<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON NOVEMBER 30, 1999
REGISTRATION NO. 33-57684; 811-7454
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 13 [X]
AND
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 15 [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):
[X] 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)
[ ] 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
QUESTIONS?
Call 800-258-9232 between 8 a.m. and
9 p.m. Eastern time or contact your
investment representative.
[PACIFIC CAPITAL FUNDS LOGO]
December 1, 1999
------------------------
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
------------------------
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> 3
PACIFIC CAPITAL FUNDS TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
RISK/RETURN SUMMARY AND FUND EXPENSES
LOGO
Carefully review this 3 Tax-Free Securities Fund
important section, which 7 Tax-Free Short Intermediate Securities Fund
summarizes each Fund's 11 Diversified Fixed Income Fund
investments, risks, past 15 U.S. Treasury Securities Fund
performance, and fees. 19 Short Intermediate U.S. Treasury Securities Fund
INVESTMENT OBJECTIVES, POLICIES AND RISKS
LOGO
Review this section for 23 Tax-Free Securities Fund
details on each Fund's 23 Tax-Free Short Intermediate Securities Fund
investment strategies and 24 Diversified Fixed Income Fund
risks. 24 U.S. Treasury Securities Fund
24 Short Intermediate U.S. Treasury Securities Fund
25 Main Risks
FUND MANAGEMENT
LOGO
Review this section for 27 The Investment Adviser
details on the people and 27 Portfolio Managers
organizations who oversee 28 The Distributor and Administrator
the Funds.
SHAREHOLDER INFORMATION
LOGO
Review this section for 29 Pricing of Fund Shares
details on how shares are 30 Purchasing and Adding to Your Shares
valued, how to purchase, 33 Selling Your Shares
sell and exchange shares, 37 Distribution Arrangements/Sales Charges
related charges, and 43 Exchanging Your Shares
payments of dividends and 44 Dividends, Distributions and Taxes
distributions.
FINANCIAL HIGHLIGHTS
LOGO
Review this section for 45
details on selected
financial highlights of the
Funds.
</TABLE>
2
<PAGE> 4
logo
RISK/RETURN SUMMARY AND FUND EXPENSES TAX-FREE SECURITIES FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE - High current income that is exempt from federal and Hawaii
income tax
PRINCIPAL The Fund normally invests at least 80% of its net assets in
INVESTMENT STRATEGIES investment grade municipal obligations -- debt securities
that pay interest which is exempt from both federal income
tax and the federal alternative minimum tax. In addition, to
provide double tax exempt income, 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 focuses on maximizing tax exempt income consistent
with prudent investment risk, and varies the average
maturity of its investment portfolio from time to time in
response to actual and expected interest rate movements as
well as other market and economic conditions.
PRINCIPAL Because the value of the Fund's investments will fluctuate
INVESTMENT RISKS 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 in value. The values of any of the Fund's
investments may also decline in response to events affecting
the issuer or its credit rating. 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 Consider investing in the Fund if you:
WANT TO INVEST? - 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
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.
</TABLE>
3
<PAGE> 5
RISK/RETURN SUMMARY AND FUND EXPENSES TAX-FREE SECURITIES FUND
The chart and table on this
page show how the Tax-Free
Securities Fund has
performed and provide some
indication of the risks of
investing in the Fund by
showing 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 the Lehman Brothers
Municipal Bond Index, a
widely recognized index of
municipal bonds with a
broad range of maturities.
Both the chart and the
table assume reinvestment
of dividends and
distributions. Of course,
past performance does not
indicate how the Fund will
perform in the future.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31
FOR CLASS A SHARES*
<TABLE>
<S> <C>
89 9.3
90 5.72
91 11.7
92 7.21
93 11.87
94 -7.46
95 17.46
96 3.04
97 8.1
98 6.15
</TABLE>
The bar chart does not reflect the impact of
any applicable sales charges. 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.
Best quarter: Q1 1995 +7.42%
Worst quarter: Q1 1994 -6.10%
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending December 31, 1998)***
<TABLE>
<CAPTION>
PERFORMANCE PAST PAST 5 PAST 10 SINCE
INCEPTION* YEAR YEARS YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
CLASS A
(with 4.00% sales charge) 10/31/77 1.93% 4.30% 6.68% 2.95%
CLASS B
(with applicable CDSC)** 10/31/77 1.77% 4.91% 7.08% 3.14%
LEHMAN BROTHERS MUNICIPAL BOND
INDEX 10/31/77 6.48% 6.22% 8.22% 8.67%
</TABLE>
*The quoted performance of the Fund includes the performance of a common trust
fund ("Commingled") account 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 the Fund's commencement of operations on October 14, 1994, as
adjusted to reflect the expenses associated with the Fund. The Commingled
account was not registered with the Securities and Exchange Commission under the
Investment Company Act of 1940 and therefore was not subject to the investment
restrictions imposed by law on registered mutual funds. If the Commingled
account had been registered, the Commingled account's performance may have been
adversely affected.
** Class B shares of the Fund commenced operations on March 2, 1998.
*** For the period January 1, 1999 through September 30, 1999, the aggregate
(non-annualized) total returns of Class A shares (with 4.00% sales charge) and
Class B shares (with applicable CDSC), were -6.34% and -7.60%, respectively,
versus -1.29% for the Lehman Brothers Municipal Bond Index.
4
<PAGE> 6
RISK/RETURN SUMMARY AND FUND EXPENSES TAX-FREE SECURITIES FUND
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
broker or other investment
representative, including
an affiliate of Pacific
Century, they may charge
you an account-level fee
for additional services
provided to you in
connection with your
investment in the Fund.
CONTINGENT DEFERRED
SALES CHARGE
Class B shares 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").
FEES AND EXPENSES
The fees and expenses for each Class are
based upon the actual operating expenses of
that Class for the fiscal year ended July
31, 1999.
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
(EXPENSES PAID BY YOU DIRECTLY) A SHARES B SHARES
Maximum sales charge (load) on
purchases (as a % of offering
price) 4.00%(1,4) None(4)
Maximum deferred sales charge
(load) (as a % of offering price
or sale price, whichever is less) None(2) 5.00%(3)
ANNUAL FUND OPERATING EXPENSES
(FEES PAID FROM FUND ASSETS) A SHARES B SHARES
Management fee* 0.60% 0.60%
Distribution (12b-1) fee 0.75%* 1.00%
Other expenses* 0.30% 0.29%
Total Fund operating expenses* 1.65% 1.89%
</TABLE>
* The Adviser is limiting the Management
fee to 0.45%, the Distributor is limiting
the 12b-1 fee for Class A shares to 0.25%,
and the Administrator is waiving a portion
of the Administration fee so that Other
expenses were 0.26% and 0.25% for Class A
and B shares, respectively. TOTAL FUND
OPERATING EXPENSES AFTER THESE FEE WAIVERS
WERE 0.96% AND 1.70% FOR CLASS A AND B
SHARES, RESPECTIVELY. These expense
limitations may be revised or canceled at
any time.
(1) Lower sales charges are available depending upon the amount invested.
(2) For investments of $1 million or more, a Contingent Deferred Sales Charge
is applicable to redemptions within one year of purchase.
(3) 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.
(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 12b-1
fees.
5
<PAGE> 7
RISK/RETURN SUMMARY AND FUND EXPENSES TAX-FREE SECURITIES FUND
Use this table to compare
fees and expenses of the Fund
with those of other funds. It
illustrates the amount of
fees and expenses you would
pay assuming the following:
- $10,000 investment in the
Fund
- 5% annual return
- no changes in the Fund's
operating expenses
Because this example is
hypothetical and for
comparison only, your actual
costs will be different.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
CLASS A SHARES $561 $900 $1,261 $2,276
CLASS B SHARES
Assuming redemption $692 $894 $1,221 $2,149
Assuming no redemption $192 $594 $1,021 $2,149
</TABLE>
After approximately eight years, Class B
shares will automatically convert to Class A
shares.
6
<PAGE> 8
logo
TAX-FREE SHORT INTERMEDIATE
RISK/RETURN SUMMARY AND FUND EXPENSES SECURITIES FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
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 Under normal market conditions, the Fund invests at least
INVESTMENT STRATEGIES 80% of its net assets in investment grade municipal
obligations -- debt securities that pay interest which is
exempt from both federal income tax and the federal
alternative minimum tax. In addition, to provide double tax
exempt income, 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. To achieve greater price
stability than a long-term bond fund, under normal market
conditions, the average remaining maturity of the Fund's
investment portfolio (measured on a dollar-weighted basis)
will be from two to five years. The Fund focuses on
maximizing tax-exempt income consistent with prudent
investment risk within this maturity range.
PRINCIPAL Because the value of the Fund's investments will fluctuate
INVESTMENT RISKS 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 in value. The values of any of the Fund's
investments may also decline in response to events affecting
the issuer or its credit rating. 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 Consider investing in the Fund if you:
WANT TO INVEST? - 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
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.
</TABLE>
7
<PAGE> 9
TAX-FREE SHORT INTERMEDIATE
RISK/RETURN SUMMARY AND FUND EXPENSES SECURITIES FUND
The chart and table on this
page show how the Tax-Free
Short Intermediate
Securities Fund has
performed and provide some
indication of the risks of
investing in the Fund by
showing 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 the Lehman Brothers
5-Year Municipal Bond
Index, a widely recognized
index of municipal bonds
with a maturity range of
four to six years.
Both the chart and the
table assume reinvestment
of dividends and
distributions. Of course,
past performance does not
indicate how the Fund will
perform in the future.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31
FOR CLASS A SHARES*
<TABLE>
<CAPTION>
<S> <C>
1989 5.42
90 5.52
91 8.20
92 5.05
93 5.54
94 -1.59
95 7.32
96 2.91
97 4.60
98 4.53
</TABLE>
The bar chart does not reflect the impact of
any applicable sales charges.
Best quarter: Q2 1991 +2.50%
Worst quarter: Q1 1994 -1.88%
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending December 31, 1998)**
<TABLE>
<CAPTION>
PERFORMANCE PAST PAST 5 PAST 10 SINCE
INCEPTION YEAR YEARS YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
CLASS A
(with 2.25% sales charge) 3/31/88 2.22% 3.05% 4.49% 4.49%
LEHMAN BROTHERS 5-YEAR
MUNICIPAL BOND INDEX 3/31/88 6.22% 5.50% 7.04% 6.78%
</TABLE>
* The quoted performance of the Fund includes the performance of a common trust
fund ("Commingled") account 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 the Fund's commencement of operations on October 14, 1994, as
adjusted to reflect the expenses associated with the Fund. The Commingled
account was not registered with the Securities and Exchange Commission under the
Investment Company Act of 1940 and therefore was not subject to the investment
restrictions imposed by law on registered mutual funds. If the Commingled
account had been registered, the Commingled account's performance may have been
adversely affected.
** For the period January 1, 1999 through September 30, 1999, the aggregate
(non-annualized) total return of Class A shares (with 2.25% sales charge), was
- -2.51%, versus 0.74% for the Lehman Brothers 5-Year Municipal Bond Index.
8
<PAGE> 10
TAX-FREE SHORT INTERMEDIATE
RISK/RETURN SUMMARY AND FUND EXPENSES SECURITIES FUND
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
broker or other investment
representative, including
an affiliate of Pacific
Century, they may charge
you an account-level fee
for additional services
provided to you in
connection with your
investment in the Fund.
FEES AND EXPENSES
The fees and expenses for Class A shares are
based upon the actual operating expenses for
the fiscal year ended July 31, 1999.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
(EXPENSES PAID BY YOU DIRECTLY) A SHARES
Maximum sales charge (load) on purchases
(as a % of offering price) 2.25%(1,3)
Maximum deferred sales charge (load) (as
a % of offering price or sale price,
whichever is less) None(2)
ANNUAL FUND OPERATING EXPENSES
(FEES PAID FROM FUND ASSETS) A SHARES
Management fee* 0.50%
Distribution (12b-1) fee 0.75%*
Other expenses* 0.38%
Total Fund operating expenses* 1.63%
</TABLE>
* The Adviser is limiting the Management
fee to 0.40%, the Distributor is limiting
the 12b-1 fee to 0.25%, and the
Administrator is waiving a portion of the
Administration fee so that Other expenses
were 0.33%. TOTAL FUND OPERATING EXPENSES
AFTER THESE FEE WAIVERS FOR CLASS A SHARES
WERE 0.98%. These expense limitations may
be revised or canceled at any time.
(1) Lower sales charges are available depending upon the amount invested.
(2) For investments of $1 million or more, a Contingent Deferred Sales Charge
is applicable to redemptions within one year of purchase.
(3) Long-term shareholders may pay indirectly more than the equivalent of the
maximum permitted front-end sales charge due to the recurring nature of 12b-1
fees.
9
<PAGE> 11
TAX-FREE SHORT INTERMEDIATE
RISK/RETURN SUMMARY AND FUND EXPENSES SECURITIES FUND
Use this table to compare
fees and expenses of the Fund
with those of other funds. It
illustrates the amount of
fees and expenses you would
pay assuming the following:
- $10,000 investment in the
Fund
- 5% annual return
- no changes in the Fund's
operating expenses
Because this example is
hypothetical and for
comparison only, your actual
costs will be different.
Currently, the Class B shares
of the Fund are not being
offered to the public.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
CLASS A SHARES $387 $728 $1,092 $2,114
</TABLE>
10
<PAGE> 12
logo
DIVERSIFIED FIXED
RISK/RETURN SUMMARY AND FUND EXPENSES INCOME FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE - High current income
PRINCIPAL The Fund invests primarily in debt securities issued or
INVESTMENT STRATEGIES guaranteed by the U.S. Government, its agencies and
instrumentalities and in investment grade corporate debt
securities rated A or better by Standard & Poor's. It may
invest up to 20% of its total assets in investment grade
debt securities rated BBB issued by U.S. companies and state
and local government issuers. It may invest up to 25% of its
total assets in investment grade dollar-denominated debt
securities of foreign companies and government issuers. The
Fund focuses on maximizing income consistent with prudent
investment risk, and varies the average maturity of its
investment portfolio from time to time in response to actual
and expected market and economic changes.
PRINCIPAL Because the value of the Fund's investments will fluctuate
INVESTMENT RISKS 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 in value. The values of any of the Fund's
investments may also decline in response to events affecting
the issuer or its credit rating. 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 Consider investing in the Fund if you:
WANT TO INVEST? - 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.
</TABLE>
11
<PAGE> 13
DIVERSIFIED FIXED
RISK/RETURN SUMMARY AND FUND EXPENSES INCOME FUND
The chart and table on this
page show how the
Diversified Fixed Income
Fund has performed and
provide some indication of
the risks of investing in
the Fund by showing 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 the Merrill Lynch
Corporate & Government
Master Index, a widely
recognized index of U.S.
corporate and U.S.
Government bonds.
Both the chart and the
table assume reinvestment
of dividends and
distributions. Of course,
past performance does not
indicate how the Fund will
perform in the future.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31
FOR CLASS A SHARES*
<TABLE>
<CAPTION>
<S> <C>
1989 9.30%
90 6.23
91 17.99
92 6.19
93 13.63
94 -8.90
95 23.24
96 -0.75
97 8.43
98 9.63
</TABLE>
The bar chart does not reflect the impact of
any applicable sales charges. 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.
Best quarter: Q2 1989 +8.72%
Worst quarter: Q1 1994 -5.86%
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending December 31, 1998)***
<TABLE>
<CAPTION>
PERFORMANCE PAST PAST 5 PAST 10 SINCE
INCEPTION* YEAR YEARS YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
CLASS A
(with 4.00% sales charge) 10/31/77 5.26% 4.93% 8.13% 4.18%
CLASS B
(with applicable CDSC)** 10/31/77 5.10% 5.52% 8.51% 4.35%
MERRILL LYNCH CORPORATE &
GOVERNMENT MASTER INDEX 10/31/77 9.83% 7.31% 9.32% 9.58%
</TABLE>
* The quoted performance of the Fund includes the performance of a common trust
fund ("Commingled") account 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 the Fund's commencement of operations on October 14, 1994, as
adjusted to reflect the expenses associated with the Fund. The Commingled
account was not registered with the Securities and Exchange Commission under the
Investment Company Act of 1940 and therefore was not subject to the investment
restrictions imposed by law on registered mutual funds. If the Commingled
account had been registered, the Commingled account's performance may have been
adversely affected.
** Class B shares of the Fund commenced operations on March 2, 1998.
*** For the period January 1, 1999 through September 30, 1999, the aggregate
(non-annualized) total returns of Class A shares (with 4.00% sales charge) and
Class B shares (with applicable CDSC), were -7.37% and -8.71%, respectively,
versus -1.70% for the Merrill Lynch Corporate & Government Master Index.
12
<PAGE> 14
DIVERSIFIED FIXED
RISK/RETURN SUMMARY AND FUND EXPENSES INCOME FUND
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
broker or other investment
representative, including
an affiliate of Pacific
Century, they may charge
you an account-level fee
for additional services
provided to you in
connection with your
investment in the Fund.
CONTINGENT DEFERRED
SALES CHARGE
Class B shares 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").
FEES AND EXPENSES
The fees and expenses for each Class are
based upon the actual operating expenses of
that Class for the fiscal year ended July
31, 1999.
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
(EXPENSES PAID BY YOU DIRECTLY) A SHARES B SHARES
Maximum sales charge (load) on
purchases (as a % of offering
price or sale price, whichever is
less) 4.00%(1,4) None(4)
Maximum deferred sales charge
(load) (as a % of offering price) None(2) 5.00%(3)
ANNUAL FUND OPERATING EXPENSES
(FEES PAID FROM FUND ASSETS) A SHARES B SHARES
Management fee* 0.60% 0.60%
Distribution (12b-1) fee 0.75%* 1.00%
Other expenses* 0.32% 0.31%
Total Fund operating expenses* 1.67% 1.91%
</TABLE>
* The Adviser is limiting the Management
fee to 0.45%, the Distributor is limiting
the 12b-1 fee for Class A shares to 0.25%,
and the Administrator is waiving a portion
of the Administration fee so that Other
expenses were 0.28% and 0.27% for Class A
and B shares, respectively. TOTAL FUND
OPERATING EXPENSES AFTER THESE FEE WAIVERS
WERE 0.98% AND 1.72% FOR CLASS A AND B
SHARES, RESPECTIVELY. These expense
limitations may be revised or canceled at
any time.
(1) Lower sales charges are available depending upon the amount invested.
(2) For investments of $1 million or more, a Contingent Deferred Sales Charge
is applicable to redemptions within one year of purchase.
(3) 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.
(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 12b-1
fees.
13
<PAGE> 15
DIVERSIFIED FIXED
RISK/RETURN SUMMARY AND FUND EXPENSES INCOME FUND
Use this table to compare
fees and expenses of the Fund
with those of other funds. It
illustrates the amount of
fees and expenses you would
pay assuming the following:
- $10,000 investment in the
Fund
- 5% annual return
- no changes in the Fund's
operating expenses
Because this example is
hypothetical and for
comparison only, your actual
costs will be different.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
CLASS A SHARES $563 $905 $1,271 $2,297
CLASS B SHARES
Assuming redemption $694 $900 $1,232 $2,171
Assuming no redemption $194 $600 $1,032 $2,171
</TABLE>
After approximately eight years, Class B
shares will automatically convert to Class A
shares.
14
<PAGE> 16
logo
U.S. TREASURY
RISK/RETURN SUMMARY AND FUND EXPENSES SECURITIES FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES - High current income consistent with prudent capital risk
- Secondarily, capital appreciation
PRINCIPAL INVESTMENT The Fund invests primarily in bonds, notes and bills issued
STRATEGIES by the U.S. Treasury, and in repurchase agreements for which
those securities are held as collateral. The Fund focuses on
maximizing income consistent with prudent investment risk,
and 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 in value.
WHO MAY Consider investing in the Fund if you:
WANT TO INVEST? - 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.
</TABLE>
15
<PAGE> 17
U.S. TREASURY
RISK/RETURN SUMMARY AND FUND EXPENSES SECURITIES FUND
The chart and table on this
page show how the U.S.
Treasury Securities Fund
has performed and provide
some indication of the
risks of investing in the
Fund by showing 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 the Merrill Lynch U.S.
Treasuries All Maturity
Index, a widely recognized
index of short-term and
long-term U.S. Treasury
bonds.
Both the chart and the
table assume reinvestment
of dividends and
distributions. Of course,
past performance does not
indicate how the Fund will
perform in the future.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31
FOR CLASS A SHARES*
<TABLE>
<CAPTION>
<S> <C>
1989 13.22%
90 7.93
91 15.12
92 6.02
93 11.46
94 -7.39
95 24.07
96 -1.92
97 8.17
98 9.26
</TABLE>
The bar chart does not reflect the impact of
any applicable sales charges.
Best quarter: Q2 1995 +8.69%
Worst quarter: Q1 1996 -5.53%
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending December 31, 1998)**
<TABLE>
<CAPTION>
PERFORMANCE PAST PAST 5 PAST 10 SINCE
INCEPTION YEAR YEARS YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
CLASS A
(with 4.00% sales charge) 12/31/84 4.85% 5.03% 7.82% 8.48%
MERRILL LYNCH U.S. TREASURIES
ALL MATURITY INDEX 12/31/84 10.32% 7.17% 9.13% 9.79%
</TABLE>
* The quoted performance of the Fund includes the performance of a common trust
fund ("Commingled") account 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 the Fund's commencement of operations on November 1, 1993, as
adjusted to reflect the expenses associated with the Fund. The Commingled
account was not registered with the Securities and Exchange Commission under the
Investment Company Act of 1940 and therefore was not subject to the investment
restrictions imposed by law on registered mutual funds. If the Commingled
account had been registered, the Commingled account's performance may have been
adversely affected.
** For the period January 1, 1999 through September 30, 1999, the aggregate
(non-annualized) total return of Class A shares (with 4.00% sales charge) was
- -6.75% versus -1.74% for the Merrill Lynch U.S. Treasuries All Maturity Index.
16
<PAGE> 18
U.S. TREASURY
RISK/RETURN SUMMARY AND FUND EXPENSES SECURITIES FUND
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
broker or other investment
representative, including
an affiliate of Pacific
Century, they may charge
you an account-level fee
for additional services
provided to you in
connection with your
investment in the Fund.
FEES AND EXPENSES
The fees and expenses for Class A shares are
based upon the actual operating expenses for
the fiscal year ended July 31, 1999.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
(EXPENSES PAID BY YOU DIRECTLY) A SHARES
Maximum sales charge (load) on purchases
(as a % of offering price or sale price,
whichever is less) 4.00%(1,3)
Maximum deferred sales charge (load)
(as a % of offering price) None(2)
ANNUAL FUND OPERATING EXPENSES
(FEES PAID FROM FUND ASSETS) A SHARES
Management fee* 0.60%
Distribution (12b-1) fee 0.75%*
Other expenses* 0.45%
Total Fund operating expenses* 1.80%
</TABLE>
* The Adviser is limiting the Management
fee to 0.35%, the Distributor is limiting
the 12b-1 fee to 0.25%, and the
Administrator is waiving a portion of the
Administration fee so that Other expenses
were 0.41%. TOTAL FUND OPERATING EXPENSES
AFTER THESE FEE WAIVERS FOR CLASS A SHARES
WERE 1.01%. These expense limitations may
be revised or canceled at any time.
(1) Lower sales charges are available depending upon the amount invested.
(2) For investments of $1 million or more, a Contingent Deferred Sales Charge
is applicable to redemptions within one year of purchase.
(3) Long-term shareholders may pay indirectly more than the equivalent of the
maximum permitted front-end sales charge due to the recurring nature of 12b-1
fees.
17
<PAGE> 19
U.S. TREASURY
RISK/RETURN SUMMARY AND FUND EXPENSES SECURITIES FUND
Use this table to compare
fees and expenses of the Fund
with those of other funds. It
illustrates the amount of
fees and expenses you would
pay assuming the following:
- $10,000 investment in the
Fund
- 5% annual return
- no changes in the Fund's
operating expenses
Because this example is
hypothetical and for
comparison only, your actual
costs will be different.
Currently, the Class B shares
of the Fund are not being
offered to the public.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
CLASS A SHARES $576 $944 $1,336 $2,431
</TABLE>
18
<PAGE> 20
logo
SHORT INTERMEDIATE U.S.
RISK/RETURN SUMMARY AND FUND EXPENSES TREASURY SECURITIES
FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES - High current income consistent with prudent capital risk
- Secondarily, capital appreciation
PRINCIPAL The Fund invests primarily in bonds, notes and bills issued
INVESTMENT STRATEGIES by the U.S. Treasury, and in repurchase agreements for which
those securities are held as collateral. Under normal market
conditions, the average remaining maturity of the Fund's
investment portfolio (measured on a dollar-weighted basis)
will be from two to five years. The Fund focuses on
maximizing income consistent with prudent investment risk
within this maturity range.
PRINCIPAL Because the value of the Fund's investments will fluctuate
INVESTMENT RISKS 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 in value. Pacific Century expects the values of
the Fund's investments will generally fluctuate less than
those of the U.S. Treasury Securities Fund, because the
Fund's investments will generally have shorter maturities.
WHO MAY Consider investing in the Fund if you:
WANT TO INVEST? - 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.
</TABLE>
19
<PAGE> 21
SHORT INTERMEDIATE U.S.
RISK/RETURN SUMMARY AND FUND EXPENSES TREASURY SECURITIES FUND
The chart and table on this
page show how the Short
Intermediate U.S. Treasury
Securities Fund has
performed and provide some
indication of the risks of
investing in the Fund by
showing 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 the Merrill Lynch
3-5-Year U.S. Treasury
Index, a widely recognized
index of short-term
Treasury bonds.
Both the chart and the
table assume reinvestment
of dividends and
distributions. Of course,
past performance does not
indicate how the Fund will
perform in the future.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31
FOR CLASS A SHARES
<TABLE>
<S> <C>
1994 -4.94
95 13.90
96 1.92
97 6.66
98 8.43
</TABLE>
The bar chart does not reflect the impact of
any applicable sales charges.
Best quarter: Q3 1998 +5.51%
Worst quarter: Q1 1994 -3.12%
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending December 31, 1998)*
<TABLE>
<CAPTION>
PERFORMANCE PAST PAST 5 SINCE
INCEPTION YEAR YEARS INCEPTION
<S> <C> <C> <C> <C>
CLASS A
(with 2.25% sales charge) 12/13/93 6.00% 4.53% 4.51%
MERRILL LYNCH 3-5-YEAR
U.S. TREASURY INDEX 12/13/93 9.26% 6.59% 9.34%
</TABLE>
* For the period January 1, 1999 through September 30, 1999, the aggregate
(non-annualized) total return of Class A shares (with 2.25% sales charge) was
- -3.24% versus 0.32% for the Merrill Lynch 3-5-Year U.S. Treasury Index.
20
<PAGE> 22
SHORT INTERMEDIATE U.S.
RISK/RETURN SUMMARY AND FUND EXPENSES TREASURY SECURITIES FUND
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
broker or other investment
representative, including
an affiliate of Pacific
Century, they may charge
you an account-level fee
for additional services
provided to you in
connection with your
investment in the Fund.
FEES AND EXPENSES
The fees and expenses for Class A shares are
based upon the actual operating expenses for
the fiscal year ended July 31, 1999.
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
(EXPENSES PAID BY YOU DIRECTLY) A SHARES
Maximum sales charge (load) on purchases
(as a % of offering price or sale price,
whichever is less) 2.25%(1,3)
Maximum deferred sales charge (load) (as
a % of offering price) None(2)
ANNUAL FUND OPERATING EXPENSES
(FEES PAID FROM FUND ASSETS) A SHARES
Management fee* 0.50%
Distribution (12b-1) fee 0.75%*
Other expenses* 0.24%
Total Fund operating expenses* 1.49%
</TABLE>
* The Adviser is limiting the Management
fee to 0.30%, the Distributor is limiting
the 12b-1 fee to 0.25%, and the
Administrator is waiving a portion of the
Administration fee so that Other expenses
were 0.19%. TOTAL FUND OPERATING EXPENSES
AFTER THESE FEE WAIVERS FOR CLASS A SHARES
WERE 0.74%. These expense limitations may
be revised or canceled at any time.
(1) Lower sales charges are available depending upon the amount invested.
(2) For investments of $1 million or more, a Contingent Deferred Sales Charge
is applicable to redemptions within one year of purchase.
(3) Long-term shareholders may pay indirectly more than the equivalent of the
maximum permitted front-end sales charge due to the recurring nature of 12b-1
fees.
21
<PAGE> 23
SHORT INTERMEDIATE U.S.
RISK/RETURN SUMMARY AND FUND EXPENSES TREASURY SECURITIES FUND
Use this table to compare
fees and expenses of the Fund
with those of other funds. It
illustrates the amount of
fees and expenses you would
pay assuming the following:
- $10,000 investment in the
Fund
- 5% annual return
- no changes in the Fund's
operating expenses
Because this example is
hypothetical and for
comparison only, your actual
costs will be different.
Currently, the Class B shares
of the Fund are not being
offered to the public.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
CLASS A SHARES $373 $685 $1,020 $1,964
</TABLE>
22
<PAGE> 24
logo
INVESTMENT OBJECTIVES, POLICIES AND RISKS
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:
<TABLE>
<S> <C>
At least 80% of Municipal obligations -- debt securities of issuers that pay
net assets 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 Hawaii municipal obligations -- debt securities issued by or
net assets 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.
</TABLE>
No more than 20% of the Fund's net assets will be invested in debt securities
that pay interest subject to the federal alternative minimum tax (for those
investors subject to this 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 for
the purpose of cash flow management and/or risk reduction.
The Fund focuses on maximizing tax exempt income consistent with prudent
investment risk. It varies the average maturity of its investment portfolio
from time to time in response to actual and expected interest rate movements
as well as other market and economic conditions. It is non-diversified, which
means that its assets may be invested in 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:
<TABLE>
<S> <C>
At least 80% of Municipal obligations -- debt securities of issuers that pay
net assets 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 Hawaii municipal obligations -- debt securities issued by or
net assets 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.
</TABLE>
No more than 20% of the Fund's net assets will be invested in debt securities
that pay interest subject to the federal alternative minimum tax (for those
investors subject to this tax). The Fund can also invest in other kinds of
debt instruments issued by foreign and domestic companies and governments,
and can
23
<PAGE> 25
INVESTMENT OBJECTIVES, POLICIES AND RISKS
use futures contracts, options and other investment techniques for the
purpose of cash flow management and/or risk reduction.
The Fund is non-diversified, which means that its assets may be invested
among fewer issuers than diversified funds. To achieve greater price
stability than a long-term bond fund, normally the average remaining maturity
of the Fund's portfolio (on a dollar-weighted basis) is from two to five
years. The Fund focuses on maximizing tax exempt income consistent with
prudent investment risk within this maturity range. The Fund's share value
will likely be less volatile than the Tax-Free Securities Fund, because the
Fund generally will have 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 fixed income
securities. Most of its investments are debt securities issued or guaranteed
by the U.S. Government and its agencies and instrumentalities and corporate
issuers rated A or better by Standard & Poor's. However, the Fund may invest
up to 20% of its total assets in investment grade debt securities rated BBB
issued by U.S. companies and state and local government issuers. In addition,
the Fund may 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 for the purpose of cash flow management
and/or risk reduction.
The Fund focuses on maximizing income consistent with prudent investment
risk. 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 for the purpose of cash
flow management and/or risk reduction.
The Fund focuses on maximizing income consistent with prudent investment
risk. 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
24
<PAGE> 26
INVESTMENT OBJECTIVES, POLICIES AND RISKS
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 for the purpose of cash flow management
and/or risk reduction.
Normally the average remaining maturity of the Fund's portfolio (on a
dollar-weighted basis) is from two to five years. The Fund focuses on
maximizing income consistent with prudent investment risk within this
maturity range. 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 Securities Fund, because the Fund generally
will have a shorter average portfolio maturity.
MAIN RISKS
The value of your investment in any of the Funds will go 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 generally 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 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.
25
<PAGE> 27
INVESTMENT OBJECTIVES, POLICIES AND RISKS
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. 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. Foreign markets have different clearance and settlement
procedures, and higher transaction costs than U.S. markets. 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 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 the Adviser and the Funds' other service providers
do not properly process and calculate date-related information for the year
2000 and beyond. In addition, Year 2000 issues may adversely affect companies
in which the Funds invest if, for example, such companies incur substantial
costs to address Year 2000 issues or suffer losses caused by the failure to
adequately or timely do so.
The Funds have been assured that the Adviser and the Funds' other service
providers have developed and are implementing clearly-defined and documented
plans intended to minimize risks to services critical to the Funds'
operations associated with Year 2000 issues. The Funds' Adviser and other
service providers are likewise seeking assurances from their respective
vendors and suppliers that such entities are addressing any Year 2000 issues,
and each provider intends to engage, where appropriate, in private and/or
industry interface testing of systems for Year 2000 readiness.
If any systems upon which the Funds depend are not Year 2000 ready by
December 31, 1999, administrative errors and account maintenance failures
would likely occur. While the ultimate costs or consequences of incomplete or
untimely resolution of Year 2000 issues by the Adviser or the Funds' other
service providers cannot be accurately assessed at this time, the Funds
currently have no reason to believe that the Year 2000 plans of the Adviser
and the Funds' other service providers will not be completed by December 31,
1999, or that the anticipated costs associated with full implementation of
their plans will have a material adverse impact on their business operations
or the Funds. The Funds and the Adviser will continue to closely monitor
developments relating to this issue, including development by the Adviser and
the Funds' other service providers of contingency plans for providing back-up
computer services in the event of a systems failure or the inability of any
provider to achieve Year 2000 readiness. The Adviser will also continue to
monitor potential investment risks related to Year 2000 issues.
The most recent information about each Fund's portfolio holdings can be found
in its annual or semi-annual reports. For information about receiving these
reports, see the back cover.
26
<PAGE> 28
logo
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 more than a century. Pacific Century, formerly
known as Hawaiian Trust Company, is among the top 50 trust firms in the
United States based on assets under management and oversees more than $15
billion in client assets. The Pacific Century investment management
team -- including portfolio managers, financial analysts and economists -- is
responsible for nearly $8 billion of these assets.
For these advisory services, the Funds paid Pacific Century as follows during
their fiscal year ended July 31, 1999:
<TABLE>
<CAPTION>
PERCENTAGE OF
AVERAGE NET ASSETS*
<S> <C>
------------------------------
Tax-Free Securities Fund .45%
------------------------------
Tax-Free Short Intermediate Securities Fund .40%
------------------------------
Diversified Fixed Income Fund .45%
------------------------------
U.S. Treasury Securities Fund .35%
------------------------------
Short Intermediate U.S. Treasury Securities Fund .30%
-------------------------------------------------------------------------------------
</TABLE>
* Pacific Century waived a portion of its fees for the fiscal year.
Contractual fees (without waivers) are: Tax-Free Securities Fund, .60%;
Tax-Free Short Intermediate Securities Fund, .50%; Diversified Fixed Income
Fund, .60%; U.S. Treasury Securities Fund, .60%; and Short Intermediate U.S.
Treasury Securities Fund, .50%.
PORTFOLIO MANAGERS
Management of the Funds is coordinated by Pacific Century's investment unit,
which is staffed with more than 40 people, including seven Chartered
Financial Analysts and eight M.B.A.'s. All investment decisions of Pacific
Century for the Funds it advises are made by committees, with individual
portfolio managers having day-to-day responsibility for managing the Funds.
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.
27
<PAGE> 29
FUND MANAGEMENT
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.
U.S. TREASURY SECURITIES FUND AND SHORT INTERMEDIATE U.S. TREASURY SECURITIES
FUND. David Todani, CFA, 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.
The Statement of Additional Information has more detailed information about
the Investment Adviser and other service providers.
THE DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services ("BISYS") is the Funds' distributor and BISYS Fund
Services Ohio, Inc. is the Funds' administrator. The address of each is 3435
Stelzer Road, Columbus, Ohio 43219.
28
<PAGE> 30
logo
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES
---------------------------
HOW NAV IS CALCULATED
NAV is calculated by adding
the total value of a Fund's
investments and other
assets attributable to
Class A or B shares,
subtracting its liabilities
attributable to Class A or
B shares, and then dividing
that figure by the number
of outstanding Class A or B
shares of the Fund:
NAV =
Total Assets - Liabilities
----------------------------
Number of Shares
Outstanding
Locate your Fund's NAV
daily in The Wall Street
Journal and other
newspapers or call
800-258-9232 for
information.
---------------------------
The price of each Fund's shares is
based on its per share net asset value
("NAV"). The NAV for Class A and B
shares of each Fund 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,
securities will be valued by a method
that the Board of Trustees believes
accurately reflects fair value.
29
<PAGE> 31
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
You can purchase Funds
through the Pacific
Capital Funds'
Distributor or through
brokers and other
investment
representatives,
including an affiliate
of Pacific Century,
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 sale
requests. Consult your
investment
representative or
institution for specific
information.
<TABLE>
<CAPTION>
MINIMUM INVESTMENTS INITIAL INVESTMENT SUBSEQUENT
<S> <C> <C>
Regular
(non-retirement) $1,000 $50
----------------------------------------------------------
Retirement (IRA) $250 $50
----------------------------------------------------------
Auto Invest Plan $100 $50
</TABLE>
All purchases must be in U.S. dollars. A
fee may 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 the
Fund's shareholders. The Funds reserve the
right to suspend or modify the continuous
offering of their shares.
-----------------------------------------------------------------------------
AVOID 31% TAX WITHHOLDING
A 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.
-----------------------------------------------------------------------------
QUESTIONS?
Call 800-258-9232 or
your investment representative.
30
<PAGE> 32
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
CONTINUED
INSTRUCTIONS FOR OPENING OR
ADDING TO AN ACCOUNT
BY REGULAR MAIL
Initial Investment:
If purchasing through your financial advisor or brokerage account, simply
tell your advisor or broker that you wish to purchase shares of the Funds and
he or she will take care of the necessary documentation. For all other
purchases follow the instructions below.
1. Carefully read, complete and sign the account application. Establishing
your account privileges now saves you the inconvenience of having to add
them later.
2. Make check, bank draft or money order payable to "Pacific Capital Funds"
and include the name of the appropriate Fund(s) on the check.
3. Mail to: Pacific Capital Funds, P.O. Box 182130, Columbus, OH 43218-2130
Subsequent Investments:
1. Use the investment slip attached to your account statement.
Or, if unavailable
2. Include the following information on a piece of paper:
- Fund name
- Share class
- Amount invested
- Account name
- Account number
Include your account number on your check.
3. Mail investment slip and check to: Pacific Capital Funds,
P.O. 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
Your bank must participate in the Automated Clearing House (ACH) and must be
a U.S. bank. Your bank or broker may charge for this service.
Establish the electronic purchase option on your account application or call
800-258-9232. Your account can generally be set up for electronic purchases
within 15 days.
Call 800-258-9232 to arrange a transfer from your bank account.
ELECTRONIC VS. WIRE
TRANSFER
Wire transfers allow
financial institutions to
send funds to each other,
almost instantaneously.
With an electronic
purchase or sale, the
transaction is made
through the Automated
Clearing House (ACH),
which may take up to
eight days to clear.
There is generally no fee
for ACH transactions.
QUESTIONS?
Call 800-258-9232 or
your
investment
representative.
31
<PAGE> 33
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
CONTINUED
BY WIRE TRANSFER
Note: Your bank may charge a wire transfer fee.
Please phone the Funds at 800-258-9232 for instructions on opening an account
or purchasing additional shares by wire transfer.
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. The Funds also reserve the right to reject any
purchase or to suspend or modify the continuous offering of their shares.
32
<PAGE> 34
SHAREHOLDER INFORMATION
SELLING YOUR SHARES
INSTRUCTIONS FOR SELLING 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 Class B shares, you will be
charged a fee for any shares that have not
been held for a sufficient length of time.
(You will also pay a fee for Class A shares
sold within one year of a purchase of $1
million or more.) These fees will be deducted
from the money paid to you. See the section on
"Distribution Arrangements/Sales Charges"
below for details.
If selling shares through your financial advisor or broker, ask him or her
for redemption procedures. Your advisor and/or broker may have transaction
minimums and/or transaction times which will affect your redemption. For all
other sales transactions, follow the instructions below.
BY TELEPHONE (UNLESS YOU HAVE DECLINED TELEPHONE SALES PRIVILEGES)
Call 800-258-9232 with instructions as to how you want to receive your funds
(mail, wire, electronic transfer). See "General Policies on Selling Shares"
below.
BY MAIL (SEE "GENERAL POLICIES ON SELLING SHARES -- REDEMPTIONS IN WRITING
REQUIRED" BELOW.)
1. Call 800-258-9232 to request redemption forms (if your account is an IRA
or another form of retirement plan), 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, P.O. Box 182130, Columbus, OH 43218-2130
BY OVERNIGHT SERVICE
1. See instruction 1 above.
2. Send to: Pacific Capital Funds, c/o BISYS Fund Services, Attn: T.A.
Operations, 3435 Stelzer Road, Columbus, OH 43219
33
<PAGE> 35
SHAREHOLDER INFORMATION
- -
SELLING YOUR SHARES
CONTINUED
WIRE TRANSFER
You must select this option on your account application.
The Fund may charge a wire transfer fee. Note: Your financial institution may
also charge a separate fee.
Call 800-258-9232 to request a wire transfer. If you call by 4 p.m. Eastern
time, your payment will normally be wired to your bank on the next business
day. Otherwise, it will normally be wired on the second business day after
your call.
ELECTRONIC REDEMPTIONS
Your bank must participate in the Automated Clearing House (ACH) and must be
a U.S. bank. Note: Your bank may charge for this service.
Call 800-258-9232 to request an electronic redemption.
If you call by 4 p.m. Eastern time, the NAV of your shares will normally be
determined on the same day and the proceeds will normally be credited within
8 days. Otherwise, it will normally take up to 9 days.
AUTO WITHDRAWAL PLAN
You can receive automatic payments from your Class A shares 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.
34
<PAGE> 36
SHAREHOLDER INFORMATION
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 ("IRAs")
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.
TELEPHONE REDEMPTIONS
The Funds make every effort to insure that telephone redemptions are only
made by authorized traders. 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 Funds, the Transfer Agent, Pacific Century and/or
the Distributor may be liable for losses due to unauthorized transactions.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider sending your request in writing.
REDEMPTIONS WITHIN 15 DAYS OF INITIAL INVESTMENT
When you have made an investment by check, you cannot receive any portion of
the redemption proceeds on 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
or by wire.
REFUSAL OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the Securities and Exchange Commission ("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 a Fund's 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 redemption price, net
of any CDSC. When you convert these securities to cash, you will pay
brokerage charges.
35
<PAGE> 37
SHAREHOLDER INFORMATION
GENERAL POLICIES ON SELLING SHARES
CONTINUED
CLOSING OF SMALL ACCOUNTS
If your account falls below $250, we may ask you to increase your balance to
the minimum investment amount. 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 as of the cancellation
date. No interest is paid during the time the check is outstanding.
36
<PAGE> 38
SHAREHOLDER INFORMATION
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>
<S> <C> <C>
TYPES OF CHARGES CLASS A CLASS B*
Sales Charge (Load) Front-end sales charge (at the No front-end sales charge. You may
time of your purchase); reduced incur a contingent deferred sales
sales charges are available.(1) 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 distribution Subject to annual distribution
fees of up to .75% of the Fund's fees of up to 1.00% of the Fund's
net assets. net assets.
Fund Expenses Lower annual expenses than Class B Higher annual expenses than Class
shares. A shares.
</TABLE>
(1) You may incur a contingent deferred sales charge on shares sold within
one year of a purchase of $1 million or more.
*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.
37
<PAGE> 39
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CONTINUED
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 pay
for shares 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 TAX-FREE SECURITIES FUND, DIVERSIFIED FIXED INCOME FUND AND U.S.
TREASURY SECURITIES FUND
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE DEALER PAYMENT
YOUR AS A % OF AS A % OF AS A % OF
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>
(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.
38
<PAGE> 40
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CONTINUED
FOR THE TAX-FREE SHORT INTERMEDIATE SECURITIES FUND AND SHORT INTERMEDIATE
U.S. TREASURY SECURITIES FUND
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE DEALER PAYMENT
YOUR AS A % OF AS A % OF AS A % OF
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%
</TABLE>
(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.
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 .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.
BISYS may provide financial assistance in connection with pre-approved
seminars, conferences and advertising to the extent permitted by applicable
state or self-regulatory agencies, such as the National Association of
Securities Dealers.
39
<PAGE> 41
SHAREHOLDER INFORMATION
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 to
the right. There is no CDSC on
reinvested dividends or
distributions. Imposition of
the CDSC and the distribution
fee on Class B shares is
limited by the NASD
asset-based sales charge rule.
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CONTINUED
<TABLE>
<CAPTION>
YEARS CDSC AS A % OF
SINCE DOLLAR AMOUNT
PURCHASE SUBJECT TO CHARGE
<S> <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.
40
<PAGE> 42
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CONTINUED
SALES CHARGE REDUCTIONS
You may qualify for reduced sales charges under the following circumstances.
- 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 3% of the total amount you
intend to purchase with your letter of intent. Shares purchased under the
non-binding Letter of Intent will be held in escrow until the total
investment has been completed. If the Letter of Intent is not completed,
sufficient escrowed shares will be redeemed to pay any applicable
front-end sales charge.
- 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.
- 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. Reduced prices are also available for
investors who are members of certain qualified groups.
SALES CHARGE WAIVERS
CLASS A SHARES
The following qualify for waivers of sales charges:
- Current and retired trustees, directors, employees, and family members of
the Trust, Pacific Century and its affiliates or any other organization
that provides services to the Trust.
- 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).
- 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.
- Other investment companies distributed by the Distributor.
- 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.
- Investors who purchase shares with the proceeds from recent redemption of
Class Y shares of the Trust.
BISYS must be notified in writing by you or your financial institution at the
time the purchase is made. A copy of your account statement showing the
redemption must accompany the notice.
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.
41
<PAGE> 43
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CONTINUED
CLASS B SHARES
The Distributor will waive the CDSC under certain circumstances, including
the following:
- If the redemption follows the death or disability of a shareholder (or
both shareholders in the case of joint accounts).
- 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).
- If the redemption represents the minimum required distribution from a
retirement plan.
- If the shares being redeemed were purchased with reinvested dividends and
distributions.
See the Statement of Additional Information for other possible fee waivers.
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 over time will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
- 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.
Until further notice, the Distributor voluntarily intends to waive a portion
of its 12b-1 fee, so that the fee payable by each Fund will not exceed 0.25%
of the average daily net asset value attributable to the Fund's Class A
shares on an annual basis.
42
<PAGE> 44
SHAREHOLDER INFORMATION
EXCHANGING YOUR SHARES
You can exchange your
shares in one Fund for
shares of the same class of
another 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
Pacific Capital Cash Assets
Trust, the Pacific Capital
Tax-Free Cash Assets Trust
and the Pacific Capital
U.S. Government Securities
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.
NOTES ON EXCHANGES
INSTRUCTIONS FOR EXCHANGING SHARES
Exchanges from one Fund to another
are taxable.
You can make exchanges by sending a
written request to Pacific Capital
Funds, P.O. 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 four
substantive exchanges within one
calendar year period. A Fund may
also refuse any exchange order.
- 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 or
other investment company into
which you wish to exchange
shares.
43
<PAGE> 45
SHAREHOLDER INFORMATION
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Each Fund pays out any income it receives, less expenses, in the form of
dividends to its shareholders monthly. The Funds distribute net capital gains
to shareholders annually. Dividends payable on Class A shares of a Fund are
generally more than on Class B shares because Class B shares have higher
distribution expenses.
We automatically reinvest all income dividends and capital gains
distributions on Fund shares in additional shares of the same Fund and Class
on the ex-dividend date unless you request otherwise in writing to the
Transfer Agent (at least 15 days prior to the distribution). The Distributor
does 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.
TAXES
Dividends generally are taxable as ordinary income. Taxes on capital gains
distributed by the Funds vary with the length of time the Fund has held the
security -- not how long you have been invested in the Fund.
Dividends are taxable in the year in which they are declared, 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 federal and state 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 advisor about the federal, state and local tax
consequences in your particular circumstances.
HAWAII TAX INFORMATION
The Funds expect that some dividends paid by the Tax-Free Securities Fund and
the Tax-Free Short Intermediate Securities Fund to Hawaii residents will be
exempt from Hawaii personal income tax to the extent attributable to Hawaii
municipal obligations. 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 (and to the extent attributable
to Hawaii municipal obligations for 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.
44
<PAGE> 46
logo
FINANCIAL HIGHLIGHTS
The Financial Highlights in the following table set forth certain financial
data and investment results of the Funds for the past five years or, if
shorter, the period since their inception, expressed in one share of each
Fund 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 Funds' annual report contains additional
performance information relating to the Funds and is available upon request,
without charge.
45
<PAGE> 47
FINANCIAL HIGHLIGHTS TAX-FREE SECURITIES FUND
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, 1999 JULY 31, 1998 JULY 31, 1997 JULY 31, 1996
A CLASS B CLASS A CLASS B CLASS (e) A CLASS A CLASS
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $10.84 $ 10.83 $ 10.84 $ 10.84 $ 10.44 $ 10.53
-----------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income 0.48 0.40 0.48 0.21 0.49 0.50
Net realized and unrealized
gain (loss) from investments (0.25) (0.24) 0.06 (0.01) 0.46 0.07
-----------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.23 0.16 0.54 0.20 0.95 0.57
-----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.48) (0.40) (0.48) (0.21) (0.49) (0.49)
In excess of net investment income -- -- -- -- -- (0.04)
Net realized gains (0.10) (0.10) (0.06) -- (0.06) (0.09)
In excess of net realized gains -- -- -- -- -- (0.04)
-----------------------------------------------------------------------------------------------------------------------
Total Distributions (0.58) (0.50) (0.54) (0.21) (0.55) (0.66)
-----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.49 $ 10.49 $ 10.84 $ 10.83 $ 10.84 $ 10.44
-----------------------------------------------------------------------------------------------------------------------
Total Return (excludes sales
charges) 2.00% 1.40% 5.17% 1.82%(b) 9.35% 5.54%
ANNUALIZED RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $4,795 $ 1,756 $ 3,054 $ 272 $ 2,545 $ 569
Ratio of expenses to average net
assets 0.96% 1.70% 1.02% 1.71%(c) 1.12% 1.14%
Ratio of net investment income to
average net assets 4.41% 3.68% 4.49% 3.75%(c) 4.60% 4.66%
Ratio of expenses to average net
assets* 1.65% 1.89% 1.65% 1.90%(c) 1.66% 1.68%
Ratio of net investment income to
average net assets* 3.72% 3.49% 3.86% 3.56%(c) 4.06% 4.12%
Portfolio Turnover(d) 9.91% 9.91% 10.73% 10.73% 11.07% 24.78%
<CAPTION>
OCTOBER 14, 1994
TO
July 31, 1995 (a)
A CLASS
<S> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD $ 10.00
--------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income 0.39
Net realized and unrealized
gain (loss) from investments 0.50
--------------------------------------------------------------------------------------------
Total from Investment Activities 0.89
--------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.36)
In excess of net investment income --
Net realized gains --
In excess of net realized gains --
-----------------------------------------------------------------------------------------------------------------------
Total Distributions (0.36)
-----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.53
-----------------------------------------------------------------------------------------------------------------------
Total Return (excludes sales
charges) 9.06%(b)
ANNUALIZED RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 563
Ratio of expenses to average net
assets 1.15%(c)
Ratio of net investment income to
average net assets 4.93%(c)
Ratio of expenses to average net
assets* 1.74%(c)
Ratio of net investment income to
average net assets* 4.34%(c)
Portfolio Turnover(d) 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.
(e) Period from commencement of operations on March 2, 1998.
46
<PAGE> 48
TAX-FREE SHORT INTERMEDIATE
FINANCIAL HIGHLIGHTS SECURITIES FUND
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE FOR THE OCTOBER 14, 1994
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED TO
JULY 31, 1999 JULY 31, 1998 JULY 31, 1997 JULY 31, 1996 JULY 31, 1995(a)
A CLASS A CLASS A CLASS A CLASS A CLASS
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.09 $10.17 $10.05 $10.11 $10.00
-----------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income 0.34 0.35 0.37 0.37 0.30
Net realized and unrealized gain
(loss) from investments (0.09) (0.02) 0.13 (0.03) 0.08
-----------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.25 0.33 0.50 0.34 0.38
-----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.34) (0.35) (0.37) (0.37) (0.27)
In excess of net investment income -- -- -- (0.03) --
Net realized gains (0.05) (0.06) (0.01) -- --
-----------------------------------------------------------------------------------------------------------------------
Total Distributions (0.39) (0.41) (0.38) (0.40) (0.27)
-----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.95 $10.09 $10.17 $10.05 $10.11
-----------------------------------------------------------------------------------------------------------------------
Total Return (excludes sales
charges) 2.44% 3.36% 5.06% 3.41% 3.90%(b)
ANNUALIZED RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 878 $ 478 $ 724 $ 451 $ 308
Ratio of expenses to average net
assets 0.98% 1.01% 1.09% 1.08% 1.05%(c)
Ratio of net investment income to
average net assets 3.35% 3.50% 3.57% 3.64% 3.82%(c)
Ratio of expenses to average net
assets* 1.63% 1.62% 1.64% 1.63% 1.64%(c)
Ratio of net investment income to
average net assets* 2.70% 2.89% 3.02% 3.09% 3.23%(c)
Portfolio Turnover(d) 18.40% 47.55% 29.46% 54.70% 89.98%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund, as a whole,
without distinguishing between the classes of shares issued.
47
<PAGE> 49
FINANCIAL HIGHLIGHTS DIVERSIFIED FIXED INCOME FUND
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, 1999 JULY 31, 1998 JULY 31, 1997 JULY 31, 1996
A CLASS B CLASS A CLASS B CLASS(e) A CLASS A CLASS
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.92 $ 10.91 $ 10.71 $ 10.79 $ 10.45 $ 10.75
-----------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income 0.56 0.48 0.58 0.23 0.57 0.59
Net realized and unrealized gain
(loss) from investments (0.43) (0.44) 0.21 0.12 0.35 (0.19)
-----------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.13 0.04 0.79 0.35 0.92 0.40
-----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.56) (0.48) (0.58) (0.23) (0.57) (0.58)
In excess of net investment income -- -- -- -- -- (0.02)
Net realized gains (0.10) (0.06) -- -- -- --
In excess of net realized gains -- (0.04) -- -- (0.09) (0.10)
-----------------------------------------------------------------------------------------------------------------------
Total Distributions (0.66) (0.58) (0.58) (0.23) (0.66) (0.70)
-----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.39 $ 10.37 $ 10.92 $ 10.91 $ 10.71 $ 10.45
-----------------------------------------------------------------------------------------------------------------------
Total Return (excludes sales
charges) 1.02% 0.24% 7.61% 3.25%(b) 9.20% 3.69%
ANNUALIZED RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 2,228 $ 2,078 $ 1,497 $ 236 $ 1,103 $ 1,093
Ratio of expenses to average net
assets 0.98% 1.72% 1.02% 1.71%(c) 1.15% 1.15%
Ratio of net investment income to
average net assets 5.08% 4.39% 5.36% 4.54%(c) 5.44% 5.31%
Ratio of expenses to average net
assets* 1.67% 1.91% 1.65% 1.90%(c) 1.69% 1.69%
Ratio of net investment income to
average net assets* 4.39% 4.20% 4.73% 4.35%(c) 4.90% 4.77%
Portfolio Turnover(d) 60.00% 60.00% 57.58% 57.58% 80.98% 58.86%
<CAPTION>
OCTOBER 14, 1994
TO
JULY 31, 1995(a)
A CLASS
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
-----------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income 0.49
Net realized and unrealized gain
(loss) from investments 0.74
-----------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 1.23
-----------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.48)
In excess of net investment income --
Net realized gains --
In excess of net realized gains --
-----------------------------------------------------------------------------------------------------------------------
Total Distributions (0.48)
-----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.75
-----------------------------------------------------------------------------------------------------------------------
Total Return (excludes sales
charges) 12.66%(b)
ANNUALIZED RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 27
Ratio of expenses to average net
assets 1.18%(c)
Ratio of net investment income to
average net assets 6.25%(c)
Ratio of expenses to average net
assets* 1.77%(c)
Ratio of net investment income to
average net assets* 5.66%(c)
Portfolio Turnover(d) 60.47%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Period from commencement of operations.
(b) Not annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund, as a whole,
without distinguishing between the classes of shares issued.
(e) Period from commencement of operations on March 2, 1998.
48
<PAGE> 50
FINANCIAL HIGHLIGHTS U.S. TREASURY SECURITIES FUND
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, 1999 JULY 31, 1998 JULY 31, 1997 JULY 31, 1996 JULY 31, 1995
A CLASS A CLASS A CLASS A CLASS A CLASS(a)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.58 $ 9.37 $ 9.13 $ 9.42 $ 9.04
--------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income 0.52 0.52 0.52 0.53 0.50
Net realized and unrealized gain
(loss) from investments (0.37) 0.21 0.25 (0.20) 0.38
--------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.15 0.73 0.77 0.33 0.88
--------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.50) (0.52) (0.46) (0.53) (0.50)
In excess of net investment income (0.02) -- (0.07) (0.09) --
--------------------------------------------------------------------------------------------------------------------
Total Distributions (0.52) (0.52) (0.53) (0.62) (0.50)
--------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.21 $ 9.58 $ 9.37 $ 9.13 $ 9.42
--------------------------------------------------------------------------------------------------------------------
Total Return (excludes sales
charges) 1.41% 7.98% 8.68% 3.43% 10.18%
ANNUALIZED RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 1,369 $ 1,090 $ 1,087 $ 979 $ 1,035
Ratio of expenses to average net
assets 1.01% 1.07% 1.16% 1.20% 1.19%
Ratio of net investment income to
average net assets 5.36% 5.45% 5.60% 5.55% 5.57%
Ratio of expenses to average net
assets* 1.80% 1.76% 1.70% 1.74% 1.81%
Ratio of net investment income to
average net assets* 4.57% 4.76% 5.06% 5.01% 4.96%
Portfolio Turnover(b) 9.25% 11.82% 44.90% 15.75% 80.98%
</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) The Financial Highlights presented for the A Class reflects operations
and distributions for the Fund, as a whole, for the period from August 1,
1994 through October 13, 1994 combined with the operations and
distributions of the A Class only for the period from October 14, 1994
through July 31, 1995.
(b) Portfolio turnover is calculated on the basis of the Fund, as a whole,
without distinguishing between the classes of shares issued.
49
<PAGE> 51
SHORT INTERMEDIATE U.S.
FINANCIAL HIGHLIGHTS TREASURY SECURITIES FUND
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JULY 31, 1999 JULY 31, 1998 JULY 31, 1997 JULY 31, 1996 JULY 31, 1995
A CLASS A CLASS A CLASS A CLASS A CLASS(a)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.64 $ 9.55 $ 9.41 $ 9.60 $ 9.52
--------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income 0.45 0.49 0.49 0.48 0.52
Net realized and unrealized gain
(loss) from investments (0.18) 0.09 0.14 (0.11) 0.05
--------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.27 0.58 0.63 0.37 0.57
--------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.45) (0.49) (0.49) (0.50) (0.49)
In excess of net investment income -- -- -- (0.04) --
Net realized gains (0.04) -- -- -- --
In excess of net realized gains -- -- -- (0.02) --
--------------------------------------------------------------------------------------------------------------------
Total Distributions (0.49) (0.49) (0.49) (0.56) (0.49)
--------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.42 $ 9.64 $ 9.55 $ 9.41 $ 9.60
--------------------------------------------------------------------------------------------------------------------
Total Return (excludes sales
charges) 2.79% 6.27% 6.92% 3.90% 6.28%
ANNUALIZED RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 595 $ 654 $ 618 $1,156 $ 489
Ratio of expenses to average net
assets 0.94% 0.89% 0.87% 0.92% 0.99%
Ratio of net investment income to
average net assets 4.65% 5.11% 5.22% 5.14% 5.51%
Ratio of expenses to average net
assets* 1.49% 1.64% 1.62% 1.67% 1.78%
Ratio of net investment income to
average net assets* 4.10% 4.36% 4.47% 4.39% 4.72%
Portfolio Turnover(b) 63.27% 17.33% 51.56% 47.17% 62.73%
</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) The Financial Highlights presented for the A Class reflects operations
and distributions for the Fund, as a whole, for the period from August 1,
1994 through October 13, 1994 combined with the operations and
distributions of the A Class only for the period from October 14, 1994
through July 31, 1995.
(b) Portfolio turnover is calculated on the basis of the Fund, as a whole,
without distinguishing between the classes of shares issued.
50
<PAGE> 52
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 53
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 54
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 55
For more information about the Pacific Capital Funds, the following documents
are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS:
The Funds' annual and semi-annual reports to shareholders contain detailed
information on the Funds' investments. The annual report includes a discussion
of the market conditions and investment strategies that significantly affected
each 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 Annual/Semi-Annual Reports and the SAI, or request
other information and discuss your questions about the Funds, by contacting the
Bank of Hawaii or a broker that sells the Funds. Or contact us at:
PACIFIC CAPITAL FUNDS
P.O. BOX 182130
COLUMBUS, OHIO 43218-2130
TELEPHONE: 1-800-258-9232
You can review the Funds' reports and SAI at the Public Reference Room of the
Securities and Exchange Commission. You can also get copies:
- - For a duplicating 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.
12/99
PCP 0027
<PAGE> 56
APPLICATION FOR PACIFIC CAPITAL FUNDS
PLEASE COMPLETE STEPS 1 THROUGH 5 AND MAIL TO:
PACIFIC CAPITAL FUNDS
P.O. BOX 182130, COLUMBUS, OH 43218-2130
1-800-258-9232 PACIFIC CAPITAL FUNDS
- --------------------------------------------------------------------------------
STEP 1 ACCOUNT REGISTRATION PLEASE TYPE OR PRINT NAME EXACTLY AS ACCOUNT IS
TO BE REGISTERED
A. REGISTRATION
<TABLE>
<S> <C> <C> <C>
[ ]
Individual 1. ----------------------------------------------------------------------------------------------
First Name Middle Initial Last Name Social Security
Number
[ ]
Joint Account* 2. ----------------------------------------------------------------------------------------------
(Use lines 1 First Name Middle Initial Last Name Social Security
Number
and 2) *JOINT ACCOUNTS WILL BE TENANTS WITH RIGHTS OF SURVIVORSHIP UNLESS OTHERWISE SPECIFIED.
[ ] For a Minor 3. --------------------------------------------- Under the --------- Uniform Gifts/Transfers to Minors
Act
(Only one Custodian's First Name Middle Initial Last
custodian Name State
and one minor Custodian For ----------------------------------------------------------------------------------
are Minor's First Name Middle Initial Last Name Minor's Social Security No.
permitted.)
[ ] For Trust, 4. ----------------------------------------------------------------------------------------------
Corporation, (Name of Corporation or Partnership; PLEASE INDICATE TYPE OF ORGANIZATION. If a Trust, include the
Partnership or name and date of the Trust Instrument. The name(s) of the Trustees in which account will be
other Entity registered should be listed below. Account for a Pension or Profit Sharing Plan or Trust may be
registered in the name of the Plan or Trust itself.)
----------------------------------------------------------------------------------------------
Tax I.D. Number Trustee(s) or Authorized
Individual Title
</TABLE>
- --------------------------------------------------------------------------------
B. MAILING ADDRESS AND TELEPHONE NUMBER
- --------------------------------------------------------------------------------
Street or P.O. Box City State Zip Code
( )
- --------------------------------------------------------------------------------
Area Code Daytime Telephone Number Occupation Employer's Name/Employer's
Address City State
Citizen or resident of: U.S. [ ] Other [ ] ____ Check here [ ] if you are a
non U.S.
Citizen or
resident and
not subject to
back-up
withholding.
See
certification
in Step 5.
- --------------------------------------------------------------------------------
C. INVESTMENT DEALER OR BROKER: (Important -- to be completed by Dealer or
Broker)
- --------------------------------------------------------------------------------
Dealer Name Branch Office Address Branch Office City/State Branch #
( )
- --------------------------------------------------------------------------------
Representative's Name Rep # Area Code Telephone # [Agent User Dealer # /
Branch #]
- --------------------------------------------------------------------------------
STEP 2 PURCHASE OF SHARES
A. INITIAL INVESTMENT
Make check payable to: Pacific Capital Funds Minimum Initial Investment
in any Fund is $1,000. Subsequent Investments, $50.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
A. B. A. B.
[ ] [ ] Growth Stock Fund $ --------- [ ] [ ] International Stock Fund $ ---------
[ ] [ ] Growth and Income Fund $ --------- [ ] [ ] Tax-Free Securities Fund $ ---------
[ ] [ ] Value Fund $ --------- [ ] N/A Tax-Free Short Intermediate Securities $ ---------
Fund
[ ] [ ] Balanced Fund $ --------- [ ] [ ] Diversified Fixed Income Fund $ ---------
[ ] [ ] Small Cap Fund $ --------- [ ] N/A U.S. Treasury Securities Fund $ ---------
[ ] [ ] New Asia Growth Fund $ --------- [ ] N/A Short Intermediate U.S. Treasury $ ---------
Securities Fund
Total Investment $ ---------
</TABLE>
- --------------------------------------------------------------------------------
B. DISTRIBUTIONS: All income dividends and capital gains distributions will be
REINVESTED in additional shares at net asset value unless otherwise indicated
below.
Dividends are to be: [ ] Reinvested [ ] Paid in cash* Capital Gains are
to be: [ ] Reinvested [ ] Paid in cash*
*FOR CASH DIVIDENDS, PLEASE CHOOSE ONE OF THE FOLLOWING OPTIONS:
[ ] Wire directly into my financial institutional account. ATTACHED IS A
VOIDED CHECK showing the account information where I would like the
dividend deposited.
[ ] Mail check to my address listed in Step 1B.
[ ] Mail check as requested in Step 3F.
<PAGE> 57
- --------------------------------------------------------------------------------
C. LETTER OF INTENT
(See Terms of Escrow
for Letter
of Intent at the end of
this
application).
- -----------------------
Check appropriate box
[ ] YES [ ] NO
I/we intend to invest in shares of one or more of the Pacific
Capital Funds during the 13-month period from the date of my
first purchase pursuant to this Letter (which purchase cannot
be more than 90 days prior to the date of this Letter), an
aggregate amount (excluding any reinvestment of dividends or
distributions) of at least $25,000 which, together with my
present holdings of Pacific Capital Fund shares (at public
offering price on date of this Letter), will equal or exceed
the minimum amount checked below:*
[ ] $ 25,000 [ ] $ 50,000 [ ] $ 100,000 [ ] $250,000
[ ] $500,000 [ ] $1,000,000
*Accumulated investments must aggregate at least $100,000 for
reduced sales charges to apply to purchases of shares of the
Short-Intermediate U.S. Treasury Securities Fund or the
Tax-Free Short Intermediate Securities Fund.
- --------------------------------------------------------------------------------
STEP 3 SPECIAL FEATURES
A. AUTOMATIC INVEST PROGRAM
- -----------------------
Check appropriate box
[ ] YES [ ] NO
This option provides you with a convenient way to have
amounts automatically drawn on your financial institution
account and invested in your Pacific Capital Fund account. To
establish this program, please complete Step 5, Sections A &
B of this Application.
I wish to make regular monthly investments. The minimum
initial purchase is reduced to $100 per Fund when you use
this service. Subsequent minimum purchase is $50 for each
Fund. YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED
CHECK.
<TABLE>
<S> <C> <C> <C>
Amount
----------- Fund $ --------- Please select how often you would like to have the amount(s)
shown above withdrawn from your checking account and invested
----------- Fund $ --------- into the above selected Fund(s).
----------- Fund $ --------- [ ] Once each month -- on [ ] Twice each month on the 1st
the 1st and the 16th
Total $ --------- [ ] Once each month -- on [ ] Once each quarter on the 1st
the 16th beginning in the month of
----------------.
</TABLE>
- --------------------------------------------------------------------------------
B. TELEPHONE INVESTMENT
- -----------------------
Check appropriate box
[ ] YES [ ] NO
This option provides you with a convenient way to add to your
account at any time you wish by simply calling the Pacific
Capital Funds toll-free at 1-800-258-9232. To establish this
program, please complete Step 5, Sections A & B of this
Application. YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR
VOIDED CHECK.
- --------------------------------------------------------------------------------
C. AUTOMATIC WITHDRAWAL PLAN
Application must be
received in good order
at least two weeks
prior
to 1st actual
liquidation date.
- -----------------------
Check appropriate box
[ ] YES [ ] NO
Please establish an Automatic Withdrawal Plan for this
account, subject to the terms of the Automatic Withdrawal
Plan Provisions set forth below. To realize the amount stated
below, BISYS Fund Services, Inc. (the "Agent") is authorized
to redeem sufficient shares from this account at the then
current Net Asset Value, in accordance with the terms below:
The minimum Automatic Withdrawal amount is $100 per Fund.
<TABLE>
<S> <C>
$ ---------------------------
------------------------- Fund
$ ---------------------------
------------------------- Fund
Total $ ---------------------------
</TABLE>
Please select how often you would like to have payments made
from your account under the Automatic Withdrawal Plan.
<TABLE>
<S> <C>
[ ] Once each month -- on the [ ] Twice each month on the 1st and 16th
1st
[ ] Once each month -- on the [ ] Once each quarter on the 1st beginning in
16th the month of
------------------- .
</TABLE>
Please choose one of the following options:
[ ] Mail check to my address listed in Step 1a.
[ ] Mail check as requested in Step 3f.
<PAGE> 58
- --------------------------------------------------------------------------------
D. 1. TELEPHONE EXCHANGE
This option allows you
to effect exchanges
among accounts in your
name within the Pacific
Capital group of Funds,
as described in the
Prospectus, by
telephone.
- -----------------------
Check appropriate box
[ ] YES [ ] NO
The Agent is authorized to accept and act upon my/our or any
other person's telephone instructions to execute the exchange
of shares of one Pacific Capital Fund for one of the funds
into which exchange is permitted, as designated in the
Prospectus, with identical shareholder registration. The
exchange will be executed at the relative net asset values of
the two funds as next determined following receipt of such
instructions.
Except for gross negligence in acting upon such telephone
instructions to execute an exchange and subject to the
conditions set forth herein, I (we) understand and agree to
hold harmless the Agent, each of the Pacific Capital Funds,
and their respective officers, directors, trustees,
employees, agents and affiliates against any liability,
damage, expense, claim or loss, including reasonable costs
and attorney's fees resulting from acceptance of or acting or
failure to act upon this Authorization.
TO MAKE A TELEPHONE EXCHANGE, CALL THE AGENT AT 1-800-258-9232.
2. TELEPHONE REDEMPTION
This option allows you
to effect telephone
redemptions, as
described in the
Prospectus.
- -----------------------
Check appropriate box
[ ] YES [ ] NO
The Agent is authorized to accept and act upon my/our or any
other person's telephone instructions to execute a redemption
of shares of one or more Pacific Capital Funds. The
redemption will be executed at net asset value next
determined following receipt of such instructions.
Except for gross negligence in acting upon such telephone
instructions to execute a redemption and subject to the
conditions set forth herein, I (we) understand and agree to
hold harmless the Agent, each of the Pacific Capital Funds,
and their respective officers, directors, trustees,
employees, agents and affiliates against any liability,
damage, expense, claim or loss, including reasonable costs
and attorney's fees resulting from acceptance of or acting or
failure to act upon this Authorization.
TO MAKE A TELEPHONE REDEMPTION, CALL THE AGENT AT 1-800-258-9232.
- --------------------------------------------------------------------------------
E. EXPEDITED REDEMPTION
The proceeds will be
deposited to your
financial institution
account listed.
- -----------------------
Check appropriate box
[ ] YES [ ] NO
TO MAKE AN EXPEDITED
REDEMPTION, CALL THE
AGENT AT
1-800-258-9232.
Cash proceeds in any amount from the redemption of shares
will be mailed or wired, whenever possible, upon request, if
in an amount of $1,000 or more to my (our) account at a
financial institution. The financial institution account must
be in the same name(s) as this Pacific Capital Fund account
is registered. YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR
VOIDED CHECK.
<TABLE>
<S> <C>
----------------------------------------------
Financial Institution Account Registration
----------------------------------------------
Name of Financial Institution
----------------------------------------------
Street
<S> <C>
---------------------------------------------- ---------------------------------------
Financial Institution Account Registration Financial Institution Account Number
---------------------------------------------- ---------------------------------------
Financial Institution Transit/Routing
Name of Financial Institution Number
---------------------------------------------- ---------------------------------------
City State Zip
Street Code
</TABLE>
- --------------------------------------------------------------------------------
F. SECONDARY ADDRESS
- -----------------------
Check appropriate box
[ ] YES [ ] NO
Checks should be made payable as indicated below. If check is
payable to a financial institution, i.e., a commercial bank,
savings bank or credit union, for your account, indicate
financial institution name, address and your account number.
<TABLE>
<S> <C>
----------------------------------------------
First Name Middle Initial Last Name
----------------------------------------------
First Name Middle Initial Last Name
----------------------------------------------
Street
----------------------------------------------
City State Zip Code
<S> <C>
---------------------------------------------- ---------------------------------------
First Name Middle Initial Last Name Name of Financial Institution
---------------------------------------------- ---------------------------------------
First Name Middle Initial Last Name Street
---------------------------------------------- ---------------------------------------
City State Zip
Street Code
---------------------------------------------- ---------------------------------------
City State Zip Code Financial Institution Account Number
</TABLE>
<PAGE> 59
- --------------------------------------------------------------------------------
STEP 4 CLIENT AGREEMENT
CLIENT AGREEMENT After reading this section, please sign in Step 5, Section B.
To: BISYS Fund Services Limited Partnership (the "Distributor"), and BISYS
Fund Services, Inc. (the "Transfer Agent") and Pacific Century Trust (the
"Investment Adviser").
I (We) have full right, power, authority and legal capacity; and am (are) of
legal age in my (our) state of residence to purchase shares of the investment
portfolios ("Funds") of the Pacific Capital Funds (the "Fund Company"). I (we)
affirm that I (we) have received and read the current prospectus(es) of the
Fund(s) selected and agree to be bound by its terms.
A. THE MEANING OF WORDS IN THIS AGREEMENT: The words "I," "me" and "my" refer to
the person(s) who signed this Agreement. The words "you" and "your" refer to the
Distributor and the Transfer Agent.
B. REPRESENTATIONS. I understand that you provide no investment, tax, or legal
advice, and I have relied on my independent judgement with respect to the
suitability or potential value of any security or order.
C. DEBIT AUTHORIZATION AND SETTLEMENT. If I authorize, and if the Transfer Agent
approves, the use of my bank account designated in Step 3. Section E of this
Account Registration Form (the "designated account") as the settlement account
in connection with this account. I understand and agree that the Transfer Agent
may debit the designated account for payment of securities purchased by me
either by way of this Account Registration Form and order, by signing up for the
Automatic Investment Plan, or for subsequent purchases in any Funds as I may
direct. If I have instructed that a purchase be settled through a debit of my
account, I certify that I have the power and authority to debit the account. I
agree to have sufficient collected funds available in the designated account to
cover the amounts due on purchase of securities at the time of placing my order.
If I have designated another method of payment, I agree to deliver sufficient
collected funds to cover the amount due by 9:00 a.m. (Eastern Time) on the
settlement date. I understand that if sufficient collected funds are not
available, my purchase will be rejected and I will be liable for any resulting
loss.
If the Transfer Agent executes a transaction but fails to receive sufficient
payment for such shares, the Transfer Agent may, without prior notice, redeem
any Pacific Capital shares. I agree to reimburse the Fund or BISYS Fund
Services, Inc. on demand for any costs, losses or liabilities incurred by such
party in collection of the debit balance.
I understand and agree that the Transfer Agent may credit the designated
account with dividend distributions, Automatic Withdrawal Plan, and other
distributions that are payable to me (us) by the Fund Company.
I further understand that the Automatic Withdrawal Plan and the Automatic
Investment Plan may be terminated or modified at any time without notice.
D. FORCE MAJEURE. You shall not be liable for any loss or delay caused directly
or indirectly by war, natural disaster, government restrictions, exchange or
market rulings or other conditions beyond your control.
E. RECORDING CONVERSATIONS. I understand and agree that, for our mutual
protection, telephone conversations may be recorded without further notice.
F. APPLICABLE LAWS AND REGULATIONS. All transactions shall be subject to rules,
regulations, customs and usages of the exchange, market or clearinghouse where
executed, all applicable federal and state laws and regulations, and the
policies and procedures as determined by the Fund Company set forth in its then
current prospectus(es).
G. GOVERNING LAWS. The Agreement shall be governed by the laws of the State of
Ohio as applicable.
H. RELIANCE ON REPRESENTATIONS. I understand that you shall rely on the
information that I have set forth in this Agreement. I agree that all changes to
this information shall be promptly provided to the Transfer Agent in writing.
The Transfer Agent is entitled to rely on this information until I change it by
subsequent written notice.
I. DELIVERY AND RECEIPT. Any orders for transactions in the Funds under this
Agreement will NOT be effective until received and approved by the Distributor
and the Transfer Agent at their offices in Columbus, Ohio. The Distributor and
the Transfer Agent shall not be responsible for any losses or lost profit
opportunity I may experience due to any delays in the execution of purchase and
redemption orders as a result of delayed receipt of such orders.
J. INSTRUCTIONS. Neither the Distributor, the Transfer Agent nor the Fund
Company shall be liable for any loss, damages, expense or cost arising out of
any telephone redemption effected in accordance with the Fund Company's
telephone redemption procedures, upon instructions reasonably believed to be
genuine. The Fund Company and its agents will employ procedures designated to
provide reasonable assurance that instructions by telephone are genuine. These
procedures include recording all phone conversations, sending confirmations to
shareholders within 72 hours of the telephone transaction, verification of
account name and account number or tax identification number and sending
redemption proceeds only to the address of record or to a previously authorized
bank account.
K. ARBITRATION. This paragraph contains what is sometimes referred to as a
predispute arbitration clause. In this regard, I am aware of the following:
(i) Arbitration is final and binding on the parties.
(ii) The parties are waiving their right to seek remedies in court, including
the right to jury trial.
(iii) Pre-arbitration discovery is generally more limited than and different
from court proceedings.
(iv) The arbitrators' award is not required to include factual findings or legal
reasoning and any party's right to appeal or to seek modification of rulings by
the arbitrators is strictly limited.
(v) The panel of arbitrators will typically include a minority of arbitrators
who were or are affiliated with the securities industry.
(vi) All agreements shall include a statement that "No person shall bring a
putative or certified class action to arbitration, nor seek to enforce any
predispute arbitration agreement against any person who has initiated in court a
putative class action; or who is a member of a putative class who has not opted
out of the class with respect to any claims encompassed by the putative class
action until: (i) the class certification is denied, or (ii) the class is
decertified, or (iii) the person against whom the arbitration agreement would be
enforced is excluded from the class by the court. Such forbearance to enforce an
agreement to arbitrate shall not constitute a waiver of any rights under this
agreement except to the extent stated herein."
It is agreed that any controversy between me and the Fund Company and/or any
of its service providers (including the Investment Adviser) arising out of this
Agreement or my business with you, shall be settled by arbitration conducted in
accordance with the rules of the National Association of Securities Dealers,
Inc. or the American Arbitration Association, as I may elect. Failure to notify
you of such election in writing within five (5) days after receipt from you of a
request for arbitration shall be deemed to be authorization to make such
election on my behalf. Judgement upon the award of the arbitrators may be
entered by any court having jurisdiction.
L. INDEMNIFICATION. As additional consideration for the services of the
Distributor, the Transfer Agent and the Investment Adviser, with regard to this
Account, I agree to indemnify and hold each of them, the Fund Company, and their
officers, directors, employees and agents harmless from and against any and all
losses, demands, claims, actions, expenses and attorney's fees arising out of or
in connection with this Agreement which are not caused by their negligence or
willful misconduct. The provisions of this Section shall survive termination of
this Agreement; the provisions of this Section shall be binding on my successors
and assigns.
M. I understand that if disbursements out of this account are to anyone other
than the applicant or the applicant's joint tenant, a signature guarantee will
be required.
N. With respect to Step 3, I understand that if the 1st or 16th should fall on a
non-business day, the transaction will be effective on the next business day.
O. I UNDERSTAND THAT MUTUAL FUND SHARES ARE NOT DEPOSITS OF ANY BANK, ARE NOT
INSURED BY THE FDIC, ARE NOT OBLIGATIONS OF ANY BANK OR THE U.S. GOVERNMENT AND
ARE NOT ENDORSED OR GUARANTEED IN ANY WAY BY ANY BANK.
<PAGE> 60
- --------------------------------------------------------------------------------
STEP 5 DEPOSITORS AUTHORIZATION TO HONOR DEBITS
SECTION A IF YOU SELECTED AUTOMATIC INVESTMENT OR TELEPHONE INVESTMENT YOU
MUST ALSO COMPLETE STEP 5,
SECTIONS A & B.
I/We authorize the Financial Institution listed below to charge my/our account
for any drafts or debits drawn on my/our account initiated by the Agent, BISYS
Fund Services, Inc., and to pay such sums in accordance therewith, provided
my/our account has sufficient funds to cover such drafts or debits. I/We further
agree that your treatment of such orders will be the same as if I/we personally
signed or initiated the drafts or debits.
I/we understand that this authority will remain in effect until you receive
my/our written instructions to cancel this service. I/We also agree that if any
such drafts or debits are dishonored, for any reason, you shall have no
liabilities.
FINANCIAL INSTITUTION ACCOUNT NUMBER
<TABLE>
<S> <C>
NAME AND ADDRESS ------------------------------------------------------------
WHERE MY/OUR NAME OF FINANCIAL INSTITUTION
ACCOUNT IS ------------------------------------------------------------
MAINTAINED STREET ADDRESS
------------------------------------------------------------
CITY STATE ZIP
CODE
</TABLE>
<TABLE>
<S> <C> <C>
NAME(S) AND ---------------------------------------------------- ------------------
SIGNATURE(S) OF PLEASE PRINT DATE
DEPOSITOR(S) AS ---------------------------------------------------- ------------------
THEY APPEAR WHERE SIGNATURE DATE
ACCOUNT IS ----------------------------------------------------
REGISTERED PLEASE PRINT
----------------------------------------------------
SIGNATURE
</TABLE>
- --------------------------------------------------------------------------------
SECTION B SHAREHOLDER AUTHORIZATION / SIGNATURE(S) REQUIRED
- I/We authorize the Pacific Capital Funds and its agents to act upon these
Instructions for the features that have been checked.
- I/We acknowledge that in connection with an Automatic Investment or
Telephone Investment, if my/our account at the Financial Institution has
insufficient funds, Pacific Capital Funds and its agents may cancel the
purchase transaction and are authorized to liquidate other shares or
fractions thereof held in my/our Pacific Capital Fund account to make up any
deficiency resulting from any decline in the net asset value of shares so
purchased and any dividends paid on those shares. I/We understand that in
the event of such deficiency, Pacific Capital Funds and its agents will
first liquidate shares of the Pacific Capital Fund to which the purchase
transaction relates, and then, in the discretion of Pacific Capital Funds
and its agents, shares of any other Pacific Capital Fund in my/our account
at the Financial Institution. I/We authorize Pacific Capital Funds and its
agents to correct any transfer error by a debit or credit to my/our
financial Institution account and/or Fund account and to charge the account
for any related charges.
- I/We acknowledge that shares purchased either through Automatic Investment
or Telephone Investment are subject to applicable sales charges.
- The undersigned warrants that he/she has full authority and is of legal age
to purchase shares of the Pacific Capital Fund(s) designated above and has
received and read a current Prospectus of such Fund(s) and agrees to its
terms. Pacific Capital Funds, Agent and the Distributor and their Trustees,
directors, employees and agents will not be liable for acting upon
instructions believed to be genuine, and will not be responsible for any
losses resulting from unauthorized telephone transactions if the Agent
follows reasonable procedures designed to verify the identity of the caller.
The Agent will request some or all of the following information: account
name and number, name(s) and social security number registered to the
account and personal identification; the Agent may also record calls.
Shareholders should verify the accuracy of confirmation statements
immediately upon receipt. Under penalties of perjury, the undersigned whose
Social Security (Tax I.D.) Number is shown above certifies(I) that Number is
my correct taxpayer identification number and (II) currently I am not under
IRS notification that I am subject to backup withholding (line out (II) if
under notification). If no such Number is shown, the undersigned further
certifies, under penalties of perjury, that either (a) no such Number has
been issued, and a Number has been or will soon be applied for. If a Number
is not provided to you within sixty days, the undersigned understands that
all payments (including liquidations) are subject to 31% withholding under
federal tax law, until a Number is provided and the undersigned may be
subject to a $50 I.R.S. penalty; or (b) that the undersigned is not a
citizen resident of the U.S.; and either does not expect to be in the U.S.
for more than 182 days during each calendar year and does not conduct a
business in the U.S. which would receive any gain from the Fund, or is
exempt under an income tax treaty. NOTE: ALL REGISTERED OWNERS OF THE
ACCOUNT MUST SIGN BELOW. FOR A TRUST, ALL TRUSTEES MUST SIGN*
THIS AGREEMENT CONTAINS A PREDISPUTE ARBITRATION CLAUSE IN STEP 4, LETTER K.
<TABLE>
<S> <C> <C>
- ------------------------------------------ ------------------------------------------ ------------------
INDIVIDUAL (OR CUSTODIAN) JOINT REGISTRANT, IF ANY DATE
- ------------------------------------------
CORPORATE OFFICER, PARTNER, TRUSTEE(S), ------------------------------------------ ------------------
ETC. TITLE DATE
*FOR A TRUST, CORPORATION OR ASSOCIATION, THIS FORM MUST BE ACCOMPANIED BY PROOF OF AUTHORITY TO SIGN, SUCH
AS A CERTIFIED COPY OF THE CORPORATE RESOLUTION OR A CERTIFICATE OF INCUMBENCY UNDER THE TRUST
INSTRUMENT.
</TABLE>
<PAGE> 61
SPECIAL INFORMATION
- Certain features (Automatic Investment, Telephone Investment, Expedited
Redemption and Direct Deposit of Dividends) are effective 15 days after this
form is received in good order by the Fund's Agent.
- You may cancel any feature at any time, effective 3 days after the Agent
receives notice from you.
- Either the Fund or the Agent may cancel any feature, without prior notice,
if in its judgment your use of any feature involves unusual effort or
difficulty in the administration of your account.
- The Fund reserves the right to alter, amend or terminate any or all features
or to charge a service fee upon 30 days' written notice to shareholders
except if additional notice is specifically required by the terms of the
Prospectus.
BANKING INFORMATION
- If your Financial Institution account changes, you must complete a Ready
Access Features form which may be obtained from the Agent at 1-800-258-9232
and send it to the Agent together with a "voided" check or pre-printed
deposit slip from the new account. The new Financial Institution change is
effective in 15 days after this form is received in good order by the Fund's
Agent.
TERMS OF LETTER OF INTENT AND ESCROW
By checking Box 2c and signing the Application, the investor is entitled to
make each purchase at the public offering price applicable to a single
transaction of the dollar amount checked above, and agrees to be bound by the
terms and conditions applicable to Letters of Intent appearing below.
The investor is making no commitment to purchase shares, but if the
investor's purchases within thirteen months from the date of the investor's
first purchase do not aggregate $25,000, or, if such purchases added to the
investor's present holdings do not aggregate the minimum amount specified
above, the investor will pay the increased amount of sales charge prescribed
in the terms of escrow below.
The commission to the dealer or broker, if any, named herein shall be at the
rate applicable to the minimum amount of the investor's specified intended
purchases checked above. If the investor's actual purchases do not reach this
minimum amount, the commissions previously paid to the dealer will be adjusted
to the rate applicable to the investor's total purchases. If the investor's
purchases exceed the dollar amount of the investor's intended purchases and
pass the next commission break-point, the investor shall receive the lower
sales charge, provided that the dealer returns to the Distributor the excess
of commissions previously allowed or paid to him over that which would be
applicable to the amount of the investor's total purchases.
The investor's dealer or broker shall refer to this Letter of Intent in
placing any future purchase orders for the investor while this Letter is in
effect.
The escrow shall operate as follows:
1. Out of the initial purchase (or subsequent purchases if necessary), 3% of
the dollar amount specified in the Letter of Intent shall be held in
escrow in shares of the Fund by the Agent. All dividends and any capital
distributions on the escrowed shares will be credited to the investor's
account.
2. If the total minimum investment specified under the Letter is completed
within a thirteen-month period, the escrowed shares will be promptly
released to the investor. However, shares disposed of prior to completion
of the purchase requirement under the Letter will be deducted from the
amount required to complete the investment commitment.
3. If the total purchases pursuant to the Letter are less than the amount
specified in the Letter as the intended aggregate purchase, the investor
must remit to the Agent an amount equal to the difference between the
dollar amount of sales charges actually paid and the amount of sales
charges which would have been paid if the total amount purchased had been
made at a single time. If such difference in sales charges is not paid
within twenty days after receipt of a request from the Agent or the
dealer, the Agent will, within sixty days after the expiration of the
Letter, redeem the number of escrowed shares necessary to realize such
difference in sales charges. Any shares remaining after such redemption
will be released to the investor. The escrow of shares will not be
released until any additional sales charge due has been paid as stated in
this section.
4. By checking Box 2c and signing the Application, the investor irrevocably
constitutes and appoints the Agent or the Distributor as his attorney to
surrender for redemption any or all escrowed shares on the books of the
Fund.
AUTOMATIC WITHDRAWAL PLAN PROVISIONS
By requesting an Automatic Withdrawal Plan, the applicant agrees to the terms
and conditions applicable to such plans, as stated below.
1. The Agent will administer the Automatic Withdrawal Plan (the "Plan") as
agent for the person (the "Planholder") who executed the Plan
authorization.
2. Certificates will not be issued for shares of the Fund purchased for and
held under the Plan, but the Agent will credit all such shares to the
Planholder on the records of the Fund. Any share certificates now held by
the Planholder may be surrendered unendorsed to the Agent with the
application so that the shares represented by the certificate may be held
under the Plan.
3. Dividends and distributions will be reinvested in shares of the Fund at
the Net Asset Value.
4. Redemptions of shares in connection with disbursement payments will be
made at the Net Asset Value per share in effect at the close of business
on the first business day of the month or quarter.
5. The amount and the interval of disbursement payments and the address to
which checks are to be mailed may be changed, at any time, by the
Planholder on written notification to the Agent. The Planholder should
allow at least two weeks' time in mailing such notification before the
requested change can be put in effect.
6. The Planholder may, at any time, instruct the Agent by written notice (in
proper form in accordance with the requirements of the then current
prospectus of the Fund) to redeem all, or any part of, the shares held
under the Plan. In such case the Agent will redeem the number of shares
requested at the Net Asset Value per share in effect in accordance with
the Fund's usual redemption procedures and will mail a check for the
proceeds of such redemption to the Planholder.
7. The Plan may, at any time, be terminated by the Planholder on written
notice to the Agent, or by the Agent upon receiving directions to that
effect from the Fund. The Agent will also terminate the Plan upon receipt
of evidence satisfactory to it of the death or legal incapacity of the
Planholder. Upon termination of the Plan by the Agent or the Fund, shares
remaining unredeemed will be held in an uncertificated account in the
name of the Planholder, and the account will continue as a dividend-
reinvestment, uncertificated account unless and until proper instructions
are received from the Planholder, his executor or guardian, or as
otherwise appropriate.
8. The Agent shall incur no liability to the Planholder for any action taken
or omitted by the Agent in good faith.
9. In the event that the Agent shall cease to act as transfer agent for the
Fund, the Planholder will be deemed to have appointed any successor
transfer agent to act as his Agent in administering the Plan.
10. Purchases of additional shares concurrently with withdrawals are
undesirable because of sales charges when purchases are made.
Accordingly, a Planholder may not maintain this Plan while simultaneously
making regular purchases. While an occasional lump sum investment may be
made, such investment should normally be an amount equivalent to three
times the annual withdrawal or $5,000, whichever is less.
<PAGE> 62
QUESTIONS?
Call 800-258-9232 between 8 a.m. and
9 p.m. Eastern time or contact your
investment representative.
[PACIFIC CAPITAL FUNDS LOGO]
December 1, 1999
------------------------
Growth Stock Fund
Growth and Income Fund
Value Fund
Balanced Fund
Small Cap Fund
New Asia Growth 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> 63
PACIFIC CAPITAL FUNDS TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
RISK/RETURN SUMMARY AND FUND EXPENSES
LOGO
Carefully review this 3 Growth Stock Fund
important section, which 7 Growth and Income Fund
summarizes each Fund's 11 Value Fund
investments, risks, past 14 Balanced Fund
performance, and fees. 17 Small Cap Fund
20 New Asia Growth Fund
24 International Stock Fund
INVESTMENT OBJECTIVES, POLICIES AND RISKS
LOGO
Review this section for 27 Growth Stock Fund
details on each Fund's 27 Growth and Income Fund
investment strategies and 27 Value Fund
risks. 28 Balanced Fund
28 Small Cap Fund
29 New Asia Growth Fund
29 International Stock Fund
30 Main Risks
FUND MANAGEMENT
LOGO
Review this section for 33 The Investment Adviser
details on the people and 33 The Sub-Advisers
organizations who oversee 33 Portfolio Managers
the Funds. 35 The Distributor and Administrator
SHAREHOLDER INFORMATION
LOGO
Review this section for 36 Pricing of Fund Shares
details on how shares are 37 Purchasing and Adding to Your Shares
valued, how to purchase, 40 Selling Your Shares
sell and exchange shares, 44 Distribution Arrangements/Sales Charges
related charges, and 50 Exchanging Your Shares
payments of dividends and 51 Dividends, Distributions and Taxes
distributions.
FINANCIAL HIGHLIGHTS
LOGO
Review this section for 52
details on selected
financial highlights of the
Funds.
</TABLE>
2
<PAGE> 64
[LOGO]
RISK/RETURN SUMMARY AND FUND EXPENSES GROWTH STOCK FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES - Long term capital appreciation
- Secondarily, dividend income
PRINCIPAL INVESTMENT The Fund invests primarily in a diversified portfolio of common stocks of
STRATEGIES U.S. and foreign companies with market capitalizations (total market price
of outstanding equity securities) greater than $750 million, and securities
that are convertible into such common stocks. The Fund may invest a
significant portion of its assets in smaller and newer companies. The Fund
focuses on companies whose earnings are growing substantially faster than
the average for the U.S. market.
PRINCIPAL Because the value of the Fund's investments will fluctuate with market
INVESTMENT RISKS 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 movements in interest
rates; if rates rise, the values of convertible securities may fall.
WHO MAY Consider investing in the Fund if you:
WANT TO INVEST? - are investing for long term goals
- want potential capital appreciation and are willing to accept the higher
risks associated with investing in stocks
- want professional portfolio management
This Fund is not appropriate for anyone seeking:
- safety of principal
- regular income
- a short term investment
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.
</TABLE>
3
<PAGE> 65
RISK/RETURN SUMMARY AND FUND EXPENSES GROWTH STOCK FUND
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31
FOR CLASS A SHARES*
<TABLE>
<CAPTION>
'1989' 30.77
- ------ -----
<S> <C>
'90' 2.26
'91' 35.25
'92' 2.07
'93' 6.91
'94' -1.22
'95' 29.79
'96' 14.75
'97' 30.19
'98' 35.58
</TABLE>
The bar chart does not reflect the impact of
any applicable sales charges. 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.
Best quarter: Q4
1998 +29.29%
Worst quarter: Q3
1990 -14.29%
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending December 31, 1998)***
The chart and table on this
page show how the Growth
Stock Fund has performed
and provide some indication
of the risks of investing
in the Fund by showing 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 the S&P 500(R) Stock
Index, a widely recognized
index of U.S. common
stocks.
Both the chart and the
table assume reinvestment
of dividends and
distributions. Of course,
past performance does not
indicate how the Fund will
perform in the future.
<TABLE>
<CAPTION>
PERFORMANCE PAST PAST 5 PAST 10 SINCE
INCEPTION* YEAR YEARS YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
CLASS A 10/31/77 30.20% 20.04% 17.28% 13.44%
(with 4.00% sales charge)
CLASS B** 10/31/77 30.90% 20.81% 17.69% 13.63%
(with applicable CDSC)
S&P 500(R) STOCK INDEX 10/31/77 28.12% 23.92% 19.22% 16.96%
</TABLE>
* The quoted performance of the Fund includes the performance of a common trust
fund ("Commingled") account 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 the Fund's commencement of operations on November 1, 1993, as
adjusted to reflect the expenses associated with the Fund. The
4
<PAGE> 66
Commingled account was not registered with the Securities and Exchange
Commission under the Investment Company Act of 1940 and therefore was not
subject to the investment restrictions imposed by law on registered mutual
funds. If the Commingled account had been registered, the Commingled account's
performance may have been adversely affected.
** Class B shares of the Fund commenced operations on March 2, 1998.
*** For the period January 1, 1999 through September 30, 1999, the aggregate
(non-annualized) total returns of Class A shares (with 4.00% sales charge) and
Class B shares (with applicable CDSC), were 0.96% and -0.39%, respectively,
versus 5.37% for the S&P 500(R) Stock Index.
5
<PAGE> 67
RISK/RETURN SUMMARY AND FUND EXPENSES GROWTH STOCK FUND
FEES AND EXPENSES
The fees and expenses for each Class are
based upon the actual operating expenses of
that Class for the fiscal year ended July
31, 1999.
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
(EXPENSES PAID BY YOU DIRECTLY) A SHARES B SHARES
Maximum sales charge (load) on
purchases (as a % of offering 4.00%(1,
price) 4) None(4)
Maximum deferred sales charge
(load) (as a % of offering price
or sale price, whichever is less) None(2) 5.00%(3)
ANNUAL FUND OPERATING EXPENSES
(FEES PAID FROM FUND ASSETS) A SHARES B SHARES
Management fee 0.80% 0.80%
Distribution (12b-1) fee 0.75%* 1.00%
Other expenses* 0.30% 0.30%
Total Fund operating expenses* 1.85% 2.10%
</TABLE>
* The Distributor is limiting the 12b-1 fee
for Class A shares to 0.25%. The
Administrator is waiving a portion of the
Administration fee so that Other expenses
were 0.27% and 0.26% for Class A and B
shares, respectively. TOTAL FUND OPERATING
EXPENSES AFTER THESE FEE WAIVERS WERE 1.32%
AND 2.06% FOR CLASS A AND B SHARES,
RESPECTIVELY. These expense limitations may
be revised or canceled at any time.
(1) Lower sales charges are available depending upon the amount invested.
(2) For investments of $1 million or more, a Contingent Deferred Sales Charge
is applicable to redemptions within one year of purchase.
(3) 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.
(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 12b-1
fees.
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
broker or other investment
representative, including
an affiliate of Pacific
Century, they may charge
you an account-level fee
for additional services
provided to you in
connection with your
investment in the Fund.
CONTINGENT DEFERRED
SALES CHARGE
Class B shares 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").
6
<PAGE> 68
RISK/RETURN SUMMARY AND FUND EXPENSES GROWTH STOCK FUND
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
CLASS A SHARES $580 $958 $1,361 $2,482
CLASS B SHARES
Assuming redemption $713 $958 $1,329 $2,368
Assuming no redemption $213 $658 $1,129 $2,368
</TABLE>
After approximately eight years, Class B
shares will automatically convert to Class
A shares.
Use this table to compare
fees and expenses of the Fund
with those of other funds. It
illustrates the amount of
fees and expenses you would
pay assuming the following:
- $10,000 investment in the
Fund
- 5% annual return
- no changes in the Fund's
operating expenses
Because this example is
hypothetical and for
comparison only, your actual
costs will be different.
7
<PAGE> 69
[LOGO]
RISK/RETURN SUMMARY AND FUND EXPENSES GROWTH AND INCOME FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES - Current income
- Secondarily, long term capital appreciation
PRINCIPAL The Fund invests primarily in a diversified portfolio of
INVESTMENT STRATEGIES high quality, dividend paying common stocks of U.S.
companies with market capitalizations (total market price of
outstanding equity securities) greater than $750 million,
and securities that are convertible into such common stocks.
The Fund focuses on companies whose earnings are growing at
above average rates in relation to other companies in their
industries. The Fund seeks to produce a gross yield that
approximates that of the average for companies in the S&P
500(R) Stock Index.
PRINCIPAL Because the value of the Fund's investments will fluctuate
INVESTMENT RISKS 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, if any, are also affected by
movements in interest rates; if rates rise, the values of
convertible securities may fall.
WHO MAY Consider investing in the Fund if you:
WANT TO INVEST? - want current income
- want potential capital appreciation and are willing to
accept higher risks associated with investing in stocks
- want professional portfolio management
This Fund is not appropriate for anyone seeking:
- safety of principal
- a short term investment
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.
</TABLE>
8
<PAGE> 70
RISK/RETURN SUMMARY AND FUND EXPENSES GROWTH AND INCOME FUND
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31
FOR CLASS A SHARES*
<TABLE>
<CAPTION>
'1989' 28.43
- ------ -----
<S> <C>
'90' -1.82
'91' 24.01
'92' 0.75
'93' 4.67
'94' 0.23
'95' 26.3
'96' 18.39
'97' 33.58
'98' 28.53
</TABLE>
The bar chart does not reflect the impact of
any applicable sales charges. 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.
Best quarter: Q4
1998 +24.15%
Worst quarter: Q3
1990 -11.48%
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending December 31, 1998)***
The chart and table on this
page show how the Growth
and Income Fund has
performed and provide some
indication of the risks of
investing in the Fund by
showing 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 the S&P 500(R) Stock
Index, a widely recognized
index of U.S. common
stocks.
Both the chart and the
table assume reinvestment
of dividends and
distributions. Of course,
past performance does not
indicate how the Fund will
perform in the future.
<TABLE>
<CAPTION>
PERFORMANCE PAST PAST 5 PAST 10 SINCE
INCEPTION* YEAR YEARS YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
CLASS A 10/31/77 28.53% 20.81% 15.55% 11.68%
(with 4.00% sales charge)
CLASS B** 10/31/77 27.58% 20.63% 15.46% 11.64%
(with applicable CDSC)
S&P 500(R) STOCK INDEX 10/31/77 28.12% 23.92% 19.22% 16.96%
</TABLE>
* The quoted performance of the Fund includes the performance of a common trust
fund ("Commingled") account 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 the Fund's commencement of operations on October 14, 1994, as
adjusted to reflect the expenses associated with the Fund. The Commingled
account was not registered with the Securities and Exchange Commission under the
Investment Company Act of 1940
9
and therefore was not subject to the investment restrictions imposed by law on
registered mutual funds. If the Commingled account had been registered, the
Commingled account's performance may have been adversely affected.
** Class B shares of the Fund commenced operations on March 2, 1998.
*** For the period January 1, 1999 through September 30, 1999, the aggregate
(non-annualized) total returns of Class A shares (with 4.00% sales charge) and
Class B shares (with applicable CDSC), were -4.17% and -5.68%, respectively
versus 5.37% for the S&P 500(R) Stock Index.
10
<PAGE> 71
RISK/RETURN SUMMARY AND FUND EXPENSES GROWTH AND INCOME FUND
FEES AND EXPENSES
The fees and expenses for each Class are
based upon the actual operating expenses for
that Class for the fiscal year ended July
31, 1999.
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
(EXPENSES PAID BY YOU DIRECTLY) A SHARES B SHARES
Maximum sales charge (load) on
purchases (as a % of offering 4.00%(1,
price) 4) None(4)
Maximum deferred sales charge
(load) (as a % of offering price) None(2) 5.00%(3)
ANNUAL FUND OPERATING EXPENSES
(FEES PAID FROM FUND ASSETS) A SHARES B SHARES
Management fee 0.80% 0.80%
Distribution (12b-1) fee 0.75%* 1.00%
Other expenses* 0.34% 0.33%
Total Fund operating expenses* 1.89% 2.13%
</TABLE>
* The Distributor is limiting the 12b-1 fee
for Class A shares to 0.25%. The
Administrator is waiving a portion of the
Administration fee so that Other expenses
were 0.30% and 0.29% for Class A and B
shares, respectively. TOTAL FUND OPERATING
EXPENSES AFTER THESE FEE WAIVERS WERE 1.35%
AND 2.09% FOR CLASS A AND B SHARES,
RESPECTIVELY. These expense limitations may
be revised or canceled at any time.
(1) Lower sales charges are available depending upon the amount invested.
(2) For investments of $1 million or more, a Contingent Deferred Sales Charge
is applicable to redemptions within one year of purchase.
(3) 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.
(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 12b-1
fees.
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
broker or other investment
representative, including
an affiliate of Pacific
Century, they may charge
you an account-level fee
for additional services
provided to you in
connection with your
investment in the Fund.
CONTINGENT DEFERRED
SALES CHARGE
Class B shares 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").
11
<PAGE> 72
RISK/RETURN SUMMARY AND FUND EXPENSES GROWTH AND INCOME FUND
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
CLASS A SHARES $584 $970 $1,380 $2,523
CLASS B SHARES
Assuming redemption $716 $967 $1,344 $2,401
Assuming no redemption $216 $667 $1,144 $2,401
</TABLE>
After approximately eight years, Class B
shares will automatically convert to Class
A shares.
Use this table to compare
fees and expenses of the Fund
with those of other funds. It
illustrates the amount of
fees and expenses you would
pay assuming the following:
- $10,000 investment in the
Fund
- 5% annual return
- no changes in the Fund's
operating expenses
Because this example is
hypothetical and for
comparison only, your actual
costs will be different.
12
<PAGE> 73
[LOGO]
RISK/RETURN SUMMARY AND FUND EXPENSES VALUE FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES - Long term capital appreciation
- Secondarily, current income
PRINCIPAL The Fund invests primarily in a diversified portfolio of
INVESTMENT STRATEGIES U.S. traded common stocks with market capitalizations (total
market price of outstanding equity securities) greater than
$750 million, and securities that are convertible into such
common stocks. The Fund focuses on companies whose cash
flow-to-price ratio exceeds that of their industry average
and whose stock price Pacific Century believes is
undervalued.
PRINCIPAL Because the value of the Fund's investments will fluctuate
INVESTMENT RISKS 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, if any, may be affected by movements
in interest rates; if rates rise, the values of convertible
securities may fall.
WHO MAY Consider investing in the Fund if you:
WANT TO INVEST? - want potential capital appreciation and are willing to
accept the higher risks associated with investing in stocks
- want professional portfolio management
This Fund is not appropriate for anyone seeking:
- safety of principal
- a short term investment
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.
</TABLE>
13
<PAGE> 74
RISK/RETURN SUMMARY AND FUND EXPENSES VALUE FUND
FEES AND EXPENSES
The fees and expenses for each Class are
based upon the actual operating expenses of
that Class for the fiscal period ended July
31, 1999. (The Fund commenced operations on
December 8, 1998.)
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
(EXPENSES PAID BY YOU DIRECTLY) A SHARES B SHARES
Maximum sales charge (load) on
purchases (as a % of offering 4.00%(1,
price) 4) None(4)
Maximum deferred sales charge
(load) (as a % of offering price
or sale price, whichever is less) None(2) 5.00%(3)
ANNUAL FUND OPERATING EXPENSES
(FEES PAID FROM FUND ASSETS) A SHARES B SHARES
Management fee 0.80% 0.80%
Distribution (12b-1) fee 0.75%* 1.00%
Other expenses* 0.60% 0.68%
Total Fund operating expenses* 2.15% 2.48%
</TABLE>
* The Distributor is limiting the 12b-1 fee
for Class A shares to 0.25%. The
Administrator is waiving a portion of the
Administration fee so that Other expenses
were 0.55% and 0.64% for Class A and B
shares, respectively. TOTAL FUND OPERATING
EXPENSES AFTER THESE FEE WAIVERS WERE 1.60%
AND 2.44% FOR CLASS A AND B SHARES,
RESPECTIVELY. These expense limitations may
be revised or canceled at any time.
(1) Lower sales charges are available depending upon the amount invested.
(2) For investments of $1 million or more, a Contingent Deferred Sales Charge
is applicable to redemptions within one year of purchase.
(3) 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.
(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 12b-1
fees.
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
broker or other investment
representative, including
an affiliate of Pacific
Century, they may charge
you an account-level fee
for additional services
provided to you in
connection with your
investment in the Fund.
CONTINGENT DEFERRED
SALES CHARGE
Class B shares 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").
14
<PAGE> 75
RISK/RETURN SUMMARY AND FUND EXPENSES VALUE FUND
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
CLASS A SHARES $609 $1,046 $1,508 $2,783
CLASS B SHARES
Assuming redemption $751 $1,073 $1,521 $2,735
Assuming no redemption $251 $ 773 $1,321 $2,735
</TABLE>
After approximately eight years, Class B
shares will automatically convert to Class
A shares.
Use this table to compare
fees and expenses of the Fund
with those of other funds. It
illustrates the amount of
fees and expenses you would
pay assuming the following:
- $10,000 investment in the
Fund
- 5% annual return
- no changes in the Fund's
operating expenses
Because this example is
hypothetical and for
comparison only, your actual
costs will be different.
PERFORMANCE INFORMATION
Because this Fund has been
operating for less than one
calendar year, performance
information is not included.
15
<PAGE> 76
[LOGO]
RISK/RETURN SUMMARY AND FUND EXPENSES BALANCED FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES - Current income
- Secondarily, long term capital appreciation
PRINCIPAL The Fund invests primarily in a diversified portfolio of
INVESTMENT STRATEGIES 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. By using a
combination of stocks and bonds, which often fluctuate in
different directions, the Fund seeks to provide above
average income, good long term growth and lower volatility
than a pure stock portfolio.
PRINCIPAL Because the value of the Fund's investments will fluctuate
INVESTMENT RISKS 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 Consider investing in the Fund if you:
WANT TO INVEST? - want current income
- want potential capital appreciation and are willing to
accept the higher risks associated with investing in stocks
- want professional portfolio management
This Fund is not appropriate for anyone seeking:
- safety of principal
- a short term investment
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.
</TABLE>
16
<PAGE> 77
RISK/RETURN SUMMARY AND FUND EXPENSES BALANCED FUND
FEES AND EXPENSES
The fees and expenses for each Class are
based upon the actual operating expenses of
that Class for the fiscal period ended July
31, 1999. (The Fund commenced operations on
June 21, 1999.)
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
(EXPENSES PAID BY YOU DIRECTLY) A SHARES B SHARES
Maximum sales charge (load) on
Purchases (as a % of offering
price) 4.00%(1,4) None(4)
Maximum deferred sales charge
(load) (as a % of offering price) None(2) 5.00%(3)
ANNUAL FUND OPERATING EXPENSES
(FEES PAID FROM FUND ASSETS) A SHARES B SHARES
Management fee* 0.80% 0.80%
Distribution (12b-1) fee 0.75%* 1.00%
Other expenses* 0.48% 0.51%
Total Fund operating expenses* 2.03% 2.31%
</TABLE>
* The Adviser is limiting the Management
fee to 0.70%, the Distributor is limiting
the 12b-1 fee for Class A shares to 0.25%
and the Administrator is waiving a portion
of the Administration fee so that Other
expenses were 0.43% and 0.46% for Class A
and B shares, respectively. TOTAL FUND
OPERATING EXPENSES AFTER THESE FEE WAIVERS
WERE 1.38% AND 2.16% FOR CLASS A AND B
SHARES, RESPECTIVELY. These expense
limitations may be revised or canceled at
any time.
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
broker or other investment
representative, including
an affiliate of Pacific
Century, they may charge
you an account-level fee
for additional services
provided to you in
connection with your
investment in the Fund.
CONTINGENT DEFERRED
SALES CHARGE
Class B shares 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").
(1) Lower sales charges are available depending upon the amount invested.
(2) For investments of $1 million or more, a Contingent Deferred Sales Charge
is applicable to redemptions within one year of purchase.
(3) 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.
(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 12b-1
fees.
17
<PAGE> 78
RISK/RETURN SUMMARY AND FUND EXPENSES BALANCED FUND
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
CLASS A SHARES $598 $1,011 $1,449 $2,664
CLASS B SHARES
Assuming redemption $734 $1,021 $1,435 $2,576
Assuming no redemption $234 $ 721 $1,235 $2,576
</TABLE>
After approximately eight years, Class B
shares will automatically convert to Class
A shares.
Use this table to compare
fees and expenses of the Fund
with those of other funds. It
illustrates the amount of
fees and expenses you would
pay assuming the following:
- $10,000 investment in the
Fund
- 5% annual return
- no changes in the Fund's
operating expenses
Because this example is
hypothetical and for
comparison only, your actual
costs will be different.
PERFORMANCE INFORMATION
Because this Fund has been
operating for less than one
calendar year, performance
information is not included.
18
<PAGE> 79
[LOGO]
RISK/RETURN SUMMARY AND FUND EXPENSES SMALL CAP FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE - Long term capital appreciation
PRINCIPAL The Fund invests primarily in a diversified portfolio of
INVESTMENT STRATEGIES common stocks of smaller U.S. companies, and securities that
are convertible into such common stocks. The Fund focuses on
stocks its Sub-Adviser believes are undervalued,
fundamentally strong and undergoing positive change.
PRINCIPAL Because the value of the Fund's investments will fluctuate
INVESTMENT RISKS 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,
if any, may be affected by movements in interest rates; if
rates rise, the values of convertible securities may fall.
WHO MAY Consider investing in the Fund if you:
WANT TO INVEST? - are investing for long term goals
- want potential capital appreciation and are willing to
accept the higher risks associated with investing in small
cap stocks
- want professional portfolio management
This Fund is not appropriate for anyone seeking:
- safety of principal
- a short term investment
- regular income
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.
</TABLE>
19
<PAGE> 80
RISK/RETURN SUMMARY AND FUND EXPENSES SMALL CAP FUND
FEES AND EXPENSES
The fees and expenses for each Class are
based upon the actual operating expenses of
that Class for the fiscal period ended July
31, 1999. (The Fund commenced operations on
December 8, 1998.)
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
(EXPENSES PAID BY YOU DIRECTLY) A SHARES B SHARES
Maximum sales charge (load) on
purchases (as a % of offering 5.25%(1,
price) 4) None(4)
Maximum deferred sales charge
(load) (as a % of offering price
or sale price, whichever is less) None(2) 5.00%(3)
</TABLE>
<TABLE>
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(FEES PAID FROM FUND ASSETS) A SHARES B SHARES
Management fee* 1.10% 1.10%
Distribution (12b-1) fee 0.75%* 1.00%
Other expenses* 0.65% 0.63%
Total Fund operating expenses* 2.50% 2.73%
</TABLE>
* The Adviser is limiting the Management
fee to 1.00%, the Distributor is limiting
the 12b-1 fee for Class A shares to 0.25%
and the Administrator is waiving a portion
of the Administration fee so that Other
expenses were 0.59%. TOTAL FUND OPERATING
EXPENSES AFTER THESE FEE WAIVERS WERE 1.84%
AND 2.59% FOR CLASS A AND B SHARES,
RESPECTIVELY. In addition, the Adviser has
agreed to limit expenses so that Total Fund
operating expenses will not exceed 2.22%
and 2.97% for A and B shares, respectively.
These expense limitations may be revised or
canceled at any time.
(1) Lower sales charges are available depending upon the amount invested.
(2) For investments of $1 million or more, a Contingent Deferred Sales Charge
is applicable to redemptions within one year of purchase.
(3) 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.
(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 12b-1
fees.
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
broker or other investment
representative, including
an affiliate of Pacific
Century, they may charge
you an account-level fee
for additional services
provided to you in
connection with your
investment in the Fund.
CONTINGENT DEFERRED
SALES CHARGE
Class B shares 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").
20
<PAGE> 81
RISK/RETURN SUMMARY AND FUND EXPENSES SMALL CAP FUND
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
CLASS A SHARES $765 $1,263 $1,786 $3,212
CLASS B SHARES
Assuming redemption $776 $1,147 $1,645 $3,006
Assuming no redemption $276 $ 847 $1,445 $3,006
</TABLE>
After approximately eight years, Class B
shares will automatically convert to Class A
shares.
Use this table to compare
fees and expenses of the Fund
with those of other funds. It
illustrates the amount of
fees and expenses you would
pay assuming the following:
- $10,000 investment in the
Fund
- 5% annual return
- no changes in the Fund's
operating expenses
Because this example is
hypothetical and for
comparison only, your actual
costs will be different.
PERFORMANCE INFORMATION
Because this Fund has been
operating for less than one
calendar year, performance
information is not included.
21
<PAGE> 82
[LOGO]
RISK/RETURN SUMMARY AND FUND EXPENSES NEW ASIA GROWTH FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE - Long term capital appreciation
PRINCIPAL The Fund invests primarily in common and preferred stocks of
INVESTMENT STRATEGIES companies located in the developing countries of Asia (Asian
countries other than Japan), 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 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. The Fund focuses on companies whose
earnings the Sub-Adviser expects to grow or whose share
price it believes is undervalued.
PRINCIPAL Because the value of the Fund's investments will fluctuate
INVESTMENT RISKS 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 Consider investing in the Fund if you:
WANT TO INVEST? - want potential capital appreciation and are willing to
accept the higher risks associated with investing in
emerging country stocks
- are investing for long-term goals
- want professional portfolio management
This Fund is not appropriate for anyone seeking:
- safety of principal
- regular income
- a short term investment
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.
</TABLE>
22
<PAGE> 83
RISK/RETURN SUMMARY AND FUND EXPENSES NEW ASIA GROWTH FUND
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31
FOR CLASS A SHARES
<TABLE>
<CAPTION>
'1996' 16
- ------ --
<S> <C>
'97' -24.64
'98' -11.01
</TABLE>
The bar chart does not reflect the impact of
any applicable sales charges. 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.
Best quarter: Q4
1998 +16.17%
Worst quarter: Q2
1998 -27.20%
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending December 31, 1998)**
The chart and table on this
page show how the New Asia
Growth Fund has performed
and provide some indication
of the risks of investing
in the Fund by showing 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 the Morgan Stanley
Capital International
(MSCI) All Country (AC) Far
East Free Index (excluding
Japan), a widely recognized
index of stock markets in
that region.
Both the chart and the
table assume reinvestment
of dividends and
distributions. Of course,
past performance does not
indicate how the Fund will
perform in the future.
23
<PAGE> 84
<TABLE>
<CAPTION>
PERFORMANCE SINCE
INCEPTION PAST YEAR INCEPTION
<S> <C> <C> <C>
CLASS A
(with 5.25% sales charge) 2/15/95 -15.74% -5.11%
CLASS B*
(with applicable CDSC) 2/15/95 -15.01% -4.54%
MSCI AC FAR EAST FREE INDEX
(excluding Japan) 2/15/95 -7.16% -37.01%
</TABLE>
* Class B shares of the Fund commenced operations on March 2, 1998
** For the period January 1, 1999 through September 30, 1999, the aggregate
(non-annualized) total returns of Class A shares (with 5.25% sales charge) and
Class B shares (with applicable CDSC), were 29.07% and 30.32%, respectively
versus 49.79% for the MSCI AC Far East Free Index (excluding Japan).
24
<PAGE> 85
RISK/RETURN SUMMARY AND FUND EXPENSES NEW ASIA GROWTH FUND
FEES AND EXPENSES
The fees and expenses for each Class are
based upon the actual operating expenses of
that Class for the fiscal year ended July
31, 1999.
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
(EXPENSES PAID BY YOU DIRECTLY) A SHARES B SHARES
Maximum sales charge (load) on
purchases (as a % of offering 5.25%(1,
price) 4) None(4)
Maximum deferred sales charge
(load) (as a % of offering price
or sale price, whichever is less) None(2) 5.00%(3)
ANNUAL FUND OPERATING EXPENSES
(FEES PAID FROM FUND ASSETS) A SHARES B SHARES
Management fee 0.90% 0.90%
Distribution (12b-1) fee 0.75%* 1.00%
Other expenses* 1.13% 1.05%
Total Fund operating expenses* 2.78% 2.95%
</TABLE>
* The Distributor is limiting the 12b-1 fee
for Class A shares to 0.25%. The
Administrator is waiving a portion of the
Administration fee and the Adviser is
reimbursing certain expenses so that Other
expenses were 0.99% and 0.92% for Class A
and B shares, respectively. TOTAL FUND
OPERATING EXPENSES AFTER THESE FEE WAIVERS
WERE 2.14% AND 2.82% FOR CLASS A AND B
SHARES, RESPECTIVELY. The Adviser has
agreed to limit expenses so that Total Fund
operating expenses will not exceed 2.22%
and 2.97% for Class A and B shares,
respectively. These expense limitations may
be revised or canceled at any time.
(1) Lower sales charges are available depending upon the amount invested.
(2) For investments of $1 million or more, a Contingent Deferred Sales Charge
is applicable to redemptions within one year of purchase.
(3) 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.
(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 12b-1
fees.
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
broker or other investment
representative, including
an affiliate of Pacific
Century, they may charge
you an account-level fee
for additional services
provided to you in
connection with your
investment in the Fund.
CONTINGENT DEFERRED
SALES CHARGE
Class B shares 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").
25
<PAGE> 86
RISK/RETURN SUMMARY AND FUND EXPENSES NEW ASIA GROWTH FUND
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
CLASS A SHARES $791 $1,342 $1,917 $3,471
CLASS B SHARES
Assuming redemption $798 $1,213 $1,752 $3,231
Assuming no redemption $298 $ 913 $1,552 $3,231
</TABLE>
After approximately eight years, Class B
shares will automatically convert to Class A
shares.
Use this table to compare
fees and expenses of the Fund
with those of other funds. It
illustrates the amount of
fees and expenses you would
pay assuming the following:
- $10,000 investment in the
Fund
- 5% annual return
- no changes in the Fund's
operating expenses
Because this example is
hypothetical and for
comparison only, your actual
costs will be different.
26
<PAGE> 87
[LOGO]
RISK/RETURN SUMMARY AND FUND EXPENSES INTERNATIONAL STOCK
FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE - Long term capital appreciation
PRINCIPAL The Fund invests primarily in common and preferred stocks of
INVESTMENT STRATEGIES 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. The Fund focuses on companies whose earnings
the Sub-Adviser expects to grow or whose share price it
believes is undervalued.
PRINCIPAL Because the value of the Fund's investments will fluctuate
INVESTMENT RISKS 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, if
any, are also affected by interest rates; if rates rise, the
values of convertible securities may fall.
WHO MAY Consider investing in the Fund if you:
WANT TO INVEST? - want potential capital appreciation and are willing to
accept the higher risks associated with investing in foreign
stocks
- are investing for long-term goals
- want professional portfolio management
This Fund is not appropriate for anyone seeking:
- safety of principal
- a short term investment
- regular income
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.
</TABLE>
27
<PAGE> 88
RISK/RETURN SUMMARY AND FUND EXPENSES INTERNATIONAL STOCK FUND
FEES AND EXPENSES
The fees and expenses for each Class are
based upon the actual operating expenses of
that Class for the fiscal period ended July
31, 1999. (The Fund commenced operations on
December 8, 1998.)
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
(EXPENSES PAID BY YOU DIRECTLY) A SHARES B SHARES
Maximum sales charge (load) on
purchases (as a % of offering
price) 5.25%(1,4) None(4)
Maximum deferred sales charge
(load) (as a % of offering price
or sale price, whichever is less) None(2) 5.00%(3)
ANNUAL FUND OPERATING EXPENSES
(FEES PAID FROM FUND ASSETS) A SHARES B SHARES
Management fee* 1.10% 1.10%
Distribution (12b-1) fee 0.75%* 1.00%
Other expenses* 0.76% 0.81%
Total Fund operating expenses* 2.61% 2.91%
</TABLE>
* The Adviser is limiting the Management
fee to 1.00%, the Distributor is limiting
the 12b-1 fee for Class A shares to 0.25%
and the Administrator is waiving a portion
of the Administration fee so that Other
expenses were 0.69% and 0.76% for Class A
and B shares, respectively. TOTAL FUND
OPERATING EXPENSES AFTER THESE FEE WAIVERS
WERE 1.94% AND 2.76% FOR CLASS A AND B
SHARES, RESPECTIVELY. In addition, the
Adviser has agreed to limit expenses so
that Total Fund operating expenses will not
exceed 2.22% and 2.97% for Class A and B
shares, respectively. These expense
limitations may be revised or canceled at
any time.
(1) Lower sales charges are available depending upon the amount invested.
(2) For investments of $1 million or more, a Contingent Deferred Sales Charge
is applicable to redemptions within one year of purchase.
(3) 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.
(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 12b-1
fees.
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
broker or other investment
representative, including
an affiliate of Pacific
Century, they may charge
you an account-level fee
for additional services
provided to you in
connection with your
investment in the Fund.
CONTINGENT DEFERRED
SALES CHARGE
Class B shares 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").
28
<PAGE> 89
RISK/RETURN SUMMARY AND FUND EXPENSES INTERNATIONAL STOCK FUND
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
CLASS A SHARES $775 $1,294 $1,838 $3,315
CLASS B SHARES
Assuming redemption $794 $1,201 $1,733 $3,163
Assuming no redemption $294 $ 901 $1,533 $3,163
</TABLE>
After approximately eight years, Class B
shares will automatically convert to Class A
shares.
Use this table to compare
fees and expenses of the Fund
with those of other funds. It
illustrates the amount of
fees and expenses you would
pay assuming the following:
- $10,000 investment in the
Fund
- 5% annual return
- no changes in the Fund's
operating expenses
Because this example is
hypothetical and for
comparison only, your actual
costs will be different.
PERFORMANCE INFORMATION
Because this Fund has been
operating for less than one
calendar year, performance
information is not included.
29
<PAGE> 90
[LOGO]
INVESTMENT OBJECTIVES, POLICIES AND RISKS
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 with market
capitalizations (total market price of outstanding equity securities) greater
than $750 million, 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 The Fund focuses on
companies whose earnings are growing substantially faster than the average
for the U.S. market.
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 for the
purpose of cash flow management and/or risk reduction.
- - 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
with market capitalizations (total market price of outstanding equity
securities) greater than $750 million, and securities convertible into such
common stocks. The Fund seeks to produce a gross yield that approximates that
of the average for companies in the S&P 500(R) Stock Index. The Fund focuses
on companies whose earnings are growing at above average rates in relation to
other companies in their industries. However, to a lesser extent it may
invest in lower yielding but higher growth-oriented investments to achieve
more growth potential.
The Fund does not otherwise 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 for the purpose of cash flow management and/or risk reduction.
- - VALUE FUND
The Value Fund seeks to provide you with long term growth, and secondarily
current income.
Normally, the Fund invests primarily in U.S. traded common stocks with market
capitalizations (total market price of outstanding equity securities) greater
than $750 million, 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
otherwise limit its investments to any particular size or type of company,
but focuses on middle to large capitalization companies whose cash flow to
price ratio exceeds that of their industry average and whose stock price
Pacific Century believes is undervalued. 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 for the purpose of cash flow management and/or risk reduction.
30
<PAGE> 91
INVESTMENT OBJECTIVES, POLICIES AND RISKS
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). By using a
combination of stocks and bonds, which often fluctuate in different
directions, the Fund seeks to provide above average income, good long term
growth and lower volatility than a pure stock portfolio. It invests at least
30% 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 for the purpose of cash flow management and/or risk
reduction.
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 Adviser 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.
- - 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. The Fund invests primarily in stocks
from a universe of U.S. companies with market capitalizations within the
range of capitalizations included in the Russell 2000 Value Index at the time
of purchase. As of September 30, 1999, the companies in the Russell 2000
Value Index had a market capitalization of up to approximately $685 million.
The Fund focuses on stocks its Sub-Adviser believes are undervalued,
fundamentally strong and undergoing positive change.
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 for the purpose of
cash flow management and/or risk reduction.
31
<PAGE> 92
INVESTMENT OBJECTIVES, POLICIES AND RISKS
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 stocks,
common stock equivalents (such as preferred or debt securities convertible
into common stock), and preferred stocks 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 considered to be
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
Sub-Adviser believe have a relatively strong growth trend, or in companies
that it does not anticipate to grow but whose share price it believes is
undervalued. In selecting and maintaining a portfolio of investments in any
country, the Fund's Sub-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 Sub-Adviser 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 or its Sub-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 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 for the purpose of cash
flow management and/or risk reduction.
- - 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 stocks,
common stock equivalents (such as preferred or debt securities convertible
into common stock), and preferred stocks 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 Sub-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 Sub-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 Sub-Adviser does not give important consideration to current income from
dividends and interest in selecting portfolio securities.
32
<PAGE> 93
INVESTMENT OBJECTIVES, POLICIES AND RISKS
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; 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 in the United
States, and can use futures contracts, options and other investment
techniques for the purpose of cash flow management and/or risk reduction.
MAIN RISKS
The value of your investment in any of the Funds will go 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 may
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 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.
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.
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
33
<PAGE> 94
INVESTMENT OBJECTIVES, POLICIES AND RISKS
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 hostile relationships with
neighboring countries. This instability could impair the financial conditions
of issuers or disrupt their financial markets.
A number of Asian countries have recently experienced 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 Funds 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 or its Sub-Adviser 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 Sub-Adviser will decide whether the Fund should continue to hold the
security.
The New Asia Growth Fund and International Stock Fund may each invest up to
10% of its net assets in securities rated below investment grade or of
comparable quality, commonly referred to as "junk
34
<PAGE> 95
INVESTMENT OBJECTIVES, POLICIES AND RISKS
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 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 the Adviser and the Funds' other service providers
do not properly process and calculate date-related information for the year
2000 and beyond. In addition, Year 2000 issues may adversely affect companies
in which the Funds invest if, for example, such companies incur substantial
costs to address Year 2000 issues or suffer losses caused by the failure to
adequately or timely do so.
The Funds have been assured that the Adviser and the Funds' other service
providers have developed and are implementing clearly-defined and documented
plans intended to minimize risks to services critical to the Funds'
operations associated with Year 2000 issues. The Funds' Adviser and other
service providers are likewise seeking assurances from their respective
vendors and suppliers that such entities are addressing any Year 2000 issues,
and each provider intends to engage, where appropriate, in private and/or
industry interface testing of systems for Year 2000 readiness.
If any system upon which the Funds depend are not Year 2000 ready by December
31, 1999, administrative errors and account maintenance failures would likely
occur. While the ultimate costs or consequences of incomplete or untimely
resolution of Year 2000 issues by the Adviser or the Funds' other service
providers cannot be accurately assessed at this time, the Funds currently
have no reason to believe that the Year 2000 plans of the Adviser and the
Funds' other service providers will not be completed by December 31, 1999, or
that the anticipated costs associated with full implementation of their plans
will have a material adverse impact on their business operations or the
Funds. The Funds and the Adviser will continue to closely monitor
developments relating to this issue, including development by the Adviser and
the Funds' other service providers of contingency plans for providing back-up
computer services in the event of a systems' failure or the inability of any
provider to achieve Year 2000 readiness. The Adviser will also continue to
monitor potential investment risks related to Year 2000 issues.
The most recent information about each Fund's portfolio holdings can be found
in its annual or semi-annual reports. For information about receiving these
reports, see the back cover.
35
<PAGE> 96
[LOGO]
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 more than a century. Pacific Century, formerly
known as Hawaiian Trust Company, is among the top 50 trust firms in the
United States based on assets under management and oversees more than $15
billion in client assets. The Pacific Century investment management
team -- including portfolio managers, financial analysts and economists -- is
responsible for nearly $8 billion of these assets.
For these advisory services, the Funds paid Pacific Century as follows during
their fiscal year ended July 31, 1999:
<TABLE>
<CAPTION>
PERCENTAGE OF
AVERAGE NET ASSETS
<S> <C>
------------------------------
Growth Stock Fund .80%
------------------------------
Growth and Income Fund .80%
------------------------------
Value Fund .80%
------------------------------
Balanced Fund .70%*
------------------------------
Small Cap Fund 1.00%*
------------------------------
New Asia Growth Fund .90%
------------------------------
International Stock Fund 1.00%*
---------------------------------------------------------------------
</TABLE>
* Pacific Century waived a portion of its fees for the fiscal year.
Contractual fees (without waivers) are: Growth Stock Fund, .80%; Growth and
Income Fund, .80%; Value Fund, .80%; Balanced Fund, .80%; Small Cap Fund,
1.10%; New Asia Growth Fund, .90%; and International Stock Fund, 1.10%.
- - THE SUB-ADVISERS
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 fees are paid by Pacific Century.
CMG First State (Hong Kong) LLC ("CMG Hong Kong"), 3 Exchange Square, 8
Connaught Place Central, Hong Kong, is the Sub-Adviser to the New Asia Growth
Fund, and provides investment advisory services with respect to management of
that Fund's portfolio. Its fees are paid by Pacific Century.
- - PORTFOLIO MANAGERS
Management of the Funds is coordinated by Pacific Century's investment unit,
which is staffed with more than 40 people, including seven Chartered
Financial Analysts and eight M.B.A.'s. All investment decisions of Pacific
Century for the Funds it advises are made by committees, with individual
portfolio managers having day-to-day responsibility for managing the Funds.
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
36
<PAGE> 97
FUND MANAGEMENT
of the Fund since 1997. Mr. Khlopin joined Pacific Century in 1992 as a
securities analyst and portfolio manager. Prior to joining Pacific Century,
Mr. Khlopin served as a broker with Dean Witter from 1990 to 1991, and as a
securities analyst with Smith Barney from 1981 to 1989, and Sanford C.
Bernstein & Company from 1980 to 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 27 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.
VALUE FUND. A team of Dave Zerfoss, CFA, Scott Takemoto, CFA and Derwin Osada
is responsible for the day-to-day management of the Fund. Mr. Zerfoss serves
as Vice President and Manager on the Equity Investment Team at Pacific
Century. Prior to joining Pacific Century in 1969, Mr. Zerfoss served as a
portfolio manager with First National Bank of Chicago. Mr. Takemoto serves as
Vice President on the Equity Investment Team at Pacific Century. Mr. Takemoto
has served as a sector analyst and Senior Portfolio Manager with Pacific
Century from 1992 to the present. Mr. Osada has served as a Portfolio Manager
with Pacific Century from 1994 to the present.
BALANCED FUND. A team of Clyde Powers, CFA and David Todani, CFA is
responsible for the day-to-day management of the Fund. Mr. Powers serves as
Vice President and Team Leader on the Equity Investment Team at Pacific
Century and has 27 years of experience managing growth funds and growth
oriented portfolios for institutional investors. Before 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. Mr. Todani serves as
Vice President and Team Leader on the Taxable Fixed-Income Investment Team at
Pacific Century. Before joining the Fixed-Income Investment Team, Mr. Todani
served as a fixed income portfolio manager and treasury officer for the Bank
of Hawaii from 1983 to 1994.
SMALL CAP FUND. A team headed by Catherine Somhegyi, Larry Speidell, Mark
Stuckelman and John Kane is responsible for the day-to-day management of the
Fund. Ms. Somhegyi, a Partner of Nicholas-Applegate Capital Management, is
its Chief Investment Officer for Global Equity Management and has managed
assets for clients of the firm since 1987. Mr. Speidell, a Partner of
Nicholas-Applegate Capital Management, has been Director of Global/Systematic
Portfolio Management and Research since 1994; he has 23 years prior
investment management experience with Batterymarch Financial Management and
Putnam Management Company. Mr. Stuckelman is a Portfolio Manager in the
systematic equity group. Prior to joining Nicholas-Applegate in 1995, Mr.
Stuckelman was a senior quantitative analyst with Wells Fargo Bank's
Investment Management Group and responsible for the management of
risk-controlled equity portfolios at Fidelity Management Trust Co. In
addition, he was a senior consultant with BARRA. He has seven years of
investment experience. Mr. Kane, a Partner of Nicholas-Applegate Capital
Management, is the team leader of its systematic domestic equity group. Prior
to joining the firm in 1994, he directed the investment group at ARCO
Investment Management Company. He has 30 years of economic and investment
experience.
NEW ASIA GROWTH FUND. Tim Greaton, Senior Portfolio Manager of CMG Hong Kong,
has been primarily responsible for the day-to-day management of the Fund
since 1995. Mr. Greaton joined CMG
37
<PAGE> 98
FUND MANAGEMENT
Hong Kong in 1999. Prior to joining CMG Hong Kong, Mr. Greaton served as
Senior Portfolio Manager of Nicholas-Applegate Capital Management (Hong Kong)
LLC from 1997 to 1999 and Credit Lyonnais International Asset Management (HK)
Limited from 1992 to 1997.
INTERNATIONAL STOCK FUND. A team headed by Catherine Somhegyi, Larry
Speidell, Loretta Morris, Melisa Grigolite and John Tribolet is responsible
for the day-to-day management of the Fund. Ms. Somhegyi, a Partner of
Nicholas-Applegate Capital Management, is its Chief Investment Officer for
Global Equity Management and has managed assets for clients of the firm since
1987. Mr. Speidell, a Partner of Nicholas-Applegate Capital Management, has
been Director of Global/Systematic Portfolio Management and Research since
1994; he has 23 years prior investment management experience with
Batterymarch Financial Management and Putnam Management Company. Ms. Morris,
a Partner of Nicholas-Applegate Capital Management, focuses on the management
of international and global portfolios. She has managed assets for clients of
the firm since 1990 and has 19 years investment experience. Ms. Grigolite is
a Portfolio Manager responsible for international and global portfolio
management and research. She joined the firm in 1991 and has seven years
investment experience. Mr. Tribolet is a Portfolio Manager responsible for
portfolio management and research for international portfolios. Mr. Tribolet
joined the firm in 1997 and has four years prior investment banking
experience with Paine Webber and Kemper Securities. He has seven years of
investment experience.
The Statement of Additional Information has more detailed information about
the Investment Adviser and other service providers.
- - THE DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services ("BISYS") is the Funds' distributor and BISYS Fund
Services Ohio, Inc. is the Funds' administrator. The address of each is 3435
Stelzer Road, Columbus, Ohio 43219.
38
<PAGE> 99
[LOGO]
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES
---------------------------
HOW NAV IS CALCULATED
NAV is calculated by adding
the total value of a Fund's
investments and other
assets attributable to
Class A or B shares,
subtracting its liabilities
attributable to Class A or
B shares, and then dividing
that figure by the number
of outstanding Class A or B
shares of the Fund:
NAV =
Total Assets - Liabilities
------------------------------------------------------------------------------
Number of Shares
Outstanding
Locate your Fund's NAV
daily in The Wall Street
Journal and other
newspapers or call
800-258-9232 for
information.
---------------------------
The price of each Fund's shares is
based on its per share net asset value
("NAV"). The NAV for Class A and B
shares of each Fund 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,
securities will be valued by a method
that the Board of Trustees believes
accurately reflects fair value.
39
<PAGE> 100
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
<TABLE>
<CAPTION>
MINIMUM INVESTMENTS INITIAL INVESTMENT SUBSEQUENT
<S> <C> <C>
Regular
(non-retirement) $1,000 $50
----------------------------------------------------------
Retirement (IRA) $250 $50
----------------------------------------------------------
Auto Invest Plan $100 $50
</TABLE>
All purchases must be in U.S. dollars. A
fee may 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 the
Fund's shareholders. The Funds reserve the
right to suspend or modify the continuous
offering of their shares.
You can purchase Funds
through the Pacific
Capital Funds'
Distributor or through
brokers and other
investment
representatives,
including an affiliate
of Pacific Century,
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 sale
requests. Consult your
investment
representative or
institution for specific
information.
-----------------------------------------------------------------------------
AVOID 31% TAX WITHHOLDING
A 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.
-----------------------------------------------------------------------------
40
<PAGE> 101
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
CONTINUED
INSTRUCTIONS FOR OPENING OR
ADDING TO AN ACCOUNT
BY REGULAR MAIL
Initial Investment:
If purchasing through your financial advisor or brokerage account, simply
tell your advisor or broker that you wish to purchase shares of the Funds and
he or she will take care of the necessary documentation. For all other
purchases follow the instructions below.
1. Carefully read, complete and sign the account application. Establishing
your account privileges now saves you the inconvenience of having to add
them later.
2. Make check, bank draft or money order payable to "Pacific Capital Funds"
and include the name of the appropriate Fund(s) on the check.
3. Mail to: Pacific Capital Funds, P.O. Box 182130, Columbus, OH 43218-2130
Subsequent Investments:
1. Use the investment slip attached to your account statement.
Or, if unavailable,
2. Include the following information on a piece of paper:
- Fund name
- Share class
- Amount invested
- Account name
- Account number
Include your account number on your check.
3. Mail investment slip and check to: Pacific Capital Funds,
P.O. 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
Your bank must participate in the Automated Clearing House (ACH) and must be
a U.S. bank. Your bank or broker may charge for this service.
Establish the electronic purchase option on your account application or call
800-258-9232. Your account can generally be set up for electronic purchases
within 15 days.
Call 800-258-9232 to arrange a transfer from your bank account.
QUESTIONS?
Call 800-258-9232 or
your
investment
representative.
ELECTRONIC VS. WIRE
TRANSFER
Wire transfers allow
financial institutions to
send funds to each other,
almost instantaneously.
With an electronic
purchase or sale, the
transaction is made
through the Automated
Clearing House (ACH),
which may take up to
eight days to clear.
There is generally no fee
for ACH transactions.
41
<PAGE> 102
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
CONTINUED
BY WIRE TRANSFER
Note: Your bank may charge a wire transfer fee.
Please phone the Funds at 800-258-9232 for instructions on opening an account
or purchasing additional shares by wire.
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:
J your bank name, address, and account number
J the amount you want to invest automatically (minimum $50)
J 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. The Funds also reserve the right to reject any
purchase or to suspend or modify the continuous offering of their shares.
42
<PAGE> 103
SHAREHOLDER INFORMATION
SELLING YOUR SHARES
INSTRUCTIONS FOR SELLING SHARES
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 Class B shares, you will be
charged a fee for any shares that have not
been held for a sufficient length of time.
(You will also pay a fee for Class A shares
sold within one year of a purchase of $1
million or more.) These fees will be deducted
from the money paid to you. See the section on
"Distribution Arrangements/Sales Charges"
below for details.
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.
If selling shares through your financial advisor or broker, ask him or her
for redemption procedures. Your advisor and/or broker may have transaction
minimums and/or transaction times which will affect your redemption. For all
other sales transactions, follow the instructions below.
BY TELEPHONE (UNLESS YOU HAVE DECLINED TELEPHONE SALES PRIVILEGES)
Call 800-258-9232 with instructions as to how you want to receive your funds
(mail, wire, electronic transfer). See "General Policies on Selling Shares"
below.
BY MAIL (SEE "GENERAL POLICIES ON SELLING SHARES -- REDEMPTIONS IN WRITING
REQUIRED" BELOW.)
1. Call 800-258-9232 to request redemption forms (if your account is an IRA
or another form of retirement plan), 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, P.O. Box 182130, Columbus, OH 43218-2130
BY OVERNIGHT SERVICE
1. See instruction 1 above.
2. Send to: Pacific Capital Funds, c/o BISYS Fund Services, Attn: T.A.
Operations, 3435 Stelzer Road, Columbus, OH 43219
43
<PAGE> 104
SHAREHOLDER INFORMATION
SELLING YOUR SHARES
CONTINUED
WIRE TRANSFER
You must select this option on your account application.
The Fund may charge a wire transfer fee. Note: Your financial institution may
also charge a separate fee.
Call 800-258-9232 to request a wire transfer. If you call by 4 p.m. Eastern
time, your payment will normally be wired to your bank on the next business
day. Otherwise, it will normally be wired on the second business day after
your call.
ELECTRONIC REDEMPTIONS
Your bank must participate in the Automated Clearing House (ACH) and must be
a U.S. bank.
Note: Your bank may charge for this service.
Call 800-258-9232 to request an electronic redemption.
If you call by 4 p.m. Eastern time, the NAV of your shares will normally be
determined on the same day and the proceeds will normally be credited within
8 days. Otherwise, it will normally take up to 9 days.
AUTO WITHDRAWAL PLAN
You can receive automatic payments from your Class A shares 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.
QUESTIONS?
Call 800-258-9232 or
your
investment
representative.
44
<PAGE> 105
SHAREHOLDER INFORMATION
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 ("IRAs")
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.
TELEPHONE REDEMPTIONS
The Funds make every effort to ensure that telephone redemptions are only
made by authorized traders. 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 Funds, the Transfer Agent, Pacific Century and/or
the Distributor may be liable for losses due to unauthorized transactions.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider sending your request in writing.
REDEMPTIONS WITHIN 15 DAYS OF INITIAL INVESTMENT
When you have made an investment by check, you cannot receive any portion of
the redemption proceeds on 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
or by wire.
REFUSAL OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the Securities and Exchange Commission ("SEC") in order to
protect remaining shareholders.
45
<PAGE> 106
SHAREHOLDER INFORMATION
GENERAL POLICIES ON SELLING SHARES
CONTINUED
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 a Fund's 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 redemption price, net
of any CDSC. When you convert these securities to cash, you will pay
brokerage charges.
CLOSING OF SMALL ACCOUNTS
If your account falls below $250, we may ask you to increase your balance to
the minimum investment amount. 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 as of the cancellation
date. No interest is paid during the time the check is outstanding.
QUESTIONS?
Call 800-258-9232 or
your
investment
representative.
46
<PAGE> 107
SHAREHOLDER INFORMATION
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>
<S> <C> <C>
TYPES OF CHARGES CLASS A CLASS B
Sales Charge (Load) Front-end sales charge (at the No front-end sales charge. You may
time of your purchase); reduced incur a contingent deferred sales
sales charges are available.(1) 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 distribution Subject to annual distribution
fees of up to .75% of the Fund's fees of up to 1.00% of the Fund's
net assets. net assets.
Fund Expenses Lower annual expenses then Class B Higher annual expenses than Class
shares. A shares.
</TABLE>
(1) You may incur a contingent deferred sales charge on shares sold within
one year of a purchase of $1 million or more.
47
<PAGE> 108
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CONTINUED
CALCULATION OF SALES CHARGE
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 pay
for shares 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 ALL FUNDS EXCEPT THE SMALL CAP FUND, NEW ASIA GROWTH FUND AND
INTERNATIONAL STOCK FUND
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE DEALER PAYMENT
YOUR AS A % OF AS A % OF AS A % OF
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>
(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.
48
<PAGE> 109
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CONTINUED
FOR THE SMALL CAP FUND, NEW ASIA GROWTH FUND AND INTERNATIONAL STOCK FUND
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE DEALER PAYMENT
YOUR AS A % OF AS A % OF AS A % OF
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%
</TABLE>
(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.
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.
BISYS may provide financial assistance in connection with pre-approved
seminars, conferences and advertising to the extent permitted by applicable
state or self-regulatory agencies, such as the National Association of
Securities Dealers.
49
<PAGE> 110
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CONTINUED
<TABLE>
<CAPTION>
YEARS CDSC AS A % OF
SINCE DOLLAR AMOUNT
PURCHASE SUBJECT TO CHARGE
<S> <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
X 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.
X After conversion, your shares will be subject to the lower distribution
fees charged on Class A shares, which will increase your investment
return.
X You will not pay any sales charge, fees or taxes when your shares convert.
X 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.
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 to
the right. There is no CDSC on
reinvested dividends or
distributions. Imposition of
the CDSC and the distribution
fee on Class B shares is
limited by the NASD
asset-based sales charge rule.
50
<PAGE> 111
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CONTINUED
SALES CHARGE
REDUCTIONS
You may qualify for reduced sales charges under the following circumstances.
X 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 3% of the total amount you
intend to purchase with your letter of intent. Shares purchased under the
non-binding Letter of Intent will be held in escrow until the total
investment has been completed. If the Letter of Intent is not completed,
sufficient escrowed shares will be redeemed to pay any applicable
front-end sales charge.
X 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.
X 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. Reduced prices are also available for
investors who are members of certain qualified groups.
SALES CHARGE WAIVERS
CLASS A SHARES
The following qualify for waivers of sales charges:
X Current and retired trustees, directors, employees, and family members of
the Trust, Pacific Century and its affiliates or any other organization
that provides services to the Trust.
X 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).
X 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.
X Other investment companies distributed by the Distributor.
X 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.
X Investors who purchase shares with the proceeds from the recent redemption
of Class Y shares of the Trust.
BISYS must be notified in writing by you or your financial institution at the
time the purchase is made. A copy of your account statement showing the
redemption must accompany the notice.
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.
51
<PAGE> 112
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CONTINUED
CLASS B SHARES
The Distributor will waive the CDSC under certain circumstances, including
the following:
X If the redemption follows the death or disability of a shareholder (or
both shareholders in the case of joint accounts).
X 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).
X If the redemption represents the minimum required distribution from a
retirement plan.
X If the shares being redeemed were purchased with reinvested dividends and
distributions.
See the Statement of Additional Information for other possible fee waivers.
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 over time will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
X 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.
X 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.
X The Distributor may use up to .25% of the 12b-1 fee for shareholder
servicing and up to .75% for distribution.
Until further notice, the Distributor voluntarily intends to waive a portion
of its 12b-1 fee, so that the fee payable by each Fund will not exceed .25%
of the average daily net asset value attributable to the Fund's Class A
shares on an annual basis.
52
<PAGE> 113
SHAREHOLDER INFORMATION
EXCHANGING YOUR SHARES
You can exchange your
shares in one Fund for
shares of the same class of
another 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
Pacific Capital Cash Assets
Trust, the Pacific Capital
Tax-Free Cash Assets Trust
and the Pacific Capital
U.S. Government Securities
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.
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 or
other investment company into
which you wish to exchange
shares.
INSTRUCTIONS FOR EXCHANGING SHARES
Exchanges from one Fund to another
are taxable. You can make exchanges
by sending a written request to
Pacific Capital Funds, P.O. 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 four
substantial exchanges within one
calendar year period. A Fund may
also refuse any exchange order.
53
<PAGE> 114
SHAREHOLDER INFORMATION
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
Any income the Funds receive is paid out, less expenses, in the form of
dividends to its shareholders quarterly, except for the Balanced Fund, which
pays out its dividends monthly. Net capital gains for all Funds are
distributed to shareholders annually. Dividends payable on Class A shares of
a Fund are generally more than on Class B shares because Class B shares have
higher distribution expenses.
We automatically reinvest all income dividends and capital gains
distributions in additional shares of the same Fund and Class on the
ex-dividend date unless you request otherwise in writing to the Transfer
Agent (at least 15 days prior to the distribution). The Distributor does 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.
TAXES
Dividends generally are taxable as ordinary income. Taxes on capital gains
distributed by the Funds vary with the length of time the Fund has held the
security -- not how long you have been invested in the Fund.
Dividends are taxable in the year in which they are declared, 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 federal and state 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 advisor about the federal, state and local tax
consequences in your particular circumstances.
The Funds may incur foreign income taxes in connection with some of their
foreign investments. Certain of these taxes may be credited to shareholders.
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.
54
<PAGE> 115
[LOGO] Q
FINANCIAL HIGHLIGHTS
The Financial Highlights in the following tables set forth certain financial
data and investment results of the Funds for the past five years or, if
shorter, the period since their inception, expressed in one share of each
Fund 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 Funds' annual report contains additional
performance information relating to the Funds and is available upon request,
without charge.
55
<PAGE> 116
FINANCIAL HIGHLIGHTS GROWTH STOCK FUND
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE
FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED
YEAR ENDED YEAR ENDED JULY 31, JULY 31, JULY 31,
JULY 31, 1999 JULY 31, 1998 1997 1996 1995
A CLASS B CLASS A CLASS B CLASS(E) A CLASS A CLASS A Class(a)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD $ 17.75 $17.72 $ 17.43 $ 16.36 $ 11.89 $ 11.71 $ 9.83
--------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income (loss) (0.08) (0.10) (0.04) (0.05) 0.03 0.07 0.12
Net realized and unrealized
gain (loss) from
investments 2.80 2.67 2.99 1.41 5.55 0.89 1.87
--------------------------------------------------------------------------------------------------------------
Total from Investment
Activities 2.72 2.57 2.95 1.36 5.58 0.96 1.99
-----------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income -- -- -- -- (0.03) (0.07) (0.11)
In excess of net investment
income (0.01) -- (0.01) -- (0.01) -- --
Net realized gains (3.01) (3.01) (2.62) -- -- (0.22) --
In excess of net realized
gains -- -- -- -- -- (0.49) --
--------------------------------------------------------------------------------------------------------------
Total Distributions (3.02) (3.01) (2.63) -- (0.04) (0.78) (0.11)
--------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 17.45 $17.28 $ 17.75 $ 17.72 $ 17.43 $ 11.89 $ 11.71
--------------------------------------------------------------------------------------------------------------
Total Return (excludes
sales charge) 17.40% 16.55% 19.58% 8.31%(c) 47.02% 8.25% 20.43%
ANNUALIZED RATIOS/
SUPPLEMENTARY DATA:
Net Assets at end of period
(000) $ 17,417 $9,988 $ 13,777 $ 1,459 $ 9,742 $ 5,261 $ 3,905
Ratio of expenses to average
net assets 1.32% 2.06% 1.32% 2.07%(b) 1.32% 1.34% 1.36%
Ratio of net investment
income (loss) to average
net assets (0.58)% (1.35)% (0.30)% (1.31)%(b) 0.16% 0.60% 1.12%
Ratio of expenses to average
net assets* 1.85% 2.10% 1.86% 2.11%(b) 1.86% 1.88% 1.98%
Ratio of net investment
income (loss) to average
net assets* (1.12)% (1.39)% (0.84)% (1.35)%(b) (0.38)% 0.06% 0.50%
Portfolio Turnover(d) 81.02% 81.02% 97.03% 97.03% 32.20% 61.30% 32.40%
</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) The Financial Highlights presented for the A Class reflects operations
and distributions for the Fund, as a whole, for the period from August 1,
1994 through October 13, 1994 combined with the operations and
distributions of the A Class only for the period from October 14, 1994
through July 31, 1995.
(b) Annualized.
(c) Not annualized.
(d) Portfolio turnover is calculated on the basis of the Fund, as a whole,
without distinguishing between the classes of shares issued.
(e) Period from commencement of operations on March 2, 1998.
56
<PAGE> 117
FINANCIAL HIGHLIGHTS GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
FOR THE OCTOBER 14,
FOR THE YEAR 1994
FOR THE FOR THE YEAR ENDED ENDED TO
YEAR ENDED YEAR ENDED JULY 31, JULY 31, JULY 31,
JULY 31, 1999 JULY 31, 1998 1997 1996 1995(a)
A CLASS B CLASS A CLASS B CLASS(E) A CLASS A CLASS A CLASS
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $18.72 $ 18.68 $17.25 $17.58 $12.32 $11.44 $10.00
------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income (loss) (0.02) (0.08) 0.03 (0.02) 0.08 0.16 0.17
Net realized and unrealized gain
from investments 2.38 2.25 3.01 1.12 5.57 1.19 1.44
------------------------------------------------------------------------------------------------------------
Total from Investment Activities 2.36 2.17 3.04 1.10 5.65 1.35 1.61
------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income -- -- (0.04) -- (0.08) (0.15) (0.17)
In excess of net investment income -- -- -- (0.01) (0.01) --
Net realized gains (2.19) (2.19) (1.53) -- (0.63) (0.31) --
------------------------------------------------------------------------------------------------------------
Total Distributions (2.19) (2.19) (1.57) -- (0.72) (0.47) (0.17)
------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $18.89 $ 18.66 $18.72 $18.68 $17.25 $12.32 $11.44
------------------------------------------------------------------------------------------------------------
Total Return (excludes sales
charges) 13.67% 12.58% 19.10%(b) 6.27%(b) 47.59% 11.96% 16.35%(b)
ANNUALIZED RATIOS/ SUPPLEMENTARY
DATA:
Net Assets at end of period (000) $9,593 $ 8,265 $6,730 $2,184 $3,726 $1,160 $ 328
Ratio of expenses to average net
assets 1.35% 2.09% 1.33% 2.08%(c) 1.32% 1.37% 1.40%(c)
Ratio of net investment income
(loss) to average net assets (0.12)% (0.90)% 0.13% (0.73)%(c) 0.48% 1.03% 2.08%(c)
Ratio of expenses to average net
assets* 1.89% 2.13% 1.87% 2.12%(c) 1.86% 1.91% 1.99%(c)
Ratio of net investment income
(loss) to average net assets* (0.66)% (0.94)% (0.41)% (0.77)%(c) (0.06)% 0.49% 1.49%
Portfolio Turnover(d) 65.56% 65.56% 75.92% 75.92% 74.83% 80.83% 12.78%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Period from commencement of operations.
(b) Not Annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund, as a whole,
without distinguishing between the classes of shares issued.
(e) Period from commencement of operations on March 2, 1998.
57
<PAGE> 118
FINANCIAL HIGHLIGHTS VALUE FUND
<TABLE>
<CAPTION>
FOR THE PERIOD
ENDED JULY 31, 1999
A CLASS(D) B CLASS(E)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.05 $ 9.90
------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income (loss) 0.01 (0.01)
Net realized and unrealized gain on investments 0.78 0.91
------------------------------------------------------------------------------
Total from Investment Activities 0.79 0.90
------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income -- --
In excess of net investment income (0.02) (0.01)
Net realized gains (0.45) (0.38)
In excess of net realized gains -- (0.07)
------------------------------------------------------------------------------
Total Distributions (0.47) (0.46)
------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.37 $ 10.34
------------------------------------------------------------------------------
Total Return (excludes sales charges) 7.81%(a) 8.94%(a)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 178 $ 472
Ratio of expenses to average net assets 1.60%(b) 2.44%(b)
Ratio of net investment income (loss) to average
net assets (0.01)%(b) (0.71)%(b)
Ratio of expenses to average net assets* 2.15%(b) 2.48%(b)
Ratio of net investment income (loss) to average
net assets* (0.56)%(b) (0.75)%(b)
Portfolio Turnover(c) 113.72% 113.72%
</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) Not Annualized.
(b) Annualized.
(c) Portfolio turnover is calculated on the basis of the Fund, as a whole,
without distinguishing between the classes of shares issued.
(d) For the period from December 8, 1998 (commencement of operations) to July
31, 1999.
(e) For the period from December 13, 1998 (commencement of operations) to
July 31, 1999.
58
<PAGE> 119
FINANCIAL HIGHLIGHTS BALANCED FUND
<TABLE>
<CAPTION>
JUNE 21, 1999 TO JULY 31, 1999(D)
A CLASS B CLASS
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.00
--------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income (loss) 0.01 0.01
Net realized and unrealized gain (loss) on
investments (0.21) (0.22)
--------------------------------------------------------------------------------------
Total from Investment Activities (0.20) (0.21)
--------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.01) --
In excess of net investment income -- (0.01)
--------------------------------------------------------------------------------------
Total Distributions (0.01) (0.01)
--------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.79 $ 9.78
--------------------------------------------------------------------------------------
Total Return (excludes sales charges) (1.95)%(a) (2.09)%(a)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 62 $ 307
Ratio of expenses to average net assets 1.38%(b) 2.16%(b)
Ratio of net investment income to average net
assets 1.45%(b) 0.81%(b)
Ratio of expenses to average net assets* 2.03%(b) 2.31%(b)
Ratio of net investment income to average net
assets* 0.80%(b) 0.66%(b)
Portfolio Turnover(c) 5.47% 5.47%
</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) Not Annualized.
(b) Annualized.
(c) Portfolio turnover is calculated on the basis of the Fund, as a whole,
without distinguishing between the classes of shares issued.
(d) Period from commencement of operations.
59
<PAGE> 120
FINANCIAL HIGHLIGHTS SMALL CAP FUND
<TABLE>
<CAPTION>
FOR THE PERIOD ENDED JULY 31, 1999
A CLASS(D) B Class(e)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.07 $ 9.78
----------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income (loss) (0.01) (0.03)
Net realized and unrealized gain on investments 0.60 0.86
----------------------------------------------------------------------------------------
Total from Investment Activities 0.59 0.83
----------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.66 $ 10.61
----------------------------------------------------------------------------------------
Total Return (excludes sales charges) 5.91%(a) 8.56%(a)
RATIOS/SUPPLEMENTARY DATA:
Net Assets at end of period (000) $ 93 $ 82
Ratio of expenses to average net assets 1.84%(b) 2.59%(b)
Ratio of net investment income (loss) to average
net assets (0.26)%(b) (1.00)%(b)
Ratio of expenses to average net assets* 2.50%(b) 2.73%(b)
Ratio of net investment income (loss) to average
net assets* (0.91)%(b) (1.15)%(b)
Portfolio Turnover(c) 60.08% 60.08%
</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) Not Annualized.
(b) Annualized.
(c) Portfolio turnover is calculated on the basis of the Fund, as a whole,
without distinguishing between the classes of shares issued.
(d) For the period from December 8, 1998 (commencement of operations) to July
31, 1999.
(e) For the period from December 20, 1998 (commencement of operations) to
July 31, 1999.
60
<PAGE> 121
FINANCIAL HIGHLIGHTS NEW ASIA GROWTH FUND
- -
<TABLE>
<CAPTION>
FOR THE FOR THE
FOR THE FOR THE YEAR ENDED YEAR ENDED FEBRUARY 15,
YEAR ENDED YEAR ENDED JULY 31, JULY 31, 1995 TO JULY
JULY 31, 1999 JULY 31, 1998 1997 1996 31, 1995(A)
CLASS A CLASS B A CLASS B CLASS(E) A CLASS A CLASS A CLASS
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.35 $ 6.34 $13.89 $ 9.09 $11.11 $11.21 $10.00
---------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income (loss) (0.05) (0.02) 0.09 0.04 0.03 (0.02) 0.02
Net realized and unrealized gain
(loss) from investments 4.29 4.18 (6.59) (2.79) 2.88 0.20 1.19
---------------------------------------------------------------------------------------------------------
Total from Investment Activities 4.24 4.16 (6.50) (2.75) 2.91 0.18 1.21
---------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income -- -- -- -- (0.01) -- --
In excess of net investment income (0.02) -- -- -- -- (0.02) --
Net realized gains -- -- (1.04) -- (0.12) (0.26) --
---------------------------------------------------------------------------------------------------------
Total Distributions (0.02) -- (1.04) -- (0.13) (0.28) --
---------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.57 $10.50 $ 6.35 $ 6.34 $13.89 $11.11 $11.21
---------------------------------------------------------------------------------------------------------
Total Return (excludes sales
charges) 66.99% 65.66% (48.84)% (30.25)%(b) 26.31% 1.71% 12.10%(b)
ANNUALIZED RATIOS/ SUPPLEMENTAL DATA:
Net Assets at end of period (000) $2,379 $ 311 $1,614 $ 66 $3,459 $1,990 $ 330
Ratio of expenses to average net
assets 2.14% 2.82% 2.18% 2.89%(c) 1.98% 2.22% 2.24%(c)
Ratio of net investment income
(loss) to average net assets (0.52%) (1.33%) 0.98% 1.70%(c) 0.20% (0.28)% 0.80%(c)
Ratio of expenses to average net
assets* 2.78% 2.95% 2.86% 3.35%(c) 2.58% 3.58% 3.51%(c)
Ratio of net investment income
(loss) to average net assets* (1.16%) (1.46%) 0.30% 1.24%(c) (0.40)% (1.64)% (0.47)%(c)
Portfolio Turnover(d) 152.58% 152.58% 129.77% 129.77% 134.89% 86.53% 55.62%
</TABLE>
* During the period, certain fees were voluntarily reduced. If such
voluntary fee reductions had not occurred, the ratios would have been as
indicated.
(a) Period from commencement of operations.
(b) Not Annualized.
(c) Annualized.
(d) Portfolio turnover is calculated on the basis of the Fund, as a whole,
without distinguishing between the classes of shares issued.
(e) Period from commencement of operations on March 2, 1998.
61
<PAGE> 122
FINANCIAL HIGHLIGHTS INTERNATIONAL STOCK FUND
- -
<TABLE>
<CAPTION>
PERIOD ENDED JULY 31, 1999
CLASS A(D) CLASS B(E)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.09 $10.20
------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment loss -- (0.02)
Net realized and unrealized gain on investments 1.87 1.72
------------------------------------------------------------------------------------------
Total from Investment Activities 1.87 1.70
------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $11.96 $11.90
------------------------------------------------------------------------------------------
Total Return (excludes sales charge) 18.53%(a) 16.67%(a)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (000) $ 265 $ 102
Ratio of expenses to average net assets 1.94%(b) 2.76%(b)
Ratio of net investment income (loss) to average net
assets (0.19%)(b) (1.08%)(b)
Ratio of expenses to average net assets* 2.61%(b) 2.91%(b)
Ratio of net investment income (loss) to average net
assets* (0.86%)(b) (1.24%)(b)
Portfolio Turnover(c) 156.46% 156.46%
</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) Not annualized.
(b) Annualized.
(c) Portfolio turnover is calculated on the basis of the Fund, as a whole,
without distinguishing between the classes of shares issued.
(d) For the period from December 8, 1998 (commencement of operations) to July
31, 1999.
(e) For the period from December 20, 1998 (commencement of operations) to
July 31, 1999.
62
[THIS PAGE INTENTIONALLY LEFT BLANK]
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 123
For more information about the Pacific Capital Funds, the following documents
are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS:
The Funds' annual and semi-annual reports to shareholders contain detailed
information on the Funds' investments. The annual report includes a discussion
of the market conditions and investment strategies that significantly affected
each 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 Annual/Semi-Annual Reports and the SAI, or request
other information and discuss your questions about the Funds, by contacting the
Bank of Hawaii or a broker that sells the Funds. Or contact us at:
PACIFIC CAPITAL FUNDS
P.O. BOX 182130
COLUMBUS, OHIO 43218-2130
TELEPHONE: 1-800-258-9232
You can review the Funds' reports and SAI at the Public Reference Room of the
Securities and Exchange Commission. You can also get copies:
X For a duplicating fee, by writing the Public Reference Section of the
Commission, Washington, D.C. 20549-6009 or calling 1-800-SEC-0330.
X Free from the Commission's Website at http://www.sec.gov.
Investment Company Act file no. 811-7454.
12/99
PCP 0026
<PAGE> 124
APPLICATION FOR PACIFIC CAPITAL FUNDS
PLEASE COMPLETE STEPS 1 THROUGH 5 AND MAIL TO:
PACIFIC CAPITAL FUNDS
P.O. BOX 182130, COLUMBUS, OH 43218-2130
1-800-258-9232 PACIFIC CAPITAL FUNDS
- --------------------------------------------------------------------------------
STEP 1 ACCOUNT REGISTRATION PLEASE TYPE OR PRINT NAME EXACTLY AS ACCOUNT IS
TO BE REGISTERED
A. REGISTRATION
<TABLE>
<S> <C> <C> <C>
[ ]
Individual 1. ----------------------------------------------------------------------------------------------
First Name Middle Initial Last Name Social Security
Number
[ ]
Joint Account* 2. ----------------------------------------------------------------------------------------------
(Use lines 1 First Name Middle Initial Last Name Social Security
Number
and 2) *JOINT ACCOUNTS WILL BE TENANTS WITH RIGHTS OF SURVIVORSHIP UNLESS OTHERWISE SPECIFIED.
[ ] For a Minor 3. --------------------------------------------- Under the --------- Uniform Gifts/Transfers to Minors
Act
(Only one Custodian's First Name Middle Initial Last
custodian Name State
and one minor Custodian For ----------------------------------------------------------------------------------
are Minor's First Name Middle Initial Last Name Minor's Social Security No.
permitted.)
[ ] For Trust, 4. ----------------------------------------------------------------------------------------------
Corporation, (Name of Corporation or Partnership; PLEASE INDICATE TYPE OF ORGANIZATION. If a Trust, include the
Partnership or name and date of the Trust Instrument. The name(s) of the Trustees in which account will be
other Entity registered should be listed below. Account for a Pension or Profit Sharing Plan or Trust may be
registered in the name of the Plan or Trust itself.)
----------------------------------------------------------------------------------------------
Tax I.D. Number Trustee(s) or Authorized
Individual Title
</TABLE>
- --------------------------------------------------------------------------------
B. MAILING ADDRESS AND TELEPHONE NUMBER
- --------------------------------------------------------------------------------
Street or P.O. Box City State Zip Code
( )
- --------------------------------------------------------------------------------
Area Code Daytime Telephone Number Occupation Employer's Name/Employer's
Address City State
Citizen or resident of: U.S. [ ] Other [ ] ____ Check here [ ] if you are a
non U.S.
Citizen or
resident and
not subject to
back-up
withholding.
See
certification
in Step 5.
- --------------------------------------------------------------------------------
C. INVESTMENT DEALER OR BROKER: (Important -- to be completed by Dealer or
Broker)
- --------------------------------------------------------------------------------
Dealer Name Branch Office Address Branch Office City/State Branch #
( )
- --------------------------------------------------------------------------------
Representative's Name Rep # Area Code Telephone # [Agent User Dealer # /
Branch #]
- --------------------------------------------------------------------------------
STEP 2 PURCHASE OF SHARES
A. INITIAL INVESTMENT
Make check payable to: Pacific Capital Funds Minimum Initial Investment
in any Fund is $1,000. Subsequent Investments, $50.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
A. B. A. B.
[ ] [ ] Growth Stock Fund $ --------- [ ] [ ] International Stock Fund $ ---------
[ ] [ ] Growth and Income Fund $ --------- [ ] [ ] Tax-Free Securities Fund $ ---------
[ ] [ ] Value Fund $ --------- [ ] N/A Tax-Free Short Intermediate Securities $ ---------
Fund
[ ] [ ] Balanced Fund $ --------- [ ] [ ] Diversified Fixed Income Fund $ ---------
[ ] [ ] Small Cap Fund $ --------- [ ] N/A U.S. Treasury Securities Fund $ ---------
[ ] [ ] New Asia Growth Fund $ --------- [ ] N/A Short Intermediate U.S. Treasury $ ---------
Securities Fund
Total Investment $ ---------
</TABLE>
- --------------------------------------------------------------------------------
B. DISTRIBUTIONS: All income dividends and capital gains distributions will be
REINVESTED in additional shares at net asset value unless otherwise indicated
below.
Dividends are to be: [ ] Reinvested [ ] Paid in cash* Capital Gains are
to be: [ ] Reinvested [ ] Paid in cash*
*FOR CASH DIVIDENDS, PLEASE CHOOSE ONE OF THE FOLLOWING OPTIONS:
[ ] Wire directly into my financial institutional account. ATTACHED IS A
VOIDED CHECK showing the account information where I would like the
dividend deposited.
[ ] Mail check to my address listed in Step 1B.
[ ] Mail check as requested in Step 3F.
<PAGE> 125
- --------------------------------------------------------------------------------
C. LETTER OF INTENT
(See Terms of Escrow
for Letter
of Intent at the end of
this
application).
- -----------------------
Check appropriate box
[ ] YES [ ] NO
I/we intend to invest in shares of one or more of the Pacific
Capital Funds during the 13-month period from the date of my
first purchase pursuant to this Letter (which purchase cannot
be more than 90 days prior to the date of this Letter), an
aggregate amount (excluding any reinvestment of dividends or
distributions) of at least $25,000 which, together with my
present holdings of Pacific Capital Fund shares (at public
offering price on date of this Letter), will equal or exceed
the minimum amount checked below:*
[ ] $ 25,000 [ ] $ 50,000 [ ] $ 100,000 [ ] $250,000
[ ] $500,000 [ ] $1,000,000
*Accumulated investments must aggregate at least $100,000 for
reduced sales charges to apply to purchases of shares of the
Short-Intermediate U.S. Treasury Securities Fund or the
Tax-Free Short Intermediate Securities Fund.
- --------------------------------------------------------------------------------
STEP 3 SPECIAL FEATURES
A. AUTOMATIC INVEST PROGRAM
- -----------------------
Check appropriate box
[ ] YES [ ] NO
This option provides you with a convenient way to have
amounts automatically drawn on your financial institution
account and invested in your Pacific Capital Fund account. To
establish this program, please complete Step 5, Sections A &
B of this Application.
I wish to make regular monthly investments. The minimum
initial purchase is reduced to $100 per Fund when you use
this service. Subsequent minimum purchase is $50 for each
Fund. YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED
CHECK.
<TABLE>
<S> <C> <C> <C>
Amount
----------- Fund $ --------- Please select how often you would like to have the amount(s)
shown above withdrawn from your checking account and invested
----------- Fund $ --------- into the above selected Fund(s).
----------- Fund $ --------- [ ] Once each month -- on [ ] Twice each month on the 1st
the 1st and the 16th
Total $ --------- [ ] Once each month -- on [ ] Once each quarter on the 1st
the 16th beginning in the month of
----------------.
</TABLE>
- --------------------------------------------------------------------------------
B. TELEPHONE INVESTMENT
- -----------------------
Check appropriate box
[ ] YES [ ] NO
This option provides you with a convenient way to add to your
account at any time you wish by simply calling the Pacific
Capital Funds toll-free at 1-800-258-9232. To establish this
program, please complete Step 5, Sections A & B of this
Application. YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR
VOIDED CHECK.
- --------------------------------------------------------------------------------
C. AUTOMATIC WITHDRAWAL PLAN
Application must be
received in good order
at least two weeks
prior
to 1st actual
liquidation date.
- -----------------------
Check appropriate box
[ ] YES [ ] NO
Please establish an Automatic Withdrawal Plan for this
account, subject to the terms of the Automatic Withdrawal
Plan Provisions set forth below. To realize the amount stated
below, BISYS Fund Services, Inc. (the "Agent") is authorized
to redeem sufficient shares from this account at the then
current Net Asset Value, in accordance with the terms below:
The minimum Automatic Withdrawal amount is $100 per Fund.
<TABLE>
<S> <C>
$ ---------------------------
------------------------- Fund
$ ---------------------------
------------------------- Fund
Total $ ---------------------------
</TABLE>
Please select how often you would like to have payments made
from your account under the Automatic Withdrawal Plan.
<TABLE>
<S> <C>
[ ] Once each month -- on the [ ] Twice each month on the 1st and 16th
1st
[ ] Once each month -- on the [ ] Once each quarter on the 1st beginning in
16th the month of
------------------- .
</TABLE>
Please choose one of the following options:
[ ] Mail check to my address listed in Step 1A.
[ ] Mail check as requested in Step 3F.
<PAGE> 126
- --------------------------------------------------------------------------------
D. 1. TELEPHONE EXCHANGE
This option allows you
to effect exchanges
among accounts in your
name within the Pacific
Capital group of Funds,
as described in the
Prospectus, by
telephone.
- -----------------------
Check appropriate box
[ ] YES [ ] NO
The Agent is authorized to accept and act upon my/our or any
other person's telephone instructions to execute the exchange
of shares of one Pacific Capital Fund for one of the funds
into which exchange is permitted, as designated in the
Prospectus, with identical shareholder registration. The
exchange will be executed at the relative net asset values of
the two funds as next determined following receipt of such
instructions.
Except for gross negligence in acting upon such telephone
instructions to execute an exchange and subject to the
conditions set forth herein, I (we) understand and agree to
hold harmless the Agent, each of the Pacific Capital Funds,
and their respective officers, directors, trustees,
employees, agents and affiliates against any liability,
damage, expense, claim or loss, including reasonable costs
and attorney's fees resulting from acceptance of or acting or
failure to act upon this Authorization.
TO MAKE A TELEPHONE EXCHANGE, CALL THE AGENT AT 1-800-258-9232.
2. TELEPHONE REDEMPTION
This option allows you
to effect telephone
redemptions, as
described in the
Prospectus.
- -----------------------
Check appropriate box
[ ] YES [ ] NO
The Agent is authorized to accept and act upon my/our or any
other person's telephone instructions to execute a redemption
of shares of one or more Pacific Capital Funds. The
redemption will be executed at net asset value next
determined following receipt of such instructions.
Except for gross negligence in acting upon such telephone
instructions to execute a redemption and subject to the
conditions set forth herein, I (we) understand and agree to
hold harmless the Agent, each of the Pacific Capital Funds,
and their respective officers, directors, trustees,
employees, agents and affiliates against any liability,
damage, expense, claim or loss, including reasonable costs
and attorney's fees resulting from acceptance of or acting or
failure to act upon this Authorization.
TO MAKE A TELEPHONE REDEMPTION, CALL THE AGENT AT 1-800-258-9232.
- --------------------------------------------------------------------------------
E. EXPEDITED REDEMPTION
The proceeds will be
deposited to your
financial institution
account listed.
- -----------------------
Check appropriate box
[ ] YES [ ] NO
TO MAKE AN EXPEDITED
REDEMPTION, CALL THE
AGENT AT
1-800-258-9232.
Cash proceeds in any amount from the redemption of shares
will be mailed or wired, whenever possible, upon request, if
in an amount of $1,000 or more to my (our) account at a
financial institution. The financial institution account must
be in the same name(s) as this Pacific Capital Fund account
is registered. YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR
VOIDED CHECK.
<TABLE>
<S> <C>
----------------------------------------------
Financial Institution Account Registration
----------------------------------------------
Name of Financial Institution
----------------------------------------------
Street
<S> <C>
---------------------------------------------- ---------------------------------------
Financial Institution Account Registration Financial Institution Account Number
---------------------------------------------- ---------------------------------------
Financial Institution Transit/Routing
Name of Financial Institution Number
---------------------------------------------- ---------------------------------------
City State Zip
Street Code
</TABLE>
- --------------------------------------------------------------------------------
F. SECONDARY ADDRESS
- -----------------------
Check appropriate box
[ ] YES [ ] NO
Checks should be made payable as indicated below. If check is
payable to a financial institution, i.e., a commercial bank,
savings bank or credit union, for your account, indicate
financial institution name, address and your account number.
<TABLE>
<S> <C>
----------------------------------------------
First Name Middle Initial Last Name
----------------------------------------------
First Name Middle Initial Last Name
----------------------------------------------
Street
----------------------------------------------
City State Zip Code
<S> <C>
---------------------------------------------- ---------------------------------------
First Name Middle Initial Last Name Name of Financial Institution
---------------------------------------------- ---------------------------------------
First Name Middle Initial Last Name Street
---------------------------------------------- ---------------------------------------
City State Zip
Street Code
---------------------------------------------- ---------------------------------------
City State Zip Code Financial Institution Account Number
</TABLE>
<PAGE> 127
- --------------------------------------------------------------------------------
STEP 4 CLIENT AGREEMENT
CLIENT AGREEMENT After reading this section, please sign in Step 5, Section B.
To: BISYS Fund Services Limited Partnership (the "Distributor"), and BISYS
Fund Services, Inc. (the "Transfer Agent") and Pacific Century Trust (the
"Investment Adviser").
I (We) have full right, power, authority and legal capacity; and am (are) of
legal age in my (our) state of residence to purchase shares of the investment
portfolios ("Funds") of the Pacific Capital Funds (the "Fund Company"). I (we)
affirm that I (we) have received and read the current prospectus(es) of the
Fund(s) selected and agree to be bound by its terms.
A. THE MEANING OF WORDS IN THIS AGREEMENT: The words "I," "me" and "my" refer to
the person(s) who signed this Agreement. The words "you" and "your" refer to the
Distributor and the Transfer Agent.
B. REPRESENTATIONS. I understand that you provide no investment, tax, or legal
advice, and I have relied on my independent judgement with respect to the
suitability or potential value of any security or order.
C. DEBIT AUTHORIZATION AND SETTLEMENT. If I authorize, and if the Transfer Agent
approves, the use of my bank account designated in Step 3. Section E of this
Account Registration Form (the "designated account") as the settlement account
in connection with this account. I understand and agree that the Transfer Agent
may debit the designated account for payment of securities purchased by me
either by way of this Account Registration Form and order, by signing up for the
Automatic Investment Plan, or for subsequent purchases in any Funds as I may
direct. If I have instructed that a purchase be settled through a debit of my
account, I certify that I have the power and authority to debit the account. I
agree to have sufficient collected funds available in the designated account to
cover the amounts due on purchase of securities at the time of placing my order.
If I have designated another method of payment, I agree to deliver sufficient
collected funds to cover the amount due by 9:00 a.m. (Eastern Time) on the
settlement date. I understand that if sufficient collected funds are not
available, my purchase will be rejected and I will be liable for any resulting
loss.
If the Transfer Agent executes a transaction but fails to receive sufficient
payment for such shares, the Transfer Agent may, without prior notice, redeem
any Pacific Capital shares. I agree to reimburse the Fund or BISYS Fund
Services, Inc. on demand for any costs, losses or liabilities incurred by such
party in collection of the debit balance.
I understand and agree that the Transfer Agent may credit the designated
account with dividend distributions, Automatic Withdrawal Plan, and other
distributions that are payable to me (us) by the Fund Company.
I further understand that the Automatic Withdrawal Plan and the Automatic
Investment Plan may be terminated or modified at any time without notice.
D. FORCE MAJEURE. You shall not be liable for any loss or delay caused directly
or indirectly by war, natural disaster, government restrictions, exchange or
market rulings or other conditions beyond your control.
E. RECORDING CONVERSATIONS. I understand and agree that, for our mutual
protection, telephone conversations may be recorded without further notice.
F. APPLICABLE LAWS AND REGULATIONS. All transactions shall be subject to rules,
regulations, customs and usages of the exchange, market or clearinghouse where
executed, all applicable federal and state laws and regulations, and the
policies and procedures as determined by the Fund Company set forth in its then
current prospectus(es).
G. GOVERNING LAWS. The Agreement shall be governed by the laws of the State of
Ohio as applicable.
H. RELIANCE ON REPRESENTATIONS. I understand that you shall rely on the
information that I have set forth in this Agreement. I agree that all changes to
this information shall be promptly provided to the Transfer Agent in writing.
The Transfer Agent is entitled to rely on this information until I change it by
subsequent written notice.
I. DELIVERY AND RECEIPT. Any orders for transactions in the Funds under this
Agreement will NOT be effective until received and approved by the Distributor
and the Transfer Agent at their offices in Columbus, Ohio. The Distributor and
the Transfer Agent shall not be responsible for any losses or lost profit
opportunity I may experience due to any delays in the execution of purchase and
redemption orders as a result of delayed receipt of such orders.
J. INSTRUCTIONS. Neither the Distributor, the Transfer Agent nor the Fund
Company shall be liable for any loss, damages, expense or cost arising out of
any telephone redemption effected in accordance with the Fund Company's
telephone redemption procedures, upon instructions reasonably believed to be
genuine. The Fund Company and its agents will employ procedures designated to
provide reasonable assurance that instructions by telephone are genuine. These
procedures include recording all phone conversations, sending confirmations to
shareholders within 72 hours of the telephone transaction, verification of
account name and account number or tax identification number and sending
redemption proceeds only to the address of record or to a previously authorized
bank account.
K. ARBITRATION. This paragraph contains what is sometimes referred to as a
predispute arbitration clause. In this regard, I am aware of the following:
(i) Arbitration is final and binding on the parties.
(ii) The parties are waiving their right to seek remedies in court, including
the right to jury trial.
(iii) Pre-arbitration discovery is generally more limited than and different
from court proceedings.
(iv) The arbitrators' award is not required to include factual findings or legal
reasoning and any party's right to appeal or to seek modification of rulings by
the arbitrators is strictly limited.
(v) The panel of arbitrators will typically include a minority of arbitrators
who were or are affiliated with the securities industry.
(vi) All agreements shall include a statement that "No person shall bring a
putative or certified class action to arbitration, nor seek to enforce any
predispute arbitration agreement against any person who has initiated in court a
putative class action; or who is a member of a putative class who has not opted
out of the class with respect to any claims encompassed by the putative class
action until: (i) the class certification is denied, or (ii) the class is
decertified, or (iii) the person against whom the arbitration agreement would be
enforced is excluded from the class by the court. Such forbearance to enforce an
agreement to arbitrate shall not constitute a waiver of any rights under this
agreement except to the extent stated herein."
It is agreed that any controversy between me and the Fund Company and/or any
of its service providers (including the Investment Adviser) arising out of this
Agreement or my business with you, shall be settled by arbitration conducted in
accordance with the rules of the National Association of Securities Dealers,
Inc. or the American Arbitration Association, as I may elect. Failure to notify
you of such election in writing within five (5) days after receipt from you of a
request for arbitration shall be deemed to be authorization to make such
election on my behalf. Judgement upon the award of the arbitrators may be
entered by any court having jurisdiction.
L. INDEMNIFICATION. As additional consideration for the services of the
Distributor, the Transfer Agent and the Investment Adviser, with regard to this
Account, I agree to indemnify and hold each of them, the Fund Company, and their
officers, directors, employees and agents harmless from and against any and all
losses, demands, claims, actions, expenses and attorney's fees arising out of or
in connection with this Agreement which are not caused by their negligence or
willful misconduct. The provisions of this Section shall survive termination of
this Agreement; the provisions of this Section shall be binding on my successors
and assigns.
M. I understand that if disbursements out of this account are to anyone other
than the applicant or the applicant's joint tenant, a signature guarantee will
be required.
N. With respect to Step 3, I understand that if the 1st or 16th should fall on a
non-business day, the transaction will be effective on the next business day.
O. I UNDERSTAND THAT MUTUAL FUND SHARES ARE NOT DEPOSITS OF ANY BANK, ARE NOT
INSURED BY THE FDIC, ARE NOT OBLIGATIONS OF ANY BANK OR THE U.S. GOVERNMENT AND
ARE NOT ENDORSED OR GUARANTEED IN ANY WAY BY ANY BANK.
<PAGE> 128
- --------------------------------------------------------------------------------
STEP 5 DEPOSITORS AUTHORIZATION TO HONOR DEBITS
SECTION A IF YOU SELECTED AUTOMATIC INVESTMENT OR TELEPHONE INVESTMENT YOU
MUST ALSO COMPLETE STEP 5,
SECTIONS A & B.
I/We authorize the Financial Institution listed below to charge my/our account
for any drafts or debits drawn on my/our account initiated by the Agent, BISYS
Fund Services, Inc., and to pay such sums in accordance therewith, provided
my/our account has sufficient funds to cover such drafts or debits. I/We further
agree that your treatment of such orders will be the same as if I/we personally
signed or initiated the drafts or debits.
I/we understand that this authority will remain in effect until you receive
my/our written instructions to cancel this service. I/We also agree that if any
such drafts or debits are dishonored, for any reason, you shall have no
liabilities.
FINANCIAL INSTITUTION ACCOUNT NUMBER
<TABLE>
<S> <C>
NAME AND ADDRESS ------------------------------------------------------------
WHERE MY/OUR NAME OF FINANCIAL INSTITUTION
ACCOUNT IS ------------------------------------------------------------
MAINTAINED STREET ADDRESS
------------------------------------------------------------
CITY STATE ZIP
CODE
</TABLE>
<TABLE>
<S> <C> <C>
NAME(S) AND ---------------------------------------------------- ------------------
SIGNATURE(S) OF PLEASE PRINT DATE
DEPOSITOR(S) AS ---------------------------------------------------- ------------------
THEY APPEAR WHERE SIGNATURE DATE
ACCOUNT IS ----------------------------------------------------
REGISTERED PLEASE PRINT
----------------------------------------------------
SIGNATURE
</TABLE>
- --------------------------------------------------------------------------------
SECTION B SHAREHOLDER AUTHORIZATION / SIGNATURE(S) REQUIRED
- I/We authorize the Pacific Capital Funds and its agents to act upon these
Instructions for the features that have been checked.
- I/We acknowledge that in connection with an Automatic Investment or
Telephone Investment, if my/our account at the Financial Institution has
insufficient funds, Pacific Capital Funds and its agents may cancel the
purchase transaction and are authorized to liquidate other shares or
fractions thereof held in my/our Pacific Capital Fund account to make up any
deficiency resulting from any decline in the net asset value of shares so
purchased and any dividends paid on those shares. I/We understand that in
the event of such deficiency, Pacific Capital Funds and its agents will
first liquidate shares of the Pacific Capital Fund to which the purchase
transaction relates, and then, in the discretion of Pacific Capital Funds
and its agents, shares of any other Pacific Capital Fund in my/our account
at the Financial Institution. I/We authorize Pacific Capital Funds and its
agents to correct any transfer error by a debit or credit to my/our
financial Institution account and/or Fund account and to charge the account
for any related charges.
- I/We acknowledge that shares purchased either through Automatic Investment
or Telephone Investment are subject to applicable sales charges.
- The undersigned warrants that he/she has full authority and is of legal age
to purchase shares of the Pacific Capital Fund(s) designated above and has
received and read a current Prospectus of such Fund(s) and agrees to its
terms. Pacific Capital Funds, Agent and the Distributor and their Trustees,
directors, employees and agents will not be liable for acting upon
instructions believed to be genuine, and will not be responsible for any
losses resulting from unauthorized telephone transactions if the Agent
follows reasonable procedures designed to verify the identity of the caller.
The Agent will request some or all of the following information: account
name and number, name(s) and social security number registered to the
account and personal identification; the Agent may also record calls.
Shareholders should verify the accuracy of confirmation statements
immediately upon receipt. Under penalties of perjury, the undersigned whose
Social Security (Tax I.D.) Number is shown above certifies(I) that Number is
my correct taxpayer identification number and (II) currently I am not under
IRS notification that I am subject to backup withholding (line out (II) if
under notification). If no such Number is shown, the undersigned further
certifies, under penalties of perjury, that either (a) no such Number has
been issued, and a Number has been or will soon be applied for. If a Number
is not provided to you within sixty days, the undersigned understands that
all payments (including liquidations) are subject to 31% withholding under
federal tax law, until a Number is provided and the undersigned may be
subject to a $50 I.R.S. penalty; or (b) that the undersigned is not a
citizen resident of the U.S.; and either does not expect to be in the U.S.
for more than 182 days during each calendar year and does not conduct a
business in the U.S. which would receive any gain from the Fund, or is
exempt under an income tax treaty. NOTE: ALL REGISTERED OWNERS OF THE
ACCOUNT MUST SIGN BELOW. FOR A TRUST, ALL TRUSTEES MUST SIGN*
THIS AGREEMENT CONTAINS A PREDISPUTE ARBITRATION CLAUSE IN STEP 4, LETTER K.
<TABLE>
<S> <C> <C>
- ------------------------------------------ ------------------------------------------ ------------------
INDIVIDUAL (OR CUSTODIAN) JOINT REGISTRANT, IF ANY DATE
- ------------------------------------------
CORPORATE OFFICER, PARTNER, TRUSTEE(S), ------------------------------------------ ------------------
ETC. TITLE DATE
*FOR A TRUST, CORPORATION OR ASSOCIATION, THIS FORM MUST BE ACCOMPANIED BY PROOF OF AUTHORITY TO SIGN, SUCH
AS A CERTIFIED COPY OF THE CORPORATE RESOLUTION OR A CERTIFICATE OF INCUMBENCY UNDER THE TRUST
INSTRUMENT.
</TABLE>
<PAGE> 129
SPECIAL INFORMATION
- Certain features (Automatic Investment, Telephone Investment, Expedited
Redemption and Direct Deposit of Dividends) are effective 15 days after this
form is received in good order by the Fund's Agent.
- You may cancel any feature at any time, effective 3 days after the Agent
receives notice from you.
- Either the Fund or the Agent may cancel any feature, without prior notice,
if in its judgment your use of any feature involves unusual effort or
difficulty in the administration of your account.
- The Fund reserves the right to alter, amend or terminate any or all features
or to charge a service fee upon 30 days' written notice to shareholders
except if additional notice is specifically required by the terms of the
Prospectus.
BANKING INFORMATION
- If your Financial Institution account changes, you must complete a Ready
Access Features form which may be obtained from the Agent at 1-800-258-9232
and send it to the Agent together with a "voided" check or pre-printed
deposit slip from the new account. The new Financial Institution change is
effective in 15 days after this form is received in good order by the Fund's
Agent.
TERMS OF LETTER OF INTENT AND ESCROW
By checking Box 2C and signing the Application, the investor is entitled to
make each purchase at the public offering price applicable to a single
transaction of the dollar amount checked above, and agrees to be bound by the
terms and conditions applicable to Letters of Intent appearing below.
The investor is making no commitment to purchase shares, but if the
investor's purchases within thirteen months from the date of the investor's
first purchase do not aggregate $25,000, or, if such purchases added to the
investor's present holdings do not aggregate the minimum amount specified
above, the investor will pay the increased amount of sales charge prescribed
in the terms of escrow below.
The commission to the dealer or broker, if any, named herein shall be at the
rate applicable to the minimum amount of the investor's specified intended
purchases checked above. If the investor's actual purchases do not reach this
minimum amount, the commissions previously paid to the dealer will be adjusted
to the rate applicable to the investor's total purchases. If the investor's
purchases exceed the dollar amount of the investor's intended purchases and
pass the next commission break-point, the investor shall receive the lower
sales charge, provided that the dealer returns to the Distributor the excess
of commissions previously allowed or paid to him over that which would be
applicable to the amount of the investor's total purchases.
The investor's dealer or broker shall refer to this Letter of Intent in
placing any future purchase orders for the investor while this Letter is in
effect.
The escrow shall operate as follows:
1. Out of the initial purchase (or subsequent purchases if necessary), 3% of
the dollar amount specified in the Letter of Intent shall be held in
escrow in shares of the Fund by the Agent. All dividends and any capital
distributions on the escrowed shares will be credited to the investor's
account.
2. If the total minimum investment specified under the Letter is completed
within a thirteen-month period, the escrowed shares will be promptly
released to the investor. However, shares disposed of prior to completion
of the purchase requirement under the Letter will be deducted from the
amount required to complete the investment commitment.
3. If the total purchases pursuant to the Letter are less than the amount
specified in the Letter as the intended aggregate purchase, the investor
must remit to the Agent an amount equal to the difference between the
dollar amount of sales charges actually paid and the amount of sales
charges which would have been paid if the total amount purchased had been
made at a single time. If such difference in sales charges is not paid
within twenty days after receipt of a request from the Agent or the
dealer, the Agent will, within sixty days after the expiration of the
Letter, redeem the number of escrowed shares necessary to realize such
difference in sales charges. Any shares remaining after such redemption
will be released to the investor. The escrow of shares will not be
released until any additional sales charge due has been paid as stated in
this section.
4. By checking Box 2C and signing the Application, the investor irrevocably
constitutes and appoints the Agent or the Distributor as his attorney to
surrender for redemption any or all escrowed shares on the books of the
Fund.
AUTOMATIC WITHDRAWAL PLAN PROVISIONS
By requesting an Automatic Withdrawal Plan, the applicant agrees to the terms
and conditions applicable to such plans, as stated below.
1. The Agent will administer the Automatic Withdrawal Plan (the "Plan") as
agent for the person (the "Planholder") who executed the Plan
authorization.
2. Certificates will not be issued for shares of the Fund purchased for and
held under the Plan, but the Agent will credit all such shares to the
Planholder on the records of the Fund. Any share certificates now held by
the Planholder may be surrendered unendorsed to the Agent with the
application so that the shares represented by the certificate may be held
under the Plan.
3. Dividends and distributions will be reinvested in shares of the Fund at
the Net Asset Value.
4. Redemptions of shares in connection with disbursement payments will be
made at the Net Asset Value per share in effect at the close of business
on the first business day of the month or quarter.
5. The amount and the interval of disbursement payments and the address to
which checks are to be mailed may be changed, at any time, by the
Planholder on written notification to the Agent. The Planholder should
allow at least two weeks' time in mailing such notification before the
requested change can be put in effect.
6. The Planholder may, at any time, instruct the Agent by written notice (in
proper form in accordance with the requirements of the then current
prospectus of the Fund) to redeem all, or any part of, the shares held
under the Plan. In such case the Agent will redeem the number of shares
requested at the Net Asset Value per share in effect in accordance with
the Fund's usual redemption procedures and will mail a check for the
proceeds of such redemption to the Planholder.
7. The Plan may, at any time, be terminated by the Planholder on written
notice to the Agent, or by the Agent upon receiving directions to that
effect from the Fund. The Agent will also terminate the Plan upon receipt
of evidence satisfactory to it of the death or legal incapacity of the
Planholder. Upon termination of the Plan by the Agent or the Fund, shares
remaining unredeemed will be held in an uncertificated account in the
name of the Planholder, and the account will continue as a dividend-
reinvestment, uncertificated account unless and until proper instructions
are received from the Planholder, his executor or guardian, or as
otherwise appropriate.
8. The Agent shall incur no liability to the Planholder for any action taken
or omitted by the Agent in good faith.
9. In the event that the Agent shall cease to act as transfer agent for the
Fund, the Planholder will be deemed to have appointed any successor
transfer agent to act as his Agent in administering the Plan.
10. Purchases of additional shares concurrently with withdrawals are
undesirable because of sales charges when purchases are made.
Accordingly, a Planholder may not maintain this Plan while simultaneously
making regular purchases. While an occasional lump sum investment may be
made, such investment should normally be an amount equivalent to three
times the annual withdrawal or $5,000, whichever is less.
<PAGE> 130
QUESTIONS?
Call 800-258-9232 between 8 a.m. and
9 p.m. Eastern time or contact your
investment representative.
[PACIFIC CAPITAL FUNDS LOGO]
December 1, 1999
------------------------
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> 131
PACIFIC CAPITAL FUNDS TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
RISK/RETURN SUMMARY AND FUND EXPENSES
LOGO
Carefully review this 3 International Stock Fund
important section, which
summarizes the Fund's
investments, risks, past
performance, and fees.
INVESTMENT OBJECTIVES, POLICIES AND RISKS
LOGO
Review this section for 6 International Stock Fund
details on the Fund's 6 Main Risks
investment strategies and
risks.
FUND MANAGEMENT
LOGO
Review this section for 9 The Investment Adviser
details on the people and 9 The Sub-Adviser
organizations who oversee 9 Portfolio Managers
the Fund. 9 The Distributor and Administrator
SHAREHOLDER INFORMATION
LOGO
Review this section for 10 Pricing of Fund Shares
details on how shares are 11 Purchasing and Adding to Your Shares
valued, how to purchase, 14 Selling Your Shares
sell and exchange shares, 17 Distribution Arrangements/Sales Charges
related charges, and 22 Exchanging Your Shares
payments of dividends and 23 Dividends, Distributions and Taxes
distributions.
FINANCIAL HIGHLIGHTS
LOGO
Review this section for 24
details on selected
financial highlights of the
Fund.
</TABLE>
2
<PAGE> 132
logo
RISK/RETURN SUMMARY AND FUND EXPENSES INTERNATIONAL STOCK
FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE - Long term capital appreciation
PRINCIPAL The Fund invests primarily in common and preferred stocks of
INVESTMENT STRATEGIES 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. The Fund focuses on companies whose earnings
the Sub-Adviser expects to grow or whose share price it
believes is undervalued.
PRINCIPAL Because the value of the Fund's investments will fluctuate
INVESTMENT RISKS 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, if
any, are also affected by interest rates; if rates rise, the
values of convertible securities may fall.
WHO MAY Consider investing in the Fund if you:
WANT TO INVEST? - want potential capital appreciation and are willing to
accept the higher risks associated with investing in foreign
stocks
- are investing for long-term goals
- want professional portfolio management
This Fund is not appropriate for anyone seeking:
- safety of principal
- a short term investment
- regular income
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.
</TABLE>
3
<PAGE> 133
RISK/RETURN SUMMARY AND FUND EXPENSES INTERNATIONAL STOCK FUND
- -
FEES AND EXPENSES
The fees and expenses for each Class are
based upon the actual operating expenses of
that Class for the fiscal period ended July
31, 1999. (The Fund commenced operations on
December 8, 1998.)
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
(EXPENSES PAID BY YOU DIRECTLY) A SHARES B SHARES
Maximum sales charge (load) on
purchases (as a % of offering
price) 5.25%(1,4) None(4)
Maximum deferred sales charge
(load) (as a % of offering price
or sale price, whichever is less) None(2) 5.00%(3)
ANNUAL FUND OPERATING EXPENSES
(FEES PAID FROM FUND ASSETS) A SHARES B SHARES
Management fee(*) 1.10% 1.10%
Distribution (12b-1) fee 0.75%(*) 1.00%
Other expenses(*) 0.76% 0.81%
Total Fund operating expenses(*) 2.61% 2.91%
</TABLE>
* The Adviser is limiting the Management
fee to 1.00%, the Distributor is limiting
the 12b-1 fee for Class A shares to 0.25%
and the Administrator is waiving a portion
of the Administration fee so that Other
expenses were expected to be 0.69% and
0.76% for Class A and B shares,
respectively. TOTAL FUND OPERATING EXPENSES
AFTER THESE FEE WAIVERS WERE 1.94% AND
2.76% FOR CLASS A AND B SHARES,
RESPECTIVELY. In addition, the Adviser has
agreed to limit expenses so that Total Fund
operating expenses will not exceed 2.22%
and 2.97% for Class A and B shares,
respectively. These expense limitations may
be revised or canceled at any time.
(1) Lower sales charges are available depending upon the amount invested.
(2) For investments of $1 million or more, a Contingent Deferred Sales Charge
is applicable to redemptions within one year of purchase.
(3) 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.
(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 12b-1
fees.
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
broker or other investment
representative, including
an affiliate of Pacific
Century, they may charge
you an account-level fee
for additional services
provided to you in
connection with your
investment in the Fund.
CONTINGENT DEFERRED
SALES CHARGE
Class B shares 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").
4
<PAGE> 134
RISK/RETURN SUMMARY AND FUND EXPENSES INTERNATIONAL STOCK FUND
- -
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
CLASS A SHARES $775 $1,294 $1,838 $3,315
CLASS B SHARES
Assuming redemption $794 $1,201 $1,733 3,163
Assuming no redemption $294 $ 901 $1,533 3,163
</TABLE>
After approximately eight years, Class B
shares will automatically convert to Class
A shares.
Use this table to compare
fees and expenses of the Fund
with those of other funds. It
illustrates the amount of
fees and expenses you would
pay assuming the following:
- $10,000 investment in the
Fund
- 5% annual return
- no changes in the Fund's
operating expenses
Because this example is
hypothetical and for
comparison only, your actual
costs will be different.
PERFORMANCE INFORMATION
Because this Fund has been
operating for less than one
calendar year, performance
information is not included.
5
<PAGE> 135
logo
INVESTMENT OBJECTIVES, POLICIES AND RISKS
- -
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 stocks,
common stock equivalents (such as preferred or debt securities convertible
into common stock), and preferred stocks 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 Sub-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 Sub-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 Sub-Adviser 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; 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 in the United
States, and can use futures contracts, options and other investment
techniques for the purpose of cash flow management and/or risk reduction.
- - MAIN RISKS
The value of your investment in the Fund will go up and down, which means
that you could lose money. You should consider an investment in the Fund 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 may
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
6
<PAGE> 136
INVESTMENT OBJECTIVES, POLICIES AND RISKS
- -
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 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.
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.
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 hostile relationships with
neighboring countries. This instability could impair the financial conditions
of issuers or disrupt their financial markets.
A number of Asian countries have recently experienced 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 Fund may purchase convertible securities that are
fixed-income debt securities or preferred stocks, and which may be converted
at a stated price within a specified period of time into a certain quantity
of 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.
7
<PAGE> 137
INVESTMENT OBJECTIVES, POLICIES AND RISKS
- -
DEBT SECURITIES. The values of the debt securities held by the Fund 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 Fund 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 Sub-Adviser 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 the Fund buys it, or it is no longer rated, Pacific Century
or its Sub-Adviser will decide whether the Fund should continue to hold the
security.
The International Stock 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 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 the Adviser and the Funds' other service providers
do not properly process and calculate date-related information for the year
2000 and beyond. In addition, Year 2000 issues may adversely affect companies
in which the Funds invest if, for example, such companies incur substantial
costs to address Year 2000 issues or suffer losses caused by the failure to
adequately or timely do so.
The Funds have been assured that the Adviser and the Funds' other service
providers have developed and are implementing clearly-defined and documented
plans intended to minimize risks to services critical to the Funds'
operations associated with Year 2000 issues. The Funds' Adviser and other
service providers are likewise seeking assurance from their respective
vendors and suppliers that such entities are addressing any Year 2000 issues,
and each provider intends to engage, where appropriate, in private and/or
industry interface testing of systems for Year 2000 readiness.
If any systems upon which the Funds depend are not Year 2000 ready by
December 31, 1999, administrative errors and account maintenance failures
would likely occur. While the ultimate costs or consequences of incomplete or
untimely resolution of Year 2000 issues by the Adviser or the Funds' other
service providers cannot be accurately assessed at this time, the Funds
currently have no reason to believe that the Year 2000 plans of the Adviser
and the Funds' other service providers will not be completed by December 31,
1999, or that the anticipated costs associated with full implementation of
their plans will have a material adverse impact on their business operations
or the Funds. The Funds and the Adviser will continue to closely monitor
developments relating to this issue, including development by the Adviser and
the Funds other service providers of contingency plans for providing back-up
computer services in the event of a systems failure or the inability of any
provider to achieve Year 2000 readiness. The Adviser will also continue to
monitor potential investment risks related to Year 2000 issues.
The most recent information about the Fund's portfolio holdings can be found
in its annual or semi-annual reports. For information about receiving these
reports, see the back cover.
8
<PAGE> 138
logo
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 Fund.
Pacific Century has managed the financial assets of corporations and
institutional investors for more than a century. Pacific Century, formerly
known as Hawaiian Trust Company, is among the top 50 trust firms in the
United States based on assets under management and oversees more than $15
billion in client assets. The Pacific Century investment management
team -- including portfolio managers, financial analysts and economists -- is
responsible for nearly $8 billion of these assets.
For these advisory services, the International Stock Fund paid Pacific
Century 1.00% during the fiscal year ended July 31, 1999. Pacific Century
waived a portion of its fee for the fiscal year. The contractual fee, without
waiver, is 1.10%.
- - THE SUB-ADVISER
Nicholas-Applegate Capital Management, 600 W. Broadway, San Diego, California
92101, is the Sub-Adviser to the International Stock Fund and provides
investment advisory services with respect to the management of the Fund's
portfolio. Its fees are paid by Pacific Century.
- - PORTFOLIO MANAGERS
Management of the Fund is coordinated by Pacific Century's investment unit,
which is staffed with more than 40 people, including seven Chartered
Financial Analysts and eight M.B.A.'s. All investment decisions of Pacific
Century with respect to the Fund are made by a committee, with individual
portfolio managers having day-to-day responsibility for managing the Fund.
INTERNATIONAL STOCK FUND. A team headed by Catherine Somhegyi, Larry
Speidell, Loretta Morris, Melisa Grigolite and John Tribolet is responsible
for the day-to-day management of the Fund. Ms. Somhegyi, a Partner of
Nicholas-Applegate Capital Management, is its Chief Investment Officer for
Global Equity Management and has managed assets for clients of the firm since
1987. Mr. Speidell, a Partner of Nicholas-Applegate Capital Management, has
been Director of Global/Systematic Portfolio Management and Research since
1994; he has 23 years prior investment management experience with
Batterymarch Financial Management and Putnam Management Company. Ms. Morris,
a Partner of Nicholas-Applegate Capital Management, focuses on the management
of international and global portfolios. She has managed assets for clients of
the firm since 1990 and has 19 years investment experience. Ms. Grigolite is
a Portfolio Manager responsible for international and global portfolio
management and research. She joined the firm in 1991 and has seven years
investment experience. Mr. Tribolet is a Portfolio Manager responsible for
portfolio management and research for international portfolios. Mr. Tribolet
joined the firm in 1997 and has four years prior investment banking
experience with Paine Webber and Kemper Securities. He has seven years of
investment experience.
- - THE DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services ("BISYS") is the Fund's distributor and BISYS Fund
Services Ohio, Inc. is the Fund's administrator. The address of each is 3435
Stelzer Road, Columbus, Ohio 43219.
9
<PAGE> 139
[LOGO]
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES
---------------------------
HOW NAV IS CALCULATED
NAV is calculated by adding
the total value of the
Fund's investments and
other assets attributable
to Class A or B shares,
subtracting its liabilities
attributable to Class A or
B shares, and then dividing
that figure by the number
of outstanding Class A or B
shares of the Fund:
NAV =
Total Assets - Liabilities
------------------------------------------------------------------------------
Number of Shares
Outstanding
Locate your Fund's NAV
daily in The Wall Street
Journal and other
newspapers or call
800-258-9232 for
information.
---------------------------
The price of the Fund's shares is
based on its per share net asset value
("NAV"). The NAV for Class A and B
shares of the Fund 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,
securities will be valued by a method
that the Board of Trustees believes
accurately reflects fair value.
10
<PAGE> 140
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
<TABLE>
<CAPTION>
MINIMUM INVESTMENTS INITIAL INVESTMENT SUBSEQUENT
<S> <C> <C>
Regular
(non-retirement) $1,000 $50
----------------------------------------------------------
Retirement (IRA) $250 $50
----------------------------------------------------------
Auto Invest Plan $100 $50
</TABLE>
All purchases must be in U.S. dollars. A
fee may be charged for any checks that do
not clear. Third-party checks are not
accepted.
The 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 the
Fund's shareholders. The Fund reserves the
right to suspend or modify the continuous
offering of its shares.
You can purchase the
Fund through the Pacific
Capital Funds'
Distributor or through
brokers and other
investment
representatives,
including an affiliate
of Pacific Century,
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 sale
requests. Consult your
investment
representative or
institution for specific
information.
-----------------------------------------------------------------------------
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.
-----------------------------------------------------------------------------
11
<PAGE> 141
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
CONTINUED
INSTRUCTIONS FOR OPENING OR
ADDING TO AN ACCOUNT
BY REGULAR MAIL
Initial Investment:
If purchasing through your financial advisor or brokerage account, simply
tell your advisor or broker that you wish to purchase shares of the Fund and
he or she will take care of the necessary documentation. For all other
purchases follow the instructions below.
1. Carefully read, complete and sign the account application. Establishing
your account privileges now saves you the inconvenience of having to add
them later.
2. Make check, bank draft or money order payable to "Pacific Capital Funds"
and include the name of the Fund on the check.
3. Mail to: Pacific Capital Funds, P.O. Box 182130, Columbus, OH 43218-2130
Subsequent Investments:
1. Use the investment slip attached to your account statement.
Or, if unavailable,
2. Include the following information on a piece of paper:
- Fund name
- Share class
- Amount invested
- Account name
- Account number
Include your account number on your check.
3. Mail investment slip and check to: Pacific Capital Funds,
P.O. 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
Your bank must participate in the Automated Clearing House (ACH) and must be
a U.S. bank. Your bank or broker may charge for this service.
Establish the electronic purchase option on your account application or call
800-258-9232. Your account can generally be set up for electronic purchases
within 15 days.
Call 800-258-9232 to arrange a transfer from your bank account.
QUESTIONS?
Call 800-258-9232 or
your
investment
representative.
ELECTRONIC VS. WIRE
TRANSFER
Wire transfers allow
financial institutions to
send funds to each other,
almost instantaneously.
With an electronic
purchase or sale, the
transaction is made
through the Automated
Clearing House (ACH),
which may take up to
eight days to clear.
There is generally no fee
for ACH transactions.
12
<PAGE> 142
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
CONTINUED
BY WIRE TRANSFER
Note: Your bank may charge a wire transfer fee.
Please phone the Funds at 800-258-9232 for instructions on opening an account
or purchasing additional shares by wire transfer.
AUTO INVEST PLAN
You can make automatic investments in the Fund 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:
J your bank name, address, and account number
J the amount you want to invest automatically (minimum $50)
J 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. The Fund also reserves the right to reject any
purchase or to suspend or modify the continuous offering of its shares.
13
<PAGE> 143
SHAREHOLDER INFORMATION
SELLING YOUR SHARES
INSTRUCTIONS FOR SELLING SHARES
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 Class B shares, you will be
charged a fee for any shares that have not
been held for a sufficient length of time.
(You will also pay a fee for Class A shares
sold within one year of a purchase of $1
million or more.) These fees will be deducted
from the money paid to you. See the section on
"Distribution Arrangements/Sales Charges"
below for details.
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.
If selling shares through your financial advisor or broker, ask him or her
for redemption procedures. Your advisor and/or broker may have transaction
minimums and/or transaction times which will affect your redemption. For all
other sales transactions, follow the instructions below.
BY TELEPHONE (UNLESS YOU HAVE DECLINED TELEPHONE SALES PRIVILEGES)
Call 800-258-9232 with instructions as to how you want to receive your funds
(mail, wire, electronic transfer). See "General Policies on Selling Shares"
below.
BY MAIL (SEE "GENERAL POLICIES ON SELLING SHARES -- REDEMPTIONS IN WRITING
REQUIRED" BELOW.)
1. Call 800-258-9232 to request redemption forms (if your account is an IRA
or another form of retirement plan), 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, P.O. Box 182130, Columbus, OH 43218-2130
BY OVERNIGHT SERVICE
1. See instruction 1 above.
2. Send to: Pacific Capital Funds, c/o BISYS Fund Services, Attn: T.A.
Operations, 3435 Stelzer Road, Columbus, OH 43219
14
<PAGE> 144
SHAREHOLDER INFORMATION
SELLING YOUR SHARES
CONTINUED
WIRE TRANSFER
You must select this option on your account application.
The Fund may charge a wire transfer fee. Note: Your financial institution may
also charge a separate fee.
Call 800-258-9232 to request a wire transfer. If you call by 4 p.m. Eastern
time, your payment will normally be wired to your bank on the next business
day. Otherwise, it will normally be wired on the second business day after
your call.
ELECTRONIC REDEMPTIONS
Your bank must participate in the Automated Clearing House (ACH) and must be
a U.S. bank.
Note: Your bank may charge for this service.
Call 800-258-9232 to request an electronic redemption.
If you call by 4 p.m. Eastern time, the NAV of your shares will normally be
determined on the same day and the proceeds will normally be credited within
8 days. Otherwise, it will normally take up to 9 days.
AUTO WITHDRAWAL PLAN
You can receive automatic payments from your Class A shares 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.
QUESTIONS?
Call 800-258-9232 or
your
investment
representative.
15
<PAGE> 145
logo
SHAREHOLDER INFORMATION
- -
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 ("IRAs")
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.
TELEPHONE REDEMPTIONS
The Fund makes every effort to ensure that telephone redemptions are only
made by authorized traders. 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, the Transfer Agent, Pacific Century and/or the
Distributor may be liable for losses due to unauthorized transactions.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider sending your request in writing.
REDEMPTIONS WITHIN 15 DAYS OF INITIAL INVESTMENT
When you have made an investment by check, you cannot receive any portion of
the redemption proceeds on 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
or by wire.
REFUSAL OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the Securities and Exchange Commission ("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 the Fund's 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 redemption price, net
of any CDSC. When you convert these securities to cash, you will pay
brokerage charges.
- -
16
<PAGE> 146
SHAREHOLDER INFORMATION
- -
GENERAL POLICIES ON SELLING SHARES
CONTINUED
CLOSING OF SMALL ACCOUNTS
If your account falls below $250, we may ask you to increase your balance to
the minimum investment amount. 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 as of the cancellation
date. No interest is paid during the time the check is outstanding.
- - 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 Fund. Class Y shares are offered by another
prospectus which is available by calling 800-258-9232.
<TABLE>
<S> <C> <C>
TYPES OF CHARGES CLASS A CLASS B
Sales Charge (Load) Front-end sales charge (at the No front-end sales charge. You may
time of your purchase); reduced incur a contingent deferred sales
sales charges are available.(1) 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 distribution Subject to annual distribution
fees of up to .75% of the Fund's fees of up to 1.00% of the Fund's
net assets. net assets.
Fund Expenses Lower annual expenses then Class B Higher annual expenses than Class
shares. A shares.
</TABLE>
(1) You may incur a contingent deferred sales charge on shares sold within
one year of a purchase of $1 million or more.
QUESTIONS?
Call 800-258-9232 or
your
investment
representative.
17
<PAGE> 147
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CONTINUED
CALCULATION OF SALES CHARGE
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 pay
for shares 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 INTERNATIONAL STOCK FUND
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE DEALER PAYMENT
YOUR AS A % OF AS A % OF AS A % OF
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%
</TABLE>
(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.
The Distributor pays securities dealers from its own resources up to 1.00% of
the offering price of Class A shares of the Fund for individual sales of $1
million to $5 million and 0.50% of the offering price of Class A shares of
the Fund for individual sales over $5 million.
The Distributor reserves the right to pay the entire sales charge to dealers.
BISYS may provide financial assistance in connection with pre-approved
seminars, conferences and advertising to the extent permitted by applicable
state or self-regulatory agencies, such as the National Association of
Securities Dealers.
18
<PAGE> 148
SHAREHOLDER INFORMATION
- -
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CONTINUED
<TABLE>
<CAPTION>
YEARS CDSC AS A % OF
SINCE DOLLAR AMOUNT
PURCHASE SUBJECT TO CHARGE
<S> <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 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 the Fund which you exchanged for Class
B shares of another Pacific Capital Fund, or vice versa, we will calculate
your holding period from the time of your original purchase of Class B
shares.
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 to
the right. There is no CDSC on
reinvested dividends or
distributions. Imposition of
the CDSC and the distribution
fee on Class B shares is
limited by the NASD
asset-based sales charge rule.
19
<PAGE> 149
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CONTINUED
SALES CHARGE
REDUCTIONS
You may qualify for reduced sales charges under the following circumstances.
- 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 3% of the total amount you
intend to purchase with your letter of intent. Shares purchased under the
non-binding Letter of Intent will be held in escrow until the total
investment has been completed. If the Letter of Intent is not completed,
sufficient escrowed shares will be redeemed to pay any applicable
front-end sales charge.
- 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.
- COMBINATION PRIVILEGE. You can combine accounts of multiple Pacific
Capital Funds or accounts of immediate family household members (spouse
and children under 21) to reduce sales charges. Reduced prices are also
available for investors who are members of certain qualified groups.
SALES CHARGE WAIVERS
CLASS A SHARES
The following qualify for waivers of sales charges:
- Current and retired trustees, directors, employees, and family members of
the Trust, Pacific Century and its affiliates or any other organization
that provides services to the Trust.
- 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).
- Investors who purchase shares of the Fund through a retirement related
payroll deduction plan, a 401(k) plan, a 403(b) plan, or a similar plan
which by its terms permits purchases of shares.
- Other investment companies distributed by the Distributor.
- 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.
- Investors who purchase shares with the proceeds from the recent redemption
of Class Y Shares of the Trust.
BISYS must be notified in writing by you or your financial institution at
the time the purchase is made. A copy of your account statement showing
the redemption must accompany the notice.
REINSTATEMENT PRIVILEGE
If you have sold Class A or B shares of the Fund and decide to reinvest
in the 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.
20
<PAGE> 150
SHAREHOLDER INFORMATION
DISTRIBUTION ARRANGEMENTS/SALES CHARGES
CONTINUED
CLASS B SHARES
The Distributor will waive the CDSC under certain circumstances, including
the following:
- If the redemption follows the death or disability of a shareholder (or
both shareholders in the case of joint accounts).
- 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).
- If the redemption represents the minimum required distribution from a
retirement plan.
- If the shares being redeemed were purchased with reinvested dividends and
distributions.
See the Statement of Additional Information for other possible fee waivers.
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 the Fund's shares and for providing shareholder services.
12b-1 fees are paid from Fund assets on an ongoing basis, and over time will
increase the cost of your investment and may cost you more than paying other
types of sales charges.
- The 12b-1 fees paid by the 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.
Until further notice, the Distributor voluntarily intends to waive a portion
of its 12b-1 fee, so that the fee payable by the Fund will not exceed .25% of
the average daily net asset value attributable to the Fund's Class A shares
on an annual basis.
21
<PAGE> 151
SHAREHOLDER INFORMATION
EXCHANGING YOUR SHARES
You can exchange your
shares in the 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
Pacific Capital Cash Assets
Trust, the Pacific Capital
Tax-Free Cash Assets Trust
and the Pacific Capital
U.S. Government Securities
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.
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 or
other investment company into
which you wish to exchange
shares.
INSTRUCTIONS FOR EXCHANGING SHARES
Exchanges from one Pacific Capital
Fund to another are taxable. You can
make exchanges by sending a written
request to Pacific Capital Funds,
P.O. 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 Pacific Capital
Fund from which the exchange is
to be made
- The name of the Pacific Capital
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 Fund due to market
timing strategies, exchange activity
may be limited to four substantial
exchanges within one calendar year
period. The Fund may also refuse any
exchange order.
22
<PAGE> 152
SHAREHOLDER INFORMATION
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund's net investment income is paid to its shareholders quarterly. Its
net capital gains are distributed to shareholders annually. Dividends payable
on Class A shares of the Fund are generally more than on Class B shares
because Class B shares have higher distribution expenses.
We automatically reinvest all income dividends and capital gains
distributions in additional shares of the same Class on the ex-dividend date
unless you request otherwise in writing to the Transfer Agent (at least 15
days prior to the distribution). The Distributor does 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.
TAXES
Dividends generally are taxable as ordinary income. Taxes on capital gains
distributed by the Fund vary with the length of time the Fund has held the
security -- not how long you have been invested in the Fund.
Dividends are taxable in the year in which they are declared, 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 Fund. 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 federal and state 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 advisor about the federal, state and local tax
consequences in your particular circumstances.
The Fund may incur foreign income taxes in connection with some of its
foreign investments. Certain of these taxes may be credited to shareholders.
HAWAII TAX INFORMATION
Dividends and distributions made by the Fund to Hawaii residents will
generally be treated for Hawaii income tax purposes in the same manner as
they are treated 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 Fund, but you will be
subject to taxes of other states and localities.
23
<PAGE> 153
logo
FINANCIAL HIGHLIGHTS
The Financial Highlights in the following table set forth certain financial
data and investment results of the Fund since its 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 Funds' annual report contains additional
performance information relating to the Funds and is available upon request,
without charge.
24
<PAGE> 154
FINANCIAL HIGHLIGHTS INTERNATIONAL STOCK FUND
- -
<TABLE>
<CAPTION>
PERIOD ENDED JULY 31, 1999
CLASS A(D) CLASS B(E)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.09 $10.20
------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment loss -- (0.02)
Net realized and unrealized gain on investments 1.87 1.72
------------------------------------------------------------------------------------------
Total from Investment Activities 1.87 1.70
------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $11.96 $11.90
------------------------------------------------------------------------------------------
Total Return (excludes sales charge) 18.53%(a) 16.67%(a)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (000) $ 265 $ 102
Ratio of expenses to average net assets 1.94%(b) 2.76%(b)
Ratio of net investment income (loss) to average net
assets (0.19%)(b) (1.08%)(b)
Ratio of expenses to average net assets* 2.61%(b) 2.91%(b)
Ratio of net investment income (loss) to average net
assets* (0.86%)(b) (1.24%)(b)
Portfolio Turnover(c) 156.46% 156.46%
</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) Not annualized.
(b) Annualized.
(c) Portfolio turnover is calculated on the basis of the Fund, as a whole,
without distinguishing between the classes of shares issued.
(d) For the period from December 8, 1998 (commencement of operations) to July
31, 1999.
(e) For the period from December 20, 1998 (commencement of operations) to
July 31, 1999.
25
<PAGE> 155
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 156
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 157
For more information about the Pacific Capital Funds, the following documents
are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS:
The Fund's annual and semi-annual reports to shareholders contain detailed
information on the Fund's investments. The annual report includes a discussion
of the market conditions and investment strategies that significantly affected
the Fund's performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI):
The SAI provides more detailed information about the Pacific Capital 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 Annual/Semi-Annual Reports and the SAI, or request
other information and discuss your questions about the Funds, by contacting the
Bank of Hawaii or a broker that sells the Funds. Or contact us at:
PACIFIC CAPITAL FUNDS
P.O. BOX 182130
COLUMBUS, OHIO 43218-2130
TELEPHONE: 1-800-258-9232
You can review the Fund's reports and SAI at the Public Reference Room of the
Securities and Exchange Commission. You can also get copies:
- - For a duplicating 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.
12/99
PCP 0029
<PAGE> 158
QUESTIONS?
Call 800-258-9232 between 8 a.m. and 9 p.m. Eastern time or contact your
investment representative.
[PACIFIC CAPITAL FUNDS LOGO]
December 1, 1999
------------------------
Growth Stock Fund
Growth and Income Fund
Value Fund
Balanced 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
------------------------
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> 159
PACIFIC CAPITAL FUNDS TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
RISK/RETURN SUMMARY AND FUND EXPENSES
LOGO
Carefully review this 3 Growth Stock Fund
important section, which 6 Growth and Income Fund
summarizes each Fund's 9 Value Fund
investments, risks, past 11 Balanced Fund
performance, and fees. 13 Small Cap Fund
15 New Asia Growth Fund
18 International Stock Fund
20 Tax-Free Securities Fund
23 Tax-Free Short Intermediate Securities Fund
26 Diversified Fixed Income Fund
29 U.S. Treasury Securities Fund
32 Short Intermediate U.S. Treasury Securities Fund
INVESTMENT OBJECTIVES, POLICIES AND RISKS
LOGO
Review this section for 35 Growth Stock Fund
details on each Fund's 35 Growth and Income Fund
investment strategies and 35 Value Fund
risks. 36 Balanced Fund
36 Small Cap Fund
37 New Asia Growth Fund
37 International Stock Fund
38 Tax-Free Securities Fund
39 Tax-Free Short Intermediate Securities Fund
39 Diversified Fixed Income Fund
40 U.S. Treasury Securities Fund
40 Short Intermediate U.S. Treasury Securities Fund
40 Main Risks
FUND MANAGEMENT
LOGO
Review this section for 44 44 The Investment Adviser
details on the people and 45 The Sub-Advisers
organizations who oversee 46 Portfolio Managers
the Funds. The Distributor and Administrator
SHAREHOLDER INFORMATION
LOGO
Review this section for 47 Pricing of Fund Shares
details on how shares are 48 Purchasing and Adding to Your Shares
valued, how to purchase, 51 Selling Your Shares
sell and exchange shares, 53 General Policies on Selling Shares
related charges, and 54 Exchanging Your Shares
payments of dividends and 55 Dividends, Distributions and Taxes
distributions.
FINANCIAL HIGHLIGHTS
LOGO
Review this section for 57
details on selected
financial highlights of the
Funds.
</TABLE>
2
<PAGE> 160
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RISK/RETURN SUMMARY AND FUND EXPENSES GROWTH STOCK FUND
- -
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES - Long term capital appreciation
- Secondarily, dividend income
PRINCIPAL The Fund invests primarily in a diversified portfolio of
INVESTMENT STRATEGIES common stocks of U.S. and foreign companies with market
capitalizations (total market price of outstanding equity
securities) greater than $750 million, and securities that
are convertible into such common stocks. The Fund may invest
a significant portion of its assets in smaller and newer
companies. The Fund focuses on companies whose earnings are
growing substantially faster than the average for the U.S.
market.
PRINCIPAL Because the value of the Fund's investments will fluctuate
INVESTMENT RISKS 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 movements in
interest rates; if rates rise, the values of convertible
securities may fall.
WHO MAY Consider investing in the Fund if you:
WANT TO INVEST? - are investing for long term goals
- want potential capital appreciation and are willing to
accept the higher risks associated with investing in stocks
- want professional portfolio management
This Fund is not appropriate for anyone seeking:
- safety of principal
- regular income
- a short term investment
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.
</TABLE>
3
<PAGE> 161
RISK/RETURN SUMMARY AND FUND EXPENSES GROWTH STOCK FUND
- -
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31
FOR CLASS Y SHARES*
<TABLE>
<CAPTION>
'1989' 31
- ------ --
<S> <C>
'90' 2.75
'91' 35.36
'92' 2.41
'93' 7.26
'94' -1.17
'95' 30.1
'96' 15.03
'97' 30.52
'98' 35.94
</TABLE>
Best quarter: Q4
1998 +29.47%
Worst quarter: Q3
1990 -14.29%
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending December 31, 1998)**
The chart and table on this
page show how the Growth
Stock Fund has performed
and provide some indication
of the risks of investing
in the Fund by showing 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 the S&P 500(R) Stock
Index, a widely recognized
index of U.S. common
stocks.
Both the chart and the
table assume reinvestment
of dividends and
distributions. Of course,
past performance does not
indicate how the Fund will
perform in the future.
<TABLE>
<CAPTION>
PERFORMANCE PAST PAST 5 PAST 10 SINCE
INCEPTION* YEAR YEARS YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
CLASS Y 10/31/77 35.94% 21.29% 18.04% 13.97%
S&P 500(R) STOCK INDEX 10/31/77 28.12% 23.92% 19.22% 16.96%
</TABLE>
* The quoted performance of the Fund includes the performance of a common trust
fund ("Commingled") account 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 the Fund's commencement of operations on October 14, 1994, as
adjusted to reflect the expenses associated with the Fund. The Commingled
account was registered with the Securities and Exchange Commission under the
Investment Company Act of 1940 and therefore was not subject to the investment
restrictions imposed by law on registered mutual funds. If the Commingled
account had been registered, the Commingled account's performance may have been
adversely affected.
** For the period January 1, 1999 through September 30, 1999, the aggregate
(non-annualized) total return of the Fund was 5.44% versus 5.37% for the S&P
500(R) Stock Index.
4
<PAGE> 162
RISK/RETURN SUMMARY AND FUND EXPENSES GROWTH STOCK FUND
- -
FEES AND EXPENSES
The fees and expenses for Class Y Shares are
based upon the actual operating expenses for
the fiscal year ended July 31, 1999.
<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES(1)
(FEES PAID FROM FUND ASSETS) Y SHARES
Management fee 0.80%
Other expenses 0.31%
Total Fund operating expenses 1.11%
</TABLE>
(1) The Administrator is waiving a portion
of the Administration fee so that Other
expenses were 0.27%. TOTAL FUND OPERATING
EXPENSES AFTER THIS FEE WAIVER FOR CLASS Y
SHARES WERE 1.07%. This expense limitation
may be revised or canceled at anytime.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
CLASS Y SHARES $113 $353 $612 $1,352
</TABLE>
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
broker or other investment
representative, including
an affiliate of Pacific
Century, they may charge
you an account-level fee
for additional services
provided to you in
connection with your
investment in the Fund.
Use this table to compare
fees and expenses of the Fund
with those of other funds. It
illustrates the amount of
fees and expenses you would
pay assuming the following:
- $10,000 investment in the
Fund
- 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.
5
<PAGE> 163
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RISK/RETURN SUMMARY AND FUND EXPENSES GROWTH AND INCOME FUND
- -
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES - Current income
- Secondarily, long term capital appreciation
PRINCIPAL The Fund invests primarily in a diversified portfolio of
INVESTMENT STRATEGIES high quality, dividend paying common stocks of U.S.
companies with market capitalizations (total market price of
outstanding equity securities) greater than $750 million,
and securities that are convertible into such common stocks.
The Fund focuses on companies whose earnings are growing at
above average rates in relation to other companies in their
industries. The Fund seeks to produce a gross yield that
approximates that of the average for companies in the S&P
500(R) Stock Index.
PRINCIPAL Because the value of the Fund's investments will fluctuate
INVESTMENT RISKS 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, if any, are also affected by
movements in interest rates; if rates rise, the values of
convertible securities may fall.
WHO MAY Consider investing in the Fund if you:
WANT TO INVEST? - want current income
- want potential capital appreciation and are willing to
accept higher risks associated with investing in stocks
- want professional portfolio management
This Fund is not appropriate for anyone seeking:
- safety of principal
- a short term investment
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.
</TABLE>
6
<PAGE> 164
RISK/RETURN SUMMARY AND FUND EXPENSES GROWTH AND INCOME FUND
- -
The chart and table on this
page show how the Growth
and Income Fund has
performed and provide some
indication of the risks of
investing in the Fund by
showing 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 the S&P 500(R) Stock
Index, a widely recognized
index of U.S. common
stocks.
Both the chart and the
table assume reinvestment
of dividends and
distributions. Of course,
past performance does not
indicate how the Fund will
perform in the future.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31
FOR CLASS Y SHARES*
<TABLE>
<CAPTION>
'89' 28.86
- ---- -----
<S> <C>
'90' -1.58
'91' 24.23
'92' 1.08
'93' 4.9
'94' 0.46
'95' 26.48
'96' 18.68
'97' 33.87
'98' 28.61
</TABLE>
Best quarter: Q4
1998 +24.20%
Worst quarter: Q3
1990 -11.35%
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending December 31, 1998)**
<TABLE>
<CAPTION>
PERFORMANCE PAST PAST 5 PAST 10 SINCE
INCEPTION* YEAR YEARS YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
CLASS Y 10/31/77 28.61% 21.03% 15.81% 11.93%
S&P 500(R) STOCK INDEX 10/31/77 28.12% 23.92% 19.22% 16.96%
</TABLE>
* The quoted performance of the Fund includes the performance of a common trust
fund ("Commingled") account 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 the Fund's commencement of operations on October 14, 1994, as
adjusted to reflect the expenses associated with the Fund. The Commingled
account was not registered with the Securities and Exchange Commission under the
Investment Company Act of 1940 and therefore was not subject to the investment
restrictions imposed by law on registered mutual funds. If the Commingled
account had been registered, the Commingled account's performance may have been
adversely affected.
** For the period January 1, 1999 through September 30, 1999, the aggregate
(non-annualized) total return of the Fund was 0.07% versus 5.37% for the S&P
500(R) Stock Index.
7
<PAGE> 165
RISK/RETURN SUMMARY AND FUND EXPENSES GROWTH AND INCOME FUND
- -
FEES AND EXPENSES
The fees and expenses for Class Y Shares are
based upon the actual operating expenses for
the fiscal year ended July 31, 1999.
<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES(1)
(FEES PAID FROM FUND ASSETS) Y SHARES
Management fee 0.80%
Other expenses 0.34%
Total Fund operating expenses 1.14%
</TABLE>
(1) The Administrator is waiving a portion
of the Administration fee so that Other
expenses were 0.30%. TOTAL FUND OPERATING
EXPENSES AFTER THIS FEE WAIVER FOR CLASS Y
SHARES WERE 1.10%. This expense limitation
may be revised or canceled at any time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
CLASS Y SHARES $116 $362 $628 $1,386
</TABLE>
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
broker or other investment
representative, including
an affiliate of Pacific
Century, they may charge
you an account-level fee
for additional services
provided to you in
connection with your
investment in the Fund.
Use this table to compare
fees and expenses of the Fund
with those of other funds. It
illustrates the amount of
fees and expenses you would
pay assuming the following:
- $10,000 investment in the
Fund
- 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.
8
<PAGE> 166
logo
RISK/RETURN SUMMARY AND FUND EXPENSES VALUE FUND
- -
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES - Long term capital appreciation
- Secondarily, current income
PRINCIPAL The Fund invests primarily in a diversified portfolio of
INVESTMENT STRATEGIES U.S. traded common stocks with market capitalizations (total
market price of outstanding equity securities) greater than
$750 million, and securities that are convertible into such
common stocks. The Fund focuses on companies whose cash
flow-to-price ratio exceeds that of their industry average
and whose stock price Pacific Century believes is
undervalued.
PRINCIPAL Because the value of the Fund's investments will fluctuate
INVESTMENT RISKS 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, if any, may be affected by movements
in interest rates; if rates rise, the values of convertible
securities may fall.
WHO MAY Consider investing in the Fund if you:
WANT TO INVEST? - want potential capital appreciation and are willing to
accept the higher risks associated with investing in stocks
- want professional portfolio management
This Fund is not appropriate for anyone seeking:
- safety of principal
- a short term investment
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.
</TABLE>
9
<PAGE> 167
RISK/RETURN SUMMARY AND FUND EXPENSES VALUE FUND
- -
FEES AND EXPENSES
The fees and expenses for Class Y Shares are
based upon the actual operating expenses for
the fiscal period ended July 31, 1999. (The
Fund commenced operations on December 3,
1998.)
<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES(1)
(FEES PAID FROM FUND ASSETS) Y SHARES
Management fee 0.80%
Other expenses 0.52%
Total Fund operating expenses 1.32%
</TABLE>
(1) The Administrator is waiving a portion
of the Administration fee so that Other
expenses were 0.48%. TOTAL FUND OPERATING
EXPENSES AFTER THIS FEE WAIVER FOR CLASS Y
SHARES WERE 1.28%. This expense limitation
may be revised or canceled at any time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
CLASS Y SHARES $134 $418 $723 $1,590
</TABLE>
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
broker or other investment
representative, including
an affiliate of Pacific
Century, they may charge
you an account-level fee
for additional services
provided to you in
connection with your
investment in the Fund.
Use this table to compare
fees and expenses of the Fund
with those of other funds. It
illustrates the amount of
fees and expenses you would
pay assuming the following:
- $10,000 investment in the
Fund
- 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.
PERFORMANCE INFORMATION
Because this Fund has been
operating for less than one
calendar year, performance
information is not included.
10
<PAGE> 168
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RISK/RETURN SUMMARY AND FUND EXPENSES BALANCED FUND
- -
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES - Current income
- Secondarily, long term capital appreciation
PRINCIPAL The Fund invests primarily in a diversified portfolio of
INVESTMENT STRATEGIES 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. By using a
combination of stocks and bonds, which often fluctuate in
different directions, the Fund seeks to provide above
average income, good long term growth and lower volatility
than a pure stock portfolio.
PRINCIPAL Because the value of the Fund's investments will fluctuate
INVESTMENT RISKS 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 Consider investing in the Fund if you:
WANT TO INVEST? - want current income
- want potential capital appreciation and are willing to
accept the higher risks associated with investing in stocks
- want professional portfolio management
This Fund is not appropriate for anyone seeking:
- safety of principal
- a short term investment
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.
</TABLE>
11
<PAGE> 169
RISK/RETURN SUMMARY AND FUND EXPENSES BALANCED FUND
- -
FEES AND EXPENSES
The fees and expenses for Class Y Shares are
based upon the actual operating expenses for
the fiscal period ended July 31, 1999. (The
Fund commenced operations on June 21, 1999.)
<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES(1)
(FEES PAID FROM FUND ASSETS) Y SHARES
Management fee 0.80%
Other expenses 0.42%
Total Fund operating expenses 1.22%
</TABLE>
(1) The Adviser is limiting the management
fee to 0.70%, the Administrator is waiving a
portion of the Administration fee so that
Other expenses were 0.38%. TOTAL FUND
OPERATING EXPENSES AFTER THESE FEE WAIVERS
FOR CLASS Y SHARES WERE 1.08%. This expense
limitation may be revised or canceled at any
time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
CLASS Y SHARES $124 $387 $670 $1,477
</TABLE>
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
broker or other investment
representative, including
an affiliate of Pacific
Century, they may charge
you an account-level fee
for additional services
provided to you in
connection with your
investment in the Fund.
Use this table to compare
fees and expenses of the Fund
with those of other funds. It
illustrates the amount of
fees and expenses you would
pay assuming the following:
- $10,000 investment in the
Fund
- 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.
PERFORMANCE INFORMATION
Because this Fund has been
operating for less than one
calendar year, performance
information is not included.
- -
12
<PAGE> 170
logo
RISK/RETURN SUMMARY AND FUND EXPENSES SMALL CAP FUND
- -
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE - Long term capital appreciation
PRINCIPAL The Fund invests primarily in a diversified portfolio of
INVESTMENT STRATEGIES common stocks of smaller U.S. companies, and securities that
are convertible into such common stocks. The Fund focuses on
stocks its Sub-Adviser believes are undervalued,
fundamentally strong and undergoing positive change.
PRINCIPAL Because the value of the Fund's investments will fluctuate
INVESTMENT RISKS 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,
if any, may be affected by movements in interest rates; if
rates rise, the values of convertible securities may fall.
WHO MAY Consider investing in the Fund if you:
WANT TO INVEST? - are investing for long term goals
- want potential capital appreciation and are willing to
accept the higher risks associated with investing in small
cap stocks
- want professional portfolio management
This Fund is not appropriate for anyone seeking:
- safety of principal
- a short term investment
- regular income
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.
</TABLE>
13
<PAGE> 171
RISK/RETURN SUMMARY AND FUND EXPENSES SMALL CAP FUND
- -
FEES AND EXPENSES
The fees and expenses for Class Y Shares are
based upon the actual operating expenses for
the fiscal period ended July 31, 1999. (The
Fund commenced operations on December 3,
1998.)
<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES(1)
(FEES PAID FROM FUND ASSETS) Y SHARES
Management fee 1.10%
Other expenses 0.56%
Total Fund operating expenses 1.66%
</TABLE>
(1) The Adviser is limiting the Management
fee to 1.00%. The Administrator is waiving a
portion of the Administration fee so that
Other expenses were 0.52%. TOTAL FUND
OPERATING EXPENSES AFTER THESE FEE WAIVERS
FOR CLASS Y SHARES WERE 1.52%. In addition,
the Adviser has agreed to limit expenses so
that Total Fund operating expenses will not
exceed 1.97%. These expense limitations may
be revised or canceled at any time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
CLASS Y SHARES $169 $523 $902 $1,965
</TABLE>
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
broker or other investment
representative, including
an affiliate of Pacific
Century, they may charge
you an account-level fee
for additional services
provided to you in
connection with your
investment in the Fund.
Use this table to compare
fees and expenses of the Fund
with those of other funds. It
illustrates the amount of
fees and expenses you would
pay assuming the following:
- $10,000 investment in the
Fund
- 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.
PERFORMANCE INFORMATION
Because this Fund has been
operating for less than one
calendar year, performance
information is not included.
- -
14
<PAGE> 172
logo
RISK/RETURN SUMMARY AND FUND EXPENSES NEW ASIA GROWTH FUND
- -
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE - Long term capital appreciation
PRINCIPAL The Fund invests primarily in common and preferred stocks of
INVESTMENT STRATEGIES companies located in the developing countries of Asia (Asian
countries other than Japan), 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 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. The Fund focuses on companies whose
earnings the Sub-Adviser expects to grow or whose share
price it believes is undervalued.
PRINCIPAL Because the value of the Fund's investments will fluctuate
INVESTMENT RISKS 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 Consider investing in the Fund if you:
WANT TO INVEST? - want potential capital appreciation and are willing to
accept the higher risks associated with investing in
emerging country stocks
- are investing for long-term goals
- want professional portfolio management
This Fund is not appropriate for anyone seeking:
- safety of principal
- regular income
- a short term investment
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.
</TABLE>
15
<PAGE> 173
RISK/RETURN SUMMARY AND FUND EXPENSES NEW ASIA GROWTH FUND
- -
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31
FOR CLASS Y SHARES
<TABLE>
<CAPTION>
'1996' 16.13
- ------ -----
<S> <C>
'97' -24.5
'98' -10.83
</TABLE>
Best quarter: Q4
1998 +16.44%
Worst quarter: Q2
1998 -27.22%
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending December 31, 1998)*
The chart and table on this
page show how the New Asia
Growth Fund has performed
and provide some indication
of the risks of investing
in the Fund by showing 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 the Morgan Stanley
Capital International
(MSCI) All Country (AC) Far
East Free Index (excluding
Japan), a widely recognized
index of stock markets in
that region.
Both the chart and the
table assume reinvestment
of dividends and
distributions. Of course,
past performance does not
indicate how the Fund will
perform in the future.
<TABLE>
<CAPTION>
PERFORMANCE PAST SINCE
INCEPTION YEAR INCEPTION
<S> <C> <C> <C>
CLASS Y 2/15/95 -10.83% -3.57%
MSCI AC FAR EAST FREE INDEX
(EXCLUDING JAPAN) 2/15/95 -7.16% -37.01%
</TABLE>
* For the period January 1, 1999 through September 30, 1999, the aggregate
(non-annualized) total return of the Fund was 36.25% versus 49.79% for the
MSCI Far East Index (excluding Japan).
16
<PAGE> 174
RISK/RETURN SUMMARY AND FUND EXPENSES NEW ASIA GROWTH FUND
- -
FEES AND EXPENSES
The fees and expenses for Class Y Shares are
based upon the actual operating expenses for
the fiscal year ended July 31, 1999.
<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES(1)
(FEES PAID FROM FUND ASSETS) Y SHARES
Management fee 0.90%
Other expenses 1.15%
Total Fund operating expenses 2.05%
</TABLE>
(1) The Administrator is waiving a portion
of the Administration fee and the Adviser is
reimbursing certain expenses so that Other
expenses were 1.00%. TOTAL FUND OPERATING
EXPENSES AFTER THIS WAIVER FOR CLASS Y
SHARES WERE 1.90%. In addition, the Adviser
has agreed to limit expenses so that Total
Fund operating expenses will not exceed
1.97%. These expenses may be revised or
canceled at any time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
CLASS Y SHARES $208 $643 $1,103 $2,379
</TABLE>
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
broker or other investment
representative, including
an affiliate of Pacific
Century, they may charge
you an account-level fee
for additional services
provided to you in
connection with your
investment in the Fund.
Use this table to compare
fees and expenses of the Fund
with those of other funds. It
illustrates the amount of
fees and expenses you would
pay assuming the following:
- $10,000 investment in the
Fund
- 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.
17
<PAGE> 175
logo
RISK/RETURN SUMMARY AND FUND EXPENSES INTERNATIONAL STOCK
FUND
- -
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE - Long term capital appreciation
PRINCIPAL The Fund invests primarily in common and preferred stocks of
INVESTMENT STRATEGIES 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. The Fund focuses on companies whose earnings
the Sub-Adviser expects to grow or whose share price it
believes is undervalued.
PRINCIPAL Because the value of the Fund's investments will fluctuate
INVESTMENT RISKS 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, if
any, are also affected by interest rates; if rates rise, the
values of convertible securities may fall.
WHO MAY Consider investing in the Fund if you:
WANT TO INVEST? - want potential capital appreciation and are willing to
accept the higher risks associated with investing in foreign
stocks
- are investing for long-term goals
- want professional portfolio management
This Fund is not appropriate for anyone seeking:
- safety of principal
- a short term investment
- regular income
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.
</TABLE>
18
<PAGE> 176
RISK/RETURN SUMMARY AND FUND EXPENSES INTERNATIONAL STOCK FUND
- -
FEES AND EXPENSES
The fees and expenses for Class Y Shares are
based upon the actual operating expenses for
the fiscal period ended July 31, 1999. (The
Fund commenced operations on December 2,
1998.)
<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES(1)
(FEES PAID FROM FUND ASSETS) Y SHARES
Management fee 1.10%
Other expenses 0.69%
Total Fund operating expenses 1.79%
</TABLE>
(1) The Adviser is limiting the Management
fee to 1.00%. The Administrator is waiving a
portion of the Administration fee so that
Other expenses were 0.65%. TOTAL FUND
OPERATING EXPENSES AFTER THESE FEE WAIVERS
FOR CLASS Y SHARES WERE 1.65%. In addition,
the Adviser has agreed to limit expenses so
that Total Fund operating expenses will not
exceed 1.97%. These expense limitations may
be revised or canceled at any time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
CLASS Y SHARES $182 $563 $970 $2,105
</TABLE>
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
broker or other investment
representative, including
an affiliate of Pacific
Century, they may charge
you an account-level fee
for additional services
provided to you in
connection with your
investment in the Fund.
Use this table to compare
fees and expenses of the Fund
with those of other funds. It
illustrates the amount of
fees and expenses you would
pay assuming the following:
- $10,000 investment in the
Fund
- 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.
PERFORMANCE INFORMATION
Because this Fund has been
operating for less than one
calendar year, performance
information is not included.
- -
19
<PAGE> 177
logo
RISK/RETURN SUMMARY AND FUND EXPENSES TAX-FREE SECURITIES
FUND
- -
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE - High current income that is exempt from federal and Hawaii
income tax
PRINCIPAL The Fund normally invests at least 80% of its net assets in
INVESTMENT STRATEGIES investment grade municipal obligations -- debt securities
that pay interest which is exempt from both federal income
tax and the federal alternative minimum tax. In addition, to
provide double tax exempt income, 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 focuses on maximizing tax exempt income consistent
with prudent investment risk, and varies the average
maturity of its investment portfolio from time to time in
response to actual and expected interest rate movements as
well as other market and economic conditions.
PRINCIPAL Because the value of the Fund's investments will fluctuate
INVESTMENT RISKS 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 in value. The values of any of the Fund's
investments may also decline in response to events affecting
the issuer or its credit rating. 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 Consider investing in the Fund if you:
WANT TO INVEST? - 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
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.
</TABLE>
- -
20
<PAGE> 178
RISK/RETURN SUMMARY AND FUND EXPENSES TAX-FREE SECURITIES FUND
- -
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31
FOR CLASS Y SHARES*
<TABLE>
<CAPTION>
'1989' 9.59
- ------ ----
<S> <C>
'90' 6.06
'91' 11.93
'92' 7.48
'93' 12.03
'94' -6.88
'95' 17.69
'96' 3.21
'97' 8.54
'98' 6.31
</TABLE>
Best quarter: Q1
1995 +7.44%
Worst quarter: Q1
1994 -6.03%
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending December 31, 1998)**
The chart and table on this
page show how the Tax-Free
Securities Fund has
performed and provide some
indication of the risks of
investing in the Fund by
showing 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 the Lehman Brothers
Municipal Bond Index, a
widely recognized index of
municipal bonds with a
broad range of maturities.
Both the chart and the
table assume reinvestment
of dividends and
distributions. Of course,
past performance does not
indicate how the Fund will
perform in the future.
<TABLE>
<CAPTION>
PERFORMANCE PAST PAST 5 PAST 10 SINCE
INCEPTION* YEAR YEARS YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
CLASS Y 10/31/77 6.31% 5.47% 7.41% 3.42%
LEHMAN BROTHERS MUNICIPAL
BOND INDEX 10/31/77 6.48% 6.22% 8.22% 8.67%
</TABLE>
* The quoted performance of the Fund includes the performance of a common trust
fund ("Commingled") account 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 the Fund's commencement of operations on October 14, 1994, as
adjusted to reflect the expenses associated with the Fund. The Commingled
account was not registered with the Securities and Exchange Commission under the
Investment Company Act of 1940 and therefore was not subject to the investment
restrictions imposed by law on registered mutual funds. If the Commingled
account had been registered, the Commingled account's performance may have been
adversely affected.
21
** For the period January 1, 1999 through September 30, 1999, the aggregate
(non-annualized) total return of the Fund was -2.18% versus -1.29% for the
Lehman Brothers Municipal Bond Index.
22
<PAGE> 179
RISK/RETURN SUMMARY AND FUND EXPENSES TAX-FREE SECURITIES FUND
- -
FEES AND EXPENSES
The fees and expenses for Class Y Shares are
based upon the actual operating expenses for
the fiscal year ended July 31, 1999.
<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES(1)
(FEES PAID FROM FUND ASSETS) Y SHARES
Management fee 0.60%
Other expenses 0.30%
Total Fund operating expenses 0.90%
</TABLE>
(1) The Adviser is limiting the Management
fee to 0.45%. The Administrator is waiving a
portion of the Administration fee so that
Other expenses were 0.26%. TOTAL FUND
OPERATING EXPENSES AFTER THESE FEE WAIVERS
FOR CLASS Y SHARES WERE 0.71%. These expense
limitations may be revised or canceled at
any time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
CLASS Y SHARES $ 92 $287 $498 $1,108
</TABLE>
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
broker or other investment
representative, including
an affiliate of Pacific
Century, they may charge
you an account-level fee
for additional services
provided to you in
connection with your
investment in the Fund.
Use this table to compare
fees and expenses of the Fund
with those of other funds. It
illustrates the amount of
fees and expenses you would
pay assuming the following:
- $10,000 investment in the
Fund
- 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.
23
<PAGE> 180
logo
TAX-FREE SHORT INTERMEDIATE
RISK/RETURN SUMMARY AND FUND EXPENSES SECURITIES FUND
- -
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
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 Under normal market conditions, the Fund invests at least
INVESTMENT STRATEGIES 80% of its net assets in investment grade municipal
obligations -- debt securities that pay interest which is
exempt from both federal income tax and the federal
alternative minimum tax. In addition, to provide double tax
exempt income, 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. To achieve greater price
stability than a long-term bond fund, under normal market
conditions, the average remaining maturity of the Fund's
investment portfolio (measured on a dollar-weighted basis)
will be from two to five years. The Fund focuses on
maximizing tax-exempt income consistent with prudent
investment risk within this maturity range.
PRINCIPAL Because the value of the Fund's investments will fluctuate
INVESTMENT RISKS 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 in value. The values of any of the Fund's
investments may also decline in response to events affecting
the issuer or its credit rating. 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 Consider investing in the Fund if you:
WANT TO INVEST? - 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
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.
</TABLE>
- -
24
<PAGE> 181
TAX-FREE SHORT INTERMEDIATE
RISK/RETURN SUMMARY AND FUND EXPENSES SECURITIES FUND
- -
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31
FOR CLASS Y SHARES*
<TABLE>
<CAPTION>
'1989' 5.77
- ------ ----
<S> <C>
'90' 5.71
'91' 8.52
'92' 5.31
'93' 5.78
'94' -1.05
'95' 7.56
'96' 3.2
'97' 5.08
'98' 4.68
</TABLE>
Best quarter: Q1
1991 +2.52%
Worst quarter: Q1
1994 -1.89%
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending December 31, 1998)**
The chart and table on this
page show how the Tax-Free
Short Intermediate
Securities Fund has
performed and provide some
indication of the risks of
investing in the Fund by
showing 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 the Lehman Brothers
5-Year Municipal Bond
Index, a widely recognized
index of bonds with a
maturity range of four to
six years.
Both the chart and the
table assume reinvestment
of dividends and
distributions. Of course,
past performance does not
indicate how the Fund will
perform in the future.
<TABLE>
<CAPTION>
PERFORMANCE PAST PAST 5 PAST 10 SINCE
INCEPTION* YEAR YEARS YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
CLASS Y 3/31/88 4.68% 3.85% 5.03% 4.85%
LEHMAN BROTHERS 5-YEAR
MUNICIPAL BOND INDEX 3/31/88 6.22% 5.50% 7.04% 6.78%
</TABLE>
* The quoted performance of the Fund includes the performance of a common trust
fund ("Commingled") account 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 the Fund's commencement of operations on October 14, 1994, as
adjusted to reflect the expenses associated with the Fund. The Commingled
account was not registered with the Securities and Exchange Commission under the
Investment Company Act of 1940 and therefore was not subject to the investment
restrictions
25
imposed by law on registered mutual funds. If the Commingled account had been
registered, the Commingled account's performance may have been adversely
affected.
** For the period January 1, 1999 through September 30, 1999, the aggregate
(non-annualized) total return of the Fund was -0.10% versus 0.74% for the Lehman
Brothers 5-Year Municipal Bond Index.
26
<PAGE> 182
TAX-FREE SHORT INTERMEDIATE
RISK/RETURN SUMMARY AND FUND EXPENSES SECURITIES FUND
- -
FEES AND EXPENSES
The fees and expenses for Class Y Shares are
based upon the actual operating expenses for
the fiscal year ended July 31, 1999.
<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES(1)
(FEES PAID FROM FUND ASSETS) Y SHARES
Management fee 0.50%
Other expenses 0.38%
Total Fund operating expenses 0.88%
</TABLE>
(1) The Adviser is limiting the Management
fee to 0.40%. The Administrator is waiving a
portion of the Administration fee so that
Other expenses were 0.33%. TOTAL FUND
OPERATING EXPENSES AFTER THESE FEE WAIVERS
FOR CLASS Y SHARES WERE 0.73%. These expense
limitations may be revised or canceled at
any time.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
CLASS Y SHARES $ 90 $281 $488 $1,084
</TABLE>
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
broker or other investment
representative, including
an affiliate of Pacific
Century, they may charge
you an account-level fee
for additional services
provided to you in
connection with your
investment in the Fund.
Use this table to compare
fees and expenses of the Fund
with those of other funds. It
illustrates the amount of
fees and expenses you would
pay assuming the following:
- $10,000 investment in the
Fund
- 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.
27
<PAGE> 183
logo
DIVERSIFIED FIXED
RISK/RETURN SUMMARY AND FUND EXPENSES INCOME FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVE - High current income
PRINCIPAL The Fund invests primarily in debt securities issued or
INVESTMENT STRATEGIES guaranteed by the U.S. Government, its agencies and
instrumentalities and in investment grade corporate debt
securities rated A or better by Standard & Poor's. It may
invest up to 20% of its total assets in investment grade
debt securities rated BBB issued by U.S. companies and state
and local government issuers. It may invest up to 25% of its
total assets in investment grade dollar-denominated debt
securities of foreign companies and government issuers. The
Fund focuses on maximizing income consistent with prudent
investment risk, and varies the average maturity of its
investment portfolio from time to time in response to actual
and expected market and economic changes.
PRINCIPAL Because the value of the Fund's investments will fluctuate
INVESTMENT RISKS 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 in value. The values of any of the Fund's
investments may also decline in response to events affecting
the issuer or its credit rating. 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 Consider investing in the Fund if you:
WANT TO INVEST? - 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.
</TABLE>
26
<PAGE> 184
DIVERSIFIED FIXED
RISK/RETURN SUMMARY AND FUND EXPENSES INCOME FUND
The chart and table on this
page show how the
Diversified Fixed Income
Fund has performed and
provide some indication of
the risks of investing in
the Fund by showing 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 the Merrill Lynch
Corporate & Government
Master Index, a widely
recognized index of U.S.
corporate and U.S.
Government bonds.
Both the chart and the
table assume reinvestment
of dividends and
distributions. Of course,
past performance does not
indicate how the Fund will
perform in the future.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31
FOR CLASS Y SHARES*
<TABLE>
<S> <C>
1989 13.72
90 6.59
91 18.16
92 6.46
93 13.91
94 -7.99
95 23.54
96 -0.66
97 8.74
98 9.76
</TABLE>
Best quarter: Q2 1989 +8.69%
Worst quarter: Q1 1994 -5.79%
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending December 31, 1998)**
<TABLE>
<CAPTION>
PERFORMANCE PAST PAST 5 PAST 10 SINCE
INCEPTION* YEAR YEARS YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
CLASS Y 10/31/77 9.76% 6.15% 8.88% 4.66%
MERRILL LYNCH CORPORATE &
GOVERNMENT MASTER INDEX 10/31/77 9.83% 7.31% 9.32% 9.58%
</TABLE>
* The quoted performance of the Fund includes the performance of a common trust
fund ("Commingled") account 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 the Fund's commencement of operations on October 14, 1994, as
adjusted to reflect the expenses associated with the Fund. The Commingled
account was not registered with the Securities and Exchange Commission under the
Investment Company Act of 1940 and therefore was not subject to the investment
restrictions imposed by law on registered mutual funds. If the Commingled
account had been registered, the Commingled account's performance may have been
adversely affected.
** For the period January 1, 1999 through September 30, 1999, the aggregate
(non-annualized) total return for the Fund was -3.34% versus -1.70% for the
Merrill Lynch Corporate & Government Master Index.
27
<PAGE> 185
DIVERSIFIED FIXED
RISK/RETURN SUMMARY AND FUND EXPENSES INCOME FUND
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
broker or other investment
representative, including
an affiliate of Pacific
Century, they may charge
you an account-level fee
for additional services
provided to you in
connection with your
investment in the Fund.
FEES AND EXPENSES
The fees and expenses for Class Y Shares are
based upon the actual operating expenses for
the fiscal year ended July 31, 1999.
<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES(1)
(FEES PAID FROM FUND ASSETS) Y SHARES
Management fee 0.60%
Other expenses 0.32%
Total Fund operating expenses 0.92%
</TABLE>
(1) The Adviser is limiting the Management
fee to 0.45%. The Administrator is waiving a
portion of the Administration fee so that
Other expenses were 0.28%. TOTAL FUND
OPERATING EXPENSES AFTER THESE FEE WAIVERS
FOR CLASS Y SHARES WERE 0.73%. These expense
limitations may be revised or canceled at
any time.
Use this table to compare
fees and expenses of the Fund
with those of other funds. It
illustrates the amount of
fees and expenses you would
pay assuming the following:
- $10,000 investment in the
Fund
- 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.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
CLASS Y SHARES $ 94 $293 $509 $1,131
</TABLE>
28
<PAGE> 186
logo
U.S. TREASURY
RISK/RETURN SUMMARY AND FUND EXPENSES SECURITIES FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES - High current income consistent with prudent capital risk
- Secondarily, capital appreciation
PRINCIPAL The Fund invests primarily in bonds, notes and bills issued
INVESTMENT STRATEGIES by the U.S. Treasury, and in repurchase agreements for which
those securities are held as collateral. The Fund focuses on
maximizing income consistent with prudent investment risk,
and varies the average maturity of its investment portfolio
from time to time to take advantage of expected changes in
interest rates.
PRINCIPAL Because the value of the Fund's investments will fluctuate
INVESTMENT RISKS 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 in value.
WHO MAY Consider investing in the Fund if you:
WANT TO INVEST? - 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.
</TABLE>
29
<PAGE> 187
U.S. TREASURY
RISK/RETURN SUMMARY AND FUND EXPENSES SECURITIES FUND
The chart and table on this
page show how the U.S.
Treasury Securities Fund
has performed and provide
some indication of the
risks of investing in the
Fund by showing 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 the Merrill Lynch U.S.
Treasuries All Maturity
Index, a widely recognized
index of short-term and
long-term U.S. Treasury
bonds.
Both the chart and the
table assume reinvestment
of dividends and
distributions. Of course,
past performance does not
indicate how the Fund will
perform in the future.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31
FOR CLASS Y SHARES*
<TABLE>
<S> <C>
1989 13.5
90 8.13
91 15.18
92 6.29
93 11.59
94 -7.34
95 24.47
96 -1.68
97 8.31
98 9.64
</TABLE>
Best quarter: Q2 1995 +8.75%
Worst quarter: Q1 1996 -5.57%
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending December 31, 1998)**
<TABLE>
<CAPTION>
PERFORMANCE PAST PAST 5 PAST 10 SINCE
INCEPTION* YEAR YEARS YEARS INCEPTION
<S> <C> <C> <C> <C> <C>
CLASS Y 12/31/84 9.64% 6.13% 8.48% 9.00%
MERRILL LYNCH U.S. TREASURIES
ALL MATURITY INDEX 12/31/84 10.32% 7.17% 9.13% 9.79%
</TABLE>
* The quoted performance of the Fund includes the performance of a common trust
fund ("Commingled") account 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 the Fund's commencement of operations on October 14, 1994, as
adjusted to reflect the expenses associated with the Fund. The Commingled
account was not registered with the Securities and Exchange Commission under the
Investment Company Act of 1940 and therefore was not subject to the investment
restrictions imposed by law on registered mutual funds. If the Commingled
account had been registered, the Commingled account's performance may have been
adversely affected.
** For the period January 1, 1999 through September 30, 1999, the aggregate
(non-annualized) total return of the Fund was -2.80% versus -1.74% for the
Merrill Lynch U.S. Treasuries All Maturity Index.
30
<PAGE> 188
U.S. TREASURY
RISK/RETURN SUMMARY AND FUND EXPENSES SECURITIES FUND
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
broker or other investment
representative, including
an affiliate of Pacific
Century, they may charge
you an account-level fee
for additional services
provided to you in
connection with your
investment in the Fund.
FEES AND EXPENSES
The fees and expenses for Class Y Shares are
based upon the actual operating expenses for
the fiscal year ended July 31, 1999.
<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES(1)
(FEES PAID FROM FUND ASSETS) Y SHARES
Management fee 0.60%
Other expenses 0.45%
Total Fund operating expenses 1.05%
</TABLE>
(1) The Adviser is limiting the Management
fee to 0.35%. The Administrator is waiving a
portion of the Administration fee so that
Other expenses were 0.41%. TOTAL FUND
OPERATING EXPENSES AFTER THESE FEE WAIVERS
FOR CLASS Y SHARES WERE 0.76%. These expense
limitations may be revised or canceled at
any time.
Use this table to compare
fees and expenses of the Fund
with those of other funds. It
illustrates the amount of
fees and expenses you would
pay assuming the following:
- $10,000 investment in the
Fund
- 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.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
CLASS Y SHARES $107 $334 $579 $1,283
</TABLE>
31
<PAGE> 189
logo
SHORT INTERMEDIATE U.S.
RISK/RETURN SUMMARY AND FUND EXPENSES TREASURY SECURITIES FUND
RISK/RETURN SUMMARY
<TABLE>
<S> <C>
INVESTMENT OBJECTIVES - High current income consistent with prudent capital risk
- Secondarily, capital appreciation
PRINCIPAL The Fund invests primarily in bonds, notes and bills issued
INVESTMENT STRATEGIES by the U.S. Treasury, and in repurchase agreements for which
those securities are held as collateral. Under normal market
conditions, the average remaining maturity of the Fund's
investment portfolio (measured on a dollar-weighted basis)
will be from two to five years. The Fund focuses on
maximizing income consistent with prudent investment risk
within this maturity range.
PRINCIPAL Because the value of the Fund's investments will fluctuate
INVESTMENT RISKS 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 in value. Pacific Century expects the value of
the Fund's investments will generally fluctuate less than
those of the U.S. Treasury Securities Fund, because the
Fund's investments will generally have shorter maturities.
WHO MAY Consider investing in the Fund if you:
WANT TO INVEST? - 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.
</TABLE>
32
<PAGE> 190
SHORT INTERMEDIATE U.S.
RISK/RETURN SUMMARY AND FUND EXPENSES TREASURY SECURITIES FUND
The chart and table on this
page show how the Short
Intermediate U.S. Treasury
Securities Fund has
performed and provide some
indication of the risks of
investing in the Fund by
showing 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 the Merrill Lynch
3-5-Year U.S. Treasury
Index, a widely recognized
index of short-term
Treasury bonds.
Both the chart and the
table assume reinvestment
of dividends and
distributions. Of course,
past performance does not
indicate how the Fund will
perform in the future.
PERFORMANCE BAR CHART
YEAR-BY-YEAR TOTAL RETURNS AS OF
12/31
FOR CLASS Y SHARES
<TABLE>
<S> <C>
94 -4.79
95 14.30
96 2.28
97 6.94
98 8.69
</TABLE>
Best quarter: Q3 1998 +5.56%
Worst quarter: Q1 1994 -3.12%
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending December 31, 1998)*
<TABLE>
<CAPTION>
PERFORMANCE PAST PAST 5 SINCE
INCEPTION YEAR YEARS INCEPTION
<S> <C> <C> <C> <C>
CLASS Y 12/31/93 8.69% 5.26% 5.24%
MERRILL LYNCH 3-5-YEAR
U.S. TREASURY INDEX 12/31/93 9.26% 6.59% 9.34%
</TABLE>
* For the period January 1, 1999 through September 30, 1999, the aggregate
(non-annualized) total return of the Fund was -0.78% versus 0.32% for the
Merrill Lynch 3-5-Year U.S. Treasury Index.
33
<PAGE> 191
SHORT INTERMEDIATE U.S.
RISK/RETURN SUMMARY AND FUND EXPENSES TREASURY SECURITIES FUND
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
broker or other investment
representative, including
an affiliate of Pacific
Century, they may charge
you an account-level fee
for additional services
provided to you in
connection with your
investment in the Fund.
FEES AND EXPENSES
The fees and expenses for Class Y Shares are
based upon the actual operating expenses for
the fiscal year ended July 31, 1999.
<TABLE>
<S> <C>
ANNUAL FUND OPERATING EXPENSES(1)
(FEES PAID FROM FUND ASSETS) Y SHARES
Management fee 0.50%
Other expenses 0.22%
Total Fund operating expenses 0.72%
</TABLE>
(1) The Adviser is limiting the Management
fee to 0.30%. The Administrator is waiving a
portion of the Administration fee so that
Other expenses were 0.17%. TOTAL FUND
OPERATING EXPENSES AFTER THESE FEE WAIVERS
FOR CLASS Y SHARES WERE 0.47%. These expense
limitations may be revised or canceled at
any time.
Use this table to compare
fees and expenses of the Fund
with those of other funds. It
illustrates the amount of
fees and expenses you would
pay assuming the following:
- $10,000 investment in the
Fund
- 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.
EXPENSE EXAMPLE
<TABLE>
<S> <C> <C> <C> <C>
1 3 5 10
YEAR YEARS YEARS YEARS
CLASS Y SHARES $ 74 $230 $401 $ 894
</TABLE>
34
<PAGE> 192
[LOGO]
INVESTMENT OBJECTIVES, POLICIES AND RISKS
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 with market
capitalizations (total market price of outstanding equity securities) greater
than $750 million, 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. The Fund focuses on
companies whose earnings are growing substantially faster than the average
for the U.S. market.
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 for the
purpose of cash flow management and/or risk reduction.
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
with market capitalizations (total market price of outstanding equity
securities) greater than $750 million, and securities convertible into such
common stocks. The Fund seeks to produce a gross yield that approximates that
of the average for companies in the S&P 500(R) Stock Index. The Fund focuses
on companies whose earnings are growing at above average rates in relation to
other companies in their industries. However, to a lesser extent it may
invest in lower yielding but higher growth-oriented investments to achieve
more growth potential.
The Fund does not otherwise 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 for the purpose of cash flow management and/or risk reduction.
VALUE FUND
The Value Fund seeks to provide you with long term growth, and secondarily
current income.
Normally, the Fund invests primarily in U.S. traded common stocks with market
capitalizations (total market price of outstanding equity securities) greater
than $750 million, 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
otherwise limit its investments to any particular size or type of company,
but focuses on middle to large capitalization companies whose cash flow to
price ratio exceeds that of their industry average and whose stock price
Pacific Century believes is undervalued. 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 for the purpose of cash flow management and/or risk reduction.
35
<PAGE> 193
INVESTMENT OBJECTIVES, POLICIES AND RISKS
- -
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). By using a
combination of stocks and bonds which often fluctuate in different
directions, the Fund seeks to provide above average income, good long term
growth and lower volatility than a pure stock portfolio. It invests at least
30% 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 for the purpose of cash flow management and/or risk
reduction.
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 Adviser 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.
- - 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. The Fund invests primarily in stocks
from a universe of U.S. companies with market capitalizations within the
range of capitalizations included in the Russell 2000 Value Index at the time
of purchase. As of September 30, 1999, the companies in the Russell 2000
Value Index had a market capitalization of up to approximately $685 million.
The Fund focuses on stocks its Sub-Adviser believes are undervalued,
fundamentally strong and undergoing positive change.
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 for the purpose of
cash flow management and/or risk reduction.
36
<PAGE> 194
INVESTMENT OBJECTIVES, POLICIES AND RISKS
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 stocks,
common stock equivalents (such as preferred or debt securities convertible
into common stock), and preferred stocks 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 considered to be
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
Sub-Adviser believe have a relatively strong growth trend, or in companies
that it does not anticipate to grow but whose share price it believes is
undervalued. In selecting and maintaining a portfolio of investments in any
country, the Fund's Sub-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 or its Sub-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 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 for the purpose of cash
flow management and/or risk reduction.
- - 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 stocks,
common stock equivalents (such as preferred or debt securities convertible
into common stock), and preferred stocks 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 Sub-Adviser considers the investment
instruments traded in the country's stock markets and the
- -
37
<PAGE> 195
INVESTMENT OBJECTIVES, POLICIES AND RISKS
- -
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 Sub-Adviser 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; 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 in the United
States, and can use futures contracts, options and other investment
techniques for the purpose of cash flow management and/or risk reduction.
- - 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:
<TABLE>
<S> <C>
At least 80% of Municipal obligations -- debt securities of issuers that pay
net assets 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 Hawaii municipal obligations -- debt securities issued by or
net assets 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.
</TABLE>
No more than 20% of the Fund's net assets will be invested in debt securities
that pay interest subject to the federal alternative minimum tax (for those
investors subject to this 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 for
the purpose of cash flow management and/or risk reduction.
The Fund focuses on maximizing tax exempt income consistent with prudent
investment risk. It varies the average maturity of its investment portfolio
from time to time in response to actual and expected interest rate movements
as well as other market and economic conditions. It is non-diversified, which
means that its assets may be invested in 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.
38
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INVESTMENT OBJECTIVES, POLICIES AND RISKS
- -
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:
<TABLE>
<S> <C>
At least 80% of Municipal obligations -- debt securities of issuers that pay
net assets 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 Hawaii municipal obligations -- debt securities issued by or
net assets 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.
</TABLE>
No more than 20% of the Fund's net assets will be invested in debt securities
that pay interest subject to the federal alternative minimum tax (for those
investors subject to this 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 for
the purpose of cash flow management and/or risk reduction.
The Fund is non-diversified, which means that its assets may be invested
among fewer issuers than diversified funds. To achieve greater price
stability than a long-term bond fund, normally the average remaining maturity
of the Fund's portfolio (on a dollar-weighted basis) is from two to five
years. The Fund focuses on maximizing tax exempt income consistent with
prudent investment risk within this maturity range. The Fund's share value
will likely be less volatile than the Tax-Free Securities Fund, because the
Fund generally will have 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 are debt securities issued
or guaranteed by the U.S. Government and its agencies and instrumentalities
and corporate issuers rated A or better by Standard & Poor's. However, the
Fund may invest up to 20% of its total assets in investment grade debt
securities rated BBB issued by U.S. companies and state and local government
issuers. In addition, the Fund may 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 for the purpose of cash
flow management and/or risk reduction.
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INVESTMENT OBJECTIVES, POLICIES AND RISKS
- -
The Fund focuses on maximizing income consistent with prudent investment
risk. 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 for the purpose of cash
flow management and/or risk reduction.
The Fund focuses on maximizing income consistent with prudent investment
risk. 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 for the purpose of cash
flow management and/or risk reduction.
Normally the average remaining maturity of the Fund's portfolio (on a
dollar-weighted basis) is from two to five years. The Fund focuses on
maximizing income consistent with prudent investment risk within this
maturity range. 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 Securities Fund, because the Fund generally
will have a shorter average portfolio maturity.
- - MAIN RISKS
The value of your investment in any of the Funds will go 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.
- -
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INVESTMENT OBJECTIVES, POLICIES AND RISKS
- -
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 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.
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.
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 hostile relationships with
neighboring countries. This instability could impair the financial conditions
of issuers or disrupt their financial markets.
A number of Asian countries have recently experienced 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
- -
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INVESTMENT OBJECTIVES, POLICIES AND RISKS
- -
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, 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 generally 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 Sub-Adviser 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 Sub-Adviser 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 or its Sub-Adviser believes that the credit risk is
minimal.
The New Asia Growth Fund and International Stock Fund may each 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.
- -
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INVESTMENT OBJECTIVES, POLICIES AND RISKS
- -
MUNICIPAL OBLIGATIONS. The Tax-Free Securities Fund, Tax-Free Short
Intermediate Securities Fund, Diversified Fixed Income Fund, U.S. Treasury
Securities Fund and Short Intermediate U.S. Treasury Securities Fund 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 the Adviser and the Funds' other service providers
do not properly process and calculate date-related information for the year
2000 and beyond. In addition, Year 2000 issues may adversely affect companies
in which the Funds invest if, for example, such companies incur substantial
costs to address Year 2000 issues or suffer losses caused by the failure to
adequately or timely do so.
The Funds have been assured that the Adviser and the Funds' other service
providers have developed and are implementing clearly-defined and documented
plans intended to minimize risks to services critical to the Funds'
operations associated with Year 2000 issues. The Funds' Adviser and other
service providers are likewise seeking assurances from their respective
vendors and suppliers that such entities are addressing any Year 2000 issues,
and each provider intends to engage, where appropriate, in private and/or
industry interface testing of systems for Year 2000 readiness.
If any systems upon which the Funds depend are not Year 2000 ready by
December 31, 1999, administrative errors and account maintenance failures
would likely occur. While the ultimate costs or consequences of incomplete or
untimely resolution of Year 2000 issues by the Adviser or the Funds' other
service providers cannot be accurately assessed at this time, the Funds
currently have no reason to believe that the Year 2000 plans of the Adviser
and the Funds' other service providers will not be completed by December 31,
1999, or that the anticipated costs associated with full implementation of
their plans will have a material adverse impact on their business operations
or the Funds. The Funds and the Adviser will continue to closely monitor
developments relating to this issue, including development by the Adviser and
the Funds other service providers of contingency plans for providing back-up
computer services in the event of a systems failure or the inability of any
provider to achieve Year 2000 readiness. The Adviser will also continue to
monitor potential investment risks related to Year 2000 issues.
The most recent information about each Fund's portfolio holdings can be found
in its annual or semi-annual reports. For information about receiving these
reports, see the back cover.
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logo
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 more than a century. Pacific Century, formerly
known as Hawaiian Trust Company, is among the top 50 trust firms in the
United States based on assets under management and oversees more than $15
billion in client assets. The Pacific Century investment management
team -- including portfolio managers, financial analysts and economists -- is
responsible for nearly $8 billion of these assets.
For these advisory services, the Funds paid Pacific Century as follows during
their fiscal year ended July 31, 1999:
<TABLE>
<CAPTION>
PERCENTAGE OF
AVERAGE NET ASSETS
<S> <C>
------------------------------
Growth Stock Fund .80%
------------------------------
Growth and Income Fund .80%
------------------------------
Value Fund .80%
------------------------------
Balanced Fund .70%*
------------------------------
Small Cap Fund 1.00%*
------------------------------
New Asia Growth Fund .90%
------------------------------
International Stock Fund 1.00%*
------------------------------
Tax-Free Securities Fund .45%*
------------------------------
Tax-Free Short Intermediate Securities Fund .40%*
------------------------------
Diversified Fixed Income Fund .45%*
------------------------------
U.S. Treasury Securities Fund .35%*
------------------------------
Short Intermediate U.S. Treasury Securities Fund .30%*
-------------------------------------------------------------------------------------
</TABLE>
* Pacific Century waived a portion of its fees for the fiscal year.
Contractual fees (without waivers) are: Growth Stock Fund, .80%; Growth and
Income Fund, .80%; Value Fund, .80%; Balanced Fund, .80%; Small Cap Fund,
1.10%; New Asia Growth Fund, .90%; International Stock Fund, 1.10%; Tax-Free
Securities Fund, .60%; Tax-Free Short Intermediate Securities Fund, .50%;
Diversified Fixed Income Fund, .60%; U.S. Treasury Securities Fund, .60%; and
Short Intermediate U.S. Treasury Securities Fund, .50%.
THE SUB-ADVISERS
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 fees are paid by Pacific Century.
CMG First State (Hong Kong) LLC ("CMG Hong Kong"), 3 Exchange Square, 8
Connaught Place Central, Hong Kong, is the Sub-Adviser to the New Asia Growth
Fund, and provides investment advisory services with respect to management of
that Fund's portfolio. Its fees are paid by Pacific Century.
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FUND MANAGEMENT
PORTFOLIO MANAGERS
Management of the Funds is coordinated by Pacific Century's investment unit,
which is staffed with more than 40 people, including seven Chartered
Financial Analysts and eight M.B.A.'s. All investment decisions of Pacific
Century for the Funds it advises are made by committees, with individual
portfolio managers having day-to-day responsibility of managing the Funds.
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.
Mr. Khlopin joined Pacific Century in 1992 as a securities analyst and
portfolio manager. Prior to joining Pacific Century, Mr. Khlopin served as a
broker with Dean Witter from 1990 to 1991, and as a securities analyst with
Smith Barney from 1981 to 1989, and Sanford C. Bernstein & Company from 1980
to 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
from 1995 to 1997, and as Managing Director-Investment Operations for Union
Capital Advisors from 1984 to 1995.
VALUE FUND. A team of Dave Zerfoss, CFA, Scott Takemoto, CFA and Derwin Osada
is responsible for the day-to-day management of the Fund. Mr. Zerfoss serves
as Vice President and Manager on the Equity Investment Team at Pacific
Century. Prior to joining Pacific Century in 1969, Mr. Zerfoss served as a
portfolio manager with First National Bank of Chicago. Mr. Takemoto serves as
Vice President on the Equity Investment Team at Pacific Century. Mr. Takemoto
has served as a sector analyst and Senior Portfolio Manager with Pacific
Century from 1992 to the present. Mr. Osada has served as a Portfolio Manager
with Pacific Century from 1994 to the present.
BALANCED FUND. A team of Clyde Powers, CFA and David Todani, CFA is
responsible for the day-to-day management of the Fund. Mr. Powers serves as
Vice President and Team Leader on the Equity Investment Team at Pacific
Century and has 27 years of experience managing growth funds and growth
oriented portfolios for institutional investors. Before 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. Mr. Todani serves as
Vice President and Team Leader on the Taxable Fixed-Income Investment Team at
Pacific Century. Before joining the Fixed-Income Investment Team, Mr. Todani
served as a fixed income portfolio manager and treasury officer for the Bank
of Hawaii from 1983 to 1994.
SMALL CAP FUND. A team headed by Catherine Somhegyi, Larry Speidell, Mark
Stuckelman and John Kane is responsible for the day-to-day management of the
Fund. Ms. Somhegyi, a Partner of Nicholas-Applegate Capital Management, is
its Chief Investment Officer for Global Equity Management and has managed
assets for clients of the firm since 1987. Mr. Speidell, a Partner of
Nicholas-Applegate Capital Management, has been Director of Global/Systematic
Portfolio Management and Research since 1994; he has 23 years prior
investment management experience with Batterymarch Financial Management and
Putnam Management Company. Mr. Stuckelman is a Portfolio Manager in the
systematic equity group. Prior to joining Nicholas-Applegate in 1995, Mr.
Stuckelman was a senior quantitative analyst with Wells Fargo Bank's
Investment Management Group and responsible for the management of
risk-controlled equity portfolios at Fidelity Management Trust Co. In
addition, he was a senior consultant with
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<PAGE> 203
FUND MANAGEMENT
BARRA. He has seven years of investment experience. Mr. Kane, a Partner of
Nicholas-Applegate Capital Management, is the team leader of its systematic
domestic equity group. Prior to joining the firm in 1994, he directed the
investment group of ARCO Investment Management Company. He has 30 years of
economic and investment experience.
NEW ASIA GROWTH FUND. Tim Greaton, Senior Portfolio Manager of CMG Hong Kong,
has been primarily responsible for the day-to-day management of the Fund
since 1995. Mr. Greaton joined CMG Hong Kong in 1999. Prior to joining CMG
Hong Kong, Mr. Greaton served as Senior Portfolio Manager of
Nicholas-Applegate Capital Management (Hong Kong) LLC from 1997 to 1999 and
Credit Lyonnais International Asset Management (HK) Limited from 1992 to
1997.
INTERNATIONAL STOCK FUND. A team headed by Catherine Somhegyi, Larry
Speidell, Loretta Morris, Melisa Grigolite and John Tribolet is responsible
for the day-to-day management of the Fund. Ms. Somhegyi, a Partner of
Nicholas-Applegate Capital Management, is its Chief Investment Officer for
Global Equity Management and has managed assets for clients of the firm since
1987. Mr. Speidell, a Partner of Nicholas-Applegate Capital Management, has
been Director of Global/Systematic Portfolio Management and Research since
1994; he has 23 years prior investment management experience with
Batterymarch Financial Management and Putnam Management Company. Ms. Morris,
a Partner of Nicholas-Applegate Capital Management, focuses on the management
of international and global portfolios. She has managed assets for clients of
the firm since 1990 and has 19 years investment experience. Ms. Grigolite is
a Portfolio Manager responsible for international and global portfolio
management and research. She joined the firm in 1991 and has seven years
investment experience. Mr. Tribolet is a Portfolio Manager responsible for
portfolio management and research for international portfolios. Mr. Tribolet
joined the firm in 1997 and has four years prior investment banking
experience with Paine Webber and Kemper Securities. He has seven years of
investment experience.
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.
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.
U.S. TREASURY SECURITIES FUND AND SHORT INTERMEDIATE U.S. TREASURY SECURITIES
FUND. David Todani, CFA, 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.
The Statement of Additional Information has more detailed information about
the Investment Adviser and other service providers.
THE DISTRIBUTOR AND ADMINISTRATOR
BISYS Fund Services ("BISYS") is the Funds' distributor and BISYS Fund
Services Ohio, Inc. is the Funds' administrator. The address of each is 3435
Stelzer Road, Columbus, Ohio 43219.
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<PAGE> 204
logo
SHAREHOLDER INFORMATION
PRICING OF FUND SHARES
---------------------------
HOW NAV IS CALCULATED
NAV is calculated by adding
the total value of a Fund's
investments and other
assets attributable to
Class Y shares, subtracting
its liabilities
attributable to Class Y
shares, and then dividing
that figure by the number
of outstanding Class Y
shares of the Fund:
NAV =
Total Assets - Liabilities
----------------------------
Number of Shares
Outstanding
Locate your Fund's NAV
daily in The Wall Street
Journal and other
newspapers or call
800-258-9232 for
information.
---------------------------
The price of each Fund's shares is
based on its per share net asset value
("NAV"). The NAV for Class Y shares 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,
securities will be valued by a method
that the Board of Trustees believes
accurately reflects fair value.
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<PAGE> 205
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
Shares are sold by the Distributor, BISYS. 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, either directly or through 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 Class Y shares of any Fund and do not qualify to purchase
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, 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 investment 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 you purchase or sell Class Y
shares. Depending upon the terms of your Customer account, an Institution may
charge your 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.
-----------------------------------------------------------------------------
AVOID 31% TAX WITHHOLDING
A 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.
-----------------------------------------------------------------------------
48
<PAGE> 206
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
CONTINUED
INSTRUCTIONS FOR OPENING OR
ADDING TO AN ACCOUNT
BY REGULAR MAIL
Initial Investment:
1. Contact BISYS at 800-258-9232 to request an application.
2. Make check, bank draft or money order payable to "Pacific Capital Funds"
and include the name of the appropriate Fund(s) on the check.
3. Mail to: Pacific Capital Funds, P.O. Box 182130, Columbus, OH 43218-2130
Subsequent Investments:
1. Use the investment slip attached to your account statement.
Or, if unavailable
2. Include the following information on a piece of paper:
- Fund name
- Share class
- Amount invested
- Account name
- Account number
Include your account number on your check.
3. Mail investment slip and check to:
Pacific Capital Funds
P.O. Box 182130
Columbus, OH 43218-2130
BY OVERNIGHT SERVICE
See instructions 1-2 above for subsequent investments.
3. Send to: Pacific Capital Funds, c/o BISYS Fund Services,
Attn: T.A. Operations, 3435 Stelzer Road, Columbus, OH 43219.
BY ELECTRONIC PURCHASE
Your bank must participate in the Automated Clearing House (ACH) and must be
a U.S. bank.
Your bank or broker may charge for this service.
Establish the electronic purchase option on your account application or call
800-258-9232. Your account can generally be set up for electronic purchases
within 15 days.
Call 800-258-9232 to arrange a transfer from your bank account.
ELECTRONIC VS. WIRE
TRANSFER
Wire transfers allow
financial institutions to
send funds to each other,
almost instantaneously.
With an electronic
purchase or sale, the
transaction is made
through the Automated
Clearing House (ACH),
which may take up to
eight days to clear.
There is generally no fee
for ACH transactions.
QUESTIONS?
Call 800-258-9232 or your
investment representative.
49
<PAGE> 207
SHAREHOLDER INFORMATION
PURCHASING AND ADDING TO YOUR SHARES
CONTINUED
BY WIRE TRANSFER
Note: Your bank may charge a wire transfer fee. Please phone the Funds at
800-258-9232 for instructions on opening an account or purchasing additional
shares by wire transfer.
You can add to your account by using the convenient options described above.
The Funds reserve the right to change or eliminate these privileges at any
time with 60 days notice. The Funds also reserve the right to reject any
purchase or to suspend or modify the continuous offering of their shares.
50
<PAGE> 208
SHAREHOLDER INFORMATION
SELLING YOUR SHARES
INSTRUCTIONS FOR SELLING 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.
BY TELEPHONE (UNLESS YOU HAVE DECLINED TELEPHONE SALES PRIVILEGES)
1. Call 800-258-9232 with instructions as to how you want to receive your
funds
(mail, wire, electronic transfer). See "General Policies on Selling
Shares" below.
BY MAIL (SEE "GENERAL POLICIES ON SELLING SHARES-REDEMPTIONS IN WRITING
REQUIRED" BELOW.)
1. Call 800-258-9232 to request redemption forms (if your account is an IRA
or another form of retirement plan), 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, P.O. Box 182130, Columbus, OH 43218-2130
BY OVERNIGHT SERVICE
1. See instruction 1 above.
2. Send to: Pacific Capital Funds, c/o BISYS Fund Services, Attn: T.A.
Operations, 3435 Stelzer Road, Columbus, OH 43219
51
<PAGE> 209
SHAREHOLDER INFORMATION
SELLING YOUR SHARES
CONTINUED
WIRE TRANSFER
You must select this option on your account application.
The Fund may charge a wire transfer fee. Note: Your financial institution may
also charge a separate fee.
Call 800-258-9232 to request a wire transfer. If you call by 4 p.m. Eastern
time, your payment will normally be wired to your bank on the next business
day. Otherwise, it will normally be wired on the second business day after
your call.
ELECTRONIC REDEMPTIONS
Your bank must participate in the Automated Clearing House (ACH) and must be
a U.S. bank.
Note: Your bank may charge for this service.
Call 800-258-9232 to request an electronic redemption.
If you call by 4 p.m. Eastern time, the NAV of your shares will normally be
determined on the same day and the proceeds will normally be credited within
8 days. Otherwise, it will normally take up to 9 days.
52
<PAGE> 210
SHAREHOLDER INFORMATION
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.
TELEPHONE REDEMPTIONS
The Funds make every effort to insure that telephone redemptions are only
made by authorized traders. 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 Funds, the Transfer Agent, Pacific Century and/or
the Distributor may be liable for losses due to unauthorized transactions.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider sending your request in writing.
REDEMPTIONS WITHIN 15 DAYS OF INITIAL INVESTMENT
When you have made an investment by check, you cannot receive any portion of
the redemption proceeds on 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,
or by wire.
REFUSAL OF REDEMPTION REQUEST
Payment for shares may be delayed under extraordinary circumstances or as
permitted by the Securities and Exchange Commission ("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 a Fund's 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.
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 as of the cancellation
date. No interest is paid during the time the check is outstanding.
53
<PAGE> 211
SHAREHOLDER INFORMATION
EXCHANGING YOUR SHARES
The Exchange Privilege
permits a shareholder to
exchange Class Y shares of
one Fund for Class Y shares
of another Fund. Class Y
shareholders may also
exchange their shares for
other investment companies
for which Pacific Century
serves as investment
adviser. These are the
Pacific Capital Cash Assets
Trust, the Pacific Capital
Tax-Free Cash Assets Trust,
the Pacific Capital U.S.
Government Securities Cash
Assets Trust. No
transaction fees are
charged for exchanges.
INSTRUCTIONS FOR EXCHANGING SHARES
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 four
substantial exchanges within one
calendar year period. A Fund may
also refuse any exchange order.
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 or
other investment company into
which you wish to exchange
shares.
54
<PAGE> 212
SHAREHOLDER INFORMATION
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 will declare and pay dividends of substantially
all of its net income monthly. The Growth Stock Fund, Growth and Income Fund,
Value Fund, New Asia Growth Fund, Small Cap Fund and International Stock Fund
will declare and pay dividends of substantially all of their net income
quarterly. Each Fund distributes any capital gains annually.
We automatically reinvest all income dividends and capital gains
distributions on Fund shares in additional shares of the same Fund and Class
on the ex-dividend date unless you request otherwise in writing to the
Transfer Agent (at least 15 days prior to the distribution). The Distributor
does 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.
TAXES
Dividends generally are taxable as ordinary income. Taxes on capital gains
distributed by the Funds vary with the length of time the Fund has held the
security -- not how long you have been invested in the Fund.
Dividends are taxable in the year in which they are declared, 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.
The Funds may incur foreign income taxes in connection with some of their
foreign investments. Certain of these taxes may be credited to shareholders.
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 federal and state 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.
55
<PAGE> 213
SHAREHOLDER INFORMATION
DIVIDENDS, DISTRIBUTIONS AND TAXES
CONTINUED
HAWAII TAX INFORMATION
The Funds expect that some dividends paid by the Tax-Free Securities Fund and
the Tax-Free Short Intermediate Securities Fund to Hawaii residents will be
exempt from Hawaii personal income tax to the extent attributable to Hawaii
municipal obligations. 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 (and to the extent attributable
to Hawaii municipal obligations for 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.
OTHER SHARE CLASSES
The Funds also offer Class A and B shares. These shares have different sales
charges and other expenses which will result in different performance than
Class Y shares. Shares of all Classes of a Fund otherwise have identical
rights, and vote together except for matters affecting only a specific Class.
56
<PAGE> 214
logo
FINANCIAL HIGHLIGHTS
The Financial Highlights in the following table set forth certain financial
data and investment results of the Class Y shares of the Funds for the past
five years or, if shorter, the period since inception, expressed in one share
of each Fund outstanding throughout the period. The Financial Highlights are
derived from the financial statements of Pacific Capital Funds which have
been audited by Ernst & Young LLP, independent auditors. The Financial
Highlights should be read in conjunction with the financial statements,
related notes, and other financial information included in the Statement of
Additional Information. The Funds' annual report contains additional
performance information relating to the Funds and is available upon request,
without charge.
57
<PAGE> 215
FINANCIAL HIGHLIGHTS GROWTH STOCK FUND
<TABLE>
<CAPTION>
OCTOBER 14, 1994
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED TO
JULY 31, 1999 JULY 31, 1998 JULY 31, 1997 JULY 31, 1996 JULY 31, 1995(e)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 17.81 $ 17.44 $ 11.89 $ 11.71 $ 9.89
------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income (loss) (0.06) -- 0.07 0.10 0.11
Net realized and unrealized gain (loss) on
investments 2.82 3.01 5.55 0.89 1.83
------------------------------------------------------------------------------------------------------------
Total from Investment Activities 2.76 3.01 5.62 0.99 1.94
------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income -- -- (0.07) (0.10) (0.12)
In excess of net investment income -- (0.02) -- -- --
In excess of net realized gains -- -- (0.49) --
Net realized gains (3.01) (2.62) -- (0.22) --
------------------------------------------------------------------------------------------------------------
Total Distributions (3.01) (2.64) (0.07) (0.81) (0.12)
------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 17.56 $ 17.81 $ 17.44 $ 11.89 $ 11.71
------------------------------------------------------------------------------------------------------------
Total Return (excludes sales charge) 17.72% 19.96% 47.39% 8.53% 20.64%(f)
RATIOS/SUPPLEMENTARY DATA:
Net assets at end of period (000) $382,298 $375,117 $198,407 $172,565 $136,837
Ratio of expenses to average net assets 1.07% 1.07% 1.07% 1.09% 1.13%(c)
Ratio of net investment income (loss) to
average net assets (0.32)% (0.08)% 0.45% 0.86% 1.30%(c)
Ratio of expenses to average net assets* 1.11% 1.11% 1.11% 1.13% 1.21%(c)
Ratio of net investment income (loss) to
average net assets* (0.36)% (0.12)% 0.41% 0.82% 1.23%(c)
Portfolio Turnover(d) 81.02% 97.03% 32.20% 61.30% 32.40%
</TABLE>
See footnotes on page 69.
58
<PAGE> 216
FINANCIAL HIGHLIGHTS GROWTH AND INCOME FUND
<TABLE>
<CAPTION>
OCTOBER 14, 1994
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED TO
JULY 31, 1999 JULY 31, 1998 JULY 31, 1997 JULY 31, 1996 JULY 31, 1995(a)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 18.75 $ 17.27 $ 12.32 $ 11.43 $ 10.00
------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income (loss) 0.03 0.07 0.11 0.17 0.20
Net realized and unrealized gain (loss) on
investments 2.34 3.01 5.58 1.21 1.42
-------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 2.37 3.08 5.69 1.38 1.62
-------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.03) (0.07) (0.11) (0.17) (0.19)
In excess of net investment income -- -- -- (0.01) --
In excess of net realized gains -- -- -- --
Net realized gains (2.19) (1.53) (0.63) (0.31) --
-------------------------------------------------------------------------------------------------------------------------------
Total Distributions (2.22) (1.60) (0.74) (0.49) (0.19)
-------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 18.90 $ 18.75 $ 17.27 $ 12.32 $ 11.43
-------------------------------------------------------------------------------------------------------------------------------
Total Return (excludes sales charge) 13.69% 19.37% 47.96% 12.29% 16.41%(b)
RATIOS/SUPPLEMENTARY DATA:
Net assets at end of period (000) $157,891 $164,706 $123,821 $ 74,427 $ 41,771
Ratio of expenses to average net assets 1.10% 1.08% 1.07% 1.11% 1.14%(c)
Ratio of net investment income (loss) to
average net assets 0.15% 0.38% 0.79% 1.43% 2.47%(c)
Ratio of expenses to average net assets* 1.14% 1.12% 1.12% 1.15% 1.22%(c)
Ratio of net investment income (loss) to
average net assets* 0.11% 0.34% 0.75% 1.39% 2.39%(c)
Portfolio Turnover(d) 65.56% 75.92% 74.83% 80.83% 12.78%
</TABLE>
See footnotes on page 69.
59
<PAGE> 217
FINANCIAL HIGHLIGHTS VALUE FUND
<TABLE>
<CAPTION>
DECEMBER 3, 1998
TO
JULY 31, 1999(a)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
--------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income (loss) 0.04
Net realized and unrealized gain on investments 0.83
--------------------------------------------------------------------------------
Total from Investment Activities 0.87
--------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.03)
In excess of net investment income (0.01)
Net realized gains (0.45)
In excess of net realized gains --
--------------------------------------------------------------------------------
Total Distributions (0.49)
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.38
--------------------------------------------------------------------------------
Total Return (excludes sales charge) 8.56%(b)
RATIOS/SUPPLEMENTARY DATA:
Net assets at end of period (000) $75,464
Ratio of expenses to average net assets 1.28%(c)
Ratio of net investment income (loss) to average net
assets 0.40%(c)
Ratio of expenses to average net assets* 1.32%(c)
Ratio of net investment income (loss) to average net
assets* 0.36%(c)
Portfolio Turnover(d) 113.72%
</TABLE>
See footnotes on page 69.
60
<PAGE> 218
FINANCIAL HIGHLIGHTS BALANCED FUND
<TABLE>
<CAPTION>
JUNE 21, 1999
TO
JULY 31, 1999(a)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
---------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income (loss) (0.03)
Net realized and unrealized gain on investments (0.16)
---------------------------------------------------------------------------------
Total from Investment Activities (0.19)
---------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.02)
In excess of net investment income --
---------------------------------------------------------------------------------
Total Distributions (0.02)
---------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.79
---------------------------------------------------------------------------------
Total Return (excludes sales charge) (1.94)%(b)
RATIOS/SUPPLEMENTARY DATA:
Net assets at end of period (000) $184,081
Ratio of expenses to average net assets 1.08%(c)
Ratio of net investment income (loss) to average net
assets 1.69%(c)
Ratio of expenses to average net assets* 1.22%(c)
Ratio of net investment income (loss) to average net
assets* 1.55%(c)
Portfolio Turnover(d) 5.47%
</TABLE>
See footnotes on page 69.
61
<PAGE> 219
FINANCIAL HIGHLIGHTS SMALL CAP FUND
<TABLE>
<CAPTION>
DECEMBER 3, 1998
TO
JULY 31, 1999(a)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
---------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income (loss) --
Net realized and unrealized gain on investments 0.67
---------------------------------------------------------------------------------
Total from Investment Activities 0.67
---------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.67
---------------------------------------------------------------------------------
Total Return (excludes sales charge) 6.75%(b)
RATIOS/SUPPLEMENTARY DATA:
Net assets at end of period (000) $31,812
Ratio of expenses to average net assets 1.52%(c)
Ratio of net investment income (loss) to average net
assets 0.08%(c)
Ratio of expenses to average net assets* 1.66%(c)
Ratio of net investment income (loss) to average net
assets* (0.06)%(c)
Portfolio Turnover(d) 60.08%
</TABLE>
See footnotes on page 69.
62
<PAGE> 220
FINANCIAL HIGHLIGHTS NEW ASIA GROWTH FUND
<TABLE>
<CAPTION>
FEBRUARY 15, 1995
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED TO
JULY 31, 1999 JULY 31, 1998 JULY 31, 1997 JULY 31, 1996 JULY 31, 1995(a)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.37 $ 13.94 $ 11.14 $ 11.22 $ 10.00
--------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income (loss) (0.06) 0.12 0.06 (0.01) 0.04
Net realized and unrealized gain
(loss) on investments 4.33 (6.63) 2.87 0.22 1.18
--------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 4.27 (6.51) 2.93 0.21 1.22
--------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income -- (0.02) (0.01) -- --
In excess of net investment income (0.04) -- -- (0.03) --
In excess of net realized gains -- -- -- -- --
Net realized gains -- (1.04) (0.12) (0.26) --
--------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.04) (1.06) (0.13) (0.29) --
--------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.60 $ 6.37 $ 13.94 $ 11.14 $ 11.22
--------------------------------------------------------------------------------------------------------------------------
Total Return (excludes sales charge) 67.38% (48.76)% 26.50% 1.99% 12.20%(b)
RATIOS/SUPPLEMENTARY DATA:
Net assets at end of period (000) $15,954 $14,569 $18,376 $ 8,469 $ 2,861
Ratio of expenses to average net
assets 1.90% 1.93% 1.72% 1.98% 1.97%(c)
Ratio of net investment income (loss)
to average net assets (0.33)% 1.32% 0.46% (0.02)% 1.18%(c)
Ratio of expenses to average net
assets* 2.05% 2.13% 1.82% 2.84% 2.74%(c)
Ratio of net investment income (loss)
to average net assets* (0.47)% 1.12% 0.36% (0.88)% 0.42%(c)
Portfolio Turnover(d) 152.58% 129.77% 134.89% 86.53% 55.62%
</TABLE>
See footnotes on page 69.
63
<PAGE> 221
FINANCIAL HIGHLIGHTS INTERNATIONAL STOCK FUND
<TABLE>
<CAPTION>
DECEMBER 2, 1998
TO
JULY 31, 1999(a)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
--------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment loss --
Net realized and unrealized gain on investments 1.98
--------------------------------------------------------------------------------
Total from Investment Activities 1.98
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 11.98
--------------------------------------------------------------------------------
Total Return (excludes sales charge) 19.90%(b)
RATIOS/SUPPLEMENTARY DATA:
Net assets at end of period (000) $81,253
Ratio of expenses to average net assets 1.65%(c)
Ratio of net investment income (loss) to average net
assets 0.03%(c)
Ratio of expenses to average net assets* 1.79%(c)
Ratio of net investment income (loss) to average net
assets* (0.10)%(c)
Portfolio Turnover(d) 156.46%
</TABLE>
See footnotes on page 69.
64
<PAGE> 222
FINANCIAL HIGHLIGHTS TAX-FREE SECURITIES FUND
<TABLE>
<CAPTION>
OCTOBER 14, 1994
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED TO
JULY 31, 1999 JULY 31, 1998 JULY 31, 1997 JULY 31, 1996 July 31, 1995(a)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.88 $ 10.86 $ 10.46 $ 10.56 $ 10.00
-------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income (loss) 0.51 0.51 0.51 0.52 0.42
Net realized and unrealized gain
(loss) on investments (0.25) 0.08 0.46 0.07 0.51
-------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.26 0.59 0.97 0.59 0.93
-------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.51) (0.51) (0.51) (0.52) (0.37)
In excess of net investment income -- -- -- (0.04) --
In excess of net realized gains -- -- -- (0.04) --
Net realized gains (0.10) (0.06) (0.06) (0.09) --
-------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.61) (0.57) (0.57) (0.69) (0.37)
-------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.53 $ 10.88 $ 10.86 $ 10.46 $ 10.56
-------------------------------------------------------------------------------------------------------------------------
Total Return (excludes sales charge) 2.26% 5.63% 9.58% 5.73% 9.54%(b)
RATIOS/SUPPLEMENTARY DATA:
Net assets at end of period (000) $424,022 $416,544 $296,764 $288,934 $281,646
Ratio of expenses to average net
assets 0.71% 0.77% 0.87% 0.89% 0.89%(c)
Ratio of net investment income (loss)
to average net assets 4.66% 4.74% 4.86% 4.92% 5.16%(c)
Ratio of expenses to average net
assets* 0.90% 0.90% 0.91% 0.93% 0.98%(c)
Ratio of net investment income (loss)
to average net assets* 4.47% 4.61% 4.82% 4.88% 5.07%(c)
Portfolio Turnover(d) 9.91% 10.73% 11.07% 24.78% 49.17%
</TABLE>
See footnotes on page 69.
65
<PAGE> 223
TAX-FREE SHORT INTERMEDIATE
FINANCIAL HIGHLIGHTS SECURITIES FUND
<TABLE>
<CAPTION>
OCTOBER 14, 1994
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED TO
JULY 31, 1999 JULY 31, 1998 JULY 31, 1997 JULY 31, 1996 July 31, 1995(a)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.15 $ 10.21 $ 10.08 $ 10.14 $ 10.00
-------------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income (loss) 0.37 0.38 0.39 0.40 0.32
Net realized and unrealized gain (loss) on
investments (0.10) -- 0.14 (0.03) 0.11
-------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.27 0.38 0.53 0.37 0.43
-------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.37) (0.38) (0.39) (0.40) (0.29)
In excess of net investment income -- -- -- (0.03) --
In excess of net realized gains -- -- -- -- --
Net realized gains (0.05) (0.06) (0.01) -- --
-------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.42) (0.44) (0.40) (0.43) (0.29)
-------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.00 $ 10.15 $ 10.21 $ 10.08 $ 10.14
-------------------------------------------------------------------------------------------------------------------------------
Total Return (excludes sales charge) 2.60% 3.83% 5.36% 3.67% 4.36%(b)
RATIOS/SUPPLEMENTARY DATA:
Net assets at end of period (000) $47,668 $52,185 $37,410 $39,472 $39,993
Ratio of expenses to average net assets 0.73% 0.76% 0.84% 0.83% 0.85%(c)
Ratio of net investment income (loss) to
average net assets 3.61% 3.75% 3.82% 3.90% 4.03%(c)
Ratio of expenses to average net assets* 0.88% 0.87% 0.89% 0.88% 0.94%(c)
Ratio of net investment income (loss) to
average net assets* 3.46% 3.64% 3.77% 3.85% 3.94%(c)
Portfolio Turnover(d) 18.40% 47.55% 29.46% 54.70% 89.98%
</TABLE>
See footnotes on page 69.
66
<PAGE> 224
DIVERSIFIED FIXED
FINANCIAL HIGHLIGHTS INCOME FUND
<TABLE>
<CAPTION>
OCTOBER 14, 1994
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED TO
JULY 31, 1999 JULY 31, 1998 JULY 31, 1997 JULY 31, 1996 July 31, 1995(a)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.00 $ 10.78 $ 10.53 $ 10.84 $ 10.00
-------------------------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income (loss) 0.59 0.61 0.60 0.58 0.55
Net realized and unrealized gain (loss) on
investments (0.45) 0.22 0.34 (0.16) 0.78
-------------------------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.14 0.83 0.94 0.42 1.33
-------------------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.59) (0.61) (0.60) (0.61) (0.49)
In excess of net investment income -- -- -- (0.02) --
In excess of net realized gains (0.03) -- (0.09) (0.10) --
Net realized gains (0.07) -- -- -- --
-------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.69) (0.61) (0.69) (0.73) (0.49)
-------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.45 $ 11.00 $ 10.78 $ 10.53 $ 10.84
-------------------------------------------------------------------------------------------------------------------------------
Total Return (excludes sales charge) 1.10% 7.94% 9.30% 3.85% 13.70%(b)
RATIOS/SUPPLEMENTARY DATA:
Net assets at end of period (000) $199,413 $158,909 $132,583 $161,742 $ 54,827
Ratio of expenses to average net assets 0.73% 0.77% 0.90% 0.88% 0.93%(c)
Ratio of net investment income (loss) to
average net assets 5.34% 5.61% 5.67% 5.56% 6.71%(c)
Ratio of expenses to average net assets* 0.92% 0.90% 0.94% 0.92% 1.01%(c)
Ratio of net investment income (loss) to
average net assets* 5.15% 5.48% 5.63% 5.52% 6.63%(c)
Portfolio Turnover(d) 60.00% 57.58% 80.98% 58.86% 60.47%
</TABLE>
See footnotes on page 69.
67
<PAGE> 225
U.S. TREASURY
FINANCIAL HIGHLIGHTS SECURITIES FUND
<TABLE>
<CAPTION>
OCTOBER 14, 1994
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED TO
JULY 31, 1999 JULY 31, 1998 JULY 31, 1997 JULY 31, 1996 JULY 31, 1995(e)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.59 $ 9.38 $ 9.14 $ 9.43 $ 8.66
------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income (loss) 0.54 0.54 0.53 0.59 0.44
Net realized and unrealized gain (loss) on
investments (0.37) 0.21 0.26 (0.24) 0.76
------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.17 0.75 0.79 0.35 1.20
------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.53) (0.54) (0.54) (0.55) (0.43)
In excess of net investment income (0.01) -- (0.01) (0.09) --
------------------------------------------------------------------------------------------------------------
Total Distributions (0.54) (0.54) (0.55) (0.64) (0.43)
------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.22 $ 9.59 $ 9.38 $ 9.14 $ 9.43
------------------------------------------------------------------------------------------------------------
Total Return (excludes sales charge) 1.65% 8.24% 8.92% 3.71% 10.49%(f)
RATIOS/SUPPLEMENTARY DATA:
Net assets at end of period (000) $20,486 $22,178 $23,832 $23,248 $51,264
Ratio of expenses to average net assets 0.76% 0.82% 0.91% 0.95% 1.02%(c)
Ratio of net investment income (loss) to
average net assets 5.60% 5.70% 5.85% 5.81% 5.78%(c)
Ratio of expenses to average net assets* 1.05% 1.01% 0.95% 0.99% 1.09%(c)
Ratio of net investment income (loss) to
average net assets* 5.31% 5.51% 5.81% 5.77% 5.71%(c)
Portfolio Turnover(d) 9.25% 11.82% 44.90% 15.75% 80.98%
</TABLE>
See footnotes on page 69.
68
<PAGE> 226
SHORT INTERMEDIATE U.S.
FINANCIAL HIGHLIGHTS TREASURY SECURITIES FUND
<TABLE>
<CAPTION>
OCTOBER 14, 1994
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED TO
JULY 31, 1999 JULY 31, 1998 JULY 31, 1997 JULY 31, 1996 July 31, 1995(e)
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.66 $ 9.56 $ 9.42 $ 9.61 $ 9.30
------------------------------------------------------------------------------------------------------------
INVESTMENT ACTIVITIES:
Net investment income (loss) 0.48 0.51 0.52 0.53 0.44
Net realized and unrealized gain (loss) on
investments (0.18) 0.10 0.14 (0.13) 0.31
------------------------------------------------------------------------------------------------------------
Total from Investment Activities 0.30 0.61 0.66 0.40 0.75
------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS:
Net investment income (0.48) (0.51) (0.52) (0.53) (0.44)
In excess of net investment income -- -- -- (0.04) --
In excess of net realized gains -- -- -- (0.02) --
Net realized gains (0.04) -- -- -- --
------------------------------------------------------------------------------------------------------------
Total Distributions (0.52) (0.51) (0.52) (0.59) (0.44)
------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.44 $ 9.66 $ 9.56 $ 9.42 $ 9.61
------------------------------------------------------------------------------------------------------------
Total Return (excludes sales charge) 3.05% 6.62% 7.19% 4.18% 6.57%(f)
RATIOS/SUPPLEMENTARY DATA:
Net assets at end of period (000) $33,332 $24,843 $26,722 $23,545 $16,214
Ratio of expenses to average net assets 0.67% 0.64% 0.62% 0.67% 0.75%(c)
Ratio of net investment income (loss) to
average net assets 4.89% 5.36% 5.47% 5.40% 5.84%(c)
Ratio of expenses to average net assets* 0.72% 0.89% 0.87% 0.92% 0.99%(c)
Ratio of net investment income (loss) to
average net assets* 4.84% 5.11% 5.22% 5.15% 5.61%(c)
Portfolio Turnover(d) 63.27% 17.33% 51.56% 47.17% 62.73%
</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) On October 13, 1994, the Trust identified those Institutional
shareholders that were part of 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.
(f) 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.
69
<PAGE> 227
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<PAGE> 228
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 229
For more information about the Pacific Capital Funds, the following documents
are available free upon request:
ANNUAL/SEMI-ANNUAL REPORTS:
The Funds' annual and semi-annual reports to shareholders contain detailed
information on the Funds' investments. The annual report includes a discussion
of the market conditions and investment strategies that significantly affected
each 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 Annual/Semi-Annual Reports and the SAI, or request
other information and discuss your questions about the Funds, by contacting the
Bank of Hawaii or a broker that sells the Funds. Or contact us at:
PACIFIC CAPITAL FUNDS
P.O. BOX 182130
COLUMBUS, OHIO 43218-2130
TELEPHONE: 1-800-258-9232
You can review the Funds' reports and SAI at the Public Reference Room of the
Securities and Exchange Commission. You can also get text-only copies:
X For a duplicating fee, by writing the Public Reference Section of the
Commission, Washington, D.C. 20549-6009 or calling 1-800-SEC-0330.
X Free from the Commission's Website at http://www.sec.gov.
Investment Company Act file no. 811-7454.
12/99
PCP 0028
<PAGE> 230
PACIFIC CAPITAL FUNDS
Telephone: 800-258-9232
STATEMENT OF ADDITIONAL INFORMATION
DATED DECEMBER 1, 1999
GROWTH STOCK FUND
GROWTH AND INCOME FUND
VALUE FUND
BALANCED 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
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 Securities Fund (the "Tax Free Funds") are diversified
portfolios.
This SAI is not a prospectus. You should read this SAI in
conjunction with the applicable Prospectus, dated December 1, 1999. All terms
defined in the applicable Prospectus have the same meanings in this SAI. In
addition, the Trust's 1999 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> 231
TABLE OF CONTENTS
<TABLE>
<S> <C>
INVESTMENT RESTRICTIONS.................................................................................3
ADDITIONAL INFORMATION ON FUND INVESTMENTS AND RISKS....................................................6
MANAGEMENT.............................................................................................32
DISTRIBUTION AND SHAREHOLDER SERVICE PLANS.............................................................41
CALCULATION OF YIELD AND TOTAL RETURN..................................................................43
DETERMINATION OF NET ASSET VALUE.......................................................................59
PURCHASE OF SHARES.....................................................................................60
REDEMPTION OF SHARES...................................................................................61
PORTFOLIO TRANSACTIONS.................................................................................62
FEDERAL AND HAWAIIAN TAX INFORMATION...................................................................65
GENERAL INFORMATION....................................................................................69
CUSTODIAN..............................................................................................75
INDEPENDENT AUDITORS AND COUNSEL.......................................................................75
FINANCIAL INFORMATION..................................................................................75
REGISTRATION STATEMENT.................................................................................75
APPENDIX A: RATINGS OF FIXED INCOME SECURITIES....................................................... A-1
</TABLE>
<PAGE> 232
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, except for investment restriction (3) below.
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).
(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).
3
<PAGE> 233
(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 may be 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.
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
4
<PAGE> 234
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 may
be secured by the pledge of up to 33-1/3% current value of its net assets.
(4) Purchase or sell real estate or real estate limited partnerships
(other than obligations or other securities secured by real estate or interests
therein or securities issued by companies that invest in real estate or
interests therein).
(5) Purchase commodities or commodity contracts, except that the Fund
may deal in forward foreign exchange 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
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) Each 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) Each 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
5
<PAGE> 235
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, each 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) Each 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 each 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 and
International Stock 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 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.
6
<PAGE> 236
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 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 Stock 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 Stock 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
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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 Stock 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 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
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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.
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 to 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 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
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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 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
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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, 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
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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 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 may be more
likely to experience financial stress, especially if such issuers are highly
leveraged. During such periods, such issuers may not have sufficient revenues to
meet their interest payment obligations. 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
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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.
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
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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
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 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 include
Municipal Bonds, Municipal Notes and Municipal Commercial Paper. Under normal
market conditions, each of the Tax-Free Funds invests at least 80% of its net
assets in investment grade municipal obligations. For purposes of this
restriction, the Tax-Free Funds' investments in other investment companies which
invest exclusively in municipal securities are considered municipal obligations.
MUNICIPAL BONDS
Municipal bonds generally have a maturity at the time of issuance of up
to thirty years. They are principally classified either as "general obligation"
bonds, which are secured by the pledge of the municipality's faith, credit and
taxing power for the payment of principal and interest, or as "revenue" bonds,
which are payable only from the revenues derived from a particular project or
facility and generally are dependent solely on a specific revenue source.
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. Some 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.
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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 Assurance Corporation (formerly
called American Municipal Bond Assurance Corporation), and Municipal Bond
Insurance Association, a pool of private insurers, but may be written by certain
other large insurance companies. This insurance feature minimizes the risks to
the Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities Fund
and its shareholders associated with payment delays or defaults in these
portfolio securities, but does not guarantee the market value of these portfolio
securities or the value of the shares of the Tax-Free Securities Fund and the
Tax-Free Short Intermediate Securities Fund. An issuer would likely purchase
insurance in order to obtain a higher rating by an NRSRO than it would receive
without the insurance thereby reducing the issuer's borrowing costs. The price
paid or received for an Insured Municipal Bond may be higher than the price that
would otherwise be paid or received for the municipal bond absent the insurance.
The Tax-Free Securities Fund and the Tax-Free Short Intermediate
Securities Fund may invest in moral obligation bonds ("Moral Obligation Bonds")
which are tax-exempt bonds issued by a municipality or a state financial
intermediary and backed by the moral obligation pledge of a state government.
Under a moral obligation pledge, a state government indicates its intent to
appropriate funds in the future if the primary obligor, the municipality or
intermediary, defaults. The state's obligation to honor the pledge is moral
rather than legal because future legislatures cannot be legally obligated to
appropriate the funds required.
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"
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include certain related natural persons, affiliated corporations, partnerships
and their partners and S corporations and their shareholders.
TANs
Uncertainty in a municipal issuer's capacity to raise taxes as a result
of such events as a decline in its tax base or a rise in delinquencies could
adversely affect the issuer's ability to meet its obligations on outstanding
TANs. Furthermore, some municipal issuers mix various tax proceeds into a
general fund that is used to meet obligations other than those of the
outstanding TANs. Use of such a general fund to meet various obligations could
affect the likelihood of making payments on TANs.
BANs
The ability of a municipal issuer to meet its obligations on its BANs
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 issuer
to pay, when due, the principal of and interest on its municipal obligations may
be materially affected.
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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 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.
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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 market
for 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.
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.
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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 contract 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 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.
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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 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).
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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 the premium received for
writing the option. However, if the security appreciates to a price higher than
the exercise price of the call option, it can be expected that the option will
be exercised and a Fund will be obligated to sell the security at less than its
market value.
Options may be used to enhance income since the receipt of premiums by
a Fund's options positions may enable the Fund to realize a greater return than
would be realized on the underlying securities alone. In return for the premium
received for a call option, a Fund forgoes the opportunity for profit from a
price increase in the underlying security above the exercise price so long as
the option remains open, but retains the risk of loss should the price of the
security decline. In return for the premium received for a put option, a Fund
assumes the risk that the price of the underlying security will decline below
the exercise price, in which case the put would be exercised and the Fund would
suffer a loss. A Fund may purchase put options in an effort to protect the value
of a security it owns against a possible decline in market value.
The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment, the historical price volatility of the underlying
investment and general market conditions. Options normally have expiration dates
of up to nine months. Options that expire unexercised have no value.
A Fund may effectively terminate its right or obligation under an
option by entering into a closing transaction. For example, a Fund may terminate
its obligation under a call option that it had written by purchasing an
identical call option; this is known as a closing purchase transaction.
Conversely, a Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a closing
sale transaction.
Currently, many options on equity securities are
exchange-traded. Exchange markets for options on debt securities and foreign
currencies exist but are relatively new, and these instruments are primarily
traded on the OTC market. Exchange-traded options in the United States are
issued by a clearing organization affiliated with the exchange on which the
option is listed which, in effect, guarantees completion of every
exchange-traded option transaction. In contrast, OTC options are contracts
between a Fund and its contra party (usually a securities dealer or a bank, as
required by the Fund's policies) with no clearing organization guarantee. Thus,
when a Fund purchases or writes an OTC option, it relies on the party from whom
it purchased the option or to whom it has written the option (the contra party)
to make or take delivery of the underlying investment upon exercise of the
option. Failure by the contra party to do so would result in the loss of any
premium paid by a Fund as well as the loss of any expected benefits of the
transaction.
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Generally, foreign currency options (New Asia Growth Fund 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 there
appears to be a liquid secondary market. However, there can be no assurance that
such a market will exist at any particular time. Closing transactions can be
made for OTC options only by negotiating directly with the contra party, or by a
transaction in the secondary market if any such market exists. Although a Fund
will enter into OTC options only with contra parties that are expected to be
capable of entering into closing transactions with the Fund, there is no
assurance that the Fund will in fact be able to close out an OTC option position
at a favorable price prior to expiration. In the event of insolvency of the
contra party, a Fund might be unable to close out an OTC option position at
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 thereon on U.S. and foreign exchanges, each of New
Asia Growth Fund and
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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 or 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 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.
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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 5% of the total assets of the respective 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
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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 TRANSACTIONS
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 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
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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 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 in securities or other options or futures contracts
or (2) segregates liquid assets with a value sufficient at all times to cover
its potential obligations to the extent not covered as provided in (1) above.
Each Fund will comply with Commission guidelines regarding cover for hedging
transactions.
Assets used as cover or held in a segregated account cannot be sold
while the position in the corresponding Hedging Instrument is open, unless they
are replaced with similar assets. As a result, the
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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 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 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.
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The life of an Asset Backed Security varies with the prepayment
experience with respect to the underlying debt instruments. The rate of such
prepayments, and hence the life of an Asset Backed Security, will be primarily a
function of current market interest rates, although other economic and
demographic factors may be involved. For example, falling interest rates
generally result in an increase in the rate of prepayments of mortgage loans,
while rising interest rates generally decrease the rate of prepayments. An
acceleration in prepayments in response to sharply falling interest rates will
shorten the security's average maturity and limit the potential appreciation in
the security's value relative to a conventional debt security. Consequently,
Asset Backed Securities are not as effective in locking in high, long-term
yields. Conversely, in periods of sharply rising rates, prepayments 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-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.
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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 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
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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 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 (except New Asia Growth Fund and International Stock Fund)
may borrow from banks up to 20% of the current value of its net assets for
temporary purposes only in order to meet redemptions, and these borrowings may
be secured by the pledge of up to 20% of the current value of its net assets
(but investments may not be purchased while such outstanding borrowings in
excess of 5% of its net assets exists).
New Asia Growth Fund 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 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
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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.
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.
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,
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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 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* (58), Trustee and Chairperson - Executive Vice
President of Bank of Hawaii - Private Client and Institutional Services
(1993-present).
Irimga McKay* (39), 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).
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Douglas Philpotts* (68), 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; Director of Bishop Insurance of
Hawaii, Inc.; Trustee of The Strong Foundation and Seabury Hall; Trustee of Cash
Assets Trust, U.S. Treasuries Cash Assets Trust, Hawaiian Tax-Free Trust and
Tax-Free Cash Assets Trust (1992-present); Affiliated with The Pacific Club,
Oahu 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 (53), 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 (63), 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 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 (55), 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 (68), Trustee - 925 Bethel Street, Suite 101,
Honolulu, Hawaii 96813. Trustee of Bernice Pauahi Bishop Estate (1990-1999);
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 (37), 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 (31), Secretary - 1230 Columbia Street, San Diego,
California 92101. Director of BISYS Fund Services (1991-present).
Alaina Metz (32), Vice President - Chief Administrative Officer of
BISYS Fund Services - Blue Sky Compliance (1995-present); Alliance Capital
Management, L.P. (1989-1995).
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<PAGE> 263
William J. Tomko (40), Vice President - Senior Vice President of BISYS
Fund Services (1987-present).
Nancy Wiser (31), Vice President - Vice President of Fund Accounting of
BISYS Fund Services (1998 - present); Manager of Investment Accounting of AEFA
(1994-1998). Senior Operations Analyst for IBT (1990-1994).
Frank Deutchki (45), Treasurer - Vice President, Financial Services,
BISYS Fund Services, (Nov. 1997-present); Registration and Compliance Officer,
BISYS Fund Services (April 1996 through Nov. 1997); Vice President and Audit
Director, Chase Global Fund Services (Sept. 1995 through April 1996); Vice
President and Audit Director, Mutual Fund Service Company, a subsidiary of U.S.
Trust Company of New York (1989 through Sept. 1995).
As of the date of this SAI, Trustees and officers of the Trust as a
group beneficially owned less than 1% of the outstanding shares of each Fund,
with the exception of Douglas Philpotts, who owned beneficially approximately
5.70% of the outstanding shares of the Class A shares of the Tax-Free Securities
Fund and 2.21% of the Class A shares of the Growth and Income 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,
1999:
<TABLE>
<CAPTION>
Aggregate Trustees' Fees and
Expenses for the Fiscal Year
Fund Ended July 31, 1999
- ---- -------------------
<S> <C>
Diversified Fixed Income Fund $ 13,872
Growth and Income Fund 12,964
Growth Stock Fund 29,066
New Asia Growth Fund 1,223
Short Intermediate U.S. Treasury Securities Fund 2,152
Tax-Free Securities Fund 33,040
Tax-Free Short Intermediate Securities Fund 3,921
U.S. Treasury Securities Fund 1,840
International Stock Fund 2,741
Value Fund 2,589
Small Cap Fund 1,622
Balanced Fund 3,608
</TABLE>
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.
34
<PAGE> 264
<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. $ 16,750 None None $ 51,808
Gushman II
Stanley W. Hong $ 16,750 None None $ 53,355
Russell K. Okata $ 16,750 None None $ 51,711
Douglas Philpotts $ 16,750 None None $ 47,347
Oswald K. Stender $ 16,750 None None $ 51,250
</TABLE>
(1) Provided for the fiscal year ended July 31, 1999.
(2) Provided for the calendar year ended December 31, 1998. 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
35
<PAGE> 265
each Fund pursuant to its Advisory Agreement for the fiscal years ended July 31,
1999, July 31, 1998, and July 31, 1997:
<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, 1999 July 31, 1998 July 31, 1997
------------------------------- ------------------------------- -------------------------------
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 $ 832,870 $ 277,623 $ 761,240 $135,988 $ 867,869 N/A
Fixed Income
Fund
Growth and $1,407,043 N/A $1,153,390 N/A $ 768,642 N/A
Income Fund
Growth Stock $3,174,082 N/A $2,468,860 N/A $1,499,559 N/A
Fund
New Asia $ 149,051 N/A $ 137,423 $ 27,534 $ 141,522 $ 7,778
Growth Fund
Short $ 85,277 $ 54,052 $ 89,917 $ 59,920 $ 71,646 $ 47,940
Intermediate
U.S. Treasury
Securities Fund
Tax-Free $1,922,008 $ 640,669 $1,872,274 $365,137 $1,756,304 N/A
Securities Fund
Tax-Free Short $ 200,190 $ 50,048 $ 207,167 $ 31,564 $ 195,480 N/A
Intermediate
Securities Fund
U.S. Treasury $ 81,078 $ 57,912 $ 104,486 $ 33,161 $ 145,470 N/A
Securities Fund
International $ 405,835 $ 40,593 N/A N/A N/A N/A
Stock Fund
Value Fund $ 317,642 N/A N/A N/A N/A N/A
Small Cap Fund $ 204,585 $ 20,458 N/A N/A N/A N/A
Balanced Fund $ 149,582 $ 21,369 N/A N/A N/A N/A
</TABLE>
36
<PAGE> 266
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 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 Funds. CMG First State (Hong Kong) LLC
serves as Sub-Adviser to New Asia Growth Fund. Pursuant to sub-advisory
agreements with Pacific Century (each a "Sub-Advisory Agreement"), each
Sub-Adviser provides a continuous investment program, 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.
For its services, Pacific Century pays the Sub-Advisers a fee, computed
daily and payable quarterly, equal on an annual basis, to 0.65% of the average
daily net assets of International Stock Fund, 0.60% of the average daily net
assets of 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, 1999, July 31, 1998 and July 31, 1997, Pacific Century paid
sub-advisory fees to the Sub-Advisers and their predecessors in the amount of
$82,806, $91,615, and $141,522, respectively, for services provided to New Asia
Growth Fund; $264,683, $0 and $0, respectively, for services provided to
International Stock Fund; and $122,751, $0 and $0, respectively, for services
provided to Small Cap Fund.
Each Sub-Advisory Agreement has provisions limiting the liability of
the Sub-Adviser similar to those in the Advisory Agreement. The Sub-Advisory
Agreements will continue in effect beyond their initial two year terms, provided
their 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.
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<PAGE> 267
ADMINISTRATOR AND DISTRIBUTOR
Under its Administration Agreement with the Trust, BISYS Fund Services
Ohio, Inc. ("BISYS Ohio") furnishes the Trust with office facilities, together
with those ordinary clerical and bookkeeping services that are not being
furnished by Pacific Century. BISYS and BISYS Ohio are each a wholly-owned
subsidiary of The BISYS Group, Inc. For expenses assumed and services provided
as administrator pursuant to the Administration Agreement, BISYS Ohio 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. BISYS
served the Trust as administrator under the predecessor to the current
Administration Agreement. 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 predecessor to the current Administration Agreement for
the fiscal years ended July 31, 1999, July 31, 1998, and July 31, 1997:
Compensation Paid to BISYS
Under the Administration Agreement
(after waivers)
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year Fiscal Year
Ended Ended Ended
Fund July 31, 1999 July 31, 1998 July 31, 1997
- ---- ---------------- ---------------- ----------------
<S> <C> <C> <C>
Diversified Fixed Income $296,134 $239,145 $231,432
Fund
Growth and Income Fund $281,411 $230,680 $153,729
Growth Stock Fund $634,822 $493,777 $299,912
New Asia Growth Fund $ 24,842 $ 27,517 $ 24,883
Short Intermediate U.S. $ 42,639 $ 44,959 $ 35,823
Treasury Securities Fund
Tax-Free Securities Fund $683,385 $596,120 $468,348
Tax-Free Short Intermediate $ 75,071 $ 71,559 $ 58,644
Securities Fund
U.S. Treasury Securities $ 37,064 $ 36,713 $ 38,792
Fund
International Stock Fund $ 64,936 N/A N/A
Value Fund $ 63,529 N/A N/A
Small Cap Fund $ 32,734 N/A N/A
Balanced Fund $ 34,191 N/A N/A
</TABLE>
38
<PAGE> 268
The Administration Agreement contains provisions limiting the liability
of BISYS Ohio 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 Ohio equal to the lesser of one year's fees or the fees due for the
balance of the term.
The Trust has also retained BISYS Ohio to provide the Trust with
certain fund accounting services pursuant to a Fund Accounting Agreement. For
services provided under the Agreement, BISYS Ohio 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 Ohio.
The following table sets forth the aggregate fees paid by each Fund to
BISYS Ohio for fund accounting services for the fiscal years ended July 31,
1999, July 31, 1998 and July 31, 1997 under the predecessor to the current Fund
Accounting Agreement.
Compensation Paid to BISYS Ohio
Under the Fund Accounting Agreement
<TABLE>
<CAPTION>
Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
Fund July 31, 1999 July 31, 1998 July 31, 1997
- ------ ---------------------- ---------------------- ---------------------
<S> <C> <C> <C>
Diversified Fixed $ 63,480 $ 50,336 $ 48,581
Income Fund
Growth and Income $ 57,307 $ 46,806 $ 31,379
Fund
Growth Stock Fund $117,822 $ 95,895 $58,423
New Asia Growth Fund $ 13,599 $ 15,396 $ 11,733
Short Intermediate $ 10,544 $ 11,124 $ 8,990
U.S. Treasury
Securities Fund
Tax-Free Securities Fund $144,718 $140,761 $ 98,573
Tax-Free Short $ 21,449 $ 19,894 $ 17,205
Intermediate
Securities Fund
U.S. Treasury $ 9,234 $ 8,904 $ 8,369
Securities Fund
International Stock Fund $ 21,774 N/A N/A
Value Fund $ 14,721 N/A N/A
</TABLE>
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<PAGE> 269
<TABLE>
<S> <C> <C> <C>
Small Cap Fund $ 9,600 N/A N/A
Balanced Fund $ 7,781 N/A N/A
</TABLE>
BISYS Fund Services Limited Partnership d/b/a/ BISYS Fund Services
("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.
BISYS Ohio and Cantor Fitzgerald & Co. have also entered into a
Securities Lending Agreement with the Trust, pursuant to which BISYS Ohio
provides certain administrative services in connection with the Trust's
securities lending program, which is implemented through Cantor Fitzgerald as
lending agent. Pursuant to the Agreement, the Trust pays BISYS Ohio 35% of the
total monthly earnings derived from the lending program, and BISYS Ohio pays
Cantor Fitzgerald's fees.
As of the date of this Statement of Additional Information the Trust's
lending program has not commenced operations. Pursuant to the Securities Lending
Agreement, the Trust has agreed to indemnify BISYS Ohio against certain
liabilities other than those arising as a result of its gross negligence or
willful misconduct.
TRANSFER AGENT
BISYS Fund Services, Inc., also a wholly-owned subsidiary of The BISYS
Group, 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 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.
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<PAGE> 270
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 31,1999,
restated to reflect fee waivers, are set forth in the table below.
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<PAGE> 271
Distribution fees paid under the Class A and Class B Distribution Plans
were as follows:
<TABLE>
<CAPTION>
Aggregate Distribution Fees Paid
for Fiscal Year Ended July 31, 1999
(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 $ 2,620 $ 5,630 $ 5,337 $ 1,750
Growth and Income Fund 13,380 24,003 23,187 7,703
Growth Stock Fund 15,980 49,588 23,923 7,972
New Asia Growth Fund 478 4,467 605 194
Short Intermediate U.S. Treasury 87 1,642 N/A N/A
Securities Fund
Tax-Free Securities Fund 7,529 5,260 3,115 1,033
Tax-Free Short Intermediate Securities 144 1,698 N/A N/A
Fund
U.S. Treasury Securities Fund - 3,060 N/A N/A
International Stock Fund 13 57 108 34
Value Fund 58 154 749 304
Small Cap Fund 13 84 204 61
Balanced Fund 5 5 120 31
</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.
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<PAGE> 272
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 ) to the 6th power - 1]
---
cd
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
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
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:
ERV = P(1+T) to the Nth Power
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
43
<PAGE> 273
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, 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 500 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. 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 500 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
44
<PAGE> 274
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.
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. Information for Class B shares
of the Funds, other than Balanced Fund, Value Fund, International Stock Fund and
Small Cap Fund, 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 these Funds for periods prior to their
commencement of operations in March 1998 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 a common trust fund ("Commingled")
account 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 account was not registered with the Commission under the 1940 Act,
and therefore was not subject to the investment restrictions imposed by law on
registered mutual funds. If the Commingled account had been registered, the
Commingled account's 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, 1999 -2.98% $ 970 -3.55% $ 965 1.10% $ 1,011
Five years ended
July 31, 1999 5.40% $ 1,301 5.90% $ 1,332 6.63% $ 1,378
Ten years ended
July 31, 1999 6.46% $ 1,869 6.79% $ 1,929 7.20% $ 2,004
Inception* to
July 31, 1999 3.86% $ 2,278 4.00% $ 2,349 4.33% $ 2,512
</TABLE>
45
<PAGE> 275
Aggregate Total Return
(including maximum applicable sales charge)**
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
One year ended
July 31, 1999 -2.98% $ 970 -3.55% $ 965 1.10% $1,011
Five years ended
July 31, 1999 30.06% $1,301 33.20% $1,332 37.80% $1,378
Ten years ended
July 31, 1999 86.93% $1,869 92.91% $1,929 100.41% $2,004
Inception* to
July 31, 1999 127.81% $2,278 134.86% $2,349 151.23% $2,512
</TABLE>
Yield
(including maximum applicable sales charge)**
<TABLE>
<S> <C> <C> <C>
30 Days ended
July 31, 1999 5.31% 4.78% 5.79%
- --------------------------------
</TABLE>
* Class A and Class Y shares of the Fund commenced operation on October
4, 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 AND INCOME FUND
The average annual and aggregate total return for the Growth and Income
Fund includes the performance of a common trust fund ("Commingled") account
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
account was not registered with the Commission under the 1940 Act, and therefore
was not subject to the investment restrictions imposed by law on registered
mutual funds. If the Commingled account had been registered, the Commingled
account performance may have been adversely affected.
46
<PAGE> 276
<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, 1999 9.12% $ 1,091 8.59% $ 1,086 13.69% $ 1,137
Five years ended
July 31, 1999 20.67% $ 2,558 21.28% $ 2,624 21.89% $ 2,691
Ten years ended
July 31, 1999 13.14% $ 3,437 13.46% $ 3,536 13.85% $ 3,659
Inception * to
July 31, 1999 11.27% $10,203 11.41% $10,493 11.73% $11,165
Aggregate Total Return
(including maximum applicable sales charge)**
One year ended
July 31, 1999 9.12% $ 1,091 8.59% $ 1,086 13.69% $ 1,137
Five years ended
July 31, 1999 155.84% $ 2,558 162.41% $ 2,624 169.09% $ 2,691
Ten years ended
July 31, 1999 243.70% $ 3,437 253.63% $ 3,536 295.93% $ 3,659
Inception* to
July 31, 1999 920.33% $10,203 949.32% $10,493 1,016.47% $11,165
Yield
(including maximum applicable sales charge)**
30 Days ended
July 31, 1999 -0.12% -0.89% 0.13%
- ----------------------------
</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
47
<PAGE> 277
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 a common trust fund ("Commingled") account 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 account was not
registered with the Commission under the 1940 Act, and therefore was not subject
to the investment restrictions imposed by law on registered mutual funds. If the
Commingled account had been registered, the Commingled account's 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, 1999 12.70% $ 1,127 12.65% $ 1,127 17.72% $ 1,177
Five years ended
July 31, 1999 20.90% $ 2,583 21.58% $ 2,657 22.20% $ 2,725
Ten years ended
July 31, 1999 15.23% $ 4,128 15.60% $ 4,263 16.01% $ 4.414
Inception* to
July 31, 1999 13.19% $14,792 13.35% $15,254 13.71% $16,345
</TABLE>
48
<PAGE> 278
<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
- ------ ------------ ------------- ------------ ------------- ------------ -------------
Aggregate Total Return
(including maximum applicable sales charge)**
<S> <C> <C> <C> <C> <C> <C>
One year ended
July 31, 1999 12.70% $ 1,127 12.65% $ 1,127 17.72% $ 1,177
Five years ended
July 31, 1999 158.29% $ 2,583 165.68% $ 2,657 172.53% $ 2,725
Ten years ended
July 31, 1999 312.82% $ 4,128 326.32% $ 4,263 341.39% $ 4,414
Inception* to
July 31, 1999 1,379.25% $14,792 1,425.40% $15,254 1,534.49% $16,345
Yield
(including maximum applicable sales charge)**
30 Days ended
July 31, 1999 -0.68% -1.46% -0.44%
- -----------------------------------------
</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.
49
<PAGE> 279
SHORT INTERMEDIATE U.S. TREASURY SECURITIES FUND
<TABLE>
<CAPTION>
Class A* Class Y*
---------------------------------- ------------------------------------
Expressed Redeemable Expressed Redeemable
as a value of a as a value of a
percentage hypothetical percentage hypothetical
based on a $1000 based on a $1000
hypothetical investment hypothetical investment
$1000 at the end $1000 at the end
Period investment of the period investment of the period
- ------ --------------- ---------------- ------------ ----------------
Average Annual Total Return
(including maximum applicable sales charge)**
<S> <C> <C> <C> <C>
One year ended
July 31, 1999 0.49% $1,005 3.05% $1,031
Five years ended
July 31, 1999 4.73% $1,260 5.50% $1,037
Inception* to
July 31, 1999 3.68% $1,225 4.35% $1,271
</TABLE>
<TABLE>
<CAPTION>
Class A* Class Y*
----------------------------------- ------------------------------------
Expressed Redeemable Expressed Redeemable
as a value of a as a value of a
percentage hypothetical percentage hypothetical
based on a $1000 based on a $1000
hypothetical investment hypothetical investment
$1000 at the end $1000 at the end
Period investment of the period investment of the period
- ------ --------------- --------------- --------------- ----------------
Aggregate Total Return
(including maximum applicable sales charge)**
<S> <C> <C> <C> <C>
One year ended
July 31, 1999 0.51% $ 1,005 3.07% $ 1,031
Five years ended
July 31, 1999 25.98% $ 1,260 30.69% $ 1,307
Inception* to
July 31, 1999 22.52% $ 1,225 27.09% $ 1,271
Yield
(including maximum applicable sales charge)**
30 Days ended
July 31, 1999 4.84% 5.21%
- -----------------------------------------
</TABLE>
50
<PAGE> 280
* Class A shares of the Fund commenced operation on December 13, 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.
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 58.26% $1,583 61,66% $1,617 67.38% $1,674
July 31, 1999
Inception* to
July 31, 1999 3.50% $1,166 4.14% $1,198 4.97% $1,241
Aggregate Total Return
(including maximum applicable sales charge)**
One year ended
July 31, 1999 58.26% $1,583 61.66% $1,617 67.38% $1,674
Inception* to
July 31, 1999 16.56% $1,166 19.81% $1,198 24.10% $1,241
- -----------------------------------------
</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.
51
<PAGE> 281
TAX FREE SECURITIES FUND
The average annual and aggregate total return for the Tax Free
Securities Fund includes the performance of a common trust fund ("Commingled")
account 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 account was not registered with the Commission under the 1940 Act,
and therefore was not subject to the investment restrictions imposed by law on
registered mutual funds. If the Commingled account had been registered, the
Commingled account's 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, 1999 -2.07% $ 979 -2.47% $ 975 -2.26% $1,023
Five years ended
July 31, 1999 4.85% $1,267 5.41% $1,301 6.06% $1,342
Ten years ended
July 31, 1999 5.77% $1,752 6.13% $1,814 6.51% $1,879
Inception* to
July 31, 1999 2.81% $1,826 2.97% $1,890 3.27% $2,014
Aggregate Total Return
(including maximum applicable sales charge)**
One year
ended July
31, 1999 -2.07% $ 979 -2.47% $ 975 -2.26% $1,023
Five years
ended July
31, 1999 26.68% $1,267 30.14% $1,301 34.16% $1,342
Ten years
ended July
31, 1999 75.22% $1,752 81.36% $1,814 87.90% $1,879
Inception* to
July 31, 1999 82.57% $1,826 89.03% $1,890 101.44% $2,014
</TABLE>
52
<PAGE> 282
Yield
(including maximum applicable sales charge)**
30 Days Ended
July 31, 1999 4.00% 3.43% 4.42%
- -----------------------------------------
* 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 a common trust
fund ("Commingled") account 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 account was not registered with the Commission under the 1940 Act,
and therefore was not subject to the investment restrictions imposed by law on
registered mutual funds. If the Commingled account had been registered, the
Commingled account's performance may have been adversely affected.
53
<PAGE> 283
<TABLE>
<CAPTION>
Class A* Class Y*
------------------------------- -------------------------------
Expressed Redeemable Expressed Redeemable
as a value of a as a value of a
percentage hypothetical percentage hypothetical
based on a $1000 based on a $1000
hypothetical investment hypothetical investment
$1000 at the end $1000 at the end
Period investment of the period investment of the period
- ------ --------------- --------------- --------------- ----------------
Aggregate Total Return
(including maximum applicable sales charge)**
<S> <C> <C> <C> <C>
One year ended
July 31, 1999 0.16% $1,002 3.91% $1,211
Five years ended
July 31, 1999 3.10% $1,165 2.60% $1,026
Ten years ended
July 31, 1999 4.19% $1,507 4.73% $1,587
Inception* to
July 31, 1999 4.07% $1,572 4.58% $1,661
Aggregate Total Return
(including maximum applicable sales charge)**
One year ended
July 31, 1999 0.16% $1,002 2.60% $1,026
Five years ended
July 31, 1999 16.46% $1,165 21.14% $1,211
Ten years ended
July 31, 1999 50.69% $1,507 58.68% $1,587
Inception* to
July 31, 1999 57.23% $1,572 66.06% $1,661
Yield
(including maximum applicable sales charge)**
30 days ended
July 31, 1999 3.23% 3.56%
- -----------------------------------------
</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.
54
<PAGE> 284
U.S. TREASURY SECURITIES FUND
The average annual and aggregate total return for the U.S. Treasury
Securities Fund includes the performance of a common trust fund ("Commingled")
account 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
account was not registered with the Commission under the 1940 Act, and therefore
was not subject to the investment restrictions imposed by law on registered
mutual funds. If the Commingled account had been registered, the Commingled
account's performance may have been adversely affected.
<TABLE>
<CAPTION>
Class A* Class Y*
------------------------------- -------------------------------
Expressed Redeemable Expressed Redeemable
as a value of a as a value of a
percentage hypothetical percentage hypothetical
based on a $1000 based on a $1000
hypothetical investment hypothetical investment
$1000 at the end $1000 at the end
Period investment of the period investment of the period
- ------ --------------- --------------- --------------- ----------------
Average Total Return
(including maximum applicable sales charge)**
<S> <C> <C> <C> <C>
One year ended
July 31, 1999 -2.64% $ 974 1.65% $1,017
Five years ended
July 31, 1999 5.39% $1,300 6.53% $1,372
Ten years ended
July 31, 1999 6.28% $1,838 6.92% $1,952
Inception* to
July 31, 1999 7.87% $3,017 8.38% $3,232
Aggregate Total Return
(including maximum applicable sales charge)**
One year ended
July 31, 1999 -2.64 $ 974 1.65% $1,017
Five years ended
July 31, 1999 30.02% $1,300 37.18% $1,372
Ten years ended
July 31, 1999 83.81% $1,838 95.21% $1,952
Inception* to
July 31, 1999 201.66% $3,017 223.22% $3,232
</TABLE>
55
<PAGE> 285
Yield
(including maximum applicable sales charge)**
30 days ended
July 31, 1999 4.90% -- 5.35%
- -----------------------------------------
* 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.
INTERNATIONAL STOCK FUND
<TABLE>
<CAPTION>
Class A* Class B* Class Y*
------------------------------ ------------------------------ -----------------------------------
Redeemable Redeemable Redeemable
Expressed as value of a Expressed as value of a Expressed as value of a
a percentage hypothetical a percentage hypothetical a percentage hypothetical
based on a $1,000 based on a $1,000 based on a $1,000
hypothetical investment at hypothetical investment at hypothetical investment
$1,000 the end of $1,000 the end of $1,000 at the end
Period investment the period investment the period investment of the period
- ---------------- -------------- --------------- -------------- --------------- -------------- ----------------
Average Annual Total Return
(including maximum applicable sales charge)**
Inception* to
<S> <C> <C> <C> <C> <C> <C>
July 31, 1999 20.83% $1,134 21.85% $1,140 31.49% $1,199
Aggregate Total Return
(including maximum applicable sales charge)**
Inception* to
July 31, 1999 13.36% $1,134 14.00% $1,140 19.90% $1,199
- -----------------------------------------------------------------
</TABLE>
* The Class A, B and Y shares of the Fund commenced operations on
December 8, 1998, December 20, 1998 and December 2, 1998, respectively.
** 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.
56
<PAGE> 286
VALUE FUND
<TABLE>
<CAPTION>
Class A* Class B* Class Y*
------------------------------ ------------------------------ -----------------------------------
Redeemable Redeemable Redeemable
Expressed as value of a Expressed as value of a Expressed as value of a
a percentage hypothetical a percentage hypothetical a percentage hypothetical
based on a $1,000 based on a $1,000 based on a $1,000
hypothetical investment at hypothetical investment at hypothetical investment
$1,000 the end of $1,000 the end of $1,000 at the end
Period investment the period investment the period investment of the period
- ---------------- -------------- --------------- -------------- --------------- -------------- ----------------
Average Annual Total Return
(including maximum applicable sales charge)**
<S> <C> <C> <C> <C> <C> <C>
Inception* to
July 31, 1999 6.01% $1,039 4.38% $1,029 13.19% $1,086
Aggregate Total Return
(including maximum applicable sales charge)**
Inception* to
July 31, 1999 3.95% $1,039 2.88% $1,029 8.56% $1,086
Yield
(including maximum applicable sales charge)**
30 Days ended
July 31, 1999 -0.17% -0.87% -0.05%
- ----------------------------------------------------------------
</TABLE>
* The Class A, B and Y shares of the Fund commenced operations on
December 8, 1998, December 13, 1998 and December 3, 1998, respectively.
** The maximum applicable sales charge on the Class A shares of the Fund
is 4.00%. 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.
57
<PAGE> 287
SMALL CAP FUND
<TABLE>
<CAPTION>
Class A* Class B* Class Y*
-------------------------------------------------------------------------------------------------
Redeemable Redeemable Redeemable
Expressed as value of a Expressed as value of a Expressed as value of a
a percentage hypothetical a percentage hypothetical a percentage hypothetical
based on a $1,000 based on a $1,000 based on a $1,000
hypothetical investment at hypothetical investment at hypothetical investment
$1,000 the end of $1,000 the end of $1,000 at the end
Period investment the period investment the period investment of the period
- ---------------- -------------- --------------- -------------- --------------- -------------- ----------------
Average Annual Total Return
(including maximum applicable sales charge)**
<S> <C> <C> <C> <C> <C> <C>
Inception* to
July 31, 1999 1.63% $1,011 1.71% $1,011 10.35% $1,067
Aggregate Total Return
(including maximum applicable sales charge)**
Inception* to
July 31, 1999 1.08% $1,011 1.13% $1,011 6.75% $1,067
Yield
(including maximum applicable sales charge)**
30 Days ended
July 31, 1999 -0.24% -0.99% 0.01%
- ----------------------------------------------------------------
</TABLE>
* The Class A, B and Y shares of the Fund commenced operations on
December 8, 1998, December 20, 1998 and December 3, 1998, respectively.
** 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.
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<PAGE> 288
BALANCED FUND
<TABLE>
<CAPTION>
Class A* Class B* Class Y*
------------------------------ ------------------------------ -------------------------------
------------------------- ---------------------- -----------------------
Redeemable Redeemable Redeemable
Expressed as value of a Expressed as value of a Expressed as value of a
a percentage hypothetical a percentage hypothetical a percentage hypothetical
based on a $1,000 based on a $1,000 based on a $1,000
hypothetical investment at hypothetical investment at hypothetical investment
$1,000 the end of $1,000 the end of $1,000 at the end
Period investment the period investment the period investment of the period
- ---------------- -------------- --------------- -------------- --------------- -------------- ----------------
Average Annual Total Return
(including maximum applicable sales charge)**
<S> <C> <C> <C> <C> <C> <C>
Inception* to
July 31, 1999 -41.86% $941 -47.49% $930 -16.04% $981
Aggregate Total Return
(including maximum applicable sales charge)**
Inception* to
July 31, 1999 -5.91% $941 -6.98% $930 -1.94% $981
Yield
(including maximum applicable sales charge)**
30 Days ended
July 31, 1999 1.56% 1.00% 1.91%
- ----------------------------------------------------------------
</TABLE>
* The Class A, B and Y shares of the Fund commenced operations on June
21, 1999.
** 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.
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.
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<PAGE> 289
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 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.
Various sales charge reductions are available to 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.
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.
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<PAGE> 290
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 of Growth Stock Fund, Growth and Income Fund, Value
Fund, Balanced Fund, Diversified Fixed Income Fund, U.S. Treasury Securities
Fund and Tax-Free Securities Fund are sold at a maximum sales charge of 4.00%.
Class A shares of New Asia Growth Fund, International Stock Fund and Small Cap
Fund are sold at a maximum sales charge of 5.25%. Class A shares of Short
Intermediate U.S. Treasury Securities Fund and Tax-Free Short Intermediate
Securities Fund are sold at a maximum sales charge of 2.25%. Class B and Class Y
shares are sold at net asset value. Using the Growth Stock Fund's net asset
value at July 31, 1999, an example of the determination of the maximum offering
price of the Fund's shares is as follows:
Class A
Net asset value........................................ $17.45
Maximum sales charge (4.00% of offering price)......... 0.73
------
Offering price to public............................... $18.18
======
Class B
Net asset value and offering price to public........... $17.28
======
Class Y
Net asset value and offering price to public........... $17.58
======
REDEMPTION OF 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
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<PAGE> 291
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.
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
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<PAGE> 292
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 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, 1999, July 31, 1998, and July 31,
1997, 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 the other
Funds for the fiscal years ended July 31, 1999, July 31, 1998, and July 31,
1997, 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, 1999 July 31, 1998 July 31, 1997
- ------ ----------------------- ----------------------- ------------------------
<S> <C> <C> <C>
Growth and Income Fund $367,994 $325,674 $237,637
Growth Stock Fund $869,241 $730,536 $241,913
New Asia Growth Fund $243,344 $233,961 $243,253
</TABLE>
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<PAGE> 293
<TABLE>
<S> <C> <C> <C>
International Stock Fund $597,077 N/A N/A
Value Fund $302,756 N/A N/A
Small Cap Fund $246,490 N/A N/A
Balanced Fund $ 36,235 N/A N/A
</TABLE>
For the fiscal year ended July 31, 1997, New Asia Growth Fund paid
brokerage commissions of $10,992 to Credit Lyonnais Securities, an affiliate of
Credit Lyonnais, which served as sub-adviser to the Fund until July 31, 1997.
CMG First State (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 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-Advisers in connection with the
management of the Funds, for the fiscal year ended July 31, 1999 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 88.13% $766,065
Growth and Income Fund 74.63% $274,631
Value Fund 82.24% $248,993
Balanced Fund 65.64% $ 23,784
New Asia Growth Fund 100% $243,344
International Stock Fund 3.8% $ 22,689
Small Cap Fund 17.8% $ 43,875
</TABLE>
During the fiscal year ended July 31, 1999, the Funds did not acquire
securities of their regular broker-dealers or of their parents, as such terms
are defined in Rule 10b-1 under the 1940 Act.
During the fiscal years ended July 31, 1998 and 1999, there was no
significant variation in the Funds' portfolio turnover rates and Pacific Century
does not anticipate any significant variation for the fiscal year ended July 31,
2000.
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<PAGE> 294
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.
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
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<PAGE> 295
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.
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.
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<PAGE> 296
CLASS B SHAREHOLDERS
No gain or loss will be recognized by a shareholder upon the conversion
of Class B shares to Class A shares.
FOREIGN SHAREHOLDERS
Under the Code, distributions of net investment income (including
distributions of short-term capital gains) by a Fund to a nonresident alien
individual, nonresident alien fiduciary of a 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 and International Stock
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 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.
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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
unlimited 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 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
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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 account
of shareholder liability is limited to circumstances in which a Fund would be
unable to meet its obligations.
PRINCIPAL SHAREHOLDERS
As of October 30, 1999 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 orBeneficially
------------------------
CLASS Y SHARES
- --------------
DIVERSIFIED FIXED INCOME SECURITIES FUND
STROBRO 74.96%
HAWCO 22.83%
GROWTH AND INCOME FUND
STROBRO 66.49%
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HAWCO 25.40%
GROWTH STOCK FUND
STROBRO 81.18%
HAWCO 9.94%
REINCO 5.41%
NEW ASIA GROWTH FUND
Vanguard Fiduciary Trust Company 24.43%
P.O. Box 2600
V.M. 421
Valley Forge, PA 19482
HAWCO 13.75%
REINCO 15.09%
STROBRO 46.64%
SHORT INTERMEDIATE U.S. TREASURY
SECURITIES FUND
REINCO 5.53%
HAWCO 29.36%
STROBRO 63.39%
TAX-FREE SECURITIES FUND
STROBRO 98.29%
TAX-FREE SHORT INTERMEDIATE SECURITIES
FUND
STROBRO 97.29%
U.S. TREASURY SECURITIES FUND
REINCO 95.79%
SMALL CAP FUND
STROBRO 48.56%
HAWCO 50.24%
VALUE FUND
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STROBRO 76.81%
HAWCO 22.96%
INTERNATIONAL STOCK FUND
STROBRO 69.58%
HAWCO 13.02%
REINCO 17.40%
BALANCED FUND
STROBRO 100.00%
CLASS A SHARES
- --------------
DIVERSIFIED FIXED INCOME FUND
BHC Securities Inc. 75.84%
First Hawaiian Bank 7.18%
Sakiko Kishimoto
P.O. Box 3708
Honolulu, HI 96811
Donaldson Lufkin Jenrette 9.75%
Securities Corporation
P.O. Box 2052
Jersey City, NJ 07303-9998
GROWTH AND INCOME FUND
BHC Securities Inc. 82.94%
GROWTH STOCK FUND
BHC Securities Inc. 75.75%
Arrow & Co. 7.36%
[INSERT ADDRESS]
NEW ASIA GROWTH FUND
Merrill Lynch Pierce Fenner & Smith 11.11%
Incorporated
4800 Deer Lake Drive East, 3rd Floor
Mutual Fund Operations
Jacksonville, Florida 32246
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BHC Securities, Inc. 82.83%
SHORT INTERMEDIATE U.S. TREASURY
SECURITIES FUND
BHC Securities, Inc. 80.53%
Merrill Lynch Pierce Fenner & Smith 7.50%
Incorporated
4800 Deer Lake Drive East, 3rd Floor
Mutual Fund Operations
Jacksonville, Florida 32246
STROBRO 5.14%
TAX-FREE SHORT INTERMEDIATE SECURITIES
FUND
BHC Securities, Inc. 95.10%
U.S. TREASURY SECURITIES FUND
BHC Securities, Inc. 83.14%
Merrill Lynch Pierce Fenner & Smith 8.38%
Incorporated
4800 Deer Lake Drive East, 3rd Floor
Mutual Fund Operations
Jacksonville, Florida 32246
TAX-FREE SECURITIES FUND
Douglas Philpotts 5.70%
TRST Douglas Philpotts Trust I
DTD 4/28/92
206 Oluolu PL
Kula, Hawaii 96790
Arrow & Co. 11.57%
MO 2-1
P.O. Box 30010
Durham, North Carolina 27702-3010
BHC Securities, Inc. 61.20%
Mechanics Bank 5.93%
Evelyn Johnson Insurance Trust
3170 Hilltop Mall Road
Richmond, CA 94806
SMALL CAP FUND
BHC Securities Inc. 91.92%
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VALUE FUND
BHC Securities, Inc. 97.70%
INTERNATIONAL STOCK FUND
BHC Securities Inc. 9.18%
BALANCED FUND
BISYS Fund Services Ohio Inc. 22.43%
3435 Stelzer Rd.
Columbus, OH 43219
BHC Securities Inc. 77.42%
CLASS B SHARES
- --------------
NEW ASIA GROWTH FUND
Merrill Lynch Pierce Fenner & Smith 7.38%
Mutual Fund Operations
4800 Deer Lake Dr East, 3rd Floor
Jacksonville, Florida 32246
BHC Securities Inc. 39.21%
TAX-FREE SECURITIES FUND
BHC Securities Inc. 64.40%
SMALL CAP FUND
BHC Securities Inc. 61.14%
VALUE FUND
BHC Securities Inc. 24.39%
INTERNATIONAL STOCK FUND
BHC Securities Inc. 57.98%
BALANCED FUND
BISYS Fund Services Ohio Inc. 5.66%
3435 Stelzer Rd.
Columbus, OH 43219
BHC Securities Inc. 45.77%
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<PAGE> 304
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 1999 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 1999 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.
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.
A-1
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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.
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.
A-2
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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 - Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA- - High credit quality. Protection factors are strong. Risk
is modest but may vary slightly from time to time because of economic
conditions.
A+, A, A- - Protection factors are average but adequate. However, risk
factors are more variable in periods of greater economic stress.
BBB+, BBB, BBB - Below-average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB, BB- - Below investment grade but deemed likely to meet
obligations when due. Present or prospective financial protection factors
fluctuate according to industry conditions. Overallquality may move up or down
frequently within this category.
B+, B, B- - Below investment grade and possessing risk that obligations
will not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or into
a higher or lower rating grade.
CCC - Well below investment-grade securities. Considerable uncertainty
exists as to timely payment of principal, interest or preferred dividends.
Protection factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD - Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments.
DP - Preferred stock with dividend arrearages.
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FITCH IBCA:
AAA - Highest credit quality. "AAA" ratings denote the lowest
expectation of credit risk. They are assigned only in case of exceptionally
strong capacity for timely payment of financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events.
AA - Very high credit quality. "AA" ratings denote a very low
expectation of credit risk. They indicate very strong capacity for timely
payment of financial commitments. This capacity is not significantly vulnerable
to foreseeable events.
A - High credit quality. "A" ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is considered
strong. This capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher ratings.
BBB - Good credit quality. "BBB" ratings indicate that there is
currently a low expectation of credit risk. The capacity for timely payment of
financial commitments is considered adequate, but adverse changes in
circumstances and in economic conditions are more likely to impair this
capacity. This is the lowest investment-grade category.
BB - Speculative. "BB" ratings indicate that there is a possibility of
credit risk developing, particularly as the result of adverse economic change
over time; however, business or financial alternatives may be available to allow
financial commitments to be met. Securities rated in this category are not
investment grade.
B - Highly speculative. "B" ratings indicate that significant credit
risk is present, but a limited margin of safety remains. Financial commitments
are currently being met; however, capacity for continued payment is contingent
upon a sustained, favorable business and economic environment.
CCC, CC, C - High default risk. Default is a real possibility. Capacity
for meeting financial commitments is solely reliant upon sustained, favorable
business or economic developments. A "CC" rating indicates that default of some
kind appears probable. "C" ratings signal imminent default.
DDD, DD, D - Default. The ratings of obligations in this category are
based on their prospects for achieving partial or full recovery in a
reorganization or liquidation of the obligor. While expected recovery values are
highly speculative and cannot be estimated with any precision, the following
serve as general guidelines. 'DDD' obligations have the highest potential for
recovery, around 90%-100% of outstanding amounts and accrued interest. 'DD'
indicates potential recoveries in the range of 50%-90%, and 'D' the lowest
recovery potential, i.e., below 50%.
Entities rated in this category have defaulted on some or all of their
obligations. Entities rated 'DDD' have the highest prospect for resumption of
performance or continued operation with or without a formal reorganization
process. Entities rated 'DD' and 'D' are generally undergoing a formal
reorganization or liquidation process; those rated 'DD' are likely to satisfy a
higher portion of their outstanding obligations, while entities rated 'D' have a
poor prospect for repaying all obligations.
"+" or "-" may be appended to a rating to denote relative status within
major rating categories. Such suffixes are not added to the "AAA" long-term
rating category, to categories below "CCC", or to short-term ratings other than
"F1'.
NR - indicates that Fitch IBCA does not rate the issuer or issue in
question.
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Withdrawn - A rating is withdrawn when Fitch IBCA deems the amount of
information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.
RatingAlert - Ratings are placed on RatingAlert to notify investors
that there is a reasonable probability of a rating change and the likely
direction of such change. These are designated as "Positive", indicating a
potential upgrade, "Negative", for a potential downgrade, or "Evolving", if
ratings may be raised, lowered or maintained. RatingAlert is typically resolved
over a relatively short period.
THOMSON:
Thomson rates only bank debt.
AAA - Bonds rated AAA have a very high ability to pay interest and
principal on a timely basis.
AA - Bonds rated AA have a superior ability to pay interest and repay
principal with limited incremental risk versus AAA bonds.
A - Bonds rated A have a strong ability to repay principal and
interest, but could be more vulnerable to adverse internal and external
developments.
BBB - Bonds rated BBB have an acceptable capacity to pay interest and
repay principal and are more vulnerable to risk than higher-rated obligations.
BB, B, CCC, and CC, designations are assigned by Thomson to
non-investment grade long-term debt. Such issues are regarded as having
speculative characteristics regarding the likelihood of timely payment of
principal and interest. BB indicates the lowest degree of speculation and CC the
highest degree of speculation. The D designation indicates that the long-term
debt is in default.
The ratings from AAA through CC may include a plus or minus sign
designation which indicates where within the respective category the issue is
placed.
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:
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<PAGE> 310
P-1 (Prime-1) - Issuers rated P-1 have a superior capacity for
repayment of short-term promissory obligations. P-1 repayment capacity will
normally be evidenced by the following characteristics:
Leading market positions in well established industries
High rates of return on funds employed
Conservative capitalization structures with moderate reliance
on debt and ample asset protection
- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation
- Well established access to a range of financial markets and
assured sources of alternate liquidity
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,
A-6
<PAGE> 311
somewhat more vulnerable to the adverse effects of changes in circumstances than
obligations carrying the higher designations.
B - Issues rated B are regarded as having only 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 IBCA:
A short-term rating has a time horizon of less than 12 months for most
obligations, or up to three years for US public finance securities, and thus
places greater emphasis on the liquidity necessary to meet financial commitments
in a timely manner.
F1 - Highest credit quality. Indicates the Best capacity for timely
payment of financial commitments; may have an added "+" to denote any
exceptionally strong credit feature.
F2 - Good credit quality. A satisfactory capacity for timely payment of
financial commitments, but the margin of safety is not as great as in the case
of the higher ratings.
F3 - Fair credit quality. The capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade.
B - Speculative. Minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions.
C - High default risk. Default is a real possibility. Capacity for
meeting financial commitments is solely reliant upon a sustained, favorable
business and economic environment.
D - Default. Denotes actual or imminent payment default.
"+" or "-" may be appended to a rating to denote relative status within
major rating categories. Such suffixes are not added to the "AAA" long-term
rating category, to categories below "CCC", or to short-term ratings other than
"F1'.
NR - indicates that Fitch IBCA does not rate the issuer or issue in
question.
Withdrawn - A rating is withdrawn when Fitch IBCA deems the amount of
information available to be inadequate for rating purposes, or when an
obligation matures, is called, or refinanced.
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<PAGE> 312
RatingAlert - Ratings are placed on RatingAlert to notify investors
that there is a reasonable probability of a rating change and the likely
direction of such change. These are designated as "Positive", indicating a
potential upgrade, "Negative", for a potential downgrade, or "Evolving", if
ratings may be raised, lowered or maintained. RatingAlert is typically resolved
over a relatively short period.
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.
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.
D&P:
D-1+ - Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to alternative sources of
funds, is outstanding, and safety is just below risk-free U.S. Treasury
short-term obligations.
D-1 - Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk factors are
minor.
D-1- - High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small.
D-2 - Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
D-3 - Satisfactory liquidity and other protection factors qualify
issues as to investment grade. Risk factors are larger and subject to more
variation. Nevertheless, timely payment is expected.
D-4 - Speculative investment characteristics. Liquidity is not
sufficient to insure against disruption in debt service. Operating factors and
market access may be subject to a high degree of variation.
D-5 - Issuer failed to meet scheduled principal and/or interest
payments.
A-8
<PAGE> 313
TAX EXEMPT BOND RATINGS
MOODY'S:
Moody's ratings for U.S. Tax Exempt Municipal Bonds range from Aaa to C
and utilize substantially the same definitional elements as are set forth under
the Moody's section of the Corporate Bond Ratings descriptions on page A-1.
S&P:
S&P's ratings for U.S. Tax Exempt Municipal Bonds range from AAA to D
and utilize substantially the same definitional elements as are set forth under
the Moody's section of the Corporate Bond Ratings descriptions on page A-2.
D&P:
D&P's ratings for U.S. Tax Exempt Municipal Bonds range from AAA to DP
and utilize substantially the same definitional elements as are set forth under
the D&P section of the Corporate Bond Ratings descriptions on page A-3.
FITCH IBCA:
Fitch IBCA's ratings for U.S. Tax Exempt Municipal Bonds range from AAA
to D and utilize substantially the same definitional elements as are set forth
under the D&P section of the Corporate Bond Ratings descriptions on page A-3.
TAX EXEMPT NOTE RATINGS
MOODY'S:
MIG 1/VMIG 1 - This designation denotes best quality. There is present
strong protection by established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2 - This designation denotes high quality. Margins of
protection are ample although not so large as in the preceding group.
MIG 3/VMIG 3 - This designation denotes favorable quality. All security
elements are accounted for but there is lacking the undeniable strength of the
preceding grades. Liquidity and cash flow protection may be narrow and market
access for refinancing is likely to be less well established.
MIG 4/VMIG 4 - This designation denotes adequate quality. Protection
commonly regarded as required of an investment security is present and although
not distinctly or predominantly speculative, there is specific risk.
SG - This designation denotes speculative quality. Debt instruments in
this category lack margins of protection.
In the case of variable rate demand obligations (VRDOs), a
two-component rating is assigned. The first element represents an evaluation of
the degree of risk associated with scheduled principal and interest payments,
and the other represents an evaluation of the degree of risk associated with the
demand feature. The short-term rating assigned to the demand feature of VRDOs is
designated as VMIG. When
A-9
<PAGE> 314
either the long- or short-term aspect of a VRDO is not rated, that piece is
designated NR, e.g., Aaa/NR or NR/VMIG 1.
Issues that are subject to a periodic reoffer and resale in the
secondary market in a "dutch auction" are assigned a long-term rating based only
on Moody's assessment of the ability and willingness of the issuer to make
timely principal and interest payments. Moody's expresses no opinion as to the
ability of the holder to sell the security in a secondary market "dutch
auction." Such issues are identified by the insertion of the words "dutch
auction" into the name of the issue.
Issues or the features associated with MIG or VMIG ratings are
identified by date of issue, date of maturity or maturities or rating expiration
date and description to distinguish each rating from other ratings. Each rating
designation is unique with no implication as to any other similar issue of the
same obligor. MIG ratings terminate at the retirement of the obligation while
VMIG rating expiration will be a function of each issue's specific structural or
credit features.
S&P:
Municipal notes with maturities of three years or less are usually
given note ratings to distinguish more clearly the credit quality of notes as
compared to bonds.
SP-1 - Strong capacity to pay principal and interest. An issue
determined to possess a very strong capacity to pay debt service is given a plus
designation.
SP-2 - Satisfactory capacity to pay principal and interest, with some
vulnerability to adverse financial and economic changes over the term of the
notes.
SP-3 - Speculative capacity to pay principal and interest.
D&P:
D&P's ratings for U.S. Tax Exempt Notes range from D-1+ to D-5 and
utilize substantially the same definitional elements as are set forth under the
D&P section of the Corporate Notes Ratings descriptions on page A-9.
FITCH IBCA:
Fitch IBCA's ratings for U.S. Tax Exempt Notes range from F-1 to D and
utilize substantially the same definitional elements as are set forth under the
D&P section of the Corporate Notes Ratings descriptions on page A-9.
A-10
<PAGE> 315
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
(a-4)*** - Amendment No. 3 to Declaration of Trust
(a-5)*** - Amendment No. 4 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 CMG First State (Hong Kong) LLC [New Asia Growth
Fund]
(d-5)** Form of Sub-Advisory Agreement among the Registrant, Pacific
Century Trust and Nicholas-Applegate Capital Management
[International Stock Fund]
(d-6) Sub-Advisory Agreement among the Registrant, Pacific Century
Trust and Nicholas-Applegate Capital Management [Small Cap
Fund]
C-1
<PAGE> 316
(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
(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)*** - Form of Administration Agreement between BISYS Fund Services
Ohio, Inc. and the Registrant
(h-5)*** - Form of Fund Accounting Agreement between BISYS Fund
Services Ohio, Inc. and the Registrant
(h-6)*** - Transfer Agency Agreement between BISYS Fund Services, Inc.
and the Registrant, dated as of February 1, 1998 ("BISYS
Transfer Agency Agreement")
(h-7)*** - Amended Schedule A to the BISYS Transfer Agency Agreement
(i-1)* - Opinion and Consent of Counsel
(i-2)*** - Opinion and Consent of Counsel with respect to International
Stock Fund, Small Cap Fund and Value Fund
(j) - Consent of Independent Auditors
(k) - Not Applicable
C-2
<PAGE> 317
(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)** Rule 18f-3 Plan
(o) Not Applicable
(p) Not Applicable
(q-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
(q-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 and
incorporated herein by reference.
** Filed as an exhibit to Post-Effective Amendment No. 12 to Registrant's
Registration Statement on Form N-1A on September 16, 1998 and
incorporated herein by reference.
*** Filed as an exhibit to Post-Effective Amendment No. 14 to Registrant's
Registration Statement on Form N-1A on December 1, 1998 and
incorporated herein by reference.
C-3
<PAGE> 318
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 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:
C-4
<PAGE> 319
<TABLE>
<CAPTION>
====================================================================================================================================
Principal Business(es) During at
Name Position(s) Least 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>
CMG First State (Hong Kong) LLC ("CMG") serves as sub-adviser
to New Asia Growth Fund. During the two fiscal years ended December 31, 1998,
CMG 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 CMG 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, 1998, 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.
(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, 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 Alternative
Investment Series Trust, 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>
====================================================================================================================================
Positions and Positions and
Name and Principal Offices with Offices with
Business Addresses BISYS Fund Services the Registrant
<S> <C> <C>
</TABLE>
C-5
<PAGE> 320
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<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 Road
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 Road
Columbus, OH 43219-3035
Attention: Secretary
(Registrant)
(2) Pacific Century Trust
Financial Plaza of the Pacific
111 S. King Street
Honolulu, Hawaii 96813
Attention: Trust Investments
(Investment Adviser)
(3) BISYS Fund Services
3435 Stelzer Road
Columbus, OH 43219
(Administrator and Distributor)
(4) CMG First State (Hong Kong) LLC
3 Exchange Square, Room 604-6
8 Connaught Place Central
Hong Kong
(Sub-Adviser)
(5) Nicholas-Applegate Capital Management
600 West Broadway
San Diego, California 92130
(Sub-Adviser)
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<PAGE> 321
ITEM 29. MANAGEMENT SERVICES.
None.
ITEM 30. UNDERTAKINGS.
Not Applicable.
C-7
<PAGE> 322
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. 13 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of San
Diego, and State of California on the 30th day of November, 1999.
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 November 30, 1999
___________________________ (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>
C-8
<PAGE> 323
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
* Trustee
- ---------------------------
(Russell K. Okata)
* Trustee
- ---------------------------
(Oswald K. Stender)
*/s/ IRIMGA MCKAY Trustee November 30, 1999
- ---------------------------
(Irimga McKay, Attorney-in-Fact)
</TABLE>
C-9
<PAGE> 324
EXHIBIT INDEX
PACIFIC CAPITAL FUNDS
Post-Effective Amendment No. 12 to
Form N-1A Registration Statement
(d-4) Sub-Advisory Agreement among the Registrant, Pacific Century
Trust and CMG First State (Hong Kong) LLC [New Asia Growth Fund]
(d-6) Sub-Advisory Agreement among the Registrant, Pacific Century
Trust and Nicholas-Applegate Capital Management [Small Cap Fund]
(j) Consent of Independent Auditors
C-10
<PAGE> 1
Exhibit 99(d-4)
SUB-ADVISORY AGREEMENT
PACIFIC CAPITAL NEW ASIA GROWTH FUND
AGREEMENT is made as of July 19, 1999 among Pacific Capital Funds (the
"Trust"), Pacific Century Trust (the "Adviser"), and CMG First State (Hong Kong)
LLC ("Sub-Adviser").
WHEREAS, the "Trust" is registered as an open-end diversified management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act");
WHEREAS, the Adviser has been appointed investment adviser to the Trust's
Pacific Capital New Asia Growth Fund, (the "Fund"); and
WHEREAS, the Adviser desires to retain Sub-Adviser to assist in the
provision of a continuous investment program for the Fund and Sub-Adviser is
willing to do so;
WHEREAS, the Board of Trustees of the Trust has approved this Agreement,
and Sub-Adviser is willing to furnish such services upon the terms and
conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Adviser hereby appoints Sub-Adviser to act as
sub-adviser to the Fund as permitted by the Adviser's Advisory Agreement with
the Trust pertaining to the Fund. Intending to be legally bound, Sub-Adviser
accepts such appointment and agrees to render the services herein set forth for
the compensation herein provided.
2. Sub-Advisory Services. Subject to the supervision of the Trust's Board
of Trustees, Sub-Adviser will assist the Adviser in providing a continuous
investment program with respect to the foreign component of the Fund's
portfolio, including investment research and management with respect to all
foreign securities and investments and cash equivalents in the Fund. Sub-Adviser
will provide services under this Agreement in accordance with the Fund's
investment objective, policies and restrictions as stated in the Funds'
prospectus and resolutions of the Trust's Board of Trustees applicable to the
Fund.
Without limiting the generality of the foregoing, Sub-Adviser further
agrees that it:
(a) will prepare, subject to the Adviser's approval, lists of foreign
countries for investment by the Fund and determine from time to time what
securities and other investments will be purchased, retained or sold for
the Fund, including, with the assistance of the Adviser, the Fund's
investments in futures and forward currency contracts;
(b) will manage in consultation with the Adviser the Fund's temporary
investments in securities;
(c) will place orders pursuant to its investment determinations for the
Fund either directly with the issuer or with any broker or dealer;
-0-
<PAGE> 2
(d) will not purchase shares of the Fund for itself or for accounts
with respect to which it exercises sole investment discretion in connection
with such transactions except as permitted by the Trust's Board of Trustees
or by federal, state and local law;
(e) will manage the Fund's overall cash position, and determine from
time to time what portion of the Funds' 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 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;
(h) will evaluate the systemic risks of holding the Fund's assets in
various countries, including without limitation their financial
infrastructures, prevailing custody and settlement practices, risks of
nationalization and other governmental actions, regulation of banking and
securities industries, currency controls and restrictions, market
conditions which may affect the orderly execution of securities
transactions or affect the value of such transactions, and the use of
depositories required by law or regulation or prevailing market practices;
and
(i) will maintain books and records with respect to the securities
transactions for the Fund, furnish to the Adviser and the Trust's Board of
Trustees such periodic and special reports as they may request with respect
to the Fund, and provide in advance to the Adviser all reports to the Board
of Trustees for examination and review within a reasonable time prior to
the Trust's Board meetings.
3. Covenants by Sub-Adviser. Sub-Adviser agrees with respect to the
services provided to the Fund that it:
(a) will conform with all Rules and Regulations of the Securities and
Exchange Commission;
(b) will telecopy trade information to the Adviser on the first
business day following the day of the trade and cause broker confirmations
to be sent directly to the Adviser; and
(c) will treat confidentially and as proprietary information of the
Trust all records and other information relative to the Trust and prior,
present or potential shareholders, and will not use such records and
information for any purpose other than 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,
-1-
<PAGE> 3
including other investment companies, except that Sub-Adviser shall not provide
primary advisory or sub-advisory services of any nature to any registered
investment company (a) that has an investment objective or style substantially
similar to that of the Pacific Capital New Asia Growth Fund ("an Asia Fund") and
(b) that offers its shares (or any class thereof) in Hawaii, California, Guam or
Arizona. Notwithstanding the prohibited services described in the immediately
preceding sentence, in the event that Sub-Adviser wishes to advise or sub-advise
another Asia Fund, it shall notify the Adviser and the Trust of such desire and,
following such notification, the Adviser, Sub-Adviser and the Trust shall
negotiate in good faith (for at least 30 days prior to any notice of termination
submitted arising from a disagreement on this prohibition), a modification to
this prohibition that will allow Sub-Adviser to provide services to another Asia
Fund, such that the economic and other interests of the Adviser, Sub-Adviser and
the Trust are adequately addressed or (ii) limit or restrict Sub-Adviser from
buying, selling or trading any securities or other investments (including any
securities or other investments which the Fund is eligible to buy) for its or
their own accounts or for the accounts of others for whom it or they may be
acting; provided, however, that Sub-Adviser agrees that it will not undertake
any activities which will adversely affect the performance of its obligations to
the Fund under this Agreement.
5. Portfolio Transactions. Investment decisions for the Fund shall be made
by Sub-Adviser independently from those for any other investment companies and
accounts advised or managed by Sub-Adviser. The Fund and such investment
companies and accounts may, however, invest in the same securities. When a
purchase or sale of the same security is made at substantially the same time on
behalf of the Fund and/or another investment company or account, the transaction
will be averaged as to price, and available investments allocated as to amount,
in a manner which Sub-Adviser believes to be equitable to the Fund and such
other investment company or account. In some instances, this investment
procedure may adversely affect the price paid or received by the Fund or the
size of the position obtained or sold by the Fund. To the extent permitted by
law, Sub-Adviser may aggregate the securities to be sold or purchased for the
Fund with those to be sold or purchased for other investment companies or
accounts in order to obtain best execution.
Sub-Adviser shall place orders for the purchase and sale of portfolio
securities and shall solicit broker-dealers to execute transactions in
accordance with the Fund's policies and restrictions regarding brokerage
allocations. Sub-Adviser shall place orders pursuant to its investment
determination for the Fund either directly with the issuer or with any broker or
dealer selected by Sub-Adviser. In executing portfolio transactions and
selecting brokers or dealers, Sub-Adviser shall use its reasonable best efforts
to seek the most favorable execution of orders, after taking into account all
factors Sub-Adviser deems relevant, including the breadth of the market in the
security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission, if
any, both for the specific transaction and on a continuing basis. Consistent
with this obligation, Sub-Adviser may, to the extent permitted by law, purchase
and sell portfolio securities to and from brokers and dealers who provide
brokerage and research services (within the meaning of Section 28(e) of the
Securities Exchange Act of 1934) to or for the benefit of the Fund and/or other
accounts over which Sub-Adviser or any of its affiliates exercises investment
discretion. Sub-Adviser is authorized to pay to a broker or dealer who provides
such brokerage and research services a commission for executing a portfolio
transaction for the Fund which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if
Sub-Adviser determines in good faith that such commission was reasonable in
relation to the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either
-2-
<PAGE> 4
that particular transaction or Sub-Adviser's overall responsibilities to the
Fund and to the Trust. In no instance will portfolio securities be purchased
from or sold to Sub-Adviser, or the Fund's principal underwriter, or any
affiliated person thereof except as permitted by the rules of the Securities and
Exchange Commission.
6. Books and Records. In compliance with the requirements of Rule 31a-3
under the 1940 Act, Sub-Adviser hereby agrees that all records which it
maintains for the Trust are the property of the Trust and further agrees to
surrender promptly to the Trust any of such records upon the Trust's request.
Sub-Adviser further agrees to preserve for the periods prescribed by Rule 31a-2
under the 1940 Act the records required to be maintained by Rule 31a-1 under the
1940 Act.
7. Expenses. During the term of this Agreement, Sub-Adviser will pay all
expenses incurred by it in connection with its activities under this Agreement
other than the cost of securities, commodities and other investments (including
brokerage commissions and other transaction charges, if any) purchased for the
Fund.
8. Compensation. For the services provided and the expenses assumed with
respect to the Fund pursuant to this Agreement, the Sub-Adviser shall be
entitled to a fee, computed daily and payable quarterly, from Adviser,
calculated at the annual rate of 0.50% of the Fund's average daily net assets.
9. Standard of Care; Limitation of Liability. Sub-Adviser shall exercise
due care and diligence and use the same skill and care in providing its services
hereunder as it uses in providing services to other investment companies, but
shall not be liable for any action taken or 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 the Adviser shall make reference to or use the name of Sub-Adviser or
any of its affiliates, or any of their clients, except references concerning the
identity of and services provided by Sub-Adviser to the Fund, which references
shall not differ in substance from those included in the current registration
statement pertaining to the Fund, this Agreement and the Advisory Agreement
between the Adviser and the Trust with respect to the Fund, in any advertising
or promotional materials without the prior approval of Sub-Adviser, which
approval shall not be unreasonably withheld or delayed. The Adviser hereby
agrees to make all reasonable efforts to cause the Fund and any affiliate
thereof to satisfy the foregoing obligation.
11. Duration and Termination. This Agreement shall terminate on November
15, 1999 unless it has been approved by a majority of the Fund's shareholders.
If so approved, then unless sooner terminated, this Agreement shall continue
until the second anniversary hereof and thereafter shall continue automatically
for successive annual periods, provided such continuance is specifically
approved at least annually by the Trust's Board of Trustees or vote of a
majority of the Fund's shareholders, 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. As used herein, a "majority" of the
Fund's shareholders means 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
-3-
<PAGE> 5
or (b) more than 50% of the outstanding shares of the Fund. This Agreement is
terminable at any time without penalty, on 60 days' notice, by Adviser, by
Sub-Adviser, by the Trust's Board of Trustees, or by vote of a majority of the
Fund's shareholders. This Agreement shall terminate automatically in the event
of its assignment (as defined in the 1940 Act).
12. Amendment of This Agreement. No provision of Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought. No amendment of this Agreement shall be effective with
respect to the Fund until approved by the vote of (i) a majority of the
outstanding voting securities of the Fund and (ii) a majority of the
Disinterested Trustees cast in person at a meeting called for the purpose of
voting on such approval.
13. Notice. Any notice, advise or report to be given pursuant to this
Agreement shall be delivered or mailed:
To Sub-Adviser at:
CMG First State (Hong Kong) LLC
-------------------------------
3 Exchange Square, Room 604-6
8 Connaught Place Central
Hong Kong
To the Adviser at:
Pacific Century Trust
---------------------
111 S. King Street
Honolulu, Hawaii 96813
To the Trust at:
Pacific Capital Funds
---------------------
c/o BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219-3035
14. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement shall not be
affected thereby.
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and shall be governed by the laws
of the Commonwealth of Massachusetts applicable to contracts made and to be
performed therein.
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.
-4-
<PAGE> 6
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 the
Trust entered into in the name or on behalf hereof by any of the Trustees,
representatives or agents are made not individually, but in such capacities, and
are not binding upon any of the Trustees, shareholders or representatives of the
Trust personally, but bind only the assets of the Trust and all persons dealing
with any series of shares of the Trust must look solely to the assets of the
Trust belonging to such series for the enforcement of any claims against such
series.
-5-
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed by their officers designated below as of the day and year first
above-written.
PACIFIC CENTURY TRUST
By: /s/ William J. Barton
-------------------------------------
Name: William J. Barton
-----------------------------------
Title: Senior Vice President
----------------------------------
CMG FIRST STATE (HONG KONG) LLC
By: /s/ Waring T.D.T
-------------------------------------
Name: Waring T.D.T
-----------------------------------
Title: CEO Asia
----------------------------------
PACIFIC CAPITAL FUNDS
By: /s/
-------------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
-6-
<PAGE> 1
Exhibit 99(d-6)
SUB-ADVISORY AGREEMENT
PACIFIC CAPITAL INTERNATIONAL STOCK FUND AND PACIFIC CAPITAL SMALL CAP FUND
AGREEMENT made as of December 1, 1998 between Pacific Century Trust, a
division of Bank of Hawaii (the "Adviser"), and Nicholas Applegate Capital
Management, a California limited partnership ("Sub-Adviser").
WHEREAS, Pacific Capital Funds (the "Trust") is registered as an
open-end, diversified management investment company under the Investment Company
Act of 1940, as amended (the "1940 Act");
WHEREAS, the Adviser has been appointed investment adviser to the
Trust's Pacific Capital International Stock Fund and Pacific Capital Small Cap
Fund (each a "Fund" and collectively the "Funds");
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; and
WHEREAS, the Board of Trustees of the Trust and each Fund's sole
shareholder has approved this Agreement, and Sub-Adviser is willing to furnish
such services upon the terms and conditions herein set forth;
NOW THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT. The Adviser hereby appoints Sub-Adviser to act as
sub-adviser to each of the Funds as permitted by the Adviser's Advisory
Agreement with the Trust pertaining to the Funds. 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 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 each Fund's investment objectives, policies and restrictions
as stated in the Fund's prospectus and resolutions of the Trust's Board of
Trustees applicable to the Fund.
<PAGE> 2
Without limiting the generality of the foregoing, Sub-Adviser further
agrees that it will, with respect to each of the Funds:
(a) determine from time to time what securities and other investments
will be purchased, retained or sold for the Fund;
(b) manage in consultation with the Adviser the Fund's temporary
investments in securities;
(c) place orders pursuant to its investment determinations for the
Fund either directly with the issuer or with any broker or dealer;
(d) not purchase shares of the Fund for itself or for accounts with
respect to which it exercises sole investment discretion in connection with such
transactions except as permitted by the Trust's board of Trustees or by
federal, state and local law;
(e) manage the Fund's overall cash position, and determine from time
to time what portion of the Fund's assets will be held in different currencies;
(f) 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) 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) maintain books and records with respect to the securities
transactions for the Fund, furnish to the Adviser and the Trust's Board of
Trustees such periodic and special reports as they may request with respect to
the Fund, and provide in advance to the Adviser all reports to the Board of
Trustees for examination and review within a reasonable time prior to the
Trust's Board meetings.
3. COVENANTS BY SUB-ADVISER. Sub-Adviser agrees with respect to the
services provided to each of the Funds that it will:
(a) conform with all Rules and Regulations of the Securities and
Exchange Commission;
-2-
<PAGE> 3
(b) 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) 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 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, or (ii) limit or restrict Sub-Adviser from buying, selling
or trading any securities or other investments (including any securities or
other investments which the Funds are 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 the Funds under this Agreement.
5. PORTFOLIO TRANSACTIONS. Investment decision for each of the Funds
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 either of the Funds 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 a Fund. To the extent
permitted by law, Sub-Adviser may aggregate the securities to be sold or
purchased for a Fund with those to be sold or purchased for the other Fund or
other investment companies or accounts in order to obtain best execution
-3-
<PAGE> 4
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 transactions and selecting brokers or
dealers, Sub-Adviser shall use its reasonable best efforts to seek the most
favorable execution of orders, after taking into account all factors Sub-Adviser
deems relevant, including the breadth of the market in the security, the price
of the security, the financial condition and execution capability of the broker
or dealer, and the reasonableness of the commission, if any, both for the
specific transaction and on a continuing basis.
Consistent with this obligation, Sub-Adviser may, to the extent
permitted by law, purchase and sell portfolio securities to and from brokers and
dealers who provide brokerage and research services (within the meaning of
Section 28(e) of the Securities Exchange Act of 1934) to or for the benefit of
the 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 a 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 for the periods prescribed by Rule 31a-2
under the 1940 Act the records required to be maintained by Rule 31a-1 under the
1940 Act.
7. EXPENSES. During the term of this Agreement, Sub-Adviser will pay
all expenses incurred by it in connection with its activities under this
Agreement other than the cost of securities, commodities and other investments
(including brokerage commissions and other transaction charges, if any)
purchased for the Funds.
-4-
<PAGE> 5
8. COMPENSATION. For the services provided and the expenses assumed
with respect to each of the Funds pursuant to this Agreement, the Sub-Adviser
will be entitled to a fee, computed daily and payable quarterly, from Adviser,
calculated at the annual rate of 0.65% on the first $50 million of the Fund's
average daily net assets and 0.60% on average daily net assets in excess of $50
million for Pacific Capital International Stock Fund and 0.60% on the first $50
million of the Fund's average daily net assets and 0.55% on average daily net
assets in excess of $50 million for Pacific Capital Small Stock Fund.
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 Funds and any affiliate thereof to satisfy
the foregoing obligation.
11. DURATION AND TERMINATION. Unless sooner terminated, with respect to
each Fund, this Agreement shall continue with respect to each Fund until
November 30, 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
at any time without penalty, with respect to either Fund, 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
-5-
<PAGE> 6
more than 50% of the outstanding shares of the Fund are present in person or by
proxy, or (b) more than 50% of the outstanding shares of the Fund. This
Agreement will terminate automatically in the event of its assignment (as
defined in the 1940 Act).
12. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be
changed, waived, discharged or terminated with respect to either Fund orally,
but only by an instrument in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is sought. No
amendment of this Agreement shall be effective with respect to either Fund until
approved by the vote of both (i) a majority of the outstanding voting securities
of the Fund, and (ii) a majority of the Disinterested Trustees cast in person at
a meeting called for the purpose of voting on such approval.
13. NOTICE. Any notice, advice or report to be given pursuant to this
Agreement shall be delivered or mailed:
TO SUB-ADVISER AT:
Nicholas Applegate Capital Management
600 West Broadway, 29th Floor
San Diego, California 92101
Attention: General Counsel
TO THE ADVISER AT:
Pacific Century Trust
111 South King Street
Honolulu, Hawaii 96813
Attention: Mr. Craig Warren
TO THE TRUST AT:
c/o BISYS Fund Services
3435 Stelzer Road
Columbus, Ohio 43219-3035
14. MISCELLANEOUS. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If any
provision of this Agreement shall be
-6-
<PAGE> 7
held or made invalid by a court decision, statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and shall be governed by the
laws of the Commonwealth of Massachusetts.
15. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
16. PERSONAL LIABILITY. The names "Pacific Capital Funds" and
"Trustees" refer respectively to the Trust created and to the Trustees, as
trustees but not individually or personally, acting from time to time under an
Agreement and Declaration of Trust dated as of October 30, 1992 to which
reference is hereby made and a copy of which is on file at the office of the
Secretary of State of The Commonwealth of Massachusetts and elsewhere as
required by law, and to any and all amendments thereto so filed or hereafter
filed. The obligations of "Pacific Capital Funds" entered into in the name or on
behalf hereof by any of the Trustees, representatives or agents are made not
individually, but in such capacities, and are not binding upon any of the
Trustees, shareholders or representatives of the Trust personally, but bind only
the assets of the Trust and all persons dealing with any series of shares of
the Trust must look solely to the assets of the Trust belonging to such series
for the enforcement of any claims against the Trust.
-7-
<PAGE> 8
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.
PACIFIC CENTURY TRUST
By: William J. Barton
---------------------------
Name: William J. Barton
---------------------------
Title: Senior Vice President
---------------------------
NICHOLAS APPLEGATE CAPITAL
MANAGEMENT
By: E. Blake Moore, Jr.
---------------------------
Name: E. Blake Moore, Jr.
---------------------------
Title: General Counsel
---------------------------
-8-
<PAGE> 1
Exhibit (j-1)
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" in the prospectus and under the captions "Independent Auditors and
Counsel" and "Financial Information" in the Statement of Additional Information,
both included in Post-Effective Amendment No. 15 to the Registration Statement
(Form N-1A No. 811-7454) of Pacific Capital Funds and to the use of our report
dated September 10, 1999, incorporated therein by reference.
ERNST & YOUNG LLP
Columbus, Ohio
November 30, 1999
