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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/ / Pre-Effective Amendment No.__ / / Post-Effective Amendment No.__
NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS
(Exact Name of Registrant as Specified in Charter)
600 West Broadway
San Diego, California 92101
(Address of Principal Executive Offices)
(619) 652-5422
(Registrant's Area Code and Telephone Number)
Charles H. Field, Jr.
C/O Nicholas-Applegate Capital Management
600 West Broadway, 32nd Floor
San Diego, California 92101
(Name and Address Of Agent For Service)
Copy To:
Deborah A. Wussow
C/O Nicholas-Applegate Capital Management
600 West Broadway, 32nd Floor
San Diego, California 92101
Approximate Date of Proposed Public Offering: as soon as practicable after
this Registration Statement becomes effective under the Securities Act of 1933.
The title of securities being registered is common stock, par value $0.01 per
share.
It is proposed that this filing will go effective on October 21, 2005
pursuant to Rule 461(a) under the Securities Act of 1933 as amended.
No filing fee is required because of Registrant's reliance on Section 24(f)
under the Investment Company Act of 1940, as amended.
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NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS
Form N-14
Cross Reference Sheet
Pursuant to Rule 481(a) Under the Securities Act of 1933
The Registration Statement consists of the following papers and documents:
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<Caption>
FORM N-14
ITEM NO. PROSPECTUS/PROXY STATEMENT CAPTION
- ----------- ---------------------------------------------------
PART A
Item 1. Beginning of Registration Cover Page of Registration Statement; Cross
Statement and Outside Front Reference Sheet; Front Cover Page of Proxy
Cover Page of Prospectus Statement/Prospectus
Item 2. Beginning and Outside Back Cover Cover Page
Page of Prospectus
Item 3. Fee Table, Synopsis Information Synopsis
and Risk Factors
Item 4. Information About the Transaction Letter to Shareholders; Questions and Answers;
Synopsis; Proposed Reorganization; Reasons for the
Reorganization
Item 5. Information About the Registrant Letter to Shareholders; Questions and Answers;
Synopsis; Proposed Reorganization; Reasons for
the Reorganization; Additional Information About
the Acquiring Fund
Item 6. Information About the Fund Being Letter to Shareholders; Questions and Answers;
Acquired Synopsis; Proposed Reorganization; Reasons for the
Reorganization; Additional Information about
Acquiring Fund
Item 7. Voting Information Letter to Shareholders; Questions and Answers;
Cover Page; Voting Information
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Item 8. Interest of Certain Persons and Not Applicable
Experts
Item 9. Additional Information Required Not Applicable
for Reoffering By Persons Deemed
to be Underwriters
PART B
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. Additional Information About Statement of Additional Information of
Registrant Nicholas-Applegate Institutional Funds dated July
30, 2004 incorporated herein by reference (1); Statement of
Additional Information
Item 13. Additional Information About the Statement of Additional Information of
Fund Being Acquired Nicholas-Applegate International All-Cap Growth
Fund dated July 30, 2004 (SEC Accession
No. 0001047469-05-022381) incorporated herein by
reference (1); Statement of Additional Information
Item 14. Financial Statements Annual Report of Nicholas-Applegate International
All-Cap Growth Fund dated March 31, 2005
incorporated herein by reference and Pro Forma
Financial Statement dated March 31, 2005
PART C
Item 15. Indemnification
Item 16. Exhibits
Item 17. Undertakings
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Dear Shareholder:
I invite you to attend a Special Meeting of Shareholders of The
Nicholas-Applegate International All-Cap Growth Fund (the "Fund") to be held on
Friday, November 18, 2005, at 10:00 a.m. The meeting will be held at the offices
of the Fund, 615 East Michigan Street, 3rd Floor, Milwaukee, Wisconsin.
The accompanying Combined Proxy Statement/Prospectus contains an important
proposal for your consideration as a shareholder of the Fund. Your Board of
Trustees has proposed that the Fund, formerly the Duncan-Hurst International
Fund, be merged into a newly created portfolio of Nicholas-Applegate
Institutional Funds using the same name, the Nicholas-Applegate International
All-Cap Growth Fund (the "Acquiring Fund"). If approved by the shareholders,
substantially all of the assets and liabilities of the Fund will be exchanged
for shares of the Acquiring Fund as more fully described in the accompanying
Notice and Combined Proxy Statement/Prospectus.
THE BOARD OF TRUSTEES OF THE FUND BELIEVES THE PROPOSED REORGANIZATION WILL
BE IN THE BEST INTERESTS OF SHAREHOLDERS OF THE FUND. ACCORDINGLY, THE BOARD OF
TRUSTEES STRONGLY URGES YOU TO VOTE FOR THE PROPOSED REORGANIZATION. THE
REORGANZATION WILL BE EFFECTED ONLY IF APPROVED BY A MAJORITY OF THE FUND'S
OUTSTANDING SHARES VOTED IN PERSON OR REPRESENTED BY PROXY.
The enclosed materials provide more information about the proposed
reorganization.
Your vote is important. We urge you to complete, SIGN AND RETURN THE
ENCLOSED PROXY VOTING CARD so that your shares will be represented. EVERYTHING
YOU NEED IS ENCLOSED. By promptly returning the proxy card, you help avoid the
necessity and expense of follow-up mailings and telephone solicitations to
assure a quorum. If you later decide to attend the meeting, you may revoke your
proxy and vote your shares in person. If you have any questions, please call us
at 1-800-558-9105.
Sincerely,
Robert M. Slotky
President
The Nicholas-Applegate International All-Cap Growth Fund
Dated October 21, 2005
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WHAT YOU SHOULD KNOW ABOUT THE PROPOSED REORGANIZATION
Nicholas-Applegate Capital Management LLC ("Nicholas-Applegate") and the
Board of Trustees of the Professionally Managed Portfolios encourage you to read
the enclosed Prospectus/Proxy Statement carefully. The following is designed to
provide a brief overview of the proposal and answer some questions you may have
about this shareholder vote.
WHAT IS THE PURPOSE OF THE SHAREHOLDER VOTE?
The vote is to determine whether the Nicholas-Applegate International
All-Cap Growth Fund, a series of the Professionally Managed Portfolios (the
"Acquired Fund") should be reorganized and merged into a newly created portfolio
of the Nicholas-Applegate Institutional Funds using the same name (the
"Acquiring Fund"). If the Acquired Fund's shareholders decide in favor of the
proposal, you will become a shareholder of the Acquiring Fund, and the Acquired
Fund will cease to exist.
WHAT IS THE RATIONALE FOR MERGING THE ACQUIRED FUND AND THE ACQUIRING FUND?
On June 30, 2005, Nicholas-Applegate and Duncan-Hurst Capital Management
entered into a purchase agreement pursuant to which Nicholas-Applegate acquired
the rights to manage the international assets previously managed by Duncan-Hurst
Capital Management, which included the assets of the Acquired Fund. The
acquisition by Nicholas-Applegate of the rights to manage Duncan-Hurst Capital
management's international assets was mutually agreed upon by each company to
enhance Nicholas-Applegate's international equity capabilities while
Duncan-Hurst Capital Management will continue to focus on its core strength in
the management of U.S. growth equities. Nicholas-Applegate and Duncan-Hurst
Capital Management each share a similar heritage of growth stock investing and
trace their roots back to pacific Century Advisers, a subsidiary of Security
Pacific Bank. Both companies received financial benefits from this agreement. In
connection with the acquisition, the Board named Nicholas-Applegate as interim
adviser to the Acquired Fund effective July 1, 2005 through November 28, 2005.
Nicholas-Applegate also manages the Nicholas-Applegate Institutional Funds, an
investment company with 13 separate portfolios registered under the Investment
Company Act of 1940. Nicholas-Applegate seeks to bring the Acquired Fund into
Nicholas-Applegate Institutional Funds to be marketed under its brand name and
to its institutional clients through an affiliated distributor,
Nicholas-Applegate Securities, LLC.
WHAT ARE THE ADVANTAGES OF MERGING THESE FUNDS?
There are several key potential advantages:
- It is anticipated that the Acquiring Fund will likely have a better
opportunity to raise asset levels if it can be marketed under the
Nicholas-Applegate name to its institutional clients.
- Higher asset levels may lead to lower expense ratios over time. It is
anticipated that merging the Acquired Fund into the Acquiring Fund
will lower annual operating expenses.
- These lower costs may lead to stronger performance, since total return
to a Fund's shareholders is net of Fund expenses for the Acquired Fund
shareholders.
The potential benefits and possible disadvantages of merging the Funds are
explained in more detail in the enclosed proxy statement.
HOW ARE THESE FUNDS ALIKE?
The two Funds are substantially similar in terms of investment objectives,
policies, and strategies. Each Fund seeks long-term capital appreciation by
investing primarily in equity securities of issuers located in at least three
countries but typically in as many as fifteen to twenty-five countries outside
the United States. The Acquiring Fund will be managed by the same portfolio
management team of Vincent Willyard, CFA, Joseph Devine, and Barry Kendall.
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WHAT HAPPENS IF SHAREHOLDERS DECIDE IN FAVOR OF A REORGANIZATION?
Acquired Fund shareholders will receive full and fractional Class I shares
of the Acquiring Fund equal in value to their shares that they owned on the
effective date of the reorganization.
IF THE FUNDS MERGE, WILL THERE BE TAX CONSEQUENCES FOR YOU?
Unlike a transaction in which you direct Nicholas-Applegate to sell shares
of one fund to buy shares of another, an exchange of shares pursuant to a
reorganization is not considered a taxable event. The Funds themselves also will
recognize no gains or losses as a result of a reorganization, except with
respect to the Acquired Fund's assets that are sold in connection with its
reorganization. Accordingly, you will not have to report any capital gains due
to a reorganization, although you may receive a distribution of ordinary income
and/or capital gains immediately before its reorganization to the extent that
the Acquired Fund has undistributed income and/or gains.
You should consult your tax advisor regarding any possible effect a
reorganization might have on your tax situation, given your personal
circumstances -- particularly regarding state and local taxes.
WHO WILL PAY FOR THE REORGANIZATION?
The expenses of the reorganization, including legal expenses, printing,
packaging, and postage, plus the costs of any supplementary solicitation, will
be borne by Nicholas-Applegate.
WHAT DOES THE BOARD RECOMMEND?
The Board believes you should vote in favor of the reorganization. More
importantly, however, the Board recommends that you study the issues involved,
call us with any questions, and vote promptly to ensure that a quorum will be
represented at the Meeting.
WHERE CAN I GET MORE INFORMATION ABOUT THE ACQUIRING FUND?
We hope this Q&A has helped you better understand why we are making this
proposal. If you have any questions, we encourage you to call us at
1-800-558-9105.
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PROFESSIONALLY MANAGED PORTFOLIOS
ON BEHALF OF
THE NICHOLAS-APPLEGATE INTERNATIONAL ALL-CAP GROWTH FUND
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of the
Nicholas-Applegate International All-Cap Growth Fund (the "Fund"), formerly the
Duncan-Hurst International Fund, will be held at 615 East Michigan Street, 3rd
Floor, Milwaukee, Wisconsin on Friday, November 18, 2005, at 10:00 a.m., Eastern
time to consider and act on the proposal noted below and to transact such other
business as may properly come before the Special Meeting or any adjournments of
the Special Meeting.
ITEM 1. To approve or disapprove an Agreement and Plan of
Reorganization by and between the Professionally Managed Portfolios on
behalf of the Fund and the Nicholas-Applegate Institutional Funds on
behalf of the Nicholas-Applegate International All-Cap Growth Fund
(which has the same name as the Fund, but is a different entity), and
the transactions contemplated thereby.
ITEM 2. To transact other business that properly comes before the
Meeting or any adjournment thereof.
The reorganization proposal is described in the accompanying
Prospectus/Proxy Statement.
Only shareholders of record at the close of business on October __, 2005,
the record date for this Special Meeting, shall be entitled to vote at the
Special Meeting or any adjournments of the Special Meeting.
YOUR VOTE IS IMPORTANT.
PLEASE RETURN YOUR PROXY CARD PROMPTLY.
AS A SHAREHOLDER OF THE FUND, YOU ARE ASKED TO ATTEND THE SPECIAL MEETING
EITHER IN PERSON OR BY PROXY. IF YOU ARE UNABLE TO ATTEND THE SPECIAL MEETING IN
PERSON, WE URGE YOU TO COMPLETE, SIGN, DATE, AND RETURN THE ENCLOSED PROXY CARD
IN THE ENCLOSED POSTAGE PREPAID ENVELOPE. YOUR PROMPT RETURN OF THE PROXY CARD
WILL HELP ASSURE A QUORUM AT THE SPECIAL MEETING AND AVOID ADDITIONAL EXPENSES
ASSOCIATED WITH FURTHER SOLICITATION. SENDING IN YOUR PROXY WILL NOT PREVENT YOU
FROM VOTING YOUR SHARES IN PERSON AT THE SPECIAL MEETING AND YOU MAY REVOKE YOUR
PROXY BY ADVISING THE SECRETARY OF THE PROFESSIONALLY MANAGED PORTFOLIOS IN
WRITING (BY SUBSEQUENT PROXY OR OTHERWISE) OF SUCH REVOCATION AT ANY TIME BEFORE
IT IS VOTED.
By Order of the Board of Trustees,
Chad E. Fickett
SECRETARY
Professionally Managed Portfolios
Milwaukee, Wisconsin
October 21, 2005
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TRANSFER OF ASSETS OF
NICHOLAS-APPLEGATE INTERNATIONAL ALL-CAP GROWTH FUND
(FORMERLY THE DUNCAN-HURST INTERNATIONAL FUND)
(A SERIES OF THE PROFESSIONALLY MANAGED PORTFOLIOS)
TO AND IN EXCHANGE FOR SHARES OF
NICHOLAS-APPLEGATE INTERNATIONAL ALL-CAP GROWTH FUND
(A SERIES OF THE NICHOLAS-APPLEGATE INSTITUTIOAL FUNDS)
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COMBINED PROXY STATEMENT AND PROSPECTUS
DATED OCTOBER 21, 2005
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SPECIAL MEETING OF SHAREHOLDERS TO BE HELD FRIDAY, NOVEMBER 18, 2005
This Combined Proxy Statement and Prospectus ("Statement") is furnished in
connection with the solicitation of proxies by the Board of Trustees of the
Professionally Managed Portfolios for the Special Meeting of Shareholders (the
"Special Meeting") of the Nicholas-Applegate International All-Cap Fund
(formerly the Duncan Hurst International Fund) (the "Fund") to be held on
Friday, November 18, 2005, at 10:00 a.m., Eastern time. The meeting will be held
at the offices of Fund, 615 East Michigan Street, 3rd Floor, Milwaukee,
Wisconsin 53202.
As more fully described in this Statement, the purpose of the Special
Meeting is to vote on a proposed Agreement and Plan of Reorganization (the
"Reorganization"). In the Reorganization, the Nicholas-Applegate International
All-Cap Growth Fund, a newly created portfolio of the Nicholas-Applegate
Institutional Funds (the "Acquiring Fund") will acquire substantially all of the
assets of the Nicholas-Applegate International All-Cap Growth Fund, a portfolio
of the Professionally Managed Portfolios (the "Acquired Fund"), in exchange
solely for its shares and the assumption of all of the Acquired Fund's
liabilities, followed by the distribution of those shares to the Acquired Fund's
shareholders. As a result, each of the Acquired Fund's shareholders will receive
a number of full and fractional Class I shares of the Acquiring Fund having an
aggregate value that on effective date of the Reorganization is equal to the
aggregate value of the shareholder's Acquired Fund's shares. As soon as
practicable following the distribution of the Acquiring Fund's Class I shares,
the Acquired Fund will be terminated.
This Statement sets forth concisely the information that shareholders of
the Acquired Fund should know before voting on the Reorganization. This
Statement should be retained for future reference. A copy of the Agreement and
Plan of Reorganization is attached to this Statement as Exhibit A and is
incorporated herein by reference.
A Prospectus for the Acquired Fund (SEC File #811-05037), dated July 29,
2005, was previously provided to shareholders. Additional information
concerning the Acquiring Fund is set forth in the Statement of Additional
Information which accompanies this Statement, and additional information
concerning the Acquired Fund is set forth in the Prospectus and Statement of
Additional Information (SEC File #811-05037) dated July 29, 2005, on file
with the Securities and Exchange Commission, and is available without charge
upon oral or written request by writing or calling The Professionally Managed
Portfolios at the address and telephone numbers listed under the section
"Additional Information About Each Fund". The Securities and Exchange
Commission maintains a website at http:\\www.sec.gov that contains the
Prospectuses, Statements of Additional Information, material incorporated by
reference and other information regarding The Professionally Managed
Portfolios and other registrants that file electronically with the Securities
and Exchange Commission. The information contained in the Prospectus and
Statements of Additional Information is incorporated into this Statement by
reference.
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The Notice, this Statement, and the accompanying proxy card are expected to
first be sent to shareholders of the Acquired Funds on or about October __,
2005.
THE SHARES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT ARE NOT DEPOSITS OR
OBLIGATIONS OF ANY BANK, ARE NOT ENDORSED OR GUARNATEED BY ANY BANK, AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT
RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED ON THE ACCURACY OR ADEQUACY OF THIS STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS STATEMENT AND IN THE
MATERIALS EXPRESSLY INCORPORATED HEREIN BY REFERENCE AND, IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED ON AS HAVING BEEN
AUTHORIZED BY THE PROFESSIONALLY MANAGED PORTFOLIOS OR NICHOLAS-APPLEGATE
INSTITUTIONAL FUNDS, OR THEIR RESPECTIVE INVESTMENT ADVISERS OR DISTRIBUTORS.
VOTE REQUIRED: EACH PROPOSAL MUST BE APPROVED BY THE AFFIRMATIVE VOTE OF A
MAJORITY OF THE OUTSTANDING SHARES OF THE ACQUIRED FUND.
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TABLE OF CONTENTS
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<Caption>
PAGE
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SYNOPSIS 5
Proposed Reorganization 5
Reasons for Reorganization 6
Investment Adviser 6
Federal Income Tax Consequences 6
COMPARISON OF THE ACQUIRED FUNDS AND THE ACQUIRING FUNDS 6
Principal Investments 6
Principal Risk Considerations 7
Comparative Fee Table 8
Purchase and Redemption Information, Exchange Privileges
Distributions and Pricing
MORE INFORMATION ABOUT THE ACQUIRING FUND 10
VOTING ITEMS -- THE AGREEMENT AND PLAN OF REORGANIZATION 26
Description of the Reorganization Agreement 26
Reasons for the Reorganization 26
Securities to Be Issued 28
Federal Income Tax Consequences 28
CAPITALIZATION 28
GENERAL INFORMATION 28
Information Relating to Voting Matters 28
Outstanding Shares 29
Shareholder and Board Approvals 29
Quorum 29
ADDITIONAL INFORMATION ABOUT EACH FUND 30
The Trusts: Massachusetts Business Trust versus Delaware Business Trust 30
Liability of Shareholders 30
Election of Trustees; Shareholder Meetings 31
Voting Rights of Shareholders 31
Principal Underwriters 31
For More Information 31
OTHER BUSINESS 32
SHAREHOLDER INQUIRIES 32
EXHIBIT A: Agreement and Plan of Reorganization A-1
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SYNOPSIS
The following is a summary of certain background information relating to
the proposed Reorganization, the parties thereto and the transactions
contemplated thereby, and is qualified by reference to the more complete
information contained elsewhere in this Statement, the Prospectus, Statement
of Additional Information, Annual and Semi-Annual Reports of the Acquired
Fund and the Agreement and Plan of Reorganization.
At a meeting held on June 13, 2005, the Board of Trustees of the Acquired
Fund (the "Board") approved Nicholas-Applegate Capital Management
("Nicholas-Applegate") as the interim adviser to the Acquired Fund, effective
from July 1, 2005 through November 28, 2005, to replace Duncan Hurst Capital
Management ("Duncan Hurst"), who had resigned as investment adviser of the
Acquired Fund following the transfer of its international assets to
Nicholas-Applegate. Nicholas-Applegate is also the investment adviser of the
Nicholas-Applegate Institutional Funds, a registered investment company whose
thirteen portfolios Nicholas-Applegate markets primarily to institutional
investors. The Acquiring Fund is a portfolio of the Nicholas-Applegate
Institutional Funds. At a meeting held on August 12, 2005 of the Board,
Nicholas-Applegate asked the Board to approve an Agreement and Plan of
Reorganization ("Reorganization"), subject to shareholder ratification, whereby
the Acquired Fund and the Acquiring Fund would merge. At that meeting, the Board
unanimously approved the Reorganization.
The investment objectives, investment policies and restrictions of the
Acquired Fund and the Acquiring Fund (collectively, the "Funds") are
substantially similar. Both Funds seek long-term capital appreciation by
investing primarily in a diversified portfolio of equity and equity-related
securities of companies located in developed non-U.S. markets. Under normal
market conditions the Acquired Fund and the Acquiring Fund will invest 80% of
their total net assets in equity and equity-related securities of issuers
located in a number of different countries, typically as many as fifteen to
twenty-five countries outside the United States. The Acquired Fund and
Acquiring Fund invest in companies of any size, from larger, well-established
companies to smaller emerging growth companies. The Acquiring Fund may also
lend portfolio securities on a short-term basis, up to 30% of its asset
whereas the Acquired Fund does not lend portfolio securities. Both Funds
share similar portfolio turnover between 100-150%. The investment objectives
of either Fund may not be changed without a vote of the holders of a
majority of the outstanding shares of the Funds.
Shares of the Acquired Fund are sold on a 100% no-load basis, meaning
that such shares may be purchased, redeemed, or exchanged at their net asset
value without payment of a sales charge. In addition, the Acquired Fund does
not charge Rule 12b-1 fees but does impose a redemption fee of 2.00% on
shares held less than four months. Acquiring Fund shares will be soled on a
100% no-load basis and do not charge Rule 12b-1 fees. The Acquiring Fund will
not impose a redemption fee. The purchase price for shares of the Acquired
Fund and the Acquiring Fund is the net asset value next determined after the
Acquiring Fund receives the shareholder's request in proper form. Please note
that Acquiring Fund shares may be exchanged for shares in any of the other
portfolios of the Nicholas-Applegate Institutional Funds.
PROPOSED REORGANIZATION
Based on their evaluation of the relevant information presented to them,
and in light of their fiduciary duties under federal and state law, the Board,
including all of Trustees who are not "interested persons" of the Acquired Fund,
as that term is defined in the Investment Company Act of 1940, as amended ("1940
Act") ("Independent Trustees"), have determined that the proposed Reorganization
is in the best interests of the shareholders of the Acquired Fund. The Board
recommends the approval of the Reorganization Agreement and related transactions
by the shareholders of the Acquired Fund at the Special Meeting.
Subject to shareholder approval, the Reorganization provides for: (a) the
transfer to the Acquiring Fund of substantially all of the property, assets,
liabilities and goodwill of the Acquired Fund (the "Acquired Fund Net Assets")
in exchange for Class I shares of the Acquiring Fund equal in value ("Acquiring
Fund Shares") to the Acquired Fund Net Assets; (b) the distribution of Acquiring
Fund Shares to the shareholders of the Acquired Fund in liquidation of the
Acquired Fund; and (c) the cancellation of all outstanding Acquired Fund Shares.
5
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As a result of the proposed Reorganization, each shareholder of the
Acquired Fund will become a shareholder of the Acquiring Fund and will hold,
upon consummation of the Reorganization, Acquiring Fund Shares having a net
asset value equal to the net asset value of the Acquired Fund Shares held by the
shareholder immediately before consummation of the Reorganization. Acquiring
Fund offers shares in Class I, Class II, Class III and Class IV; however, only
Class I is involved in this Reorganization.
For further information, see the discussion below on whether to approve or
disapprove the Reorganization, which includes a description of the Agreement and
Plan of Reorganization Agreement.
REASONS FOR THE REORGANIZATION
In light of certain potential benefits and other factors, the Board
including the Independent Trustees, determined that it is in the best interests
of the Acquired Fund and its shareholders to reorganize into the Acquiring Fund.
In making that determination, the Board of Trustees considered various issues,
as described more fully under "Reasons for the Reorganization."
The Board believes that the Reorganization with respect to the Acquired
Fund in most cases will: (a) provide Acquired Fund shareholders with an
investment fund that has the same investment adviser and investment objective,
and substantially similar investment policies, restrictions, and investment
strategies as the Acquired Fund; (b) provide Acquired Fund shareholders with
overall expense ratios that are more favorable than those of the Acquired Fund;
(c) provide Acquired Fund shareholders with an opportunity to be invested in a
fund that has the potential to achieve better economies of scale by being
marketed under the Nicholas-Applegate name and to the institutional clients of
Nicholas-Applegate and (d) provide Acquired Fund shareholders with a fund that
affords greater investment opportunities by allowing no-load exchange privileges
with other funds of the Nicholas-Applegate Institutional Funds.
The Board also considered the reasonably likely risks and disadvantages of
the Reorganization and determined that the Reorganization is likely to provide
benefits to the Acquired Fund and their shareholders that outweigh any possible
risks and disadvantages of the Reorganization. Finally, the Board concluded that
there are no reasonably significant risks or disadvantages to the Acquired Fund
or its shareholders from the Reorganization and that the interests of the
Acquired Fund's shareholders would not be diluted.
Similarly, the Board of Trustees of Nicholas-Applegate Institutional Funds,
in approving the Reorganization, determined that it would be advantageous for
its current shareholders to acquire the Acquired Fund Net Assets in exchange for
the Acquiring Fund Shares and that the interests of the Acquiring Fund's
existing shareholders would not be diluted.
INVESTMENT ADVISER
Nicholas-Applegate, 600 West Broadway, San Diego, California 92101 is the
investment adviser to the Acquiring Fund and the interim investment manager to
the Acquired Fund. After consummation of the Reorganization, Nicholas-Applegate
would continue to manage the Acquiring Fund, which would include assets from the
Acquired Fund. As of June 30, 2005 Nicholas-Applegate had approximately $14
billion under management.
FEDERAL INCOME TAX CONSEQUENCES
Counsel for this transaction will issue an opinion as of the Closing Date
to the effect that the Reorganization will not give rise to the recognition of
income, gain, or loss for federal income tax purposes to the Acquired Fund, the
Acquiring Fund, or their respective shareholders. See the discussion below on
whether to approve or disapprove the Reorganization, which includes a
description of the Reorganization Agreement.
COMPARISON OF THE ACQUIRED FUND AND THE ACQUIRING FUND
PRINCIPAL INVESTMENTS
The Acquired Fund is a series of the Professionally Managed Portfolios, a
Massachusetts business trust. The Acquiring Fund is a newly created series of
Nicholas-Applegate Institutional Funds, which is a Delaware business trust. The
Acquiring Fund has no performance history.
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Nicholas-Applegate intends to manage the Acquiring Fund in a
substantially similar investment style to that of the Acquired Fund. The
objective of both Funds is to seek long-term capital growth by investing in a
diversified portfolio of equity securities of companies located in developed
markets outside the United States. This objective for each Fund cannot be
changed without shareholder approval. Both Funds invest at least 80% of their
total net assets in equity securities of companies in a number of different
countries, typically as many as fifteen to twenty five outside the United
States. Under normal circumstances, the Funds invest a minimum of 65% of their
total net assets in equity securities of companies in as few as three, but
typically invests in as many as fifteen to twenty five countries outside the
United States. Both the Acquired Fund and the Acquiring Funds invest in
companies of any size from larger, well-established companies to smaller,
emerging growth companies. The Acquiring Fund may also lend portfolio
securities on a short-term basis, up to 30% of its total assets whereas the
Acquired Fund does not.
Nicholas-Applegate will continue to conduct individual company analysis on
a group of companies that meet its standards of positive change, sustainability
and timeliness. It will continue to identify companies experiencing accelerating
earnings, rising relative price strength and positive company fundamentals.
Nicholas-Applegate will continue to focus on a "bottom-up" analysis of
individual companies worldwide as well as a "top down" analysis to identify the
most attractive sectors and countries for investment.
The Acquired Fund and Acquiring Fund may invest in companies in
lesser-developed countries, in various depositary receipts traded on domestic
and foreign exchanges, as well as foreign securities traded in the U.S.
markets.
Vincent Willyard, CFA, will continue to be the lead portfolio manager for
the Acquiring Fund. Mr. Willyard has served as the portfolio manager of the
Acquired Fund since its inception and was employed by Duncan-Hurst Capital
Management as an investment professional since 1994.
PRINCIPAL RISK CONSIDERATIONS
The permitted investments of the Acquired Fund and the Acquiring Fund
are substantially similar. The following is an overview of the principal
risks involved in investing in the Acquiring Fund which are substantially
similar to an investment in the Acquired Fund.
- STOCK MARKET VOLATILITY -- The prices of equity securities change in
response to many factors, including the historical and prospective
earnings of the issuer, the value of its assets, general economic
conditions, interest rates, investor perceptions, domestic and worldwide
political events and market liquidity. Stock prices are unpredictable,
may fall suddenly and continue to fall for extended periods.
- NON-U.S. SECURITIES RISKS -- The prices of non-U.S. securities may be
further affected by other factors, including
CURRENCY EXCHANGE RATES -- The dollar value of the Acquiring
Fund's non-U.S. investments will be affected by changes in the
exchange rates between the U.S. dollar and the currencies in
which those investments are traded.
POLITICAL AND ECONOMIC CONDITIONS -- The value of the Acquiring
Fund's non-U.S. investments may be adversely affected by
political and social instability in their home countries and by
changes in economic and taxation policies in those countries.
REGULATIONS -- Non U.S. companies generally are subject to less
stringent regulations, including financial and accounting
controls, than are U.S. companies. As a result, there generally
is less publicly available information about non-U.S. companies
than about U.S. companies.
MARKETS -- The securities markets of other countries are smaller
than U.S. securities markets. As a result, many non U.S.
securities may be less liquid and their prices may be more
volatile than U.S. securities.
7
<Page>
EMERGING SECURITIES MARKETS -- To the extent that the Acquiring
Fund invests in countries with emerging markets, the non-U.S.
securities risks are magnified since these countries may have
unstable governments and less established markets.
- SMALLER ISSUERS -- Investments in small-capitalization companies
entails greater risk because these companies may have unproven track
records, limited product or service base, limited access to capital and
may be more likely to fail than larger more established companies.
Information regarding smaller companies may be less available,
incomplete or inaccurate, and their securities may trades less
frequently than those of larger companies.
- SECURITIES LENDING -- There is the risk that when lending portfolio
securities, the securities may not be available to the Acquiring Fund on
a timely basis and the Acquiring Fund may, therefore, lose the
opportunity to sell the securities at a desirable price.
- ACTIVE PORTFOLIO TRADING -- A high portfolio turnover rate has the
potential to generate more taxable short-term gains that may be taxed as
ordinary income and may have an adverse effect on the Fund's after tax
performance.
- EMERGING SECURITIES MARKETS -- To the extent that the Fund invests in
countries with emerging markets, the non-U.S. securities risks are
magnified since these countries may have unstable governments and less
established markets.
COMPARATIVE FEE TABLE
The following table sets forth the current fees and expenses of the
Acquired Fund as of March 31, 2005, and the projected expenses of the Acquiring
Fund. Excluding extraordinary expenses, the current fees and expenses of the
Acquiring Fund are expected to remain unchanged as a result of the
Reorganization.
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS)
FEES AND EXPENSES
The following table describes the fees and expenses that you may pay if you
buy and hold Class I shares of the Fund.
<Table>
<Caption>
ACQUIRING FUND
SHAREHOLDER FEE ACQUIRED FUND PRO FORMA
- --------------- ------------- --------------
Maximum sales charge imposed on Purchases None None
Maximum deferred sales load None None
Redemption Fee (as a percentage of the amount redeemed) 2.00%* None
</Table>
* The redemption fee applies only to those shares that an investor held for
four months or less. The fee is payable to the Acquired Fund and is
intended to benefit the remaining shareholders by reducing the costs of
short-term trading. The Acquired Fund's transfer agent also charges a $15
redemption fee.
<Table>
<Caption>
ANNUAL FUND OPERATING EXPENSES
- ------------------------------
Investment Management Fee 1.25% 0.95%
Other Expenses 0.77% 0.56%
Administrative Services None 0.15%
Shareholder Service Fees None 0.15%
Total Annual Fund Operating Expenses 2.02% 1.81%
Less Waiver/Reimbursement - 0.54% - 0.56%
NET ANNUAL FUND OPERATING EXPENSES 1.48%* 1.25%**
</Table>
8
<Page>
The Acquiring Fund has arrangements with its brokers, custodians, and third
party service providers whereby commissions paid by the Acquiring Fund, interest
earned on cash maintained with its custodian and income from securities lending
arrangements are used to reduce Acquiring Fund expenses and offset fees. These
arrangements will have no effect on the amount of fees that Nicholas-Applegate
must waive or expenses that it must otherwise reimburse under the Expense
Limitation Agreement through November 2006. If these expense reductions and fee
offsets are taken into account, "Total Annual Fund Operating Expenses" and "Net
Expenses" would be as follows:
<Table>
<Caption>
TOTAL ANNUAL FUND OPERATING EXPENSES NET EXPENSES
------------------------------------ ------------
1.56% 1.00%
</Table>
** Duncan-Hurst has contractually agreed to limit the Acquired Fund's total
expenses by reducing all or a portion of their fees and reimbursing the
Fund for expenses, excluding interest and tax expense, so that its ratio of
expenses to average net assets will not exceed 1.48%. Any reduction in
advisory fees of payment of expenses made by Duncan-Hurst Capital
Management is subject to reimbursement by the Acquired Fund if requested by
Duncan-Hurst in subsequent fiscal years where total fund operating expenses
fall below the Acquired Fund's expense cap. Duncan-Hurst may recoup
reimbursements anytime before the end of the third fiscal year following
the year to which the fee waiver and or expense absorption relates.
* Nicholas-Applegate has contractually agreed to waive or defer its
management fees and to absorb other operating expenses otherwise payable
through November 30, 2006 by the Acquiring Fund so that Total Annual
Operating Expenses of the Acquiring Fund do not exceed 1.25%.
Nicholas-Applegate reserves the right under certain circumstances to be
reimbursed for any waiver of its fees or expenses paid on behalf of the
Acquiring Fund if the Acquiring Fund's expenses are less than 1.25%.
Nicholas-Applegate may not amend the fee waiver agreement without the
consent of the Acquired Fund Board of Trustees.
EXAMPLE OF EFFECT OF FUND EXPENSES
The following Example is intended to help you compare the cost of investing
the Acquiring Fund assuming Acquired Fund shareholders approve the
Reorganization.
An investor in the Acquired Fund or the Acquiring Fund would pay the
following expenses on a $10,000 investment, assuming (1) 5% annual return, (2)
investment for the time periods indicated (3) reinvestment of all dividends and
other distributions, (4) the Fund's operating expenses are the same and (5)
redemption of all shares at the end of the following periods. Although your
actual costs may be higher or lower, based on these assumptions, your costs
would be:
<Table>
<Caption>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
-------- ----------- ---------- ---------
ACQUIRED FUND:
Professionally Managed Portfolios
International All-Cap Growth Fund $ 155 $ 612 $ 1,115 $ 2,611
ACQUIRING FUND:
Nicholas-Applegate Institutional Funds
International All-Cap Growth Fund $ 131 $ 540 $ 991 $ 2,332
</Table>
The example above does not take into account any offset arrangements that
the Acquiring Fund will enter into with its brokers, custodians, and third party
service providers. If these offset credits described were applied to the above
example, your cost for the 1, 3, 5 and 10-year periods would be as follows:
<Table>
ACQUIRING FUND:
Nicholas-Applegate Institutional Funds
International All-Cap Growth Fund $ 105 $ 458 $ 846 $ 2,001
</Table>
9
<Page>
PERFORMANCE INFORMATION
The Acquiring Fund is a new fund and has no prior performance and will adopt
the performance history of the Acquired Fund. The bar chart and the
performance table below provide some indication of the risks of an investment
in the Acquired Fund and compares the Acquired Fund's performance with a
broad measure of market performance. Of course, the Acquired Fund's past
performance does not necessarily represent how the Acquiring Fund will
perform in the future.*+
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 2004
<Table>
<Caption>
Fund
Date Plotpoints
- ----------------------------------
30-Jun-99 250,000.00
31-JUL-99 250,080.00
31-AUG-99 250,135.77
30-SEP-99 250,185.54
31-OCT-99 250,408.71
30-NOV-99 251,171.46
31-DEC-99 251,744.88
31-JAN-00 251,826.70
29-FEB-00 252,581.17
31-MAR-00 252,201.29
30-APR-00 251,806.59
31-MAY-00 251,626.80
30-JUN-00 251,791.87
31-JUL-00 251,682.09
31-AUG-00 251,786.54
30-SEP-00 251,646.54
31-OCT-00 251,435.41
30-NOV-00 251,164.36
31-DEC-00 250,372.95
31-JAN-01 250,279.81
28-FEB-01 250,058.81
31-MAR-01 249,798.50
30-APR-01 249,903.16
31-MAY-01 249,870.68
30-JUN-01 249,772.23
31-JUL-01 249,628.61
31-AUG-01 249,541.74
30-SEP-01 249,222.82
31-OCT-01 249,334.48
30-NOV-01 249,527.96
31-DEC-01 249,550.92
31-JAN-02 249,498.01
28-FEB-02 249,459.34
31-MAR-02 249,616.50
30-APR-02 249,572.07
31-MAY-02 249,602.26
30-JUN-02 249,531.63
31-JUL-02 249,233.19
31-AUG-02 249,176.86
30-SEP-02 248,959.33
31-OCT-02 248,978.75
30-NOV-02 249,060.66
31-DEC-02 248,925.17
31-JAN-03 248,880.62
28-FEB-03 248,840.30
31-MAR-03 248,824.87
30-APR-03 249,107.53
31-MAY-03 249,297.10
30-JUN-03 249,344.47
31-JUL-03 249,471.14
31-AUG-03 249,619.82
30-SEP-03 249,680.48
31-OCT-03 249,887.96
30-NOV-03 249,860.48
31-DEC-03 250,023.14
31-JAN-04 250,110.89
29-FEB-04 250,132.90
31-MAR-04 250,182.68
30-APR-04 250,100.12
31-MAY-04 250,059.10
30-JUN-04 250,094.36
31-JUL-04 249,986.82
30-AUG-04 249,986.82
30-SEP-04 250,082.82
31-OCT-04 250,140.09
30-NOV-04 250,361.21
31-DEC-04 250,449.59
</Table>
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 2004
* The Fund's year-to-date return as of September 30, 2005 was 7.38%.
During the period shown in the bar chart, the Fund's highest quarterly
return was 74.54% for the quarter ended December 31, 1999 and the
lowest quarterly return was -44.02% for the quarter ended
December 31, 2000.
+ The investment return and principal value of an investment will
fluctuate, so an investor's shares, when redeemed, may be worth more or
less than their original cost. All performance results reflect any
applicable expense subsidies and waivers in effect during the periods
shown; without these, the results would have been lower.
<Table>
<Caption>
SINCE
ONE YEAR FIVE YEAR INCEPTION(1)
----------- --------- ------------
NICHOLAS-APPLEGATE INTERNATIONAL ALL-CAP GROWTH FUND
("ACQUIRED FUND")
Return Before Taxes 17.66% -6.45% 5.54%
Return After Taxes on Distributions (2) 17.59% -9.02% 2.90%
Return After Taxes on Distributions and Sale of Fund Shares (2)(3) 11.58% -6.84% 3.15%
MSCI EAFE INDEX (4) 20.25% -1.13% 2.63%
</Table>
(1) Class I shares of the Acquired Fund commenced operations on June 30, 1999.
(2) After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state
and local taxes. Actual after-tax returns depend on your situation and may
differ from those shown. Furthermore, the after-tax returns shown are not
relevant to those who hold their shares through tax-deferred arrangements
such as 401(k) plans or IRAs.
(3) The "Return After Taxes on Distributions and Sale of Fund Shares" may be
higher than other return figures because it assumes that a shareholder has
sufficient capital gains of the same character from other investments to
offset any capital losses from the redemption so that the taxpayer may
deduct the capital losses in full.
(4) The Morgan Stanley Capital International, Inc. (MSCI) EAFE Index is an
unmanaged, broad-based market index of selected companies in 21 developed
countries. The figures above reflect all dividends reinvested but do not
reflect any deductions for fees, expenses, or taxes.
PURCHASES
The purchase, redemption, and exchange privileges for the Acquiring Fund
and the Acquired Fund are similar in many respects but there are some
differences. Shares of the Acquired Fund and the Acquiring Fund are sold on a
continuous basis at the net asset value per share ("NAV") next computed after
receipt of a purchase order in good form. The NAV of both Funds is determined
each day that the New York Stock Exchange is open as of the close of regular
trading. Shares of both Funds may be purchased by wire transfer, telephone
exchange, or check by mail. The minimum initial investment in the Acquiring Fund
is $250,000 and the minimum subsequent investment is $10,000; the minimum
initial investment in the Acquired Fund is $25,000 and the minimum subsequent
investment is $1,000. However, the minimum investment requirements for the
Acquiring Fund will be waived for existing shareholders of the Acquired Fund who
transfer their accounts(s) to the Acquiring Fund as a part of the
Reorganization. Moreover, the minimum investment requirements for the Acquiring
Fund may be waived for purchases of shares made by current or retired trustees,
members, officers, and employees of the Nicholas-Applegate Institutional Funds,
Nicholas-Applegate Securities, LLC, Nicholas-Applegate, and its
10
<Page>
affiliates, certain family members of the above persons, and trusts or plans
primarily for such persons or former employees thereof.
REDEMPTIONS
Shares of both Funds may be redeemed at the option of shareholders by wire
transfer, telephone exchange, or check by mail. Redemptions are made at the NAV
per share next determined after a request in proper form is received at the
offices of each Fund. However, the Acquired Fund imposes a 2% redemption fee on
shares redeemed within four months of purchase. If shares of the Acquiring Fund
are purchased with a check that has not yet cleared, payment will be delayed
until after the check has cleared. The maximum amount that may be redeemed by
phone from the Acquiring Fund is $50,000. Both Funds reserve the right to make
payment wholly or partly in securities with a market value equal to the
redemption price.
EXCHANGES
Shares of the Acquiring Fund may be exchanged on any business day for
shares of any other available fund within the Nicholas-Applegate Institutional
Funds at the NAV next determined after a request in proper form is received at
the offices of the Acquiring Fund. Shares of the Acquired Fund have no exchange
privileges with any other fund managed by Nicholas-Applegate.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund earns investment income in the form of dividends and interest on
investments. Each Fund pays dividends based solely on its investment income.
Each Fund's policy is to annually distribute most or all of its net earnings in
the form of dividends to its shareholders, at the discretion of each Fund's
respective Board. Dividends are automatically reinvested in additional shares of
the distributing Fund at the NAV per share on the payable date unless otherwise
requested.
Each Fund also realizes capital gains and losses when it sells securities
for more or less than it paid. If a Fund's total gains on these sales exceed
total losses thereon (including losses carried forward from previous years), the
Fund has net capital gains. Net realized capital gains, if any, are distributed
to each Fund's shareholders at least annually, usually in November or December.
Capital gain distributions are automatically reinvested in additional shares of
the distributing Fund on the payable date unless otherwise requested.
Dividends received from each Fund are generally taxable. Dividends from
each Fund's long-term capital gains, determined by the length of time the
Fund held an asset rather than the length of time a shareholder holds share
of the Fund, are taxable as capital gains. Dividends from other sources are
generally taxable as ordinary income.
MORE INFORMATION ABOUT THE ACQUIRING FUND
11
<Page>
GOAL AND PRINCIPAL STRATEGY
The Fund seeks maximum long-term capital appreciation. In pursuing this goal,
the Fund invests in a diversified portfolio of equity securities of companies
primarily located in developed non-U.S. markets.
The Investment Adviser conducts "bottom-up" individual company analysis on a
group of companies that meet the Investment Adviser's standards. It identifies
companies experiencing accelerating earnings, rising relative price strength and
positive company fundamentals. A "top-down" analysis is conducted to confirm the
results of "bottom-up" scrutiny, and help identify the most attractive sectors
and countries for investment. The resulting portfolio is invested in companies
with above average earnings growth and positioned in strong growth areas,
typically in as many as fifteen to twenty-five countries outside of the U.S. The
Fund will invest in companies of any size from larger, well-established
companies to smaller, emerging growth companies, and may invest in companies in
lesser-developed countries.
The Fund may also lend portfolio securities on a short-term basis, up to 30% of
its total assets.
The Fund may invest in various Depositary Receipts traded on domestic and
foreign exchanges, as well as foreign securities traded on the U.S. securities
market. The Fund may also invest up to 15% of its net assets in equity-linked
securities, also known as participation notes, equity swaps, and zero strike
calls and warrants.
[GRAPHIC]
PRINCIPAL INVESTMENTS
The Fund normally invests at least 75% of its net assets in common stocks. Under
normal conditions, the Fund invests at least 80% of its net assets in the
securities of companies that are tied economically to a number of different
countries throughout the world. The Fund's investments are not limited with
respect to the capitalization size of issuers. The Fund will provide
shareholders with at least 60 days' prior notice of any change in this
investment policy. The Fund may invest up to 20% of its assets in U.S.
companies.
[GRAPHIC]
PRIMARY RISKS
Because you could lose money by investing in the Fund, be sure to read all risk
disclosures carefully before investing. The Fund is primarily subject to the
following risks:
- - Stock Market Volatility--The prices of equity securities change in response
to many factors, including the historical and prospective earnings of the
issuer, its market capitalization, the value of its assets, general economic
conditions, interest rates, investor perceptions, domestic and worldwide
political events, and market liquidity. Stock prices are unpredictable, may
fall suddenly and may continue to fall for extended periods.
- - SMALLER ISSUERS--Investments in small-capitalization companies entails
greater risk because these companies may have unproven track records,
limited product or service base, limited access to capital and may be more
likely to fail than larger more established companies. Information
regarding smaller companies may be less available, incomplete or inaccurate,
and their securities may trade less frequently than those of larger
companies.
- - NON-U.S. SECURITIES RISKS--The prices of non-U.S. securities may be further
affected by other factors, including:
CURRENCY EXCHANGE RATES--The dollar value of the Fund's non-U.S.
investments will be affected by changes in the exchange rates between the
dollar and the currencies in which those investments are traded.
POLITICAL AND ECONOMIC CONDITIONS--The value of the Fund's non-U.S.
investments may be adversely affected by political and social instability
in their home countries and by changes in economic or taxation policies in
those countries.
REGULATIONS--Non-U.S. companies generally are subject to less stringent
regulations, including financial and accounting controls, than are U.S.
companies. As a result, there generally is less publicly available
information about non-U.S. companies than about U.S. companies.
MARKETS--The securities markets of other countries are smaller than U.S.
securities markets. As a result, many non-U.S. securities may be less
liquid and their prices may be more volatile than U.S. securities.
EMERGING SECURITIES MARKETS--To the extent that the Fund invests in
countries with emerging markets, the non-U.S. securities risks are
magnified since these countries may have unstable governments and
less established markets.
- - SECURITIES LENDING--There is the risk that when lending portfolio
securities, the securities may not be available to the Fund on a timely
basis and the Fund may, therefore, lose the opportunity to sell the
securities at a desirable price.
- - ACTIVE PORTFOLIO TRADING--A high portfolio turnover rate has the potential
to generate more taxable short-term gains that may be taxed as ordinary
income and may have an adverse effect on the Fund's after tax performance.
- - EQUITY-LINKED SECURITIES--Investments in equity-linked securities
carry the additional risk of counterparty default. In the event of
insolvency of the other party, the Fund might be unable to obtain its
expected benefit. There can be no assurance that the Fund will be able
to close out such a transaction with the other party or obtain an
offsetting position with any other party, at any time prior to the end
of the term of the underlying agreement. This may impair the Fund's ability
to enter into other transactions at a time when doing so might be
advantageous.
See "Principal Strategies, Risks and Other Information" starting on page 12.
[GRAPHIC]
PAST PERFORMANCE
The Fund is a new fund and does not yet have a full calendar year of
performance.
12
<Page>
[GRAPHIC]
INVESTOR FEES AND EXPENSES
As an investor, you pay certain fees and expenses in connection with the Fund,
which are described in the table below. Annual Fund Operating Expense are paid
out of the Fund assets, so their effect is included in the share price. The Fund
has no sales charge (load) or 12b-1 distribution fees.
<Table>
<Caption>
CLASS I
Management fee 0.95%
Distribution fee (12b-1 fee) None
Other expenses+ 0.86%
Administrative Services Fee 0.15%
Shareholder Services Fee 0.15%
Total Annual Fund Operating Expenses 1.81%
Waiver of Fund Expenses 0.56%
NET EXPENSES 1.25%
</Table>
+ THE FUND'S "OTHER EXPENSES" ARE ESTIMATED AMOUNTS FOR THE CURRENT FISCAL YEAR.
THE FUND REDUCES EXPENSES BY A PORTION OF THE BROKERAGE COMMISSIONS PAID BY IT
AND BY OFFSETS TO CUSTODIAL AND OTHER FEES BASED UPON THE AMOUNT OF SECURITIES
LENT TO THIRD PARTIES AND CASH MAINTAINED WITH ITS CUSTODIAN. IF THESE EXPENSE
REDUCTIONS AND FEE OFFSETS ARE TAKEN INTO ACCOUNT, "TOTAL ANNUAL FUND OPERATING
EXPENSES" AND "NET EXPENSES" WOULD BE 1.56% AND 1.00%, RESPECTIVELY.
THE INVESTMENT ADVISER HAS CONTRACTUALLY AGREED TO WAIVE ITS MANAGEMENT FEES AND
TO REIMBURSE OTHER OPERATING EXPENSES OTHERWISE PAYABLE BY THE FUND THROUGH
3/31/06. THE INVESTMENT ADVISER MAY NOT AMEND THE FEE WAIVER AGREEMENT WITHOUT
THE CONSENT OF THE FUND. SEE "EXPENSE WAIVERS" ON PAGE (UPDATE).
THE FOLLOWING EXAMPLE IS INTENDED TO HELP YOU COMPARE THE COST OF INVESTING IN
THE FUND WITH THE COST OF INVESTING IN OTHER MUTUAL FUNDS. THE EXAMPLE ASSUMES
THAT YOU INVEST $10,000 IN THE FUND'S SHARES FOR THE TIME PERIODS INDICATED AND
REDEEM ALL OF YOUR SHARES AT THE END OF THOSE PERIODS. THE EXAMPLE ALSO ASSUMES
THAT YOUR INVESTMENT HAS A 5% RETURN EACH YEAR AND THAT THE FUND'S OPERATING
EXPENSES ARE AFTER WAIVERS, IF ANY, FOR THE 1 YEAR PERIOD AND BEFORE WAIVERS, IF
ANY, FOR THE OTHER PERIODS SHOWN. ALTHOUGH YOUR ACTUAL COSTS MAY BE HIGHER OR
LOWER, BASED ON THESE ASSUMPTIONS YOUR COSTS FOR THE 1 AND 3 YEAR PERIODS
WOULD BE $131 AND $540, RESPECTIVELY.
THE EXAMPLE ABOVE DOES NOT TAKE INTO ACCOUNT ANY OFFSET ARRANGEMENTS THAT THE
FUND WILL ENTER INTO WITH ITS BROKERS, CUSTODIANS AND THIRD PARTY SERVICE
PROVIDERS. IF THE OFFSET CREDITS DESCRIBED WERE APPLIED TO THE ABOVE EXAMPLE,
YOUR COST FOR THE 1 AND 3 YEAR PERIODS WOULD BE $105 AND $458, RESPECTIVELY.
13
<Page>
SIMPLIFIED ACCOUNT INFORMATION
<Table>
<Caption>
OPENING AN ACCOUNT
This is the minimum initial Class I $ 250,000
investment
Use this type of New Account Form or IRA Application
application
Before completing the The Fund offers a variety of features, which are described
application in the "Your Account" section of this prospectus. Please
read this section before completing the application.
Completing the If you need assistance, contact your financial
application representative, or call us at (800) 551-8043.
If you are sending money by CHECK Mail application and check, payable to: Nicholas-Applegate
Institutional Funds, PO Box 480, Milwaukee, WI 53201-0480
Express mail to: UMBFS, 803 West Michigan Street, Milwaukee,
WI 53233-2301 c/o Nicholas-Applegate. The Trust will not
accept third-party checks.
If you are sending money by BANK Please read the bank wire or ACH section under the "Buying
WIRE or ACH Shares" section below. You will need to obtain an account
number by sending a completed application to:
Nicholas-Applegate Institutional Funds, PO Box 480,
Milwaukee, WI 53201-0480 Express mail to: UMBFS, 803 West
Michigan Street, Milwaukee, WI 53233-2301. To receive your
account number, contact your financial representative or
call us at (800) 551-8043.
</Table>
<Table>
<Caption>
BUYING SHARES
The price you will receive The Fund is open on days that the New York Stock
Exchange is open. All transactions received in good order
before the market closes (normally 4:00 p.m. Eastern time)
receive that day's NAV.
Instruct your bank to wire the amount you wish to invest to:
UMB Bank, N.A.
Kansas City, MO
ABA# 101000695
For credit to: Nicholas-Applegate Institutional Funds
If you are sending money Account# 9871062937
by BANK WIRE For further credit to:
Investor Account #
Name or Account Registration
SSN or TIN
Identify International All Cap Growth Fund
Call your bank to ensure (1) that your bank supports ACH,
and (2) this feature is active on your bank account. To
If you are sending money establish this option, either complete the appropriate
by ACH sections when opening an account, contact your financial
representative, or call us at (800) 551-8043 for further
information. To initiate an ACH purchase, call the Trust -
at (800) 551-8043.
As part of a Fund's responsibility for the prevention of
Anti-Money Laundering money laundering, each Fund may require a detailed
Regulations verification of a shareholder's identity, any beneficial
owner underlying the account and the source of the payment.
</Table>
14
<Page>
<Table>
<Caption>
EXCHANGING SHARES
This is the minimum Class I $ 250,000
exchange amount to open
a new account
The Fund is open on days that the New York Stock Exchange is
open. All transactions received in good order before the
The price you will receive market closes (normally 4:00 p.m. Eastern time) receive that
day's NAV. Redemption proceeds normally are wired or mailed
within one business day after receiving a request in proper
form. Payment may be delayed up to seven days.
The exchange must be to an account with the same
registration. If you intend to keep money in the Fund you
are exchanging from, make sure that you leave an amount
Things you should know equal to or greater than the Fund's minimum account size
(see the "Opening an Account" section). To protect other
investors, the Trust may limit the number of exchanges you
can make.
Contact your financial representative, or call us at (800)
How to request an 551-8043. The Fund will accept a request by phone if this
exchange by PHONE feature was previously established on your account. See the
"Your Account" section for further information.
Please put your exchange request in writing, including: the
name on the account, the name of the Fund and the account
How to request an number you are exchanging from, the shares or dollar amount
exchange by MAIL you wish to exchange, and the Fund you wish to exchange to.
Mail this request to: Nicholas-Applegate Institutional
Funds, PO Box 480, Milwaukee, WI 53201-0480 Express mail to:
UMBFS, 803 West Michigan Street, Milwaukee, WI 53233-2301.
</Table>
<Table>
<Caption>
SELLING OR REDEEMING SHARES
IN WRITING BY PHONE
Selling shares by phone is a
service option which must be
established on your account
prior to making a request. See
the "Your Account" section, or
Certain requests may require contact your financial
a signature guarantee. See representative, or call the
Things you should know the next section for further Trust at (800) 551-8043 for
information. You may sell up further information. The
to the full account value. maximum amount which may be
requested by phone, regardless
of account size, is $50,000.
Amounts greater than that must
be requested in writing. If
you wish to receive your
monies by bank wire, the
minimum request is $5,000.
If you purchased shares through a financial representative
or plan administrator/sponsor, you should call them
regarding the most efficient way to sell shares. If you
bought shares recently by check, payment may be delayed
until the check clears, which may take up to 15 calendar
days from the date of purchase. Sales by a corporation,
trust or fiduciary may have special requirements. Please
contact your financial representative, a plan
administrator/sponsor or us for further information.
</Table>
15
<Page>
<Table>
<Caption>
SELLING OR REDEEMING SHARES
IN WRITING BY PHONE
The Fund is open on days that the New York Stock Exchange is
The price you will receive open. All transactions received in good order before the
market closes (normally 4:00 p.m. Eastern time) receive that
day's NAV.
Please put your request in
writing, including: the name
of the account owners,
account number and Fund you
are redeeming from, and the
share or dollar amount you
wish to sell, signed by all
account owners. Mail this Contact your financial
If you want to receive request to: representative, or call us at
your monies by BANK WIRE NICHOLAS-APPLEGATE (800) 551-8043. The proceeds
INSTITUTIONAL FUNDS, will be sent to the existing
PO BOX 480, MILWAUKEE, bank wire address listed on
WI 53201-0480. the account.
Express mail to: UMBFS,
803 West Michigan Street,
Milwaukee, WI 53233-2301.
The proceeds will be sent to
the existing bank wire
address listed on the
account.
Contact your financial
representative, or call us at
(800) 551-8043. The proceeds
will be sent in accordance
If you want to receive Please call us at with the existing ACH
your monies by ACH (800) 551-8043. instructions on the account
and will generally be received
at your bank two business days
after your request is received
in good order.
The Fund intends to pay in cash for all shares redeemed, but
the Fund reserves the right to make payment wholly or partly
in shares of readily marketable investment securities. When
the Fund makes a redemption in kind, a shareholder may incur
brokerage costs in converting such securities to cash and
assumes the market risk during the time required to convert
Redemption in Kind the securities to cash. The Fund has elected to be governed
by the provisions of Rule 18f-1 under the Investment Company
Act, pursuant to which it is obligated to pay in cash all
requests for redemptions by any shareholder of record,
limited in amount with respect to each shareholder during
any 90-day period to the lesser of $250,000 or 1% of the net
asset value of the Fund at the beginning of such period.
</Table>
<Table>
<Caption>
SIGNATURE GUARANTEES
A signature guarantee from a financial institution is
required to verify the authenticity of an individual's
A definition signature. Signature guarantees must be issued by a
participant in a medallion program endorsed by the
Securities Transfer Association. Approved programs currently
include STAMP, SEMP and MSP.
A signature guarantee is needed when making a written
request for the following reasons:
1. When selling more than $50,000 worth of shares;
When you need one 2. When you want a check or bank wire sent to a name or
address that is not currently listed on the account;
3. To sell shares from an account controlled by a
corporation, partnership, trust or fiduciary; or
4. If your address was changed within the last 60 days.
</Table>
16
<Page>
YOUR ACCOUNT
TRANSACTION POLICIES
PURCHASE OF SHARES. Shares are offered at net asset value without a sales
charge. The minimum initial investments for opening an individual account is
$250,000.
Certain omnibus accounts may not combine the assets of the underlying investor
in order to satisfy the investment minimum. In addition, the Investment Adviser
may take into account the aggregate assets that the shareholder has under
management with the Investment Adviser. The minimum investment may be waived for
purchases of shares made by current or retired directors, trustees, partners,
officers and employees of Nicholas-Applegate Institutional Funds (the "Trust"),
the Distributor, the Investment Adviser and its affiliates, certain family
members of the above persons, and trusts or plans primarily for such persons or
former employees employed by one of its affiliates, or, at the discretion of the
Distributor. Eligibility for different classes of the Fund depends upon the
shareholder meeting either (i) the investment minimums set forth above, (ii) the
total market value of all the shareholder's assets managed by the Investment
Adviser and its affiliates or (iii) what the Investment Adviser and shareholder
may negotiate at arm's length. The Fund may only accept orders for shares in
states where it is legally able to offer shares.
The Fund may discontinue sales of its shares if the Investment Adviser and the
Trustees believe that continued sales may adversely affect the Fund's ability to
achieve its investment objective. If sales of a Fund's shares are discontinued,
it is expected that existing shareholders invested in the Fund would be
permitted to continue to authorize investment in the Fund and to reinvest any
dividends or capital gains and distributions, absent highly unusual
circumstances.
ANTI-MONEY LAUNDERING PROGRAM. The Fund is required to comply with various
federal anti-money laundering laws and regulations. Consequently, the Fund may
be required to "freeze" the account of a shareholder if the shareholder appears
to be involved in suspicious activity or if certain account information matches
information on government lists of known terrorists or other suspicious persons,
or the Fund may be required to transfer the account or proceeds of the account
to a government agency. The Fund may also be required to reject a purchase
payment, block a shareholder's account and consequently refuse to implement
requests for transfers and withdrawals.
Federal law requires the Fund to obtain, verify and record identifying
information, which may include the name, street address, taxpayer identification
number or other identifying information from shareholders who open an account
with the Fund. The Fund may also ask to see a shareholder's driver's license or
other identifying documents. Applications without this information may be
rejected and orders may not be processed. The Fund reserves the right to place
limits on transactions in any account until the identity of the shareholder is
verified; to refuse an investment in the Fund or involuntarily redeem a
shareholder's shares and close an account in the event that a shareholder's
identity is not verified within 5 days of the purchase; or suspend the payment
of withdrawal proceeds if it is deemed necessary to comply with anti-money
laundering regulations. An involuntary redemption may result in an unfavorable
tax consequence or loss of principal. The Fund and its agents will not be
responsible for any loss resulting from the shareholder's delay in providing all
required identifying information or from closing an account and redeeming a
shareholders share when a shareholder's identity cannot be verified.
PRICING OF SHARES. The net asset value per share ("NAV") of the Fund is
determined each business day at the close of regular trading on the New York
Stock Exchange (usually 4 p.m. Eastern time) by dividing the value of the Fund's
net assets by the number of its shares outstanding.
Securities traded in non-U.S. countries may not take place on all business days
of the New York Stock Exchange, and may occur in various non-U.S. markets on
days which are not business days of the New York Stock Exchange. Accordingly,
the Fund's NAV may change on days when the U.S. markets are closed whereby a
shareholder of the Fund will not be able to sell their shares.
NAV is based on the market value of the securities in the Fund's portfolio,
equity holdings are valued on the basis of market quotations or official
closing prices. If market quotations, official closing prices are not readily
available, or are determined not to reflect accurately fair value (such that
when the value of a security has been materially affected by events occurring
after the close of the exchange or market on which the security is
principally traded (for example a foreign exchange or market), but before the
Fund calculates its NAV), the Investment Adviser will value the security at
fair value in accordance with procedures approved by the Fund's Board of
Trustees. Under such procedures, the Investment Adviser will fair value when,
in its opinion, publicly available prices are no longer readily available, or
are no longer reliable. Such circumstances would include when trading in the
security is halted, when an
17
<Page>
entire market is closed, or when the movement of the markets in the U.S.
reach certain trigger points. Fair value of securities will be determined by
the Investment Adviser's pricing committee in good faith using such
information as it deems appropriate under the circumstances. Fair value of
foreign equity securities may be determined with the assistance of a pricing
service using correlations between the movement of prices of foreign
securities and indexes of domestic securities and other appropriate
indicators, such as closing market prices of relevant ADRs and futures
contracts. Using fair value to price securities may result in a value that is
different from a security's most recent closing price and from the prices
used by other mutual funds to calculate their net asset values. Foreign
securities may trade on days when the Fund does not calculate its NAV and
thus may affect the Fund's NAV on days when shareholders will not be able to
purchase or redeem Fund shares.
BUY AND SELL PRICES. When you buy shares, you pay the NAV, as described earlier.
When you sell shares, you receive the NAV. Your financial institution may charge
you a fee to execute orders on your behalf.
EXECUTION OF REQUESTS. The Fund is open on the days the New York Stock Exchange
is open, usually Monday-Friday. Buy and sell requests are executed at the NAV
next calculated after your request is received in good order by the transfer
agent or another agent designated by the Fund. The Fund reserves the right to
refuse any purchase order.
The Fund reserves the right to reject any purchase or to suspend or modify the
continuous offering of its shares. Your financial representative is responsible
for forwarding payment promptly to the transfer agent. The Fund reserves the
right to cancel any buy request if payment is not received within three days.
In unusual circumstances, the Fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to seven days or
longer, as allowed by federal securities laws.
PURCHASE OF SHARES JUST BEFORE RECORD DATE. If you buy shares of the Fund just
before the record date for a distribution (the date that determines who receives
the distribution), the Fund will pay that distribution to you. When a
distribution is paid, the value of each share of the Fund decreases by the
amount of the distribution to reflect the payout. The distribution you receive
makes up the decrease in share value. As explained under the Taxability of
Dividends section, the distribution may be subject to income or capital gains
taxes. The timing of your purchase means that part of your investment came back
to you as taxable income.
EXCHANGES. On any business day you may exchange all or a portion of your shares
for shares of any other available Fund of the same share class only if you are
eligible to purchase shares of such class.
MARKET TIMING. The Fund does not permit market timing or other excessive
trading practices which may disrupt portfolio management strategies and harm
Fund performance by diluting the value of portfolio shares and increasing
brokerage and administrative costs. To protect the interests of other
shareholders in the Fund, the Investment Adviser monitors trading activity
and the Trust will take appropriate action, which may include cancellation of
exchange privileges (or rejection of any exchange or purchase orders) of any
parties who, in the opinion of the Investment Adviser, are engaging in market
timing. For these purposes, the Trust may consider a shareholder's trading
history in the Funds. The Trust may change or cancel its exchange policies at
any time, upon 60 days' notice to its shareholders.
Because the Fund invests in markets throughout the world, it may be especially
susceptible to market timing if it allowed excessive trades that can take
advantage of the different times that overseas markets are open. The Board has
delegated responsibility for pricing securities and reviewing trading practices
to the Investment Adviser. These policies and procedures are applied
consistently to all shareholders. Although the Fund makes an effort to monitor
for market-timing activities, the ability of the Fund to monitor trades that are
placed by the underlying shareholders of omnibus accounts maintained by brokers,
retirement plan accounts and other approved intermediaries may be limited in
those instances in which the investment intermediary maintains the underlying
shareholder accounts. Accordingly, there can be no assurance that the Fund will
be able to eliminate all market-timing activities.
REDEMPTIONS IN KIND. When the Fund elects to satisfy a redemption request with
securities, the shareholder assumes the responsibility of selling the securities
as well as a market risk of an unfavorable market movement during the time
required to convert the securities to cash.
TELEPHONE TRANSACTIONS. For your protection, telephone requests may be recorded
in order to verify their accuracy. In addition the Fund will take measures to
verify the identity of the caller, such as asking for name, account number,
Social Security or taxpayer ID number and other relevant information. If these
measures are not taken, the Fund may be responsible for any losses that may
occur in your account due to an unauthorized telephone call.
18
<Page>
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider sending your request in writing.
CERTIFICATED SHARES. Shares of the Fund are electronically recorded. The Fund
does not normally issue certificated shares.
SALES IN ADVANCE OF PURCHASE PAYMENTS. When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but the Fund will not release the proceeds to you
until your purchase payment clears. This may take up to fifteen calendar days
after the purchase.
FEATURES AND ACCOUNT POLICIES
The services referred to in this section may be terminated or modified at any
time upon 60 days' written notice to shareholders. Shareholders seeking to add
to, change or cancel their selection of available services should contact the
transfer agent.
RETIREMENT PLANS. You may invest in the Fund through various retirement plans,
including IRAs, Roth IRAs, Simplified Employee Plan (SEP) IRAs, 403(b) plans,
457 plans, and all qualified retirement plans. For further information about any
of the plans, agreements, applications and annual fees, contact the Distributor,
your financial representative or plan sponsor. To determine which retirement
plan is appropriate for you, consult your tax adviser.
ACCOUNT STATEMENTS. Shareholders will receive periodic statements reporting all
account activity, including systematic transactions, dividends and capital gains
paid.
ELECTRONIC DELIVERY. The Fund can deliver prospectuses, account statements,
transaction confirmations, and fund financial reports electronically. If you are
a registered user of NACM.com, you can consent to the electronic delivery of
these documents by logging on and changing your mailing preference under "My
Profile." You can revoke your electronic consent at any time, and the Fund will
begin to send paper copies of these documents within 30 days of receiving your
notice.
SEMI-ANNUAL REPORTS AND PROSPECTUSES. The Fund produces financial reports every
six months and updates its prospectus annually. To avoid sending duplicate
copies of materials to households, only one copy of the Trust's annual and
semi-annual report and prospectus will be mailed to shareholders having the same
residential address on the Trust's records. However, any shareholder may contact
the Distributor(see back cover for address and phone number) to request that
copies of these reports and prospectuses be sent personally to that shareholder.
DIVIDENDS. The Fund generally distribute most or all of its net earnings in the
form of dividends. The Fund pays dividends of net investment income annually.
Any net capital gains are distributed annually. Annual dividends and net capital
gains are normally distributed in the last calendar quarter.
DIVIDEND REINVESTMENTS. If you choose this option, or if you do not indicate any
choice, your dividends will be reinvested on the ex-dividend date.
Alternatively, you can choose to have a check for your dividends mailed to you.
Interest will not accrue or be paid on uncashed dividend checks.
TAXABILITY OF DIVIDENDS. Dividends you receive from the Fund, whether
reinvested or taken as cash, are generally taxable. Dividends from the Fund's
long-term capital gains, determined by the length of time the Fund held an
asset, rather than the length of time you held the Fund, are taxable as
capital gains; dividends from other sources are generally taxable as ordinary
income.
Some dividends paid in January may be taxable as if they had been paid the
previous December. Corporations may be entitled to take a dividends-received
deduction for a portion of certain dividends they receive.
The tax information statement that is mailed to you details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
TAXABILITY OF TRANSACTIONS. Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
Federal tax law requires you to provide the Fund with your taxpayer
identification number and certifications as to your tax status. If you fail to
do this, or if you are otherwise subject to backup withholding, the Fund will
withhold and pay to the U.S. Treasury 31% of your distributions and sale
proceeds. Dividends of net investment income and short-term capital gains paid
to a nonresident non-U.S. shareholder generally will be subject to a U.S.
withholding tax of up to 30%. This rate may be lower, depending on any tax
treaty the U.S. may have with the shareholder's country.
SMALL ACCOUNTS. If you draw down a non-retirement account so that its total
value is less than the minimum investment, you may be asked to purchase more
19
<Page>
shares within 60 days. If you do not take action, the Fund may close out your
account and mail you the proceeds. Your account will not be closed if its
drop in value is due to Fund performance. See "Automatic Share Conversion"
below.
AUTOMATIC INVESTMENT PLAN. You may make regular monthly or quarterly
investments in the Fund through automatic withdrawals of specified amounts
from your bank account once an automatic investment plan is established. See
the account application for further details about this service or call the
Fund at 1-800-551-8043.
AUTOMATIC SHARE CONVERSION. The account of any shareholder in any class shall be
automatically converted into the shares of a class of the Fund with a higher
shareholder account minimum if the shares in such account have a value equal to
or higher than such minimum as of the end of each calendar quarter. The account
of any shareholder in any class shall be automatically converted into the shares
of a class with lower shareholder account minimum if, by reason of the
redemption of shares, the value of the shares in such account is less than the
shareholder account minimum for the account's class as determined at the end of
each calendar quarter. All conversions pursuant to this paragraph shall be made
at the respective net asset values determined as of the end of the day in which
the account is converted.
The automatic conversion does not apply to omnibus accounts maintained by
intermediaries (e.g. sub transfer agents, record keepers, etc.) that have
revenue sharing arrangements with the Distributor or the Investment Adviser.
CROSS-REINVESTMENT. You may cross-reinvest dividends or dividends and capital
gains distributions paid by one Fund into another Fund,subject to conditions
outlined in the Statement of Additional Information and the applicable
provisions of the qualified retirement plan.
20
<Page>
ORGANIZATION AND MANAGEMENT
THE INVESTMENT ADVISER
Investment decisions for the Fund are made by the Fund's Investment Adviser,
Nicholas-Applegate Capital Management (the "Investment Adviser"), subject to
direction by the Trustees. The Investment Adviser continually conducts
investment research and supervision for the Fund and is responsible for the
purchase or sale of portfolio instruments, for which it receives an annual fee
from the Fund. A discussion regarding the basis for the Board of Trustees
approving the Investment Advisory Agreement is available in the Funds' annual
report to shareholders dated March 31, 2005.
Founded in 1984, the Investment Adviser currently manages approximately $15
billion in discretionary assets for numerous clients, including employee benefit
plans, corporations, public retirement systems and unions, university
endowments, foundations, and other institutional investors and individuals. The
Investment Adviser's address is 600 West Broadway, Suite 2900, San Diego,
California 92101.
INVESTMENT ADVISER COMPENSATION
The Fund pays the Investment Adviser a monthly fee pursuant to an investment
advisory agreement. The Fund pays an advisory fee monthly at the annual rate of
0.95% its average net assets.
ADMINISTRATIVE SERVICES
The Investment Adviser provides the Fund with certain financial, legal,
compliance, shareholder communications and other administrative services
pursuant to an Administrative Services Agreement. Under this Agreement, the Fund
pays the Investment Adviser an Administrative fee of up to 0.15% per annum of
the Fund's average daily net assets.
SHAREHOLDER SERVICES
The Fund has entered into a Shareholder Services Agreement with the Distributor
under which the Fund will pay the Distributor up to 0.15% of the average daily
assets of the Fund to pay financial institutions, including the Investment
Adviser, for certain personal services for shareholders and for the maintenance
of shareholder accounts. The Investment Adviser may make additional payments
from its own resources to intermediaries for providing certain services for
shareholders and for the maintenance of shareholder accounts. This in no way
affects the advisory fee paid by the Fund. Contact the Investment Adviser for
more information.
EXPENSE WAIVERS
The Investment Adviser has agreed to waive its fees and absorb other operating
expenses of the Fund so that total operating expenses (excluding taxes,
interest, brokerage and extraordinary expenses of the Class I) do not exceed
1.25%, respectively, as an average of the Fund's daily net assets through
March 31, 2006.
The Fund reduces expenses by offsets to custodial and other fees based upon the
amount of securities lent to third parties and cash maintained with its
custodian. These offset arrangements will have no effect on the amount of fees
that the Investment Adviser must waive or expenses that it must otherwise
reimburse under the Expense Limitation Agreement.
MULTI CLASS STRUCTURE
The Fund offers multiple classes of shares. The sole economic difference among
the various classes of shares is the level of shareholder service and
administrative service fees that the classes bear for the client and shareholder
service, administrative services, reporting and other support, reflecting the
fact that, as the size of the client relationship increases, the cost to service
that client decreases as a percentage of the assets in that account. Thus, the
shareholder service and administrative service fees are lower for classes where
the eligibility criteria require greater total assets under the Investment
Adviser's management.
PORTFOLIO TRADES
The Investment Adviser is responsible for the Fund's portfolio transactions. In
placing portfolio trades, the Investment Adviser may use brokerage firms that
provide research services to the Fund but only when the Investment Adviser
believes no other firm offers a better combination of quality execution (e.g.,
timeliness and completeness) and favorable price.
The Investment Adviser may allocate brokerage transactions to brokers who have
entered into expense offset arrangements with the Investment Adviser under which
a broker allocates a portion of the commissions paid by a Fund toward the
reduction of the Fund's expenses.
PORTFOLIO TURNOVER
To the extent that the Investment Adviser actively trades the Fund's portfolio
securities in an attempt to achieve the Fund's investment goal, such trading may
cause the Fund to have an increased portfolio turnover rate of 150% or more,
which has the potential to generate shorter-term gains (losses) for its
shareholders, which are taxed as ordinary income with rates that are higher than
longer-term gains (losses). Actively trading portfolio securities may have an
adverse impact on the Fund's performance.
PORTFOLIO HOLDINGS
A description of the Fund's policies and procedures with respect to the
disclosure of the Funds' portfolio securities is available in the Fund's
SAI.
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PORTFOLIO MANAGEMENT
The Investment Adviser applies a team approach to portfolio management and
investment research, with ultimate buy and sell decision-making authority vested
in a lead portfolio manager accountable for each investment team's results. All
portfolio management activities are overseen by Nicholas-Applegate's Chief
Investment Officer, Horacio A. Valeiras, CFA. Day-to-day management of the
Fund's portfolio is performed by Vincent Willyard, CFA Lead Portfolio Manager.
Mr. Willyard is primarily assisted by Joseph Devine and Barry Kendall.
Information regarding the portfolio management team is listed below.
HORACIO A. VALEIRAS, CFA
MANAGING DIRECTOR AND CHIEF INVESTMENT OFFICER, NICHOLAS-APPLEGATE CAPITAL
MANAGEMENT
Responsible for overseeing all investment and trading functions within the firm
Joined firm in August 2002, previously Managing Director at Morgan Stanley
Investment management (1997-2002); 15 years prior experience with Morgan
Stanley Investment Management; Miller, Anderson & Sherrerd; and Credit
Suisse First Boston
M.B.A.--University of California, Berkeley
S.M.--Mssachusetts Institute of Technology
B.S.--Virginia Tech
- - MR. VALEIRAS HAS MANAGED THE FUND SINCE ITS INCEPTION.
VINCENT WILLYARD, CFA
MANAGING DIRECTOR, PORTFOLIO MANAGER, INTERNATIONAL ALL CAP AND INTERNATIONAL
SMALL CAP
Joined firm in 2005, previously portfolio manager of Duncan-Hurst Capital
Management's International Growth Equity and International Small-Cap
Growth Equity strategies (1998-2005); over 10 years prior experience
with Duncan-Hurst Capital Management and Fidelity Investment
Advisors Group
M.B.A.--Northeastern University
B.A.--UCLA
- - MR. WILLYARD HAS MANAGED THE FUND SINCE ITS INCEPTION.
INVESTMENTS TEAM
The portfolio management team is assisted by the entirety of
Nicholas-Applegate's Investments Team, which in addition to Mr. Valeiras and
Mr. Willyard, is also comprised of the portfolio managers of other
Nicholas-Applegate strategies, research analysts and other investment
professionals. The Fund is primarily assisted by Joseph Devine and Barry
Kendall. Team members provide research reports and make securities
recommendations with respect to the Fund's portfolio; however Mr. Valeiras
and Mr. Willyard only are responsible for day-to-day management of the Fund.
JOSEPH DEVINE
SENIOR VICE PRESIDENT, PORTFOLIO MANAGER, PACIFIC RIM AND EMERGING MARKETS
OPPORTUNITIES
Joined firm in 2005, previously portfolio manager and research analyst at
Duncan-Hurst Capital Management; over 10 years prior experience with
Duncan-Hurst Capital Management; Peregrine Investment Holdings; C.S. First
Boston; and Merrill Lynch
B.S.--University of Southern California
BARRY KENDALL
VICE PRESIDENT, INVESTMENT ANALYST
Joined firm in 2005, 7 years previous experience as a research analyst and
equity trader at Duncan-Hurst Capital Management
B.A.--Tulane University
M.H.A.--Duke University
22
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PRINCIPAL STRATEGIES, RISKS AND OTHER INFORMATION
MORE ABOUT THE FUND
The Fund's goal and principal investment strategies, and the main risks of
investing in the Fund, are summarized at the beginning of this prospectus. More
information on investment strategies, investments and risks appears in this
section. Except as noted below, the Fund's investment policy may be changed
without shareholder approval. The Fund will provide shareholders with at least
60 days prior notice of a change in the Fund's investment policy. There can, of
course, be no assurance that the Fund will achieve its investment goal.
The Fund may also use strategies and invest in securities that are not described
in the Statement of Additional Information. Of course, the Investment Adviser
may decide, as a matter of investment strategy, not to use the investments and
investment techniques described below and in the Statement of Additional
Information at any particular time.
MARKET DISRUPTION
As a result of the terrorist attack on the World Trade Center and Pentagon on
September 11, 2001, some of the U.S. securities markets were closed for a
four-day period. These terrorist attacks have led to unusual short-term market
volatility and may have long-term effects on the U.S. and world economies and
markets. A similar disruption of the financial markets could impact the market
risk, liquidity risk and interest rate risk relating to your investment.
INTERNATIONAL INVESTMENT RISKS AND CONSIDERATIONS
CURRENCY FLUCTUATION. When the Fund invests in instruments issued by non-U.S.
companies, the principal, income and sales proceeds must be paid to the Fund in
local non-U.S. currencies. A reduction in the value of local currencies relative
to the U.S. dollar could mean a corresponding reduction in the value of the
Fund's investments. Also, the Fund may incur costs when converting from one
currency to another.
SOCIAL, POLITICAL AND ECONOMIC FACTORS. The economies of many of the countries
where the Funds may invest may be subject to a substantially greater degree of
social, political and economic instability than the United States. This
instability might impair the financial conditions of issuers or disrupt the
financial markets in which the Funds invest.
The economies of non-U.S. countries may differ significantly from the economy of
the United States as to, for example, the rate of growth of gross domestic
product or rate of inflation. Governments of many non-U.S. countries continue to
exercise substantial control over private enterprise and own or control many
companies. Government actions such as imposition of exchange control regulation,
withholding taxes, limitations on the removal of funds or other assets,
expropriation of assets and confiscatory taxation could have a significant
impact on economic conditions in certain countries which could affect the value
of the securities in the Fund.
INFLATION. Certain countries, especially many emerging market countries, have
experienced substantial, and in some periods extremely high and volatile, rates
of inflation. Rapid fluctuations in inflation rates and wage and price controls
may continue to have unpredictable effects on the economies, companies and
securities markets of these countries.
DIFFERENCE IN SECURITIES MARKETS. The securities markets in non-U.S. countries
have substantially less trading volume than the markets in the United States and
debt and equity securities of many companies listed on such markets may be less
liquid and more volatile than comparable securities in the United States. Some
of the stock exchanges in non-U.S. countries, to the extent that established
markets exist, are in the earlier states of their development. The limited
liquidity of certain securities markets may affect the ability of the Fund to
buy and sell securities at the desired price and time.
Trading practices in certain non-U.S. countries are also significantly different
from those in the United States. Although brokerage commissions are generally
higher than those in the U.S., the Investment Adviser will seek to achieve the
most favorable net results. In addition, securities settlements and clearance
procedures may be less developed and less reliable than those in the United
States. Delays in settlement could result in temporary periods in which the
assets of the Fund are not fully invested, or could result in the Fund being
unable to sell a security in a falling market.
CUSTODIAL AND REGISTRATION PROCEDURES. Systems for the registration and transfer
of securities in non-U.S. markets can be less developed than similar systems in
the United States. There may be no standardized process for registration of
securities or a central registration system to track share ownership. The
process for transferring shares may be cumbersome, costly, time-consuming and
uncertain.
GOVERNMENT SUPERVISION OF SECURITIES MARKETS. Disclosure and regulatory
standards in many non-U.S. countries are, in many respects, less stringent than
those in the United States. There may be less government supervision and
regulation of securities exchanges, listed companies, investors, and brokers in
non-U.S. countries than in the United States, and enforcement of existing
regulations may be extremely limited.
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FINANCIAL INFORMATION AND REPORTING STANDARDS. Issuers in non-U.S. countries are
generally subject to accounting, auditing, and financial standards and
requirements that differ, in some cases materially, from those in the United
States. In particular, the assets and profits appearing in financial statements
may not reflect their financial position or results in the way they would be
reflected had the statements been prepared in accordance with U.S. generally
accepted accounting principles. Consequently, financial data may not reflect the
true condition of those issuers and securities markets.
EQUITY-LINKED SECURITIES AND RISKS
The Fund may purchase Equity-Linked Securities, also known as participation
notes, equity swaps, and zero strike calls and warrants. Equity-linked
securities are primarily used by a Fund as an alternative means to more
efficiently and effectively access the securities market of what is generally an
emerging country. The Fund deposits an amount of cash with its custodian (or
broker, if legally permitted) in an amount near or equal to the selling price of
the underlying security in exchange for an equity linked security. Upon sale,
the Fund receives cash from the broker or custodian equal to the value of the
underlying security. Aside from market risk there is of the underlying security,
there is the risk of default by the other party to the transaction. In the event
of insolvency of the other party, the Fund might be unable to obtain its
expected benefit. In addition, while the Fund will seek to enter into such
transactions only with parties which are capable of entering into closing
transactions with the Fund, there can be no assurance that the Fund will be able
to close out such a transaction with the other party or obtain an offsetting
position with any other party, at any time prior to the end of the term of the
underlying agreement. This may impair the Fund's ability to enter into other
transactions at a time when doing so might be advantageous.
TEMPORARY INVESTMENTS AND RISKS
The Fund may, from time to time, invest all of its assets in short-term
instruments when the Investment Adviser determines that adverse market,
economic, political or other conditions call for a temporary defensive posture.
Such a defensive position may result in the Fund failing to achieve its
investment objective.
LENDING OF PORTFOLIO SECURITIES AND RISK
In order to generate expense offset credits, the Fund may lend portfolio
securities, on a short-term or a long-term basis, up to 30% of its total assets
to broker/dealers, banks, or other institutional borrowers of securities. The
Fund will only enter into loan arrangements with broker/dealers, banks, or other
institutions which the Investment Adviser has determined are creditworthy and
under guidelines established by the Board of Trustees and will receive
collateral in the form of cash or U.S. government securities equal to least 102%
of the value of the securities loaned on U.S. securities.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
NON PRINCIPAL STRATEGIES
HEDGING TRANSACTION AND RISKS
The Fund may trade in derivative contracts to hedge portfolio holdings or an
underweighting relative to the Fund's index. Hedging activities are intended to
reduce various kinds of risks. For example, in order to protect against certain
events that might cause the value of its portfolio securities to decline, the
Fund can buy or sell a derivative contract (or a combination of derivative
contracts) intended to rise in value under the same circumstances. Hedging
activities will not eliminate risk, even if they work as they are intended to.
In addition, these strategies are not always successful, and could result in
increased expenses and losses to the Fund. The Fund may trade in the following
types of derivative contracts.
FUTURES CONTRACTS provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a price, date, and
time specified when the contract is made. Futures contracts traded OTC are
frequently referred to as forward contracts. Entering into a contract to buy is
commonly referred to as buying or purchasing a contract or holding a long
position. Entering into a contract to sell is commonly referred to as selling a
contract or holding a short position. Futures are considered to be commodity
contracts. The Fund can buy or sell futures contracts on portfolio securities or
indexes and engage in non-U.S. currency forward contracts.
OPTIONS are rights to buy or sell an underlying asset for a specified price (the
exercise price) during, or at the end of, a specified period of time. A call
option gives the holder (buyer) the right to purchase the underlying asset from
the seller (writer) of the option. A put option gives the holder the right to
sell the underlying asset to the writer of the option. The writer of the
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<Page>
option receives a payment, or "premium," from the buyer, which the writer keeps
regardless of whether the buyer uses (or exercises) the option.
When the Fund uses financial futures and options on financial futures as hedging
devices, much depends on the ability of the portfolio manager to predict market
conditions based upon certain economic analysis and factors. There is a risk
that the prices of the securities subject to the futures contracts may not
correlate perfectly with the prices of the securities in the Fund's portfolio.
This may cause the futures contract and any related options to react differently
than the portfolio securities to market changes. In addition, the portfolio
managers could be incorrect in their expectations about the direction or extent
of market factors such as interest rate movements. In these events, the Fund may
lose money on the futures contracts or options.
It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the Investment Adviser will
consider liquidity before entering into options transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will exist
for any particular futures contract or option at any particular time. The Fund's
ability to establish and close out futures and options positions depends on this
secondary market.
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VOTING ITEMS: AGREEMENT AND PLAN OF REORGANIZATION
DESCRIPTION OF THE REORGANIZATION AGREEMENT
The terms and conditions under which the Reorganization will be consummated
are set forth in the Agreement and Plan of Reorganization which is attached as
Exhibit A (the "Reorganization Agreement"). Significant provisions of the
Reorganization Agreement are summarized below; however, this summary is
qualified in its entirety by reference to the Reorganization Agreement.
The Reorganization Agreement provides that at the Closing Date the
Acquiring Fund will acquire substantially all of the property and assets of the
Acquired Fund in exchange solely for Class I shares of the Acquiring Fund and
the Acquiring Fund's assumption of all liabilities of the Acquired Fund.
In exchange for the transfer to the Acquiring Fund of the Acquired Fund's
assets, the Acquiring Fund will simultaneously issue at the Closing Date full
and fractional Acquiring Fund Class I shares to the Acquired Fund for
distribution PRO RATA by the Acquired Fund to its shareholders. The number of
Acquiring Fund Class I shares so issued by the Acquiring Fund will have an
aggregate net asset value equal to the value of the net assets of the Acquired
Fund on the Closing Date.
Following the close of business on the Closing Date, the Acquired Fund will
distribute PRO RATA to its shareholders the Acquiring Fund Class I shares
received by the Acquired Fund in liquidation thereof. Each shareholder owning
Acquired Fund Shares at the Closing Date will receive an amount of the
corresponding Acquiring Fund Class I shares equal to the value of their Acquired
Fund Shares.
The Reorganization is subject to a number of conditions, including, among
other things: (a) approval of the Reorganization Agreement and the transactions
contemplated thereby, as described in this Statement, by the Acquired Fund's
shareholders; (b) the receipt of certain legal opinions of the Reorganization
Agreement (which include a legal opinion that the Acquiring Fund shares issued
to Acquired Fund shareholders in accordance with the terms of the Reorganization
Agreement will be validly issued, fully paid, and non-assessable and a legal
opinion that the Reorganization will not give rise to the recognition of income,
gain, or loss for federal income tax purposes to any Acquired Fund of Acquiring
Fund; (c) the receipt of certain certificates from the parties concerning the
continuing accuracy of the representations and warranties in the Reorganization
Agreement and other matters; and (d) the parties' performance of their
respective agreements and undertakings in the Reorganization Agreement. Assuming
satisfaction of the conditions in the Reorganization Agreement, the Closing Date
will be on November 18, 2005, or such other date as is agreed to by the parties.
The Reorganization Agreement provides that Nicholas-Applegate shall be
responsible for the payment of all reasonable expenses incurred in connection
with entering into and carrying out the Reorganization (which expenses include
the fees and disbursements of attorneys and auditors and proxy printing and
solicitation expenses).
The Reorganization Agreement and the Reorganization described herein may be
abandoned at any time prior to the Closing Date by the mutual consent of the
parties to the Reorganization Agreement. In such event, there shall be no
liability for damages on the part of any Fund, or its respective Board of
Trustees or officers, but Nicholas-Applegate shall bear all expenses incidental
to the preparation and carrying out of the Reorganization Agreement. The
Reorganization Agreement provides further that at any time prior to or after
approval of the Reorganization Agreement by the Acquired Fund's shareholders,
the Acquired Fund and Acquiring Fund, by written agreement, may amend, modify,
or supplement the Reorganization Agreement. The Reorganization Agreement further
provides that no such amendment, modification, or supplement may have the effect
of changing the provisions for determining the number of Acquiring Fund Shares
to be distributed to Acquired Fund shareholders under the Reorganization
Agreement to the detriment of the Acquired Fund shareholders, unless the
Acquired Fund shareholders approve such change or unless the amendment merely
changes the Closing Date.
REASONS FOR THE REORGANIZATION
The predecessor investment adviser to the Acquired Funds, Duncan-Hurst
Capital Management ("Duncan-Hurst") and the investment adviser to the Acquiring
Funds, Nicholas-Applegate Capital Management ("Nicholas-Applegate"), had entered
into an Asset Purchase Agreement, dated June 30, 2005 that, in addition to the
duties
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and responsibilities described in the Reorganization Agreement also
memorializes the proposed remuneration to be received by Duncan-Hurst in
connection with the proposed transaction. The acquisition by Nicholas-Applegate
of the rights to manage Duncan-Hurst Capital management's international assets
was mutually agreed upon by each company to enhance Nicholas-Applegate's
international equity capabilities while Duncan-Hurst Capital Management will
continue to focus on its core strength in the management of U.S. growth
equities. Nicholas-Applegate and Duncan-Hurst Capital Management each share a
similar heritage of growth stock investing and trace their roots back to pacific
Century Advisers, a subsidiary of Security Pacific Bank. Both companies received
financial benefits from this agreement. As consideration for the assets to be
acquired, Nicholas-Applegate has agreed to pay a portion of its investment
management fees to Duncan-Hurst earned on assets invested in international
all-cap growth and international small cap growth strategies until June 30,
2010. This transaction enabled Duncan-Hurst to exit the business of managing
international growth assets and concentrate its resources on managing US assets.
Based on their evaluation of the relevant information presented to them,
and in light of their fiduciary duties under federal and state law, the Board
has unanimously determined that the proposed Reorganization is in the best
interest of the shareholders, that the terms are fair and reasonable, and the
interests of the Acquired Fund's shareholders will not be diluted as a result of
the Reorganization. Accordingly, the Board recommends the approval of the
Reorganization Agreement by such shareholders at the Special Meeting. In
approving the Reorganization, the Board, including a majority of the Independent
Trustees, considered a number of factors, including the following:
(1) there would be no change in the investment adviser,
Nicholas-Applegate, and the portfolio management team;
(2) the similarity of the Acquiring Fund's investment objectives,
policies, risks and restrictions with those of the Acquired Fund and
the fact that the two Funds are duplicative;
(3) expense ratios and information regarding fees and expenses of the
Acquired Fund and the Acquiring Fund, including the planned expense
limitation arrangements offered by Nicholas-Applegate and the fact
that existing shareholders would experience a significant reduction in
Acquired Fund operating expenses;
(4) the difficulty the Acquired Fund has experienced in attracting
assets and the opportunity affored by being a series of a larger more
established nutual fund complex;
(5) the terms and conditions of the Reorganization, whether it is in the
best interests of the Acquired Fund shareholders and whether it would
result in a dilution of the interest of current shareholders;
(6) the fact that Duncan-Hurst Capital Management has determine that it
does not want to continue to engage in the management of international
assets and wants to focus on U.S. equity management for institutional
clients, so that in any event Duncan-Hurst Capital Management would no
longer be available to manage the Acquired Fund and that in
furtherance of this goal Duncan-Hurst Capital Management has entered
into an Asset Purchase Agreement with Nicholas-Applegate to sell
certain assets related to the management of the Acquired Fund;
(7) Nicholas-Applegate's commitment to pay for the expenses of the
Reorganization;
(8) the tax free-free nature of the Reorganization to Acquired Fund and
its shareholders.
Similarly, at meetings of the Board of Trustees of Nicholas-Applegate
Institutional Funds held on August 12, 2005, the Board of Trustees of the
Acquiring Fund considered the proposed Reorganization with respect to the
Acquiring Funds. Based on their evaluation of the relevant information provided
to them, and in light of their fiduciary duties under federal and state law, the
Board of Trustees unanimously determined that (a) the proposed Reorganization
would be in the best interests of the Nicholas-Applegate Institutional Funds and
their shareholders, and (b) the interests of the existing shareholders will not
be diluted as a result of the proposed Reorganization.
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<Page>
DESCRIPTION OF THE SECURITIES TO BE ISSUED
The Nicholas-Applegate Institutional Funds are registered with the
Securities and Exchange Commission as an open-end management investment company.
The Acquiring Fund is a series of the Nicholas-Applegate Institutional Funds.
Shares of the Acquiring Fund entitle their holders to one vote per full and
fractional votes for fractional shares held. If shareholders approve the
Reorganization, each shareholder of the Acquired Fund will receive Class I
Shares of the Acquiring Fund equal in value.
FEDERAL INCOME TAX CONSEQUENCES
Consummation of the Reorganization is subject to the condition that the
Funds receive an opinion from counsel, substantially to the effect that, based
upon certain facts, assumptions and representations, the transactions
contemplated by the Reorganization Agreement with respect to the Acquired Fund
and the Acquiring Fund constitute a tax-free reorganization for federal income
tax purposes. The delivery of such opinion is conditioned upon receipt by
counsel of representations it shall request of the Professionally Managed
Portfolios and the Nicholas-Applegate Institutional Funds.
The Funds have not sought a tax ruling from the Internal Revenue Service
("IRS"). The opinion of counsel is not binding on the IRS and does not preclude
the IRS from adopting a contrary position. Shareholders should consult their own
tax advisers concerning the potential tax consequences to them, including state
and local income tax consequences.
As of March 31, 2005, the Acquired Fund had accumulated capital loss
carryforwards in the amount of approximately $11,807,324. After the
Reorganization, these losses will be available to the Acquiring Fund to offset
capital gains, although the amount of these losses which might offset the
Acquiring Fund's capital gains may be limited. As a result, of this limitation,
it is possible that the Acquiring Fund may not be able to use these losses as
rapidly or to the same extent as the Acquired Fund might have. In addition, the
benefits of any capital loss carryforwards currently are available only to
shareholders of the Acquired Fund. After the Reorganization, however, these
benefits will inure to benefit of all shareholders of the Acquiring Fund.
CAPITALIZATION
Because the Acquired Fund will be combined in the Reorganization with the
Acquiring Fund, the total capitalization of the Acquiring Fund after the
Reorganization is expected to be negligibly higher than the current
capitalization of the Acquired Fund. The following table sets forth as of
September 30, 2005 (unaudited): (i) the capitalization of the Acquired Fund;
(ii) the capitalization of the Acquiring Fund; and (iii) the pro forma
capitalization of the Acquiring Fund as adjusted to give effect to the
Reorganization. If the Reorganization is consummated, the capitalization of the
Acquiring Fund is likely to be different at the Closing Date as a result of
daily share purchase and redemption activity in the Acquired Fund and the
Acquiring Fund.
<Table>
<Caption>
ACQUIRED ACQUIRING
FUND FUND PRO FORMA
NET ASSETS 38,912,090 None 38,912,090
NET ASSET VALUE PER SHARE 10.44 None 10.44
SHARES OUTSTANDING 3,727,600.742 None 3,727,600.742
</Table>
GENERAL INFORMATION
INFORMATION RELATING TO VOTING MATTERS
This Statement is being furnished in connection with the solicitation of
proxies by the Board in connection with the Special Meeting. It is expected that
the solicitation of proxies will be primarily by mail. Officers and service
providers of the Professionally Managed Portfolios and Nicholas-Applegate may
also solicit proxies by telephone, fax, or personal interview. Any shareholder
giving a proxy may revoke it at any time before it is exercised by submitting to
the Acquired Fund a written notice of revocation or a subsequently executed
proxy or by attending the Special Meeting and voting in person.
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Only shareholders of record at the close of business on October __, 2005,
will be entitled to vote at the Special Meeting. On that date there were
outstanding and entitled to vote shares. Each share or fraction thereof is
entitled to one vote or fraction thereof.
If the accompanying proxy is executed and returned in time for the Special
Meeting, the shares covered thereby will be voted in accordance with the proxy
on all matters that may properly come before the Special Meeting or any
adjournment of the Special Meeting. For information on adjournment of the
Special Meeting, see "Quorum" below.
OUTSTANDING SHARES
As of Record Date, the name, address, and share ownership of the persons
who beneficially owned 5% or more of the Acquired Fund's outstanding shares, and
the percentage of shares that would be owned by such persons upon consummation
of the Reorganization based upon their holdings and outstanding shares at Record
Date are as follows:
<Table>
<Caption>
SHAREHOLDER NAME SHARES OWNED PERCENTAGE OF FUND
- ---------------- ------------ ------------------
COVENANT MINISTRIES OF BENEVOLENCE
ATTN: PHIL MELCHERT, TRUSTEE
5145 NO. CALIFORNIA AVE
CHICAGO, IL 60625-3661 733,988.904 44.24%
EVANGELICAL COVENANT CHURCH
ATTN: PHIL MELCHERT, TRUSTEE
5145 NO. CALIFORNIA AVE
CHICAGO, IL 60625-3661 601,298.244 36.24%
ENVIRONMENT NOW
450 NEWPORT CENTER DR., STE 450
NEWPORT BEACH, CA 92660-7620 212,582.081 12.81%
</Table>
SHAREHOLDER AND BOARD APPROVALS
The Reorganization Agreement (and the transactions contemplated thereby) is
being submitted at the Special Meeting for approval by the shareholders of the
Acquired Fund. The approval of the holders of a "majority" of the outstanding
Acquired Fund Shares is required for the approval of the Reorganization with
respect to the Acquired Fund, in accordance with the provisions of the
Declaration of Trust of the Professionally Managed Portfolios. Under the 1940
Act, a "majority" is the lesser of (i) 67% or more of the Acquired Fund Shares
present or represented by proxy at the Special Meeting, if more than 50% of the
Acquired Fund Shares are present or represented by proxy; or (ii) more than 50%
of the total outstanding Acquired Fund Shares. Abstentions will have the same
effect as casting a vote against the relevant Proposal.
The vote of the shareholders of the Acquiring Fund is not being solicited
because their approval or consent is not required for the Reorganization to be
consummated.
QUORUM
A quorum is constituted by the presence in person or by proxy of the
holders of more than 40% of the outstanding shares of the Acquired Fund. In the
event that a quorum is not present at the Special Meeting, or in the event that
a quorum is present at the Special Meeting but sufficient votes to approve the
Reorganization Agreement and the transactions contemplated thereby are not
received, the persons named as proxies may
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propose one or more adjournments of the Special Meeting to permit further
solicitation of proxies. Any such adjournment will require the affirmative
vote of a majority of those shares affected by the adjournment that are
represented at the Special Meeting in person or by proxy. If a quorum is
present, the persons named as proxies will vote those proxies that they are
entitled to vote FOR the Reorganization Agreement in favor of such
adjournments, and will vote those proxies required to be voted AGAINST such
proposal against any adjournment. For purposes of determining the presence of
a quorum, shares represented by abstentions and broker non-votes will be
counted as present and have the effect of a "no" vote at the Meeting. Broker
non-votes exist where a broker proxy indicates that the broker is not
authorized to vote on a particular proposal.
ADDITIONAL INFORMATION ABOUT EACH FUND
THE TRUSTS: MASSACHUSETTS BUSINESS TRUST VERSUS DELAWARE BUSINESS TRUST
The Professionally Managed Portfolios is a Massachusetts business trust,
and Nicholas-Applegate Institutional Funds is organized as a Delaware business
trust. The two forms of organization are very similar. For example, the
responsibilities, powers and fiduciary duties of the Board of Trustees of
Nicholas-Applegate Institutional Funds are substantially the same as those of
the Board. However, the Delaware Business Trust Act ("DBTA") affords business
trusts definable rights and protections by virtue of its terms having been set
forth in the statute, and in some important respects is deemed to have expanded
the protections afforded by the business trust. If the Reorganization is
approved and the transfer of assets takes place, shareholders of the Acquired
Fund will have the benefit of various provisions that either do not exist or are
not explicit under the laws governing entities organized as Massachusetts
business trusts. For example, while the risk of shareholder liability is not
great, the DBTA appears to provide shareholders with greater protection from
liabilities incurred by a business trust organized under the DBTA.
The specific differences between the Professionally Managed Portfolios and
Nicholas-Applegate Institutional Funds are discussed below. The operations of
the Professionally Managed Portfolios, as a Massachusetts business, are governed
by its Declaration of Trust and Bylaws ("Professionally Managed Portfolios'
Declaration of Trust") and Massachusetts law, while the operations of
Nicholas-Applegate Institutional Funds are governed by its Amended and Restated
Declaration of Trust and Bylaws ("NA Funds' Declaration of Trust") and Delaware
law.
LIABILITY OF SHAREHOLDERS
Under Massachusetts law, shareholders of the Professionally Managed
Portfolios may, under certain circumstances, be held personally liable as
partners for the Professionally Managed Portfolios' obligations. However, the
risk of a shareholder incurring financial loss as a result of shareholder
liability is limited to circumstances in which both inadequate insurance
exists and the Professionally Managed Portfolios, itself, is unable to meet
its obligations. The Professionally Managed Portfolios' Declaration of Trust
specifically states that no shareholder shall be personally liable to any
person in connection with the Professionally Managed Portfolios' property or
the acts, obligations or affairs of the Professionally Managed Portfolios.
The Professionally Managed Portfolios' Declaration of Trust further states
that the Professionally Managed Portfolios shall indemnify and hold each
shareholder harmless from and against all loss and expense to which the
shareholder may become subject by reason of his being or having been a
shareholder.
Under the DBTA, on the other hand, shareholders of a Delaware business
trust are entitled to the same limitations of liability extended to
shareholders of private for-profit corporations. As such, there is a
possibility, albeit remote, that under certain circumstances shareholders of
a Delaware business trust may be held personally liable for a Delaware
business trust's obligations. This might occur if the courts of another state
not recognizing the limitation on liability were to apply the laws of the
state to a controversy involving the Delaware business trust's obligations.
To protect against such an occurrence, the NA Funds' Declaration of Trust
provides that Nicholas-Applegate Institutional Funds shall indemnify and hold
each of Nicholas-Applegate Institutional Funds' shareholders harmless from
and against any claim or liability to which the shareholder may become
subject solely
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<Page>
by reason of his or her being or having been a shareholder, and that was not
due to the shareholder's acts or omissions or for some other reason. In such
an instance, Nicholas-Applegate Institutional Funds will reimburse the
shareholder for all legal and other expenses reasonably incurred by him or
her in connection with any such claim or liability. Thus, the risk of a
shareholder incurring financial loss beyond his or her investment due to
shareholder liability is limited to circumstances in which Nicholas-Applegate
Institutional Funds itself is unable to meet its obligations.
ELECTION OF TRUSTEES; SHAREHOLDER MEETINGS
Neither Massachusetts business trust law nor the DBTA require investment
companies to hold annual meetings of shareholders. The shareholders of both
the Acquired Funds and the Acquiring Funds may, from time to time, be
entitled to vote for the election of trustees in elections that are held as
required by the 1940 Act, the Declaration of Trust or the Bylaws. The NA
Funds' Declaration of Trust provides that shareholders' meetings may be
called at any time by a majority of the trustees and shall be called by any
trustee upon written request of shareholders holding, in the aggregate, not
less than 10% of the issued and outstanding shares of beneficial interest.
Shareholder requests for a meeting must specify the purpose or purposes for
which the meeting is to be called.
VOTING RIGHTS OF SHAREHOLDERS
The Professionally Managed Portfolios' Declaration of Trust grants
shareholders the power to vote only with respect to: (i) the election of
trustees; (ii) approval of any investment advisory contract; (iii) the
termination of the Professionally Managed Portfolios or any series of the
Professionally Managed Portfolios; (iv) any amendment of the Professionally
Managed Portfolios' Declaration of Trust, (v) approval of any merger,
consolidation or sale of assets, (vi) the incorporation of the Professionally
Managed Portfolios; (vii) whether or not a court action, proceeding or claim
should or should not be brought or maintained derivatively or as a class
action on behalf of the Professionally Managed Portfolios or a series of the
Professionally Managed Portfolios or the shareholders of either to the same
extent as such action would require shareholder approval by a Massachusetts
business corporation; (viii) any plan adopted pursuant to Rule 12b-1 (or any
successor rule) under the 1940 Act, and related matters; and (ix) additional
matters relating to the Professionally Managed Portfolios as may be required
by the Professionally Managed Portfolios' Declaration of Trust or any
registration of the Professionally Managed Portfolios as an investment
company under the 1940 Act with the SEC (or any successor agency) or as the
trustees may consider necessary or desirable.
The NA Funds' Declaration of Trust grants shareholders the power to vote
only with respect to: (i) the election of trustees; (ii) approval of any
investment advisory contract; (iii) the termination of Nicholas-Applegate
Institutional Funds; (iv) any merger, consolidation or sale of assets; (v)
the incorporation of Nicholas-Applegate Institutional Funds; and (vi)
additional matters relating to Nicholas-Applegate Institutional Funds as may
be required by the 1940 Act, the DBTA or any other applicable law, the NA
Funds' Declaration of Trust or any registration of Nicholas-Applegate
Institutional Funds with the SEC (or any successor agency) or any state, or
as and when the trustees may consider necessary or desirable.
Shareholders of the Acquired Fund will not experience any material
differences in their voting rights as a result of the reorganization.
PRINCIPAL UNDERWRITERS
Nicholas-Applegate Securities, LLC, whose address is 600 West Broadway, San
Diego, California 92101, is the distributor of the Acquiring Fund. Quasar
Distributors, LLC, whose address is 615 East Michigan Street, Milwaukee,
Wisconsin 53202, is the distributor of the Acquired Fund.
FOR MORE INFORMATION
Information about the Acquiring Fund is included in this Prospectus/Proxy
Statement and the related Statement of Additional of Information.
Information about the Acquired Fund is included in its most recent
Prospectus, Statement of Additional Information, Annual Report and
Semi-Annual Report dated March 31, 2005 and September 30, 2004, respectively,
which are incorporated by reference herein. Copies may be obtained upon
request without charge by
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<Page>
contacting the Acquired Fund by calling toll free (800) 558-9105 or by
writing the Fund c/o U.S. Bancorp Fund Services, LLC, P.O. Box 701,
Milwaukee, Wisconsin 53201.
The Acquired Fund and the Acquiring Fund are each subject to the
informational requirements of the Securities Exchange Act of 1934, as
amended, and the 1940 Act, as applicable, and, in accordance with such
requirements, files proxy materials, reports, and other information with the
SEC. These materials can be inspected and copied at the Public Reference
Facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.
20549 and at the offices of the Acquired Fund and the Acquiring Fund listed
on the first page of this Statement. Copies of such materials can also be
obtained from the Public Reference Branch, Office of Consumer Affairs and
Information Services, Securities and Exchange Commission, Washington, D.C.
20549, at prescribed rates, or at no charge from the EDGAR database on the
SEC's website at "www.sec.gov."
OTHER BUSINESS
The Board knows of no other business to be brought before the Special
Meeting. However, if any other matters come before the Special Meeting, it is
the intention that proxies that do not contain specific restrictions to the
contrary will be voted on such matters in accordance with the judgment of the
persons named in the enclosed form of proxy.
SHAREHOLDER INQUIRIES
Shareholder inquiries may be addressed to the Acquired Fund in writing c/o
U.S. Bancorp Fund Services, LLC, P.O. Box 701 Milwaukee, Wisconsin 53201, or by
telephoning 1-800-558-9105.
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE SPECIAL MEETING ARE
URGED TO DATE AND SIGN THE ENCLOSED PROXY AND PROMPTLY RETURN IT IN THE ENCLOSED
ENVELOPE WHICH IS ADDRESSED FOR YOUR CONVENIENCE AND NEEDS NO POSTAGE IF MAILED
IN THE UNITED STATES. IN ORDER TO AVOID THE EXPENSE OF FURTHER SOLICITATION, WE
ASK YOUR COOPERATION IN COMPLETING AND RETURNING YOUR PROXY PROMPTLY.
By Order of the Board of Trustees
Chad E. Fickett Secretary
Milwaukee, Wisconsin
October 21, 2005
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Plan" or "Agreement") is
made as of this ___ day ____________________, 2005, by and between
Nicholas-Applegate Institutional Funds (the "Institutional Funds") on behalf of
the Nicholas-Applegate International All-Cap Growth Fund (the "Acquiring Fund")
and the Professionally Managed Portfolios, on behalf of the Nicholas-Applegate
International All-Cap Growth Fund (the "Acquired Fund").
BACKGROUND
WHEREAS, the Acquired Fund and the Acquiring Fund are series of registered
open-end management investment companies with identical investment objectives,
policies and risks;
WHEREAS, both the Acquired Fund and the Acquiring Fund are authorized to
issue shares of common stock;
WHEREAS, the Boards of Trustees of both the Institutional Funds and the
Acquired Fund, including a majority of the Trustees who are not "interested
persons" as defined in the Investment Company Act of 1940, as amended (the "1940
Act") have determined that the Plan is in the best interests of the respective
shareholders of the Institutional Funds and the Acquired Fund and that their
interests would not be diluted as a result of the transactions;
WHEREAS, for Federal income tax purposes, it is intended that the Plan will
qualify as a reorganization within the meaning of Section 368(a)(1)(f) of the
United States Internal Revenue Code of 1986, as amended.
AGREEMENT
In consideration of the representations, warranties, covenants and
agreements contained in this Agreement, the parties agree as follows:
ARTICLE I
THE PLAN
SECTION 1.1 Creation of Acquiring Fund. Prior to the "Closing Date",
as defined in Section 5.1, the Board of Trustees of the Acquiring Fund
shall create the Acquiring Fund with identical investment objectives,
policies and risks to those of the Acquired Fund, and register the same
with the United States Securities and Exchange Commission under the 1940
Act and its shares under the Securities Act of 1933.
SECTION 1.2 The Merger. Upon the terms and conditions set forth in
this Agreement and in accordance with the laws of the State of Delaware and
the State of Massachusetts, on the Closing Date, the Acquired Fund shall
merge with and into the Acquiring Fund. (the "Merger"). As a result of the
Merger, the separate existence of the Acquired Fund shall cease and the
Acquiring Fund shall continue as the surviving entity in the Merger.
ARTICLE II
EFFECT OF THE MERGER
SECTION 2.1 Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in this Plan and under applicable
provisions of Delaware and Massachusetts law. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time,
all the assets, property, rights, privileges, powers and franchises of the
Acquired Fund shall vest in the Acquiring Fund, and all debts, liabilities,
obligations restrictions and duties of the Acquired Fund shall become the
debts, liabilities, obligations, restrictions and duties of the Acquiring
Fund. At the Effective Time, by virtue of the Merger, each issued and
outstanding share of common stock of the Acquiring Fund shall remain an
issued and outstanding share of common stock of the Acquiring Fund and
shall not be affected by the Merger.
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ARTICLE III
DISTRIBUTION OF SHARES
SECTION 3.1 Liquidation. The Acquired Fund will liquidate and
distribute pro rata to its shareholders of record, determined as of the
Closing Date, the shares received by it in exchange for each shareholder's
interest evidenced by such shareholder's shares of beneficial interest in
the Acquired Fund (the "Shares"). For purposes of computing the number of
Shares to be issued to each shareholder of the Acquired Fund, the number of
Shares to be distributed together with the aggregate net asset value shall
be equal to the number of shares owned by each shareholder on the Closing
Date.
SECTION 3.2 Registration of Shares. The Acquired Fund will accomplish
the liquidation and distribution by opening accounts on the books of the
Acquiring Fund in the names of its shareholders and transferring the Shares
credited to the account of each on the books of the Acquiring Fund. Each
account opened shall represent the respective pro rata number of Shares due
each Acquired Fund shareholder.
SECTION 3.3 Issuance of Share Certificates. The Acquiring Fund will
not issue certificates representing redesignated Shares unless requested to
do so by the holder thereof.
SECTION 3.4 Rights and Privileges. From and after the Closing Date,
the rights and privileges of the Shares shall be determined under the
provisions of Delaware law, the Acquiring Fund's Declaration of Trust and
by-laws.
SECTION 3.5 Transfer Tax. Any transfer taxes payable upon the issuance
of Shares in a name other than the registered holder of the shares on the
books of the Acquired Fund shall be paid by the person to whom such Shares
are to be issued as a condition of such transfer.
SECTION 3.6 Books and Records. All books and records of the Acquired
Fund, including all books and records required to be maintained under the
1940 Act and the rules and regulations thereunder, shall be available to
the Acquiring Fund from and after the Closing Date and shall be turned over
to the Acquiring Fund as soon as practicable following the Closing Date.
SECTION IV
VALUATION
SECTION 4.1 Time and Date of Valuation. The valuation of the Acquired
Fund's assets and liabilities to be acquired by the Acquiring Fund shall be
computed as of 4:00 p.m. (Eastern time) on the Closing Date (the "Valuation
Date"), using the valuation procedures set forth in the Acquired Fund's
then-current Prospectus and Statement of Additional Information.
SECTION 4.2 Valuation Procedure. All computations of value shall be
made in accordance with regular practice of the Acquired Fund.
SECTION 4.3 Delay of Valuation. If on the Valuation Date (a) the
primary trading market for portfolio securities shall be closed to trading
or trading thereon shall be restricted; or (b) trading or the reporting of
trading shall be disrupted so that an accurate appraisal of the value of
the net assets of the Acquired Fund is impracticable, the Closing Date
shall be postponed until the first business day after the day when trading
shall have been fully resumed and reporting shall have been restored.
ARTICLE V
CLOSING AND CLOSING DATE
SECTION 5.1 Closing Time and Place. The Closing Date shall be
November 18, 2005, or such later date as the parties may mutually agree.
All acts taking place at the Closing Date shall be deemed to be taking
place simultaneously as of the close of business on the Closing Date,
unless otherwise provided. Closing shall be held at 4:30 p.m. (Eastern
time), at the offices of Nicholas Applegate Capital Management, 600 West
Broadway, San Diego, California 92101, or such other time and/or place as
the parties may mutually agree. On the Closing Date, the parties shall
cause the Merger to be consummated by filing an agreement of merger or
consolidation
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with the Secretary of State of Delaware and the Secretary of State of
Massachusetts. The Merger shall become effective upon the filing of such
agreements of merger (the "Effective Time").
SECTION 5.2 Delivery of Shareholder Records. US Bancorp Fund Services,
LLC, as transfer agent for the Acquired Fund, shall deliver on the Closing
Date a certificate of an authorized officer stating that its records
contain the names and addresses of the shareholders and the number and
percentage ownership of outstanding shares owned by each such shareholder
immediately prior to closing.
SECTION 5.3 Delivery of the Confirmations. The Acquiring Fund shall
issue and deliver a confirmation evidencing the Shares to be credited on
the Closing Date to the Secretary of the Acquired Fund, or provide evidence
satisfactory that the Shares have been credited to the Acquired Fund's
accounts on the books of the Acquiring Fund.
SECTION 5.4 Delivery of the Assets. UMB Bank, N.A., as custodian for
the Acquired Fund, shall deliver on the Closing Date a certificate of an
authorized officer stating that: (a) its portfolio securities, cash and
other assets shall have been delivered in proper form to the Acquiring Fund
on the Closing Date; and (b) all necessary taxes, including all applicable
federal and state stock transfer stamps, if any, shall have been paid, or
provision for payment shall have been made, in connection with the delivery
of portfolio securities.
ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PARTIES
SECTION 6.1 Conditions to A Party's Obligations to Effect the Plan.
The respective obligations of the Acquiring Fund and the Acquired Fund to
effect the Plan is subject to the satisfaction or waiver on or prior to the
Closing Date of the following conditions:
(a) Shareholder Approval. The Plan and transactions contemplated
herein shall have been approved by the requisite vote of the holders
of the outstanding shares of the Acquired Fund in accordance with the
provisions of its Declaration of Trust, the provisions of the 1940 Act
and the provisions of applicable Delaware and Massachusetts law..
(b) No Injunctions or Restraints. On the Closing Date, no
action, suit or other proceeding shall be pending before any court or
government agency in which it is sought to restrain or prohibit or
obtain damages or other relief in connection with this Plan or the
transactions contemplated hereby.
(c) Consents. All consents of other parties and all other
consents, orders and permits of Federal, state and local regulatory
authorities deemed necessary by the Acquiring Fund or the Acquired
Fund to permit consummation, in all material respects, of the
transactions contemplated shall have been obtained, except where
failure to obtain any such consent, order or permit would not involve
a risk of a material adverse effect on the assets or properties of the
Acquiring Fund or the Acquired Fund; provided that either party may
for itself waive any of such conditions.
(d) Shares to be Issued. The parties shall have agreed on the
number of full and fractional shares that the Acquiring Fund will
issue in connection with the Reorganization.
(e) Effective Registration Statement. The Registration Statement
of the Acquiring Fund shall have become effective and no stop orders
suspending the effectiveness thereof shall have been issued and, to
the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated.
(f) Legal Opinion of Acquiring Fund. That the Acquiring Fund
shall have received an opinion of
(a) Paul, Hastings, Janofsky & Walker LLP, counsel to the
Acquired Fund, dated the Closing Date, to the effect that:
(i) the execution, delivery and performance of the
Agreement have been duly authorized by all necessary statutory
trust action by the Professionally Managed Portfolios on behalf
of the Acquired Fund; the Agreement has been duly executed and
delivered by the Professionally
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Managed Portfolios on behalf of the Acquired Fund; and, assuming
that the Registration Statement and the Proxy Statement comply
with the Securities Act of 1933 Act, the 1934 Act, and the 1940
Act, the Agreement constitutes a valid and binding obligation of
the Professionally Managed Portfolios and the Acquired Fund,
enforceable against the Professionally Managed Portfolios and the
Acquired Fund in accordance with its terms;
(ii) the execution and delivery of the Agreement did not,
and the transfer by the Professionally Managed Portfolios of
properties and assets of the Acquired Fund and the assumption of
the Acquired Fund's liabilities by the Institutional Funds and
the Acquiring Fund in accordance with the Agreement will not,
result in the acceleration of any financial obligation of the
Professionally Managed Portfolios under, any of the agreements
listed on Schedule A to the opinion letter;
(iii) no consent, approval, authorization or order of or
filing with any federal or California governmental authority or
to our knowledge, any California or United States federal court
is required for the Professionally Managed Portfolios' execution
and delivery of the Agreement, and the transfer by the
Professionally Managed Portfolios of properties and assets and
the assumption of liabilities by the Institutional Funds and the
Acquiring Fund in accordance with the Agreement, other than (a)
those that have been obtained under the 1933 Act, the 1934
Exchange Act or the 1940 Act, and (b) those that may be required
under state securities or blue sky laws (as to which no opinion
is expressed);
(iv) the Professionally Managed Portfolios is registered
with the SEC as an investment company under the 1940 Act; based
solely on the SEC Confirmation, the Registration Statement has
been declared effective by the Commission under the 1933 Act; to
such counsel's knowledge, based solely on a telephone
conversation with the Commission, such counsel is not aware of
any stop order suspending the effectiveness of the Registration
Statement and, to such counsel's knowledge, no stop order
proceedings for such purpose are pending by the SEC;
(v) to such counsel's knowledge, there is no action, suit
or proceeding at law or in equity, or by or before any federal or
California state court or governmental or regulatory body or
agency or arbitration board or panel pending or overtly
threatened against the Professionally Managed Portfolios or the
Acquired Fund or any of their assets that challenges or seeks to
prohibit, restrain or enjoin the Merger.
(b) __________________, Massachusetts counsel to the
Acquired Fund (or such other firm as may be reasonably acceptable
to the Acquiring Fund), to the effect that
(i) the Professionally Managed Portfolios is a
Massachusetts business trust validly existing and in good
standing under the laws of the State of Massachusetts; the
Acquired Fund is a series of shares of the Professionally Managed
Portfolios duly established and designated by the Declaration of
Trust; the Declaration of Trust provides the Professionally
Managed Portfolios with the statutory trust power necessary for
it to own its properties and assets and conduct its business as
described in the Registration Statement; and
(ii) the execution and delivery of the Agreement did not,
and the transfer by the Professionally Managed Portfolios of
properties and assets of the Acquired Fund and the assumption of
the Acquired Fund's liabilities by the Institutional Funds and
the Acquiring Fund in accordance with the Agreement will not,
violate the Declaration of Trust or the Bylaws or constitute a
breach by the Professionally Managed Portfolios.
(g) Legal Opinion of Acquired Fund. That the Acquired
Fund shall have received an opinion of counsel to the Acquired
Fund, dated the Closing Date, to the effect that:
(i) the execution, delivery and performance of the
Agreement have been duly authorized by all necessary statutory
trust action by the Institutional Funds on behalf of the
Acquiring Fund; the Agreement has been duly executed and
delivered by the Institutional Funds on behalf of the
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Acquiring Fund; and, assuming that the Registration Statement and
the Proxy Statement comply with the Securities Act of 1933 Act,
the 1934 Act, and the 1940 Act, the Agreement constitutes a valid
and binding obligation of the Institutional Funds and the
Acquiring Fund, enforceable against the Institutional Funds and
the Acquiring Fund in accordance with its terms;
(ii) no consent, approval, authorization or order of or
filing with any federal or California governmental authority or
to our knowledge, any California or United States federal court
is required for the Institutional Funds' execution and delivery
of the Agreement, and the transfer by the Professionally Managed
Portfolios of properties and assets and the assumption of
liabilities by the Institutional Funds and the Acquiring Fund in
accordance with the Agreement, other than (a) those that have
been obtained under the 1933 Act, the 1934 Exchange Act or the
1940 Act, and (b) those that may be required under state
securities or blue sky laws (as to which no opinion is
expressed);
(iii) no consent, approval, authorization or order of or
filing with any federal or California governmental authority or
to our knowledge, any California or United States federal court
is required for the Institutional Funds' execution and delivery
of the Agreement, and the transfer by the Professionally Managed
Portfolios of properties and assets and the assumption of
liabilities by the Institutional Funds and the Acquiring Fund in
accordance with the Agreement, other than (a) those that have
been obtained under the 1933 Act, the 1934 Exchange Act or the
1940 Act, and (b) those that may be required under state
securities or blue sky laws (as to which no opinion is
expressed);
(iv) the Institutional Funds is registered with the SEC as
an investment company under the 1940 Act; based solely on the SEC
Confirmation, the Registration Statement has been declared
effective by the Commission under the 1933 Act; to such counsel's
knowledge, based solely on a telephone conversation with the
Commission, such counsel is not aware of any stop order
suspending the effectiveness of the Registration Statement and,
to such counsel's knowledge, no stop order proceedings for such
purpose are pending by the SEC;
(v) to such counsel's knowledge, there is no action, suit
or proceeding at law or in equity, or by or before any federal or
California state court or governmental or regulatory body or
agency or arbitration board or panel pending or overtly
threatened against the Institutional Funds or the Acquiring Fund
or any of their assets that challenges or seeks to prohibit,
restrain or enjoin the Merger.
(vi) the Institutional Funds is a Delaware business trust
validly existing and in good standing under the laws of the State
of Delaware; the Acquiring Fund is a series of shares of the
Institutional Funds duly established and designated by the
Declaration of Trust; the Declaration of Trust provides the
Institutional Funds with the statutory trust power necessary for
it to own its properties and assets and conduct its business as
described in the Registration Statement; and
(vii) the execution and delivery of the Agreement did not,
and the transfer by the Professionally Managed Portfolios of
properties and assets of the Acquired Fund and the assumption of
the Acquired Fund's liabilities by the Institutional Funds and
the Acquiring Fund in accordance with the Agreement will not,
violate the Declaration of Trust or the Bylaws or constitute a
breach by the Institutional Funds.
(h) Tax Opinions. The Acquired Fund shall have received an
opinion of Kirkpatrick & Lockhart LLP substantially to the effect that
for Federal income tax purposes:
(i) The transfer of substantially all of the Acquired
Fund's assets to the Acquiring Fund in exchange for Shares, and
the distribution of Shares to the Acquired Fund shareholders in
liquidation of the Acquired Fund, will constitute a
"reorganization" (the "Reorganization") within the meaning of
Section 368(a)(1) of the Internal Revenue Code of 1986, as
amended;
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(ii) No gain or loss will be recognized by the Acquiring
Fund upon the receipt of the assets of the Acquired Fund solely
in exchange for Shares;
(iii) No gain or loss will be recognized by the Acquired
Fund upon the transfer of its assets to the Acquiring Fund in
exchange for Shares or upon the distribution of Shares to the
Acquired Fund's shareholders in exchange for their shares;
(iv) No gain or loss will be recognized by the Acquired
Fund's Shareholders upon exchange of their Acquired Fund shares
for Shares;
(v) The tax basis of each of the Acquired Fund's assets
acquired by the Acquiring Fund will be the same as the tax basis
of such assets of the Acquired Fund immediately prior to the
Reorganization;
(vi) The tax basis of Shares received by each Acquired
Fund shareholder pursuant to the Reorganization will be the same
as the tax basis of the Acquired Fund shares held by such
shareholder immediately prior to the Reorganization;
(vii) The holding period of the assets of the Acquired
Funds in the hands of the Acquiring Fund will include the period
during which those assets were held by the Acquired Fund; and
(viii) The holding period of the Shares to be received by
each Acquired Fund shareholder will include the period during
which the Acquired Fund shares exchanged therefor were held by
such shareholder.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
SECTION 7.1 Representations and Warranties of the Acquired Fund. The
Acquired Fund represents and warrants as follows:
(a) Structure and Standing. It is a series of the Professionally
Managed Portfolios. The Professionally Managed Portfolios is a
business trust duly organized, validly existing and in good standing
under the laws of the State of Massachusetts and has the power to own
all of its properties and assets and to carry out this Agreement.
(b) Power. It has full power and authority to enter into and
perform its obligations under this Agreement. The execution, delivery
and performance of this Agreement has been duly authorized by all
necessary action of the Acquired Fund's Board of Trustees, and this
Agreement constitutes a valid and binding contract enforceable in
accordance with its terms, subject to the effects of bankruptcy,
moratorium, fraudulent conveyance and similar laws relating to or
affecting creditors' rights generally and court decisions with respect
thereto.
(c) RIC Status. For each fiscal year of its operations, the
Acquired Fund has met the requirements of Subchapter M of the Internal
Revenue Code unless exempt from such requirements.
(d) Litigation. No litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending against it and, to the best of its knowledge; none is
threatened against it or any of its properties or assets, which, if
adversely determined, would materially and adversely affect its
financial condition or the conduct of its business. It knows of no
facts which might form the basis for the institution of such
proceedings, and is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body which
materially and adversely affects its business or its ability to
consummate the transactions herein contemplated.
(e) Financial Statements. Its Statement of Assets and
Liabilities and the Annual Report to Shareholders have been audited by
Tait Weller & Baker, independent auditors, and together with the Semi
Annual Report to Shareholders, have been prepared in accordance with
generally accepted
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accounting principles, consistently applied, and such statements
(copies of which have been furnished to the Acquiring Fund) fairly
reflect its financial condition as of such date.
(f) Absence of Certain Changes or Events. Since March 30, 2005
there has not been any material adverse change in its financial
condition, assets, liabilities or business other than changes
occurring in the ordinary course of business, or any incurrence of
indebtedness maturing more than one year from the date of such
indebtedness was incurred, except as otherwise disclosed and accepted
by the Acquiring Fund.
(g) Taxes. At the Closing Date, it has filed, or has obtained
extensions to file, all Federal, state and local tax returns which are
required to be filed by it, and has paid or has obtained extensions to
pay, all Federal, state and local taxes shown on said returns to be
due and owing and all assessments received by it, up to and including
the taxable year in which the Closing Date occurs. All tax liabilities
have been adequately provided for on its books, and no tax deficiency
or liability has been asserted and no question with respect thereto
has been raised by the Internal Revenue Service or by any state or
local tax authority for taxes in excess of those already paid, up to
and including the taxable year in which the Closing Date occurs.
(h) SEC Documents. The current Prospectus and Statement of
Additional Information used during the three years prior to the
Reorganization conforms or conformed at the time of its use in all
material respects to the applicable requirements of the Securities Act
of 1933, the Securities Exchange Act of 1934, and the 1940 Act and the
rules and regulations of the Securities and Exchange Commission
thereunder, and does not or did not at the time of its use include any
untrue statement of a material fact or omit to state any material
facts required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not materially misleading. The Registration Statement and
the Proxy Statement insofar as it relates to it does not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein misleading.
(i) Contracts. There are no material contracts outstanding to
which it is a party that have not been disclosed in the Proxy
Statement or will not otherwise be disclosed to the Acquiring Fund
prior to the Closing Date.
(j) Liabilities. It has no known liabilities of a material
amount, contingent or otherwise, other than those shown on its
Statement of Assets and Liabilities, those shown in the footnotes to
its most recent Annual and Semi Annual Reports to Shareholders, those
incurred in the ordinary course of its business as an investment
company since March 30, 2005, and those incurred in connection with
the Plan.
(k) Capital Structure. All of its issued and outstanding shares
are, and on the Closing Date will be, duly and validly issued and
outstanding, fully paid and non-assessable. All of its issued and
outstanding shares will, at the time of the Closing, be held by
persons and the amounts set forth in the records of the transfer
agent.
7.2 Representations and Warranties of the Acquiring Fund. The
Acquiring Fund represents as follows:
(a) Structure and Standing. It is a series of the Institutional
Funds, a business trust duly organized, validly existing and in good
standing under the laws of the State of Delaware and has the power to
own all of its properties and to carry out this Agreement.
(b) Power. It has full power and authority to enter into and
perform its obligations under this Agreement. The execution, delivery
and performance of this Agreement has been duly authorized by all
necessary action of the Institutional Funds' Board of Trustees, and
this Agreement constitutes a valid and binding contract enforceable in
accordance with its terms, subject to the effects of bankruptcy,
moratorium, fraudulent conveyance and similar laws relating to or
affecting creditors' rights generally and court decisions with respect
thereto.
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(c) Litigation. No litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending against it, and, to the best of its knowledge, none is
threatened against it or any of its properties or assets, which, if
adversely determined, would materially and adversely affect its
financial condition or the conduct of its business. It knows of no
facts which might form the basis for the institution of such
proceedings, and is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body which
materially and adversely affects its business or its ability to
consummate the transactions herein contemplated.
(d) SEC Documents. The Registration Statement and Proxy
Statement (i) complies in all material respects with the provisions of
the Securities Act of 1933, Securities Exchange Act of 1934 and the
1940 Act, and (ii) as it relates to the Acquiring Fund does not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein misleading. As of the Closing Date, its prospectus
and statement of additional information will conform in all material
respects to the applicable requirements of the Securities Act of 1933
and the 1940 Act and will not include any untrue statement of material
fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances under which they were made, misleading.
(e) Contracts. There are no material contracts outstanding to
which it is a party that have not been disclosed in the Registration
and the Proxy Statement or will not otherwise be disclosed to the
Acquired Fund prior to the Closing Date.
(f) Capital Structure. All of its issued and outstanding shares
are, and on the Closing Date will be, duly and validly issued and
outstanding, fully paid and non-assessable.
ARTICLE VIII
COVENANTS
SECTION 8.1 Covenants Relating to the Conduct of Business. During the
period from the date of this Agreement and continuing until the earlier of
the termination of this Agreement or the Closing Date, the Acquired Fund
will operate its business in the ordinary course and shall each use
reasonable efforts to preserve intact its current business, and keep
available the services of their current officers and employees and preserve
its relationships with shareholders, suppliers and others having a business
relationship.
SECTION 8.2 Additional Covenants.
(a) PREPARATION OF THE REGISTRATION STATEMENT AND PROXY
STATEMENT. As soon as reasonably practicable after the execution of
this Agreement, the Acquiring Fund will prepare and file the
Registration Statement and Proxy Statement with the United States
Securities and Exchange Commission in form and substance satisfactory
to both parties.
(b) SHAREHOLDERS MEETING. As soon as practicable the Acquired
Fund will call a special meeting of the shareholders of the for the
purpose of considering the Plan.
(c) LIABILITIES. The Acquired Fund will use its best efforts to
discharge all of its known debts, liabilities, obligations, and duties
prior to the Closing Date.
(d) REGISTRATION OF SHARES. The Acquiring Fund will use its best
efforts to register the Shares with the United States Securities and
Exchange Commission.
SECTION 8.3 Fees and Expenses. Whether or not the Plan is consummated,
all costs and expenses incurred in connection with this Agreement and the
transactions contemplated thereby shall be paid by Nicholas-Applegate
Capital Management.
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ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1 Termination. This Agreement may be terminated by
resolution of the Board of Trustees of either the Acquired Fund or the
Acquiring Fund at any time prior to the Closing Date, whether before or
after approval by the shareholders of either party if:
(a) circumstances develop that, in the opinion of the Board of
Trustees of either the Acquired Fund or the Acquiring Fund, make
proceeding with this Plan inadvisable; or
(b) any approval of the shareholders of the Acquired Fund
required for the consummation of the Plan shall not have been obtained
by reason of the failure to obtain the required vote at a duly held
meeting of the shareholders or at any adjournment or postponement
thereof; or
(c) any governmental body shall have issued an order, decree or
ruling having the effect of permanently enjoining, restraining or
otherwise prohibiting the consummation of the Plan.
SECTION 9.2 EFFECT OF THE TERMINATION. In the event of any such
termination, there shall be no liability for damage on the part of the
Acquiring Fund or of the Acquired Fund or the Trustees of the Acquired Fund
or the Acquiring Fund.
SECTION 9.3 AMENDMENT. This Agreement may be amended prior to the
Closing Date by the parties at any time before or after approval hereof by
the shareholders of either party; provided, however, that after such
shareholder approval there shall not be made any amendment that by law
requires further approval by the shareholders of either party without the
further approval of such shareholders.
SECTION 9.4 WAIVER. At any time prior to the Closing Date, any of the
terms or conditions of this Agreement may be waived by the Trustees of the
Acquired Fund and the Acquiring Fund if, in their judgment after
consultation with legal counsel, such action or waiver will not have a
material adverse effect on the benefits intended under this Agreement to
the shareholders of the Acquired Fund.
SECTION 9.5 PROCEDURE FOR TERMINATION, AMENDMENT OR WAIVER. A
termination, amendment or waiver of this Agreement shall, in order to be
effective, require an affirmative vote by a majority of the Board of
Trustees of both the Acquired Fund and the Acquiring Fund.
SECTION 9.6 SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision shall be
effective only to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
SECTION 9.7 ENTIRE AGREEMENT. This Agreement and any other document
and certificate delivered in connection with the transactions contemplated
by this Agreement shall constitute the entire agreement between the parties
with respect to the subject matter hereof and thereof and supersede all
prior agreements, understandings, negotiations and discussions, whether
written or oral, or the parties.
SECTION 9.8 COUNTERPARTS. This Agreement may be executed in one or
more counterparts. All of such counterparts shall constitute one and the
same agreement and shall become effective when one or more counterparts of
this Agreement have been signed by each party.
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IN WITNESS WHEREOF, the Acquiring Fund and the Acquired Fund have each
caused this Agreement and Plan to be executed and attested on its behalf by its
duly authorized representative as of the date first above written.
The Institutional Funds on behalf of Nicholas-Applegate International
All-Cap Growth Fund
By:
-------------------------------
Charles H. Field, Secretary
Nicholas Applegate Institutional Funds
The Professionally Managed Portfolios on behalf of Nicholas-
Applegate International All-Cap Growth Fund
By:
---------------------------------
Chad E. Fickett, Secretary
Professionally Managed Portfolios
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Nicholas-Applegate(R) Institutional Funds
International All Cap Growth Fund
600 West Broadway
San Diego, California 92101
(800) 551-8643
STATEMENT OF ADDITIONAL INFORMATION
October __, 2005
This Statement of Additional Information is not a prospectus but should be
read in conjunction with the Combined Proxy Statement and Prospectus, dated
October __, 2005, for the Special Meeting of Shareholders of the
Nicholas-Applegate International All-Cap Growth Fund, a portfolio of the
Professionally Managed Portfolios, to be held on November 18, 2005. Copies of
the Combined Proxy Statement and Prospectus may be obtained at no charge by
writing or calling the Nicholas-Applegate Institutional Funds at the address or
telephone numbers shown above.
Unless otherwise indicated, capitalized terms used herein and not otherwise
defined have the same meanings as are given to them in the Combined Proxy
Statement and Prospectus.
Further information about the Acquired Fund is contained in the Acquired Fund's
Prospectus and Statement of Additional Information, dated July 30, 2005, and in
the Acquired Fund's audited Annual Report, dated, March 31, 2005, which are
incorporated by reference into this Statement of Additional Information. Any of
these documents referenced may be obtained by calling or writing the Acquired
Fund at (800) 558-9105, 615 East Michigan Street, Milwaukee, Wisconsin 53202.
GENERAL INFORMATION
The shareholders of the Acquired Fund are being asked to approve or
disapprove the Reorganization Agreement dated November 18, 2005 by and between
the Professionally Managed Portfolios on behalf of the Acquired Fund and the
Nicholas-Applegate Institutional Funds on behalf of the Acquiring Fund, and the
transactions contemplated thereby. The Reorganization Agreement contemplates the
transfer of substantially all of the property, assets and good will of the
Acquired Fund in exchange for the Acquiring Fund Shares and the assumption by
the Acquiring Fund of the liabilities of the Acquired Fund. Following the
exchange, the Acquired Fund will make a liquidating distribution of the
Acquiring Fund Shares to the Acquired Fund's shareholders, such that an Acquired
Fund shareholder at the Closing Date will receive full and fractional Acquiring
Fund Shares having an aggregate net asset value equal to the aggregate net asset
value of the shareholder's Acquired Fund Shares. A Special Meeting of
Shareholders of the Acquired Fund to consider the Reorganization Agreement and
the transactions contemplated thereby will be held at 615 East Michigan Avenue,
Third Floor, Milwaukee, Wisconsin on Friday, November 18, 2005, at 10:00 a.m.
Eastern time. For further information about the transaction, see the Combined
Proxy Statement and Prospectus.
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TABLE OF CONTENTS
<Table>
<Caption>
PAGE
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Organization B-2
Investment Objectives, Policies and Associated Risk Factors B-2
Investment Restrictions B-13
Trustees and Principal Officers B-15
Investment Adviser B-18
Custodian, Fund Accounting Agent and Administrators B-20
Transfer and Dividend Disbursing Agent, Legal Counsel and Independent Auditors B-21
Distributor B-21
Distribution Plan B-21
Shareholder Service Plan B-22
Portfolio Transactions and Brokerage B-24
Purchase and Redemption of Fund Shares B-26
Shareholder Services B-27
Fund Holdings Information B-27
Proxy Voting B-29
Net Asset Value B-29
Dividends, Distributions and Taxes B-30
Performance Information B-33
Financial Statements
Pro Forma Financial Statements B-35
Miscellaneous B-48
Appendix A A-1
</Table>
B-1
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ORGANIZATION
Nicholas-Applegate Institutional Funds (the "Trust") is an open-end
investment management company currently offering a number of separate portfolios
(each a "Fund" and collectively the "Funds"). This Statement of Additional
Information contains information regarding the Class I - IV and R, shares of the
International All Cap Growth Fund. The Trust was organized in December 1992 as a
business trust under the laws of Delaware.
Prior to July 24, 1998, the Nicholas-Applegate mutual fund complex was
organized in a "master-feeder" investment structure. Under that structure, the
Nicholas-Applegate Mutual Funds invested all of their assets in corresponding
portfolios, or series, of the Nicholas-Applegate Institutional Funds. On July
24, 1998, the shareholders of the Nicholas-Applegate Mutual Funds approved a
plan that reorganized the "master-feeder" arrangement into a multi-class
structure in which the Nicholas-Applegate Mutual Funds invested in securities
directly and offered various classes of shares through multiple distribution
channels. At the same time the Trust was liquidated.
In May 1999, the Trust was reactivated and renamed Nicholas-Applegate
Institutional Funds to be the successor entity to the institutional assets of
Nicholas-Applegate Mutual Funds ("NAMF"). On that date, substantially all of the
institutional assets of the single-class series of NAMF were transferred to the
renamed Trust in a tax-free exchange for Class I shares of the corresponding
Funds of the Trust, which for accounting purposes is treated as a continuation
of the portfolios. Concurrently, substantially all institutional shareholders of
the multi-class series of NAMF exchanged their shares for corresponding Class I
shares of the respective Funds of the Trust, which has been accounted for as a
table exchange and a commencement of operations of those Funds.
The investment objectives, policies and limitations of the Funds of the
Trust were identical in every respect to the corresponding portfolios of the
NAMF. The investment management fees and expense limitations are also identical.
The Trust is authorized to issue an unlimited number of shares.
INVESTMENT OBJECTIVES, POLICIES AND ASSOCIATED RISK FACTORS
INVESTMENT OBJECTIVES
The investment objective of the Fund is described in the Prospectus. There
can, of course, be no assurance that the Fund will achieve its investment
objective.
INVESTMENT POLICIES AND ASSOCIATED RISK FACTORS
The following supplements the discussion of the various investment
strategies and techniques employed by the Fund as set forth in the Prospectus.
EQUITY SECURITIES:
COMMON STOCK is the most prevalent type of equity security. Common
stockholders receive the residual value of the issuer's earning and assets after
the issuer pays its creditors and any preferred stockholders. As a result,
changes in an issuer's earnings directly influence the value of its common
stock.
PREFERRED STOCKS have the right to receive specified dividends or
distributions before the payment of dividends or distributions on common stock.
Some preferred stocks also participate in dividends and distributions paid on
common stock. Preferred stocks may also permit the issuer to redeem the stock.
WARRANTS give the Fund the option to buy the issuer's stock or other equity
securities at a specified price. The Fund may buy the designated shares by
paying the exercise price before the warrant expires. Warrants may become
worthless if the price of the stock does not rise above the exercise price by
the expiration date. Rights are the same as warrants, except they are typically
issued to existing stockholders.
DEPOSITORY RECEIPTS are receipts issued by an American bank or trust
company evidencing ownership of underlying securities issued by non-U.S.
issuers. ADRs in registered form, are designed for use in U.S. securities
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markets. Such depository receipts may be sponsored by the non-U.S. issuer or may
be unsponsored. The Fund may also invest in European and Global Depository
Receipts ("EDRs" and "GDRs"), which in bearer form, are designed for use in
European securities markets, and in other instruments representing securities of
companies located outside of the U.S. Such depository receipts may be sponsored
by the non-U.S. issuer or may be unsponsored. Unsponsored depository receipts
are organized independently and without the cooperation of the non-U.S. issuer
of the underlying securities; as a result, available information regarding the
issuer may not be as current as for sponsored depository receipts, and the
prices of unsponsored depository receipts may be more volatile than if they were
sponsored by the issuer of the underlying securities. ADRs may be listed on a
national securities exchange or may trade in the over-the-counter market. ADR
prices are denominated in U.S. dollars; the underling security may be
denominated in a non-U.S. currency, although the underlying security may be
subject to non-U.S. governmental taxes which would reduce the yield on such
securities.
CONVERTIBLE SECURITIES are bonds, debentures, notes, preferred stocks or
other securities that may be converted or exchanged (by the holder or by the
issuer) into shares of the underlying common stock (or cash or securities of
equivalent value) at a stated exchange ratio. A convertible security may also be
called for redemption or conversion by the issuer after a particular date and
under certain circumstances (including a specified price) established upon
issue. If a convertible security held by the Fund is called for redemption or
conversion, the Fund could be required to tender it for redemption, convert it
into the underlying common stock, or sell it to a third party.
Convertible securities generally have less potential for gain or loss than
common stocks. Convertible securities generally provide yields higher than the
underlying common stocks, but generally lower than comparable non-convertible
securities. Because of this higher yield, convertible securities generally sell
at prices above their "conversion value," which is the current market value of
the stock to be received upon conversion. The difference between this conversion
value and the price of convertible securities will vary over time depending on
changes in the value of the underlying common stocks and interest rates. When
the underlying common stocks decline in value, convertible securities will tend
not to decline to the same extent because of the interest or dividend payments
and the repayment of principal at maturity for certain types of convertible
securities. However, securities that are convertible other than at the option of
the holder generally do not limit the potential for loss to the same extent as
securities convertible at the option of the holder. When the underlying common
stocks rise in value, the value of convertible securities may also be expected
to increase. At the same time, however, the difference between the market value
of convertible securities and their conversion value will narrow, which means
that the value of convertible securities will generally not increase to the same
extent as the value of the underlying common stocks. Because convertible
securities may also be interest-rate sensitive, their value may increase as
interest rates fall and decrease as interest rates rise. Convertible securities
are also subject to credit risk, and are often lower-quality securities.
The Fund treats convertible securities as equity securities for purposes of
its investment policies and limitations, because of their unique
characteristics.
FIXED INCOME SECURITIES:
CORPORATE DEBT SECURITIES include notes, bonds, debentures and commercial
paper. The credit risks of corporate debt securities vary widely among issuers.
ZERO COUPON SECURITIES do not pay interest or principal until final
maturity. Most debt securities provide periodic payments of interest (referred
to as a "coupon payment"). In contrast, investors buy zero coupon securities at
a price below the amount payable at maturity. The difference between the price
and the amount paid at maturity represents interest on the zero coupon security.
This increases the market and credit risk of a zero coupon security, because an
investor must wait until maturity before realizing any return on the investment.
There are many forms of zero coupon securities. Some securities are
originally issued at a discount and are referred to as "zero coupon" or "capital
appreciation" bonds. Others are created by separating the right to receive
coupon payments from the principal due at maturity, a process known as "coupon
stripping." Treasury STRIPs, IOs, and POs are the most common forms of
"stripped" zero coupon securities. In addition, some securities give
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the issuer the option to deliver additional securities in place of cash interest
payments, thereby increasing the amount payable at maturity. These are referred
to as "pay-in-kind" or "PIK" securities.
COMMERCIAL PAPER is an issuer's draft or note with a maturity of less than
nine months. Companies typically issue commercial paper to fund current
expenditures. Most issuers constantly reissue their commercial paper and use the
proceeds (or bank loans) to repay maturing paper. Commercial paper may default
if the issuer cannot continue to obtain liquidity in this fashion. The sort
maturity of commercial paper reduces both the market and credit risk as compared
to other debt securities of the same issuer.
BANK INSTRUMENTS are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit and
banker's acceptances. Instruments denominated in U.S. dollars and issued by
non-U.S. branches of U.S. or non-U.S. banks are commonly referred to as
Eurodollar instruments. Instruments denominated in U.S. dollars are issued by
U.S. branches of non-U.S. banks are referred to as Yankee instruments.
DEMAND INSTRUMENTS are corporate debt securities that the issuer must repay
upon demand. Other demand instruments require a third party, such as a dealer or
bank, to repurchase the security for its face value upon demand. The Fund treats
demand instruments as short-term securities, even though their stated maturity
may extend beyond one year. Insurance contracts include guaranteed investment
contracts, funding agreements and annuities.
GOVERNMENT OBLIGATIONS include Treasury bills, certificates of
indebtedness, notes and bonds, and issues of such entities as the Government
National Mortgage Association ("GNMA"), Export-Import Bank of the United States,
Tennessee Valley Authority, Resolution Funding Corporation, Farmers Home
Administration, Federal Home Loan Banks, Federal Intermediate Credit Banks,
Federal Farm Credit Banks, Federal Land Banks, Federal Housing Administration,
Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage
Corporation, and the Student Loan Marketing Association. No assurances can be
given that the U.S. Government would provide financial support to U.S.
Government-sponsored instrumentalities if it is not obligated to do so by law.
VARIABLE AND FLOATING RATE INSTRUMENTS are generally not rated by credited
rating agencies; however, the Investment Adviser under guidelines established by
the Trust's Board of Trustees will determine what unrated and variable and
floating rate instruments are of comparable quality at the time of the purchase
to rated instruments eligible for purchase by the Fund. In making such
determinations, the Investment Adviser considers the earning power, cash flow
and other liquidity ratios of the issuers of such instruments (such issuers
include financial, merchandising, bank holding and other companies) and will
monitor their financial condition. An active secondary market may not exist with
respect to particular variable or floating rate instruments purchased by the
Fund. The absence of such an active secondary market could make it difficult for
the Fund to dispose of the variable or floating rate instrument involved in the
event of the issuer of the instrument defaulting on its payment obligation or
during periods in which the Fund is not entitled to exercise its demand rights,
and a Fund could, for these or other reasons, suffer a loss to the extent of the
default. Variable and floating rate instruments may be secured by bank letters
of credit.
ASSET BACKED SECURITIES are payable from pools of obligations other than
mortgages. Almost any type of fixed income assets (including other fixed income
securities) may be used to create an asset backed security. However, most asset
backed securities involve consumer or commercial debts with maturities of less
than ten years. Asset backed securities may take the form of commercial paper or
notes, in addition to pass through certificates. Asset backed securities may
also resemble some types of CMOs, such as Floaters, Inverse Floaters, IOs and
POs.
NON U.S. SECURITIES:
Non U.S. securities are securities of issuers based outside the U.S. They
are primarily denominated in currencies other than U.S. dollars and traded
outside of the U.S. In addition to the risks normally associated with equity and
fixed income securities, non U.S. securities are subject to country risk and
currency risks. Trading in certain non U.S. markets is also subject to liquidity
risks.
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CURRENCY EXCHANGE CONTRACTS are used by the Fund to convert U.S. dollars
into the currency needed to buy a non U.S. security, or to convert non-U.S.
currency received from the sale of a non U.S. security into U.S. dollars ("spot
currency trades"). The Fund may also enter into derivative contracts in which a
currency is an underlying asset. Use of these derivative contracts may increase
or decrease the Fund's exposure to currency risk.
NON U.S. GOVERNMENT SECURITIES generally consist of fixed income securities
supported by national, state, or provincial governments or similar political
subdivisions. Government securities also include debt obligations of
supranational entities, such as international organizations designed or
supported by governmental entities to promote economic reconstruction or
development, international banking institutions and related government agencies.
Examples of these include, but are not limited to, the International Bank for
Reconstruction and Development (the World Bank), the Asian Development Bank, the
European Investment Bank and the Inter-American Development Bank.
Government securities also include fixed income securities of
"quasi-governmental agencies" which are either issued by entities that are owned
by a national, state or equivalent government or are obligations of a political
unit that are not backed by the national government's full faith and credit and
general taxing powers. Further, non U.S. government securities include
mortgage-related securities issued or guaranteed by national, state or
provincial governmental instrumentalities, including guasi-governmental
agencies.
EURODOLLAR CONVERTIBLE SECURITIES are fixed income securities of a U.S. or
non U.S. issuer that are issued outside the United States and are convertible
into equity securities of the same or a different issuer. Interest and dividends
on Eurodollar securities are payable in U.S. dollars outside the United States.
Each Fund may invest without limitation in Eurodollar convertible securities,
subject to its investment policies and restrictions, that are convertible into
equity securities listed, or represented by ADRs listed, on the New York Stock
Exchange or the American Stock Exchange or convertible into publicly traded
common stock of U.S. companies.
EURODOLLAR AND YANKEE DOLLAR INSTRUMENTS are bonds that pay interest and
principal in U.S. dollars held in banks outside the United States, primarily in
Europe. Eurodollar instruments are usually issued on behalf of multinational
companies and non-U.S. governments by large underwriting groups composed of
banks and issuing houses from may countries. Yankee Dollar instruments are U.S.
dollar denominated bonds issued in the U.S. by non-U.S. banks and corporations
located outside of the U.S.
RISK MANAGEMENT AND RETURN ENHANCEMENT STRATEGIES
The Fund may engage in various portfolio strategies, including using
derivatives, to reduce certain risks of its investments and to enhance return.
The Fund may lose money through any unsuccessful use of these strategies. These
strategies include the use of currency forward contracts, options, futures
contracts and options thereon. The Fund's ability to use these strategies may be
limited by various factors, such as market conditions, regulatory limits and tax
considerations, and there can be no assurance that any of these strategies will
succeed. If new financial products and risk management techniques are developed,
the Fund may use them to the extent consistent with its investment objectives
and polices.
RISKS OF RISK MANAGEMENT AND RETURN ENHANCEMENT STRATEGIES. Participation
in the options and futures markets and in currency exchange transactions
involves investment risks and transaction costs to which the Fund would not be
subject absent the use of these strategies. The Fund may lose money through any
unsuccessful use of these strategies. If the Investment Adviser's predictions of
movements in the direction of the securities, currency or interest rate markets
are inaccurate, the adverse consequences to the Fund may leave it in a worse
position than if such strategies were not used. Risk inherent in the use of
options, currency and futures contracts and options on futures contracts include
(1) dependence on the Investment Adviser's ability to predict correctly
movements in the direction of interest rates, securities prices and currency
markets; (2) imperfect correlation between the price of options and futures
contracts and options thereon and movements in the prices of the securities
being hedged; (3) the fact that skills needed to use these strategies are
different from those needed to select portfolio securities; (4) the possible
absence of a liquid secondary market for any particular instrument at any time;
(5) the risk that the counterparty may be unable to complete the transaction;
and (6) the possible
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liability of the Fund to purchase or sell a portfolio security at a
disadvantageous time, due to the need for the Fund to maintain "cover" or to
segregate assets in connection with hedging transactions.
DERIVATIVES:
SYNTHETIC CONVERTIBLE SECURITIES are derivative positions composed of two
or more different securities whose investment characteristics, taken together,
resemble those of convertible securities. For example, the Fund may purchase a
non-convertible debt security and a warrant or option, which enables the Fund to
have a convertible-like position with respect to a company, group of companies
or stock index. Synthetic convertible securities are typically offered by
financial institutions and investment banks in private placement transactions.
Upon conversion, the Fund generally receives an amount in cash equal to the
difference between the conversion price and the then current value of the
underlying security. Unlike a true convertible security, a synthetic convertible
comprises two or more separate securities, each with its own market value.
Therefore, the market value of a synthetic convertible is the sum of the values
of its fixed-income component and its convertible component. For this reason,
the values of a synthetic convertible and a true convertible security may
respond differently to market fluctuations.
OPTIONS AND FUTURES:
OPTIONS are rights to buy or sell an underlying asset for a specified price
(the exercise price) during, or at the end of, a specified period of time. A
call option gives the holder (buyer) the right to purchase the underlying asset
from the seller (writer) of the option. A put option gives the holder the right
to sell the underlying asset to the writer of the option. The writer of the
option receives a payment, or "premium", from the buyer, which the writer keeps
regardless of whether the buyer uses (or exercises) the option.
The Fund may:
- Buy call options on non U.S. currency in anticipation of an increase in
the value of the underlying asset.
- Buy put options on non U.S. currency, portfolio securities, and futures
in anticipation of a decrease in the value of the underlying asset.
- Write call options on portfolio securities and futures to generate
income from premiums, and in anticipation of a decrease or only limited
increase in the value of the underlying asset. If a call written by the
Fund is exercised, the Fund foregoes any possible profit from an
increase in the market price of the underlying asset over the exercise
price plus the premium received. When the Fund writes options on futures
contracts, it will be subject to margin requirements similar to those
applied to futures contracts.
STOCK INDEX OPTIONS. The Fund may also purchase put and call options with
respect to U.S. and global stock indices. The Fund may purchase such options as
a hedge against changes in the values of portfolio securities or securities
which they intend to purchase or sell, or to reduce risks inherent in the
ongoing management of the Fund.
The distinctive characteristics of options on stock indices create certain
risks not found in stock options generally. Because the value of an index option
depends upon movements in the level of the index rather than the price of a
particular stock, whether the Fund will realize a gain or loss on the purchase
or sale of an option on an index depends upon movements in the level of stock
prices in the stock market generally rather than movements in the price of a
particular stock. Accordingly, successful use by the Fund of options on a stock
index depends on the Investment Adviser's ability to predict correctly movements
in the direction of the stock market generally. This requires different skills
and techniques than predicting changes in the price of individual stocks.
Index prices may be distorted if circumstances disrupt trading of certain
stocks included in the index, such as if trading were halted in a substantial
number of stocks included in the index. If this happens, the Fund could not
close out options which it had purchased, and if restrictions on exercise were
imposed, the Fund might be unable to exercise an option it holds, which could
result in substantial losses to the Fund. The Fund purchases put or call
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options only with respect to an index which the Investment Adviser believes
includes a sufficient number of stocks to minimize the likelihood of a trading
halt in the index.
NON U.S. CURRENCY OPTIONS. The Fund may buy or sell put and call options on
non U.S. currencies. A put or call option on non-U.S. currency gives the
purchaser of the option the right to sell or purchase a non U.S. currency at the
exercise price until the option expires. The Fund uses non U.S. currency options
separately or in combination to control currency volatility. Among the
strategies employed to control currency volatility is an option collar. An
option collar involves the purchase of a put option and the simultaneous sale of
a call option on the same currency with the same expiration date but with
different exercise (or "strike") prices. Generally, the put option will have an
out-of-the-money strike price, while the call option will have either an
at-the-money strike price of an in-the-money strike prices. Currency options are
derivative securities. Currency options traded on U.S. or other exchanges may be
subject to position limits which may limit the ability of the Fund to reduce
non-U.S. currency risk using such options.
As with other kinds of option transactions, writing options on non-U.S.
currency constitutes only a partial hedge, up to the amount of the premium
received. The Fund could be required to purchase or sell non U.S. currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on non U.S. currency may constitute an effective hedge against exchange
rate fluctuations; however, in the event of exchange rate movements adverse to
the Fund's position, the Fund may forfeit the entire amount of the premium plus
related transaction costs.
FORWARD CURRENCY CONTRACTS. The Fund may enter into forward currency
contracts in anticipation of changes in currency exchange rates. A forward
currency contract is an obligation to purchase or sell a specific currency at a
future date, which may be any fix number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. For
example, the Fund might purchase a particular currency at a future date, which
may be any fixed number of days from the date of the contract agreed upon by the
parties, at a price set at the time of the contract. For example, the Fund might
purchase a particular currency or enter into a forward currency contract to
preserve the U.S. dollar price of securities it intends to or has contracted to
purchase. Alternatively, it might sell a particular currency on either a spot or
forward basis to hedge against an anticipated decline in the dollar value of
securities it intends to or has contracted to sell. Although this strategy could
minimize the risk of loss due to a decline in the value of the hedged currency,
it could also limit any potential gain from an increase in the value of the
currency.
FUTURES CONTRACTS provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a price, date, and
time specified when the contract is made. Futures contracts traded OTC are
frequently referred to as "forward contracts". Entering into a contract to buy
is commonly referred to as buying or purchasing a contract or holding a long
position. Entering into a contract to sell is commonly referred to as selling a
contract or holding a short position. Futures are considered to be commodity
contracts.
The Fund may buy and sell interest rate or financial futures, futures on
indices, non U.S. currency exchange contracts, forward non-U.S. currency
exchange contracts, non-U.S. currency options, and non-U.S. currency futures
contracts.
INTEREST RATE OR FINANCIAL FUTURES CONTRACTS. The Fund may invest in
interest rate or financial futures contracts. Bond prices are established in
both the cash market and the futures market. In the cash market, bonds are
purchased and sold with payment for the full purchase price of the bond being
made in cash, generally within five business days after the trade. In the
futures markets, a contract is made to purchase or sell a bond in the future for
a set price on a certain date. Historically, the prices for bonds established in
the futures markets have generally tended to move in the aggregate in concert
with cash market prices, and the prices have maintained fairly predictable
relationships.
The sale of an interest rate or financial future sale by the Fund obligates
the Fund, as seller, to deliver the specific type of financial instrument called
for in the contract at a specific future time for a specified price. A futures
contract purchased by the Fund obligates the Fund, as purchaser, to take
delivery of the specific type of financial instrument at a specific future time
at a specific price. The specific securities delivered or taken,
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respectively, at settlement date, would not be determined until at or near that
date. The determination would be in accordance with the rules of the exchange on
which the futures contract sale or purchase was made.
Although interest rate or financial futures contracts by their terms call
for actual delivery or acceptance of securities, in most cases the contracts are
closed out before the settlement date without delivery of securities. The Fund
closes out a futures contract sale by entering into a futures contract purchase
for the same aggregate amount of the specific type of financial instrument and
the same delivery date. If the price in the sale exceeds the price in the
offsetting purchase, the Fund receives the difference and thus realizes a gain.
If the offsetting purchase price exceeds the sale price, the Fund pays the
difference and realizes a loss. Similarly, the Fund closes out a futures
contract purchase by entering into a futures contract sale. If the offsetting
sale price exceeds the purchase price, the Fund realizes a gain, and if the
purchase price exceeds the offsetting sale price, the Fund realizes a loss.
OPTIONS ON FUTURES CONTRACTS. The Fund may purchase options on the futures
contracts they can purchase or sell, as describe above. A futures option gives
the holder, in return for the premium paid, the right to buy (call) from or sell
(put) to the writer of the option a futures contract at a specified price at any
time during the period of the option. Upon exercise, the writer of the option is
obligated to pay the difference between the cash value of the futures contract
and the exercise price. Like the buyer or seller of a futures contract, the
holder or writer of an option has the right to terminate its position prior to
the scheduled expiration of the option by selling, or purchasing an option of
the same series, at which time the person entering into the closing transaction
will realize a gain or loss. There is no guarantee that such closing
transactions can be effected.
Investments in futures options involve some of the same considerations as
investments in futures contracts (for example, the existence of a liquid
secondary market). In addition, the purchase of an option also entails the risk
that changes in the value of the underlying futures contract will not be fully
reflected in the value of the option. Depending on the pricing of the contract
will note be fully reflected in the value of the option. Depending on the
pricing of the option compared to either the futures contract upon which it is
based, or upon the price of the securities being hedged, an option may or may
not be less risky than ownership of the futures contract or such securities. In
general, the market prices of options are more volatile than the market prices
on the underlying futures contracts. Compared to the purchase or sale of futures
contracts, however, the purchase of call or put options on futures contracts may
frequently involve less potential risk to the Fund because the maximum amount at
risk is limited to the premium paid for the options (plus transaction costs).
Investments in futures options involve some of the same considerations as
investments in futures contracts (for example, the existence of a liquid
secondary market). In addition, the purchase of an option also entails the risk
that changes in the value of the underlying futures contact will not be fully
reflected in the value of the option. Depending on the pricing of the option
compared to either the futures contract upon which it is based, or upon the
price of the securities being hedged, an option may or may not be less risky
than ownership of the futures contract or such securities. In general, the
market prices of options are more volatile than the market prices on the
underlying futures contracts. Compared to the purchase or sale of futures
contracts, however, the purchase of call or put options on futures contracts may
frequently involve less potential risk to the Fund because the maximum amount at
risk is limited to the premium paid for the options (plus transaction costs).
RISKS OF TRANSACTIONS IN OPTIONS AND FUTURES CONTRACTS. There are several
risks related to the use of futures as a hedging device. One risk arises because
of the imperfect correlation between movements in the price of the options or
futures contract and movements in the price of the securities which are the
subject of the hedge. The price of the contract may move more or less than the
price of the securities being hedged. If the price of the contract moves less
than the price of the securities which are the subject of the hedge, the hedge
will not be fully effective, but if the price of the securities being hedged has
moved in an unfavorable direction, the Fund would be in a better position than
if it had not hedged at all. If the price of the security being hedged has moved
in a favorable direction, this advantage will be partially offset by the loss on
the contract. If the price of the future moves more than the price of the hedged
securities, the Fund will experience either a loss or a gain on the contract
which will not be completely offset by movements in the price of the securities
which are subject to the hedge.
B-8
<Page>
When contracts are purchased to hedge against a possible increase in the
price of securities before the Fund is able to invest its cash (or cash
equivalents) in securities (or options) in an orderly fashion, it is possible
that the market may decline instead. If the Fund then decides not to invest in
securities or options at that time because of concern as to possible further
market decline or for other reasons, it will realize a loss on the contract that
is not offset by a reduction in the price of securities purchased.
Although the Fund intends to purchase or sell contracts only on exchanges
or boards of trade where there appears to be an active secondary market, there
is no assurance that a liquid secondary market on an exchange or board of trade
will exist for any particular contract or at any particular time. In such event,
it may not be possible to close a futures position, and in the event of adverse
price movements, the Fund would continue to be required to make daily cash
payments of variation margin.
Most United States futures exchanges limit the amount of fluctuation
permitted in futures contract prices during a single trading day. The daily
limit establishes the maximum amount that the price of a futures contract may
vary either up or down from the previous day's settlement price at the end of
the trading session. Once the daily limit has been reached in a particular type
of futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.
Successful use of futures by the Fund depends on the Investment Adviser's
ability to predict correctly movements in the direction of the market. For
example, if the Fund hedges against the possibility of a decline in the market
adversely affecting stocks held in its portfolio and stock prices increase
instead, the Fund will lose part or all of the benefit of the increased value of
the stocks which it has hedged because it will have offsetting losses in its
futures positions. In addition, in such situations, if the Fund has insufficient
cash, it may have to sell securities to meet daily variation margin
requirements. Such sales of securities may be, but will not necessarily be, at
increased prices which reflect the rising market. The Fund may have to sell
securities at a time when it may be disadvantageous to do so.
In the event of the bankruptcy of a broker through which the Fund engages
in transactions in futures contracts or options, the Fund could experience
delays and losses in liquidating open positions purchased or sold through the
broker, and incur a loss of all or part of its margin deposits with the broker.
RESTRICTIONS ON THE USE OF FUTURES CONTRACTS AND RELATED OPTIONS
Excepts as described below under "Non Hedging Strategic Transactions", the
Fund will not engage in transactions in futures contracts or related options for
speculation, but only as a hedge against changes resulting from market
conditions in the values of securities held in the Fund's portfolio or which it
intends to purchase and where the transactions are economically appropriate to
the reduction of risks inherent in the ongoing management of the Fund. The Fund
may not purchase or sell futures or purchase related options if, immediately
thereafter, more than 25% of its net assets would be hedged. A Fund also may not
purchase or sell futures or purchase related options if, immediately thereafter,
the sum of the amount of margin deposits on the Fund's existing futures
positions and premiums paid for such options would exceed 5% of the market value
of the Fund's net assets.
Upon the purchase of futures contracts, the Fund will deposit an amount of
cash or liquid debt or equity securities, equal to the market value of the
futures contracts, in a segregated account with the Custodian or in a margin
account with a broker to collateralize the position and thereby insure that the
use of such futures is unleveraged.
INTEREST RATE AND CURRENCY SWAPS:
For hedging purposes, the Fund may enter into interest rate and currency
swap transactions and purchase or sell interest rate and currency caps and
floors. An interest rate swap involves an agreement between the Fund and another
party to exchange payments calculated as if they were interest on a specified
("notional") principal
B-9
<Page>
amount (e.g., an exchange of floating rate payments by one party for fixed rate
payments by the other). An interest rate cap or floor entitles the purchaser, in
the exchange for a premium, to receive payments of interest on a notional
principal amount from the seller of the cap or floor, to the extent that a
specified reference rate exceeds or falls below a predetermined level.
CROSS-CURRENCY SWAPS. A cross-currency swap is a contract between two
counterparties to exchange interest and principal payments in different
currencies. A cross-currency swap normally has an exchange of principal at
maturity (the final exchange); and exchange of principal at the start of the
swap (the initial exchange) is optional. An initial exchange of notional
principal amounts at the spot exchange rate serves the same function as a spot
transaction in the non-U.S. exchange market (for an immediate exchange of
non-U.S. exchange risk). An exchange at maturity of notional principal amounts
at the spot exchange rate serves the same function as a forward transaction in
the non-U.S. exchange market (for a future transfer of non-U.S. exchange risk).
The currency swap market convention is to use the spot rate rather than the
forward rate for the exchange at maturity. The economic difference is realized
through the coupon exchanges over the life of the swap. In contrast to single
currency interest rate swaps, cross-currency swaps involve both interest rate
risk and currency exchange risk.
SWAP OPTIONS. The Fund may invest in swap options. A swap option is a
contract that gives a counterparty the right (but not the obligation) to enter
into a new swap agreement or to shorten, extend, cancel or otherwise change an
existing swap agreement, at some designated future time on specified terms. It
is different from a forward swap, which is a commitment to enter into a swap
that starts at some future date with specified rates. A swap option may be
structured European-style (exercisable on the pre-specified date) or
American-style (exercisable during a designated period). The right pursuant to a
swap option must be exercised by the right holder. The buyer of the right to
receive fixed pursuant to a swap option is said to own a call.
RISKS ASSOCIATED WITH SWAPS. In connection with swap transactions, the Fund
relies on the other party to the transaction to perform its obligations pursuant
to the underlying agreement. If there were a default by the other party to the
transaction, the Fund would have contractual remedies pursuant to the agreement,
but could incur delays in obtaining the expected benefit of the transaction or
loss of such benefit. In the event of insolvency of the other party, the Fund
might be unable to obtain its expected benefit. In addition, while the Fund will
seek to enter into such transactional only with parties which are capable of
entering into closing transactions with the Fund, there can be no assurance that
the Fund will be able to close out such a transaction with the other party, or
obtain an offsetting position with any other party, at any time prior to the end
of the term of the underlying agreement. This may impair the Fund's ability to
enter into other transactions at a time when doing so might be advantageous.
The Fund usually enters into such transactions on a "net" basis, with the
Fund receiving or paying, as the case may be, only the net amount of the two
payment streams. The net amount of accrued on a daily basis, and an amount of
cash or high-quality liquid securities having an aggregate net asset value at
least equal to the accrued excess is maintained in a segregated account by the
Trust's custodian. If the Fund enters into a swap on other than a net basis, or
sells caps or floors, the Fund maintains a segregated account of the full amount
accrued on a daily basis of the fund's obligations with respect to the
transaction. Such segregated accounts are maintained in accordance with
applicable regulations of the Commission.
The Fund will not enter into any of these transactions unless the unsecured
senior debt or the claims paying ability of the other party to the transaction
is rated at least "high quality" at the time of the purchase by at least one of
the established rating agencies (e.g., AAA or AA by S&P).
SPECIAL TRANSACTIONS
TEMPORARY INVESTMENTS. The Fund may temporarily depart from its principal
investment strategies in response to adverse market, economic, political or
other conditions by investing its assets in cash, cash items, and short-term,
higher quality debt securities. A Fund may do this to minimize potential losses
and maintain liquidity to meet shareholder redemptions during adverse market
conditions. A defensive posture taken by the Fund may result in it failing to
achieve its investment objective.
B-10
<Page>
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest
its assets in securities of other investment companies as an efficient means of
carrying out its investment policies. It should be noted that investment
companies incur certain expenses, such as management fees, and, therefore, any
investment by the Fund in shares of other investment companies may be subject to
such duplicate expenses.
NON-HEDGING STRATEGIC TRANSACTIONS
The Fund's options, futures and swap transactions will generally be entered
into for hedging purposes--to protect against possible changes in the market
values of securities held in or to be purchased for the Fund's portfolio
resulting from securities markets, currency or interest rate fluctuations, to
protect the Fund's unrealized gains in the values of its portfolio securities,
to facilitate the sale of such securities for investment purposes, to manage the
effective maturity or duration of the Fund's portfolio, or to establish a
position in the derivatives markets as a temporary substitute for purchase or
sale of particular securities.
REPURCHASE AGREEMENTS are transactions in which the Fund buys a security
from a dealer or bank and agrees to sell the security back at a mutually agreed
upon time and price. Pursuant to such agreements, the Fund acquires securities
from financial institutions as are deemed to be creditworthy by the Investment
Adviser, subject to the seller's agreement to repurchase and the Fund's
agreement to resell such securities at a mutually agreed upon date and price.
The repurchase price generally equals the price paid by the Fund plus interest
negotiated on the basis of current short-term rates (which may be more or less
than the rate on the underlying portfolio security). Securities subject to
repurchase agreements will be held by the Fund's custodian or in the Federal
Reserve/Treasury Book-Entry System or an equivalent non-U.S. system. The seller
under a repurchase agreement will be required to maintain the value of the
underlying securities at not less than 102% of the repurchase price under the
agreement. If the seller defaults on its repurchase obligation, the Fund holding
the repurchase agreement will suffer a loss to the extent that the proceeds from
a sale of the underlying securities is less than the repurchase price under the
agreement. Bankruptcy or insolvency of such a defaulting seller may cause the
Fund's rights with respect to such securities to be delayed or limited.
Repurchase agreements may be considered to be loans under the Investment Company
Act.
A Fund's custodian is required to take possession of the securities subject
to repurchase agreements. The Investment Adviser or the custodian will monitor
the value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements, which involve the sale of a security by the Fund and its agreement
to repurchase the security (or, in the case of mortgage-backed securities,
substantially similar but not identical securities) at a specified time and
price. The Fund will maintain in a segregated account with its custodian cash,
U.S. Government securities or other appropriate liquid securities in an amount
sufficient to cover its obligations under these agreements with broker-dealers
(no such collateral is required on such agreements with banks).
WHEN-ISSUED SECURITIES, FORWARD COMMITMENTS AND DELAYED SETTLEMENTS. The
Fund may purchase securities on a "when-issued," forward commitment or delayed
settlement basis. In this event, the Fund's custodian will set aside cash or
liquid portfolio securities equal to the amount of the commitment in a separate
account. Normally, the custodian will set aside portfolio securities to satisfy
a purchase commitment. In such a case, the Fund may be required subsequently to
place additional assets in the separate account in order to assure that the
value of the account remains equal to the amount of the Fund's commitment. It
may be expected that a Fund's net assets will fluctuate to a greater degree when
it sets aside portfolio securities to cover such purchase commitments than when
it sets aside cash.
The Fund does not intend to engage in these transactions for speculative
purposes but only in furtherance of their investment objectives. Because the
Fund will set aside cash or liquid portfolio securities to satisfy its purchase
commitments in the manner described, the Fund's liquidity and the ability of the
Investment Adviser to manage it may be affected in the event the Fund's forward
commitments, commitments to purchase when-issued securities and delayed
settlements ever exceed 15% of the value of its net assets.
B-11
<Page>
When the Fund engages in when-issued, forward commitments and delayed
settlement transactions, it relies on the other party to consummate the trade.
Failure of such party to do so may result in the Fund's incurring a loss or
missing an opportunity to obtain a price credited to be advantageous.
BORROWING. The Fund may borrow money through various techniques. All
borrowings by the Fund cannot exceed one-third of the Fund's total assets.
The use of borrowing by the Fund involves special risk considerations that
may not be associated with other funds having similar objectives and policies.
Since substantially all of the Fund's assets fluctuate in value, whereas the
interest obligation resulting form a borrowing remain fixed by the terms of the
Fund's agreement with its lender, the asset value per share of the Fund tends to
increase more when its portfolio securities increase in value and to decrease
more when its portfolio assets decrease in value than would otherwise be the
case if the Fund did not borrow funds. In addition, interest costs on borrowings
may fluctuate with changing market rates of interest and may partially offset or
exceed the return earned on borrowed funds. Under adverse market conditions, the
Fund might have to sell portfolio securities to meet interest or principal
payments at a time when fundamental investment considerations would not favor
such sales.
SHORT SALES. The Fund may make short sales of securities it owns or have
the right to acquire at no added cost through conversion or exchange or other
securities they own (referred to as short sales "against the box") and short
sales of securities which they do not own or have the right to acquire.
In a short sale that is not "against the box," the Fund sells a security
which it does not own, in anticipation of a decline in the market value of the
security. To complete the sale, the Fund must borrow the security (generally
from the broker through which the short sale is made) in order to make delivery
to the buyer. The Fund must replace the security borrowed by purchasing it at
the market price at the time of replacement. The Fund is said to have a "short
position" in the securities sold until it delivers them to the broker. The
period during which the Fund has a short position can range from one day to more
than a year. Until the Fund replaces the security, the proceeds of the short
sale are retained by the broker, and the Fund must pay to the broker a
negotiated portion of any dividends or interest which accrue during the period
of the loan. To meet current margin requirements, the Fund must deposit with the
broker additional cash or securities so that it maintains with the broker a
total deposit equal to 150% of the current market value of the securities sold
short (100% of the current market value if a security is held in the account
that is convertible or exchangeable into the security sold short within 90 days
without restriction other than the payment of money).
Since the Fund in effect profits from a decline in the price of the
securities sold short without the need to invest the full purchase price of the
securities on the date of the short sale, the Fund's net asset value per share
tends to increase more when the securities it has sold short increase in value,
than would otherwise be the case if it had not engage in such short sale. The
amount of any gain will be decreased, and the amount of any loss increased, by
the amount of any premium, dividends or interest the Fund may be required to pay
in connection with the short sale. Short sales theoretically involve unlimited
loss potential, as the market price of securities sold short may continually
increase, although the Fund may mitigate such losses by replacing the securities
sold short before the market price has increased significantly. Under adverse
market conditions the Fund might have difficulty purchasing securities to meet
its short sale delivery obligations, and might have to sell portfolio securities
to raise the capital necessary to meet its short sale obligations at a time when
fundamental investment considerations would not favor such sales.
As a matter of policy, the Trust's Board of Trustees has determined that
the Fund will not make short sales of securities or maintain a short position if
to do so could create liabilities or require collateral deposits and segregation
of assets aggregating more than 25% of the Fund's total assets, taken at market
value.
ILLIQUID SECURITIES. Illiquid securities are securities which are not
readily marketable within seven days and repurchase agreements having a maturity
of longer than seven days. The Fund might be unable to dispose of the securities
promptly or at reasonable prices and might thereby experience difficulty
satisfying redemption within seven days.
B-12
<Page>
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act, including
repurchase agreements, commercial paper, non U.S. securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. The fact that
there are contractual or legal restrictions on resale to the general public or
to certain institutions may not be indicative of the liquidity of such
investments. If such securities are subject to purchase by institutional buyers
in accordance with Rule 144A promulgated by the Commission under the Securities
Act, the Trust's Board of Trustees has determined that such securities are not
illiquid securities notwithstanding their legal or contractual restrictions on
resale. In all other cases, however, securities subject to restrictions on
resale will be deemed illiquid. Investing in restricted securities eligible for
resale under Rule 144A could have the effect of increasing the level of
illiquidity in the Funds to the extent that qualified institutional buyers
become uninterested in purchasing such securities.
DIVERSIFICATION
The Fund is "diversified" within the meaning of the Investment Company Act.
In order to qualify as diversified, the Fund must diversify its holdings so that
at all times at least 75% of the value of its total assets is represented by:
(1) cash and cash items, Government securities and securities of other
investment companies; and (2) other securities except that the Fund may not
invest more than 5% of its total assets in the securities of any single issuer
or own more than 10% of the outstanding voting securities of any one issuer.
INVESTMENT RESTRICTIONS
The Trust, on behalf of the Fund, has adopted the following fundamental
policies that cannot be changed without the affirmative vote of a majority of
the outstanding shares of the Fund (as defined in the Investment Company Act).
All percentage limitations set forth below apply immediately after a
purchase or initial investment, and any subsequent change in any applicable
percentage resulting from market fluctuations will not require elimination of
any security from the relevant portfolio.
The investment objective of the Fund is a fundamental policy. In addition,
the Fund may not:
1. Invest in securities of any one issuer if more than 5% of the
market value of its total assets would be invested in the
securities of such issuer, except that up to 25% of a Fund's
total assets may be invested without regard to this restriction
and a Fund will be permitted to invest all or a portion of its
assets in another diversified, open-end management investment
company with substantially the same investment objective,
policies and restrictions as the Fund. This restriction also does
not apply to investments by a Fund in securities of the U.S.
Government or any of its agencies or instrumentalities.
2. Purchase more than 10% of the outstanding voting securities, or
of any class of securities, or any one issuer, or purchase the
securities of any issuer for the purpose of exercising control or
management, except that a Fund will be permitted to invest all or
a portion of its assets in another diversified, open-end
management investment company with substantially the same
investment objective, policies and restrictions as the Fund.
3. Invest 25% or more of the market value of its total assets in the
securities of issuers in any one particular industry, except that
the Fund will be permitted to invest all or a portion of its
assets in another diversified, open-end management investment
company with substantially the same investment objective,
policies and restrictions as the Fund. This restriction does not
apply to investments by the Fund in securities of the U.S.
Government or its agencies and instrumentalities.
4. Purchase or sell real estate. However, the Fund may invest in
securities secured by, or issued by companies that invest in,
real estate or interest in real estate.
B-13
<Page>
5. Make commercial loans of money, except that the Fund may purchase
debt instruments and certificates of deposit and enter into
repurchase agreements. The Fund reserves the authority to make
loans of its portfolio securities in an aggregate amount not
exceeding 30% of the value of its total assets.
6. Borrow money on a secured or unsecured basis, provided that,
pursuant to the Investment Company Act, the Fund may borrow money
if the borrowing is made from a bank or banks and only to the
extent that the value of the Fund's total assets, less its
liabilities other than borrowings, is equal to at least 300% of
all borrowings (including proposed borrowings).
7. Pledge or in any way transfer as security from indebtedness any
securities owned or held by it, except to secure indebtedness
permitted by restriction 6 above. This restriction shall not
prohibit the Fund from engaging in options, futures and non-U.S.
currency transactions.
8. Underwrite securities of other issuers, except insofar as it may
be deemed an underwriter under the Securities Act in selling
portfolio securities.
9. Invest more than 15% of the value of its net assets in securities
that at the time of purchase are illiquid.
10. Purchase securities on margin, except for initial and variation
margin on options and futures contracts, and except that the Fund
may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of securities.
11. Invest in securities of other investment companies, except (a)
that the Fund will be permitted to invest all or a portion of its
assets in another diversified, open-end management investment
company with the same investment objective, policies and
restrictions as the Fund; (b) in compliance with the Investment
Company Act; or (c) as part of a merger, consolidation,
acquisition or reorganization involving the Fund.
12. Issue senior securities, except that the Fund may borrow money as
permitted by restrictions 6 and 7 above. This restriction shall
not prohibit the Fund from engaging in short sales, options,
futures and non-U.S. currency transactions.
13. Enter into transactions for the purpose of arbitrage, or invest
in commodities and commodities contracts, except that the Fund
may invest in stock index, currency and financial futures
contracts and related options in accordance with any rules of the
Commodity Futures Trading Commission.
OPERATING RESTRICTIONS
As a matter of operating (not fundamental) policy adopted by the Board of
Trustees of the Trust, the Fund may not:
1. Invest in interest in oil, gas or other mineral exploration or
development programs or leases, or real estate limited
partnerships, although the Fund may invest in the securities of
companies which invest in or sponsor such programs.
2. Lend any securities from its portfolio unless the value of the
collateral received therefor is continuously maintained in an
amount not less than 102% of the value of the loaned securities
by marking to market daily.
B-14
<Page>
TRUSTEES AND PRINCIPAL OFFICERS
The business of the Fund is managed by the Trustees of the Trust who elect
officers who are responsible for the day-to-day operations of the Fund and who
execute policies formulated by the Trustees. Information pertaining to the
Trustees and Officers of the Fund are set forth in the following tables. Three
of the officers and one Trustee of the Trust are also officers of the Investment
Adviser, or officers of the Funds' Distributor, Nicholas-Applegate Securities.
Trustees who are not deemed to be "interested persons" of the Fund as defined in
the Investment Company Act of 1940, as amended (the "Investment Company Act")
are referred to as "Independent Trustees". Trustees who are deemed to be
"interested persons" of the Fund are referred to as "Interested Trustees". "Fund
Complex" consists of the Fund and any other investment companies managed by
Nicholas-Applegate Capital Management.
The names, addresses and ages of the Trustees and principal officers of the
Trust, including their positions and principal occupations during the past five
years, are shown below.
<Table>
<Caption>
NUMBER OF
TERM OF PORTFOLIOS
OFFICE AND IN FUND
POSITION(S) LENGTH OF COMPLEX
HELD TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
NAME ADDRESS(1) AND AGE WITH FUND SERVED(2) DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
- -------------------------- ----------- ---------- ------------------------------- ---------- ---------------------------------
INDEPENDENT TRUSTEES:
GEORGE F. KEANE (75) Chairman of Since May President Emeritus and founding 14 Director, Bramwell Funds (since
the Board 1999 Chief Executive Officer, The 1994); Director, Longview Oil &
(Since Common Fund (1971-1993); and Gas (since 2000); Director,
2004) and Endowment Advisors (1987-1993) Security Capital U.S. Real Estate
Trustee (organizations that provide (since 1997); Director, The
investment management programs Universal Bond Fund (since 1997);
for colleges and universities); Director, Universal Stainless &
Alloy Products Inc. (since 1994);
Director, United Water Services
and affiliated companies
(1996-2000); Director, and former
Chairman of the Board, Trigen
Energy Corporation (1994-2000);
Trustee, Nicholas-Applegate
Mutual Funds (1994-1999).
WALTER E. AUCH (83) Trustee Since May Retired; prior thereto, 14 Trustee, LLBS Funds (since 1994)
1999 Chairman and CEO of Chicago and Brinson Supplementary Trust
Board of Options Exchange (since 1997); Director, Thompson
(1979-1986); Senior Executive Asset Management Corp
Vice President PaineWebber, (1987-1999); Director, Smith
Inc. Barney Trak Fund (since 1992) and
Smith Barney Advisors (since
1992); Director, PIMCO Advisors
L.P (1994-2001); Director, Banyon
Realty Trust (1988-2002), Banyon
Mortgage Investment Fund
(1989-2002) and Banyon Land Fund
II (since 1988); Director,
Express America Holdings Corp
(1992-1999); Director, Legend
Properties, Inc. (1987-1999);
Director, Senele Group (since
1988); Director, Fort Dearborn
Income Securities, Inc.
(1987-1995); Trustee,
Nicholas-Applegate Mutual Funds
(1994-1999); Director, Geotek
Industries, Inc. (1987-1998).
</Table>
B-15
<Page>
<Table>
<Caption>
NUMBER OF
TERM OF PORTFOLIOS
OFFICE AND IN FUND
POSITION(S) LENGTH OF COMPLEX
HELD TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
NAME ADDRESS(1) AND AGE WITH FUND SERVED(2) DURING PAST 5 YEARS BY TRUSTEE HELD BY TRUSTEE
- ----------------------- ----------- ---------- ------------------------------- ---------- ---------------------------------
DARLENE DEREMER (49) Trustee Since May Partner, Grail Partners LLC 14 Founding Member and Director,
1999 (since 2005); Managing Director National Defined Contribution
Putnam Lovell NBF Private Council (since 1997); Trustee,
Equity (2004-2005); Managing Boston Alzheimer's Association
Director, NewRiver E-Business (since 1998); Director, King's
Advisory Services Division Wood Montessori School (since
(2000-2003); Prior to, 1995); Editorial Board, National
President and Founder, DeRemer Association of Variable Annuities
Associates, a strategic and since 1997); Director, Nicholas-
marketing consulting firm for Applegate Strategic
the financial services industry Opportunities, Ltd. (1994-1997);
(since 1987); Vice President Trustee, Nicholas-Applegate
and Director, Asset Management Mutual Funds (1994-1999);
Division, State Street Bank and Director, Jurika & Voyles Fund
Trust Company, now referred to Group (since 1994-2000); Trustee,
as State Street Global Bramwell Funds (since 2003);
Advisers, (1982-1987); Vice Director, Independent Director
President, T. Rowe Price & Council (since 2004).
Associates (1979-1982); Member,
Boston Club (since 1998);
Member, Financial Women's
Association Advisory Board
(since 1995); Founder, Mutual
Fund Cafe Website
INTERESTED TRUSTEE:
HORACIO A. VALEIRAS (45) President & Since Managing Director (Since 2004) 14 Trustee, The Bishops School
Trustee August and Chief Investment Officer, (Since 2002); Trustee, San Diego
2004 Nicholas-Applegate Capital Rowing Club (Since 2002)
Management, Nicholas-Applegate
Securities (since 2002);
Managing Director of Morgan
Stanley Investment Management,
London (1997-2002); Head of
International Equity and Asset
Allocation, Miller Anderson &
Sherred; Director and Chief of
International Strategies,Credit
Suisse First Boston
PRINCIPAL OFFICERS
CHARLES H. FIELD, JR. (50) Secretary Since May General Counsel Nicholas- 14
and Chief 2002 Applegate Capital Management
Compliance Nicholas-Applegate Securities
Officer LLC, Nicholas-Applegate
Holdings LLC and
Nicholas-Applegate Securities
International LDC (since
February 2004), Deputy General
Counsel, Nicholas-Applegate
Capital Management, LLC
(1996-February 2004)
THOMAS MUSCARELLA (49) Treasurer Since May Vice President, Director of 14
2005 Mutual Fund Operations (since
1998).
</Table>
- ----------
(1) Unless otherwise noted, the address of the Trustees and Officers is c/o:
Nicholas-Applegate Capital Management, 600 West Broadway, 32nd Floor, San
Diego, California 92101.
(2) Each Trustee serves for an indefinite term, until her or his successor is
elected.
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Each Trustee of the Trust that is not an officer or affiliate of the Trust,
the Investment Adviser or the Distributor receives an aggregate annual fee of
$24,000 for services rendered as a Trustee of the Trust, $1,500 for each meeting
attended ($500 per Committee meeting and $1,500 per in person special meeting
attended. Each Trustee is also reimbursed for out-of-pocket expenses incurred as
a Trustee.
The following table sets forth the aggregate compensation paid by the Trust
for the fiscal year ended March 31, 2005, to the Trustees who are not affiliated
with the Investment Adviser and the aggregate compensation paid to such Trustees
for service on the Trust's board and that of all other funds in the "Fund
Complex". The Funds have no retirement or pension plan for its Trustees.
<Table>
<Caption>
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM TRUST
AGGREGATE BENEFITS ACCRUED ESTIMATED AND TRUST
COMPENSATION AS PART OF ANNUAL BENEFITS COMPLEX
NAME FROM TRUST TRUST EXPENSES UPON RETIREMENT PAID TO TRUSTEE
- ---- ------------ ---------------- --------------- ---------------
Walter E. Auch $ 35,000 None N/A $ 35,000(13*)
Darlene DeRemer $ 35,500 None N/A $ 35,500(13*)
George F. Keane $ 35,000 None N/A $ 35,000(13*)
</Table>
*Indicates total number of funds in Trust complex.
STANDING BOARD COMMITTEES
The Board of Trustees has established three standing committees in
connection with the governance of the Funds--Audit Committee, Contract Committee
and Nominating Committee.
The function of the Audit Committee is oversight. Management (which
generally means the appropriate officers of the Funds, and the Fund's Investment
Adviser, administrator(s) and other key service providers (other than the
independent registered public accounting firm ("Independent Auditors"))) is
primarily responsible for the preparation the financial statements of each Fund,
and the Independent Auditors are responsible for auditing those financial
statements. Management is also responsible for maintaining appropriate systems
for accounting and "internal controls over financial reporting" (as such term is
defined in Rule 30a-3 under the 1940 Act), and the Independent Auditors are
primarily responsible for considering such internal controls over financial
reporting in connection with their financial statement audits. While the Audit
Committee has the duties and powers set forth in the Audit Committee Charter,
the Audit Committee is not responsible for planning or conducting a Fund audit
or for determining whether a Fund's financial statements are complete and
accurate and are in accordance with generally accepted accounting principles.
The Audit Committee has, among other things, specific power and
responsibility to: i) oversee the Funds' accounting and financial reporting
processes and practices, its internal controls over financial reporting and, as
appropriate, the internal controls over financial reporting of key service
providers; ii) approve, and recommend to the full Board for its approval in
accordance with applicable law, the selection and appointment of an Independent
Auditor for the Funds prior to the engagement of such Independent Auditor; iii)
pre-approve all audit and non-audit services provided to each Fund by its
Independent Auditor, directly or by establishing pre-approval policies and
procedures pursuant to which such services may be rendered, provided however,
that the policies and procedures are detailed as to the particular service and
the Audit Committee is informed of each service, and such policies do not
include the delegation to management of the Audit Committee's responsibilities
under the Securities Exchange Act of 1934 or applicable rules or listing
requirements; and iv) pre-approve all non-audit services provided by a Fund's
Independent Auditor to the Investment Adviser and any entity controlling,
controlled by, or under common control with the Investment Adviser that provides
ongoing services to the Funds, if the engagement relates directly to the
operations and financial reporting of the Fund. The Audit Committee met four
times during the fiscal year ended March 31, 2005.
The Contract Committee consists of the three independent Trustees, chaired
by Ms. DeRemer. The responsibilities of this committee are to request and review
such information as it believes is reasonably necessary to evaluate the terms of
the investment advisory and distribution agreements, as well as the plans of
distribution and the accounting and transfer agency agreement. The Contract
Committee meets each year prior to the Board meeting at
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which these contracts are proposed to be renewed. The Committee is assisted by
independent legal counsel in its deliberations. The Committee met once during
the fiscal year ended March 31, 2005.
The Nominating Committee consists of the three independent Trustees chaired
by Mr. Auch. This committee interviews and recommends to the Board persons to be
nominated for election as Trustees by the Fund's shareholders and selects and
proposes nominees for election by the Board between annual meetings. This
committee does not normally consider candidates proposed by shareholders for
election as Trustees. The Nominating Committee also reviews the independence of
Trustees currently serving on the Board and recommends to the Board Independent
Trustees to be selected for membership on Board Committees. The Nominating
Committee reviews compensation, expenses and compliance with the Trust's
retirement policy. The Nominating Committee met once during the fiscal year
ended March 31, 2005.
As of October 1, 2005 no Trustee owned shares of the Fund.
As of December 31, 2004 no Independent Trustee, or his/her immediate family
members owned beneficially or of record any class of securities in an investment
adviser or principal underwriter of the Funds or a person (other than a
registered investment company) directly or indirectly "controlling", "controlled
by", or "under common control with" (within the meaning of the Investment
Company Act) an investment adviser or principal underwriter of the Fund.
INVESTMENT ADVISER
The Investment Adviser to the Trust is Nicholas-Applegate Capital
Management, a limited liability company organized under the laws of Delaware,
with offices at 600 West Broadway, 30th Floor, San Diego, California 92101.
The Investment Adviser was organized in August 1984 to manage discretionary
accounts investing primarily in publicly traded equity securities and securities
convertible into or exercisable for publicly traded equity securities, with the
goal of capital appreciation. On January 31, 2001 The Investment Adviser was
acquired by Allianz of America, Inc. ("AZOA"). Allianz AG, the parent of AZOA,
is a publicly traded German Aktiengesellschaft (a German publicly traded
company), which, together with its subsidiaries, comprise one of the world's
largest insurance group (the "Allianz Group"). As of March 31, 2005 Allianz
Group currently has assets under management of approximately $578.2 billion.
Allianz AG's address is: Koeniginstrasse 28, D-80802, Munich, Germany.
Personnel of the Investment Adviser may invest in securities for their own
accounts pursuant to a Code of Ethics that sets forth all employees' fiduciary
responsibilities regarding the Funds, establishes procedures for personal
investing, and restricts certain transactions. For example, personal trades of
portfolio management and senior management personnel in most securities require
pre-clearance, and participation in initial public offerings without the prior
written approval of the Investment Adviser's Chief of Compliance or General
Counsel is prohibited. In addition, there are restrictions on short-term trading
by portfolio management personnel.
THE INVESTMENT ADVISORY AGREEMENT
Under the Investment Advisory Agreement between Trust and the Investment
Adviser with respect to the Funds, the Trust retains the Investment Adviser to
manage the Funds' investment portfolios, subject to direction of the Trust's
Board of Trustees. The Investment Adviser is authorized to determine which
securities are to be bought or sold by the Funds and in what amounts.
The Investment Advisory Agreement provides that the Investment Adviser will
not be liable for any error of judgment or for any loss suffered by a Fund or
the Trust in connection with the matters to which the Investment Advisory
Agreement relates, except for liability resulting from willful misfeasance, bad
faith or gross negligence in the performance of its duties or by reason of the
Investment Adviser's reckless disregard of its duties and obligations under the
Investment Advisory Agreement. The Trust has agreed to indemnify the Investment
Adviser against liabilities, costs and expenses that the Investment Adviser may
incur in connection with any action, suit, investigation or other proceeding
arising out of or otherwise based on any action actually or allegedly taken or
omitted to be taken by the Investment Adviser in connection with the performance
of its duties or obligations under the Investment Advisory Agreement or
otherwise as investment adviser of the Trust. The Investment Adviser is not
entitled to indemnification with respect to any liability to the Trust or its
shareholders by reason of willful misfeasance, bad faith or gross negligence in
the performance of its duties, or of its reckless disregard of its duties and
obligations under the Investment Advisory Agreement.
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The investment management services furnished under the Advisory Agreement
are not deemed exclusive and the Investment Adviser is free to furnish similar
services to others and take investment action with respect to other accounts
which is different from action taken in the Funds. The Investment Adviser also
manages hedge funds that may sell securities short, including those securities
the Funds may be holding long. The portfolio managers and traders for these
hedge funds are not separated from the rest of the Investment Adviser's
investment personnel and therefore have access to full information about the
Investment Adviser's investment research and the investment decisions and
strategies being employed for the Fund. These hedge funds pay the Investment
Adviser management fees at rates comparable to those paid by the Funds and the
Investment Adviser also receives a share of any profits earned by the hedge
funds as incentive compensation. As a result, the Investment Adviser may have a
conflict between their own interests and the interests of other Investment
Adviser investment advisory clients in managing the portfolios of these hedge
funds.
The Investment Adviser can not guarantee that trades for the portfolios of
the Funds will not be different from or entered ahead of trades for other
accounts managed by the Investment Adviser. However, the Investment Adviser has
policies and procedures in place that prohibit an investment team from selling
securities short in one account if those securities are held long in another
account managed by that investment team. This limitation does not apply to
exchange-traded funds.
MATTERS CONSIDERED BY THE BOARD
The Investment Advisory Agreement was approved by the Board, including
all of the Independent Trustees on August 12, 2005. In approving the Advisory
Agreement, the Board primarily considered, with respect to the Fund, the
nature and quality of the services provided under the Agreement and the
overall fairness of the Agreement to the Fund.
With respect to the nature and quality of the services provided by the
Investment Adviser, the Board considered the performance of the Fund in
comparison to relevant market indices and the performance of a peer group of
investment companies pursuing broadly similar strategies, and reviewed reports
prepared by an unaffiliated organization applying various statistical and
financial measures of fund performance compared to such indices and peer groups
of funds, over the past one, five, and ten year periods. The Board also
evaluated the division of responsibilities among the Investment Adviser and its
affiliates, and the capabilities of the personnel providing services. The Board
also considered the quality of brokerage execution provided by the Investment
Adviser.
The Board specifically considered the following: (1) that the terms of
the Investment Advisory Agreement are substantially identical to those of the
existing investment advisory agreement for the other series of the Trust,
except for different execution dates, effective dates, termination dates and
certain conforming changes; (2) the favorable history, reputation,
qualification and background of the Investment Adviser, as well as the
qualifications of its personnel and its financial and its professional
liability insurance coverage and concluded that the Investment Adviser would
be able to meet any reasonably foreseeable obligations under the Agreements;
the time and attention devoted by senior management to the Fund as well as
the qualifications of its personnel and concluded that the human resources
devoted by the Investment Adviser to the Fund were appropriate to fulfill
effectively the Investment Adviser's duties under the Agreement; (3) the fee
and expense ratios of the Fund compared to other mutual funds with similar
investment objectives and strategies and concluded that they are reasonable
given the quality of services expected to be provided; (4) the amount of
profit earned by the Investment Adviser under the Investment Advisory
Agreement in relation to other Funds and concluded that it was not excessive;
(5) the Investment Adviser's record with respect to regulatory compliance and
compliance with the investment policies of the Funds and concluded that it
was comprehensive and diligent; (6) the procedures of the Investment Adviser
designed to fulfill the Investment Adviser's fiduciary duty to the Funds with
respect to possible conflicts of interest, including the Investment Adviser's
code of ethics (regulating the personal trading of its officers and
employees) are designed to detect and deter activities harmful to the Fund
and shareholders; (7) the possible benefits to the Investment Adviser from
serving as adviser of the Fund and providing certain administrative services
to the Fund and from affiliates of the Investment Adviser serving as
principal underwriter and shareholder servicing agent of the Fund; (8) the
benefits potentially accruing to the Investment Adviser from securities
lending, administrative, brokerage and custody relationships, as well as
research services received by the Investment Adviser from broker-dealers who
will execute transactions on behalf of the Fund, and (9) other
B-19
<Page>
factors deemed relevant by the Board. The non-interested Trustees were
assisted in this process by their own legal counsel from whom they received
separate legal advice. Based upon their review, the Trustees determined that
the investment advisory agreement was reasonable, fair and in the best
interest of the Fund and its shareholders. The Board also considered the
proposed merger of the Nicholas-Applegate International All-Cap Fund, an
existing series of the Professionally Managed Portfolios (the "Acquired
Fund"), into the Fund. The Board considered that the Fund would have a lower
management fee than the Acquired fund, and that the Investment Adviser
believed the proposed merger would result in an immediate reduction in gross
operating expenses for the shareholders of the Acquired Fund. The Board also
considered that the Investment Adviser believed the Fund would have a better
opportunity to increase overall assets than did the Acquired Fund by offering
the product through the Trust's normal distribution channel to sophisticated
institutional investors.
No single factor reviewed by the Trustees was identified by the Board as a
principal factor in determining to approve the investment advisory agreement
with the Investment Adviser.
CUSTODIAN, FUND ACCOUNTING AGENT AND ADMINISTRATORS
The Custodian, Fund Accounting and Administrator Agent for the Trust is
Brown Brothers Harriman & Co., Private Bankers ("BBH"), a New York Limited
Partnership established in 1818. BBH has offices worldwide and provides services
to Trust from its offices located at 40 Water Street, Boston, Massachusetts
02109. As Custodian, Administrator and Fund Accounting Agent, BBH is responsible
for the custody of Trust's portfolio securities and cash, maintaining the
financial and accounting books and records of the Trust, computing the Trust's
net asset value per share and providing the administration services required for
the daily business operations of the Trust. For its services, BBH received under
the Administration Agreement annual fees from the Fund equal to the Fund's pro
rata portion (based on the Fund's net assets compared to the Trust's total net
assets) of a fee equal to 0.03% of the first $100 million of the Trust's average
net assets, 0.02% of the next $100 million, 0.01% thereafter, subject to complex
world minimums.
Pursuant to an Administrative Services Agreement with the Trust, the
Investment Adviser is responsible for providing certain other services which are
not provided by BBH or by the Trust's Distributor, transfer agents, accounting
agents, independent accountants and legal counsel. These services, are comprised
principally of assistance in coordinating with the Trust's various service
providers, providing certain officers of the Trust, responding to inquiries from
shareholders which are directed to the Trust rather than other providers,
calculating performance data, providing various reports to the Board of
Trustees, and assistance in preparing reports, prospectuses, proxy statements
and other shareholder communications. The Agreement contains provisions
regarding liability and termination similar to those of the Administration
Agreement.
Under the Administrative Services Agreement, the Investment Adviser is
compensated at the annual rate of up to 0.25% of the average daily net assets of
the Fund.
TRANSFER AND DIVIDEND DISBURSING AGENT, LEGAL COUNSEL
AND INDEPENDENT AUDITORS
UMB Fund Services, Inc., 803 West Michigan Street, Suite A, Milwaukee,
Wisconsin 53233-2301, serves as the Transfer Agent and as the Dividend
Disbursing Agent for the Funds. The Transfer Agent provides customary transfer
agency services to the Trust, including the handling of shareholder
communications, the processing of shareholder transactions, the maintenance of
shareholder account records, and related functions. The Dividend Disbursing
Agent provides customary dividend disbursing services to the Trust, including
payment of dividends and distributions and related functions.
Kirkpatrick and Lockhart, LLP, Four Embarcadero Center, 10th Floor, San
Francisco, CA 94111, serves as legal counsel to the Independent Trustees of the
Trust.
PriceWaterhouseCoopers LLP, 350 South Grand Avenue, 49th Floor, Los
Angeles, CA 90071 serves as the independent auditors for the Trust, and in that
capacity audits the annual financial statements of the Trust.
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<Page>
DISTRIBUTOR
Nicholas-Applegate Securities (the "Distributor"), 600 West Broadway, Suite
2900, San Diego, CA 92101, is the principal underwriter and distributor for the
Trust and, in such capacity is responsible for distributing shares of the Fund.
The Distributor is a limited liability company organized under the laws of
Delaware to distribute shares of registered investment companies. Its general
partner is Nicholas-Applegate Holdings, LLC, the general partner of the
Investment Adviser.
Pursuant to its Distribution Agreement with the Trust, the Distributor has
agreed to use its best efforts to effect sales of the Fund, but is not obligated
to sell any specified number of shares. The Distribution Agreement contains
provisions with respect to renewal and termination similar to those in the
Investment Advisory Agreement discussed above. The minimum assets for investors
in the Fund may be waived from time to time. Pursuant to the Distribution
Agreement, the Trust has agreed to indemnify the Distributor to the extent
permitted by applicable law against certain liabilities under the Securities
Act.
DISTRIBUTION PLAN
Rule 12b-1 (the "Rule") adopted by the Securities and Exchange Commission
under the 1940 Act provides, among other things, that an investment company may
bear expenses of distributing its shares only pursuant to a plan adopted in
accordance with the Rule. The Fund's Board of Trustees has adopted such a plan
(the "Distribution Plan") with respect to Class R shares pursuant to which the
Fund compensates the Distributor for expenses incurred, and services and
facilities provided, by the Distributor in distributing shares of the Fund on a
monthly basis, at the annual rate of 0.25% of the average daily net assets of
the Class R shares of the Fund. The Distributor may pay one or more Service
Agents in respect of advertising, marketing and other distribution services, and
determines the amounts, if any, to be paid to Service Agents and the basis on
which such payments are made. The Fund's Board of Trustees believes that there
is a reasonable likelihood that the Distribution Plan will benefit the Fund and
the holders of its Class R shares.
A quarterly report of the amounts expended under the Distribution Plan, and
the purposes for which such expenditures were incurred, must be made to the
Board for its review. In addition, the Distribution Plan provides that it may
not be amended to increase materially the costs which holders of Class R shares
may bear pursuant to the Distribution Plan without the approval of the holders
of such shares and that other material amendments of the Distribution Plan must
be approved by the Board, and by the Board members who are not "interested
persons" (as defined in the 1940 Act) of the Fund and have no direct or indirect
financial interest in the operation of the Distribution Plan or in any
agreements entered into in connection with the Distribution Plan, by vote cast
in person at a meeting called for the purpose of considering such amendments.
The Distribution Plan is subject to annual approval by such vote of the Board
cast in person at a meeting called for the purpose of voting on the Distribution
Plan. The Distribution Plan may be terminated at any time by vote of a majority
of the Board
members who are not "interested persons" and have no direct or indirect
financial interest in the operation of the Distribution Plan or in any
agreements entered into in connection with the Distribution Plan or by vote of
the holders of a majority of Class R shares.
SHAREHOLDER SERVICE PLAN
The Trust has also adopted a Shareholder Service Plan. Under the
Shareholder Service Plan, the Distributor is compensated at the annual rate of
up to 0.25% of the average daily net assets of the Fund.
Support services include, among other things, establishing and maintaining
accounts and records relating to their clients that invest in Fund shares;
processing dividend and distribution payments from the Funds on behalf of
clients; preparing tax reports; arranging for bank wires; responding to client
inquiries concerning their investments in Funds shares; providing the
information to the Fund's necessary for accounting and subaccounting; preparing
tax reports, forms and related documents; forwarding shareholder communications
from the Trust (such as proxies, shareholder reports, annual and semi-annual
financial statements and dividend, distribution and tax notices) to clients;
assisting in processing exchange and redemption requests from clients; assisting
clients in changing dividend options, account designations and addresses; and
providing such other similar services.
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Pursuant to the Shareholder Service Plan, the Board of Trustees reviews at
least quarterly a written report of the service expenses incurred on behalf of
the Funds by the Distributor. The report includes an itemization of the service
expenses and the purposes of such expenditures.
The Shareholder Service Plan continues in effect from year to year,
provided that each such continuance is approved at least annually by vote of the
Board of Trustees of the Trust, including a majority of the Trustees who have no
direct or indirect financial interest in the operation of the Shareholder
Service Plan or in any agreement related to the Shareholder Service Plan (the
"Independent Trustees'), cast in person at a meeting called for the purpose of
voting on such continuance. The Shareholder Service Plan may be amended at any
time by the Board, provided that any material amendments of the terms of the
Plan will become effective only upon the approval by majority of the Board and a
majority of the Independent Trustees pursuant to a vote cast in person at a
meeting called for the purpose of voting on the Plan. The Shareholder Service
Plan may be terminated with respect to any Fund or class any time, without
penalty, by the Board.
PORTFOLIO MANAGEMENT
COMPENSATION
The compensation structure of Mr. Valeiras and Mr. Willyard (for the
purposes of this section, "Portfolio Managers") is comprised of a fixed base
salary set at competitive level, taking into consideration the Portfolio
Manager's experience and responsibilities, as determined by the Investment
Adviser; and an annual bonus and profit sharing opportunity. Regarding the
annual bonus and profit sharing opportunity, Each Portfolio Manager's
compensation is directly affected by the performance of the individual
portfolios he or she manages, including each Fund; as well as the performance of
the individual's portfolio management team and the overall success of the firm.
Approximately 75% of each Portfolio Manager's bonus is based on one- and
three-year annualized performance of client accounts under his management, with
greater weight placed on three-year performance. This takes into account
relative performance of the accounts to each account's individual benchmark
(typically the MSCI EAFE Growth Index) (representing approximately one half of
the calculation) and the accounts' peer rankings in institutional account
universes (representing the other half). In the case of the Fund, the benchmark
against which the performance of the Fund's portfolio will be compared is the
MSCI EAFE Growth Index. The remaining 25% of the bonus is based on a qualitative
review and overall firm profitability. As of October 1, 2005, neither Mr.
Valeiras nor Mr. Willyard owned shares of the Fund.
Each of the Investment Adviser's investment teams has a profit-sharing
plan. Each team receives a pool which is based on "EBITDA" (i.e., earnings
before interest, taxes, depreciation and amortization) of the accounts managed
by the team and is distributed subjectively. All team members are eligible. The
Chief Investment Officer (Mr. Valeiras) and lead portfolio manager determine
allocations among the team. The profits to be allocated increase with the
profitability of the applicable accounts.
The Portfolio Managers are also eligible to participate in a non-qualified
deferred compensation plan, which affords participating employees the tax
benefits of deferring the receipt of a portion of their cash compensation until
such time as designated under the plan.
OTHER ACCOUNTS MANAGED
The following summarizes information regarding each of the accounts,
excluding the portfolio of the Fund and other portfolios of the Trust, that were
managed by the Portfolio Managers as of March 31, 2005, including accounts
managed by a team, committee, or other group that includes the Portfolio Manager
As Chief Investment Officer, Horacio A. Valeiras, CFA was responsible
for 11 other Registered Investment Companies with $644 million under
management, 7 other pooled vehicles with $533 million under management, and
209 other accounts with $14.029 billion under management. Of these accounts,
none of the other Registered Investment Companies, 3 of the other pooled
vehicles (accounting for $35 million under management) and 5 of the other
accounts (accounting for $143 million under management) paid an advisory fee
based on performance.
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Vincent Willyard, CFA was responsible for 1 other Registered Investment
Company with $38 million under management, no other pooled vehicles, and 2 other
accounts with $170 million under management. None of the accounts managed by Mr.
Willyard paid an advisory fee based on performance.
POTENTIAL CONFLICTS OF INTEREST
Like other investment professionals with multiple clients, a portfolio
manager for a Fund may face certain potential conflicts of interest in
connection with managing both the Fund and other accounts at the same time. The
paragraphs below describe some of these potential conflicts, which the
Investment Adviser believes are faced by investment professionals at most major
financial firms. The Investment Adviser and the Trustees have adopted compliance
policies and procedures that attempt to address certain of these potential
conflicts. The management of accounts with different advisory fee rates and/or
fee structures, including accounts that pay advisory fees based on account
performance ("performance fee accounts"), may raise potential conflicts of
interest by creating an incentive to favor higher-fee accounts. These potential
conflicts may include, among others:
- The most attractive investments could be allocated to higher-fee
accounts or performance fee accounts.
- The trading of higher-fee accounts could be favored as to timing and/or
execution price. For example, higher-fee accounts could be permitted to
sell securities earlier than other accounts when a prompt sale is
desirable or to buy securities at an earlier and more opportune time.
- The investment management team could focus their time and efforts
primarily on higher-fee accounts due to a personal stake in
compensation.
A potential conflict of interest may arise when a Fund and other accounts
purchase or sell the same securities. On occasions when a portfolio manager
considers the purchase or sale of a security to be in the best interests of a
Fund as well as other accounts, the Investment Adviser's trading desk may, to
the extent permitted by applicable laws and regulations, aggregate the
securities to be sold or purchased in order to obtain the best execution and
lower brokerage commissions, if any. Aggregation of trades may create the
potential for unfairness to a Fund or another account if one account is favored
over another in allocating the securities purchased or sold--for example, by
allocating a disproportionate amount of a security that is likely to increase in
value to a favored account.
"Cross trades," in which one Investment Adviser account sells a particular
security to another account (potentially saving transaction costs for both
accounts), may also pose a potential conflict of interest. Cross trades may be
seen to involve a potential conflict of interest if, for example, one account is
permitted to sell a security to another account at a higher price than an
independent third party would pay. The Investment Adviser and the Board of
Trustees have adopted compliance procedures that provide that any transactions
between the Funds and another Investment Adviser-advised account are to be made
at an independent current market price, as required by law.
Another potential conflict of interest may arise based on the different
investment objectives and strategies of a Fund and other accounts. For example,
another account may have a shorter-term investment horizon or different
investment objectives, policies or restrictions than a Fund. Depending on
another account's objectives or other factors, a portfolio manager may give
advice and make decisions that may differ from advice given, or the timing or
nature of decisions made, with respect to a Fund. In addition, investment
decisions are the product of many factors in addition to basic suitability for
the particular account involved. Thus, a particular security may be bought or
sold for certain accounts even though it could have been bought or sold for
other accounts at the same time. More rarely, a particular security may be
bought for one or more accounts managed by a portfolio manager when one or more
other accounts are selling the security (including short sales). There may be
circumstances when purchases or sales of portfolio securities for one or more
accounts may have an adverse effect on other accounts.
A Fund's portfolio manager who is responsible for managing multiple funds
and/or accounts may devote unequal time and attention to the management of those
funds and/or accounts. As a result, the portfolio manager may not be able to
formulate as complete a strategy or identify equally attractive investment
opportunities for
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each of those accounts as might be the case if he or she were
to devote substantially more attention to the management of a single fund. The
effects of this potential conflict may be more pronounced where funds and/or
accounts overseen by a particular portfolio manager have different investment
strategies.
A Fund's portfolio managers may be able to select or influence the
selection of the brokers and dealers that are used to execute securities
transactions for the Funds. In addition to executing trades, some brokers and
dealers provide portfolio managers with brokerage and research services (as
those terms are defined in Section 28(e) of the Securities Exchange Act of
1934), which may result in the payment of higher brokerage fees than might have
otherwise be available. These services may be more beneficial to certain funds
or accounts than to others. Although the payment of brokerage commissions is
subject to the requirement that the portfolio manager determine in good faith
that the commissions are reasonable in relation to the value of the brokerage
and research services provided to the fund, a portfolio manager's decision as to
the selection of brokers and dealers could yield disproportionate costs and
benefits among the funds and/or accounts that he or she manages. See "Portfolio
Transactions and Brokerage".
A Fund's portfolio manager(s) may also face other potential conflicts of
interest in managing a Fund, and the description above is not a complete
description of every conflict that could be deemed to exist in managing both the
Funds and other accounts. In addition, a Fund's portfolio manager may also
manage other accounts (including their personal assets or the assets of family
members) in their personal capacity. The management of these accounts may also
involve certain of the potential conflicts described above. The Investment
Adviser's investment personnel, including each Fund's portfolio manager, are
subject to restrictions on engaging in personal securities transactions pursuant
to Codes of Ethics adopted by the Investment Adviser and the Funds, which
contain provisions and requirements designed to identify and address certain
conflicts of interest between personal investment activities and the interests
of the Funds. See "Code of Ethics".
PORTFOLIO TRANSACTIONS AND BROKERAGE
Subject to policies established by the Trust's Board of Trustees, the
Investment Adviser executes the Fund's portfolio transactions and allocated the
brokerage business. In executing such transactions, the Investment Adviser seeks
to obtain the best price and execution for the Fund, taking into account such
factors as price, size of order, difficulty and risk of execution and
operational facilities of the firm involved. Securities in which the Fund
invests may be traded in the over-the-counter markets, and the Fund deals
directly with the dealers who make the markets in such securities except in
those circumstances where better prices and execution are available elsewhere.
The Investment Adviser negotiates commission rates with brokers or dealers based
on the quality or quantity of services provided in light of generally prevailing
rates, and while the Investment Adviser generally seeks reasonably competitive
commission rates, the Fund does not necessarily pay the lowest commissions
available. The Board of Trustees of the Trust periodically reviews the
commission rates and allocation of orders.
The Fund has no obligation to deal with any broker or group of brokers in
executing transactions in portfolio securities. Subject to obtaining the best
price and execution, brokers who provide supplemental research, market and
statistical information and other research services and products to the
Investment Adviser may receive orders for transactions by the Fund. Such
information, services and products are those which brokerage houses customarily
provide to institutional investors, and include items such as statistical and
economic data, research reports on particular companies and industries, and
computer software used for research with respect on investment decisions.
Information, services and products so received are in addition to and not in
lieu of the services required to be performed by the Investment Adviser under
the Investment Advisory Agreement, and the expenses of the Investment Adviser
are not necessary reduced as a result to the receipt of such supplemental
information, service and products. Such information, services and products may
be useful to the Investment Adviser in providing services to clients other than
the Trust, and not all such information, services and products are used by the
Investment Adviser, in connection with the Fund. Similarly, such information,
services and products provided to the Investment Adviser by brokers and dealers
through whom other clients of the Investment Adviser effect securities
transactions may be useful to the Investment Adviser in providing services to
the Fund.
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Except as otherwise provided herein, the use of commissions or "soft
dollars" to pay for research products or services will fall within the safe
harbor created by Section 28(e), research obtained with soft dollars generated
by the Fund may be used by the Investment Adviser to service accounts other than
the Fund. Section 28(e) does not provide a "safe harbor" with respect to
transactions effected on a principal basis, or transactions effected in futures,
currencies or certain derivative instruments. Except as noted below, where a
product or service obtained with soft dollars provides both research and
non-research assistance to the Investment Adviser, the Investment Adviser will
make a reasonable allocation of the cost which may be paid for with soft
dollars. Because many of these services and products could benefit the
Investment Adviser, the Investment Adviser may have a conflict of interest in
allocating the Fund's brokerage business, including an incentive to cause the
Fund to effect more transactions than it otherwise might in order to obtain
those benefits. The Investment Adviser may pay higher commissions on brokerage
transactions for the Fund to brokers in order to secure the information,
services and products described above, subject to review by the Trust's Board of
Trustees from time to time as to the extent and continuation of this practice.
The Fund has entered into an arrangement with various broker-dealers, under
which, with respect to any brokerage transactions directed to these
broker-dealers, the broker-dealers rebate on a trade-by-trade basis, a part of
the brokerage commission paid, which is used to pay expenses of the Fund.
Although the Investment Adviser makes investment decisions for the Trust
independently from those of its other accounts, investment of the kind made by
the Fund may often also be made by such other accounts. When the Investment
Adviser buys and sells the same security at substantially the same time on
behalf of the Fund and one or more other accounts managed by the Investment
Adviser, the Investment Adviser allocates available investments by such means
as, in its judgment, result in fair treatment. The Investment Adviser aggregates
orders for purchases and sales of securities of the same issuer on the same day
among the Fund and its other managed accounts, and the price paid to or received
by the Fund 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 Fund or the size of the position purchased or sold by
the Fund.
Securities trade in the over-the-counter market generally on a "net" basis
with dealers acting as principal for their own accounts without a stated
commission, although the price of the security usually includes a profit to the
dealer. In underwritten offerings, securities are purchased at a fixed price
which includes an amount of compensation to the underwriter, generally referred
to as the underwriter's commission or discount. On occasion, certain money
market instruments and agency securities may be purchased directly from the
issuer, in which case no commissions or discounts are paid.
Portfolio securities may not be purchased from any underwriting or selling
syndicate of which Nicholas-Applegate Securities (or any affiliate), during the
existence of the syndicate, is a principal underwriter (as defined in the
Investment Company Act of 1940, as amended), except in accordance with rules of
the Securities and Exchange Commission. This limitation, in the opinion of the
Trust, will not significantly affect the Fund's ability to pursue their present
investment objectives. However, in the future in other circumstances, the Fund
may be at a
disadvantage because of this limitation in comparison to other funds with
similar objectives but not subject to such limitation.
Subject to the above considerations, an affiliated broker may act as a
securities broker or dealer for the Fund. In order for an affiliated broker to
effect any portfolio transactions for the Fund, the commissions, fees or other
remuneration received by an affiliated broker must be reasonable and fair
compared to the commissions, fees or other remuneration paid to other such
brokers or dealers in connection with comparable transactions involving similar
securities sold on an exchange during a comparable period of time. This standard
would allow an affiliated broker to receive no more than the remuneration which
would be expected to be received by an unaffiliated broker or dealer in a
commensurate arms-length transaction. Furthermore, the Board of Trustees,
including a majority of the Trustees who are not "interested" Trustees, has
adopted procedures which are reasonably designed to provide that any
commissions, fees or other remuneration paid to affiliates of the Funds are
consistent with the foregoing standard.
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PURCHASE AND REDEMPTION OF FUND SHARES
Shares of the Fund may be purchased and redeemed at its net asset value
without any initial or deferred sales charge.
The offering price is effective for orders received by the Transfer Agent
or any sub-transfer agent prior to the time of determination of net asset value.
The Trust has authorized one or more brokers to accept on its behalf purchase
and redemption orders. Such brokers are authorized to designate other
intermediaries to accept purchase and redemption orders on the Trust's behalf.
The Fund will have been deemed to have received a purchase or redemption order
when an authorized broker or, if applicable, a broker's authorized designee,
accepts the order. Customer orders will be priced at the Fund's Net Asset Value
next computed after they are accepted by an authorized broker or the broker's
authorized designees. Brokers/Dealers are responsible for promptly transmitting
purchase orders to the Transfer Agent or a sub-transfer agent. The Trust
reserves the right in its sole discretion to suspend the continued offering of
the Fund's shares and to reject purchase orders in whole or in part when such
rejection is in the best interests of the Trust and the affected Fund. Payment
for shares redeemed will be made not more than seven days after receipt of a
written or telephone request in appropriate form, except as permitted by the
Investment Company Act and the rules thereunder. Such payment may be postponed
or the right of redemption suspended at times when the New York Stock Exchange
is closed for other than customary weekends and holidays, when trading on such
Exchange is restricted, when an emergency exists as a result of which disposal
by the Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets, or during any other period when the Securities and Exchange Commission,
by order, so permits.
REDEMPTIONS IN KIND. Although the Fund intends to pay share redemptions in
cash, it reserves the right, as described below, to pay the redemption price in
whole or in part by a distribution of portfolio securities.
Because the Fund has elected to be governed by Rule 18f-1 under the
Investment Company Act of 1940, the Fund is obligated to pay Share redemptions
to any one shareholder in cash only up to the lesser of $250,000 or 1% of the
net assets represented by such share class during any 90-day period. Any share
redemption payment greater than this amount will also be in cash unless the
Fund's Board determines that payment should be in kind. In such a case, the Fund
will pay all or a portion of the remainder of the redemption in portfolio
securities, valued in the same way as the Fund determines its NAV. The portfolio
securities will be selected in a manner that the Fund's Board deems fair and
equitable and, to the extent available, such securities will be readily
marketable.
The Board of Trustees of the Trust has adopted redemption in-kind policies
for shareholders who are deemed affiliated persons of the Fund. Pursuant to
these policies a redemption in-kind will be processed so that it does not result
in a dilution of shares of remaining shareholders. Furthermore, under these
policies the affiliated party will have no influence over the selection process
of securities to be redeemed in kind.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving the portfolio securities and selling them
before their maturity could receive less than the redemption value of the
securities and could incur certain transaction costs.
SHAREHOLDER SERVICES
CROSS-REINVESTMENT OF DIVIDENDS AND DISTRIBUTIONS
A shareholder of the Fund may elect to cross-reinvest dividends or
dividends and capital gain distributions paid by that the Fund (the "paying
Fund") into any other Fund of the same share class (the "receiving Fund")
subject to the following conditions: (i) the aggregate value of the
shareholder's account(s) in the paying Fund(s) must equal or exceed $5,000 (this
condition is waived if the value of the account in the receiving Fund equals or
exceeds that Fund's minimum initial investment requirement), (ii) as long as the
value of the account in the receiving Fund is below that Fund's minimum initial
investment requirement, dividends and capital gain distributions paid by the
receiving Funds must be automatically reinvested in the receiving Fund, (iii) if
this
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privilege is discontinued with respect to a particular receiving Fund, the
value of the account in that Fund must equal or exceed the Fund's minimum
initial investment requirement or the Fund will have the right, if the
shareholder fails to increase the value of the account to such minimum within 60
days after being notified of the deficiency, automatically to redeem the account
and send the proceeds to the shareholder. These cross-investments of dividends
and capital gain distributions will be at net asset value (without a sales
charge).
AUTOMATIC WITHDRAWAL
The Transfer Agent arranges for the redemption by the Fund of sufficient
shares, deposited by the shareholder with the Transfer Agent, to provide the
withdrawal payment specified. Withdrawal payments should not be considered as
dividends, yield or income. Automatic investments may not be made into a
shareholder account from which there are automatic withdrawals. Withdrawals of
amounts exceeding reinvested dividends and distributions and increases in share
value will reduce the aggregate value of the shareholder's account.
REPORTS TO INVESTORS
The Fund will send its investors annual and semi-annual reports. The
financial statements appearing in annual reports will be audited by independent
accountants. In order to reduce duplicate mailing and printing expenses, the
Fund may provide one annual and semi-annual report and annual prospectus per
household. In addition, quarterly unaudited financial data are available from
the Fund upon request.
ANTI-MONEY LAUNDERING PROGRAM
The Fund is required to comply with various federal anti-money laundering
laws and regulations. Consequently, the Fund may be required to "freeze" the
account of a shareholder if the shareholder appears to be involved in suspicious
activity or if certain account information matches information on government
lists of known terrorists or other suspicious persons, or the Fund may be
required to transfer the account or proceeds of the account to a government
agency. The Fund may also be required to reject a purchase payment, block a
shareholder's account and consequently refuse to implement requests for
transfers and withdrawals. Federal law requires the Fund to obtain, verify and
record identifying information, which may include the name, street address,
taxpayer identification number or other identifying information from
shareholders who open an account.
FUND HOLDINGS INFORMATION
Generally, the Fund views holdings information as sensitive and limits
the dissemination of material non-public holdings information to
circumstances in accordance with Board of Trustees-approved guidelines, as
outlined below. Persons who may gain access to the portfolio holdings
information fall into one of four categories: the public, service providers,
rating organizations, and the Federal Government. The Board has made a
determination that transparency and uniformity in portfolio disclosures to
the public are in the best interest of shareholders, in that it allows
shareholders and their advisers to learn what securities they indirectly own,
and allows prospective shareholders and their advisers to better evaluate an
investment in the Fund. Accordingly, employees of the Fund and the Investment
Adviser may not make selective disclosure of Fund portfolio holdings. The
Board has made a determination that it is in the Fund's best interest to
disclose portfolio holdings to service providers such as the investment
adviser, custodians, proxy voting services and portfolio analysis services;
pursuant to confidentiality agreements, so that the Fund can carry out its
normal operations. The Board has also determined that portfolio disclosure to
rating organizations is in the best interest of the Fund's shareholders, in
that ratings and publicity from these organizations improve the Fund's
ability to attract more assets and retain existing assets.
The Board has delegated to the Fund's Chief Compliance Officer ("CCO") the
power to authorize portfolio disclosure to, and review the disclosure-related
policies of, specific service providers and rating organizations that the Board
does not approve directly. The Board has adopted a Code of Ethics that places
restrictions on personal trading in securities by employees of the Fund, the
investment adviser, the administrator and the custodian. Oversight of the Code
of Ethics is vested in the CCO. The CCO makes periodic reports to the Board
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regarding disclosure of the Fund's portfolio holdings, and violations of,
exceptions to, general oversight of, and proposed modifications to the Code of
Ethics.
The Fund will provide a full list of its holdings as of the end of the
previous month to any person who makes a request on or after the 5th business
day of the month and will furnish portfolio holdings as of the end of the month
prior to the previous month to any person who submits a request prior to the 5th
business day of the month. The Fund will provide its top ten holdings as of the
end of the calendar quarter on the Investment Advisers web site 15 days or more
after the calendar quarter-end.
Disclosure is also made to service providers. Such service providers
include the Fund's investment adviser, administrator, custodian, portfolio
analysis providers and proxy voting services. For service providers not covered
by the Code of Ethics, disclosure is made under contracts that include
confidentiality provisions and prohibit trading on information disclosed by the
Fund. The Fund has ongoing relationships with the following service providers
under which it discloses portfolio holdings beyond the scope of public
disclosure:
- Nicholas-Applegate Capital Management as investment adviser. Disclosure
is on a continuous, real-time basis.
- Brown Brothers Harriman as custodian. Disclosure is on a continuous,
real-time basis.
- Vestek as portfolio analytics provider. Disclosure is made daily on a
real-time basis.
- Factset as portfolio analytics provider. Disclosure is made daily on a
real-time basis.
- Glass, Lewis & Co. as proxy voting service. Partial disclosure is made
on a case-by-case, real-time basis, as dictated by periodic shareholder
votes in the securities held by the Fund.
Disclosure is also made to rating organizations. Disclosure is made under
contracts that include confidentiality provisions and prohibit trading on
information disclosed by the Fund. The Fund currently has no ongoing
relationships with service providers under which it would disclose portfolio
holdings beyond the scope of public disclosure.
The Fund also provides a complete list of its holdings to the Federal
Government four times in each fiscal year, at each quarter-end. For the second
and fourth quarters, the lists appear in the Fund's semiannual and annual
reports to shareholders. For the first and third quarters, the Fund files the
list with the Securities and Exchange Commission ("SEC") on form N-Q.
Nicholas-Applegate may not enter into any arrangements with third parties
from which it would derive any monetary benefit for the disclosure of material
non-public holdings information. If, in the future, the Investment Adviser
desired to make such an arrangement, it would seek prior Board approval and any
such arrangements would be disclosed in the Fund's SAI.
There is no assurance that the Fund's policies on holdings information will
protect the Fund from the potential misuse of holdings by individuals or firms
in possession of that information.
Shareholders can look up the Fund's Form N-Q on the SEC's website at
www.sec.gov. Form N-Q may also be reviewed and copied at the SEC's Public
Reference Room in Washington D.C. To find out more about this public service,
call the SEC at 1-202-942-8090.
PROXY VOTING
HOW THE FUND VOTE PROXIES
The Investment Adviser votes proxies on behalf of the Fund pursuant to
written Proxy Policy Guidelines and Procedures ("Proxy Guidelines") adopted by
the Fund. A summary of the Proxy Guidelines is provided in Appendix A. To obtain
information on how the Fund's securities were voted, please contact your account
representative at 1-800-551-8043.
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NET ASSET VALUE
The net asset value of the Fund is calculated by dividing (i) the value of
the securities held by the Fund, plus any cash or other assets, minus all the
Class' proportional interest in the Fund's liabilities (including accrued
estimated expenses on an annual basis) all liabilities allocable to such Class,
by the total number of shares of a particular class of the Fund outstanding. The
value of the investments and assets of a Fund is determined each business day.
Investment securities, including ADRs and EDRs, that are traded on a stock
exchange or on the NASDAQ National Market System are valued at the last sale
price as of the close of business on the New York Stock Exchange (normally 4:00
P.M. New York time) on the day the securities are being valued, or lacking any
sales, at the mean between the closing bid and asked prices. Securities listed
or traded on certain non-U.S. exchanges whose operations are similar to the
United States over-the-counter market are valued at the price within the limits
of the latest available current bid and asked prices deemed by the Investment
Adviser best to reflect fair value. A security which listed or traded on more
than one exchange is valued at the quotation on the exchange determined to be
the primary market for such security by the Investment Adviser. The Investment
Adviser has determined the Xetra is the primary market in Germany. Listed
securities that are not traded on a particular day and other over-the-counter
securities are valued at the mean between the closing bid and asked prices.
In the event the New York Stock Exchange or the national securities
exchange on which stock or stock options are traded adopt different trading
hours on either a permanent or temporary basis, the board of Trustees of Trust
will reconsider the time at which they compute net asset value. In addition, the
asset value of the Funds may be computed as of any time permitted pursuant to
any exemption, order or statement of the Commission or its staff.
The Fund values long-term debt obligations at the quoted bid prices for
such securities or, if such prices are not available, at prices for securities
or comparable maturity, quality and type; however, the Investment Adviser will
use, when it deems it appropriate, prices obtained for the day of valuation from
a bond pricing service, as discussed below. The Fund values debt securities with
maturities of 60 days or less at amortized cost if their term to maturity from
date of purchase is less that 60 days, or by amortizing, from the sixty-first
day prior to maturity, their value on the sixty-first day prior to maturity if
their term to maturity from date of purchase by the Fund is more than 60 days,
unless this is determined by the Board of Trustees of the Trust not to represent
fair value. The Fund values repurchase agreements at close plus accrued
interest.
The Fund values U.S. Government securities which trade in the
over-the-counter market at the last available bid prices, except that securities
with a demand feature exercisable within one to seven days are value at par.
Such valuations are based on quotations of one or more dealers that make markets
in the securities as obtained from such dealers, or on the evaluation of a
pricing service.
The Fund values options, futures contracts and options thereon, which
trade on exchanges, at their last sale or settlement price as of the close of
such exchanges or, if no sales are reported, at the mean between the last
reported bid and asked prices. If an options or futures exchange closes later
than 4:00 p.m. New York time, the options and futures traded on it are valued
based on the sale price, or on the mean between the bid and ask prices, as
the case may be, as of 4:00 p.m. New York time.
Trading in securities on non-U.S. securities exchanges and over-the-counter
markets is normally completed well before the close of business day in New York.
In addition, non-U.S. securities trading may not take place on all business days
in New York, and may occur in various non-U.S. markets on days which are not
business days in New York and on which net asset value is not calculated. The
calculation of net asset value may to take place contemporaneously with the
determination of the prices of portfolio securities used in such calculation.
Events affecting the values of portfolio securities that occur between the time
their prices are determined and the close of the New York Stock Exchange will
not be reflected in the calculation of net asset value unless the Board of
Trustees of the Trust deems that the particular event would materially affect
net asset value, in which case an adjustment will be made. Assets or liabilities
initially expressed in terms of non-U.S. currencies are translated
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prior to the next determination of the net asset value into U.S. dollars at
the spot exchange rates at 11:00 a.m. New York time or at such other rates as
the Investment Adviser may determine to be appropriate in computing net asset
value.
Securities or other assets for which reliable market quotations are not
readily available or for which the pricing agent or principal market maker does
not provide a valuation or methodology or provides a valuation or methodology
that, in the judgment of the Investment Adviser does not represent fair value,
(Fair Value Securities) are valued by the Pricing Committee overseen by the
Board of Trustees in consultation as applicable, with the Investment Adviser's
portfolio managers, traders, and research and credit analysts and legal and
compliance personnel, on the basis of the following factors: nature of any
restrictions on disposition of the securities, assessment of the general
liquidity/illiquidity of the securities, the issuer's financial condition and
the markets in which it does business, cost of the security transactions in
comparable securities, the size of the holding and the capitalization of the
issuer, relationships among various securities, media or other reports or
information deemed reliable by the Investment Adviser regarding the issuer or
the markets or industry in which it operates, consistency with valuation of
similar securities held by other clients of the Investment Adviser, and such
other factors as may be determined by the Investment Adviser, Board of Trustees
or Pricing Committee to materially affect the value of the security. Fair Value
Securities may include, but are not limited to, the following: certain private
placements and restricted securities that do not have an active trading market;
securities whose trading has been suspended or for which there is no current
market; securities whose prices are stale; securities denominated in currencies
that are restricted, untraded or for which exchange rates are disrupted;
securities affected by significant events; and securities that the Investment
Adviser or Pricing Committee believe were priced incorrectly. A "significant
event" (which includes, but is not limited to, an extraordinarily political or
market event) is an event that the Investment Adviser or Pricing Committee
believes with a reasonably high degree of certainty has caused the closing
market prices of a Fund's portfolio securities to no longer reflect their value
at the time of the Fund's NAV calculation.
The Trust may use a pricing service approved by its Board of Trustees.
Prices provided by such a service represent evaluations of the mean between
current bid and asked market prices, may be determined without exclusive
reliance on quoted prices, and may reflect appropriate factors such as
institution-size trading in similar groups of securities, yield, quality, coupon
rate, maturity, type of issue, individual trading characteristics, indications
of values from dealers and other market data. Such services may use electronic
data processing techniques and/or a matrix system to determine valuations. The
procedures of such services are reviewed periodically by the officers of the
Trust under the general supervision and responsibility of its Board of Trustees,
which may replace a service at any time if it determines that it is in the best
interests of the Funds to do so.
DIVIDENDS, DISTRIBUTIONS AND TAXES
REGULATED INVESTMENT COMPANY
The Trust has elected to qualify the Fund as a regulated investment company
under Subchapter M of the Code, and intends that the Fund will remain so
qualified.
As a regulated investment company, the Fund will not be liable for federal
income tax on its income and gains provided it distributes all of its income and
gains currently. Qualification as a regulated investment company under the Code
requires, among other things, that the Fund (a) derive at least 90% of it gross
income form dividends, interest, payments with respect to securities loans, and
gains from the sale or other disposition of securities or non-U.S. currencies,
or other income (including, but not limited to, gains form options, futures or
forward contracts) derived with respect to its business of investing in such
securities or currencies; (b) diversify its holdings so that, at the end of each
fiscal quarter, (i) at least 50% of the market value of the Fund's assets is
represented by cash, U.S. Government securities and securities of other
regulated investment companies, and other securities (for purposes of this
calculation generally limited, in respect of any one issuer, to an amount not
greater than 5% of the market value of the Fund's assets and 10% of the
outstanding voting securities of such issuer) and (ii) not more than 25% of the
value of its assets is invested in the securities of any one issuer (other
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than U.S. Government securities or the securities of other regulated
investment companies), or two or more issuers which the Trust controls and
which are determined to be engaged in the same or similar trades or
businesses; and (c) distribute at least 90% of its investment company taxable
income (which includes dividends, interest, and net short-term capital gains
in excess of net long-term capital losses) each taxable year.
A Fund generally will be subject to a nondeductible excise tax of 4% to the
extent that it does not meet certain minimum distribution requirements as of the
end of each calendar year. To avoid the tax, the Fund must distribute during
each calendar year an amount equal to the sum of (1) at least 98% of it ordinary
income and net capital gain (not taking into account any capital gains or losses
as an exception) for the calendar year, (2) at least 98% of its capital gains in
excess of its capital losses (and adjusted for certain ordinary losses) for the
twelve month period ending on October 31 of the calendar year, and (3) all
ordinary income and capital gains for previous years that were not distributed
during such years. A distribution will be treated as paid on December 31 of the
calendar year if it is declared by the Fund in October, November, December of
that year to shareholders of record on a date in such a month and paid by the
Fund during January of the following year. Such distributions will be taxable to
shareholders (other that those not subject to federal income tax) in the
calendar year in which the distributions are declared, rather than the calendar
year in which the distributions are received. To avoid the excise tax, the Funds
intend to make timely distributions of their income in compliance with these
requirements and anticipate that they will not be subject to the excise tax.
Dividends paid by a Fund from ordinary income, and distributions of the
Fund's net realized short-term capital gains, are taxable to its shareholders as
ordinary income. Not later than 60 days after the end of the taxable year, the
Fund will send to its shareholders a written notice designating the amount of
any distributions made during such year which may be taken into account by its
shareholders for purposes of such deduction provisions of the code. Net capital
gain distributions are not eligible for the dividends received deduction.
BACKUP WITHHOLDING. Under certain provisions of the Internal Revenue Code
(the "Code"), the Funds may be required to withhold 31% of reportable dividends,
capital gains distributions and redemption payments ("backup withholding").
Generally, shareholders subject to backup withholding will be those for whom a
certified taxpayer identification number is not on file with the Fund or who, to
the Fund's knowledge, have furnished an incorrect number, or who have been
notified by the Internal Revenue Service that they are subject to backup
withholding. When establishing an account, an investor must provide his or her
taxpayer identification number and certify under penalty of perjury that such
number is correct and that he or she is not otherwise subject to backup
withholding. Corporate shareholders and other shareholders specified in the Code
are exempt from backup withholding. Backup withholding is not an additional tax.
Any amounts withheld may be credited against a shareholder's U.S. federal income
tax liability.
NONRESIDENT ALIENS. Nonresident alien individuals and non-U.S. entities
must certify their non-U.S. status by attaching IRS Form W-8 to their
application. Form W-8 remains in effect for three calendar years beginning with
the calendar year in which it is received by the Fund. Such shareholders may,
however, be subject to federal income tax withholding at a 30% rate on ordinary
income dividends and distributions and return of capital distributions. Under
applicable treaty law, residents of treaty countries may qualify for a reduced
rate of withholding or a withholding exemption.
SPECIAL TAX CONSIDERATIONS
SECTION 1256 CONTRACTS. Many of the futures contract and forward contracts
used by the Funds are "section 1256 contracts." Any gains or losses on section
1256 contracts are generally credited 60% long-term and 40% short-term capital
gains or losses ("60/40") although gains and losses from hedging transactions,
certain mixed straddles and certain non-U.S. currency transactions from such
contracts may be treated as ordinary in character. Also, section 1256 contracts
held by the Funds at the end of each taxable year (and, for purposes of the 4%
excise tax, on certain other dates as prescribed under the Code) are "marked to
market" with the result that unrealized gains or losses are treated as though
they were realized and the resulting gain or loss is treated as ordinary or
60/40 gain or loss, depending on the circumstances.
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STRADDLE RULES. Generally, the hedging transactions and certain other
transactions in options, futures and forward contracts undertaken by the Funds
may result in "straddles" for U.S. federal income tax purposes. The straddle
rules may affect the character of gains (or losses) realized by the Funds. In
addition, losses realized by a Fund on positions that are part of a straddle may
be deferred under the straddle rules, rather than being taken into account in
calculation the taxable income for the taxable year in which such losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the tax consequences of transactions in options, futures and
forward contracts to the Funds are not entirely clear. The transactions may
increase the amount of short-term capital gain realized by a Fund which is taxed
as ordinary income when distributed to shareholders.
The Funds may take one or more of the elections available under the Code
which are applicable to straddles. If the Funds make any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the election(s) made. The rules applicable under certain of the elections
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because application of the straddle rules may affect the character of gains
or losses, defer losses and/or accelerate the recognition of gains or losses
from the affected straddle positions, the amount which must be distributed to
the shareholders, and which will be taxed to shareholders as ordinary income or
long-term capital gain, may be increased or decreased substantially as compared
to a fund that did not engage in such hedging transactions.
The qualifying income and diversification requirements applicable to the
Funds' assets may limit the extent to which the Funds will be able to engage in
transactions in options, futures contracts or forward contracts.
SECTIONS 988 GAINS AND LOSSES. Under the Code, gains or losses attributable
to fluctuations in exchange rates which occur between the time a Fund accrues
interest or other receivables or accrues expenses or other liabilities
denominated in a non U.S. currency and the time the Fund actually collects such
receivables or pays such liabilities generally are treated as ordinary income or
loss. Similarly, gains or losses on disposition of debt securities denominated
in non-U.S. currency and on disposition of certain futures attributable to
fluctuations in the value of the non-U.S. currency between the date of
acquisition of the security or contract and the date of disposition also are
treated as ordinary gain or loss. These gains and losses, referred to under the
Code as "section 988" gains or losses, may increase or decrease the amount of
the Fund's investment company taxable income to be distributed to the
shareholders.
NON U.S. TAX. Different countries may impose withholding and other taxes on
other income received by a Fund form sources within those countries. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes. In addition, the Investment Adviser intend to manage the Funds with the
intention of minimizing non U.S. taxation in cases where it is deemed prudent to
do so. If more than 50% of the value of a Fund's total assets at the close of
its taxable year consists of securities of non U.S. corporations, the Fund will
be eligible to elect to "pass-through" to the Fund's shareholders the amount of
income and similar taxes paid by the Fund. Each shareholder will be notified in
writing within 60 days after the close of the Fund's taxable year whether the
taxes paid by the Fund will be "pass-through" for that year.
Generally, a credit for taxes is subject to the limitation that it may not
exceed the shareholder's U.S. tax attributable to his or her total non-U.S.
source taxable income. For this purpose, if the Fund elects pass-through
treatment, the source of the Fund's income flows through to shareholders of the
Fund. With respect to such election, the Fund treats gains from the sale of
securities as derived from the U.S. sources and certain currency fluctuation
gains, including fluctuation gains from non U.S. currency denominated debt
securities, receivables and payables as ordinary income derived from U.S.
sources. The limitation on the non U.S. tax credit applies separately to non
U.S. source passive income, and to certain other types of income. Shareholders
may be unable to claim a credit for the full amount of their proportion at share
of the taxes paid by the Fund to other countries. The tax credit is modified for
purposes of the federal alternative minimum tax and can be used to offset only
90% of the alternative minimum tax imposed on corporations and individuals and
taxes generally are not deductible in computing alternative minimum taxable
income.
ORIGINAL ISSUE DISCOUNT. The Funds may treat some of the debt securities
(with a fixed maturity date of more than one year from the date of issuance)
they may acquire as issued originally at a discount. Generally, the Funds treat
the amount of the original issue discount ("OID") as interest income and include
it in income over the term of the debt security, even though they do not receive
payment of that amount until a later time, usually when
B-32
<Page>
the debt security matures. The Funds treat a portion of the OID includable in
income with respect to certain high-yield corporation debt securities as a
dividend for federal income tax purposes.
The Funds may treat some of the debt securities (with a fixed maturity date
of more than one year from the date of issuance) they may acquire in the
secondary market as having market discount. Generally, a Fund treats any gain
recognized on the disposition of, and any partial payment of principal on, a
debt security having market discount as ordinary interest income to the extent
the gain, or principal payment, does not exceed the "accrued market discount" on
such debt security. Market discount generally accrues in equal daily
installments. The Funds may make one or more of the elections applicable to debt
securities having market discount, which could affect the character and timing
the recognition of income.
The Funds generally must distribute dividends to shareholders representing
discount on debt securities that is currently includable in income, even though
the Funds have yet to receive cash representing such income. The Funds may
obtain cash to pay such dividends from sales proceeds of securities held by the
Funds.
PERFORMANCE INFORMATION
The Trust may from time to time advertise total returns and yields for the
Fund, compare Fund performance to various indices, and publish rankings of the
Fund prepared by various ranking services. Any performance information should be
considered in light of the Fund's investment objective and policies,
characteristics and quality of its portfolio, and the market conditions during
the given period, and should not be considered to be representative of what may
be achieved in the future.
AVERAGE ANNUAL TOTAL RETURN
The total return for a Fund is computed by assuming a hypothetical initial
payment of $1,000. It is assumed that all investment are made at net asset value
(as opposed to market price) and that all of the dividends and distributions by
the Fund over the relevant time periods are invested at net asset value. It is
then assumed that, at the end of each period, the entire amount is redeemed
without regard to any redemption fees or costs. The average annual total return
is then determined by calculating the annual rate required for the initial
payment to grow to the amount which would been received upon redemption. Total
return does not take into account any federal or state income taxes.
Total return is computed according to the following formula:
P(1 + T)(TO THE POWER OF n) = ERV
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years
ERV = ending redeemable value at the end of the period (or
fractional portion thereof) of a hypothetical $1,000
payment made at the beginning of the period.
AVERAGE ANNUAL TOTAL RETURN (AFTER TAXES ON DISTRIBUTIONS AND REDEMPTION)
Average annual total return (after taxes on distributions and redemption)
is computed according to the following formula:
P(1+T)(TO THE POWER OF n) = ATV(SUB D or DB)
Where: P = a hypothetical initial payment of $1,000.
T = average annual total return (after taxes on
distributions, or after taxes on distributions
and redemption, as applicable).
n = number of years
ATV(SUB D or DB)
ATV(SUB D) = ending value of a hypothetical $1,000 payment
made at the beginning of the 1-, 5- or 10-year
periods at the end of (or fractional portion
thereof), after taxes on fund distributions and
redemptions.
ATV(SUB DB) = ending value of a hypothetical $1,000 payment
made at the beginning of the 1-, 5-, or 10-year
periods at the end of the 1-, 5-, or 10-year
periods (or fractional portion thereof), after
taxes on fund distributions and redemption.
B-33
<Page>
Average annual total return (after taxes on distributions and redemption)
takes into account any applicable initial or contingent deferred sales charges
and takes into account federal income taxes that may be payable upon receiving
distributions and following redemption. Federal income taxes are calculated
using the highest marginal income tax rates in effect on the reinvestment date.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
- references to ratings, rankings, and financial publication and/or
performance comparison of Shares to certain indices;
- charts, graphs and illustrations using the Fund's returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
- discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views
on how such developments could impact the Funds; and information about
the mutual fund industry from sources such as the Investment Company
Institute.
The Fund may compare its performance, or performance for the types of
securities in which it invests, to a variety of other investments, including
federally insured bank products such as bank savings accounts, certificates of
deposit, and Treasury bills.
The Fund may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete
view of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
condition, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Fund uses in advertising may include:
MSCI EAFE GROWTH INDEX: The Morgan Stanley Capital International ("MSCI")
Europe, Australasia, Far East ("EAFE") Index is an unmanaged index of over 900
companies, and is a generally accepted benchmark for major overseas markets.
Index weightings represent the relative capitalizations of the major overseas
markets included in the index on a U.S. dollar adjusted basis. The Growth index
covers "growth" securities (high P/BV securities), relative to each MSCI country
index. In this manner, the definition of growth is relative to each
individual market as represented by the MSCI Index. Country Growth Indexes are
aggregated into regional Growth Indexes.
Value Line Mutual Funds Survey, published by Value Line Publishing, Inc.,
analyzes price, yield, risk, and total return for equity and fixed income mutual
funds. The highest rating is One, and ratings are effective for one month.
CDR Mutual Fund Report, published by CDA Investment Technologies, Inc.,
analyzes price, current yield, risk, total return, and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.
Dow Jones Industrial Average (DJIA) represents share prices of selected
blue chip industrial corporations. The DJIA indicated daily changes in the
average price of stock of thes corporations. Because it represents the top
corporations of America, the DJIA index is a leading economic indicator for the
stock market at a whole.
Financial Publications. The Wall Street Journal, Business Week, Changing
Times, Financial World, Forbes, Fortune, and Money Magazines, among
others--provide performance statistics over specified time periods.
B-34
<Page>
Lipper Analytical Services, Inc. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specified period of time.
Morningstar, Inc, an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Value, which rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
Standard and Poor's Daily Stock Price Index of 500 Common Stocks (S&P500)
is a composite index of common stocks in industry, transportation, and financial
and public utility companies. The index can be used to compare to the total
returns of funds whose portfolios are invested primarily in common stocks. In
addition, the S&P 500 assumes reinvestment of all dividends paid by stocks
listed on its index. Taxes due on any of these distributions are not included,
nor are brokerage or other fees calculated in the S&P figures.
Lipper Growth Fund Average is an average of the total returns of 580 growth
funds tracked by Lipper Analytical Services, Inc., an independent mutual fund
rating service.
Lipper Growth Fund Index is an average of the net asset-valuated total
returns for the top 30 growth funds tracked by Lipper Analytical Services, Inc.,
an independent mutual fund rating service.
Strategic Insight Mutual Fund Research and Consulting, ranks funds in
various fund categories by making comparative calculations using total return.
Total return assumes the reinvestment of all capital gains distributions and
income dividends and takes into account any change in net asset value over a
specified period of time. From time to time, the Funds will quote their
Strategic Insight ranking in the "growth funds" category in advertising and
sales literature.
Mutual Fund Source Book, published by Morningstar, Inc., analyzes price,
yield, risk, and total return for equity and fixed income funds.
Value Line Composite Index, consists of approximately 1,700 common equity
securities. It is based on a geometric average of relative price changes of the
component stocks and does not include income.
Strategic Insight Growth Funds Index consists of mutual funds that invest
in well-established companies primarily for long-term capital gains rather than
current income.
B-35
<Page>
As used in the Funds' prospectus and in this Statement of Additional
Information, the term "majority," when referring to approvals to be obtained
from shareholders of a Fund, means the vote of the lesser of (i) 67% of the
shares of the Fund represented at a meeting if the holders of more than 50% of
the outstanding shares of the Fund are present in person or by proxy, or (ii)
more than 50% of the outstanding shares of the Fund. Shareholders are entitled
to one vote for each full share held and fractional votes for fractional shares
held. Unless otherwise provided by law (for example, by Rule 18f-2 discussed
above) or by the Trust's Declaration of Trust or Bylaws, the Trust may take or
authorize any action upon the favorable vote of the holders of more than 50% of
the outstanding shares of the Trust.
The Trust will dispense the annual meetings of shareholders in any year in
which it is not required to elect Trustees under the Investment Company Act.
However, the Trust undertakes to hold a special meeting of its shareholders for
the purpose of voting on the question of removal of a Trustee or Trustees if
requested in writing by the holders of at least 10% of the Trust's outstanding
voting securities, and to assist in communicating with other shareholders as
required by Section 16(c) of the Investment Company Act.
Each share of each Fund represents an equal proportional interest in the
Fund and is entitled to such dividends and distributions out of the income
earned on the assets allocable to the Fund as are declared in the discretion of
the Trustees. In the event of the liquidation or dissolution of the Trust,
shareholders of a Fund are entitled to receive the assets attributable to the
Fund that are available for distribution, and a distribution of any general
assets not attributable to a particular Fund that are available for distribution
in such manner and on such basis as the Trustees in their sole discretion may
determine.
Shareholders are not entitled to any preemptive rights. All shares, when
issued, will be fully paid and nonassessable by the Trust.
DECLARATION OF TRUST
The Declaration of Trust of the Trust provides that obligations of the
Trust are not binding upon its Trustees, officers, employees and agents
individually and that the Trustees, officers, employees and agents will not be
liable to the Trust or its investors for any action or failure to act, but
nothing in the Declaration of Trust protects a Trustee, officer, employee or
agent against any liability to the Trust or its investors to which the Trustee,
officer, employee or agent would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence, or reckless disregard of his or her
duties. The Declaration of Trust also provides that the debts, liabilities,
obligations and expenses incurred, contracted for or existing with respect to a
designated Fund shall be enforceable against the assets and property of such
Fund only, and not against the assets or property of any other Fund or the
investors therein.
B-36
<Page>
PRO FORMA COMBINING NOTES TO FINANCIAL STATEMENTS
OF DUNCAN-HURST INTERNATIONAL GROWTH FUND INTO
NICHOLAS-APPLEGATE INTERNATIONAL ALL-CAP GROWTH FUND
March 31, 2005
(UNAUDITED)
NOTE 1 - BASIS OF PRO FORMA PRESENTATION
The pro forma financial statements and the accompanying pro forma
schedule of investments give effect to the proposed Plan of Reorganization
between Nicholas-Applegate International All-Cap Growth Fund (a series of
Professionally Managed Portfolios) (the "Acquired Fund") and
Nicholas-Applegate All-Cap Growth Fund (a newly organized series of
Nicholas-Applegate Institutional Funds) (the "Acquiring Fund") (collectively,
the "Reorganization") and the consummation of transactions contemplated
therein to be accounted for as a tax-free reorganization of investment
companies. The Reorganization would be accomplished by an exchange of shares
of the Acquiring Fund for the net assets of the Acquired Fund the
distribution of Acquiring Fund shares to the Acquired Fund shareholders. If
the Reorganization were to have taken place at March 31, 2005, Acquired Fund
- - Class I shareholders would have received 3,729,694 shares of Acquiring Fund
- - Class I shares.
The preparation of pro forma combined financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the pro forma
combined financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
NOTE 2 - PRO FORMA ADJUSTMENTS
(a) Under the terms of the interim investment advisory agreement of
Acquired Fund (the "Agreement"), the advisory fees based on pro forma
combined assets for the year ended March 31, 2005 were $281,550. The advisory
fees were adjusted to reflect the advisory fee rates for the Acquiring Fund.
Upon the closing date of the Reorganization, the advisory fee payable by
Acquiring Fund will be 0.95% of the Fund's average daily net assets.
Correspondingly, advisory fee waivers have been adjusted to reflect the
voluntary agreement by the Acquiring Fund's Investment Adviser to waive
advisory fees to the extent that total expenses (with certain exclusions)
exceed 1.25%.
(b) Pursuant to the master co administrative services agreement for
Class I shares of the Acquiring Fund, the Acquiring Fund will pay the
Investment Adviser a fee calculated at 0.15% of the average daily net assets
of Acquiring Fund Class I shares. Class I shares co administration fees paid
on pro forma combined assets for the year ended March 31, 2005 were $44,455.
The co administration fees were adjusted to reflect the fees that will be
paid by the Acquired Fund in accordance with Acquiring Fund - Class I co
administration agreement.
(c) Pursuant to the terms of the master shareholder servicing agreement
for Class I shares of the Acquiring Fund, the Acquiring Fund pays the
Investment Adviser a fee calculated at 0.15% of the average daily net assets
of Class I shares. The Class I shareholder servicing fees on the pro forma
combined assets for the year ended March 31, 2005 were $44,455. The
shareholder servicing fees were adjusted to reflect the fees that will be
paid by the Acquired Fund in accordance with Acquiring Fund - Class I
shareholder servicing agreement.
(d) Custody, accounting & administration and transfer agency fees have
been adjusted to reflect the estimated amounts the combined entities would
have paid under the agreements Acquiring Fund will have with Brown Brothers
Harriman & Co for custody, accounting and administration services, and UMB
Fund Services, Inc. for transfer agency services upon closing of the
Reorganization.
(e) Fees for a variety of other expense items have been adjusted to
reflect the estimated amounts of costs shared by all portfolios of the
Nicholas-Applegate Institutional Funds that would have been allocated to the
combined entities.
(f) The fee paid to a non affiliated Chief Compliance Officer has been
eliminated.
B-37
<Page>
NOTE 3 - MERGER COSTS
Merger costs related to the Reorganization are estimated at
approximately $25,000 and because these are non recurring costs they have
not been included in the unaudited pro forma statement of operations. These
costs represent the estimated expense of the Acquired Fund carrying out its
obligations under the Reorganization and consist of management's estimate of
legal fees, accounting fees, printing costs and mailing charges related to
the proposed merger. The merger costs related to the Acquiring Fund are
$25,000 and Nicholas-Applegate Capital Management has agreed to pay 100%
of these costs.
B-38
<Page>
PRO FORMA SCHEDULE OF INVESTMENTS OF COMBINED FUND
MARCH 31, 2005 (UNAUDITED)
<Table>
<Caption>
NICHOLAS-APPLEGATE
INTERNATIONAL ALL CAP GROWTH
(ACQUIRING FUND)
SHARES SHARES VALUE
- ------ ------------- -----------
COMMON STOCKS: 96.6%
AUSTRALIA: 3.8%
Alumina Ltd.
CSL Ltd.
Stargames Ltd.
Woodside Petroleum Ltd.
-----------
-----------
AUSTRIA: 1.0%
Erste Bank der Oesterreichischen Sparkassen AG
-----------
BELGIUM: 2.0%
InBev N.V.
KBC Groupe SA
-----------
-----------
BRAZIL: 2.2%
Companhia Cia Vale do Rio Doce -- Sponsored ADR
Uniao de Bancos Brasileiros S.A. (Unibanco) -- GDR
-----------
-----------
CANADA: 4.7%
ATI Technologies, Inc.(1)
Great Canadian Gaming Corp.(1)
Precision Drilling Corp.(1),(2)
Talisman Energy, Inc.
Teck Cominco Ltd. -- Class B
-----------
-----------
FINLAND: 2.1%
Nokian Renkaat OYJ
YIT-Yhtyma OYJ
-----------
-----------
FRANCE: 5.9%
Axalto Holdings N.V.(1)
Sanofi-Aventis
Total S.A. -- Sponsored ADR
Veolia Environnement
-----------
-----------
GERMANY: 4.1%
HeidelbergCement AG
IVG Immobilien AG
Solarworld AG
-----------
-----------
</Table>
B-39
<Page>
<Table>
<Caption>
NICHOLAS-APPLEGATE
INTERNATIONAL ALL CAP GROWTH COMBINED FUNDS
(ACQUIRED FUND) ADJUSTMENTS PROFORMA
SHARES SHARES VALUE SHARES VALUE SHARES VALUE
- ------ ----------- ----------- ---------- ---------- ----------- -----------
COMMON STOCKS: 96.6%
AUSTRALIA: 3.8%
Alumina Ltd. 72,070 $ 328,161 72,070 $ 328,161
CSL Ltd. 15,040 397,408 15,040 397,408
Stargames Ltd. 259,000 278,312 259,000 278,312
Woodside Petroleum Ltd. 14,770 277,462 14,770 277,462
----------- ---------- -----------
1,281,343 1,281,343
----------- ---------- -----------
AUSTRIA: 1.0%
Erste Bank der Oesterreichischen Sparkassen AG 6,500 340,021 6,500 340,021
----------- ---------- -----------
BELGIUM: 2.0%
InBev N.V. 9,380 328,455 9,380 328,455
KBC Groupe SA 4,120 347,451 4,120 347,451
----------- ---------- -----------
675,906 675,906
----------- ---------- -----------
BRAZIL: 2.2%
Companhia Cia Vale do Rio Doce -- Sponsored ADR 11,550 365,095 11,550 365,095
Uniao de Bancos Brasileiros S.A. (Unibanco) -- GDR 11,300 388,494 11,300 388,494
----------- ---------- -----------
753,589 753,589
----------- ---------- -----------
CANADA: 4.7%
ATI Technologies, Inc.(1) 17,040 293,997 17,040 293,997
Great Canadian Gaming Corp.(1) 8,910 354,500 8,910 354,500
Precision Drilling Corp.(1),(2) 3,010 224,727 3,010 224,727
Talisman Energy, Inc. 9,000 307,809 9,000 307,809
Teck Cominco Ltd. -- Class B 10,830 401,360 10,830 401,360
----------- ---------- -----------
1,582,393 1,582,393
----------- ---------- -----------
FINLAND: 2.1%
Nokian Renkaat OYJ 2,180 351,298 2,180 351,298
YIT-Yhtyma OYJ 12,600 356,756 12,600 356,756
----------- ---------- -----------
708,054 708,054
----------- ---------- -----------
FRANCE: 5.9%
Axalto Holdings N.V.(1) 12,100 400,013 12,100 400,013
Sanofi-Aventis 6,070 511,899 6,070 511,899
Total S.A. -- Sponsored ADR 6,430 753,789 6,430 753,789
Veolia Environnement 9,500 336,968 9,500 336,968
----------- ---------- -----------
2,002,669 2,002,669
----------- ---------- -----------
GERMANY: 4.1%
HeidelbergCement AG 4,800 302,057 4,800 302,057
IVG Immobilien AG 19,370 328,965 19,370 328,965
Solarworld AG 6,090 763,076 6,090 763,076
----------- ---------- -----------
1,394,098 1,394,098
----------- ---------- -----------
</Table>
B-40
<Page>
<Table>
<Caption>
NICHOLAS-APPLEGATE
INTERNATIONAL ALL CAP GROWTH
(ACQUIRING FUND)
SHARES SHARES VALUE
- ------ ------------- ------------
GREECE: 2.0%
Piraeus Bank S.A.
National Bank of Greece S.A.
Tsakos Energy Navigation Ltd.(2)
-------------
-------------
HONG KONG: 2.2%
Cheung Kong (Holdings) Ltd.
Henderson Land Development Co. Ltd.
Shun Tak Holdings Ltd.
-------------
-------------
HUNGARY: 0.8%
OTP Bank Rt. -- GDR
-------------
INDONESIA: 2.6%
PT Adhi Karya (Persero), Tbk.
PT Clipan Finance Indonesia, Tbk.(1)
PT Energi Mega Persada, Tbk.
PT Kawasan Industri Jababeka, Tbk.(1)
PT Bank Lippo, Tbk.(1)
-------------
-------------
IRELAND: 5.6%
Anglo Irish Bank Corp. PLC
Kingspan Group PLC
-------------
-------------
ITALY: 0.7%
Saipem SpA
-------------
JAPAN: 21.9%
The Bank of Fukuoka Ltd.
Canon, Inc.
Credit Saison Co. Ltd.
Cyber Agent Ltd.
Fanuc Ltd.
Honda Motor Co. Ltd.
Komatsu Ltd.
Matsui Securities Co. Ltd.
Matsui Securities Co. Ltd.(1),(3)
Mitsubishi Tokyo Financial Group, Inc.
NEOMAX Co. Ltd.
Nidec Corp.
Pacific Management Corp.
Sharp Corp.
</Table>
B-41
<Page>
<Table>
<Caption>
NICHOLAS-APPLEGATE
INTERNATIONAL ALL CAP GROWTH COMBINED FUNDS
(ACQUIRED FUND) ADJUSTMENTS PROFORMA
SHARES SHARES VALUE SHARES VALUE SHARES VALUE
- ------ ------------- ------------- ------------- ------------- ------------- -------------
GREECE: 2.0%
Piraeus Bank S.A. 10,110 $ 183,496 10,110 $ 183,496
National Bank of Greece S.A. 4,800 162,416 4,800 162,416
Tsakos Energy Navigation Ltd.(2) 7,630 335,949 7,630 335,949
------------- ------------- -------------
681,861 681,861
------------- ------------- -------------
HONG KONG: 2.2%
Cheung Kong (Holdings) Ltd. 24,000 213,096 24,000 213,096
Henderson Land Development Co. Ltd. 50,000 222,456 50,000 222,456
Shun Tak Holdings Ltd. 328,000 309,105 328,000 309,105
------------- ------------- -------------
744,657 744,657
------------- ------------- -------------
HUNGARY: 0.8%
OTP Bank Rt. -- GDR 4,040 286,840 4,040 286,840
------------- ------------- -------------
INDONESIA: 2.6%
PT Adhi Karya (Persero), Tbk. 1,690,000 157,027 1,690,000 157,027
PT Clipan Finance Indonesia, Tbk.(1) 3,595,700 149,963 3,595,700 149,963
PT Energi Mega Persada, Tbk. 2,166,000 171,524 2,166,000 171,524
PT Kawasan Industri Jababeka, Tbk.(1) 14,388,000 220,279 14,388,000 220,279
PT Bank Lippo, Tbk.(1) 2,283,700 190,489 2,283,700 190,489
------------- ------------- -------------
889,282 889,282
------------- ------------- -------------
IRELAND: 5.6%
Anglo Irish Bank Corp. PLC 35,700 893,252 35,700 893,252
Kingspan Group PLC 85,030 1,005,346 85,030 1,005,346
------------- ------------- -------------
1,898,598 1,898,598
------------- ------------- -------------
ITALY: 0.7%
Saipem SpA 17,800 225,687 17,800 225,687
------------- ------------- -------------
JAPAN: 21.9%
The Bank of Fukuoka Ltd. 86,000 539,881 86,000 539,881
Canon, Inc. 3,500 187,724 3,500 187,724
Credit Saison Co. Ltd. 9,100 327,653 9,100 327,653
Cyber Agent Ltd. 80 280,584 80 280,584
Fanuc Ltd. 3,200 200,289 3,200 200,289
Honda Motor Co. Ltd. 3,500 175,318 3,500 175,318
Komatsu Ltd. 86,000 646,574 86,000 646,574
Matsui Securities Co. Ltd. 9,600 127,875 9,600 127,875
Matsui Securities Co. Ltd.(1),(3) 19,200 250,914 19,200 250,914
Mitsubishi Tokyo Financial Group, Inc. 69 598,573 69 598,573
NEOMAX Co. Ltd. 16,600 391,754 16,600 391,754
Nidec Corp. 2,800 348,678 2,800 348,678
Pacific Management Corp. 190 627,396 190 627,396
Sharp Corp. 20,000 302,598 20,000 302,598
</Table>
B-42
<Page>
<Table>
<Caption>
NICHOLAS-APPLEGATE
INTERNATIONAL ALL CAP GROWTH
(ACQUIRING FUND)
----------------------------
SHARES SHARES VALUE
- ------ ------------ ------------
JAPAN (CONINUED)
Sompo Japan Insurance, Inc.
Taiheiyo Cement Corp.
Toho Titanium Co. Ltd.
Tokyu Corp.
Toyota Motor Corp.
USS Co. Ltd.
Yamada Denki Co. Ltd.
-----------
-----------
NETHERLANDS: 6.6%
ASML Holding N.V. -- New York Shares(1)
IHC Caland N.V.
ING Groep N.V. -- Sponsored ADR
Koninklijke Bam Groep N.V.
Koninklijke Philips Electronics N.V. -- New York Shares
Royal Numico N.V.(1)
-----------
-----------
NORWAY: 5.3%
Petroleum Geo-Services ASA(1)
Tandberg Television ASA(1)
TGS-NOPEC Geophysical Co. ASA(1)
-----------
-----------
PHILIPPINES: 0.9%
Metropolitan Bank & Trust Co.
-----------
SINGAPORE: 2.5%
ASE Test Ltd.(1),(2)
CapitaLand Ltd.
Singapore Petroleum Co. Ltd.
-----------
-----------
SWEDEN: 0.9%
Telefonaktiebolaget LM Ericsson -- Sponsored ADR(1)
-----------
SWITZERLAND: 7.8%
ABB Ltd.(1)
Kudelski SA -- Bearer Shares(1)
Leica Geosystems Holdings AG(1)
Nestle SA -- Registered Shares
Novartis AG -- Sponsored ADR
Roche Holding AG -- NVES
UBS AG -- Registered Shares
-----------
-----------
</Table>
B-43
<Page>
<Table>
<Caption>
NICHOLAS-APPLEGATE
INTERNATIONAL ALL CAP GROWTH COMBINED FUNDS
(ACQUIRED FUND) ADJUSTMENTS PROFORMA
------------------------ ------------------------ -----------------------
SHARES SHARES VALUE SHARES VALUE SHARES VALUE
- ------ ----------- ----------- ----------- ----------- ----------- ----------
JAPAN (CONINUED)
Sompo Japan Insurance, Inc. 32,000 $ 334,014 32,000 $ 334,014
Taiheiyo Cement Corp. 125,000 350,963 125,000 350,963
Toho Titanium Co. Ltd. 11,000 337,577 11,000 337,577
Tokyu Corp. 60,000 312,858 60,000 312,858
Toyota Motor Corp. 12,200 454,065 12,200 454,065
USS Co. Ltd. 3,600 278,718 3,600 278,718
Yamada Denki Co. Ltd. 6,700 351,234 6,700 351,234
----------- ----------- -----------
7,425,240 7,425,240
----------- ----------- -----------
NETHERLANDS: 6.6%
ASML Holding N.V. -- New York Shares(1) 15,890 266,475 15,890 266,475
IHC Caland N.V. 5,100 323,977 5,100 323,977
ING Groep N.V. -- Sponsored ADR 11,890 359,435 11,890 359,435
Koninklijke Bam Groep N.V. 9,100 536,786 9,100 536,786
Koninklijke Philips Electronics N.V. -- New York Shares 15,050 414,176 15,050 414,176
Royal Numico N.V.(1) 8,100 331,414 8,100 331,414
----------- ----------- -----------
2,232,263 2,232,263
----------- ----------- -----------
NORWAY: 5.3%
Petroleum Geo-Services ASA(1) 4,700 309,611 4,700 309,611
Tandberg Television ASA(1) 65,430 820,740 65,430 820,740
TGS-NOPEC Geophysical Co. ASA(1) 22,810 669,422 22,810 669,422
----------- ----------- -----------
1,799,773 1,799,773
----------- ----------- -----------
PHILIPPINES: 0.9%
Metropolitan Bank & Trust Co. 494,600 311,353 494,600 311,353
----------- ----------- -----------
SINGAPORE: 2.5%
ASE Test Ltd.(1),(2) 59,900 304,292 59,900 304,292
CapitaLand Ltd. 119,000 169,413 119,000 169,413
Singapore Petroleum Co. Ltd. 147,000 365,118 147,000 365,118
----------- ----------- -----------
838,823 838,823
----------- ----------- -----------
SWEDEN: 0.9%
Telefonaktiebolaget LM Ericsson -- Sponsored ADR(1) 10,780 303,996 10,780 303,996
----------- ----------- -----------
SWITZERLAND: 7.8%
ABB Ltd.(1) 54,800 340,324 54,800 340,324
Kudelski SA -- Bearer Shares(1) 16,440 592,934 16,440 592,934
Leica Geosystems Holdings AG(1) 1,230 344,408 1,230 344,408
Nestle SA -- Registered Shares 1,270 347,382 1,270 347,382
Novartis AG -- Sponsored ADR 5,010 234,368 5,010 234,368
Roche Holding AG -- NVES 3,210 343,967 3,210 343,967
UBS AG -- Registered Shares 5,230 441,516 5,230 441,516
----------- ----------- -----------
2,644,899 2,644,899
----------- ----------- -----------
</Table>
B-44
<Page>
<Table>
<Caption>
NICHOLAS-APPLEGATE
INTERNATIONAL ALL CAP GROWTH
(ACQUIRING FUND)
SHARES SHARES VALUE
- ------ ------------ ------------
THAILAND: 0.8%
TT&T PCL -- NVDR(1)
-----------
TURKEY: 1.2%
Turkcell Iletisim Hizmetleri A.S. --
Sponsored ADR
Turkiye Garanti Bankasi A.S.(1)
-----------
-----------
UNITED KINGDOM: 9.0%
AstraZeneca PLC -- Sponsored ADR
Cookson Group PLC(1)
Exel PLC
GlaxoSmithKline PLC -- Sponsored ADR
Paladin Resources PLC
SABMiller PLC
Vodafone Group PLC -- Sponsored ADR
-----------
-----------
===========
TOTAL COMMON STOCKS (COST $28,393,413)
<Caption>
PRINCIPAL
AMOUNT
-----------
SHORT-TERM INVESTMENTS: 1.9%
MONEY MARKET INVESTMENT: 1.9%
UMB Money Market Fiduciary
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $634,197)
-----------
TOTAL INVESTMENTS IN SECURITIES: 98.5% (COST
$29,027,610)
OTHER ASSETS IN EXCESS OF LIABILITIES: 1.5%
-----------
NET ASSETS: 100.0%
===========
</Table>
- ----------
(1) Non-income producing security.
(2) U.S. Security of a foreign company.
(3) Restricted Security.
ADR -- American Depositary Receipt.
GDR -- Global Depositary Receipt.
NVES -- Non-Voting Equity Security.
NVDR -- Non-Voting Depositary Receipt.
B-45
<Page>
<Table>
<Caption>
NICHOLAS-APPLEGATE
INTERNATIONAL ALL CAP GROWTH COMBINED FUNDS
(ACQUIRED FUND) ADJUSTMENTS PROFORMA
SHARES SHARES VALUE SHARES VALUE SHARES VALUE
- ------ ---------- ------------- --------- ---------- ------------ ------------
THAILAND: 0.8%
TT&T PCL -- NVDR(1) 2,280,000 $ 261,835 2,280,000 $ 261,835
------------- ---------- ------------
TURKEY: 1.2%
Turkcell Iletisim Hizmetleri A.S. --
Sponsored ADR 5,330 91,036 5,330 91,036
Turkiye Garanti Bankasi A.S.(1) 82,000 310,993 82,000 310,993
------------- ---------- ------------
402,029 402,029
------------- ---------- ------------
UNITED KINGDOM: 9.0%
AstraZeneca PLC -- Sponsored ADR 12,790 505,589 12,790 505,589
Cookson Group PLC(1) 452,000 341,583 452,000 341,583
Exel PLC 21,280 340,930 21,280 340,930
GlaxoSmithKline PLC -- Sponsored ADR 7,600 348,992 7,600 348,992
Paladin Resources PLC 119,080 411,144 119,080 411,144
SABMiller PLC 31,130 487,270 31,130 487,270
Vodafone Group PLC -- Sponsored ADR 22,520 598,131 22,520 598,131
------------- ---------- ------------
3,033,639 3,033,639
------------- ---------- ------------
TOTAL COMMON STOCKS (COST $28,393,413) 32,718,848 32,718,848
============= ========== ============
<Caption>
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT
---------- --------- ------------
SHORT-TERM INVESTMENTS: 1.9%
MONEY MARKET INVESTMENT: 1.9%
UMB Money Market Fiduciary 634,197 634,197 1,268,394 634,197
------------- ---------- ------------
TOTAL SHORT-TERM INVESTMENTS (COST $634,197) 634,197 634,197
------------- ---------- ------------
TOTAL INVESTMENTS IN SECURITIES: 98.5% (COST
$29,027,610) 33,353,045 33,353,045
OTHER ASSETS IN EXCESS OF LIABILITIES: 1.5% 506,912 68,135 575,047
------------- ---------- ------------
NET ASSETS: 100.0% $ 33,859,957 $ 33,928,092
============= ========== ============
</Table>
B-46
<Page>
PRO-FORMA COMBINING THE STATEMENT OF ASSETS & LIABILITIES AT
MARCH 31, 2005 -- (UNAUDITED)
<Table>
<Caption>
NICHOLAS-APPLEGATE NICHOLAS-APPLEGATE
INTERNATIONAL INTERNATIONAL PRO-FORMA
ALL CAP GROWTH ALL CAP GROWTH COMBINED
(ACQUIRING FUND) (ACQUIRED FUND) STATEMENT OF
PERIOD ENDED PERIOD ENDED ASSETS &
MARCH 31, 2005 MARCH 31, 2005 ADJUSTMENTS LIABILITIES
------------------ -------------- ------------- ------------
ASSETS
Investments, at value* $ $ 33,353,045 $ 33,353,045
Foreign currencies, at value** 741,324 741,324
Cash 171,417 171,417
Receivables: --
Investment securities sold 948,517 948,517
Capital shares sold -- --
Dividends and interest 63,980 63,980
Foreign taxes receivable -- --
Other recivables -- --
Prepaid expenses 7,800 7,800
Other assets --
------------------ -------------- ------------- ------------
Total assets 35,286,083 35,286,083
------------------ -------------- ------------- ------------
LIABILITIES
Payables:
Investments purchased $ 1,346,221 1,346,221
Advisory Fees 20,381 (77,922)(a) (57,541)
Administration Fees 19,666 -- 19,666
Transfer Agent Fees 7,034 7,034
Chief compliance officer fees 500 500
Other Liabilites 32,324 9,787(b) 42,111
------------------ -------------- ------------- ------------
Total Liabilities 1,426,126 1,426,126
------------------ -------------- ------------- ------------
NET ASSETS 33,859,957 68,135 33,928,092
================== ============== ============= ============
* Investments, at cost 29,027,610 29,027,610
================== ============== ============= ============
** Foreign currencies, at cost 743,568 743,568
================== ============== ============= ============
NET ASSETS CONSIST OF:
Paid-in capital $ $ 45,667,281 45,667,281
Undistributed net investment income (loss) 8,108 68,135 76,243
Accumulated net realized gain (loss) on
investments and foreign currencies (16,139,783) (16,139,783)
Net unrealized appreciation (depreciation ) of
investments and of other assets and
liabilities denominated in foreign currencies 4,324,351 4,324,351
------------------ -------------- ------------- ------------
Net Assets applicable to all shares outstanding $ $ 33,859,957 68,135 33,928,092
================== ============== ============= ============
Class I Shares outstanding 3,729,694 3,729,694
Net Asset Value -- Class I Share $ $ 9.08 .02(c) 9.10
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
(a) Sum of Management fee and Expenses reimbursed from 3/31/2005 SOP
(b) Sum of all other adjustments from 3/31/2005 SOP
(c) NAV impact of adjustments
B-47
<Page>
PRO-FORMA COMBINING THE STATEMENT OF OPERATIONS
MARCH 31, 2005 (UNAUDITED)
<Table>
<Caption>
NICHOLAS-APPLEGATE NICHOLAS-APPLEGATE
INTERNATIONAL INTERNATIONAL
ALL CAP GROWTH ALL CAP GROWTH PRO-FORMA
(ACQUIRING FUND) (ACQUIRED FUND) COMBINED
PERIOD ENDED PERIOD ENDED STATEMENT OF
MARCH 31, 2005 MARCH 31, 2005 ADJUSTMENTS OPERATIONS
------------------ -------------- ----------- ------------
INVESTMENT INCOME
Dividends, net of foreign taxes* $ $ 485,422 -- 485,422
Interest 3,093 -- 3,093
------------------ -------------- ----------- ------------
Total Income 488,515 -- 488,515
------------------ -------------- ----------- ------------
EXPENSES
Advisory fee 370,460 (88,910)(a) 281,550
Accounting and administration fees 108,973 (90,573)(b) 18,400
Custodian fees 36,826 37,674 (b) 74,500
Transfer agent fees and expenses 34,005 (11,005)(b) 23,000
Shareholder servicing fees -- 44,455 (c) 44,455
Administrative services -- 44,455 (d) 44,455
Professional fees 21,482 (2,082)(e) 19,400
Shareholder reporting 14,996 (6,296)(e) 8,700
Registration fees 16,060 (16,060)(e) --
Trustees' fees and expenses 5,435 (1,635)(e) 3,800
Miscellaneous 4,646 12,354 (e) 17,000
Chief compliance officer fees 1,500 (1,500)(f) --
------------------ -------------- ----------- ------------
Total Expenses 614,383 (79,123) 535,260
Expenses offset --
Expenses reimbursed (175,788) 10,988 (g) (164,800)
------------------ -------------- ----------- ------------
Net Expenses 438,595 (68,135) 370,460
------------------ -------------- ----------- ------------
NET INVESTMENT INCOME (LOSS) 49,920 68,135 118,055
------------------ -------------- ----------- ------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Realized gain/ (loss) from:
Investments and foreign currencies 4,719,908 -- 4,719,908
Change in unrealized appreciation (depreciation) of:
Investments and foreign currencies (1,393,822) -- (1,393,822)
------------------ -------------- ----------- ------------
NET GAIN (LOSS) ON INVESTMENTS 3,326,086 -- 3,326,086
------------------ -------------- ----------- ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ $ 3,376,006 68,135 3,444,141
================== ============== =========== ============
*Foreign taxes withheld $ 57,088 57,088
------------------ -------------- ----------- ------------
Average net assets 29,636,800 29,636,800
</Table>
(a) -- N-A International All Cap (IAC) will be the survivor w/ current
management fee of 95 bp vs 125 in Duncan-Hurst International Growth (IG)
(b) -- Amount reflect adjumstments necessary to arrive at projected expense
under current Nicholas-Applegate contracts
(c) -- IAC will have a 15 bp co admin fee that IG does not
(d) -- IAC will have a 15 bp shareholder servicing fee that IG does not
(e) -- Amount reflect adjumstments necessary to arrive at projected expense
allocation for expenses shared by all N-A funds
(f) -- Eliminate fee paid to non affiliated CCO
(g) -- Fee cap reduced to 125 bps for IAC versus 148 bps for IG
B-48
<Page>
COMBINED STATEMENTS OF CHANGES IN NET ASSETS
PERIODS ENDED MARCH 31, 2005 MARCH 31, 2004 (UNAUDITED)
<Table>
<Caption>
NICHOLAS-APPLEGATE
INTERNATIONAL ALL CAP GROWTH
(ACQUIRING FUND)
---------------------
MARCH 31, MARCH 31,
2005 2004
--------- ---------
INCREASE (DECREASE) IN NET ASSETS
FROM INVESTMENT OPERATIONS:
Net investment income (loss) $
Net realized gain (loss)
Net unrealized appreciation (depreciation)
--------- ---------
Net increase (decrease) in net assets
from investment operations
--------- ---------
FROM CAPITAL SHARE TRANSACTIONS:
Distributions to sharweholders fom net
investment income
Class I
Proceeds from shares sold
Class I
Distributions reinvested
Class I
Cost of shares redeemed
Class I
--------- ---------
Net increase (decrease) in net assets from
share transactions $
--------- ---------
Net Increase (Decrease) in Net Assets
NET ASSETS
Beginning
--------- ---------
Ending $
========= =========
Undistributed net investment income (loss),
ending $
========= =========
CLASS I -- CAPITAL SHARE ACTIVITY
Shares sold
Distributions reinvested
Shares redeemed
--------- ---------
Net Institutional Share Activity
========= =========
Average NAV per Share based on capstock
transactions
</Table>
(a) Expense adjustments carried from SOP
B-49
<Page>
<Table>
<Caption>
NICHOLAS-APPLEGATE
INTERNATIONAL ALL CAP GROWTH
(ACQUIRED FUND) ADJUSTMENT ADJUSTMENT
--------------------------- ------------------------
MARCH 31, MARCH 31,
MARCH 31, MARCH 31, 2005 2004
2005 2004 (UNAUDITED) (UNAUDITED)
------------ ------------ ----------- -----------
INCREASE (DECREASE) IN NET ASSETS
FROM INVESTMENT OPERATIONS:
Net investment income (loss) $ 49,920 $ (29,543) 68,135 (a)
Net realized gain (loss) 4,719,908 7,006,266
Net unrealized appreciation (depreciation) (1,393,822) 6,225,877
------------ ------------
Net increase (decrease) in net assets
from investment operations 3,376,006 13,202,600
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS:
Distributions to sharweholders fom net
investment income
Class I (137,060) --
Proceeds from shares sold
Class I 1,892,025 39,406
Distributions reinvested
Class I 137,060
Cost of shares redeemed
Class I (66,622) (4,326,194)
------------ ------------
Net increase (decrease) in net assets from
share transactions 1,825,403 (4,286,788)
------------ ------------
Net Increase (Decrease) in Net Assets 5,201,409 8,915,812
NET ASSETS
Beginning 28,658,548 19,742,736
------------ ------------
Ending $ 33,859,957 $ 28,658,548
============ ============
Undistributed net investment income (loss),
ending $ 8,108 $ (48,022)
============ ============
CLASS I -- CAPITAL SHARE ACTIVITY
Shares sold 224,038 6,827
Distributions reinvested 15,827 --
Shares redeemed (7,814) (590,045)
------------ ------------
Net Institutional Share Activity 232,051 (583,218)
============ ============
Average NAV per Share based on capstock
transactions 8.46 7.35
<Caption>
COMBINED STATEMENTS OF
CHANGES IN NET ASSETS
---------------------------
MARCH 31, MARCH 31,
2005 2004
(UNAUDITED) (UNAUDITED)
------------ ------------
INCREASE (DECREASE) IN NET ASSETS
FROM INVESTMENT OPERATIONS:
Net investment income (loss) 118,055 (29,543)
Net realized gain (loss) 4,719,908 7,006,266
Net unrealized appreciation (depreciation) (1,393,822) 6,225,877
------------ ------------
Net increase (decrease) in net assets
from investment operations 3,444,141 13,202,600
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS:
Distributions to sharweholders fom net
investment income
Class I
Proceeds from shares sold
Class I 1,892,025 39,406
Distributions reinvested
Class I 137,060 --
Cost of shares redeemed
Class I (66,622) (4,326,194)
------------ ------------
Net increase (decrease) in net assets from
share transactions 1,962,463 (4,286,788)
------------ ------------
Net Increase (Decrease) in Net Assets 5,406,604 8,915,812
NET ASSETS
Beginning 28,658,548 19,742,736
------------ ------------
Ending 34,065,152 28,658,548
============ ============
Undistributed net investment income (loss),
ending 76,243 (48,022)
============ ============
CLASS I -- CAPITAL SHARE ACTIVITY
Shares sold 224,038 6,827
Distributions reinvested 15,827 --
Shares redeemed (7,814) (590,045)
------------ ------------
Net Institutional Share Activity 232,051 (583,218)
============ ============
Average NAV per Share based on capstock
transactions 8.46 7.35
</Table>
MISCELLANEOUS
SHARES OF BENEFICIAL INTEREST
On any matter submitted to a vote of shareholders of the Trust, all
shares then entitled to vote will be voted by the affected series unless
otherwise required by the Investment Company Act, in which case all shares of
the Trust will be voted in the aggregate. For example, a change in a Fund's
fundamental investment policies would be voted upon by shareholders of that
Fund. However, all shares of the Trust may vote together in the election or
selection of Trustees, principal underwriters and accountants for the Trust.
Rule 18f-2 under the Investment Company Act provides that any matter
required to be submitted to the holders of the outstanding voting securities of
any investment company such as the Trust shall not be deemed to have been
effectively acted upon unless approved by a majority of the outstanding shares
of the series of the Trust affected by the matter. Under Rule 18f-2, a series is
presumed to be affected by a matter, unless the interests of each series in the
matter are identical or the matter does not affect any interest of such series.
Under Rule 18f-2 the approval of an investment advisory agreement or any change
in a fundamental investment policy would be effectively acted upon with respect
to a Fund only if approved by a majority of its outstanding shares. However, the
rule also provides that the ratification of independent public accountants, the
approval of principal underwriting contracts and the election of directors may
be effectively acted upon by the shareholders of the Trust voting without regard
to the Fund.
B-50
<Page>
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
PROXY VOTING GUIDELINES
I EXTERNAL AUDITOR
A. AUDITORS
VOTE FOR proposals to ratify auditors, unless there is a reason to believe
the auditing firm has a financial interest in or association with the company
and is, therefore, not independent; or there is reason to believe the auditor
has rendered an opinion that is neither accurate nor indicative of the company's
financial position. Additionally, we may vote against ratification of auditors:
- When audit fees added to audit-related fees total less than the tax fees
and/or less than other non-audit fees.
- If there have been any recent restatements or late filings by the
company where the auditor bears some responsibility for the restatement
or late filing (e.g. a restatement due to a reporting error).
- When the auditor performs tax shelter work or work for a contingent type
fee including a fee based on a percentage of economic benefit to the
company.
- When audit fees are excessively low, especially when compared with other
companies in the same industry.
- When the company has aggressive accounting policies.
II BOARD OF DIRECTORS
A. DIRECTOR NOMINEES
Votes on director nominees are normally voted in accordance with Glass
Lewis analysis and recommendation on each individual proposal. Evaluations are
based on the following criteria (and any others that may be deemed relevant by
Glass Lewis or Nicholas-Applegate):
- Long term corporate performance record based on increases in shareholder
wealth, earnings, financial strength
- Executive Compensation
- Director Compensation
- Corporate Governance Provisions and Takeover Activity
- Criminal Activity
- Investment in the Company
- Interlocking Directorships
- Inside, Outside, and Independent Directors
- Board Composition
- Number of Other Board Seats
- Any problems or issues that arose on Other Board assignments
- Support of majority-supported shareholder proposals.
B. DIRECTOR INDEMNIFICATION AND LIABILITY PROTECTION
1. Proposals concerning director and officer indemnification and
liability protection are normally voted in accordance with Glass Lewis
analysis and recommendation on each individual proposal.
A-1
<Page>
2. VOTE AGAINST proposals to limit or eliminate entirely the liability
for monetary damages of directors and officers for violating the duty
of care.
3. VOTE AGAINST indemnification proposals that would expand coverage
beyond just legal expenses to acts like negligence, that are more
serious violations of fiduciary obligation than mere carelessness.
4. VOTE FOR only those proposals providing such expanded coverage on
cases when a director's or officer's legal defense was unsuccessful
if: (i) the director was found to have acted in good faith and in a
manner that he reasonably believed was in the best interest of the
company, and (ii) if only the director's legal expenses would be
covered.
C. DIRECTOR DUTIES AND STAKEHOLDER LAWS
VOTE AGAINST management or shareholder proposals to allow the board of
directors to consider the interests of "stakeholders" or "non-shareholder
constituents," unless these proposals make it clear that these interests are to
be considered in the context of the prevailing commitment to shareholders.
D. DIRECTOR NOMINATIONS
VOTE IN ACCORDANCE WITH GLASS LEWIS shareholder proposals asking that
management allow large shareholders equal access to management's proxy to
discuss and evaluate management's director nominees, and/or to nominate and
discuss shareholder nominees to the board.
E. INSIDE VERSUS INDEPENDENT DIRECTORS
1. Shareholder proposals asking that boards be comprised of a majority of
independent directors are normally voted in accordance with Glass
Lewis analysis and recommendation on each individual proposal.
2. VOTE FOR shareholder proposals asking that board audit, compensation
and/or nominating committees be comprised exclusively of independent
directors.
F. STOCK OWNERSHIP REQUIREMENTS
VOTE IN ACCORDANCE WITH GLASS LEWIS on shareholder proposals requiring
directors to own a minimum amount of company stock in order to qualify as a
director, or to remain on the board.
G. TERM OF OFFICE
VOTE AGAINST proposals to limit the tenure of outside directors.
III PROXY CONTESTS AND CORPORATE DEFENSES
A. PROXY CONTESTS FOR BOARD SEATS
All votes in a contested election of directors are normally voted in
accordance with Glass Lewis analysis and recommendation on each individual
proposal.
B. CLASSIFIED BOARDS
1. VOTE AGAINST proposals to classify the board.
2. VOTE FOR proposals to repeal a classified board, and to elect all
directors annually.
C. CUMULATIVE VOTING
1. VOTE FOR proposals to permit cumulative voting in the election of
directors.
2. VOTE AGAINST proposals to eliminate cumulative voting in the election
of directors.
D. DIRECTOR NOMINATIONS
VOTE AGAINST management proposals to limit shareholders' ability to
nominate directors.
A-2
<Page>
E. SHAREHOLDERS' RIGHT TO CALL SPECIAL MEETINGS
1. VOTE AGAINST management proposals to restrict or prohibit
shareholders' ability to call special meetings.
2. VOTE FOR shareholder proposals that remove restrictions on the right
of shareholders to act independently of management.
F. SHAREHOLDER ACTION BY WRITTEN CONSENT
1. VOTE AGAINST management proposals to restrict or prohibit
shareholders' ability to take action by written consent.
2. VOTE FOR shareholder proposals to allow or make easier shareholder
action by written consent.
G. SIZE OF THE BOARD
1. VOTE FOR proposals that seek to fix the size of the Board.
2. VOTE AGAINST management proposals that give management the ability to
alter the size of the Board without shareholder approval.
H. SHAREHOLDERS' ABILITY TO REMOVE DIRECTORS
1. VOTE AGAINST proposals that state directors may be removed only for
cause.
2. VOTE FOR proposals to restore shareholder ability to remove directors
with or without cause.
3. VOTE AGAINST proposals that provide that only continuing directors may
elect replacements to fill board vacancies.
4. VOTE FOR proposals that permit shareholders to elect directors to fill
board vacancies.
IV TENDER OFFERS AND CORPORATE DEFENSES
A. FAIR PRICE PROVISIONS
1. VOTE IN ACCORDANCE WITH GLASS LEWIS analysis and recommendation on
management proposals to adopt a fair price provision, as long as the
shareholder vote requirement imbedded in the provision is no more than
a majority of the disinterested shares.
2. VOTE IN ACCORDANCE WITH GLASS LEWIS analysis and recommendation on
shareholder proposals to lower the shareholder vote requirements
imbedded in existing fair price provisions.
B. GREENMAIL
1. VOTE FOR proposals to adopt anti-greenmail charter or bylaw amendments
or otherwise restrict a company's ability to make greenmail payments.
2. Vote in accordance with Glass Lewis analysis and recommendation on
each individual proposal regarding anti-greenmail proposals when they
are bundled with other charter or bylaw amendments.
3. Vote on a CASE-BY-CASE basis regarding restructuring plans that
involve the payment of pale greenmail.
C. POISON PILLS
1. VOTE FOR shareholder proposals asking that a company submit its poison
pill for shareholder ratification.
2. Shareholder proposals to redeem a company's poison pill are normally
voted in accordance with Glass Lewis analysis and recommendation on
each individual proposal.
3. Management proposals to ratify a poison pill are normally voted in
accordance with Glass Lewis analysis and recommendation on each
individual proposal.
A-3
<Page>
D. STAKEHOLDER PROVISIONS
VOTE AGAINST management proposals allowing the board to consider
stakeholders' (outside constituencies') interests when faced with a tender
offer.
E. SUPER-MAJORITY VOTE REQUIREMENT TO APPROVE MERGERS
1. VOTE FOR shareholder proposals to lower super-majority vote
requirements for mergers and other business combinations.
2. VOTE AGAINST management proposals to require a super-majority
shareholders' vote to approve mergers and other significant business
combinations.
F. SUPER-MAJORITY SHAREHOLDER VOTE REQUIREMENTS TO AMEND CHARTER OR BYLAWS
1. VOTE FOR shareholder proposals to lower super-majority vote
requirements to amend any bylaw or charter provision.
2. VOTE AGAINST management proposals to require a super-majority vote to
amend any bylaw or charter provision.
G. UNEQUAL VOTING RIGHTS
VOTE IN ACCORDANCE WITH GLASS LEWIS analysis and recommendation on
proposals for dual class exchange offers and dual class recapitalizations.
H. EXISTING DUAL CLASS COMPANIES
1. VOTE IN ACCORDANCE WITH GLASS LEWIS analysis and recommendation on
shareholder proposals asking that a company report to shareholders on
the financial impact of its dual class voting structure.
2. VOTE FOR shareholder proposals asking that a company submit its dual
class voting structure for shareholder ratification.
I. WHITE SQUIRE PLACEMENTS
VOTE FOR shareholder proposals to require approval of blank check preferred
stock issues for other than general corporation purposes. (e.g. raising capital
or making acquisitions in the normal course of business).
V MISCELLANEOUS CORPORATE GOVERNANCE PROVISIONS
A. ABSTENTION VOTES
VOTE FOR shareholder proposals recommending that votes to "abstain" not be
considered votes "cast" at an annual or special meeting, unless that
consideration is required by state law.
B. ANNUAL MEETINGS
1. VOTE AGAINST management proposals asking for authority to vote at the
meeting for "other matters".
2. VOTE AGAINST shareholder proposals to rotate the time or place of
annual meetings.
C. CONFIDENTIAL VOTING AND INDEPENDENT TABULATION AND INSPECTIONS
VOTE FOR proposals to adopt a policy that comprises both confidential
voting and the use of independent vote tabulators of elections.
D. EQUAL ACCESS
VOTE FOR shareholder proposals to allow significant company shareholders
equal access to management's proxy material in order to evaluate and propose
voting recommendations on proxy proposals and director nominees, and/or to
nominate their own candidates to the board.
A-4
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E. BUNDLED PROPOSALS
Bundled or "conditioned" proxy proposals are normally voted in accordance
with Glass Lewis analysis and recommendation on each individual proposal. (e.g.,
management proposals to provide shareholders a special dividend that are bundled
with other charter or bylaw changes).
F. SHAREHOLDER ADVISORY COMMITTEE
1. Shareholder proposals to establish shareholder advisory committees are
normally voted in accordance with Glass Lewis analysis and
recommendation on each individual proposal.
2. Decisions on whether or not to join a shareholder advisory committee
are normally voted in accordance with Glass Lewis analysis and
recommendation on each individual proposal.
G. DISCLOSURE PROPOSALS
Shareholder proposals requesting fuller disclosure of company policies,
plans or business practices are normally voted in accordance with Glass Lewis
analysis and recommendation on each individual proposal.
H. CONFLICT OF INTEREST
When facing conflicts between our interests and the interests of our
clients, Nicholas-Applegate will always act in the best interests of its
clients. In proxy voting matters, conflicts of interest can arise in many ways.
For example, a proxy issue could arise for one of our public clients that we
also own in one or more client accounts. Or, a potential client battling a
contentious shareholder proposal may ask for our vote in exchange for granting
us an investment mandate. In these cases and other potential conflict scenarios,
Nicholas-Applegate must exercise caution to ensure our clients' interests are
not compromised.
We believe a reasonable process to screen for potential conflicts that
could influence our proxy voting is as follows:
(i) identify any situation where we DO NOT intend to vote in accordance
with our normal policy on any issue;
(ii) determine who is directing (portfolio manager, client, etc) us to
vote contrary to our normal policy;
(iii) review and analyze for potential conflict issues (e.g., may require
PM to disclose any relationship with the issuer via a written
questionnaire);
(iv) Proxy Committee to review request to vote contrary to policy, and
potential conflict if any, prior to voting, and will make final
decision.
(v) pursuant to the request of the Board of Trustees of the
Nicholas-Applegate Institutional Funds, NACM will report to the Board
any conflict of interest matter and how the Committee resolved it.
The Proxy Committee will be responsible for implementing and following the
above process, and has the flexibility to use its reasonable judgment in
determining which steps are necessary under each set of circumstances.
VI CAPITAL STRUCTURE
A. COMMON STOCK AUTHORIZATION
1. Proposals to increase the number of shares of common stock the board
is authorized to issue are normally voted in accordance with Glass
Lewis analysis and recommendation on each individual proposal.
2. Proposals to increase the number of shares of common stock authorized
for issue are normally voted in accordance with Glass Lewis analysis
and recommendation on each individual proposal.
3. VOTE IN ACCORDANCE WITH GLASS LEWIS analysis and recommendation on
proposed common share authorizations that increase existing
authorization by more than 100 percent unless a clear need for the
excess shares is presented by the company.
A-5
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B. STOCK DISTRIBUTIONS: SPLITS AND DIVIDENDS
VOTE IN ACCORDANCE WITH GLASS LEWIS analysis and recommendation on
management proposals to increase common share authorization for a stock split,
provided that the increase in authorized shares following the split is not
greater than 100 percent of existing authorized shares.
C. REVERSE STOCK SPLITS
VOTE FOR management proposals to implement a reverse stock split that also
reduce the number of authorized common shares to a level that does not represent
an increase of more than 100 percent of existing authorized common shares.
D. BLANK CHECK PREFERRED STOCK
1. VOTE AGAINST management proposals authorizing the creation of new
classes of preferred stock which have unspecified rights including
voting, conversion or dividend distribution rights.
2. Management proposals to increase the number of authorized blank check
preferred shares are normally voted in accordance with Glass Lewis
analysis and recommendation on each individual proposal.
3. VOTE FOR shareholder proposals asking that any placement of blank
check preferred stock be first approved by shareholders, unless the
placement is for ordinary business purposes.
4. VOTE FOR proposals to create "blank check" preferred stock in cases
when the company expressly states that the stock will not be used as a
takeover defense or carry superior voting rights.
E. ADJUSTMENTS TO PAR VALUE OF COMMON STOCK
VOTE FOR management proposals to reduce the par value of common stock.
F. PREEMPTIVE RIGHTS
Proposals to provide shareholders with preemptive rights are normally voted
in accordance with Glass Lewis analysis and recommendation on each individual
proposal.
G. DEBT RESTRUCTURING
Proposals to increase common and/or preferred shares and to issue shares as
part of a debt restructuring plan are normally voted in accordance with Glass
Lewis analysis and recommendation on each individual proposal.
H. SHARE REPURCHASE PROGRAMS
VOTE FOR management proposals to institute open-market share repurchase
plans in which all shareholders may participate on equal terms.
VII EXECUTIVE COMPENSATION/EMPLOYEE CONSIDERATION
A. INCENTIVE PLANS
All proposals on incentive compensation plans (including option plans) for
executives and directors are normally voted in accordance with Glass Lewis
analysis and recommendation on each individual proposal. The evaluation is based
on the following criteria (and any other that may be deemed relevant by Glass
Lewis or Nicholas-Applegate):
- Necessity
- Reasonableness Test
- Participation
- Dilution
- Shares Available
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<Page>
- Exercise and Payment Terms
- Change-in-Control Provisions
- Types of Awards
- Company specific dilution cap calculated
- Present Value of all incentives, derivative awards, cash/bonus
compensation
- Shareholder wealth transfer (dollar amount of shareholders' equity paid
it's executives)
- Voting power dilution--Potential percent reduction in relative voting
power
- Criteria for awarding grants
- The pace of grants
- The value of grants per employee compared with the company's peers.
- Allowance for repricing of options
- Past granting patterns
- Process for determining pay levels
B. SHAREHOLDER PROPOSALS TO LIMIT EXECUTIVE AND DIRECTOR COMPENSATION
1. Generally, VOTE IN ACCORDANCE WITH GLASS LEWIS analysis and
recommendation on shareholder proposals that seek additional
disclosure of executive and director compensation information.
2. All other shareholder proposals that seek to limit executive and
director compensation are normally voted in accordance with Glass
Lewis analysis and recommendation on each individual proposal.
C. GOLDEN PARACHUTES
1. VOTE FOR shareholder proposals to have golden and tin parachutes
submitted for shareholder ratification.
2. Proposals to ratify or cancel golden or tin parachutes are normally
voted in accordance with Glass Lewis analysis and recommendation on
each individual proposal.
D. EMPLOYEE STOCK OWNERSHIP PLANS (ESOP)
1. VOTE IN ACCORDANCE WITH GLASS LEWIS analysis and recommendation on
proposals requesting shareholder approval to implement Employee Stock
Ownership Plans, or increase authorized shares for existing Employee
Stock Ownership Plans except when the number of shares allocated to
the ESOP is excessive (i.e. greater than 5% of outstanding shares).
2. Votes directly pertaining to the approval of an ESOP or a leveraged
ESOP are normally voted in accordance with Glass Lewis analysis and
recommendation on each individual proposal. Our evaluation is based on
the following criteria (and any other that may be deemed relevant):
- Reasonableness Test
- Participation
- Administration
- Shares Available
- Exercise and Payment Terms
- Change-in-Control Provisions
- Types of Awards
- Dilution
A-7
<Page>
E. 401(k) EMPLOYEE BENEFIT PLANS
VOTE IN ACCORDANCE WITH GLASS LEWIS analysis and recommendation on
proposals to implement a 401(k) savings plan for employees.
F. DISCOUNTED OPTIONS/RESTRICTED STOCK
VOTE IN ACCORDANCE WITH GLASS LEWIS analysis and recommendation on
discounted options and restricted stock without performance criteria (except
restricted stock in U.S.-style stock option plans, which are normally voted in
accordance with Glass Lewis analysis and recommendation on each individual
proposal.)
G. PENSION FUND CREDITS
VOTE FOR proposals that EXCLUDE pension fund credits from earnings when
calculating executive compensation. In addition, VOTE AGAINST proposals that
INCLUDE pension fund credits in earnings when calculating executive
compensation.
VIII STATE OF INCORPORATION
A. RE-INCORPORATION PROPOSALS
Proposals to change a corporation's state of incorporation are normally
voted in accordance with Glass Lewis analysis and recommendation on each
individual proposal.
B. STATE TAKEOVER STATUTES
Proposals to opt in or opt out of state takeover statutes are normally
voted in accordance with Glass Lewis analysis and recommendation on each
individual proposal.
C. STATE FAIR PRICE PROVISIONS
Proposals to opt out of S.F.P's are normally voted in accordance with Glass
Lewis analysis and recommendation on each individual proposal.
D. STAKEHOLDER LAWS
VOTE FOR proposals to opt out of stakeholder laws (allowing directors to
weigh the interest of constituencies other than shareholders in the process of
corporate decision making).
E. DISGORGEMENT PROVISIONS
Proposals to opt out of disgorgement provisions are normally voted in
accordance with Glass Lewis analysis and recommendation on each individual
proposal.
IX MERGERS AND CORPORATE RESTRUCTURINGS
A. MERGERS AND ACQUISITIONS
Votes on mergers and acquisitions are normally voted in accordance with
Glass Lewis analysis and recommendation on each individual proposal. The voting
decision depends on a number of factors, including:
- Anticipated financial and operating benefits
- Offer price (cost vs. premium)
- Prospects of the combined companies
- How the deal was negotiated
- Changes in corporate governance and their impact on shareholder rights
- Other pertinent factors discussed below.
A-8
<Page>
B. CORPORATE RESTRUCTURINGS
Votes on corporate restructuring proposals, including minority squeezeouts,
leveraged buyouts, spin-offs, liquidations and asset sales, are normally voted
in accordance with Glass Lewis analysis and recommendation on each individual
proposal.
C. SPIN-OFFS
Votes on spin-offs are normally voted in accordance with Glass Lewis
analysis and recommendation on each individual proposal, considering
- The tax and regulatory advantages
- Planned use of the sale proceeds
- Market focus
- Managerial incentives.
D. ASSET SALES
Votes on asset sales are normally voted in accordance with Glass Lewis
analysis and recommendation on each individual proposal, considering
- The impact on the balance sheet/working capital
- The value received for the asset
- The potential elimination of diseconomies.
E. LIQUIDATIONS
Votes on liquidations normally voted in accordance with Glass Lewis
analysis and recommendation on each individual proposal, after reviewing
- Management's efforts to pursue other alternatives
- The appraisal value of the assets
- The compensation plan for executives managing the liquidation.
F. RIGHTS OF APPRAISAL
VOTE FOR shareholder proposals to provide rights of appraisal to dissenting
shareholders.
G. CHANGING CORPORATE NAME
VOTE FOR changing the corporate name.
X SOCIAL ISSUES PROPOSALS
A. SOCIAL ISSUES PROPOSALS
Vote in accordance with Glass Lewis analysis and recommendation on each
individual proposal, which is based on expected effect on shareholder value, and
then voted accordingly.
XI PROXIES NOT VOTED
A. SHARES OUT ON LOAN
Proxies are not available to be voted when shares are out on loan through
client securities lending programs with their custodians.
A-9
<Page>
B. SHARE-BLOCKING
Proxies are not voted for countries with "share-blocking", generally,
voting would restrict ability to sell shares. A list of countries with
"share-blocking" is available upon request.
C. OTHER
There may be circumstances, such as costs or other factors, where
Nicholas-Applegate would in its reasonable discretion refrain from voting proxy
shares.
A-10
<Page>
PART C. OTHER INFORMATION
Item 15. INDEMNIFICATION
Registrant's trustees, officers, employees and agents are indemnified
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 3 of Registrant's Administrative Services Agreement, filed as
Exhibit (h)(2) to Registrant's Form N-1A Registration Statement on May 6, 1999
and incorporated herein by reference, provides for the indemnification of
Registrant's Administrator against all liabilities incurred by it in performing
its obligations under the Agreement, except with respect to matters involving
its Disabling Conduct. Section 9 of Registrant's Distribution Agreement, filed
as Exhibit (e)(1) to Registrant's Form N-1A Registration Statement on May 6,
1999 and incorporated herein by reference, provides for the indemnification of
Registrant's Distributor against all liabilities incurred by it in performing
its obligations under the Agreement, except with respect to matters involving
its Disabling Conduct. Section 8 of the Shareholder Service Agreement, filed as
Exhibit (e)(3) to Registrant's Form N-1A Registration Statement on May 6, 1999
and incorporated herein by reference, provides for the indemnification of
Registrant's Distributor against all liabilities incurred by it in performing
its obligations under the Agreement, except with respect to matters involving
its Disabling Conduct.
Registrant has obtained from a major insurance carrier a trustees' and
officers' liability policy covering certain types of errors and omissions.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended, may be permitted to trustees, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, 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 the
Securities 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 Securities
Act of 1933, as amended, and will be governed by the final adjudication of such
issue.
Article V. of Nicholas-Applegate Institutional Fund's Amended and Restated
Declaration of Trust provides as follows:
5.2 INDEMNIFICATION OF TRUSTEES, OFFICERS, EMPLOYEES, AGENTS. The
Trust shall indemnify each of its Trustees, officers, employees, and agents
(including Persons who serve at its request as directors, officers or
trustees of another organization in which it has any interest, as a
shareholder, creditor or otherwise) against all liabilities and expenses
(including amounts paid in satisfaction of judgments, in compromise, as
fines and penalties, and as counsel fees) reasonably incurred by him or her
in connection with the defense or disposition of any action, suit or other
proceeding, whether civil or
<Page>
criminal, in which he or she may be involved or with which he or she may be
threatened, while in office or thereafter, by reason of his or her being or
having been such a Trustee, officer, employee or agent, except with respect
to any matter as to which he or she shall have been adjudicated to have
acted in bad faith, willful misfeasance, gross negligence or reckless
disregard of his or her duties; provided; however, that as to any matter
disposed of by a compromise payment by such Person, pursuant to a consent
decree or otherwise, no indemnification either for said payment or for any
other expenses shall be provided unless there has been a determination that
such Person did not engage in willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of
his or her office by the court or other body approving the settlement or
other disposition or by a reasonable determination, based upon review of
readily available facts (as opposed to a full trial-type inquiry), that he
or she did not engage in such conduct by written opinion from independent
legal counsel approved by the Trustees. The rights accruing to any Person
under these provisions shall not exclude any other right to which he or she
may be lawfully entitled; provided that no Person may satisfy any right of
indemnity or reimbursement granted herein or in Section 5.1 or to which he
or she may be otherwise entitled except out of the Trust Property. The
Trustees may make advance payments in connection with indemnification under
this Section 5.2, provided that the indemnified Person shall have given a
written undertaking to reimburse the Trust in the event it is subsequently
determined that he or she is not entitled to such indemnification.
<Page>
Item 16. EXHIBITS.
(1) Certificate of Trust of Registrant--filed as Exhibit
1.1 to Amendment No. 1 to the Registrant's Form N-1A
Registration Statement ("Amendment No. 1") on March
17, 1993 and incorporated herein by reference.
(1)(a) Certificate of Amendment of Certificate of Trust of
Registrant--filed as Exhibit 1.2 to Amendment No. 1
to the Registrant's Form N-1A Registration Statement
on March 17, 1993 and incorporated herein by
reference.
(1)(b) Declaration of Trust of Registrant--filed as Exhibit
1 to Registrant's Form N1-A Registration Statement on
December 31, 1992 and incorporated herein by
reference.
(1)(c) Amended and Restated Declaration of Trust of
Registrant--filed as Exhibit 1.4 to Amendment No. 1
to the Registrant's Form N-1A Registration Statement
on March 17, 1993 and incorporated herein by
reference.
(1)(d) Amended and Restated Declaration of Trust dated
February 19, 1999--filed as Exhibit (a)5 to the
Registrant's Form N-1A Registration Statement on May
6, 1999 and incorporated herein by reference.
(1)(e) Amendment No. 1 to the Amended and Restated
Declaration of Trust dated February 19,1999--
filed as Exhibit (a)(6) to the Registrant's Form
N-1A Registration Statement on June 18, 1999 and
incorporated herein by reference.
(2) Amended Bylaws of Registrant--filed as Exhibit 2 to
Amendment No. 2 to the Registrant's Form N-1A
Registration Statement on April 6, 1993 and
incorporated herein by reference.
(2)(a) Amended Bylaws of Registrant dated February 19,
1999--filed as Exhibit 2(b) to the Registrant's Form
N-1A Registration Statement on May 6, 1999 and
incorporated herein by reference.
(3) Not applicable.
(4) Form of Agreement and Plan of Reorganization
is filed herewith as Appendix A to the combined
Proxy Statement/Prospectus and incorporated herein
by reference.
(5) Article VIII of Registrant's Declaration of Trust
incorporated herein by reference as Exhibit (1)(e)
and Articles I and VI of Registrant's Amended and
Restated ByLaws incorporated herein by reference as
as Exhibit (2)(a).
(6) Investment Advisory Agreement between Registrant and
Nicholas-Applegate Capital Management--filed as
Exhibit (d) to the Registrant's Form N-1A
Registration Statement on May 6, 1999 and
incorporated herein by reference.
(6)(a) Form of letter agreement dated August 31, 1999
between Registrant and Nicholas-Applegate Capital
Management adding the Global Health Care Fund to the
Investment Advisory Agreement--filed as Exhibit
(d)(2) to the Registrant's Form N-1A Registration
Statement on June 18, 1999 and incorporated herein by
reference.
(6)(b) Form of Sub Investment Advisory Agreement between
Registrant and Criterion Investment Management
LLC--filed as Exhibit (d)(3) to Post-Effective
Amendment No. 4 on May 25, 2000 and incorporated
herein by reference.
(6)(c) Proposed Investment Advisory Agreement between
Registrant and Nicholas-Applegate Capital
Management--filed as Exhibit (d)(4) to
Post-Effective Amendment No. 5 on November 30, 2000
and incorporated herein by reference.
(6)(d) Proposed Sub Investment Advisory Agreement between
Registrant and Criterion Investment Management
LLC--filed as Exhibit (d)(5) to Post-Effective
Amendment No. 5 on November 30, 2000 and incorporated
herein by reference.
(6)(e) Form of letter agreement dated February 9, 2001
between Registrant and Nicholas-Applegate Capital
Management adding the International Structured and
Small Cap Value Funds to the Investment Advisory
Agreement--filed as Exhibit (d)(6) to Post-Effective
Amendment No. 6 on February 14, 2001 and incorporated
herein by reference.
(6)(f) Form of Letter agreement dated May 8, 2001 between
Registrant and Nicholas-Applegate Capital Management
amending Schedule A to the Investment Advisory
Agreement dated January 31, 2001 filed as Exhibit
(d)(7) to Post Effective Amendment No. 9 on October
1, 2001 and incorporated herein by reference.
(6)(g) Form of letter agreement dated November 8, 2002
between Registrant and Nicholas-Applegate Capital
Management amending Schedule A to the Investment
Management Agreement--filed as Exhibit (d)(8) to Post
Effective Amendment No. 13 on December 6, 2002 and
incorporated herein by reference.
(6)(h) Form of letter agreement between Registrant and
Nicholas-Applegate Capital Management amending
Schedule A to the Investment Management Agreement--
filed as Exhibit (d)(9) to Post-Effective Amendment
No. 17 on October 17, 2003 and incorporated herein by
reference.
(6)(i) Form of letter agreement between Registrant and
Nicholas-Applegate Capital Management amending
Schedule A to the Investment Advisory Agreement--
filed as Exhibit (d)(10) to Post Effective Amendment
No. 19 on March 17, 2004 and incorporated herein by
reference.
(6)(j) Letter Agreement between Registrant and
Nicholas-Applegate Capital Management amending
Schedule A to the Investment Advisory Agreement
adding International Systematic Fund dated
January 25, 2005--filed as Exhibit (d)(10) to
Post-Effective Amendment No. 23 on February 3, 2005
and incorporated herein by reference.
(6)(k) Form of letter agreement between Registrant and
Nicholas-Applegate Capital Management amending
Schedule A to the Investment Advisory Agreement--
filed as Exhibit (d)(12) to Post-Effective Amendment
No. 25 on September 1, 2005 and incorporated herein
by reference.
(7) Distribution Agreement between Registrant and
Nicholas-Applegate Securities dated May 10,
1999--filed as Exhibit (e) to the Registrant's Form
N-1A Registration Statement on May 6, 1999 and
incorporated herein by reference.
(7)(a) Distribution Agreement between Registrant and
Nicholas-Applegate Securities--filed as
Exhibit (e)(2) to Post-Effective Amendment No. 5 on
November 30, 2000 and incorporated herein by
reference.
(7)(b) Form of Shareholder Servicing Agreement--filed
as Exhibit (e)(3) to Post-Effective Amendment
No. 8 on April 10, 2001 and incorporated herein by
reference.
(7)(c) Form of Agency Trading Agreement--filed as
Exhibit (e)(4) to Post-Effective Amendment No. 8
on April 10, 2001 and incorporated herein by
reference.
(8) None.
(9) Custodian Services Agreement between Registrant and
Brown Brothers Harriman & Co.--filed as Exhibit 1(g)
to the Registrant's Form N-1A Registration Statement
on May 6, 1999 and incorporated herein by reference.
(9)(a) Foreign Custody Agreement between Registrant and
Brown Brothers Harriman & Co.--filed as Exhibit
(2)(g) to the Registrant's Form N-1A Registration
Statement on May 6, 1999 and incorporated herein by
reference.
(9)(b) Amendment to Custodian Services Agreement between
Registrant and Brown Brothers Harriman & Co.--filed
as Exhibit (3)(g) to the Registrant's Form N-1A
Registration Statement on May 6, 1999 and
incorporated herein by reference.
(9)(c) Cash Management Authorization Services Agreement
between Registrant and Brown Brothers Harriman &
Co.--filed as Exhibit (4)(g) to the Registrant's Form
N-1A Registration Statement on May 6, 1999 and
incorporated herein by reference.
(9)(d) Form of letter agreement between Registrant and Brown
Brothers Harriman & Co. adding the Global Health Care
Fund to the Foreign Custody Agreement dated May 1,
1999--filed as Exhibit (g)(5) to Post-Effective
Amendment #4 on May 25, 2000 and incorporated herein
by reference.
(9)(e) Form of letter agreement between Registrant and Brown
Brothers Harriman & Co. adding the Global Health Care
Fund to Custodian Services Agreement dated May 1,
1999--filed as Exhibit (g)(6) to Post-Effective
Amendment #4 on May 25, 2000 and incorporated herein
by reference.
(9)(f) Form of letter agreement between Registrant and Brown
Brothers Harriman & Co. adding the Global Health Care
Fund to the Cash Management Authorization Services
Agreement dated May 1, 1999--filed as Exhibit (g)(7)
to Post-Effective Amendment #4 on May 25, 2000 and
incorporated herein by reference.
(9)(g) Amendment to Appendix C to Custodian Services
Agreement between Registrant and Brown Brothers
Harriman & Co.--filed as Exhibit (g)(8) to
Post-Effective Amendment No. 17 on October 17,
2003 and incorporated herein by reference.
(9)(h) Form of letter agreement between Registrant and
Brown Brothers Harriman & Co. adding International
Structured and Small Cap Value Funds to the Cash
Management Authorization Services Agreement dated
May 1, 1999--filed as Exhibit (g)(9) to
Post-Effective Amendment #6 on February 14, 2001
and superseded by Exhibit (g)(10)--filed on
February 14, 2001 and incorporated herein by
reference.
(9)(i) 17f-5 Delegation Schedule between Registrant and
Brown Brothers Harriman & Co. dated February 14,
2001--filed as Exhibit (g)(10) to Post-Effective
Amendment No. 6 on February 14, 2001 and
incorporated herein by reference.
(9)(j) Amendment to Custodian Services Agreement between
Registrant and Brown Brothers Harriman & Co. dated
February 14, 2001--filed as Exhibit (g)(11) to
Post-Effective Amendment No. 7 on April 10, 2001 --
filed as Exhibit (g)(11) to Post-Effective Amendment
No. 8 on May 30, 2001 and incorporated herein by
reference.
(9)(k) Amendment to Appendix C to the Foreign Custody
Manager Delegation Agreement between Registrant and
Brown Brothers Harriman & Co.--filed as Exhibit
(g)(12) to Post-Effective Amendment No. 17 on October
17, 2003 and incorporated herein by reference.
(9)(l) Amendment to the Cash Management Services
Agreement between Registrant and Brown
Brothers Harriman & Co.--filed as Exhibit (g)(13) to
Post-Effective Amendment No. 17 on October 17, 2003
and incorporated herein by reference.
(9)(m) Amendment to Appendix C to Custodian Services
Agreement between Brown Brothers Harriman & Co.
adding Emerging Markets Opportunities Fund--filed
as Exhibit (g)(14) to Post-Effective Amendment
No. 37 on March 17, 2004 and incorporated herein by
reference.
(9)(n) Amendment to Appendix C to the Foreign Custody
Manager Delegation Agreement between
Registrant and Brown Brothers Harriman & Co.
adding Emerging Markets Opportunities Fund--filed
as Exhibit (g)(15) to Post-Effective Amendment
No. 17 on October 17, 2003 and incorporated by
reference herein.
(9)(o) Amendment to Cash Management Services
Agreement between Registrant and Brown
Brothers Harriman & Co. adding Emerging Markets
Opportunities Fund--filed as Exhibit (g)(16) to
Post-Effective Amendment No. 19 on March 17, 2004 and
incorporated herein by reference.
(9)(p) Amendment to Appendix C to Custodian Services
Agreement between Registrant and Brown Brothers
Harriman & Co. adding International Systematic Fund
dated January 25, 2005--filed as Exhibit (g)(17) to
Post-Effective Amendment No. 23 on February 3, 2005
and incorporated herein by reference.
(9)(q) Amendment to Appendix C to the Foreign Custody
Manager Delegation Agreement between Registrant
and Brown Brothers Harriman & Co. adding
International Systematic Fund dated
January 25, 2005--filed as Exhibit (g)(18) to
Post-Effective Amendment No. 23 on February 3, 2005
and incorporated herein by reference.
(9)(r) Amendment to Cash Management Services Agreement
between Registrant and Brown Brothers Harriman & co.
adding International Systematic Fund dated
January 25, 2005--filed as Exhibit (g)(19) to
Post-Effective Amendment No. 23 on February 3, 2005
and incorporated herein by reference.
(9)(s) Form of Amendment to Appendix C to Custodian
Services Agreement between Registrant and Brown
Brothers Harriman & Co. adding International All Cap
Growth Fund--filed as Exhibit (g)(20) to Post-
Effective Amendment No. 25 on September 1, 2005
and incorporated herein by reference.
(9)(t) Form of Amendment to Appendix C to the Foreign
Custody Manager Delegation Agreement between
Registrant and Brown Brothers Harriman & Co. adding
International All Cap Growth Fund--filed as
Exhibit (g)(21) to Post-Effective Amendment No. 25
on September 1, 2005 and incorporated herein by
reference.
(9)(u) Form of Amendment to Cash Management Services
Agreement between Registrant and Brown Brothers
Harriman & co. adding International All Cap Growth
Fund--filed as Exhibit (g)(22) to Post-Effective
Amendment No. 25 on September 1, 2005 and
incorporated herein by reference.
(10) Form of Rule 12b-1 Plan for Class R Shares--filed as
Exhibit (m) to the Registrant's Form N-1A
Registration Statement on May 6, 1999 and
incorporated herein by reference.
(10)(a) Shareholder Service Plan between Registrant and
Nicholas-Applegate Securities for Class I, Class II
Class III, Class IV, Class V and Class R shares dated
February 7, 2003--filed as Exhibit (m)(1) to Post
Effective Amendment #13 on December 6, 2002 and
incorporated herein by reference.
(10)(b) Rule 18f-3 Plan between Registrant and
Nicholas-Applegate Capital Management--filed as
Exhibit (n) to the Registrant's Form N-1A
Registration Statement on May 6, 1999 and
incorporated herein by reference.
(10)(c) Amended to Rule 18f-3 Plan between Registrant and
Nicholas-Applegate Capital Management dated November
8, 2002--filed as Exhibit (n)(1) to Post Effective
Amendment #13 on December 6, 2002 and incorporated
herein by reference.
(11) Opinion of Counsel dated September 1, 2005.
(12) Opinion of Counsel with respect to certain tax
consequences for the International All-Cap Growth
Fund.
(13) Administration and Fund Accounting Agency Agreement
between Registrant and Brown Brothers Harriman & Co.
--filed as Exhibit (1)(h) to the Registrant's Form
N-1A Registration Statement on May 6, 1999 and
incorporated herein by reference.
(13)(a) Administration Services Agreement between Registrant
and Nicholas-Applegate Capital Management--filed as
Exhibit (2)(h) to the Registrant's Form N-1A
Registration Statement on May 6, 1999 and
incorporated herein by reference.
(13)(b) License Agreement between Registrant and
Nicholas-Applegate Capital Management--filed as
Exhibit (3)(h) to the Registrant's Form N-1A
Registration Statement on May 6, 1999 and
incorporated herein by reference.
(13)(c) Expense Limitation Agreement between Registrant
and Nicholas-Applegate Capital Management--filed as
Exhibit No. (4)(h) to the Registrant's Form N-1A
Registration Statement on May 6, 1999 and
incorporated herein by reference.
(13)(d) Transfer Agency and Service Agreement between
Registrant and State Street Bank and Trust
Company--filed as Exhibit No. (5)(h) to the
Registrant's Form N-1A Registration Statement on May
27, 1999 and incorporated herein by reference.
(13)(e) Shareholder Service Plan between Registrant and
Nicholas-Applegate Securities for Class R
Shares--filed as Exhibit No. (6)(h) to the
Registrant's Form N-1A Registration Statement on May
6, 1999 and incorporated herein by reference.
(13)(f) Form of letter agreement between Registrant and Brown
Brothers Harriman & Co. adding Global Health Care
Fund to the Administration and Fund Accounting Agency
Agreement dated May 1, 1999--filed as Exhibit (h)(7)
to Post-Effective Amendment #4 on May 27, 2000 and
incorporated herein by reference.
(13)(g) Form of letter agreement between Registrant and
Nicholas-Applegate Capital Management adding Global
Health Care Fund to the Expense Limitation
Agreement--filed as Exhibit (h)(8) to the
Registrant's Form N-1A Registration Statement on June
18, 1999 and incorporated herein by reference.
(13)(h) Form of letter agreement between Registrant and State
Street Bank and Trust Company adding Global Health
Care Fund to the Transfer Agency and Service
Agreement--filed as Exhibit (h)(9) to the
Registrant's Form N-1A Registration Statement on June
18, 1999 and incorporated herein by reference.
(13)(i) Credit Agreement between Registrant and BankBoston,
N.A. dated December 21, 1999--filed as Exhibit
(h)(10) to Post-Effective Amendment #4 on May 25,
2000 and incorporated herein by reference.
(13)(j) Master Securities Lending Agreement between
Registrant and Goldman, Sachs & Co. dated July 22,
1999--filed as Exhibit (h)(11) to Post-Effective
Amendment #4 on May 25, 2000 and incorporated
herein by reference.
(13)(k) Administrative Services Agreement between Registrant
and Nicholas-Applegate Capital Management--filed
as Exhibit (h)(12) to Post-Effective Amendment No. 5
on November 30, 2000 and incorporated herein by
reference.
(13)(l) Form of letter agreement between Registrant and Brown
Brothers Harriman & Co. adding International
Structured and Small Cap Value Funds to the
Administration and Fund Accounting Agency Agreement
dated May 1, 1999--filed as Exhibit (h)(13) to
Post-Effective Amendment No. 6 on February 14, 2001
and superseded by Exhibit (h)(17)--filed as Exhibit
(h)(17) to Post-Effective Amendment No. 7 filed on
April 10, 2001 and incorporated herein by reference.
(13)(m) Form of letter agreement between Registrant and
Nicholas-Applegate Capital Management adding
International Structured and Small Cap Value Funds to
the Expense Limitation Agreement--filed as Exhibit
(h)(14) to Post-Effective Amendment No. 6 on February
14, 2001 and incorporated herein by reference.
(13)(n) Form of letter agreement between Registrant and State
Street Bank and Trust Company adding International
Structured and Small Cap Value Funds to the Transfer
Agency and Service Agreement--filed as Exhibit
(h)(16) to Post-Effective Amendment No. 6 filed on
February 14, 2001 and incorporated herein by
reference.
(13)(o) Form of letter agreement between Registrant and Fleet
Bank (formerly BankBoston, N.A.) adding International
Structured and Small Cap Value Funds to the Credit
Agreement dated December 21, 1999--filed as Exhibit
(h)(15) to Post-Effective Amendment No. 6 on February
14, 2001 and incorporated herein by reference.
(13)(p) Amended Appendix C to the Administration and Fund
Accounting Agreement between Registrant and Brown
Brothers Harriman & Company dated February 14, 2001
-- filed as Exhibit (h)(17) to Post-Effective
Amendment No. 7 filed on April 10, 2001 and
incorporated herein by reference.
(13)(q) Letter Agreement dated May 18, 2001 between
Registrant and Nicholas-Applegate Capital Management
amending the Expense Limitation Agreement -- filed as
Exhibit (h)(18) to Post-Effective Amendment No. 8
filed on May 30, 2001 and incorporated herein by
reference.
(13)(r) Letter Agreement dated September 27, 2001 between
Registrant and Nicholas-Applegate Capital Management
amending The Expense Limitation Agreement Filed as
Exhibit (h)(19) to Post-Effective Amendment No. 9 on
October 1, 2001 and incorporated herein by reference.
(13)(s) Letter Agreement dated May 17, 2002 between
Registrant and Nicholas-Applegate Capital Management
amending The Expense Limitation Agreement -- filed as
Exhibit (h)(20) to Post-Effective Amendment #10 on
May 20, 2002 and incorporated herein by reference.
(13)(t) Amendment to the Administration Services agreement
between Registrant and Nicholas-Applegate Capital
Management dated November 8, 2002--filed as Exhibit
(h)(21) to Post Effective Amendment #13 on December
6, 2002 and incorporated herein by reference.
(13)(u) Amendment to the Expense Limitation Agreement between
Registrant and Nicholas-Applegate Capital Management
dated November 8, 2002--filed as Exhibit (h)(22) to
Post Effective Amendment #13 on December 6, 2002 and
incorporated herein by reference.
(13)(v) Transfer Agency Agreement dated March 14, 2003
between Registrant and UMB Fund Services, INC. filed
as Exhibit (h)(23) to Post Effective Amendment #15 on
May 29, 2003 and incorporated herein by reference.
(13)(w) Letter Agreement dated April 1, 2003 between
Registrant and Nicholas-Applegate Capital Management
amending the Expense Limitation Agreement filed as
Exhibit (h)(24) to Post Effective Amendment #15 on
May 29, 2003 and incorporated herein by reference.
(13)(x) Amendment to Credit Agreement dated February 28, 2003
between Registrant and Fleet National Bank filed as
Exhibit (h)(25) to Post Effective Amendment #15 on
May 29, 2003 and incorporated herein by reference.
(13)(y) Securities Lending and Agency Agreement--filed as
Exhibit (h)(26) to Post-Effective Amendment #15 on
May 29, 2003 and incorporated herein by reference.
(13)(z) Amendment to the Expense Limitation Agreement between
Registrant and Nicholas-Applegate Capital Management
dated July 29, 2003 filed as Exhibit (h)(27) to
Post-Effective Amendment #16 on July 29, 2003 and
incorporated herein by reference.
(13)(a)(i) Form of letter agreement between Registrant and
Nicholas-Applegate Capital Management amending the
Expense Limitation Agreement--filed as Exhibit
(h)(28) to Post-Effective Amendment No. 17 on October
17, 2003 and incorporated herein by reference.
(13)(a)(ii) Form of letter agreement between Registrant and
Nicholas-Applegate Capital Management amending the
Administrative Services Agreement--filed as Exhibit
(h)(28) to Post-Effective Amendment No. 17 on October
17, 2003 and incorporated herein by reference.
(13)(a)(iii) Amendment to Appendix C to the Administration and
Accounting Agreement between Registrant and Brown
Brothers Harriman & Co.--filed as Exhibit (h)(30)
to Post-Effective Amendment No. 17 on October 17,
2003 and incorporated herein by reference.
(13)(a)(iv) Fourth Amendment to Securities Lending Agency
Agreement between Registrant and Brown Brothers
Harriman & Co.--filed as Exhibit (h)(31) to
Post-Effective Amendment No. 17 on October 17,
2003 and incorporated herein by reference.
(13)(a)(v) Customer Identification Program Addendum to
Transfer Agency Agreement--filed as Exhibit
(h)(32) to Post-Effective Amendment No. 17 on
October 17, 2003 and incorporated herein by
reference.
(13)(a)(vi) Form of letter agreement between Registrant and
Nicholas-Applegate Capital Management amending the
Expense Limitation Agreement--filed as Exhibit
(h)(33) to Post-Effective Amendment No. 19 on March
17, 2004 and incorporated herein by reference.
(13)(a)(vii) Form of letter agreement between Registrant and
Nicholas-Applegate Capital Management amending the
Administrative Services Agreement--filed as Exhibit
(h)(34) to Post-Effective Amendment No. 19 on March
17, 2004 and incorporated herein by reference.
(13)(a)(viii) Amendment to Appendix C to the Administration
Agreement between Registrant and Brown Brothers
Harriman & Co. filed as Exhibit (h)(35) to
Post-Effective Amendment No. 19 on March 17, 2004
and incorporated herein by reference.
(13)(a)(ix) Fifth Amendment to Securities Lending Agency
Agreement between Registrant and Brown Brothers
Harriman & Co.--filed as Exhibit (h)(36) to
Post-Effective Amendment No. 23 on March 17, 2004
and incorporated herein by reference.
(13)(a)(x) Letter Agreement between Registrant and
Nicholas-Applegate Capital Management amending the
Expense Limitation Agreement adding International
Systematic Fund dated January 25, 2005--filed as
Exhibit (d)(10) to Post-Effective Amendment No. 23 on
February 3, 2005 and incorporated herein by
reference.
(13)(b)(i) Letter Agreement between Registrant and
Nicholas-Applegate Capital Management amending the
Administrative Services Agreement adding
International Systematic Fund dated
January 25, 2005--filed as Exhibit (d)(10) to
Post-Effective Amendment No. 23 on February 3, 2005
and incorporated herein by reference.
(13)(b)(ii) Sixth Amendment to Securities Lending Agency
Agreement between Registrant and Brown Brothers
Harriman & Co. adding International Systematic Fund
dated January 25, 2005--filed as Exhibit (d)(10) to
Post-Effective Amendment No. 23 on February 3, 2005
and incorporated herein by reference.
(13)(b)(iii) Amendment to Transfer Agency Agreement between
Registrant and UMB Fund Services, INC adding
International Systematic Fund dated January 25,
2005--filed as Exhibit (d)(10) to Post-Effective
Amendment No. 23 on February 3, 2005 and incorporated
herein by reference.
(13)(b)(iv) Amendment to the Fund Accounting and Agency
Agreement between Registrant and Brown Brothers
Harriman & Co. adding International Systematic Fund
dated January 25, 2005--filed as Exhibit (d)(10) to
Post-Effective Amendment No. 23 on February 3, 2005
and incorporated herein by reference.
(13)(b)(v) Form of Letter Agreement between Registrant and
Nicholas-Applegate Capital Management amending the
Expense Limitation Agreement adding International All
Cap Growth Fund--filed as Exhibit (h)(42) to
Post-Effective Amendment No. 25 on September 1, 2005
and incorporated herein by reference.
(13)(b)(vi) Form of Letter Agreement between Registrant and
Nicholas-Applegate Capital Management amending the
Administrative Services Agreement adding
International All Cap Growth Fund--filed as
Exhibit (h)(43) to Post-Effective Amendment No. 25
on September 1, 2005 and incorporated herein by
reference.
(13)(b)(vii) Form of Seventh Amendment to Securities Lending
Agency Agreement between Registrant and Brown
Brothers Harriman & Co. adding International All Cap
Growth Fund--filed as Exhibit (h)(44) to
Post-Effective Amendment No. 25 on September 1, 2005
and incorporated herein by reference.
(13)(b)(viii) Form of Amendment to Transfer Agency Agreement
between Registrant and UMB Fund Services, INC adding
International All Cap Growth Fund--filed as
Exhibit (h)(45) to Post-Effective Amendment No. 25
on September 1, 2005 and incorporated herein by
reference.
(13)(b)(ix) Form of Amendment to the Fund Accounting and
Agency Agreement between Registrant and Brown
Brothers Harriman & Co. adding International All Cap
Growth Fund--filed as Exhibit (h)(46) to
Post-Effective Amendment No. 25 on September 1, 2005
and incorporated herein by reference.
(14) Opinion of Independent Public Accountants
(15) None
(16) Power of Attorney
(17) Proxy Card
Item 17. UNDERTAKINGS
(1) The undersigned registrant agrees that prior to any public
reoffering of the securities registered through the use of this
prospectus which is a part of this registration statement by any
person or party who is deemed to be an underwriter within the
meaning of Rule 145 (c) of the Securities Act [17 CFR 230.145c],
the reoffering prospectus will contain the information called for
by the applicable registration form for the reofferings by persons
who may be deemed underwriters, in addition to the information
called for by the other items of the applicable form.
(2) The undersigned registrant agrees that every prospectus that is
filed under paragraph (1) above will be filed as part of an
amendment to the registration statement and will not be used until
the amendment is effective, and that, in determining any liability
under the 1933 Act, each post-effective amendment shall be deemed
to be a new registration statement for the securities offered
therein, and the offering of the securities at that time shall be
deemed to be the initial bona fide offering of them.
(3) The undersigned registrant agrees to file an amendment to the
Registration Statement, pursuant to Rule 485(b) of Regulation C of
the 1933 Act, for the purpose of including Exhibit 12, Opinion of
Counsel Supporting Tax Matters with a reasonable time after closing.
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, the Registrant has duly caused
Registration Statement on Form N-14 to be signed on behalf of the Registrant in
the City of San Diego, State of California, on the 18th day of October, 2005.
NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS
(Registrant)
By: /s/ Horacio Valeiras
Horacio Valeiras, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form N-14 has been signed below by the following
persons in the capacities and on the date indicated:
<Table>
<Caption>
NAME TITLE DATE
/s/ Horacio Valeiras* Principal Executive Officer & Trustee October 18, 2005
- -----------------------------
Horacio Valeiras
/s/ Thomas Muscarella Principal Financial Officer & Accounting October 18, 2005
- ----------------------------- Officer
Thomas Muscarella
/s/ George Keane* Chairman of The Board & Trustee October 18, 2005
- -----------------------------
George Keane
/s/ Walter Auch* Trustee October 18, 2005
- -----------------------------
Walter Auch
/s/ Darlene DeRemer* Trustee October 18, 2005
- -----------------------------
Darlene DeRemer
/s/ Charles H. Field, Jr. Secretary October 18, 2005
- -----------------------------
By: Charles H. Field Jr.
Attorney in Fact
</Table>
*Charles Field signs this document on behalf of each trustee marked with an
asterisk pursuant to powers of attorney filed as Exhibits to this Registration
Statement.
By: /s/ Charles H. Field, Jr.
-----------------------------
Charles H. Field, Jr.
<Page>
EXHIBIT INDEX
EXHIBIT NO. & DESCRIPTION
(14) Opinion of Independent Public Accountants
(16) Power of Attorney
(17) Form of Proxy