign currency exchange rates
will affect the values of investments quoted or payable in currencies other than
the U.S. dollar. Less information may be publicly available about foreign
issuers. They also are not generally subject to the same accounting, auditing
and financial reporting standards as domestic issuers. Foreign stock markets
have different clearance and settlement procedures, and higher brokerage
commissions and transaction costs, than U.S. markets. In addition, foreign
exchanges, brokers and issuers generally are not supervised or regulated as
closely as in the United States. Furthermore, foreign income tax laws may
require witholding of interest, gains or dividends. Certain other adverse
developments could also occur, such as expropriation or confiscatory taxation,
political or social instability, or diplomatic developments that could adversely
affect investments and the ability to enforce contracts.
EMERGING MARKETS
The securities markets of developing countries involve greater risks than more
developed markets. These securities markets are not as large as U.S. markets,
have substantially less trading volume, and have a high concentration of
investors and financial intermediaries, 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.
Substantial economic uncertainties exist for developing countries. They may have
overburdened infrastructures and obsolete financial systems as well as
environmental problems. Certain economies depend on exports of primary
commodities and are vulnerable to changes in commodity prices, which in turn may
be affected by a variety of factors. In addition, the governments of many such
countries have a heavy role in regulating and supervising their economies, and
their economies are heavily export
42
<PAGE> 144
oriented and dependent on international trade. Certain developing countries are
large debtors to commercial banks and foreign governments. Some have experience
substantial and volatile rates of inflation and currency devaluations.
Substantial social and political uncertainties also exist for many developing
countries. These may result from factors such as authoritarian governments;
popular unrest associated with demands for improved political, economic and
social conditions; internal insurgencies and terrorist activities; hostile
relationships with neighboring countries; and drug trafficking. This instability
could impair the financial conditions of issuers or disrupt their financial
markets.
A number of Asian countries are currently experiencing economic difficulties and
significant declines in values in their financial markets as a result of the
convergence of a number of these social, political and economic factors. The
unsettled conditions of several Asian financial markets has also affected
emerging markets in other countries and regions. These conditions could continue
or deteriorate further in the future.
A variety of other factors may also adversely impact the Funds' investments in
countries with emerging securities markets. These include matters such as
archaic legal systems; inflation accounting rules that indirectly generate
losses or profits; less developed systems for registration, transfer and custody
of securities; restrictions on foreign investments in capital markets;
limitations on the manner in which the Funds may invest in securities; and
limitations on repatriation of income, capital, or the proceeds of sales of
securities.
CONVERTIBLE SECURITIES
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 common stock of the
same or other issuers. Convertible securities are usually subordinated in right
of payment to nonconvertible debt securities of the same issuer, but are senior
to common stocks in an issuer's capital structure. Their prices tend to be
influenced by changes in interest rates (in the same manner as described below
for debt securities) as well as changes in the market value of the common stock
into which they can be converted.
DEBT SECURITIES
The values of the debt securities held by the Funds fluctuate in response to
movements in interest rates. When rates rise, the values generally fall, and
when rates decline, the values generally increase. In addition, the issuers of
any of the debt securities held by the Fund may fail to pay interest or
principal when due.
The Funds generally will only acquire bonds that are rated investment grade at
the time of purchase, which means they are rated in one of the top four
categories by a nationally recognized statistical rating organization, or
unrated obligations that Pacific Century determines are comparable. However,
obligations with the lowest of these ratings have some speculative
characteristics, and changes in economic conditions are more likely to lead to
the issuer's weakened capacity to make principal and interest payments than
higher rated securities. If the rating of a security decreases after a Fund buys
it, or it is no longer rated, Pacific Century will decide whether the Fund
should continue to hold the security.
U.S. government securities include not only U.S. Treasury obligations, but also
obligations of various agencies and instrumentalities of the U.S. government.
Some of
43
<PAGE> 145
these are supported by the full faith and credit of the U.S. Treasury, but
others are supported only by the issuer's right to borrow from the U.S.
Treasury, by the discretionary authority of the U.S. Government to purchase the
agency's obligations, or by the instrumentalities' own credit. The U.S.
Government might not provide financial support to instrumentalities it sponsors
if it is not legally obligated to do so. However, the Funds will invest in the
obligations of such instrumentalities only when Pacific Century believes that
the credit risk is minimal.
The New Asia Growth Fund may invest up to 10% of its net assets in securities
rated below investment grade or of comparable quality, commonly referred to as
"junk bonds" or "high yield/high risk securities." These investments are
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal as required, and generally are less liquid and have greater
price volatility that higher rated securities. The Fund may purchase debt
securities that are in default, except that it can invest up to 5% of its total
assets in sovereign (government) debt that is in default.
MUNICIPAL OBLIGATIONS
The Fixed Income Funds may purchase not only "general obligation" municipal
bonds (which are secured by the pledge of a municipality's faith, credit and
taxing power), but also "revenue" bonds, which depend for payment of principal
and interest on the revenues obtained from a specific project or facility. In
addition, the Tax-Free Securities Fund and the Tax-Free Short Intermediate
Securities Fund may invest in municipal bonds covered by insurance and in "moral
obligation" bonds. Insurance minimizes the risks of payment delays or defaults,
but does not guarantee the market value of the insured bonds. Moral obligation
bonds are issued by a municipality or a state financial intermediary and backed
by the moral obligation pledge of a state government to appropriate funds in the
future if the primary issuer defaults, but the state is not legally bound to
honor the pledge.
The Tax Free Securities Fund and Tax-Free Short Intermediate Securities Fund may
purchase municipal notes with maturities at the time of issuance of three years
or less. These generally are issued in anticipation of the receipt of tax funds,
of the proceeds of bond placements, or of other revenues. The issuer's ability
to make payments therefore depends on such receipts.
The Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities Fund
invest significantly in municipal obligations of issuers located in Hawaii. The
values of shares of these Funds therefore will be affected by economic and
political developments in Hawaii.
YEAR 2000 AND THE PACIFIC CAPITAL FUNDS
Like other funds and business organizations around the world, the Funds
could be adversely affected if the computer systems used by Pacific Century
Trust and the Trust's other service providers do not properly process
date-related information for the year 2000 and beyond. The Trust understands
that its key service providers are taking steps to address this issue. In
addition, the problem may adversely affect the companies in which the Funds
invest. For example, they may incur substantial costs to correct the problem and
may suffer losses cause by data processing errors. Management of the Trust and
Pacific Century Trust will continue to monitor developments relating to this
issue.
The most recent information about each Fund's portfolio holdings can be found in
its annual or semi-annual report. For information about receiving this report,
see the back cover.
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<PAGE> 146
FUND MANAGEMENT
---------------
THE INVESTMENT ADVISER
Pacific Century Trust, ("Pacific Century"), 111 S. King Street, Honolulu, Hawaii
96813,a division of Bank of Hawaii, is the adviser for the Funds. Pacific
Century has managed the financial assets of corporations and institutional
investors for nearly a century and has built a reputation as one of the largest,
most knowledgeable financial institutions in the Pacific Basin. Pacific Century
is among the top 50 trust firms in the United States and oversees more than $14
billion in client assets. The Pacific Century investment management team -
including portfolio managers, financial analysts and economists - is responsible
for over $8 billion of these assets.
For these advisory services, the Funds paid Pacific Century as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PERCENTAGE OF AVERAGE
NET ASSETS FOR YEAR
ENDED 7/31/98
- --------------------------------------------------------------------------------
<S> <C>
Balanced Fund .____%*
- --------------------------------------------------------------------------------
Diversified Fixed Income Fund .____%*
- --------------------------------------------------------------------------------
Growth and Income Fund .____%*
- --------------------------------------------------------------------------------
Growth Stock Fund .____%*
- --------------------------------------------------------------------------------
International Stock Fund .____%*
- --------------------------------------------------------------------------------
New Asia Growth Fund .____%*
- --------------------------------------------------------------------------------
Short Intermediate U.S. Treasury Securities Fund .____%*
- --------------------------------------------------------------------------------
Small Cap Fund .____%*
- --------------------------------------------------------------------------------
Tax-Free Securities Fund .____%*
- --------------------------------------------------------------------------------
Tax-Free Short Intermediate Securities Fund .____%*
- --------------------------------------------------------------------------------
U.S. Treasury Securities Fund .____%*
- --------------------------------------------------------------------------------
Value Fund .____%*
- -----------------------------------------------------------------------------
<FN>
* Pacific Capital waived a portion of its fees for the fiscal year. Contractual
fees (without waivers) are: Balanced Fund, .___%; Diversified Fixed Income Fund,
.___%; Growth and Income Fund, .______%; Growth Stock Fund, .____%;
International Stock Fund, .____%; New Asia Growth Fund, .____%; Short
Intermediate U.S. Treasury Securities Fund, .____% ; Small Cap Fund, .____%;
Tax-Free Securities Fund, .____%; Tax-Free Short Intermediate Securities Fund,
.____%; U.S. Treasury Securities Fund, .____%; and Value Fund, .____%;
</TABLE>
45
<PAGE> 147
THE SUB-ADVISER
Nicholas-Applegate Capital Management, 600 W. Broadway, San Diego, California
92101, is the Sub-Adviser to the International Stock Fund and the Small Cap
Fund, and provides investment advisory services with respect to management of
those Funds' portfolios. Its affiliate Nicholas-Applegate Capital Management
(Hong Kong) LLC, located at the same address, is the Sub-Adviser to the New Asia
Growth Fund, and provides investment advisory services with respect to
management of the foreign component of that Fund's portfolio.
PORTFOLIO MANAGERS
The actual management of the Funds 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 for the Funds it advises are made by a committee, with individual
portfolio managers having day-to-day responsibility of managing the Funds.
GROWTH STOCK FUND. Roger Khoplin, CFA, serves as a Vice President and Team
Leader on the Equity Investment Team at Pacific Century and has been primarily
responsible for the day-to-day management of the Fund since 1997. Prior to
joining Pacific Century in 1992, Mr. Khoplin served as a securities analyst with
Dean Witter 1990-1991; Smith Barney 1981-1989; and with Sanford C. Bernstein &
Company 1980-1981.
GROWTH AND INCOME FUND. Clyde Powers, CFA serves as a Vice President and Team
Leader on the Equity Investment Team at Pacific Century and has been primarily
responsible for the management of the Fund since 1997. Mr. Powers has 26 years
of experience managing growth funds and growth oriented portfolios for
institutional investors. Prior to joining Pacific Century in 1997, Mr. Powers
served as a portfolio manager for Amcore Investment Group form 1995 to 1997, and
as Managing Director-Investment Operations for Union Capital Advisors from 1984
to 1995.
VALUE FUND.
SMALL CAP FUND. A team of Catherine Somhegyi, Larry Speidell, Travis Prentice
and Mark Stuckelman is responsible for the day-to-day management of the Fund.
Ms. Somhegyi, as Partner of the firm, is its Chief Investment Officer - Global
Equity Management and joined the firm in 1987. Mr. Speidell, a Partner of the
firm, is its Director of Global/Systematic Portfolio Management and Research and
joined the firm in 1994; he has 23 years prior investment management experience
with Batterymarch Financial Management and Putnam Management Company. Mr.
Prentice joined the firm as Portfolio Manager in 1997, and had prior experience
with the Merrill Lynch Private Client Group. Mr. Stuckelman joined the firm as a
Portfolio Manger in 1995, and had prior experience with Wells Fargo Bank
Investment Management Group, Fidelity Management Trust Co., and BARRA.
46
<PAGE> 148
NEW ASIA GROWTH FUND. Tim Greaton Senior Portfolio Manager of Nicholas-Applegate
Capital Management (Hong Kong) LLC ("NACM Hong Kong"), has been primarily
responsible for the day-to-day management of the Fund since 1995. Mr. Greaton
joined NACM Hong Kong in 1997. Prior to joining NACM Hong Kong, Mr. Greaton
served as Senior Portfolio Manager of Credit Lyonnais International Asset
Management (HK) Limited from 1992 to 1997.
INTERNATIONAL STOCK FUND. A team headed by Catherine Somhegyi, Larry Speidell
and Lorettta J. Morris is responsible for the day-to-day management of the Fund.
Ms. Somhegyi, a Partner of the firm, is its Chief Investment Officer - Global
Equity Management and joined the firm in 1987. Mr. Speidell, a Partner of the
firm, is its Director of Global/Systematic Portfolio Management and Research and
joined the firm in 1994; he has 23 years prior investment management experience
with Batterymarch Financial Management and Putnam Management Company. Ms.
Morris, a Partner of the firm, joined the firm as a Portfolio Manager in 1990,
and has ten years prior experience with Collins Associates.
TAX-FREE SECURITIES FUND AND TAX-FREE SHORT INTERMEDIATE SECURITIES FUND. Yvonne
Lim, Vice President and Team Leader on the Tax-Exempt Fixed Income Investment
Team at Pacific Century has been primarily responsible for the day-to-day
management of the Funds since 1993. Prior to managing the Fund, Ms. Lim served
as Cash Manager for Pacific Resources from 1989 to 1992.
DIVERSIFIED FIXED INCOME FUND. Janet E. Katakura, Vice President, Team Leader
and Manager of the Taxable Fixed Income Investment Team for Pacific Century has
been primarily responsible for the day-to-day management of the Fund since its
inception. Ms. Katakura joined Pacific Century in 1983 where she serves as
Senior Portfolio Manager.
SHORT INTERMEDIATE U.S. TREASURY SECURITIES FUND AND U.S. TREASURY SECURITIES
FUND. David Todani, Vice President and Team Leader on the Taxable Fixed-Income
Investment Team at Pacific Century, has been primarily responsible for the
day-to-day management of the Funds since 1995. Prior to joining the Fixed-Income
Investment Team, Mr. Todani served as a fixed income portfolio manager and
treasury officer for Bank of Hawaii from 1983 to 1994.
BALANCED FUND.
The Statement of Additional Information has more detailed information about the
Investment Adviser and other service providers.
THE DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services is the Fund's distributor and administrator. Its address is
3435 Stelzer Road, Columbus, Ohio 43219.
47
<PAGE> 149
SHAREHOLDER INFORMATION
-----------------------
PRICING OF FUND SHARES
Each Fund's per share net asset value ("NAV") is determined and its shares are
priced at the close of regular trading on the New York Stock Exchange ("NYSE")
(normally at 4 p.m. Eastern time) on days the Exchange is open. Your order will
be priced at the next NAV calculated after your order is accepted by the Fund
(plus any applicable sales charge).
The Fund's securities are valued at current market prices except for debt
obligations with remaining maturities of 60 days or less (which are valued at
amortized cost). If market quotations are not available or if special
circumstances warrant, securities will be valued by a method that the Board of
Trustees believes accurately reflects fair value.
- --------------------------------------------------------------------------------
HOW NAV IS CALCULATED
The NAV is calculated by adding the total value of the Fund's investments
and other assets, subtracting its liabilities, and then dividing that
figure by the number of outstanding shares of the Fund:
NAV = Total Assets-Liabilities
------------------------
Number of Shares Outstanding
You can find the Fund's NAV daily in The Wall Street Journal and other
newspapers.
- --------------------------------------------------------------------------------
48
<PAGE> 150
PURCHASING AND ADDING TO YOUR SHARES
- ------------------------------------
Shares are sold by the Distributor, BISYS Fund Services. 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
Institutions are eligible to invest in Class Y shares. Class Y shares may not be
purchased by individual investors, including purchases through SIPC insured
brokerage accounts.
Class Y shares purchased through qualifying accounts may be held in
separate accounts in the name of the person or persons who purchased the shares,
but dividends and distributions relating to such shares may not be reinvested
and no additional Class Y shares may be purchased for such separate accounts
unless the account holder qualifies to purchase additional Class Y shares. If
you have purchased shares of any Fund, as described above, and do not qualify
for purchasing additional Class Y shares, you may make an additional investment
in the Fund by purchasing Class A or Class B shares, which are offered in a
separate prospectus. If you have purchased Class Y shares, as described above,
but no longer qualify to make an additional investment we will convert your
holdings to Class A shares of the same Fund. As a shareholder of Class A shares,
you will be permitted to reinvest dividends and distributions relating to your
share holdings, but your share will be subject to the higher expenses associated
with Class A shares. See "Exchange Privileges and Conversion Feature" below.
Qualified accounts maintained by or on behalf of certain persons
("Customers") by an Institution may purchase Class Y shares of the Funds through
procedures established by BISYS . These procedures may include instructions
under which a Customer's account is automatically "swept" at least once a week
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.
No sales charge (load) is imposed at the time of sale or purchase of your Class
Y 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. The Institution will provide you with
information concerning these services and any charges. You should read this
Prospectus in conjunction with any such information received from an
Institution.
- --------------------------------------------------------------------------------
AVOID 31% TAX WITHHOLDING
The Fund must withhold 31% of your taxable dividends, capital gains
distributions and redemptions if you have not provided the Fund with your
taxpayer identification number in compliance with IRS rules. To avoid this, make
sure you provide your correct tax identification number (social security number
for most investors) on your account application.
- --------------------------------------------------------------------------------
49
<PAGE> 151
INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT
<TABLE>
<CAPTION>
INITIAL INVESTMENT SUBSEQUENT
<S> <C> <C>
By regular mail 1. Contact BISYS at 1. Use the investment slip
800-258-9232 to request an attached to your account
application. statement. Or, if
2. Make check, bank draft or unavailable
money order payable to 2. Include the following
"Pacific Capital Funds." information on a piece of
3. Mail to: paper:
Pacific Capital Funds - Fund name
PO Box 182130 - share class
Columbus, OH 43218-2130 - amount invested
- account name
- account number
Include your account
number on your check.
3. Mail to:
Pacific Capital Funds
PO Box 182130
Columbus, OH 43218-2130
By overnight service See Instructions 1-2 above.
3. Send to
Pacific Capital Funds
c/o BISYS Fund Services
Attn: T.A. Operations
3435 Stelzer Road
Columbus, OH 43219
By electronic purchase Establish electronic purchase
option on your account
Your bank must participate in the application or call
Automated Clearing House (ACH) and 800-258-9232. Your account can
must be a U.S. bank. Your bank or generally be set up for
broker may charge for this service. electronic purchases within 15
days.
Call 800-258-9232 to
arrange a transfer from
your bank account.
By wire transfer FOR INITIAL INVESTMENT: Contact
BISYS at 800-258-9232 to request
an application. Fax the
completed application, along with
a request for a confirmation
number, to 800-___-____. Follow
instructions below after
receiving your confirmation
number.
FOR INITIAL AND SUBSEQUENT
INVESTMENTS: Instruct your bank
to wire transfer your investment
to:
Name of Bank
Routing Number: ABA #xxxxxx
DDA#
Include your name
Your confirmation number
After instructing your bank to
wire the funds, call 800-258-9232
to tell us the amount being
transferred and the name of your
bank.
</TABLE>
- --------------------------------------------------------------------------------
QUESTIONS?
Call 800-258-9232 or your investment representative.
- --------------------------------------------------------------------------------
50
<PAGE> 152
- --------------------------------------------------------------------------------
ELECTRONIC VS. WIRE TRANSFER
Wire transfers allow financial institutions to send funds to each other, almost
instantaneously. With an electronic purchase or sale, your bank makes the
transaction through the Automated Clearing House (ACH) and may take up to eight
days to clear. There is generally no fee for ACH transactions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
The 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. The Balanced Fund,
Growth and Income Fund, Growth Stock Fund, Value Fund, Small Cap Fund and
International Fund will declare and pay dividends of substantially all of their
net income monthly. The New Asia Growth Fund will declare and pay dividends of
substantially all of its net income quarterly. Each Fund distributes any capital
gains annually.
We automatically reinvest all income dividends and capital gains distributions
by a Fund in additional shares of the same Fund and Class on the dividend record
date unless you request otherwise in writing to the Transfer Agent (at least 15
days prior to the distribution). We do not charge any fees or sales charges on
reinvestments. You may elect to receive your dividends/distributions in cash
either by check sent to your address or by wire to your bank account.
The value of your shares will be reduced by the amount of dividends and
distributions. If you purchase shares shortly before the record date for a
dividend or the distribution of capital gains, you will pay the full price for
the shares and receive some portion of the price back as a taxable dividend or
distribution.
- --------------------------------------------------------------------------------
51
<PAGE> 153
SELLING YOUR SHARES
- -------------------
You can sell your shares at any time. Your sales price will be the next NAV
after your sell order is received by the Fund or your investment representative.
Normally you will receive your proceeds within a week after your request is
received.
- --------------------------------------------------------------------------------
WITHDRAWING MONEY FROM YOUR FUND INVESTMENT
As a mutual fund shareholder, you are technically selling shares when you
request a withdrawal in cash. This is also known as redeeming shares or a
redemption of shares.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INSTRUCTIONS FOR SELLING SHARES
By telephone Call 800-258-9232 with instructions as to how you want to
(unless you have declined receive your funds (mail, wire, electronic transfer).
telephone sales privileges)
By mail 1. Call 800-258-9232 to request redemption forms, or write a
letter of instruction indicating:
- your Fund and account number
- amount you want to redeem
- address where your check should be sent
- account owner signature
2. Mail to:
Pacific Capital Funds
PO Box 182130
Columbus, OH 43218-2130
By overnight service 1. See instruction 1 above.
2. Send to
Pacific Capital Funds
co/BISYS Fund Services
Attn: T.A. Operations
3435 Stelzer Road
Columbus, OH 43219
Wire transfer Call 800-258-9232 to request a wire transfer.
You must select this option on
your Account Application. If you call by 4 p.m. Eastern time, your payment will normally
be wired to your bank on the next business day.
The Fund may charge a wire
transfer fee.
Note: Your financial
institution may also charge a
separate fee.
Electronic Redemptions Call 800-258-9232 to request an electronic redemption.
Your bank must participate in
the Automated Clearing House If you call by 4 p.m. Eastern time, the NAV of your shares
(ACH) and must be a U.S. bank. will normally be determined on the same day and the proceeds
credited within 8 days.
Note: Your bank may charge for
this service.
</TABLE>
52
<PAGE> 154
GENERAL POLICIES ON SELLING SHARES
- ----------------------------------
REDEMPTIONS IN WRITING REQUIRED
You must request redemption in writing in the following situations:
1. All requests for redemptions from individual retirement accounts
("IRA's") must be in writing.
2. Redemption requests require a signature guarantee when:
- You ask us to make the check payable to someone who is not the
owner of the account
- You ask us to mail the check to an address that is not the
address on your account
- You ask us to wire the proceeds to a commercial bank account
that is not designated on your account application
- The redemption proceeds exceed $50,000
You must obtain a signature guarantee from members of the STAMP (Securities
Transfer Agents Medallion Program), MSP (New York Stock Exchange Medallion
Signature Program) or SEMP (Stock Exchanges Medallion Program). Members are
subject to dollar limitations which must be considered when requesting their
guarantee. The Transfer Agent may reject any signature guarantee if it believes
the transaction would otherwise be improper.
VERIFYING TELEPHONE REDEMPTIONS
The Fund makes every effort to insure that telephone redemptions are only made
by authorized shareholders. All telephone calls are recorded for your protection
and you will be asked for information to verify your identity. Because of these
precautions, unless you have specifically indicated on your application that you
do not want the telephone redemption feature, you may be responsible for any
fraudulent telephone orders. If appropriate precautions have not been taken, the
Fund, Transfer and/or the Distributor may be liable for losses due to
unauthorized transactions.
REDEMPTIONS WITHIN 15 DAYS OF INITIAL INVESTMENT
When you have made an investment by check, you cannot redeem any portion of the
same investment until the Transfer Agent is satisfied that the check has cleared
(which may require up to 15 business days). You can avoid this delay by
purchasing shares with a certified check.
REFUSAL OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the SEC in order to protect remaining shareholders.
REDEMPTION IN KIND
We reserve the right to make your redemption payment in securities rather than
cash, known as "redemption in kind." This could occur under extraordinary
circumstances, such as a very large redemption that could affect Fund operations
(for example, more than 1% of the Fund's net assets). If we deem it advisable
for the benefit of all shareholders, you will receive securities equal in market
value to your shares. When you convert these securities to cash, you will pay
brokerage charges.
53
<PAGE> 155
UNDELIVERABLE REDEMPTION CHECKS
If you choose to receive distributions in cash and if distribution checks are
returned and marked as "undeliverable" or remain uncashed for six months, your
account will be changed automatically so that all future distributions are
reinvested in your account. Checks that remain uncashed for six months will be
canceled and the money reinvested in the Fund.
EXCHANGING YOUR SHARES
----------------------
The Exchange Privilege permits a shareholder to exchange Class Y shares of one
Fund for Class Y shares of another Pacific Capital Fund. Class Y shareholders
may also exchange their shares for other investment companies for which Pacific
Century serves as Investment Adviser. These are the Cash Assets Trust, the
Tax-Free Cash Assets Trust, the U.S. Treasuries Cash Assets Trust or the
Hawaiian Tax-Free Trust. No transaction fees are charged for exchanges.
Exchanges from one Fund to another are taxable.
You can make exchanges by sending a written request to Pacific Capital Funds, PO
Box 182130, Columbus OH 43218-2130, or by calling 800-258-9232. Please provide
the following information:
- Your name and telephone number
- The exact name on your account and account number
- Taxpayer identification number (usually your Social Security number)
- Dollar value or number of shares you are exchanging
- The name of the Fund from which the exchange is to be made
- The name of the Fund into which the exchange is being made
See "Selling Your Shares" for important information about telephone
transactions.
To prevent disruption in the management of the Funds, due to market timing
strategies, exchange activity may be limited to _____ exchanges within a _____
period.
NOTES ON EXCHANGES
The registration and tax identification numbers of the two accounts must be
identical.
The Exchange Privilege may be changed or eliminated at any time after a 60-day
notice to shareholders.
Be sure to read carefully the Prospectus of any Fund into which you wish to
exchange shares.
54
<PAGE> 156
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The 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. The Balanced Fund,
Growth and Income Fund, Growth Stock Fund, Value Fund and Small Cap Fund will
declare and pay dividends of substantially all of their net income monthly. The
New Asia Growth Fund and International Stock Fund will declare and pay dividends
of substantially all of its net income quarterly. Each Fund distributes any
capital gains annually.
TAXES
Dividends generally are taxable as ordinary income. Taxes on capital gains vary
with the length of time the Fund has held the security--NOT how long you have
been in the Fund.
Dividends are taxable in the year in which they are paid, even if they appear on
your account statement the following year. Dividends and distributions are
treated the same for federal income tax purposes whether you receive them in
cash or in additional shares.
You will be notified in January each year about the federal tax status of
distributions made by the Funds. Depending on your residence for tax purposes,
distributions also may be subject to state and local taxes, including
withholding taxes.
An exchange of shares is considered a sale, and any related gains may be subject
to applicable taxes.
Foreign shareholders may be subject to special withholding requirements. A
penalty is charged on certain pre-retirement distributions from retirement
accounts. Consult your tax adviser about the federal, state and local tax
consequences in your particular circumstances.
NEW ASIA GROWTH FUND AND INTERNATIONAL STOCK FUND TAX INFORMATION
- -----------------------------------------------------------------
The New Asia Growth Fund and International Stock Fund may, from time to time,
invest in passive foreign investment companies ("PFICs"). PFICs are foreign
corporations which derive at least 75% of their gross income from passive
sources or at least 50% of assets are held for production of passive income. 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.
Gains or losses on sales of debt securities denominated in a foreign currency
due to fluctuations in the value of foreign currency between the date of buying
and selling the security are treated as ordinary income or loss. Such income 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, your distributions from the Fund during the year would be
characterized as a return of capital, thus reducing the basis in your 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.
55
<PAGE> 157
HAWAII TAX INFORMATION
The Funds expect that all dividends and distributions paid by the Tax-Free
Securities Fund and the Tax-Free Short Intermediate Securities Fund will be
exempt from Hawaii personal income tax. Under Hawaii law, interest derived from
obligations of other states (and their political subdivisions) will not be
exempt from Hawaii income taxation.
Dividends and distributions made by the Funds (except the Tax-Free Securities
Fund and the Tax-Free Short Intermediate Securities Fund) to Hawaii residents,
will generally be treated for Hawaii income tax purposes in the same manner as
they are treated for federal income tax purposes.
If you are not a Hawaii resident you should not be subject to Hawaii income
taxation on dividends and distributions made by the Funds, but you will be
subject to taxes of other states and localities.
FINANCIAL HIGHLIGHTS
--------------------
Insert past 5 years financial highlights from annual report.
<PAGE> 158
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. Growth Stock Fund
--------------------------------------- Year 14, -------------------------
OCT. 14, Ended 1994 to
YEAR ENDED YEAR ENDED 1994 TO Year Ended July July Year Ended Year Ended
JULY 31, JULY 31, JULY 31, July 31, 31, 31, July 31, July 31,
1997 1996 1995(a) 1997 1996 1995(a) 1997 1996
---------- ---------- --------- ---------- ------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET
VALUE,
BEGINNING OF
PERIOD........ $10.53 $10.84 $10.00 $12.32 $11.43 $10.00 $11.89 $11.71
-------- -------- ------- -------- ------- ------- -------- --------
Investment
Activities
Net
investment
income
(loss).... 0.60 0.58 0.55 0.11 0.17 0.20 0.07 0.10
Net realized
and
unrealized
gain
(loss) on
investments... 0.34 (0.16) 0.78 5.58 1.21 1.42 5.55 0.89
-------- -------- ------- -------- ------- ------- -------- --------
Total
from
Investment
Activities.. 0.94 0.42 1.33 5.69 1.38 1.62 5.62 0.99
-------- -------- ------- -------- ------- ------- -------- --------
Distributions
Net
investment
income.... (0.60) (0.61) (0.49) (0.11) (0.17) (0.19) (0.07) (0.10)
In excess of
net
investment
income.... -- (0.02) -- -- (0.01) -- -- --
In excess of
net
realized
gains..... (0.09) (0.10) -- -- -- -- -- (0.49)
Net realized
gains..... -- -- -- (0.63) (0.31) -- -- (0.22)
-------- -------- ------- -------- ------- ------- -------- --------
Total
Distributions... (0.69) (0.73) (0.49) (0.74) (0.49) (0.19) (0.07) (0.81)
-------- -------- ------- -------- ------- ------- -------- --------
NET ASSET
VALUE, END OF
PERIOD........ $10.78 $10.53 $10.84 $17.27 $12.32 $11.43 $17.44 $11.89
======== ======== ======= ======== ======= ======= ======== ========
TOTAL RETURN
(EXCLUDES
SALES
CHARGE)....... 9.30% 3.85% 13.70%(b) 47.96% 12.29% 16.41%(b) 47.39% 8.53%
RATIOS/SUPPLEMENTARY
DATA:
Net assets
at end of
period
(000)..... $132,583 $161,742 $54,827 $123,821 $74,427 $41,771 $198,407 $172,565
Ratio of
expenses
to average
net
assets.... 0.90% 0.88% 0.93%(c) 1.07% 1.11% 1.14%(c) 1.07% 1.09%
Ratio of net
investment
income
(loss) to
average
net
assets.... 5.67% 5.56% 6.71%(c) 0.79% 1.43% 2.47%(c) 0.45% 0.86%
Ratio of
expenses
to average
net
assets*... 0.94% 0.92% 1.01%(c) 1.12% 1.15% 1.22%(c) 1.11% 1.13%
Ratio of net
investment
income
(loss) to
average
net
assets*... 5.63% 5.52% 6.63%(c) 0.75% 1.39% 2.39%(c) 0.41% 0.82%
Portfolio
Turnover(d)... 80.98% 58.86% 60.47% 74.83% 80.83% 12.78% 32.20% 61.30%
Average
Commission
Rate
paid(e)....... -- -- -- $0.0874 $0.0921 -- $0.0893 $0.0895
<CAPTION>
Oct. 14,
1994 to
July 31,
1995(a)
---------
<S> <C>
NET ASSET
VALUE,
BEGINNING OF
PERIOD........ $ 9.89
--------
Investment
Activities
Net
investment
income
(loss).... 0.11
Net realized
and
unrealized
gain
(loss) on
investments... 1.83
--------
Total
from
Investment
Activities.. 1.94
--------
Distributions
Net
investment
income.... (0.12)
In excess of
net
investment
income.... --
In excess of
net
realized
gains..... --
Net realized
gains..... --
--------
Total
Distribu (0.12)
--------
NET ASSET
VALUE, END OF
PERIOD........ $11.71
========
TOTAL RETURN
(EXCLUDES
SALES
CHARGE)....... 20.64%(g)
RATIOS/SUPPLEME
DATA:
Net assets
at end of
period
(000)..... $136,837
Ratio of
expenses
to average
net
assets.... 1.13%(c)
Ratio of net
investment
income
(loss) to
average
net
assets.... 1.30%(c)
Ratio of
expenses
to average
net
assets*... 1.21%(c)
Ratio of net
investment
income
(loss) to
average
net
assets*... 1.23%(c)
Portfolio
Turnover(d)... 32.40%
Average
Commission
Rate
paid(e)....... --
</TABLE>
- ------------
See footnotes on next page.
PROSPECTUS
7
<PAGE> 159
FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
<CAPTION>
Short Intermediate
U.S. Treasury
Securities Fund
New Asia -----------------------------
Growth Fund Oct. Tax-Free Securities Fund
--------------------------------------- Year 14, -------------------------
FEB. 15, Ended 1994 to
YEAR ENDED YEAR ENDED 1995 TO Year Ended July July Year Ended Year Ended
JULY 31, JULY 31, JULY 31, July 31, 31, 31, July 31, July 31,
1997 1996 1995(a) 1997 1996 1995(f) 1997 1996
---------- ---------- --------- ---------- ------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET
VALUE,
BEGINNING OF
PERIOD........ $11.14 $11.22 $10.00 $ 9.42 $ 9.61 $ 9.30 $10.46 $10.56
-------- ------- ------- ------- ------- ------- -------- --------
Investment
Activities
Net
investment
income
(loss).... 0.06 (0.01) 0.04 0.52 0.53 0.44 0.51 0.52
Net realized
and
unrealized
gain
(loss) on
investments... 2.87 0.22 1.18 0.14 (0.13) 0.31 0.46 0.07
-------- ------- ------- ------- ------- ------- -------- --------
Total
from
Investment
Activities.. 2.93 0.21 1.22 0.66 0.40 0.75 0.97 0.59
-------- ------- ------- ------- ------- ------- -------- --------
Distributions
Net
investment
income.... (0.01) -- -- (0.52) (0.53) (0.44) (0.51) (0.52)
In excess of
net
investment
income.... -- (0.03) -- -- (0.04) -- -- (0.04)
In excess of
net
realized
gains..... -- -- -- -- (0.02) -- -- (0.04)
Net realized
gains..... (0.12) (0.26) -- -- -- -- (0.06) (0.09)
-------- ------- ------- ------- ------- ------- -------- --------
Total
Distributions... (0.13) (0.29) -- (0.52) (0.59) (0.44) (0.57) (0.69)
-------- ------- ------- ------- ------- ------- -------- --------
NET ASSET
VALUE, END OF
PERIOD........ $13.94 $11.14 $11.22 $9.56 $9.42 $9.61 $10.86 $10.46
======== ======= ======= ======= ======= ======= ======== ========
TOTAL RETURN
(EXCLUDES
SALES
CHARGE)....... 26.50% 1.99% 12.20%(b) 7.19% 4.18% 6.57%(g) 9.58% 5.73%
RATIOS/SUPPLEMENTARY
DATA:
Net assets
at end of
period
(000)..... $18,376 $8,469 $2,861 $26,722 $23,545 $16,214 $296,764 $288,934
Ratio of
expenses
to average
net
assets.... 1.72% 1.98% 1.97%(c) 0.62% 0.67% 0.75%(c) 0.87% 0.89%
Ratio of net
investment
income
(loss) to
average
net
assets.... 0.46% (0.02%) 1.18%(c) 5.47% 5.40% 5.84%(c) 4.86% 4.92%
Ratio of
expenses
to average
net
assets*... 1.82% 2.84% 2.74%(c) 0.87% 0.92% 0.99%(c) 0.91% 0.93%
Ratio of net
investment
income
(loss) to
average
net
assets.... 0.36% (0.88%) 0.42%(c) 5.22% 5.15% 5.61%(c) 4.82% 4.88%
Portfolio
Turnover(d)... 134.89% 86.53% 55.62% 51.56% 47.17% 62.73% 11.07% 24.78%
Average
Commission
Rate
paid(e)....... $0.0059 $0.0069 -- -- -- -- -- --
<CAPTION>
Oct. 14,
1994 to
July 31,
1995(a)
---------
<S> <C>
NET ASSET
VALUE,
BEGINNING OF
PERIOD........ $10.00
--------
Investment
Activities
Net
investment
income
(loss).... 0.42
Net realized
and
unrealized
gain
(loss) on
investments... 0.51
--------
Total
from
Investment
Activities.. 0.93
--------
Distributions
Net
investment
income.... (0.37)
In excess of
net
investment
income.... --
In excess of
net
realized
gains..... --
Net realized
gains..... --
--------
Total
Distribu (0.37)
--------
NET ASSET
VALUE, END OF
PERIOD........ $10.56
========
TOTAL RETURN
(EXCLUDES
SALES
CHARGE)....... 9.54%(b)
RATIOS/SUPPLEME
DATA:
Net assets
at end of
period
(000)..... $281,646
Ratio of
expenses
to average
net
assets.... 0.89%(c)
Ratio of net
investment
income
(loss) to
average
net
assets.... 5.16%(c)
Ratio of
expenses
to average
net
assets*... 0.98%(c)
Ratio of net
investment
income
(loss) to
average
net
assets.... 5.07%(c)
Portfolio
Turnover(d)... 49.17%
Average
Commission
Rate
paid(e)....... --
</TABLE>
- ------------
See footnotes on next page.
PROSPECTUS
8
<PAGE> 160
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
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back page
For more information about the Pacific Capital Funds, the following documents
are available free upon request:
ANNUAL/SEMIANNUAL REPORTS:
The Funds' annual and semi-annual reports to shareholders contain detailed
information on each Fund's investments. The annual report includes a discussion
of the market conditions and investment strategies that significantly affected
your Fund s' performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Funds, including operations and investment policies. It is
incorporated by reference and is legally considered a part of this prospectus.
- --------------------------------------------------------------------------------
YOU CAN GET FREE COPIES OF REPORTS AND THE SAI, OR REQUEST OTHER INFORMATION AND
DISCUSS YOUR QUESTIONS ABOUT THE FUNDS' BY CONTACTING A BROKER OR BANK THAT
SELLS THE FUNDS. OR CONTACT US AT:
PACIFIC CAPITAL FUNDS
3435 STELZER ROAD
COLUMBUS, OHIO 43219
TELEPHONE: 1-800-258-9232
- --------------------------------------------------------------------------------
You can review the Fund's reports and SAIs at the Public Reference Room of the
Securities and Exchange Commission. You can also get text-only copies:
- - For a fee, by writing the Public Reference Section of the Commission,
Washington, D.C. 20549-6009 or calling 1-800-SEC-0330.
- - Free from the Commission's Website at http://www.sec.gov.
Investment Company Act file no. 811-7454.
56
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PACIFIC CAPITAL FUNDS
Telephone: 800-258-9232
STATEMENT OF ADDITIONAL INFORMATION
DATED DECEMBER 1, 1998
BALANCED FUND
DIVERSIFIED FIXED INCOME FUND
GROWTH AND INCOME FUND
GROWTH STOCK FUND
INTERNATIONAL STOCK FUND
NEW ASIA GROWTH FUND
SMALL CAP FUND
SHORT INTERMEDIATE U.S. TREASURY SECURITIES FUND
TAX-FREE SECURITIES FUND
TAX-FREE SHORT INTERMEDIATE SECURITIES FUND
U.S. TREASURY SECURITIES FUND
VALUE 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 twelve of the
Trust's investment portfolios (each a "Fund" and collectively the "Funds"). The
various Funds and Classes of shares of the Funds are offered through separate
Prospectuses.
All Funds except Tax-Free Securities Fund and Tax-Free
Short-Intermediate Fund (the "Tax Free Funds") are diversified portfolios.
Balanced Fund has not commenced operations as of the date of this Statement of
Additional Information.
This SAI is not a prospectus. You should read this SAI in
conjunction with the applicable Prospectus, dated December 1, 1998. All terms
defined in the applicable Prospectus have the same meanings in this SAI. In
addition, the Trust's 1998 Annual Report to Shareholders is incorporated by
reference into this SAI. You can order copies of the Prospectuses and Annual
Report without charge by writing to BISYS Fund Services ("BISYS") at 3435
Stelzer Road, Columbus, Ohio 43219-3035 or calling the Transfer Agent at the
telephone number indicated above.
<PAGE> 163
TABLE OF CONTENTS
Page
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Investment Restrictions.......................................................
Additional Information on Fund Investments and Risks..........................
Management ...................................................................
Distribution and Shareholder Service Plans....................................
Calculation of Yield and Total Return.........................................
Purchase of Shares............................................................
Redemption of Shares..........................................................
Federal and Hawaiian Tax Information..........................................
General Information...........................................................
Custodian.....................................................................
Independent Auditors and Counsel..............................................
Financial Information.........................................................
Registration Statement........................................................
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INVESTMENT RESTRICTIONS
Each Fund's investment objectives are fundamental and 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 "General Information --
Voting." 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 change
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.
The following investment restrictions also apply to the Funds.
The restrictions designated as fundamental policies may not be changed without
approval by the holders of a majority of the relevant Fund's outstanding shares.
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 reorganizations, consolidations,
payments out of assets of the Fund or redemption of shares will not constitute a
violation of such limitation.
INVESTMENT RESTRICTIONS FOR ALL FUNDS EXCEPT NEW ASIA
GROWTH FUND AND INTERNATIONAL STOCK FUND
None of these Funds may:
(1) Purchase securities of any issuer (except debt obligations
of issuers that pay interest which, in the opinions of counsel to such issuers,
is exempt from federal income tax and is not subject to the federal alternative
minimum tax ("Municipal Obligations") and securities issued or guaranteed by the
U.S. Government, its agencies and instrumentalities ("U.S. Government
Obligations")) 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
any one issuer. This restriction does not apply to the Tax-Free 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 the 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, Municipal Obligations do not include private activity bonds
that are backed only by the assets and revenues of a non-governmental user).
(3) Borrow money or issue senior securities as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"), except (a) with
regard to senior securities, as permitted pursuant to an order and/or a rule
issued by the Securities and Exchange Commission (the "Commission"), and (b)
that each 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 any such outstanding
borrowing in excess of 5% of its net assets exists).
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(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
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.
(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 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.
(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 these Funds 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 as a result 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) No Fund will invest more than 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 do not include securities which maybe resold under Rule 144A under
the Securities Act of 1933, as amended (the "Securities Act") that the Board of
Trustees or its delegate determines to be liquid based upon the trading markets
for such securities.
(4) No Fund will purchase put and call options or write covered
put and call options on securities unless (a) it may invest directly in such
securities, (b) such options are traded on registered domestic securities
exchanges or result from separate, privately negotiated transactions with
primary U.S. Government securities dealers recognized by the Board of Governors
of the Federal Reserve System, and (c) the total assets subject to such options
does not exceed 5% of the Fund's net assets.
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INVESTMENT RESTRICTIONS FOR NEW ASIA GROWTH FUND AND
INTERNATIONAL STOCK FUND
New Asia Growth Fund and International Stock Fund are subject to
the following investment restrictions, all of which are fundamental policies.
Neither Fund may:
(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 any one 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 (a) with regard to senior securities, as permitted pursuant to
an order and/or a rule issued by the Commission, and (b) 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 maybe 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 investing real
estate or interests therein).
(5) Purchase commodities or commodity contracts, except that the
Fund may deal in forward foreign exchange contracts 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.
(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 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
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under the laws of certain countries will not be deemed the making of investments
for the purpose of exercising control of management.
(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 and International Stock Fund
will each comply with the following non fundamental restrictions, which may be
changed by the Board of Trustees without shareholder approval:
(1) The Fund will not purchase securities of unseasoned issuers,
including their predecessors, that have been in operation for less than three
years, if as a result the value of the Fund's investment in such classes of
securities would exceed 15% of such Fund's total assets.
(2) The Fund will not invest more than 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 do 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.
(3) 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.
(4) The Fund will not invest more than 10% of its net assets in
warrants.
(5) The aggregate value of the exercise price or strike price of
call options written by the Fund will not exceed 25% of the Fund's net asset
value.
ADDITIONAL INFORMATION ON FUND INVESTMENTS AND RISKS
FOREIGN SECURITIES
Each of the Funds may invest in foreign securities. Each 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 also 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.
DEPOSITORY RECEIPTS
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
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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. 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 the market value of the Depositary Receipts may not be correlated
with such information.
RISKS AND SPECIAL CONSIDERATIONS OF
INVESTING IN FOREIGN SECURITIES
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 have different settlement and clearance
procedures, and in certain markets settlements have at times 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.
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
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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 and International Fund will invest 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. New Asia Growth Fund and
International Fund may also 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 Funds' custodian bank or by an
approved foreign subcustodian.
INVESTING IN COUNTRIES WITH SMALLER CAPITAL MARKETS
Because New Asia Growth Fund intends to invest primarily in
securities of companies located in developing Asian countries, and International
Stock Fund may invest in securities of companies located in developing countries
in Asia and elsewhere, investors in those Funds should be aware of certain risk
factors and special considerations relating to investing in developing
economies. Consequently, these Funds should be considered as a means of
diversifying an investment portfolio and not in themselves as a balanced
investment program.
Securities Markets
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
their region, such as in Japan. Developing country 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
International Fund in such countries and may have an adverse impact on the
investment performance of those Funds.
Political and Social Uncertainties
Political and social uncertainties exist for some developing
countries. In addition, the governments of many of such countries have a heavy
role in regulating and supervising the economy. Certain developing Asian
countries, such as the Philippines and India, are especially large debtors to
commercial banks and foreign governments. Another risk common to most such
countries is that the economy is heavily export
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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 economics 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 countries also may
have an adverse impact on New Asia Growth Fund and International Stock 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 countries. Similarly, the rights of investors in
developing companies may be more limited than those of shareholders of U.S.
corporations.
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.
Restrictions on Foreign Investments.
Some developing countries prohibit or impose substantial
restrictions on investments in their capital markets, particularly their equity
markets, by foreign entities such as the Funds. 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 countries, as well as limitations on such investments, also
may have an adverse impact on the operations of the Funds. For example, the
Funds 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 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 a 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 Funds 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 Funds. 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.
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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. The Funds' investment in these companies will be subject to certain
percentage limitations of the 1940 Act. This restriction on investments in
securities of investment companies may limit opportunities for the Funds 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 the Funds' 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 Funds' investments in certain foreign banks and
other financial institutions.
Other Matters
Inflation accounting rules in some developing 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 companies in developing countries.
Satisfactory custodial services for investment securities may
not be available in some developing countries, which may result in the Funds
incurring additional costs and delays in providing transportation and custody
services for such securities outside such countries.
Regional Risk Considerations
In addition to the risk of investments in foreign securities and
in emerging markets described above, investments in issuers of securities in
particular regions may be subject to certain additional regional risks.
Asia. Many Asian countries may be subject to a greater degree of
social, political and economic instability than is the case in the United States
and western European countries. Such instability may result from (i)
authoritarian governments or military involvement in political and economic
decision-making; (ii) popular unrest associated with demands for improved
political, economic and social conditions; (iii) internal insurgencies; (iv)
hostile relations with neighboring countries; and (iv) ethnic, religious and
racial disaffection.
The economies of most of the Asian countries are heavily
dependent upon international trade and are accordingly affected by protective
trade barriers and the economic conditions of their trading partners,
principally the United States, Japan, China and the European Community. The
enactment by the United States or other significant trading partners of
protectionist trade legislation, reduction of foreign investment in the local
economies and general declines in the international securities markets could
have a significant adverse effect upon the securities markets of these Asian
countries. Of
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significant immediate concern, the current recession in the Japanese economy,
which has been complicated by substantial problems in its banking system, could
substantially worsen the economic difficulties a number of Asian countries are
presently experiencing.
Latin America. Investing in securities of Latin American issuers
may entail risks relating to the potential political and economic instability of
certain Latin American countries and a consequent resurgence of the historical
risk in Latin America of expropriation, nationalization, confiscation or the
imposition of restrictions on foreign investment and on repatriation of capital
invested. In the event of expropriation, nationalization or other confiscation
by any country, a Fund could lose its entire investment in any such country. In
addition, there is risk that certain Latin American countries may restrict the
free conversion of their currencies into other currencies. Certain Latin
American countries such as Argentina, Brazil and Mexico are among the world's
largest debtors to commercial banks and foreign governments. At times, certain
Latin American countries have declared moratoria on the payment of principal
and/or interest on outstanding debt.
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.
DEBT SECURITIES
Each of the Funds may invest in debt securities issued by
domestic and foreign corporations, financial institutions, and governments.
The debt securities in which the Funds will invest (including
convertible securities, as applicable) generally will be of investment grade
(i.e., rated in the top four rating categories by a nationally recognized
securities rating organization ("NRSRO"), or, if unrated, determined to be of
comparable quality by the investment adviser). However, up to 10% of 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 Pacific Century
or its Sub-Adviser.
Balanced Fund, Diversified Fixed Income Fund, Growth and Income
Fund, Growth Stock Fund, Small Cap Fund, Value 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.
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
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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 or
its Sub-Adviser believes that the credit risk with respect to the
instrumentality is minimal.
Each Fund may also make limited investments (not exceeding 5% of
its 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 depository
financial institutions, which then trade the component parts independently.
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 or its Sub-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 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 or its
Sub-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.
SOVEREIGN DEBT
New Asia Growth Fund may invest in debt securities or
obligations issued or guaranteed by foreign governments, including their
agencies, instrumentalities and political subdivisions ("sovereign debt") and by
supernational entities (such as the World Bank, The European Community, and the
Asian Development Bank), and the other Funds may invest in Yankee Bonds
(dollar-denominated obligations issued by foreign governments).
Investment in sovereign debt involves a high degree of risk.
Certain developing countries, such as the Philippines, owe significant amounts
of debt to commercial banks and foreign governments. 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,
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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 depend 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.
Issuers of sovereign debt may request the holders, including the
Fund, to participate in the rescheduling of such debt and to extend further
loans to governmental entities. No bankruptcy proceeding exists for collection
in whole or in part of sovereign debt on which a governmental entity has
defaulted.
The sovereign debt instruments in which New Asia Growth Fund may
invest in some cases are 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. The 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 respective total assets
in sovereign debt, including sovereign debt which is in default.
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 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 issuer's capacity to pay interest and repay principal in accordance with the
terms of the security and generally involve greater price volatility 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 Sub-Adviser's judgment, analysis and experience in evaluating the
creditworthiness of the issuer. The Sub-Adviser will take into consideration,
among other things, the issuer's
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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 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 maybe 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. An issuer's ability to service its debt obligations also
may be adversely affected by specific issuer developments, 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 other 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 selling 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 sell
particular issues 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 or prices for actual sales. The Sub-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.
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. New Asia
Growth Fund may incur additional expenses if it is required to seek recovery
upon a default on a portfolio holding or participate in the restructuring of the
obligation.
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CREDIT RATINGS
Credit ratings evaluate the safety of principal and interest
payments, not market value risk. The rating of an issuer is also heavily
weighted by past developments and does not necessarily reflect probable future
conditions. There is frequently a lag between the time a rating is assigned and
the time it is updated. Also, since credit rating agencies may fail to timely
change credit ratings to reflect subsequent events, Pacific Century or a
Sub-Adviser must monitor the issuers of bonds in the Funds' portfolios to
determine if the issuers will have sufficient cash flow and profits to meet
required principal and interest payments, and to assure the bonds' liquidity so
the Funds can meet redemption requests.
To the extent the rating of a debt security by an NRSRO changes
as a result of changes in such organization or its 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.
OTHER DEBT OBLIGATIONS
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.
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, Value Fund, Small Cap 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 or its Sub-Adviser to be of comparable quality.
New Asia Growth Fund and International Stock 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 Pacific Capital or its Sub-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.
MUNICIPAL SECURITIES
The Tax-Free Funds invest primarily in Municipal Obligations,
and Diversified Fixed Income Fund may also do so. Municipal Obligations 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.
General obligation securities are secured by the issuer's pledge
of its full faith, credit, and taxing power for the payment of principal and
interest. Characteristics and methods of enforcement of general obligation bonds
vary according to the law applicable to a particular issuer, and the taxes that
can be levied for the payment of debt service may be limited or unlimited as to
rates or amounts of special assessments. Revenue securities are payable only
from the revenues derived from a particular facility, a class of facilities or,
in some cases, from the proceeds of a special excise tax. Although the principal
security behind these bonds may vary, many provide additional security in the
form of a debt service reserve fund the assets of which may be used to make
principal and interest payments on the issuer's obligations. Housing finance
authorities have a wide range of security, including partially or fully insured
mortgages, rent subsidized and collateralized mortgages, and the net revenues
from housing or other public projects. Somme authorities are provided further
security in the form of a state's assistance (although without obligation) to
make up deficiencies in the debt service reserve fund.
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
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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.
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, issued by a specially created district or project
area which 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. 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 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.
TANs
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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 primarily depends on the issuer's adequate access to the longer term
municipal 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.
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.
GENERAL CONSIDERATIONS
The values of outstanding municipal securities 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 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 generally 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.
Securities of issuers of municipal obligations are subject to
the provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Bankruptcy Reform Act of 1978. In addition,
the obligations of such issuers may become subject to laws enacted in the future
by Congress, state legislatures or referenda extending the time for payment of
principal or interest, or imposing other constraints upon enforcement of such
obligations or upon the ability of municipalities to levy taxes. Furthermore, as
a result of legislation or other conditions, the power or ability of any
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issuer to pay, when due, the principal of and interest on its municipal
obligations may be materially affected.
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.
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.
WARRANTS AND CONVERTIBLE SECURITIES
Each of Balanced Fund, Growth and Income Fund, Growth Stock
Fund, Small Cap Fund, Value Fund, International 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. 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.
Each of Balanced Fund, Growth and Income Fund, Growth Stock
Fund, Small Cap fund, Value Fund, International 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
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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 above under "Debt Securities," except
when they are purchased primarily for their equity characteristics.
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. 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 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.
The Funds 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 Pacific
Century. Generally, GICs are not assignable or transferable without the
permission of the issuing insurance companies, and an active secondary marketing
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 to be illiquid investments and are subject to the Funds' 15%
limitation on investment in illiquid 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.
Dividends on some preferred stock may be "cumulative," requiring all or a
portion of prior unpaid dividends to be paid before dividends are paid on the
issuer's common stock or non-cumulative, participating, or auction rate. If
interest rates rise, the fixed dividend on preferred stocks may be less
attractive, causing the price of preferred stocks to decline. Preferred stock
may have mandatory sinking fund provisions, as well as call/redemption
provisions prior to maturity, a negative feature when interest rates decline.
Preferred stock does not ordinarily carry voting rights.
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OPTIONS, FUTURES AND OTHER HEDGING STRATEGIES
GENERAL
The Funds may use a variety of derivative financial instruments
to hedge their investments and to enhance their income or manage their cash flow
("Hedging Instruments"). In addition to the Hedging Instruments described below
Pacific Century and its Sub-Advisers may discover additional opportunities in
connection with options, future contracts, foreign currency forward contracts
and other hedging techniques. These new opportunities may become available as
Pacific Century and its Sub-Advisers develop 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. Pacific Century and its Sub-Advisers 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.
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 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.
Foreign Currency Options
A put or call option on a foreign currency gives the purchaser
of the option the right to sell or purchase a foreign currency at the exercise
price until the option expires. New Asia Growth Fund and International Stock
Fund use foreign currency options separately or in combination to control
currency volatility. Among the strategies employed to control currency
volatility is an option collar. An option collar involves the purchase of a put
option and the simultaneous sale of call option on the same currency with the
same expiration date but with different exercise (or "strike") prices. Generally
the put option will have an out-of-the-money strike price, while the call option
will have either an at-the-money strike price or an in-the-money strike price.
Currency options
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traded on U.S. or other exchanges may be subject to position limits which may
limit the ability of the Funds to reduce foreign currency risk using such
options.
Interest Rate Futures Contracts
An interest rate futures contract is a bilateral agreement
pursuant to which one party agrees to make, and the other party agrees to
accept, delivery of a specified type of debt security at as 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.
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.
Options on Future Contracts
Put and call options on futures contracts give the purchaser the
right (but not the obligation), for a specified price, to sell or to purchase
the underlying futures contract, respectively, 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.
HEDGING STRATEGIES
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
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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 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").
(See "Limitations on the Use of Futures.") In addition, a Fund's ability to use
Hedging Instruments will be limited by tax considerations. See "Federal and
Hawaiian Tax Information."
OPTIONS
Each of the Funds other than New Asia Growth Fund and
International Stock Fund may purchase put and call options and write covered put
and call options on securities in which such Fund may invest, provided the value
of the securities underlying such options do not exceed 5% of the Fund's net
assets in the aggregate and (1) are traded on registered domestic securities
exchanges 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 and International Stock Fund may each
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 these Funds 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. Each such 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. Each such Fund
may also purchase put and call options to offset previously written put and call
options of the same series. The aggregate value of the exercise price or strike
price of call options written by each such Fund may not exceed 25% of the Fund's
net asset value.
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 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
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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.
Generally, foreign currency options (New Asia Growth Fund and
International Stock 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 the
reappears to be a liquid secondary
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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 anytime 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 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 and International Stock 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 other party to receive, while
the contract is out standing, 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 Fund and
International Stock Fund, 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
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thereon on U.S. and foreign exchanges, New Asia Growth Fund and International
Stock 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, a 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 and International Stock 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, a 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 a 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
the Funds. For example, Pacific Century or its Sub-Adviser may wish to be fully
invested in a particular asset class. Through the use of futures, it can achieve
this objective immediately while temporarily deferring industry and security
selection, in the interest of timeliness.
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.
No price is paid upon entering into a futures contract. Instead,
at the inception of a futures contract a 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
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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 Pacific Century's or its Sub-Adviser'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 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
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
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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.
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."
FOREIGN CURRENCY HEDGING STRATEGIES -- SPECIAL CONSIDERATIONS
New Asia Growth Fund and International Stock 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 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.
A 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, the Fund may hedge against price movements in that
currency by entering into transactions using Hedging Instruments on other
currencies, the values of which its Sub-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, a Fund could be
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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, a 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 and International Stock 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. Each such Fund also
may use foreign currency forward contracts for cross-hedging. Under this
strategy, a 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 a 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 a Fund from 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 a Fund enters into a foreign currency
forward contract, it relies on the other party to the transaction to make or
take delivery of the underlying currency at the maturity of the contract.
Failure by the other 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 other
party. Thus, there can be no assurance that a 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 other party, a Fund might be
unable to close out a foreign
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currency forward contract at any time prior to maturity. In either event, the
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, a
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 and International Stock Fund may enter into
foreign currency forward contracts or maintain a net exposure to such contracts
only if (1) completion 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) the Fund maintains cash,
U.S. Government securities or liquid debt or equity 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 currency
fluctuations will be incorporated into the longer term investment decisions made
with regard to over all 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 a Fund will be
served.
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 insecurities 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.
SPECIAL RISKS OF HEDGING STRATEGIES
The use of Hedging Instruments involves special considerations
and risks, including those described below.
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
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securities. There can be no assurance that any particular hedging strategy
adopted will succeed.
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.
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 13
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.
As described above, 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.
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. Interests 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
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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 generally slow, increasing the security's
average life and its potential for price depreciation.
MORTGAGE BACKED SECURITIES
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.
Mortgage Backed Securities include GNMA Certificates, FNMA
Certificates and FHLMC Participation Certificates. GNMA Certificates are backed
as to the timely payment of principal and interest by the full faith and credit
of the U.S. Government. The principal and interest of FNMA Certificates are
guaranteed only by FNMA itself, not by the full faith and credit of the U.S.
Government. An FHLMC Participation Certificate 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 or its
Sub-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 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, and 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.
The estimated average life of Mortgage-Backed Securities will be
determined by Pacific Century or its Sub-Adviser and used for the purpose of
determining the average weighted maturity of the Funds' portfolios. Various
independent mortgage backed securities dealers publish average remaining life
data using proprietary models and, in making such determinations for the Funds,
Pacific Century or its Sub-
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<PAGE> 194
Adviser might deem such data unreasonable if such data appears 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.
NON-MORTGAGE BACKED SECURITIES
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 any such obligation 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) that is not
affiliated with the issuer of the obligation. 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, are considered by Pacific Century or its
Sub-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.
The purchase of non-mortgage backed securities involves
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 the underlying obligations only by filing a financing statement and
by having the servicer of the obligations, which is usually the originator, take
custody of them. 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 the 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, recoveries on repossessed collateral might 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 the owner would
have against the seller of the motor vehicle. The assertion of such defenses
could reduce payments on the related Asset Backed Securities.
Similarly, in the case of Asset-Backed Securities relating to
credit card receivables, credit card holders are entitled to the protection of a
number of state and Federal consumer credit laws, many of which give such
holders the right to set off certain amounts against balances owed on the credit
cards, thereby reducing the amounts paid on
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such receivables. In addition, unlike most other Asset Backed Securities, credit
card receivables are unsecured obligations of the cardholders.
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 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 Fund may borrow from banks up to 20% of the current value
of its prospectus 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 and International Stock 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. Each such Fund may pledge up to 33% of its total
assets to secure these borrowings. If a Fund's asset coverage for borrowings
falls below 300%, the Fund will
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<PAGE> 196
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, a 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), 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 or its
Sub-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 Pacific Century or its Sub-Adviser. 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 and International Stock 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, the Sub-Advisers.
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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 or its Sub-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
In connection with the management of its daily cash position,
each 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 and International Stock 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 countries.
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 or International Stock 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
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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).
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.
MANAGEMENT
TRUSTEES AND OFFICERS
The business of the Trust is managed under the direction and
control of its Board of Trustees. The name, age and principal occupations 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. Trustees deemed to be "interested persons"
of the Trust for purposes of the 1940 Act are indicated by an asterisk (*).
Walter J. Laskey* (57), Trustee and Chairperson - Executive Vice
President of Bank of Hawaii - Private Client and Institutional
Services(1993-present).
Irimga McKay* (__), 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
Douglas Philpotts* (67), 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
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<PAGE> 199
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 (52), 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 (62), 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 Theo Davies & 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 (54), 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 (66), 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 (36), Treasurer - 111 South King Street, Honolulu,
Hawaii 96813. Vice President of Bank of Hawaii - Product and Asset Acquisition
(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 (__), Secretary - 1230 Columbia Street, San
Diego, California 92101. Director of BISYS Fund Services (1991-present).
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<PAGE> 200
Alaina Metz (__), Vice President - Chief Administrative Officer
of BISYS Fund Services - Blue Sky Compliance (1995-present); Alliance Capital
Management, L.P. (1989-1995).
William J. Tomko (__), Vice President - Senior Vice President of
BISYS Fund Services (1987-present).
Nancy Wiser (__), Vice President - Director of Fund Accounting
of BISYS Fund Services (19__-present).
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, Pacific Century or its Sub-Advisers 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,
1998:
Aggregate Trustees' Fees and
Expenses for the Fiscal Year
Fund Ended July 31, 1998
- ---- ----------------------------
Diversified Fixed Income Fund $ 8,886
Growth and Income Fund 9,858
Growth Stock Fund 22,034
New Asia Growth Fund 1,313
Short Intermediate U.S. Treasury Securities 2,076
Fund Tax-Free Securities Fund
Tax-Free Short Intermediate Securities Fund 3,303
U.S. Treasury Securities Fund 1,287
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, Pacific Century or its Sub-Advisers 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
Retirement Compensation
Aggregate Benefits Estimated from Trust and
Compensation Accrued as Benefits Other Funds
From Part of Fund Upon Advised by
Name of Trustee Trust (1) Expenses Retirement Pacific Century (2)
- --------------- ------------ ------------ ---------- -------------------
<S> <C> <C> <C> <C>
Richard W. $ 18,500 None None $
Gushman II
Stanley W. Hong $ 18,500 None None $
Russell K. Okata $ 18,500 None None $
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Douglas Philpotts $ 16,000 None None $
Oswald K. Stender $ 16,000 None None $
</TABLE>
(1) Provided for the fiscal year ended July 31, 1998.
(2) Provided for the calendar year ended December 31, 1997. In addition to
the Trust, each of the Trustees served on the boards of one other
investment company advised by Pacific Century, comprising four separate
funds.
Officers, trustees, directors, employees and retired employees
of the Trust, Pacific Century and its affiliates, and BISYS and its affiliates,
and their spouses and children, may purchase Class A shares of the Funds with no
sales charge, as the Board of Trustees believes that sales to such persons do
not involve the normal types of sales efforts associated with distribution of
the Trust's shares. In addition, from time to time Bank of Hawaii may enter into
normal investment management, commercial banking and lending arrangements with
one or more of the Trustees of the Trust and their affiliates. It currently has
such arrangements with Mr. Gushman and certain of his affiliated companies.
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 (and, in the case of the New Asia Growth
Fund, Small Cap Fund and International Stock Fund, the delegation of certain of
its duties to Sub-Advisers), Pacific Century provides 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 provides services under the Advisory Agreement in accordance with each
of the Funds' 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 ended July 31, 1997, July 31, 1996, and July 31, 1995:
<TABLE>
<CAPTION>
Compensation Paid to Pacific Century
Under the Advisory Agreement
For the Fiscal Year Ended For the Fiscal Year Ended For the Fiscal Year Ended
July 31, 1998 July 31, 1997 July 31, 1996
------------- ------------- -------------
Aggregate Aggregate Aggregate
Advisory Fee Advisory Fee Advisory Fee
Paid (After Paid (After Paid (After
Waiver as Aggregate Waiver as Aggregate Waiver as Aggregate
Fund applicable) Fee Waived applicable) Fee Waived applicable) Fee Waived
- ---- ----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
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<PAGE> 202
<TABLE>
<CAPTION>
Compensation Paid to Pacific Century
Under the Advisory Agreement
For the Fiscal Year Ended For the Fiscal Year Ended For the Fiscal Year Ended
July 31, 1998 July 31, 1997 July 31, 1996
------------- ------------- -------------
Aggregate Aggregate Aggregate
Advisory Fee Advisory Fee Advisory Fee
Paid (After Paid (After Paid (After
Waiver as Aggregate Waiver as Aggregate Waiver as Aggregate
Fund applicable) Fee Waived applicable) Fee Waived applicable) Fee Waived
- ---- ----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Diversified $ 731,240 $135,988 $ 867,869 N/A $ 814,802 N/A
Fixed Income
Fund
Growth and $1,153,390 N/A $ 768,642 N/A $ 503,952 N/A
Income Fund
Growth Stock $2,468,860 N/A $1,499,559 N/A $1,359,262 N/A
Fund
New Asia $ 137,423 $ 27,534 $ 141,522 $ 7,778 $ 52,972 N/A
Growth Fund
Short $ 89,917 $ 59,920 $ 71,646 $ 47,940 $ 61,600 $ 41,079
Intermediate
U.S. Treasury
Securities Fund
Tax-Free $1,872,274 $365,137 $1,756,304 N/A $1,724,513 N/A
Securities Fund
Tax-Free Short $ 207,167 $ 31,564 $ 195,480 N/A $ 202,701 N/A
Intermediate
Securities Fund
U.S. Treasury $ 104,486 $ 33,161 $ 145,470 N/A $ 172,954 N/A
Securities Fund
</TABLE>
The Advisory Agreement provides that Pacific Century will 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 a loss resulting from willful misfeasance, bad
faith or gross negligence on its part in the performance of its duties or from
reckless disregard of its obligations and duties under the Advisory Agreement.
The Advisory Agreement will continue in effect with respect to
each Fund provided the continuance is approved annually (i) by the holders of a
majority of the 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 with respect to any
Fund on 60 days' written notice by either party and will terminate automatically
if assigned.
Pacific Century has advised the Trust that Pacific Century
should be able to perform the services contemplated by the Advisory Agreement
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
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of such services, the Trust expects that new agreements would be entered into
with another entity or entities qualified to perform such services.
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.
SUB-ADVISERS
Nicholas Applegate Capital Management serves as Sub-Adviser to
International Stock Fund and Small Cap Fund, and its affiliate
Nicholas-Applegate Capital Management (Hong Kong) LLC serves as Sub-Adviser to
New Asia Growth Fund, pursuant to separate sub-advisory agreements with Pacific
Century (each a "Sub-Advisory Agreement"). Under the Sub-Advisory Agreement for
International Stock Fund and Small Cap Fund, the Sub-Adviser provides a
continuous investment program for those Funds, including investment research and
management with respect to all securities and investments and cash equivalents
in the Funds, subject to supervision of Pacific Century and the Board of
Trustees. Under the Sub-Advisory Agreement for New Asia Growth Fund, the
Sub-Adviser provides investment advisory services with respect to management of
the foreign component of that Fund's portfolio, including investment research
with respect to all foreign securities, currencies and cash equivalents in the
Fund.
For its services, Pacific Century pays the Sub-Advisers a fee,
computed daily and payable quarterly, equal on an annual basis, to __% of the
average daily net assets of International Fund and Small Cap Fund and 0.50% of
New Asia Growth Fund's average daily net assets. The Sub-Advisers' fees are paid
by Pacific Century, and the Funds do not pay any incremental fees for the
services of the Sub-Advisers. For the fiscal years ended July 31, 1998, July 31,
1997 and July 31, 1996, Pacific Century paid sub-advisory fees to the
Sub-Adviser and its predecessor in the amount of $________, $141,522, and
$29,567, respectively, for services provided to New Asia Growth Fund.
Each Sub-Advisory Agreement has provisions limiting the
liability of the Sub-Adviser similar to those in the Advisory Agreement. The
Sub-Advisory Agreement with respect to International Stock Fund and Small Cap
Fund will continue in effect beyond its initial two year term, and the
Sub-Advisory Agreement with respect to the New Asia Growth Fund will continue in
effect beyond its current one-year term, provided its continuance is approved
annually in the same manner as the Advisory Agreement. Each Sub-Advisory
Agreement may be terminated at any time with respect to a Fund 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. Each
Sub-Advisory Agreement will terminate automatically if assigned.
ADMINISTRATOR AND DISTRIBUTOR
Under its Administration Agreement with the Trust, BISYS
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 each Fund,
computed daily and paid monthly, at an annual rate equal to 0.20% of the average
daily net assets of the Fund. The following table sets forth the aggregate fees
paid, after giving effect to fee waivers, by each Fund to BISYS for services
provided pursuant to the Administration Agreement for the fiscal years ended
July 31, 1998, July 31,1997, and July 31, 1996:
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<PAGE> 204
Compensation Paid to BISYS
Under the Administration Agreement
(after waivers)
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
Fund July 31, 1998 July 31, 1997 July 31, 1996
- ---- -------------- ------------- -------------
Diversified Fixed Income $239,145 $231,432 $216,788
Fund
Growth and Income Fund $230,680 $153,729 $100,430
Growth Stock Fund $493,777 $299,912 $270,656
New Asia Growth Fund $ 27,517 $ 24,883 $ 8,807
Short Intermediate U.S. $ 44,959 $ 35,823 $ 30,800
Treasury Securities Fund
Tax-Free Securities Fund $596,120 $486,348 $457,502
Tax-Free Short Intermediate $ 71,559 $ 58,644 $ 60,810
Securities Fund
U.S. Treasury Securities $ 36,713 $ 38,792 $ 45,683
Fund
The Administration Agreement contains provisions limiting the
liability of BISYS and requiring its indemnification by the Trust similar to
those in the Advisory Agreement. The Administration Agreement will continue in
effect until December 31, 2001, and from year to year thereafter, unless
terminated at any time by either party for cause (as defined in the Agreement),
or at the end of any such period, on 60 days' written notice. If the Agreement
is terminated by the Trust prior to the end of any such period for any reason
other than cause, the Trust is required to make a one-time liquidated damages
payment to BISYS equal to the lesser of one year's fees or the fees due for the
balance of the term.
The following table sets forth the aggregate fees paid by each
Fund to BISYS for administration services for the fiscal years ended July 31,
1998, July 31, 1997, and 1996 under the predecessor to the current
Administration Agreement:
<TABLE>
<CAPTION>
Compensation Paid to BISYS
For Administrative Services
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
Fund July 31, 1998 July 31, 1997 July 31, 1996
- ---- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Diversified Fixed
Income Fund
</TABLE>
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<PAGE> 205
<TABLE>
<CAPTION>
Compensation Paid to BISYS
For Administrative Services
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
Fund July 31, 1998 July 31, 1997 July 31, 1996
- ---- ----------------- ----------------- -----------------
<S> <C> <C> <C>
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
</TABLE>
The Trust has also retained BISYS to provide the Trust with
certain fund accounting services pursuant to a Fund Accounting Agreement. For
services provided under the Agreement, BISYS is entitled to receive a fee from
each Fund, computed and paid monthly, at an annual rate equal to 0.03% of the
average daily net assets of the Fund up to $300 million, 0.025% of the next $250
million of average daily net assets, and 0.02% of the Fund's average daily net
assets in excess of $550 million. The term of the Agreement, and its provisions
regarding termination, limitation of liability, and indemnification, are similar
to those of the Trust's Administration Agreement with BISYS.
The following table sets forth the aggregate fees paid by each
Fund to BISYS for fund accounting services for the fiscal years ended July 31,
1998, July 31, 1997 and July 31, 1996 under the predecessor to the current Fund
Accounting Agreement.
<TABLE>
<CAPTION>
Compensation Paid to BISYS
Under the Agreement
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
Fund July 31, 1998 July 31, 1997 July 31, 1996
- ---- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Diversified Fixed
Income Fund
Growth and Income
Fund
Growth Stock Fund
</TABLE>
-44-
<PAGE> 206
<TABLE>
<CAPTION>
Compensation Paid to BISYS
Under the Agreement
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
Fund July 31, 1998 July 31, 1997 July 31, 1996
- ---- ----------------- ----------------- -----------------
<S> <C> <C> <C>
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
</TABLE>
BISYS has also entered into a Distribution Agreement with the
Trust pursuant to which it engages in a continuous distribution of 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.
Pursuant to the Distribution Agreement, BISYS has agreed to use
appropriate efforts to solicit orders for sales of shares of the Funds, but is
not obligated to sell and specified number of shares. The Distribution Agreement
contains provisions with respect to renewal and termination similar to those in
the Advisory Agreement. Pursuant to the Distribution Agreement, the Trust has
agreed to indemnify BISYS to the extent permitted by applicable law against
certain liabilities under the Securities Act and the 1940 Act.
TRANSFER AGENT
BISYS Fund Services, Inc. serves as Transfer Agent for each of
the Funds.
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 maybe), or is being
considered for purchase or sale, by a Fund. Investment personnel are
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<PAGE> 207
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
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 Board of Trustees approved the Plans to stimulate sales of
shares of the Funds in the face of competition from a variety of other
investment companies and financial products, in view of the potential advantages
to shareholders of the Funds of continued growth of the asset bases of the
Funds, including greater liquidity, more investment flexibility and achievement
of greater economies of scale.
The Class A Distribution Plan 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 the Fund attributable to the Fund's
Class A shares. The Class B Distribution Plan 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 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 agreements in connection with providing sales and/or
administrative support services to the holders of a Fund's Class A and Class B
shares; and (b) payments to financial institutions and industry professionals
(such as insurance companies, investment counselors, and BISYS' affiliates and
subsidiaries) for 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.
Until further notice, BISYS voluntarily intends to waive a
portion of the Class A distribution fee for the current fiscal year to limit the
fee to 0.25% of the average daily net assets value attributed to Class A shares
on an annual basis. The distribution fees are paid to BISYS only to compensate
or 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 and Class B Distribution Plans for the fiscal year ended July 31,1998,
restated to reflect fee waivers, are set forth in the table below.
Distribution Fees Paid Under the Class A and Class B Distribution Plans
-46-
<PAGE> 208
<TABLE>
<CAPTION>
Aggregate Distribution Fees Paid
for Fiscal Year Ended July 31, 1998
(after waiver)
------------------------------------
Class A Class B
------------------- --------------------
Retained Retained
by Paid to by Paid to
Fund BISYS Others BISYS Others
- ---- ----- ------ ----- ------
<S> <C> <C> <C> <C>
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
</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. Each
Distribution Plan may be terminated at any time with respect to any Fund,
without payment of any penalty, by a vote of a majority of the outstanding
voting securities of the appropriate class of the Fund. A Distribution Plan may
not be amended to increase materially the amounts payable thereunder by a Fund
without the approval of a majority of the outstanding voting securities of the
appropriate class of the 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
YIELD
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; 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
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<PAGE> 209
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 yields 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 do not provide a basis for determining future yields since
they are based on historical data. Yield is a function of portfolio quality,
composition, maturity and market conditions as well as the expenses allocated to
the Funds.
In addition, investors should recognize that changes in the net
asset values of shares of the Funds will affect the yields of such Funds for any
specified period, and such changes should be considered together with a 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 Funds 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.
TOTAL RETURN
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 will be aggregated
over the relevant period rather than annualized. In addition, 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 effects 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.
OTHER INFORMATION
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,
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<PAGE> 210
insured bank products, annuities, qualified retirement plans and individual
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 investment results of the Funds
also may be compared, in reports and promotional literature, to the performance
of 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.
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<PAGE> 211
PAST PERFORMANCE OF THE FUNDS
The tables below set forth total return and yield information
for the Class A, Class B and Class Y shares of the Funds, other than Balanced
Fund, Value Fund, International and Stock Fund and Small Cap Fund, which have
not commenced operations as of the date of this Statement of Additional
Information. Information for Class B shares of the Funds is based on the
information for the Class A Shares (adjusted for deferred sales loads), because
these shares were not offered until March 1998. Information for Class B shares
of the Funds has not been adjusted for expenses applicable to the Class B
shares, specifically the difference in 12b-1 fees charged to Class A and Class B
shares. Future performance for Class B shares will be affected by the difference
in 12b-1 fees charged.
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,
and prior to commencement of operations of the Fund's Class A, B and Y shares.
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 B* Class Y*
------------------------------- ------------------------------- -------------------------------
Expressed Redeemable Expressed Redeemable Expressed Redeemable
as a value of a as a value of a as a value of a
percentage hypothetical percentage hypothetical percentage hypothetical
based on a $1000 based on a $1000 based on a $1000
hypothetical investment hypothetical investment hypothetical investment
$1000 at the end $1000 at the end $1000 at the end
Period investment of the period investment of the period investment of the period
- ------ ------------ ------------- ------------ ------------- ------------ -------------
Average Annual Total Return
(including maximum applicable sales charge)**
<S> <C> <C> <C> <C> <C> <C>
One year ended
July 31, 1998
Five years ended
July 31, 1998
</TABLE>
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<PAGE> 212
<TABLE>
<CAPTION>
Class A* Class B* Class Y*
------------------------------- ------------------------------- -------------------------------
Expressed Redeemable Expressed Redeemable Expressed Redeemable
as a value of a as a value of a as a value of a
percentage hypothetical percentage hypothetical percentage hypothetical
based on a $1000 based on a $1000 based on a $1000
hypothetical investment hypothetical investment hypothetical investment
$1000 at the end $1000 at the end $1000 at the end
Period investment of the period investment of the period investment of the period
- ------ ------------ ------------- ------------ ------------- ------------ -------------
Average Annual Total Return
(including maximum applicable sales charge)**
<S> <C> <C> <C> <C> <C> <C>
Ten years ended
July 31, 1998
Aggregate Total Return
(including maximum applicable sales charge)**
One year ended
July 31, 1998
Five years ended
July 31, 1998
Ten years ended
July 31, 1998
Inception* to
July 31, 1998
Yield
(including maximum applicable sales charge)**
30 Days ended
July 31, 1998
- -----------------------------------------
* Class A and Class Y shares of the Fund commenced operation on October
14, 1994. The Class B shares of the Fund commenced operation on March 2,
1998.
** The maximum applicable sales charge on the Class A shares is 4.0%. The
maximum deferred sales charge on the Class B shares is 5.0%. There is no
sales charge imposed in connection with the purchase of Class Y shares.
</TABLE>
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, and prior to
commencement of operations of the Fund's Class A, B and Y shares. 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.
-51-
<PAGE> 213
<TABLE>
<CAPTION>
Class A* Class B* Class Y*
------------------------------- ------------------------------- -------------------------------
Expressed Redeemable Expressed Redeemable Expressed Redeemable
as a value of a as a value of a as a value of a
percentage hypothetical percentage hypothetical percentage hypothetical
based on a $1000 based on a $1000 based on a $1000
hypothetical investment hypothetical investment hypothetical investment
$1000 at the end $1000 at the end $1000 at the end
Period investment of the period investment of the period investment of the period
- ------ ------------ ------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
One year ended
July 31, 1998
Five years ended
July 31, 1998
Ten years ended
July 31, 1998
Aggregate Total Return
(including maximum applicable sales charge)**
One year ended
July 31, 1998
Five years ended
July 31, 1998
Ten years ended
July 31, 1998
Inception* to
July 31, 1998
Yield
(including maximum applicable sales charge)**
30 Days ended
July 31, 1998
- -----------------------------------------
</TABLE>
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<PAGE> 214
* Class A and Class Y shares of the Fund commenced operation on October
14, 1994. The Class B shares of the Fund commenced operation on March 2,
1998.
** The maximum applicable sales charge on the Class A shares is 4.0%. The
maximum deferred sales charge on the Class B shares is 5.0%. There is no
sales charge imposed in connection with the purchase of Class Y shares.
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, and prior to
commencement of operations of the Fund's Class A, B and Y shares. 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 B* Class Y*
------------------------------- ------------------------------- -------------------------------
Expressed Redeemable Expressed Redeemable Expressed Redeemable
as a value of a as a value of a as a value of a
percentage hypothetical percentage hypothetical percentage hypothetical
based on a $1000 based on a $1000 based on a $1000
hypothetical investment hypothetical investment hypothetical investment
$1000 at the end $1000 at the end $1000 at the end
Period investment of the period investment of the period investment of the period
- ------ ------------ ------------- ------------ ------------- ------------ -------------
Average Annual Total Return
(including maximum applicable sales charge)**
<S> <C> <C> <C> <C> <C> <C>
One year ended
July 31, 1998
Five years ended
July 31, 1998
Ten years ended
July 31, 1998
Aggregate Total Return
(including maximum applicable sales charge)**
</TABLE>
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<PAGE> 215
<TABLE>
<CAPTION>
Class A* Class B* Class Y*
------------------------------- ------------------------------- -------------------------------
Expressed Redeemable Expressed Redeemable Expressed Redeemable
as a value of a as a value of a as a value of a
percentage hypothetical percentage hypothetical percentage hypothetical
based on a $1000 based on a $1000 based on a $1000
hypothetical investment hypothetical investment hypothetical investment
$1000 at the end $1000 at the end $1000 at the end
Period investment of the period investment of the period investment of the period
- ------ ------------ ------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
One year ended
July 31, 1998
Five years ended
July 31, 1998
Ten years ended
July 31, 1998
Inception* to
July 31, 1998
Yield
(including maximum applicable sales charge)**
30 Days ended
July 31, 1998
- -----------------------------------------
</TABLE>
* Class A and Class Y shares of the Fund commenced operation on October
14, 1994. The Class B shares of the Fund commenced operation on March 2,
1998.
** The maximum applicable sales charge on the Class A shares is 4.0%. The
maximum deferred sales charge on the Class B shares is 5.0%. There is no
sales charge imposed in connection with the purchase of Class Y shares.
SHORT INTERMEDIATE U.S. TREASURY SECURITIES FUND
<TABLE>
<CAPTION>
Class A* Class B* Class Y*
------------------------------- ------------------------------- -------------------------------
Expressed Redeemable Expressed Redeemable Expressed Redeemable
as a value of a as a value of a as a value of a
percentage hypothetical percentage hypothetical percentage hypothetical
based on a $1000 based on a $1000 based on a $1000
hypothetical investment hypothetical investment hypothetical investment
$1000 at the end $1000 at the end $1000 at the end
Period investment of the period investment of the period investment of the period
- ------ ------------ ------------- ------------ ------------- ------------ -------------
Average Annual Total Return
(including maximum applicable sales charge)**
<S> <C> <C> <C> <C> <C> <C>
One year ended
July 31, 1998
</TABLE>
-54-
<PAGE> 216
<TABLE>
<CAPTION>
Class A* Class B* Class Y*
------------------------------- ------------------------------- -------------------------------
Expressed Redeemable Expressed Redeemable Expressed Redeemable
as a value of a as a value of a as a value of a
percentage hypothetical percentage hypothetical percentage hypothetical
based on a $1000 based on a $1000 based on a $1000
hypothetical investment hypothetical investment hypothetical investment
$1000 at the end $1000 at the end $1000 at the end
Period investment of the period investment of the period investment of the period
- ------ ------------ ------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Five years ended
July 31, 1998
Ten years ended
July 31, 1998
Aggregate Total Return
(including maximum applicable sales charge)**
One year ended
July 31, 1998
Five years ended
July 31, 1998
Ten years ended
July 31, 1998
Inception* to
July 31, 1998
Yield
(including maximum applicable sales charge)**
30 Days ended
July 31, 1998
- -----------------------------------------
</TABLE>
* Class A shares of the Fund commenced operation on November 1, 1993.
Class Y shares of the Fund commenced operation on October 14, 1994.
** The maximum applicable sales charge on the Class A shares of the Fund is
2.25%. The maximum deferred sales charge on the Class B shares is 5.0%.
There is no sales charge imposed in connection with the purchase of
Class Y shares of either Fund.
-55-
<PAGE> 217
NEW ASIA GROWTH FUND
<TABLE>
<CAPTION>
Class A* Class B* Class Y*
------------------------------- ------------------------------- -------------------------------
Expressed Redeemable Expressed Redeemable Expressed Redeemable
as a value of a as a value of a as a value of a
percentage hypothetical percentage hypothetical percentage hypothetical
based on a $1000 based on a $1000 based on a $1000
hypothetical investment hypothetical investment hypothetical investment
$1000 at the end $1000 at the end $1000 at the end
Period investment of the period investment of the period investment of the period
- ------ ------------ ------------- ------------ ------------- ------------ -------------
Average Annual Total Return
(including maximum applicable sales charge)**
<S> <C> <C> <C> <C> <C> <C>
One year ended
July 31, 1998
Inception* to
July 31, 1998
Aggregate Total Return
(including maximum applicable sales charge)**
One year ended
July 31, 1998
Inception* to
July 31, 1998
- -----------------------------------------
</TABLE>
* The Class A and Class Y shares of the Fund commenced operation on
February 15, 1995. Class B shares of the Fund commenced operation on
March 2, 1998.
** The maximum applicable sales charge on the Class A shares of the Fund is
5.25%. The maximum deferred sales charge on Class B shares is 5.0%.
There is no sales charge imposed in connection with the purchase of
Class Y shares of either Fund.
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, and
prior to commencement of operations of the Fund's Class A, B and Y shares. Such
performance is adjusted to reflect the expenses associated with the Fund. The
Commingled accounts were not registered with the
-56-
<PAGE> 218
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 B* Class Y*
------------------------------- ------------------------------- -------------------------------
Expressed Redeemable Expressed Redeemable Expressed Redeemable
as a value of a as a value of a as a value of a
percentage hypothetical percentage hypothetical percentage hypothetical
based on a $1000 based on a $1000 based on a $1000
hypothetical investment hypothetical investment hypothetical investment
$1000 at the end $1000 at the end $1000 at the end
Period investment of the period investment of the period investment of the period
- ------ ------------ ------------- ------------ ------------- ------------ -------------
Average Annual Total Return
(including maximum applicable sales charge)**
<S> <C> <C> <C> <C> <C> <C>
One year ended
July 31, 1998
Five years ended
July 31, 1998
Ten years ended
July 31, 1998
Aggregate Total Return
(including maximum applicable sales charge)**
One year
ended July
31, 1998
Five years
ended July
31, 1998
Ten years
ended July
31, 1998
Inception* to
July 31, 1998
</TABLE>
-57-
<PAGE> 219
<TABLE>
<CAPTION>
Class A* Class B* Class Y*
------------------------------- ------------------------------- -------------------------------
Expressed Redeemable Expressed Redeemable Expressed Redeemable
as a value of a as a value of a as a value of a
percentage hypothetical percentage hypothetical percentage hypothetical
based on a $1000 based on a $1000 based on a $1000
hypothetical investment hypothetical investment hypothetical investment
$1000 at the end $1000 at the end $1000 at the end
Period investment of the period investment of the period investment of the period
- ------ ------------ ------------- ------------ ------------- ------------ -------------
Yield
(including maximum applicable sales charge)**
<S> <C> <C> <C> <C> <C> <C>
30 Days Ended
July 31, 1998
- -----------------------------------------
</TABLE>
* Class A and Class Y shares of the Fund commenced operation on October
14, 1994. Class B shares of the Fund commenced operation on March 2,
1998.
** The maximum applicable sales charge on the Class A shares is 4.0%. The
maximum deferred sales charge on the Class B shares is 5.0%. There is no
sales charge imposed in connection with the purchase of Class Y shares.
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, and prior to commencement of operations of the Fund's Class A and Y
shares. 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 B* Class Y*
------------------------------- ------------------------------- -------------------------------
Expressed Redeemable Expressed Redeemable Expressed Redeemable
as a value of a as a value of a as a value of a
percentage hypothetical percentage hypothetical percentage hypothetical
based on a $1000 based on a $1000 based on a $1000
hypothetical investment hypothetical investment hypothetical investment
$1000 at the end $1000 at the end $1000 at the end
Period investment of the period investment of the period investment of the period
- ------ ------------ ------------- ------------ ------------- ------------ -------------
Average Annual Total Return
(including maximum applicable sales charge)**
<S> <C> <C> <C> <C> <C> <C>
One year ended
July 31, 1998
</TABLE>
-58-
<PAGE> 220
<TABLE>
<CAPTION>
Class A* Class B* Class Y*
------------------------------- ------------------------------- -------------------------------
Expressed Redeemable Expressed Redeemable Expressed Redeemable
as a value of a as a value of a as a value of a
percentage hypothetical percentage hypothetical percentage hypothetical
based on a $1000 based on a $1000 based on a $1000
hypothetical investment hypothetical investment hypothetical investment
$1000 at the end $1000 at the end $1000 at the end
Period investment of the period investment of the period investment of the period
- ------ ------------ ------------- ------------ ------------- ------------ -------------
Average Annual Total Return
(including maximum applicable sales charge)**
<S> <C> <C> <C> <C> <C> <C>
Five years ended
July 31, 1998
Ten years ended
July 31, 1998
Aggregate Total Return
(including maximum applicable sales charge)**
One year ended
July 31, 1998
Five years ended
July 31, 1998
Ten years ended
July 31, 1998
Inception* to
July 31, 1998
Yield
(including maximum applicable sales charge)**
30 days ended
July 31, 1998
- -----------------------------------------
</TABLE>
* Class A and Class Y shares of the Fund commenced operation on October
14, 1994. Class B shares of the Fund commenced operation on March 2,
1998.
** The maximum applicable sales charge on the Class A shares is 4.0%. The
maximum deferred sales charge on the Class B shares is 5.0%. There is no
sales charge imposed in connection with the purchase of Class Y shares.
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, and
prior to commencement of operations of the Fund's Class A and Y shares. 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
-59-
<PAGE> 221
accounts had been registered, the Commingled accounts' performance may have been
adversely affected.
<TABLE>
<CAPTION>
Class A* Class B* Class Y*
------------------------------- ------------------------------- -------------------------------
Expressed Redeemable Expressed Redeemable Expressed Redeemable
as a value of a as a value of a as a value of a
percentage hypothetical percentage hypothetical percentage hypothetical
based on a $1000 based on a $1000 based on a $1000
hypothetical investment hypothetical investment hypothetical investment
$1000 at the end $1000 at the end $1000 at the end
Period investment of the period investment of the period investment of the period
- ------ ------------ ------------- ------------ ------------- ------------ -------------
Average Annual Total Return
(including maximum applicable sales charge)**
<S> <C> <C> <C> <C> <C> <C>
One year ended
July 31, 1998
Five years ended
July 31, 1998
Ten years ended
July 31, 1998
Aggregate Total Return
(including maximum applicable sales charge)**
One year ended
July 31, 1998
Five years ended
July 31, 1998
Ten years ended
July 31, 1998
Inception* to
July 31, 1998
</TABLE>
-60-
<PAGE> 222
<TABLE>
<CAPTION>
Class A* Class B* Class Y*
------------------------------- ------------------------------- -------------------------------
Expressed Redeemable Expressed Redeemable Expressed Redeemable
as a value of a as a value of a as a value of a
percentage hypothetical percentage hypothetical percentage hypothetical
based on a $1000 based on a $1000 based on a $1000
hypothetical investment hypothetical investment hypothetical investment
$1000 at the end $1000 at the end $1000 at the end
Period investment of the period investment of the period investment of the period
- ------ ------------ ------------- ------------ ------------- ------------ -------------
Yield
(including maximum applicable sales charge)**
<S> <C> <C> <C> <C> <C> <C>
30 days ended
July 31, 1998
- -----------------------------------------
</TABLE>
* Class A and Class Y shares of the Fund commenced operation on October
14, 1994. Class B shares of the Fund commenced operation on March 2,
1998.
** The maximum applicable sales charge on the Class A shares is 4.0%. The
maximum deferred sales charge on the Class B shares is 5.0%. There is no
sales charge imposed in connection with the purchase of Class Y shares.
DETERMINATION OF NET ASSET VALUE
Net asset value per share of the Class A, Class B and Class Y
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, Jr. Day, Presidents' Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, Christmas Day and Good Friday.
Securities for which market quotations are available are valued
at latest reported prices. Securities 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 are
converted to U.S. dollar equivalents at the current rate obtained from a
recognized bank or dealer. Foreign currency exchange contracts are valued at the
current cost of covering or offsetting such contracts.
In all cases, bid prices are 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
-61-
<PAGE> 223
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 "Purchasing and Adding to Your Shares" in
the Prospectuses for certain information as to the purchase of Fund shares. The
various sales charge reductions and waivers described in the Prospectuses have
been implemented to reflect the economies of scale associated with distribution
activities as the amount of a sale increases, and to reflect the lower level of
such activities necessary for sales to persons who are members of organized
groups, participants in retirement plans, or associated with the Trust and its
affiliates.
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 contingent
deferred sales charge ("CDSC") and shares of Class Y are sold to eligible
investors without a sales charge. Class A and Class B shares each have exclusive
voting rights with respect to the Rule 12b-1 distribution plan adopted with
respect to such Class. Class B shares automatically convert to Class A shares
after approximately eight years.
CLASS Y 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 the 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 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 they
reinvest dividends and distributions in respect of their Class Y shareholdings.
SPECIMEN PRICE MARK-UP
Under the current distribution arrangements between the Fund and
the Distributor, Class A shares are sold at a maximum sales charge of 4.00% and
Class B and Class Y shares are sold at net asset value. Using the _______ Fund's
net asset value at
-62-
<PAGE> 224
July 31, 1998, an example of the determination of the maximum offering price of
the Fund's shares is as follows:
Class A
Net asset value.......................................................
Maximum sales charge (4.00% of offering price)........................
Offering price to public..............................................
Class B
Net asset value and offering price to public..........................
Class Y
Net asset value and offering price to public..........................
REDEMPTION OF SHARES
Reference is made to the section in the Prospectuses entitled
"Selling Your 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.
REDEMPTION IN KIND
The Trust intends to pay in cash for all shares of a Fund
redeemed, but the Trust reserves the right to make payment wholly or partly in
shares of readily marketable investment securities. In such cases, a shareholder
may incur brokerage costs in converting such securities to cash. However, the
Trust has elected to be governed by the provisions of Rule 18f-1 under the 1940
Act, pursuant to which it is obligated to pay in cash all request for
redemptions by any shareholder of record, limited in amount with respect to each
shareholder during any 90-day period to the lesser of $250,000 or 1% of the net
asset value of the Trust at the beginning of such period.
PORTFOLIO TRANSACTIONS
The Trust has no obligation to deal with any broker-dealer or
group of broker-dealers to execute transactions in its portfolio securities. In
connection with its duties to arrange for the purchase and sale of each Fund's
portfolio securities, Pacific Century and its Sub-Advisers select such
broker-dealers ("Broker-Dealers") as will, in their 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 and its Sub-Advisers deal directly
with the selling or purchasing principal or market maker without incurring
brokerage commissions unless they determine that better price or execution may
be obtained by paying such commissions.
-63-
<PAGE> 225
In allocating transactions to Broker-Dealers, Pacific Century
and its Sub-Advisers are 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 and its Sub-Advisers have each
adopted a brokerage allocation policy in reliance on Section 28(e) of the
Securities and Exchange Act of 1934, permitting them to cause a Fund to pay
commission rates in excess of those another Broker-Dealer would have charged if
Pacific Century or the relevant Sub-Adviser 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 or the Sub-Adviser'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 and
its Sub-Advisers are 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 Broker-Dealers
and make judgments as to the level of business which would recognize such
services. In addition, Broker-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 debt securities are usually principal
transactions. Each of the Funds may also 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 these 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 includes an amount of compensation to the underwriter,
generally referred to as the underwriter's concession or discount.
Although the Investment Adviser and Sub-Advisers make investment
decisions for the Trust independently from those of their other accounts,
investments of
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<PAGE> 226
the kind made by the Funds may often also be made by such other accounts. When
the Investment Adviser or a Sub-Adviser buys or sells the same security at
substantially the same time on behalf of the Funds and one or more other
accounts managed by the Investment Adviser or Sub-Adviser, the Investment
Adviser or Sub-Adviser allocates available investments by such means as, in its
judgment, result in fair treatment. The Investment Adviser or Sub-Adviser
aggregates orders for purchases and sales of securities of the same issuer on
the same day among the Funds and its other managed accounts, and the price paid
to or received by the Funds and those accounts is the average obtained in those
orders. In some cases, such aggregation and allocation procedures may affect
adversely the price paid or received by the Funds or the size of the position
purchased or sold by the Funds.
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
turnover rate for a Fund's portfolio 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 or a Sub-Adviser deems portfolio changes
appropriate.
For the fiscal years ended July 31, 1998, July 31, 1997, and
July 31, 1996, 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, 1998, July 31, 1997, and July 31, 1996, are set forth in the
table below:
<TABLE>
<CAPTION>
Brokerage Commissions Paid by Certain Funds
-------------------------------------------
Total Commissions Total Commissions Total Commissions
Paid for Fiscal Paid for Fiscal Paid for Fiscal
Year Ended Year Ended Year Ended
Fund July 31, 1998 July 31, 1997 July 31, 1996
- ---- ------------- ------------- -------------
<S> <C> <C> <C>
Growth and Income Fund $237,637 $269,962
Growth Stock Fund $241,913 $355,376
New Asia Growth Fund $243,253 $ 95,781
</TABLE>
For the fiscal years ended July 31, 1997 and July 31, 1996, New
Asia Growth Fund paid brokerage commissions of $10,992 and $7,457, respectively,
to Credit Lyonnais Securities, an affiliate of Credit Lyonnais, which served as
sub-adviser to the Fund until July 31, 1997. Nicholas-Applegate Capital
Management (Hong Kong) LLC, the current Sub-Adviser to the New Asia Growth Fund
is not affiliated with any Broker-Dealer which effects portfolio transactions
for the Funds. For the fiscal year
-65-
<PAGE> 227
ended July 31, 1997, the percentage of the Fund's aggregate brokerage
commissions paid to Credit Lyonnais Securities was 4.5%, and the percentage of
the aggregate dollar amount of Fund transactions involving the payment of
commissions effected through Credit Lyonnais Securities was 8.5%.
The percentage of total portfolio transactions placed with, and
related commissions paid to, firms which provided research, statistical, or
other services to Pacific Century and the Sub-Adviser to the New Asia Growth
Fund in connection with the management of the Funds, or in some cases, to the
Funds, for the fiscal year ended July 31, 1998 are set forth below:
<TABLE>
<CAPTION>
Total Commission Paid to
Providers of Research,
Percentage of Total Statistical and Other
Fund Portfolio Transactions Services
---- ---------------------- ---------
<S> <C> <C>
Growth Stock Fund
Growth and Income Fund
New Asia Growth Fund
</TABLE>
During the fiscal year ended July 31, 1998, the following Funds
acquired securities of their regular broker-dealers or of their parents, as such
terms are defined in Rule 10b-1 under the 1940 Act (and held such securities
with the following aggregate values as of the end of such year: Growth Stock
Fund -- Banc One ($________); U.S. Treasury Securities Fund -- Banc One
($________); Short-Intermediate U.S. Treasury Securities Fund -- Banc One
($_______); Tax- Free Securities Fund -- Nuveen Securities ($________); Tax-Free
Short Intermediate Securities Fund -- Nuveen Securities ($________); Diversified
Fixed Income Fund -- Banc One ($_______) and Merrill Lynch & Co. ($_______);
Growth and Income Fund -- Bank One ($________); New Asia Growth Fund -- Union
Bank of California ($_______).
The portfolio turnover rates for each Fund for the fiscal years
ended July 31, 1998 and July 31, 1997 are set forth in the table below.
-66-
<PAGE> 228
<TABLE>
<CAPTION>
Portfolio Turnover Rates of the Funds
-------------------------------------
Year Ended July 31, Year Ended July 31,
Fund 1998 1997
- ---- ---- -----
<S> <C> <C>
Diversified Fixed Income Fund 57.72% 80.98%
Growth and Income Fund 75.97% 74.83%
Growth Stock Fund 97.08% 32.20%
New Asia Growth Fund 134.29% 134.89%
Short Intermediate U.S. Treasury 17.07% 51.56%
Securities Fund
Tax-Free Securities Fund 10.71% 11.07%
Tax-Free Short Intermediate 47.10% 29.46%
Securities Fund
U.S. Treasury Securities Fund 11.98% 44.90%
</TABLE>
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.
FEDERAL TAX INFORMATION
Qualification as a "regulated investment company" under the
Internal Revenue Code of 1986, as amended (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; and (b) 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.
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<PAGE> 229
A 4% nondeductible excise tax will be imposed on each Fund to
the extent it does not meet certain minimum distribution requirements on a
calendar year basis. 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.
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, Small Cap 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 and International Stock Fund invest primarily in foreign securities. If
more than 50% in value of either such Fund's total assets at the close of its
taxable year consists of securities of foreign corporations, the Fund will be
eligible and intends to file an election with the Internal Revenue Service
pursuant to which shareholders of the 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 such 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 and International Stock Fund will report annually to their respective
shareholders the amount per share of such withholding taxes.
Gains or losses on sales of portfolio securities by a Fund will
be long-term capital gains or losses if the securities have been held by it for
more than one year, 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 income tax purposes.
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If a shareholder exchanges or otherwise disposes of shares of a
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 will 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.
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, the 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, the 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, the Fund will subtract the premium received from its
cost basis in the securities purchased.
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 of any net gain or loss recognized on these deemed sales and 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.
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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 trustor 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.
SPECIAL TAX CONSIDERATIONS FOR NEW ASIA GROWTH FUND AND
INTERNATIONAL STOCK FUND
Due to investment laws in certain developing countries in Asia,
it is anticipated that investments by New Asia Growth Fund 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, and International Stock
Fund may make similar investments. Each such Fund may invest up to 10% of its
total assets in securities of closed-end investment companies. If a Fund
purchases shares of an investment company (or similar investment entity)
organized under foreign law, the Fund will be treated as owning shares in a
passive foreign investment company ("PFIC") for U.S. federal income tax
purposes. The 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 the Fund as a dividend to its shareholders. A 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 the Fund to recognize income in a particular year in
excess of the distributions received from such PFICs. Alternatively, a 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, the 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, a 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.
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SPECIAL TAX CONSIDERATIONS FOR THE TAX-FREE FUNDS
FEDERAL TAX INFORMATION
The portion of total dividends paid by each of 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 of
the Fund receiving dividends during such year. In order for a Tax-Free Fund 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 Fund's assets must
consist of tax-exempt securities. In addition, the Fund 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. Within 60 days after the close of its taxable year, each
Tax-Free Fund will notify its shareholders 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(a) of the Code
received by such Fund 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 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 a Tax-Free
Fund should consult their tax advisers to determine whether exempt-interest
dividends paid by the Fund 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 a Tax-Free 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 Fund 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
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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.
GENERAL INFORMATION
CAPITALIZATION
The Trust was organized as a Massachusetts business trust on
October 30, 1992, and currently consists of twelve separately managed series.
The Board of Trustees may establish additional series in the future. Each series
has un-limited transferable shares of beneficial interest, with 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 generally have identical rights with respect
to the series of which they are a part, but 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 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. Class A
and Class B shares have different sales charges and other expenses which may
affect performance. The Trust has a Prospectus for Class Y shares and separate
Prospectuses for Class A and B shares of various Funds. Prospectuses may be
obtained by calling the telephone number listed on the first page of the
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
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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.
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 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 will 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 are entitled to receive the assets attributable to that
Fund that are available for distribution, and a distribution of any general
assets not attributable to a particular Fund that are available for
distribution, in such manner and on such basis as the Trustees in their sole
discretion may determine.
Shareholders are not entitled to any preemptive rights. All
shares, when issued, will be fully paid and non-assessable by 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
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account of shareholder liability is limited to circumstances in which a Fund
would be unable to meet its obligations.
PRINCIPAL SHAREHOLDERS
As of September 1, 1998 the persons set forth below were known
by the Trust to own of record or beneficially 5% or more of the Class A, Class B
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.
Percentage of Shares Held
of Record Or Beneficially
-------------------------
CLASS Y SHARES
Diversified Fixed Income Securities Fund
STROBRO
HAWCO
Growth and Income Fund
STROBRO
HAWCO
Growth Stock Fund
REINCO
STROBRO
HAWCO
New Asia Growth Fund
Vanguard Fiduciary Trust Company
P.O. Box 2600
V.M. 421
Valley Forge, PA 19482
HAWCO
REINCO
STROBRO
Short Intermediate U.S. Treasury
Securities Fund
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HAWCO
REINCO
STROBRO
Tax-Free Securities Fund
STROBRO
Tax-Free Short Intermediate Securities
Fund
STROBRO
HAWCO
U.S. Treasury Securities Fund
REINCO
Value Fund
BISYS
International Stock Fund
BISYS
Value Fund
BISYS
CLASS A SHARES
Diversified Fixed Income Fund
BHC Securities Inc.
Growth and Income Fund
BHC Securities Inc.
Growth Stock Fund
BHC Securities Inc.
Arrow & Co.
New Asia Growth Fund
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Merrill Lynch Pierce Fenner & Smith
Incorporated
4800 Deer Lake Drive East, 3rd Floor
Mutual Fund Operations
Jacksonville, Florida 32246
BHC Securities, Inc.
Short Intermediate U.S. Treasury
Securities Fund
BHC Securities, Inc.
Merrill Lynch Pierce Fenner & Smith
Incorporated
4800 Deer Lake Drive East, 3rd Floor
Mutual Fund Operations
Jacksonville, Florida 32246
Tax-Free Short Intermediate Securities
Fund
Douglas Philpotts Trustee
c/o Douglas Philpotts
94B Polipoli
Kula, Hawaii 96790
BHC Securities, Inc.
Elisabeth Godfrey
Arrow & Co.
P.O. Box 30010
Durham, North Carolina 27702
Wedbush Morgan Securities Inc.
U.S. Treasury Securities Fund
Hugh Shearer Trustee
P.O. Box 3196
Honolulu, HI 96801
BHC Securities, Inc.
Merrill Lynch Pierce Fenner & Smith
Incorporated
4800 Deer Lake Drive East, 3rd Floor
Mutual Fund Operations
Jacksonville, Florida 32246
CLASS B SHARES
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CUSTODIAN
Union Bank of California, ("Bank of California") has been
retained as Custodian for New Asia Growth Fund and International Stock Fund.
Bank One Trust Company, N.A. ("Bank One") has been retained as Custodian for the
other Funds. 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, Bank One and Bank of California, each receives an
asset-based fee.
INDEPENDENT AUDITORS AND COUNSEL
Ernst & Young LLP serves as the independent auditors for the
Trust. Ernst & Young LLP provides audit services, tax return preparation and
assistance and consultation in connection with certain Commission filings. Its
office is located at One Columbus, Suite 2300, 10 West Broad Street, Columbus,
Ohio 43215.
Paul, Hastings, Janofsky & Walker LLP serves as legal counsel
for the Trust. Its office is located at 555 South Flower Street, Los Angeles,
California 90071.
FINANCIAL INFORMATION
The Trust's 1998 Annual Report to Shareholders accompanies this
SAI. The financial statements in such Annual Report are incorporated in this SAI
by reference. Such financial statements have been audited by the Trust's
independent auditors, Ernst & Young LLP, whose report thereon appears in such
Annual Report. Such financial statements have been incorporated herein in
reliance upon such report given upon their authority as experts in accounting
and auditing. Additional copies of the Trust's 1998 Annual Report to
Shareholders may be obtained at no charge by telephoning the Trust at the number
on the front page of this SAI.
REGISTRATION STATEMENT
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.
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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.
Caa - Bonds rated Caa are of poor standing. Such issues maybe 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.
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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.
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 Crating may be used to cover a situation
where a bankruptcy petition has been filed but debt service payments are
continued.
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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.
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.
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<PAGE> 242
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.
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.
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<PAGE> 243
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.
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<PAGE> 244
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 - 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
A-6
<PAGE> 245
- 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
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> 246
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.
CORPORATE NOTE RATINGS
S&P:
The two highest ratings for corporate notes are SP-1 and SP-2.
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<PAGE> 247
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> 248
PART C
OTHER INFORMATION
Item 23. Exhibits.
Exhibit
Number Description
------ --------------
(a-1)* - Declaration of Trust
(a-2)* - Amendment No. 1 to Declaration of Trust
(a-3)* - Amendment No. 2 to Declaration of Trust
(b)* - By-Laws
(c) - Instruments Defining Rights of Shareholders
(incorporated by reference to Exhibits a and b
above.)
(d-1)* - Investment Advisory Agreement between Hawaiian Trust
Company, Limited and the Registrant, dated as of October 29,
1993 ("Investment Advisory Agreement")
(d-2)* - Addendum to Investment Advisory Agreement
(d-3) - Form of Amended Schedule A and Amended Addendum to
Investment Advisory Agreement
(d-4)* - Sub-Advisory Agreement among the Registrant, Pacific Century
Trust and Nicholas-Applegate Capital Management (Hong Kong)
LLC
(d-5) Form of Sub-Advisory Agreement among the Registrant, Pacific
Century Trust and Nicholas-Applegate Capital Management
(e-1)* - Distribution Agreement between BISYS Fund Services
(formerly, The Winsbury Company Limited Partnership)
and the Registrant, dated as of October 29, 1993, as
amended ("Distribution Agreement")
(e-2) - Amended Schedules A and B to Distribution Agreement
(e-3)* - Form of Selling Agreement
(f) - Not applicable
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<PAGE> 249
(g-1)* - 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
(g-2)* - Custodian Agreement among Union Bank of California,
Hawaiian Trust Company, Limited, and the Registrant on behalf of
New Asia Growth Fund.
(h-1)* - Administration Agreement between BISYS Fund Services
(formerly The Winsbury Company Limited Partnership) and the
Registrant, dated as of October 29, 1993 ("Administration
Agreement")
(h-2)* - Amended Schedule A to Administration Agreement
(h-3)* - Transfer Agency Agreement between Administrative Data
Management Corporation and the Registrant, dated as of August
17, 1993 ("Transfer Agency Agreement")
(h-4)* - Amended Appendix E to Transfer Agency Agreement
(h-5)* - Fund Accounting Agreement between BISYS Fund Services
(formerly, The Winsbury Service Corporation) and the Registrant,
dated as of October 29, 1993 ("Fund Accounting Agreement")
(h-6)* - Amended Schedule A to the Fund Accounting Agreement
(i)* - Opinion and Consent of Counsel
(j) - Not Applicable
(k) - Not Applicable
(l)* - Form of investment letter
(m-1)* - Class A Distribution and Shareholder Service Plan
between the Registrant and BISYS Fund Services
(formerly, The Winsbury Company), dated as of October
29, 1993
(m-2)* - Amended Appendix A to the Distribution and Shareholder
Service Plan
(m-3)* - Class B Distribution and Shareholder Service Plan
between the Registrant and BISYS Fund Services
(formerly, The Winsbury Company), dated as of
September 26, 1997
(n)* Financial Data Schedules
(o) Rule 18f-3 Plan
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<PAGE> 250
(p-1)* Powers of Attorney for Irimga McKay, Douglas Philpotts, Richard
W. Gushman, II, Stanley W. Hong, Russell G. Okata, Oswald K.
Stender, and Craig Warren
(p-2) Power of Attorney for Walter J. Laskey
- ----------------------------------
* Filed as an exhibit to Post-Effective Amendment No. 10 to Registrant's
Registration Statement on Form N-1A on September 30, 1997.
Item 24. Persons Controlled by or under Common Control with Registrant.
None.
Item 25. Indemnification.
Section 5.2 of the Registrant's Declaration of Trust, filed
herewith as Exhibit 23(a), provides for indemnification of the Registrant's
trustees, officers, employees and agents against liabilities incurred by them in
connection with the defense or disposition of any action or proceeding in which
they may be involved or with which they may be threatened, while in office or
thereafter, by reason of being or having been in such office, except with
respect to matters as to which it has been determined that they acted with
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of their office ("Disabling Conduct").
Section 7 of the Registrant's Fund Account Agreement, filed
herewith as Exhibit 23(h), provides for the indemnification of the Registrant's
Fund Accounting Agent, and its directors, officers, employees and agents against
all liabilities incurred by it in performing its obligations under the
Agreement, except with respect to matters involving Disabling Conduct. Section
1.11 of the Registrant's Distribution Agreement, filed herewith as Exhibit
23(e), provides for the indemnification of the Registrant's Distributor against
certain liabilities incurred by it in performing its obligations under the
Agreement, except with respect to matters involving its Disabling Conduct; and
Section 1.12 of such Agreement provides for indemnification by the Distributor
of the Registrant's trustees and officers against certain liabilities incurred
by them in connection with the Distributor's activities.
The Registrant has obtained a trustees' and officers'
liability policy covering certain types of errors and omissions.
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, 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
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<PAGE> 251
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.
Item 26. Business and Other Connections of Investment Adviser and Sub-Advisers.
Pacific Century Trust serves as investment adviser to all of
the Registrant's investment portfolios. To the knowledge of the Registrant, none
of the trustees or executive officers of Pacific Century Trust 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 for his own account
or in the capacity of director, officer, employee, partner or trustee, except as
set forth below:
<TABLE>
<CAPTION>
==========================================================================================
Principal Business(es) During at Least
Name Position(s) the Last Two Fiscal Years
- ------------------------------------------------------------------------------------------
<S> <C> <C>
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
- ------------------------------------------------------------------------------------------
Frank McGee Senior Vice Riggs National Bank
President
- ------------------------------------------------------------------------------------------
</TABLE>
Nicholas-Applegate Management (Hong Kong) LLC ("Nicholas-
Applegate") serves as sub-adviser to New Asia Growth Fund. During the two fiscal
years ended December 31, 1997, Nicholas-Applegate has engaged principally in the
business of providing investment services to institutional and other clients.
All of the additional information required by this Item 26 with respect to
Nicholas-Applegate is set forth in its Form ADV, as amended (File No.
801-54681), which is incorporated herein by reference.
Nicholas-Applegate Capital Management ("NACM") serves as sub-
adviser to Small Cap Fund and International Stock Fund. During the two fiscal
years ended December 31, 1997, Nicholas-Applegate has engaged principally in the
business of providing investment services to institutional and other clients.
All of the additional information required by this Item 26 with respect to
Nicholas-Applegate is set forth in its Form ADV, as amended (File No.
801-21442), which is incorporated herein by reference.
Item 27. Principal Underwriter.
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<PAGE> 252
(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 Alpine Equity Trust, American
Performance Funds, AmSouth Mutual Funds, The ARCH Fund, Inc., The BB&T Mutual
Funds Group, The Coventry Group, Empire Builder Tax Free Bond Fund, ESC
Strategic Funds, Inc., The Eureka Funds, Fountain Square Funds, Hirtle Callaghan
Trust, HSBC Family of Funds, The Infinity Mutual Funds, Inc., Intrust Funds, The
Kent Funds, Magna Funds, Meyers Investment Trust, MMA Proxis Mutual Funds,
M.S.D.& T. Funds, Parkstone Group of Funds, The Parkstone Advantage Funds,
Pegasus Funds, Puget Sound Asset Management, 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,
Variable Insurance Funds, The Victory Portfolios, The Victory Variable Funds,
and Vintage Mutual Funds, Inc., 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 28. 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)
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<PAGE> 253
(2) Pacific Century Trust
Financial Plaza of the Pacific
111 S. King Street
Honolulu, Hawaii 96813
Attention: Trust Investments
(Investment Adviser)
(3) BISYS Fund Services
3435 Stelzer Avenue
Columbus, OH 43219
(Manager, Administrator and Distributor)
(4) Nicholas-Applegate Management (Hong Kong) LLC
8 Connaught Place
Hong Kong
(Sub-Adviser)
(5) Nicholas-Applegate Capital Management
600 West Broadway
San Diego, California 92130
(Sub-Adviser)
Item 29. Management Services.
None.
Item 30. Undertakings.
Not Applicable.
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<PAGE> 254
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. 11 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 16th day of September, 1998.
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 16, 1998
- ---------------------- (Principal Executive
(Irimga McKay) Officer)
* Treasurer (Principal
- ---------------------- Financial and Accounting
(Craig Warren) Officer)
* Trustee and Chairperson
- ----------------------
(Walter J. Lasky)
* Trustee
- ----------------------
(Douglas Philpotts)
* Trustee
- ----------------------
(Richard W. Gushman, II)
* Trustee
- ----------------------
(Stanley W. Hong)
</TABLE>
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<PAGE> 255
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
* Trustee
- ----------------------
(Russell K. Okata)
* Trustee
- ----------------------
(Oswald K. Stender)
*By /s/ IRIMGA MCKAY September 16, 1998
- ----------------------
(Irimga McKay
Attorney-in-Fact)
</TABLE>
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<PAGE> 256
EXHIBIT INDEX
PACIFIC CAPITAL FUNDS
Post-Effective Amendment No. 11 to
Form N-1A Registration Statement
(5A) Form of Amended Schedule A and Amended Addendum to the Investment
Advisory Agreement
(5b) Form of Sub-Advisory Agreement among the Registrant, Pacific Century
Trust and Nicholas-Applegate Capital Management
(6A) Amended Schedule A and Schedule B to the Distribution Agreement
(9) Rule 18f-3 Plan
(19) Power of Attorney for Walter J. Laskey
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<PAGE> 1
EXHIBIT 5A
SCHEDULE A
TO THE
INVESTMENT ADVISORY AGREEMENT
BETWEEN PACIFIC CAPITAL FUNDS AND
HAWAIIAN TRUST COMPANY, LTD.
<TABLE>
<CAPTION>
Name of Fund Compensation (1)
------------ ----------------
<S> <C>
Short Intermediate U.S. Treasury Annual rate of fifty one-hundredths of
Securities Fund one percent (0.50%) of the average daily
Tax-Free Short Intermediate Securities net assets of each such Fund.
Fund
Diversified Fixed Income Fund Annual rate of sixty one-hundredths of
U.S. Treasury Securities Fund one percent (0.60%) of the average daily
Tax Free Securities Fund net assets of each Fund.
Growth Stock Fund Annual rate of eighty one-hundredths of
Balanced Fund one percent (0.80%) of the average daily
Growth and Income Fund net assets of each such Fund.
Value Fund
New Asia Growth Fund Annual rate of ninety one-hundredths of
one percent (0.90%) of the average daily
net assets of such Fund.
Small Cap Fund Annual rate of one and ten
International Stock Fund one-hundredths of one percent (1.10%) of
the average daily net assets of each
such Fund.
</TABLE>
Dated:_________, 1998 PACIFIC CAPITAL FUNDS
By:_______________________________
Name:_____________________________
Title:______________________________
PACIFIC CENTURY TRUST
(formerly Hawaii Trust Company, Ltd.)
By:_______________________________
Name:_____________________________
Title:______________________________
- --------
(1) All fees are computed daily and paid monthly.
1
<PAGE> 2
AMENDED ADDENDUM
AMENDED ADDENDUM, dated _________, 1998, to Investment
Advisory Agreement dated October 29, 1993 between Pacific Capital Funds, a
Massachusetts business trust (the "Trust"), and Hawaiian Trust Company, Ltd., a
state-chartered trust company having its principal place of business in
Honolulu, Hawaii (the "Investment Adviser").
Section 3 of the Investment Advisory Agreement is hereby
supplemented with respect to the New Asia Growth Fund, SMALL CAP FUND AND
INTERNATIONAL STOCK FUND series of the Trust by adding the following paragraph
after subsection (f) thereof:
In carrying out its responsibilities as described in this
Section 3, the Investment Adviser may, without limitation, subject to the
requirements of Section 15 of the 1940 Act (including the requirements of
Trustee and shareholder approval), retain one more sub-advisers to manage the
portfolio of a Fund, at the Investment Adviser's own cost and expense. Any such
sub-adviser shall have full investment discretion, including the discretion to
select broker-dealers, and shall make all determinations with respect to
investment of the portion of the Fund's assets assigned to it, subject to
overall supervision by the Investment Adviser.
PACIFIC CAPITAL FUNDS
By:_______________________________
Name:_____________________________
Title:______________________________
PACIFIC CENTURY TRUST
(formerly Hawaii Trust Company, Ltd.)
By:_______________________________
Name:_____________________________
Title:______________________________
2
<PAGE> 1
EXHIBIT 5b
SUB-ADVISORY AGREEMENT
PACIFIC CAPITAL SMALL CAP FUND
PACIFIC CAPITAL INTERNATIONAL STOCK FUND
AGREEMENT made as of ________, 1998 among Pacific Century Trust
(the "Adviser"), Nicholas Applegate Capital Management ("Sub-Adviser"), and
Pacific Capital Funds (the "Trust").
WHEREAS, the Trust is registered as an open-end, 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 Small Cap Fund and International Stock Fund series
(each a "Fund"); and
WHEREAS, the Adviser desires to retain Sub-Adviser to assist
it in the provision of a continuous investment program for the Funds and
Sub-Adviser is willing to do so;
WHEREAS, the Board of Trustees of the Trust and each Fund's
sole shareholder have 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 each 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 each
Fund's portfolio, including investment research and management with respect to
all 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 each 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 International Stock Fund and
determine from time to time what securities and other investments will
be purchased, retained or sold for each Fund, including, with the
assistance of the Adviser, each Fund's investments in futures and
forward currency contracts;
1
<PAGE> 2
(b) will manage in consultation with the Adviser each Fund's
temporary investments in securities;
(c) will place orders pursuant to its investment
determinations for each Fund either directly with the issuer or with
any broker or dealer;
(d) will not purchase shares of either 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 each 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 each 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 each 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 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
management investment companies, except that the Sub-Adviser will not enter into
an agreement to provide
2
<PAGE> 3
principal adviser or sub-advisory services to any registered investment company
that distributes any class of shares in Hawaii, Guam or Arizona, or (ii) limit
or restrict Sub-Adviser from buying, selling or trading any securities or other
investments (including any securities or other investments which either 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, in its reasonable judgment, will
adversely affect the performance of its obligations to either Fund under this
Agreement.
5. Portfolio Transactions. Investment decisions for each Fund
shall be made by Sub-Adviser independently from those for any other investment
companies and accounts advised or managed by Sub-Adviser. The Funds 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 a 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 a 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 Funds
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 Funds' policies and restrictions regarding brokerage
allocations. Sub-Adviser shall place orders pursuant to its investment
determination for the Funds either directly with the issuer or with any broker
or dealer selected by Sub-Adviser. In executing portfolio 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 Funds 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 each 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 Funds' 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
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<PAGE> 4
for the periods prescribed by Rule 3la-2 under the 1940 Act the records required
to be maintained by Rule 3la-I 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 Funds.
8. Compensation.
(a) For the services provided and the expenses assumed with
respect to each Fund pursuant to this Agreement, the Sub-Adviser will be
entitled to a fee, computed daily and payable monthly, from Adviser, calculated
at the annual rate of 0.65% 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 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 Funds, which
references shall not differ in substance from those included in the current
registration statement pertaining to the Funds, this Agreement and the Advisory
Agreement between the Adviser and the Trust with respect to the Funds, 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 with respect to a Fund until _________, 2000 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 with respect to
either Fund 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 with respect to a Fund 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
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<PAGE> 5
termination is sought. No amendment of this Agreement shall be effective with
respect to a 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
ft Agreement shall be delivered or mailed:
To Sub-Adviser at:
-----------------
Nicholas-Applegate Capital Management
600 West Broadway, 32nd Floor
San Diego, California 92101
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, Ste. 1000
Columbus, OH 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
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<PAGE> 6
must look solely to the assets of the Trust belonging to such series for the
enforcement of any claims against the Trust.
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
____________________ Name: _____________________________
Title: ____________________________
NICHOLAS-APPLEGATE CAPITAL
MANAGEMENT
By: _______________________________
Name: _____________________________
Title: ____________________________
PACIFIC CAPITAL FUNDS
By: _______________________________
Name: _____________________________
Title: ____________________________
6
<PAGE> 1
EXHIBIT 6A
AMENDED SCHEDULE A
TO THE
DISTRIBUTION AGREEMENT
BETWEEN PACIFIC CAPITAL FUNDS AND
THE WINSBURY COMPANY
Name of 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
VALUE FUND
SMALL CAP FUND
INTERNATIONAL STOCK FUND
Dated:________, 1998 PACIFIC CAPITAL FUNDS
By:_______________________________
Name:_____________________________
Title:____________________________
` BISYS FUND SERVICES
(formerly The Winsbury Company)
By:_______________________________
Name:_____________________________
Title:____________________________
<PAGE> 2
SCHEDULE B
TO THE
DISTRIBUTION AGREEMENT
BETWEEN PACIFIC CAPITAL FUNDS AND
THE WINSBURY COMPANY
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
VALUE FUND
SMALL CAP FUND
INTERNATIONAL STOCK FUND
Dated: _________, 1998 PACIFIC CAPITAL FUNDS
By:____________________________
Name:__________________________
Title:_________________________
BISYS FUND SERVICES
(formerly The Winsbury Company)
By:____________________________
Name:__________________________
Title:_________________________
<PAGE> 1
EXHIBIT 9
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
(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.
<TABLE>
<CAPTION>
CLASS CHARACTERISTICS
<S> <C>
Retail Class Shares: Retail Class shares bear the expenses of the ongoing
Rule 12b-1 fees applicable to that Class. Specific
shareholders within the Retail Class 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").
Institutional Class Shares: Institutional Class shares are not subject to an initial
sales charge, nor are they subject to any Rule 12b-1
fee.
</TABLE>
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 Retail Class and Institutional Class shares shall
have such exchange privileges as set forth in each Fund's current prospectus.
Exchange privileges may vary among Classes.
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<PAGE> 2
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. 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.
2
<PAGE> 1
EXHIBIT 19
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the persons whose
name appears below hereby nominates, constitutes and appoints Irimga McKay and
Gregory Maddox (with full power to each of them to act alone) his or her true
and lawful attorney-in-fact and agent, for him or her and on his or her behalf
and in his or her place and stead in any and all capacities, to make, execute
and sign all amendments and supplements to the Registration Statement under the
Securities Act of 1933 and the Investment Company Act of 1940 of Pacific Capital
Funds (the "Fund"), and to file the same with the Securities and Exchange
Commission, and any other regulatory authority having jurisdiction over the
offer and sale of shares of common stock of the Fund, and any and all exhibits
and other documents requisite in connection therewith, granting unto said
attorneys and each of them, full power and authority to perform each and every
act and thing requisite and necessary to be done in and about the premises as
fully to all intents and purposes as each of the undersigned officers or
Trustees himself or herself might or could do.
IN WITNESS WHEREOF, the undersigned officers and Trustees have
hereunto set their hands this 15th day of September, 1998.
/s/ WALTER J. LASKEY
- --------------------------------
Walter J. Laskey
