N-CSR 1 ncsr033106.txt NACM N-CSR AS OF 03.31.06 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-07384 NICHOLAS APPLEGATE INSTITUTIONAL FUNDS (Exact name of registrant as specified in charter) 600 WEST BROADWAY, 30TH FLOOR, SAN DIEGO, CA 92101 (Address of principal executive offices) CHARLES H. FIELD, JR. C/O NICHOLAS-APPLEGATE CAPITAL MANAGEMENT 600 WEST BROADWAY, 30TH FLOOR SAN DIEGO, CA 92101 (Name and address of agent for service) Copy to: Deborah A. Wussow c/o Nicholas-Applegate Capital Management 600 West Broadway, 30th Floor San Diego, CA 92101 Registrant's telephone number, including area code: (619) 687-2988 Date of fiscal year end: March 31 Date of reporting period: March 31, 2006 Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. Section 3507. ITEM 1. REPORTS TO STOCKHOLDERS. [NICHOLAS APPLEGATE(R) INSTITUTIONAL FUNDS LOGO] MARCH 31, 2006 ANNUAL REPORT CLASS I, II, III & IV SHARES U.S. MICRO CAP U.S. EMERGING GROWTH U.S. SMALL CAP VALUE U.S. LARGE CAP VALUE U.S. SYSTEMATIC LARGE CAP GROWTH U.S. SYSTEMATIC MIDCAP GROWTH U.S. CONVERTIBLE GLOBAL SELECT INTERNATIONAL GROWTH INTERNATIONAL GROWTH OPPORTUNITIES EMERGING MARKETS OPPORTUNITIES INTERNATIONAL SYSTEMATIC INTERNATIONAL ALL CAP GROWTH U.S. HIGH YIELD BOND [A COMPANY OF ALLIANZ GLOBAL INVESTORS LOGO] LETTER TO SHAREHOLDERS Dear Fellow Shareholder, Equity markets around the world posted solid gains during the twelve months ended March 31, 2006. The global economy appeared healthy during the year, in spite of a spike in commodity prices and rising interest rates in the United States, Europe and Asia. In this annual report, we review the performance of the financial markets and your investments over the fiscal year. We also share our view on the dynamics shaping the investment landscape and our outlook for the months ahead. As 2005 drew to a close, U.S. stock markets flirted with five-year highs. The S&P 500 Index, which measures the performance of large companies, tacked on 11.72% between April 1, 2005 and March 31, 2006. This return, though respectable, trailed the rapid ascension of small company stocks. According to the Russell 2000 Index, which is a fair approximation of the small-cap market, small company shares jumped 25.84% during the same period. Market optimism oscillated over the course of the year, but the positive end-result can be traced back to strong corporate earnings growth amid tame price inflation. The fourth quarter of 2005 capped the tenth consecutive season of double-digit profit growth for S&P 500 companies, and the third-longest such stretch since 1950. Although soaring oil prices produced discomfort, the broader impact to inflation was mild. Outside of food and energy costs, core consumer prices rose just 2.1% in the twelve months to March 31, 2006. Unwelcome, but not unexpected, the Federal Open Market Committee raised short-term lending rates by 0.25% on eight separate occasions during the year. In developed overseas markets, the MSCI EAFE Index advanced 24.94% in U.S. dollar terms. Performance in local currencies was even higher given the respective 7.10% and 9.41% appreciation of the dollar versus the euro and yen. Japan was the darling of the global investment community in 2005, as the country's economy sprang to life following fifteen years of deflationary malaise. The MSCI Japan Index gained 37.39% during the fiscal year, based on Prime Minister Koizumi's reform-inspired reelection and rising worker wages, consumer prices and industrial production. The ongoing rally in developing economies stretched into extra innings in 2005, with the MSCI Emerging Markets Index ratcheting up 47.98%. Stocks advanced on a surge in investors' risk appetites, abundant liquidity, improving fundamentals and record commodity prices. Brazil was one of the top performers during the year. Slowing inflation allowed the country's central bank to cut interest rates and prepay debt to the International Monetary Fund. The MSCI Brazil gained 81.99%. Emerging Europe stocks also saw strong gains, propelled forward by integration with the European Union and record-breaking merger and acquisition activity. Against this backdrop, Nicholas-Applegate Institutional Funds turned in a banner year in terms of both absolute and relative performance and assets under management. All of the funds closed the year in positive territory, with twelve of our fourteen funds outperforming their benchmark on a net-of-fees basis. As fiscal 2005 drew to a close, total fund assets crossed the $1 billion mark, a gain of more than $200 million over the prior twelve months. We continue to make investments in the depth and breadth of our business. In July 2005 we acquired the international equity arm of Duncan-Hurst Capital Management. The investment professionals who joined us from Duncan-Hurst are already contributing discernible value to our investment process. We welcomed several additional highly qualified individuals to our U.S. and international investment teams during the year, further augmenting our research capabilities and evidencing our commitment to providing shareholders with the highest-caliber talent. In an effort to capitalize on our core competencies and to further address the needs of our clients, we launched two new mutual fund products in 2005, the International Systematic Fund and the International All Cap Growth Fund. Both funds significantly exceeded their benchmarks for the period of inception to March 31, 2006. Looking ahead, we remain vigilant, but optimistic on the world's equity markets. Although high energy prices will likely dampen growth in 2006, the major economies are fundamentally healthy and poised for continued expansion. In the United States, we expect equities to receive a boost from increasing visibility on an end to Federal Reserve policy firming. Europe's business environment is improving, but upward potential may be handicapped by European Central Bank interest rates hikes. 2006 should be an interesting year for Japanese equities, as reflationary forces in the country take hold. From a corporate standpoint, earnings growth has passed its peak; however, we expect profits to continue expanding at healthy levels. The combination of solid economic and earnings growth bodes well for investors. Given this environment, we believe larger companies capable of delivering strong earnings growth should once again command premium pricing. Following the conclusion of the last two Federal Reserve tightening cycles, large-cap stocks outperformed small-cap stocks and growth outperformed value during the subsequent twelve-month periods. This transitional phase is ideal for bottom-up security selection, particularly for investing in companies where positive change is translating into increased earnings estimates. We continue to focus our efforts on identifying those companies in a timely manner and buying them for the benefit of our shareholders. On behalf of everyone at Nicholas-Applegate, thank you for your participation in the Nicholas-Applegate Institutional Funds. We appreciate the continuing trust you place in us. Best Regards, /s/ Horacio A. Valeiras Horacio A. Valeiras, CFA President and Chief Investment Officer March 31, 2006 TABLE OF CONTENTS THE FUNDS' REVIEW AND OUTLOOK, PERFORMANCE AND SCHEDULE OF INVESTMENTS U.S. Micro Cap 1 U.S. Emerging Growth 6 U.S. Small Cap Value 10 U.S. Large Cap Value 15 U.S. Systematic Large Cap Growth 17 U.S. Systematic MidCap Growth 20 U.S. Convertible 23 Global Select 27 International Growth 31 International Growth Opportunities 35 Emerging Markets Opportunities 39 International Systematic 43 International All Cap Growth 46 U.S. High Yield Bond 50 THE FUNDS': Financial Highlights 56 Statements of Assets and Liabilities 62 Statement of Operations 64 Statements of Changes in Net Assets 66 Notes to Financial Statements 70 Report of Independent Registered Public Accounting Firm 78 Shareholder Expense Example 79 Supplementary Information 81
THIS REPORT IS AUTHORIZED FOR DISTRIBUTION TO SHAREHOLDERS AND TO OTHERS ONLY WHEN PRECEDED OR ACCOMPANIED BY A CURRENTLY EFFECTIVE PROSPECTUS FOR NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS CLASS I, II, III & IV SHARES. DISTRIBUTOR: NICHOLAS-APPLEGATE SECURITIES. U.S. MICRO CAP FUND MANAGEMENT TEAM: JOHN C. MCCRAW, Portfolio Manager; TRAVIS T. PRENTICE, Portfolio Manager; MONTIE L. WEISENBERGER, Portfolio Manager; K. MATHEW AXLINE, CFA, Analyst; STEPHEN W. LYFORD, Analyst CHIEF INVESTMENT OFFICER: HORACIO A. VALEIRAS, CFA GOAL: The U.S. Micro Cap Fund seeks to maximize long-term capital appreciation by investing primarily in U.S. companies with "micro" market capitalizations that offer superior growth prospects. MARKET OVERVIEW: After a mixed start during the first three months of fiscal 2005, U.S. equity markets posted three successive quarters of solid, positive returns. Investors endured substantial headwinds during the year, including record oil prices, relentless Federal Reserve rate hikes and an unprecedented Gulf Coast hurricane season. Despite the challenges, broad economic growth continued apace, propelled by a tight job market, robust corporate earnings and restrained core consumer prices. Market advances were broad-based, with stocks in all major styles and capitalization ranges posting strong gains. On a comparative basis, small-caps significantly outperformed large-caps, while there was no clear favorite in growth versus value. On January 1, 2006, the Fund changed its benchmark from the Russell 2000 Growth Index to the Russell Microcap Index, to better reflect its investment style. In the nine months to December 31, 2005, energy stocks were the strongest performers within the Russell 2000 Growth Index, as company revenues accelerated on surging oil prices. Consumer-related shares saw the weakest results. Between January 1, 2006 and March 31, 2006, the best-performing sector in the Russell Microcap Index was materials, followed by information technology. Energy stocks underperformed during the quarter, as gasoline prices retrenched from 2005 highs. PERFORMANCE: During the twelve months ended March 31, 2006, the Fund's Class I shares advanced 39.04%. This compared favorably to the Russell 2000 Growth Index which rose 27.82% over the same period. From January 1, 2006 to March 31, 2006, the Fund's Class I shares gained 15.81%, outperforming the Fund's new benchmark, the Russell Microcap Index, which rose 14.14%. PORTFOLIO SPECIFICS: Whether measured against the Russell 2000 Growth Index during the first part of the year, or the Russell Microcap Index during the latter part of the year, Fund outperformance was primarily driven by stock selection. Between April 1 and December 31, 2005, stock selection was strongest in the consumer discretionary sector, where the Fund return was more than 25% higher than the index return. Within consumer discretionary, weight management product and services firm, NutriSystem, was the best-performing stock, based on rapid customer growth and the success of its Web-based, direct-to-consumer marketing strategy. Not all investments paid off during the period. In particular, positions in the financials and consumer staples sectors generally detracted from relative performance. From January 1, 2006 through fiscal year-end, the Fund benefited most from overweighting and outperformance in the information technology and industrials sectors. The positions that contributed the most to the Fund's results were consumer staples business The Andersons, Inc. and Insteel Industries. Areas of weakness during the period included stock selection in energy and healthcare. Although our bottom-up stock selection process resulted in structural portfolio adjustments on a sector and industry level as the year progressed, at period-end, the Fund remained well-diversified across sectors and industries. MARKET OUTLOOK: The U.S. economy continues to look healthy, despite rising interest rates and cooling in the housing market. Corporate earnings growth is strong, unemployment remains low and in March, consumer confidence touched a three-and-a-half year high. The Federal Reserve will probably hike rates again at the May meeting, but after that, a pause in cyclical tightening seems likely. We believe the Fund is well-positioned to capitalize on changing market conditions. [CHART] COMPARISON OF CHANGE IN VALUE OF A $250,000 INVESTMENT IN U.S. MICRO CAP FUND CLASS I AND II SHARES WITH THE RUSSELL 2000 GROWTH INDEX.
U.S. MICRO CAP FUND CLASS I SHARES RUSSELL 2000 GROWTH INDEX 7/12/1995 $ 250,000 $ 250,000 7/31/1995 $ 261,400 $ 259,625 8/31/1995 $ 266,200 $ 262,829 9/30/1995 $ 275,600 $ 268,240 10/31/1995 $ 270,200 $ 255,046 11/30/1995 $ 278,200 $ 266,303 12/31/1995 $ 287,000 $ 272,205 1/31/1996 $ 284,600 $ 269,951 2/29/1996 $ 301,400 $ 282,261 3/31/1996 $ 317,000 $ 287,841 4/30/1996 $ 365,200 $ 309,938 5/31/1996 $ 408,800 $ 325,832 6/30/1996 $ 371,600 $ 304,659 7/31/1996 $ 319,000 $ 267,467 8/31/1996 $ 340,600 $ 287,267 9/30/1996 $ 359,600 $ 302,061 10/31/1996 $ 349,200 $ 289,031 11/30/1996 $ 361,193 $ 297,068 12/31/1996 $ 369,458 $ 302,861 1/31/1997 $ 384,749 $ 310,427 2/28/1997 $ 358,920 $ 291,680 3/31/1997 $ 329,372 $ 271,096 4/30/1997 $ 319,660 $ 267,960 5/31/1997 $ 374,831 $ 308,234 6/30/1997 $ 408,925 $ 318,686 7/31/1997 $ 444,879 $ 335,016 8/31/1997 $ 477,320 $ 345,070 9/30/1997 $ 522,779 $ 372,606 10/31/1997 $ 488,272 $ 350,227 11/30/1997 $ 483,440 $ 341,878 12/31/1997 $ 480,998 $ 342,069 1/31/1998 $ 473,447 $ 337,506 2/28/1998 $ 510,089 $ 367,305 3/31/1998 $ 556,279 $ 382,713 4/30/1998 $ 565,605 $ 385,059 5/31/1998 $ 533,406 $ 357,085 6/30/1998 $ 542,066 $ 360,734 7/31/1998 $ 498,761 $ 330,613 8/31/1998 $ 371,076 $ 254,294 9/30/1998 $ 402,941 $ 280,077 10/31/1998 $ 416,726 $ 294,686 11/30/1998 $ 459,694 $ 317,544 12/31/1998 $ 521,539 $ 346,279 1/31/1999 $ 536,704 $ 361,855 2/28/1999 $ 472,963 $ 328,752 3/31/1999 $ 479,598 $ 340,462 4/30/1999 $ 516,563 $ 370,529 5/31/1999 $ 495,237 $ 371,114 6/30/1999 $ 544,524 $ 390,664 7/31/1999 $ 539,785 $ 378,585 8/31/1999 $ 560,874 $ 364,426 9/30/1999 $ 582,437 $ 371,456 10/31/1999 $ 634,093 $ 380,969 11/30/1999 $ 751,038 $ 421,252 12/31/1999 $ 963,917 $ 495,498 1/31/2000 $ 1,001,951 $ 490,885 2/29/2000 $ 1,347,951 $ 605,094 3/31/2000 $ 1,207,451 $ 541,487 4/30/2000 $ 988,327 $ 486,813 5/31/2000 $ 853,220 $ 444,187 6/30/2000 $ 1,113,216 $ 501,568 7/31/2000 $ 993,436 $ 458,583 8/31/2000 $ 1,094,483 $ 506,822 9/30/2000 $ 1,048,501 $ 481,643 10/31/2000 $ 913,677 $ 442,548 11/30/2000 $ 728,875 $ 362,194 12/31/2000 $ 764,665 $ 384,357 1/31/2001 $ 805,273 $ 415,467 2/28/2001 $ 688,267 $ 358,515 3/31/2001 $ 622,882 $ 325,919 4/30/2001 $ 701,344 $ 365,821 5/31/2001 $ 748,835 $ 374,293 6/30/2001 $ 794,949 $ 384,500 7/31/2001 $ 757,782 $ 351,698 8/31/2001 $ 726,122 $ 329,717 9/30/2001 $ 618,752 $ 276,501 10/31/2001 $ 660,048 $ 303,100 11/30/2001 $ 691,020 $ 328,409 12/31/2001 $ 738,511 $ 348,869 1/31/2002 $ 728,187 $ 336,449 2/28/2002 $ 690,332 $ 314,681 3/31/2002 $ 748,835 $ 342,027 4/30/2002 $ 750,211 $ 334,639 5/31/2002 $ 720,616 $ 315,063 6/30/2002 $ 697,215 $ 288,345 7/31/2002 $ 558,185 $ 244,027 8/31/2002 $ 550,614 $ 243,905 9/30/2002 $ 514,136 $ 226,295 10/31/2002 $ 525,836 $ 237,745 11/30/2002 $ 559,561 $ 261,306 12/31/2002 $ 517,577 $ 243,276 1/31/2003 $ 505,876 $ 236,659 2/28/2003 $ 492,799 $ 230,340 3/31/2003 $ 512,071 $ 233,818 4/30/2003 $ 566,444 $ 255,937 5/31/2003 $ 644,906 $ 284,781 6/30/2003 $ 695,150 $ 290,278 7/31/2003 $ 766,730 $ 312,223 8/31/2003 $ 813,532 $ 328,989 9/30/2003 $ 823,168 $ 320,665 10/31/2003 $ 916,772 $ 348,371 11/30/2003 $ 956,692 $ 359,728 12/31/2003 $ 951,874 $ 361,347 1/31/2004 $ 1,029,648 $ 380,317 2/29/2004 $ 1,033,089 $ 379,747 3/31/2004 $ 1,009,688 $ 381,532 4/30/2004 $ 951,874 $ 362,379 5/31/2004 $ 961,509 $ 369,590 6/30/2004 $ 946,951 $ 381,861 7/31/2004 $ 867,217 $ 347,608 8/30/2004 $ 823,856 $ 340,134 9/30/2004 $ 859,646 $ 358,943 10/31/2004 $ 862,397 $ 367,666 11/30/2004 $ 955,191 $ 398,734 12/31/2004 $ 1,009,445 $ 413,048 1/31/2005 $ 950,090 $ 394,420 2/28/2005 $ 965,291 $ 399,823 3/31/2005 $ 928,417 $ 384,830 4/30/2005 $ 887,938 $ 360,355 5/31/2005 $ 932,779 $ 385,760 6/30/2005 $ 988,466 $ 398,220 7/31/2005 $ 1,065,863 $ 426,055 8/31/2005 $ 1,056,483 $ 420,048 9/30/2005 $ 1,072,436 $ 423,366 10/31/2005 $ 1,031,898 $ 407,702 11/30/2005 $ 1,099,797 $ 430,778 12/31/2005 $ 1,114,644 $ 430,131 1/31/2006 $ 1,224,994 $ 471,639 2/28/2006 $ 1,209,437 $ 469,139 3/31/2006 $ 1,290,953 $ 491,940
ANNUALIZED TOTAL RETURNS As of 3/31/06
1 YEAR 5 YEARS 10 YEARS ------------------------------------------------------------------- U.S. Micro Cap Fund Class I 39.04% 15.68% 15.07% Russell 2000 Growth Index 27.82% 8.59% 5.51%
1 [CHART]
U.S. MICRO CAP FUND CLASS II SHARES RUSSELL 2000 GROWTH INDEX 9/30/2004 $ 250,000.00 $ 250,000.00 10/31/2004 $ 250,800.00 $ 256,075.00 11/30/2004 $ 277,786.08 $ 277,713.34 12/31/2004 $ 293,564.33 $ 287,683.25 1/31/2005 $ 276,302.75 $ 274,708.73 2/28/2005 $ 280,723.59 $ 278,472.24 3/31/2005 $ 269,999.95 $ 268,029.53 4/30/2005 $ 258,227.95 $ 250,982.85 5/31/2005 $ 271,268.46 $ 268,677.15 6/30/2005 $ 287,463.19 $ 277,355.42 7/31/2005 $ 309,971.56 $ 296,742.56 8/31/2005 $ 307,243.81 $ 292,558.49 9/30/2005 $ 311,883.19 $ 294,869.70 10/31/2005 $ 300,094.01 $ 283,959.52 11/30/2005 $ 319,840.19 $ 300,031.63 12/31/2005 $ 324,158.03 $ 299,581.59 1/31/2006 $ 356,249.68 $ 328,491.21 2/28/2006 $ 351,725.31 $ 326,750.21 3/31/2006 $ 375,431.59 $ 342,630.27
ANNUALIZED TOTAL RETURNS As of 3/31/06
1 YEAR SINCE INCEPTION -------------------------------------------------------- U.S. Micro Cap Fund Class II 39.37% 31.51% Russell 2000 Growth Index 27.82% 23.41%
THE GRAPHS ABOVE SHOW THE VALUE OF A HYPOTHETICAL $250,000 INVESTMENT IN THE FUND'S CLASS I AND II SHARES COMPARED WITH THE RUSSELL 2000 GROWTH INDEX FOR THE PERIODS INDICATED. THE FUND'S CLASS I SHARES CALCULATE THEIR PERFORMANCE BASED UPON THE HISTORICAL PERFORMANCE OF THEIR CORRESPONDING SERIES OF NICHOLAS-APPLEGATE MUTUAL FUNDS (RENAMED ING MUTUAL FUNDS), ADJUSTED TO REFLECT ALL FEES AND EXPENSES APPLICABLE TO CLASS I SHARES. THE NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS' CLASS I SHARES WERE FIRST AVAILABLE ON MAY 7, 1999 AND CLASS II SHARES ON SEPTEMBER 30, 2004. AVERAGE ANNUAL TOTAL RETURN FIGURES INCLUDE CHANGES IN PRINCIPAL VALUE, REINVESTED DIVIDENDS, AND CAPITAL GAIN DISTRIBUTIONS. THE TOTAL RETURNS SHOWN ABOVE DO NOT SHOW THE EFFECTS OF INCOME TAXES ON AN INDIVIDUAL'S INVESTMENT. IN MOST CASES, TAXES MAY REDUCE YOUR ACTUAL INVESTMENT RETURNS ON INCOME OR GAINS PAID BY THE FUND OR ANY GAINS YOU MAY REALIZE IF YOU SELL YOUR SHARES. PAST PERFORMANCE CANNOT GUARANTEE FUTURE RESULTS. THE RUSSELL MICROCAP INDEX INCLUDES THE SMALLEST 1,000 SECURITIES IN THE RUSSELL 2000 INDEX PLUS THE NEXT 1,000 SECURITIES. THE INDEX IS A NEW INDEX (INCEPTION 7/1/05), THAT MEASURES PERFORMANCE OF THE U.S. MICROCAP MARKET SEGMENT. IN FUTURE REPORTS TO SHAREHOLDERS, THE FUND WILL COMPARE ITS INVESTMENT PERFORMANCE TO THE RUSSELL MISCROCAP INDEX AS IT IS MORE ACCURATELY REFLECTS THE COMPOSITION OF THE FUND'S PORTFOLIO. THE RUSSELL 2000 GROWTH INDEX IS AN UNMANAGED INDEX COMPRISED OF THOSE RUSSELL 2000 COMPANIES WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHER FORECASTED GROWTH VALUES. THE RUSSELL 2000 INDEX IS AN UNMANAGED INDEX GENERALLY REPRESENTATIVE OF THE 2,000 SMALLEST COMPANIES IN THE RUSSELL 3000 INDEX, WHICH REPRESENTS APPROXIMATELY 10% OF THE TOTAL MARKET CAPITALIZATION OF THE RUSSELL 3000 INDEX. THE UNMANAGED INDEX DIFFERS FROM THE FUND IN COMPOSITION, DOES NOT PAY MANAGEMENT FEES OR EXPENSES AND INCLUDES REINVESTED DIVIDENDS. ONE CANNOT INVEST DIRECTLY IN AN INDEX. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS. YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. 2 U.S. MICRO CAP FUND SCHEDULE OF INVESTMENTS As of March 31, 2006
NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------------------------------- COMMON STOCK - 100.2% AEROSPACE/DEFENSE - 1.0% United Industrial Corp. 13,900 $ 846,927 --------------- AEROSPACE/DEFENSE-EQUIPMENT - 0.9% LMI Aerospace, Inc.* 41,000 743,740 --------------- AGRICULTURAL OPERATIONS - 0.9% The Andersons, Inc. 9,200 719,716 --------------- APPAREL MANUFACTURERS - 0.6% True Religion Apparel, Inc.*,## 28,900 533,783 --------------- AUDIO/VIDEO PRODUCTS - 0.4% Cobra Electronics Corp.## 33,300 352,647 --------------- BUILDING & CONSTRUCTION-MISCELLANEOUS - 1.2% Layne Christensen Co.* 29,100 975,432 --------------- BUILDING PRODUCTS-AIR & HEATING - 0.8% Comfort Systems USA, Inc. 52,500 708,750 --------------- BUILDING PRODUCTS-CEMENT/AGGREGATE - 1.0% US Concrete, Inc.* 60,000 867,600 --------------- BUILDING-MOBIL HOME/MANUFACTURED HOUSING - 0.9% Cavco Industries, Inc.* 15,800 767,722 --------------- CHEMICALS-FIBERS - 0.5% Zoltek Cos., Inc.* 17,800 406,908 --------------- COFFEE - 0.6% Green Mountain Coffee Roasters, Inc.* 12,900 512,388 --------------- COMMERCIAL BANKS-CENTRAL US - 2.8% Capitol Bancorp, Ltd.## 16,100 752,675 First Indiana Corp.## 26,375 735,862 Macatawa Bank Corp.## 14,765 559,741 Mercantile Bank Corp. 7,520 294,032 --------------- 2,342,310 COMMERCIAL BANKS-EASTERN US - 1.0% Bancorp, Inc. 29,300 719,315 Yardville National Bancorp 3,800 139,840 --------------- 859,155 COMMERCIAL BANKS-SOUTHERN US - 3.2% Iberiabank Corp.## 10,200 577,014 Intervest Bancshares Corp.* 17,600 636,064 Union Bankshares Corp. 14,900 681,079 Virginia Commerce Bancorp, Inc.*,## 21,350 767,533 --------------- 2,661,690 COMMERCIAL BANKS-WESTERN US - 5.0% Cascade Bancorp## 27,300 806,715 Columbia Banking System, Inc. 21,100 706,006 First Regional Bancorp* 7,700 686,301 First State Bancorp## 29,500 783,520 Trico Bancshares 24,500 693,840 West Coast Bancorp 18,100 505,895 --------------- 4,182,277 COMMERCIAL SERVICES - 0.8% Gaiam, Inc. Cl. A*,## 43,500 700,785 --------------- COMMERCIAL SERVICES-FINANCE - 0.2% Clayton Holdings, Inc.* 8,900 187,612 --------------- COMMUNICATIONS SOFTWARE - 0.9% Smith Micro Software, Inc.*,## 61,300 753,377 --------------- COMPUTER AIDED DESIGN - 1.0% Aspen Technology, Inc.* 66,600 842,490 --------------- COMPUTER SERVICES - 0.2% eLoyalty Corp.* 10,000 $ 154,200 --------------- COMPUTERS - 1.4% Neoware Systems, Inc.* 17,600 521,312 Rackable Systems, Inc.* 12,700 671,195 --------------- 1,192,507 --------------- DECISION SUPPORT SOFTWARE - 0.7% SPSS, Inc.* 17,600 557,216 --------------- DISTRIBUTION/WHOLESALE - 1.5% LKQ Corp.* 26,800 557,708 Nuco2, Inc.*,## 21,100 669,714 --------------- 1,227,422 --------------- DIVERSIFIED MANUFACTURING OPERATIONS - 1.3% Ameron International Corp. 15,100 1,105,773 --------------- DRUG DELIVERY SYSTEMS - 1.4% Nastech Pharmaceutical Co., Inc.* 32,100 577,800 Penwest Pharmaceuticals Co.* 26,200 568,278 --------------- 1,146,078 --------------- EDUCATIONAL SOFTWARE - 0.9% INVESTools, Inc.* 89,200 731,440 --------------- ELECTRONIC COMPONENTS-MISCELLANEOUS - 1.8% Daktronics, Inc. 20,000 730,000 Planar Systems, Inc.* 46,400 785,088 --------------- 1,515,088 --------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS - 4.9% Bookham, Inc.*,## 104,700 998,838 Emcore Corp.* 59,600 609,112 Ikanos Communications, Inc.*,## 27,600 543,996 Monolithic System Technology, Inc.*,## 68,700 608,682 Netlogic Microsystems, Inc.*,## 15,000 618,150 Volterra Semiconductor Corp.*,## 39,200 748,328 --------------- 4,127,106 --------------- ELECTRONIC SECURITY DEVICES - 1.6% LoJack Corp.* 23,000 551,540 Napco Security Systems, Inc.* 49,600 822,864 --------------- 1,374,404 --------------- E-MARKETING/INFORMATION - 1.6% 24/7 Real Media, Inc.* 78,900 825,294 Liquidity Services, Inc.* 44,600 546,350 --------------- 1,371,644 --------------- ENERGY-ALTERNATE SOURCES - 1.2% Evergreen Solar, Inc.*,## 30,600 471,240 Pacific Ethanol, Inc.* 25,700 554,863 --------------- 1,026,103 --------------- ENTERPRISE SOFTWARE/SERVICES - 1.0% Ultimate Software Group, Inc.* 33,100 855,635 --------------- E-SERVICES/CONSULTING - 0.7% Access Integrated Technologies, Inc.*,## 43,900 564,115 --------------- FINANCE-CONSUMER LOANS - 0.8% Asta Funding, Inc.## 19,600 651,896 --------------- FINANCE-INVESTMENT BANKERS/BROKERS - 2.5% Stifel Financial Corp.* 16,400 716,188 SWS Group, Inc.## 27,000 706,050 Thomas Weisel Partners Group, Inc.* 31,100 681,090 --------------- 2,103,328 ---------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 3
NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------------------------------- FIREARMS&AMMUNITION - 0.8% Smith & Wesson Holding Corp.*,## 115,400 $ 698,170 --------------- FOOD-RETAIL - 0.9% Wild Oats Markets, Inc.* 35,600 723,748 --------------- FOOTWEAR & RELATED APPAREL - 0.7% Iconix Brand Group, Inc.* 40,700 592,185 --------------- HUMAN RESOURCES - 0.8% Kenexa Corp.* 21,700 667,275 --------------- INDUSTRIAL AUTOMATION/ROBOTICS - 1.6% Gerber Scientific, Inc.* 59,400 614,196 Hurco Cos., Inc.* 27,700 753,994 --------------- 1,368,190 --------------- INSTRUMENTS-SCIENTIFIC - 0.8% OYO Geospace Corp.* 11,800 696,082 --------------- INTERNET APPLICATIONS SOFTWARE - 1.6% Art Technology Group, Inc. 218,000 699,780 Vocus, Inc.* 42,100 625,185 --------------- 1,324,965 --------------- LIGHTING PRODUCTS & SYSTEMS - 0.7% Color Kinetics, Inc.* 29,100 616,338 --------------- MACHINERY-GENERAL INDUSTRY - 1.5% Flow International Corp.*,## 46,100 607,137 Intevac, Inc.* 23,100 664,818 --------------- 1,271,955 --------------- MEDICAL IMAGING SYSTEMS - 0.6% Vital Images, Inc.*,## 16,000 545,280 --------------- MEDICAL INFORMATION SYSTEMS - 1.6% Computer Programs & Systems, Inc.## 15,100 755,000 Phase Forward, Inc.* 52,100 580,394 --------------- 1,335,394 --------------- MEDICAL INSTRUMENTS - 2.9% Abaxis, Inc.*,## 22,300 505,764 Micrus Endovascular Corp.* 15,100 213,514 NuVasive, Inc.* 24,300 458,055 Spectranetics Corp.* 58,900 696,198 Stereotaxis, Inc.*,## 43,600 549,796 --------------- 2,423,327 --------------- MEDICAL PRODUCTS - 0.8% Luminex Corp.* 46,200 686,532 --------------- MEDICAL-BIOMEDICAL/GENETICS - 3.4% Arena Pharmaceuticals, Inc.* 42,200 764,242 Barrier Therapeutics, Inc.*,## 53,100 514,008 BioSphere Medical, Inc.*,## 67,400 505,500 Genomic Health, Inc.*,## 50,600 524,722 Sonus Pharmaceuticals, Inc.* 87,500 525,000 --------------- 2,833,472 --------------- METAL PROCESSORS & FABRICATION - 2.6% Dynamic Materials Corp.## 13,900 495,396 Ladish Co., Inc.* 37,200 1,077,684 RBC Bearings, Inc.* 31,800 651,900 --------------- 2,224,980 --------------- MISCELLANEOUS MANUFACTURING - 0.7% Portec Rail Products, Inc. 34,900 548,279 --------------- NETWORKING PRODUCTS - 0.6% Stratos International, Inc.*,## 59,300 479,737 --------------- NON-FERROUS METALS - 0.8% RTI International Metals, Inc.* 11,900 $ 652,715 --------------- OIL COMPANIES-EXPLORATION & PRODUCTION - 2.9% Arena Resources, Inc.* 17,800 621,220 CREDO Petroleum Corp. 29,600 640,840 Exploration Co. of Delaware, Inc.*,## 63,700 715,988 Parallel Petroleum Corp.* 24,700 455,715 --------------- 2,433,763 --------------- OIL FIELD MACHINERY & EQUIPMENT - 1.3% Flotek Industries, Inc.*,## 26,200 657,620 Mitcham Industries, Inc.*,## 24,200 402,688 --------------- 1,060,308 --------------- OIL-FIELD SERVICES - 0.8% Trico Marine Services, Inc.*,## 21,100 681,530 --------------- PHYSICAL PRACTICE MANAGEMENT - 0.6% Matria Healthcare, Inc.* 13,080 496,517 --------------- PROPERTY/CASUALTY INSURANCE - 2.4% Navigators Group, Inc.* 14,300 709,280 SeaBright Insurance Holdings, Inc.*,## 36,300 632,346 Tower Group, Inc. 29,800 688,380 --------------- 2,030,006 --------------- RENTAL AUTO/EQUIPMENT - 0.5% FortuNet, Inc.* 30,200 433,370 --------------- RETAIL-APPAREL/SHOE - 2.9% Casual Male Retail Group, Inc.*,## 92,900 904,846 DEB Shops, Inc. 25,200 748,440 United Retail Group, Inc.* 41,500 777,295 --------------- 2,430,581 --------------- RETAIL-DISCOUNT - 0.5% Citi Trends, Inc.*,## 9,700 385,672 --------------- RETAIL-RESTAURANTS - 2.0% Benihana, Inc. Cl. A* 27,500 850,300 BJ's Restaurants, Inc.* 30,600 826,200 --------------- 1,676,500 --------------- RETIREMENT/AGED CARE - 0.9% Five Star Quality Care, Inc. 66,900 728,541 --------------- RUBBER & PLASTICS - 0.7% PW Eagle, Inc.## 21,600 600,480 --------------- SAVINGS & LOANS/THRIFTS-CENTRAL US - 0.7% First Place Financial Corp.## 24,500 607,600 --------------- SEMICONDUCTOR COMPONENTS- INTEGRATED CIRCUITS - 0.7% Anadigics, Inc.* 73,200 578,280 --------------- SEMICONDUCTOR EQUIPMENT - 1.6% Asyst Technologies, Inc.* 53,400 555,894 BTU International, Inc.* 46,700 767,281 --------------- 1,323,175 --------------- STEEL-SPECIALTY - 0.9% Universal Stainless & Alloy, Inc.* 27,800 714,460 --------------- TELECOMMUNICATIONS EQUIPMENT - 0.8% Ditech Communications Corp.* 63,500 663,575 --------------- TELECOMMUNICATIONS EQUIPMENT FIBER OPTICS - 0.7% Avanex Corp.*,## 192,200 626,572 --------------- TELECOMMUNICATIONS SERVICES - 0.7% Cbeyond Communications, Inc.*,## 33,700 594,805 ---------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 4
NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------------------------------- THERAPEUTICS - 0.8% Renovis, Inc.*,## 31,900 $ 680,108 --------------- TRANSPORT-SERVICES - 0.6% Universal Truckload Services, Inc.*,## 19,500 488,475 --------------- TRANSPORT-TRUCK - 0.7% Quality Distribution, Inc. 44,500 579,835 --------------- VETERINARY PRODUCTS - 0.6% PetMed Express, Inc. 29,900 531,323 --------------- WATER - 0.8% Southwest Water Co.## 42,000 669,480 --------------- WEB HOSTING/DESIGN - 0.7% Website Pros, Inc.* 41,900 588,695 --------------- WIRE & CABLE PRODUCTS - 1.5% Insteel Industries, Inc.## 9,700 550,766 Superior Essex, Inc.* 28,300 719,952 --------------- 1,270,718 --------------- WIRELESS EQUIPMENT - 2.3% ID Systems, Inc.*,## 27,900 697,500 Radyne Corp.* 40,800 651,576 Relm Wireless Corp.* 55,600 541,544 --------------- 1,890,620 ----------------------------------------------------------------------------------------------------------------- Total Common Stock (Cost: $66,241,384) 84,122,877 ----------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT ----------------------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS - 21.6% MONEY MARKET FUNDS - 20.2% Boston Global Investment Trust - Enhanced Sleeve, 4.686%** $ 16,937,269 16,937,269 --------------- TIME DEPOSIT - 1.4% Bank of America London 4.150%, 04/01/06 1,186,629 1,186,629 ----------------------------------------------------------------------------------------------------------------- Total Short Term Investments (Cost: $18,123,898) 18,123,898 ----------------------------------------------------------------------------------------------------------------- Total Investments - 121.8% (Cost: $84,365,282) 102,246,775 ----------------------------------------------------------------------------------------------------------------- Liabilities in Excess of Other Assets - (21.8%) (18,313,844) ----------------------------------------------------------------------------------------------------------------- Net Assets - 100.0% $ 83,932,931 -----------------------------------------------------------------------------------------------------------------
* NON-INCOME PRODUCING SECURITIES. ** ALL OF THE SECURITY IS PURCHASED WITH CASH COLLATERAL PROCEEDS FROM SECURITIES LOANS. ## ALL OR A PORTION OF THE FUND'S HOLDINGS IN THIS SECURITY WAS ON LOAN AS OF 03/31/06. SCHEDULE OF INVESTMENTS BY INDUSTRY as of March 31, 2006
PERCENTAGE OF INDUSTRY NET ASSETS ----------------------------------------------------------------------------------------------------------------- Basic Materials 2.1% Communications 9.7 Consumer, Cyclical 9.5 Consumer, Non-cyclical 16.7 Energy 6.2 Financial 18.4 Industrial 22.0 Technology 14.8 Utilities 0.8 Short Term Investments 21.6 Liabilities in excess of other assets (21.8) ----------------------------------------------------------------------------------------------------------------- Net Assets 100.0% =================================================================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 5 U.S. EMERGING GROWTH FUND MANAGEMENT TEAM: JOHN C. MCCRAW, Portfolio Manager; TRAVIS T. PRENTICE, Portfolio Manager; MONTIE L. WEISENBERGER, Portfolio Manager; K. MATHEW AXLINE, CFA, Analyst; STEPHEN W. LYFORD, Analyst CHIEF INVESTMENT OFFICER: HORACIO A. VALEIRAS, CFA GOAL: The U.S. Emerging Growth Fund seeks to maximize long-term capital appreciation through investments primarily in U.S. companies with market capitalizations similar to the Russell 2000 Growth Index at time of purchase. MARKET OVERVIEW: Fiscal 2005 was a solid year for U.S. equity markets. Across capitalization ranges and investment styles stocks generated positive results, with most equity categories finishing the twelve months to March 31, 2006 with double-digit returns. Although gains were widespread, they were most notable among small- and medium-sized companies. Investors bid share prices up amid: - Robust corporate earnings growth and expectations for continued healthy profits - A tight job market, with unemployment hovering near historic lows - Tame core consumer prices, up just 2.1% annually through the end of the first quarter of 2006, despite a 20% spike in energy prices These positive corporate and economic factors offset the dampening impact of eight consecutive interest rate hikes at the Federal Reserve during the fiscal year, a record Gulf Coast hurricane season and ongoing signs of cooling in the housing market. Given this environment, between April 1, 2005 and March 31, 2006 the energy and materials sectors in the Russell 2000 Growth Index produced the strongest performance. Companies in the consumer staples and consumer discretionary sectors tended to lag. PERFORMANCE: The Fund's Class I shares rose 42.38% during the twelve months ended March 31, 2006 and outperformed the 27.82% gain in the Russell 2000 Growth Index. PORTFOLIO SPECIFICS: The majority of the Fund's outperformance can be attributed to stock selection, which was most effective among consumer discretionary, information technology and industrials businesses. Investor gains for the period were broad-based and, on a sector level, the Fund saw returns of at least 25% in eight of ten categories. A few of the strongest performers within the Fund were: Hansen Natural, Rackable Systems and NutriSystem. A beverage maker, Hansen's shares surged after third quarter earnings easily topped Wall Street expectations. The company ascribed its rapid expansion to increasing exposure to the energy drink market. Rackable Systems, a provider of computer servers and storage systems for large data centers, experienced robust revenue growth driven by both new and existing customers. NutriSystem saw rapid customer gains, fueled by the success of its Web-based, direct-to-consumer marketing strategy. Despite the Fund's outperformance, there were pockets of relative weakness. For example, underweighting in utilities and stock selection in the health care and energy sectors generally detracted from Fund results. MARKET OUTLOOK: Despite fifteen consecutive interest rate hikes and persistently high energy prices, the U.S. economy still looks strong. Core inflation is tame, business inventories are tight and corporate earnings growth has been robust. U.S. GDP growth in 2006 is expected to be a solid 3.4%, with expansion moderating slightly in the second half of the year as additional 'policy firming' at the Federal Reserve takes effect. As events unfold, we remain confident that our focus on identifying companies with exceptional growth potential will continue to benefit the Fund. [CHART] COMPARISON OF CHANGE IN VALUE OF A $250,000 INVESTMENT IN U.S. EMERGING GROWTH FUND CLASS I SHARES WITH THE RUSSELL 2000 GROWTH INDEX.
U.S. EMERGING GROWTH FUND CLASS I SHARES RUSSELL 2000 GROWTH INDEX 10/1/1993 $ 250,000 $ 250,000 10/31/1993 $ 250,400 $ 257,230 11/30/1993 $ 237,400 $ 246,825 12/31/1993 $ 249,920 $ 256,565 1/31/1994 $ 257,143 $ 263,395 2/28/1994 $ 255,286 $ 262,236 3/31/1994 $ 234,855 $ 246,126 4/30/1994 $ 235,474 $ 246,503 5/31/1994 $ 229,076 $ 240,979 6/30/1994 $ 217,519 $ 230,682 7/31/1994 $ 222,679 $ 233,969 8/31/1994 $ 237,744 $ 251,138 9/30/1994 $ 240,633 $ 252,190 10/31/1994 $ 243,935 $ 254,876 11/30/1994 $ 231,553 $ 244,564 12/31/1994 $ 241,147 $ 250,325 1/31/1995 $ 231,007 $ 245,226 2/28/1995 $ 243,351 $ 256,558 3/31/1995 $ 255,254 $ 264,052 4/30/1995 $ 259,442 $ 268,024 5/31/1995 $ 261,426 $ 271,535 6/30/1995 $ 284,571 $ 290,246 7/31/1995 $ 312,124 $ 312,868 8/31/1995 $ 313,006 $ 316,729 9/30/1995 $ 319,619 $ 323,250 10/31/1995 $ 307,055 $ 307,350 11/30/1995 $ 320,721 $ 320,916 12/31/1995 $ 327,708 $ 328,027 1/31/1996 $ 323,033 $ 325,311 2/29/1996 $ 342,668 $ 340,146 3/31/1996 $ 352,952 $ 346,870 4/30/1996 $ 389,650 $ 373,500 5/31/1996 $ 411,388 $ 392,653 6/30/1996 $ 386,378 $ 367,138 7/31/1996 $ 341,966 $ 322,318 8/31/1996 $ 372,353 $ 346,179 9/30/1996 $ 397,130 $ 364,007 10/31/1996 $ 379,833 $ 348,304 11/30/1996 $ 383,574 $ 357,990 12/31/1996 $ 389,595 $ 364,971 1/31/1997 $ 394,413 $ 374,088 2/28/1997 $ 351,961 $ 351,497 3/31/1997 $ 332,993 $ 326,692 4/30/1997 $ 327,874 $ 322,912 5/31/1997 $ 379,961 $ 371,446 6/30/1997 $ 407,660 $ 384,041 7/31/1997 $ 436,865 $ 403,720 8/31/1997 $ 445,295 $ 415,835 9/30/1997 $ 487,145 $ 449,019 10/31/1997 $ 452,521 $ 422,051 11/30/1997 $ 435,017 $ 411,989 12/31/1997 $ 436,748 $ 412,220 1/31/1998 $ 426,704 $ 406,721 2/28/1998 $ 464,803 $ 442,630 3/31/1998 $ 490,779 $ 461,199 4/30/1998 $ 490,779 $ 464,026 5/31/1998 $ 452,334 $ 430,314 6/30/1998 $ 468,959 $ 434,712 7/31/1998 $ 429,195 $ 398,414 8/31/1998 $ 325,073 $ 306,444 9/30/1998 $ 358,956 $ 337,514 10/31/1998 $ 363,545 $ 355,119 11/30/1998 $ 401,944 $ 382,665 12/31/1998 $ 455,854 $ 417,293 1/31/1999 $ 500,962 $ 436,063 2/28/1999 $ 447,786 $ 396,172 3/31/1999 $ 495,828 $ 410,283 4/30/1999 $ 525,167 $ 446,515 5/31/1999 $ 504,263 $ 447,221 6/30/1999 $ 566,975 $ 470,780 7/31/1999 $ 569,542 $ 456,224 8/31/1999 $ 564,775 $ 439,161 9/30/1999 $ 581,645 $ 447,633 10/31/1999 $ 637,022 $ 459,096 11/30/1999 $ 720,228 $ 507,641 12/31/1999 $ 882,812 $ 597,113 1/31/2000 $ 860,761 $ 591,554 2/29/2000 $ 1,159,018 $ 729,185 3/31/2000 $ 1,010,263 $ 652,533 4/30/2000 $ 867,488 $ 586,647 5/31/2000 $ 762,089 $ 535,280 6/30/2000 $ 918,319 $ 604,427 7/31/2000 $ 822,264 $ 552,628 8/31/2000 $ 942,613 $ 610,759 9/30/2000 $ 886,924 $ 580,416 10/31/2000 $ 793,111 $ 533,304 11/30/2000 $ 611,428 $ 436,472 12/31/2000 $ 665,221 $ 463,180 1/31/2001 $ 676,406 $ 500,669 2/28/2001 $ 563,494 $ 432,038 3/31/2001 $ 509,701 $ 392,757 4/30/2001 $ 570,951 $ 440,842 5/31/2001 $ 573,081 $ 451,052 6/30/2001 $ 583,733 $ 463,352 7/31/2001 $ 545,918 $ 423,824 8/31/2001 $ 509,701 $ 397,335 9/30/2001 $ 423,420 $ 333,205 10/31/2001 $ 459,104 $ 365,259 11/30/2001 $ 495,321 $ 395,758 12/31/2001 $ 518,223 $ 420,414 1/31/2002 $ 503,310 $ 405,447 2/28/2002 $ 471,886 $ 379,215 3/31/2002 $ 510,766 $ 412,169 4/30/2002 $ 502,777 $ 403,266 5/31/2002 $ 476,147 $ 379,675 6/30/2002 $ 442,593 $ 347,478 7/31/2002 $ 379,746 $ 294,071 8/31/2002 $ 378,681 $ 293,924 9/30/2002 $ 358,442 $ 272,703 10/31/2002 $ 364,833 $ 286,501 11/30/2002 $ 382,409 $ 314,894 12/31/2002 $ 356,844 $ 293,166 1/31/2003 $ 346,725 $ 285,192 2/28/2003 $ 336,072 $ 277,577 3/31/2003 $ 336,605 $ 281,769 4/30/2003 $ 368,029 $ 308,424 5/31/2003 $ 400,517 $ 343,183 6/30/2003 $ 410,637 $ 349,807 7/31/2003 $ 442,060 $ 376,252 8/31/2003 $ 469,223 $ 396,457 9/30/2003 $ 446,854 $ 386,426 10/31/2003 $ 488,397 $ 419,814 11/30/2003 $ 500,647 $ 433,500 12/31/2003 $ 491,593 $ 435,450 1/31/2004 $ 520,886 $ 458,312 2/29/2004 $ 511,831 $ 457,624 3/31/2004 $ 511,299 $ 459,775 4/30/2004 $ 480,408 $ 436,694 5/31/2004 $ 485,734 $ 445,384 6/30/2004 $ 507,038 $ 460,171 7/31/2004 $ 462,832 $ 418,894 8/30/2004 $ 444,191 $ 409,888 9/30/2004 $ 476,147 $ 432,554 10/31/2004 $ 488,908 $ 443,065 11/30/2004 $ 528,314 $ 480,504 12/31/2004 $ 546,435 $ 497,755 1/31/2005 $ 525,124 $ 475,306 2/28/2005 $ 538,462 $ 481,818 3/31/2005 $ 520,370 $ 463,749 4/30/2005 $ 487,327 $ 434,255 5/31/2005 $ 520,903 $ 464,870 6/30/2005 $ 544,344 $ 479,885 7/31/2005 $ 584,299 $ 513,429 8/31/2005 $ 588,564 $ 506,190 9/30/2005 $ 594,450 $ 510,189 10/31/2005 $ 578,994 $ 491,312 11/30/2005 $ 606,091 $ 519,120 12/31/2005 $ 618,334 $ 518,341 1/31/2006 $ 688,701 $ 568,361 2/28/2006 $ 698,274 $ 565,349 3/31/2006 $ 740,938 $ 592,825
ANNUALIZED TOTAL RETURNS As of 3/31/06
1 YEAR 5 YEARS 10 YEARS ------------------------------------------------------------------ U.S. Emerging Growth Fund Class I 42.38% 7.76% 7.69% Russell 2000 Growth Index 27.82% 8.59% 5.51%
THE GRAPH ABOVE SHOWS THE VALUE OF A HYPOTHETICAL $250,000 INVESTMENT IN THE FUND'S CLASS I SHARES COMPARED WITH THE RUSSELL 2000 GROWTH INDEX FOR THE PERIODS INDICATED. THE FUND'S CLASS I SHARES CALCULATE THEIR PERFORMANCE BASED UPON THE HISTORICAL PERFORMANCE OF THEIR CORRESPONDING SERIES OF NICHOLAS-APPLEGATE MUTUAL FUNDS (RENAMED ING MUTUAL FUNDS), ADJUSTED TO REFLECT ALL FEES AND EXPENSES APPLICABLE TO CLASS I SHARES. THE NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS' CLASS I SHARES WERE FIRST AVAILABLE ON MAY 7, 1999. AVERAGE ANNUAL TOTAL RETURN FIGURES INCLUDE CHANGES IN PRINCIPAL VALUE, REINVESTED DIVIDENDS, AND CAPITAL GAIN DISTRIBUTIONS. THE TOTAL RETURNS SHOWN ABOVE DO NOT SHOW THE EFFECTS OF INCOME TAXES ON AN INDIVIDUAL'S INVESTMENT. IN MOST CASES, TAXES MAY REDUCE YOUR ACTUAL INVESTMENT RETURNS ON INCOME OR GAINS PAID BY THE FUND OR ANY GAINS YOU MAY REALIZE IF YOU SELL YOUR SHARES. PAST PERFORMANCE CANNOT GUARANTEE FUTURE RESULTS. THE RUSSELL 2000 GROWTH INDEX IS AN UNMANAGED INDEX COMPRISED OF THOSE RUSSELL 2000 COMPANIES WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHER FORECASTED GROWTH VALUES. THE RUSSELL 2000 INDEX IS AN UNMANAGED INDEX GENERALLY REPRESENTATIVE OF THE 2,000 SMALLEST COMPANIES IN THE RUSSELL 3000 INDEX, WHICH REPRESENTS APPROXIMATELY 10% OF THE TOTAL MARKET CAPITALIZATION OF THE RUSSELL 3000 INDEX. THE UNMANAGED INDEX DIFFERS FROM THE FUND IN COMPOSITION, DOES NOT PAY MANAGEMENT FEES OR EXPENSES AND INCLUDES REINVESTED DIVIDENDS. ONE CANNOT INVEST DIRECTLY IN AN INDEX. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS. YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. 6 U.S. EMERGING GROWTH FUND SCHEDULE OF INVESTMENTS As of March 31, 2006
NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------------------------------- COMMON STOCK - 94.3% ADVANCED MATERIALS/PRODUCTS - 0.4% Hexcel Corp.* 1,700 $ 37,349 --------------- ADVERTISING SERVICES - 0.6% Ventiv Health, Inc.* 1,900 63,118 --------------- AEROSPACE/DEFENSE - 1.6% Armor Holdings, Inc.* 1,500 87,435 United Industrial Corp. 1,200 73,116 --------------- 160,551 --------------- AEROSPACE/DEFENSE-EQUIPMENT - 2.9% AAR Corp.* 2,700 76,896 BE Aerospace, Inc. *,## 2,700 67,824 Kaman Corp.## 3,100 77,996 LMI Aerospace, Inc.* 3,300 59,862 --------------- 282,578 --------------- AGRICULTURAL OPERATIONS - 1.1% The Andersons, Inc. 1,400 109,522 --------------- AIRLINES - 1.0% AirTran Holdings, Inc.* 2,700 48,897 Skywest, Inc. 1,700 49,759 --------------- 98,656 --------------- APPAREL MANUFACTURERS - 1.2% Carter's, Inc.* 1,200 80,988 Gymboree Corp.* 1,600 41,664 --------------- 122,652 --------------- APPLICATIONS SOFTWARE - 0.8% American Reprographics Co.* 1,500 52,035 Quest Software, Inc.* 1,700 28,390 --------------- 80,425 --------------- AUTO/TRUCK PARTS & EQUIPMENT-ORIGINAL - 0.5% Keystone Automotive Industries, Inc.* 1,200 50,652 --------------- BEVERAGES-NON-ALCOHOLIC - 0.5% Hansen Natural Corp.*,## 400 50,420 --------------- BUILDING & CONSTRUCTION PRODUCTS-MISCELLANEOUS - 1.3% Drew Industries, Inc.* 1,700 60,435 NCI Building Systems, Inc.* 1,100 65,747 --------------- 126,182 --------------- BUILDING PRODUCTS-AIR & HEATING - 0.6% Comfort Systems USA, Inc. 4,100 55,350 --------------- BUILDING PRODUCTS-CEMENT/AGGREGATE - 0.6% Eagle Materials, Inc. ## 900 57,384 --------------- BUILDING PRODUCTS-LIGHT FIXTURES - 0.5% Genlyte Group, Inc.* 700 47,698 --------------- BUILDING-HEAVY CONSTRUCTION - 1.1% Perini Corp.* 2,200 66,814 Washington Group International, Inc.* 700 40,173 --------------- 106,987 --------------- CIRCUIT BOARDS - 0.6% Multi-Fineline Electronix, Inc.*,## 1,000 58,490 --------------- COMMERCIAL BANKS-WESTERN US - 1.1% SVB Financial Group* 1,100 58,355 UCBH Holdings, Inc. 2,700 51,084 --------------- 109,439 --------------- COMMERCIAL SERVICES-FINANCE - 0.5% Jackson Hewitt Tax Service, Inc. 1,500 $ 47,370 --------------- COMPUTER AIDED DESIGN - 1.4% ANSYS, Inc.* 1,300 70,395 Aspen Technology, Inc.* 5,300 67,045 --------------- 137,440 --------------- COMPUTER GRAPHICS - 0.4% Trident Microsystems, Inc.* 1,200 34,872 --------------- COMPUTERS - 1.3% Neoware Systems, Inc.* 2,400 71,088 Rackable Systems, Inc.* 1,000 52,850 --------------- 123,938 --------------- COMPUTERS-INTEGRATED SYSTEMS - 1.0% MTS Systems Corp. 1,200 50,196 Radiant Systems, Inc.* 3,500 47,320 --------------- 97,516 --------------- COMPUTERS-PERIPHERAL EQUIPMENT - 0.6% Electronics for Imaging* 2,000 55,940 --------------- DISTRIBUTION/WHOLESALE - 2.5% Beacon Roofing Supply, Inc.* 1,800 73,152 LKQ Corp.* 3,500 72,835 WESCO International, Inc.* 1,500 102,015 --------------- 248,002 --------------- DIVERSIFIED MANUFACTURING OPERATIONS - 0.5% Ameron International Corp. 700 51,261 --------------- DRUG DELIVERY SYSTEMS - 1.2% Conor Medsystems, Inc.* 2,400 70,560 Matrixx Initiatives, Inc.*,## 2,100 48,930 --------------- 119,490 --------------- E-COMMERCE/PRODUCTS - 0.6% Nutri/System, Inc.*,## 1,300 61,776 --------------- E-COMMERCE/SERVICES - 0.3% Homestore, Inc.* 5,000 32,800 --------------- ELECTRIC PRODUCTS-MISCELLANEOUS - 0.7% Littlefuse, Inc.* 2,000 68,260 --------------- ELECTRIC-INTEGRATED - 0.5% Pike Electric Corp.* 2,400 50,424 --------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS - 2.3% Emcore Corp.* 6,400 65,408 Ikanos Communications, Inc.* 2,500 49,275 Microsemi Corp.* 1,800 52,398 Pixelplus Co., Ltd. - ADR* 5,100 58,140 --------------- 225,221 --------------- ELECTRONIC CONNECTORS - 0.8% Thomas & Betts Corp.* 1,500 77,070 --------------- ELECTRONIC SECURITY DEVICES - 1.0% American Science & Engineering, Inc.* 500 46,700 LoJack Corp.* 2,200 52,756 --------------- 99,456 --------------- E-MARKETING/INFORMATION - 1.1% aQuantive, Inc.* 2,400 56,496 Digitas, Inc.* 3,700 53,280 --------------- 109,776 --------------- ENGINEERING/R & D SERVICES - 0.7% URS Corp.* 1,700 68,425 ---------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 7
NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------------------------------- ENTERPRISE SOFTWARE/SERVICES - 2.1% Concur Technologies, Inc.* 3,100 $ 57,443 Lawson Software, Inc.*,## 4,500 34,515 Mantech International Corp. Cl. A* 1,700 56,474 Ultimate Software Group, Inc.* 2,200 56,870 --------------- 205,302 --------------- ENTERTAINMENT SOFTWARE - 0.6% THQ, Inc.* 2,150 55,664 --------------- E-SERVICES/CONSULTING - 0.5% RightNow Technologies, Inc.* 3,000 47,610 --------------- FINANCE-INVESTMENT BANKERS/BROKERS - 1.5% GFI Group, Inc.* 1,100 57,101 Thomas Weisel Partners Group, Inc.*,## 4,300 94,170 --------------- 151,271 --------------- FOOD-WHOLESALE/DISTRIBUTION - 0.5% Performance Food Group Co.* 1,700 53,023 --------------- FOOTWEAR & RELATED APPAREL - 1.4% CROCS, Inc.*,## 3,000 75,450 Iconix Brand Group, Inc.* 4,400 64,020 --------------- 139,470 --------------- GOLF - 0.8% Callaway Golf Co. 4,600 79,120 --------------- HOTELS & MOTELS - 0.9% Orient-Express Hotels, Ltd. Cl. A 2,300 90,229 --------------- HUMAN RESOURCES - 0.4% Labor Ready, Inc.* 1,700 40,715 --------------- INDUSTRIAL AUTOMATION/ROBOTICS - 0.5% Hurco Cos., Inc.* 1,700 46,274 --------------- INSTRUMENTS-SCIENTIFIC - 0.9% OYO Geospace Corp.* 1,500 88,485 --------------- INTERNET APPLICATIONS SOFTWARE - 1.5% DealerTrack Holdings, Inc.* 7,200 153,432 --------------- INTERNET INFRASTRUCTURE SOFTWARE - 1.3% Openwave Systems, Inc.* 3,100 66,898 RADvision, Ltd.* 3,400 60,690 --------------- 127,588 --------------- INTERNET TELEPHONE - 0.5% j2 Global Communications, Inc.*,## 1,100 51,700 --------------- INVESTMENT MANAGEMENT/ADVISOR SERVICES - 0.4% Affiliated Managers Group, Inc.*,## 400 42,644 --------------- LASERS-SYSTEMS/COMPONENTS - 0.5% Cymer, Inc.* 1,200 54,528 --------------- LEISURE & RECREATIONAL PRODUCTS - 0.6% Multimedia Games, Inc.*,## 4,000 59,520 --------------- MACHINERY-CONSTRUCTION & MINING - 0.9% Astec Industries, Inc. 1,200 43,080 JLG Industries, Inc. 1,600 49,264 --------------- 92,344 MACHINERY-GENERAL INDUSTRY - 3.0% Gardner Denver, Inc.* 1,100 71,720 Intevac, Inc.* 3,600 103,608 Manitowoc Co., Inc. 500 45,575 Wabtec Corp. 2,300 74,980 --------------- 295,883 --------------- MEDICAL INFORMATION SYSTEMS - 0.6% Allscripts Healthcare Solutions, Inc.*,## 1,700 $ 31,127 Quality Systems, Inc.## 1,000 33,100 --------------- 64,227 --------------- MEDICAL INSTRUMENTS - 2.1% Angiodynamics, Inc.* 2,100 63,126 DexCom, Inc.* 2,500 50,675 NuVasive, Inc.* 2,000 37,700 Stereotaxis, Inc.*,## 4,200 52,962 --------------- 204,463 --------------- MEDICAL LASER SYSTEMS - 0.5% LCA-Vision, Inc. 900 45,099 --------------- MEDICAL PRODUCTS - 0.6% Viasys Healthcare, Inc.* 1,900 57,152 --------------- MEDICAL-BIOMEDICAL/GENETICS - 2.2% InterMune, Inc.*,## 2,300 42,642 Keryx Biopharmaceuticals, Inc.* 4,100 78,351 Martek Biosciences Corp.*,## 1,900 62,377 Myogen, Inc.* 900 32,607 --------------- 215,977 --------------- MEDICAL-DRUGS - 0.6% New River Pharmaceuticals, Inc.* 1,800 59,778 --------------- MEDICAL-HMO - 0.5% WellCare Health Plans, Inc.* 1,100 49,984 --------------- MEDICAL-OUTPATIENT/HOME MEDICAL CARE - 1.0% Hythiam, Inc. 5,300 48,707 Option Care, Inc. 3,250 45,955 --------------- 94,662 --------------- NETWORKING PRODUCTS - 0.7% Atheros Communications, Inc.* 2,700 70,713 --------------- NON-FERROUS METALS - 0.8% RTI International Metals, Inc.* 1,500 82,275 --------------- NON-HAZARDOUS WASTE DISPOSAL - 0.4% Waste Connections, Inc.* 900 35,829 --------------- OFFICE FURNISHINGS-ORIGINAL - 1.2% Interface, Inc. Cl. A* 4,400 60,764 Knoll, Inc.## 2,700 57,564 --------------- 118,328 --------------- OIL & GAS DRILLING - 0.4% Bronco Drilling Co., Inc.* 1,600 42,080 --------------- OIL COMPANIES-EXPLORATION & PRODUCTION - 0.4% GMX Resources, Inc.* 1,000 37,450 --------------- OIL FIELD MACHINERY & EQUIPMENT - 0.9% Hydril* 600 46,770 Lufkin Industries, Inc. 700 38,808 --------------- 85,578 --------------- OIL-FIELD SERVICES - 4.8% Core Laboratories NV* 1,200 57,060 Dresser-Rand Group, Inc.* 2,100 52,185 Global Industries, Ltd.* 3,100 44,919 Helix Energy Solutions Group, Inc.* 1,200 45,480 Hornbeck Offshore Services* 1,500 54,105 Oceaneering International, Inc.* 1,100 63,030 Superior Energy Services, Inc.* 2,100 56,259 Tetra Technologies, Inc.* 1,000 47,040 Universal Compression Holdings, Inc.* 1,100 55,737 --------------- 475,815 ---------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 8
NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------------------------------- PHARMACY SERVICES - 0.6% HealthExtras, Inc.* 1,700 $ 60,010 --------------- PHYSICAL PRACTICE MANAGEMENT - 0.6% Healthways, Inc.* 1,200 61,128 --------------- PHYSICAL THERAPY/REHABILITATION CENTERS - 0.4% Psychiatric Solutions, Inc.* 1,200 39,756 --------------- PRIVATE CORRECTIONS - 0.5% Corrections Corporation of America* 1,200 54,240 --------------- PROPERTY/CASUALTY INSURANCE - 1.2% Navigators Group, Inc.* 1,100 54,560 Ohio Casualty Corp. 2,000 63,400 --------------- 117,960 --------------- REAL ESTATE MANAGEMENT/SERVICES - 1.6% Jones Lang LaSalle, Inc. 800 61,232 Trammell Crow Co.* 2,700 96,282 --------------- 157,514 --------------- RENTAL AUTO/EQUIPMENT - 0.9% Aaron Rents, Inc. 1,600 43,472 H&E Equipment Services, Inc.* 1,600 46,592 --------------- 90,064 --------------- RESORTS/THEME PARKS - 0.5% Vail Resorts, Inc.* 1,400 53,508 --------------- RETAIL-APPAREL/SHOE - 3.8% Aeropostale, Inc.* 2,000 60,320 Charming Shoppes, Inc.* 4,600 68,402 Dress Barn, Inc.*,## 900 43,155 DSW, Inc. Cl. A*,## 1,700 53,244 JOS A. Bank Clothiers, Inc.* 1,500 71,925 New York & Co., Inc.* 2,300 34,362 Too, Inc.* 1,300 44,655 --------------- 376,063 --------------- RETAIL-ARTS & CRAFTS - 0.6% AC Moore Arts & Crafts, Inc.* 3,400 62,560 --------------- RETAIL-LEISURE PRODUCTS - 0.6% MarineMax, Inc.* 1,800 60,336 --------------- RETIREMENT/AGED CARE - 0.6% American Retirement Corp.* 2,400 61,488 --------------- RUBBER & PLASTICS - 0.7% PW Eagle, Inc.## 2,500 69,500 --------------- SEMICONDUCTOR COMPONENTS-INTEGRATED CIRCUITS - 1.3% Anadigics, Inc.* 8,000 63,200 Atmel Corp.* 14,000 66,080 --------------- 129,280 --------------- SEMICONDUCTOR EQUIPMENT - 3.8% Axcelis Technologies, Inc.* 8,200 48,052 Brooks Automation, Inc.* 3,500 49,840 GSI Group, Inc.* 4,300 47,515 Rudolph Technologies, Inc.* 3,600 61,380 Ultratech, Inc.* 2,700 66,096 Varian Semiconductor Equipment Associates, Inc.* 1,050 29,484 Veeco Instruments, Inc.* 3,000 70,050 --------------- 372,417 --------------- STEEL PIPE &TUBE - 0.4% NS Group, Inc.* 900 41,427 --------------- STEEL-PRODUCERS - 0.5% Chaparral Steel Co.* 700 $ 45,444 --------------- TELECOMMUNICATIONS EQUIPMENT - 1.2% Arris Group, Inc.* 4,100 56,416 CommScope, Inc.* 2,300 65,665 --------------- 122,081 --------------- TELECOMMUNICATIONS EQUIPMENT FIBER OPTICS - 0.8% Avanex Corp.*,## 24,500 79,870 --------------- THERAPEUTICS - 0.5% CV Therapeutics, Inc.*,## 1,800 39,744 United Therapeutics Corp.* 100 6,628 --------------- 46,372 --------------- TRANSPORT-MARINE - 0.4% American Commercial Lines, Inc. 900 42,480 --------------- VITAMINS & NUTRITION PRODUCTS - 0.7% Herbalife, Ltd.* 2,200 74,294 --------------- WIRE & CABLE PRODUCTS - 1.4% General Cable Corp.* 2,600 78,858 Superior Essex, Inc.* 2,200 55,968 --------------- 134,826 --------------- WIRELESS EQUIPMENT - 0.4% ID Systems, Inc.* 1,600 40,000 ----------------------------------------------------------------------------------------------------------------- Total Common Stock (Cost: $6,740,837) 9,333,320 ----------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT ----------------------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS - 16.7% MONEY MARKET FUNDS - 10.5% Boston Global Investment Trust - Enhanced Sleeve, 4.686%** $ 1,039,350 1,039,350 --------------- TIME DEPOSIT - 6.2% Wells Fargo Bank - Grand Cayman 4.150%, 04/01/06 610,958 610,958 ----------------------------------------------------------------------------------------------------------------- Total Short Term Investments (Cost: $1,650,308) 1,650,308 ----------------------------------------------------------------------------------------------------------------- Total Investments - 111.0% (Cost: $8,391,145) 10,983,628 ----------------------------------------------------------------------------------------------------------------- Liabilities in Excess of Other Assets - (11.0%) (1,089,197) ----------------------------------------------------------------------------------------------------------------- Net Assets - 100.0% $ 9,894,431 -----------------------------------------------------------------------------------------------------------------
* NON-INCOME PRODUCING SECURITIES. ** ALL OF THE SECURITY IS PURCHASED WITH CASH COLLATERAL PROCEEDS FROM SECURITIES LOANS. ## ALL OR A PORTION OF THE FUND'S HOLDINGS IN THIS SECURITY WAS ON LOAN AS OF 03/31/06. ADR - AMERICAN DEPOSITORY RECEIPT SCHEDULE OF INVESTMENTS BY INDUSTRY as of March 31, 2006
PERCENT OF INDUSTRY NET ASSETS ----------------------------------------------------------------------------------------------------------------- Basic Materials 1.3% Communications 10.7 Consumer, Cyclical 15.7 Consumer, Non-cyclical 15.0 Energy 6.5 Financial 6.4 Industrial 22.2 Technology 16.0 Utilities 0.5 Short Term Investments 16.7 Liabilities in excess of other assets (11.0) ----------------------------------------------------------------------------------------------------------------- Net Assets 100.0% =================================================================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 9 U.S. SMALL CAP VALUE FUND MANAGEMENT TEAM: MARK W. STUCKELMAN, Portfolio Manager; STEPHEN SEXAUER, Portfolio Manager; NELSON SHING, Portfolio Manager; JAMES FERNANDES, CPA, CFA, Analyst; CHARLES HOEVELER, Analyst CHIEF INVESTMENT OFFICER: HORACIO A. VALEIRAS, CFA GOAL: The U.S. Small Cap Value Fund seeks to maximize long-term capital appreciation through investments primarily in smaller U.S. companies with market capitalizations corresponding to the Russell 2000 Value Index that, in the opinion of the Investment Adviser, are undervalued in the marketplace. MARKET OVERVIEW: U.S. equities shifted into high gear in 2005, closing the twelve months ending March 31, 2006 with solid gains. Healthy corporate earnings growth, a robust job market and tame core consumer prices were the overarching themes in support of accelerating stock prices. In spite of the positive final results, 2005 was wrought with crosswinds that threatened to derail economic growth. Throughout the year, investors struggled with soaring energy prices, cooling in the housing market and eight consecutive quarter-basis point interest rate hikes at the Federal Reserve. Market advances were widespread, but lopsided. In general, small- and mid-cap stocks generated substantially greater gains than large-cap stocks. From a style standpoint, neither growth nor value provided clear, consistent leadership. Within the Russell 2000 Value Index, telecommunications and industrials companies saw the best results. Utilities companies tended to trail after a long period of outperformance, while consumer-oriented businesses suffered amid elevated oil prices. PERFORMANCE: From April 1, 2005 through March 31, 2006, the Fund's Class I shares gained 21.97%. The Russell 2000 Value Index rose 23.77%. PORTFOLIO SPECIFICS: The Fund posted solid returns in fiscal 2005, but modestly trailed the benchmark. Stock selection in the information technology sector detracted most from relative performance, with a position in Comtech Telecommunications the category's most notable underperformer. Comtech shares dropped sharply late in the fourth quarter of 2005, following disappointing earnings guidance and news that a major contract is running off faster than expected. Other areas of relative weakness included stock selection in the financials sector and underweighting in the energy sector, which offset favorable stock selection within the group. On the plus side, stock selection in several sectors was beneficial to relative performance, including industrials, health care and materials. A few of the strongest performers within the Fund more than doubled in price. AAR Corporation, a company that distributes aircraft parts and provides aircraft maintenance, secured a slew of new outsourcing contracts and benefited from a strong aerospace environment. Universal Truckload Services, a truckload company, reported better-than-expected earnings with strong organic growth and improved operating margins. The health care firm Candela, which produces cosmetic lasers, surged on better-than-expected earnings. MARKET OUTLOOK: We expect an end to the current, prolonged cycle of Federal Reserve interest rate hikes later this year. We also see continued strength in personal consumption, supported by low unemployment and ongoing wage gains. Both of these factors bode well for equities, and should help offset the challenges presented by a cooling housing market and elevated energy prices. We remain focused on identifying and investing in attractively priced, financially strong small-cap companies poised to benefit from change. Through intense, fundamental research and a diversified, risk-controlled approach to portfolio construction, we are confident we will continue producing excess return over time. The Fund is currently closed to new investors. The Fund will continue to accept additional investments from existing shareholders. [CHART] COMPARISON OF CHANGE IN VALUE OF A $250,000 INVESTMENT IN U.S. SMALL CAP VALUE FUND CLASS I AND II SHARES WITH THE RUSSELL 2000 VALUE INDEX.
U.S. SMALL CAP VALUE FUND CLASS I SHARES RUSSELL 2000 VALUE INDEX 12/30/1997 $ 250,000 $ 250,000 12/31/1997 $ 248,617 $ 250,504 1/31/1998 $ 246,355 $ 245,969 2/28/1998 $ 267,925 $ 260,851 3/31/1998 $ 280,698 $ 271,441 4/30/1998 $ 283,771 $ 272,771 5/31/1998 $ 274,008 $ 263,115 6/30/1998 $ 271,752 $ 261,642 7/31/1998 $ 252,912 $ 241,155 8/31/1998 $ 209,998 $ 203,390 9/30/1998 $ 219,489 $ 214,882 10/31/1998 $ 230,594 $ 221,264 11/30/1998 $ 242,745 $ 227,260 12/31/1998 $ 251,379 $ 234,396 1/31/1999 $ 239,838 $ 229,075 2/28/1999 $ 224,921 $ 213,429 3/31/1999 $ 216,720 $ 211,658 4/30/1999 $ 237,553 $ 230,982 5/31/1999 $ 247,108 $ 238,073 6/30/1999 $ 256,810 $ 246,692 7/31/1999 $ 255,260 $ 240,845 8/31/1999 $ 246,962 $ 232,030 9/30/1999 $ 239,174 $ 227,389 10/31/1999 $ 230,648 $ 222,842 11/30/1999 $ 236,639 $ 224,000 12/31/1999 $ 240,256 $ 230,877 1/31/2000 $ 233,732 $ 224,828 2/29/2000 $ 230,083 $ 238,565 3/31/2000 $ 248,579 $ 239,687 4/30/2000 $ 257,324 $ 241,101 5/31/2000 $ 255,258 $ 237,412 6/30/2000 $ 260,240 $ 244,344 7/31/2000 $ 260,563 $ 252,481 8/31/2000 $ 277,078 $ 263,767 9/30/2000 $ 281,274 $ 262,263 10/31/2000 $ 283,121 $ 261,319 11/30/2000 $ 275,691 $ 255,988 12/31/2000 $ 305,403 $ 283,507 1/31/2001 $ 318,153 $ 291,332 2/28/2001 $ 318,314 $ 290,924 3/31/2001 $ 313,098 $ 286,269 4/30/2001 $ 334,350 $ 299,523 5/31/2001 $ 354,411 $ 307,221 6/30/2001 $ 361,633 $ 319,572 7/31/2001 $ 365,110 $ 312,413 8/31/2001 $ 361,098 $ 311,320 9/30/2001 $ 324,453 $ 276,950 10/31/2001 $ 334,350 $ 284,178 11/30/2001 $ 351,469 $ 304,611 12/31/2001 $ 379,885 $ 323,253 1/31/2002 $ 383,641 $ 327,552 2/28/2002 $ 384,446 $ 329,550 3/31/2002 $ 419,054 $ 354,234 4/30/2002 $ 428,175 $ 366,703 5/31/2002 $ 415,298 $ 354,565 6/30/2002 $ 408,859 $ 346,729 7/31/2002 $ 350,106 $ 295,205 8/31/2002 $ 347,960 $ 293,906 9/30/2002 $ 324,619 $ 272,921 10/31/2002 $ 322,473 $ 277,015 11/30/2002 $ 348,387 $ 299,121 12/31/2002 $ 342,602 $ 286,348 1/31/2003 $ 332,317 $ 278,273 2/28/2003 $ 322,997 $ 268,923 3/31/2003 $ 328,782 $ 271,801 4/30/2003 $ 358,028 $ 297,622 5/31/2003 $ 399,809 $ 328,009 6/30/2003 $ 411,058 $ 333,552 7/31/2003 $ 439,340 $ 350,197 8/31/2003 $ 464,409 $ 363,504 9/30/2003 $ 454,115 $ 359,324 10/31/2003 $ 501,037 $ 388,609 11/30/2003 $ 524,123 $ 403,531 12/31/2003 $ 543,989 $ 418,139 1/31/2004 $ 566,835 $ 432,607 2/29/2004 $ 581,072 $ 440,999 3/31/2004 $ 584,052 $ 447,085 4/30/2004 $ 556,571 $ 423,971 5/31/2004 $ 568,490 $ 429,101 6/30/2004 $ 591,336 $ 450,899 7/31/2004 $ 564,848 $ 430,158 8/30/2004 $ 559,219 $ 434,373 9/30/2004 $ 592,660 $ 451,575 10/31/2004 $ 599,950 $ 458,574 11/30/2004 $ 650,586 $ 499,295 12/31/2004 $ 673,877 $ 511,179 1/31/2005 $ 654,334 $ 491,396 2/28/2005 $ 662,971 $ 501,126 3/31/2005 $ 653,557 $ 490,803 4/30/2005 $ 630,290 $ 465,477 5/31/2005 $ 659,977 $ 493,871 6/30/2005 $ 684,792 $ 515,700 7/31/2005 $ 726,496 $ 545,044 8/31/2005 $ 706,590 $ 532,508 9/30/2005 $ 703,976 $ 531,602 10/31/2005 $ 681,801 $ 518,259 11/30/2005 $ 721,686 $ 539,300 12/31/2005 $ 729,336 $ 535,148 1/31/2006 $ 770,324 $ 579,405 2/28/2006 $ 768,322 $ 579,347 3/31/2006 $ 797,210 $ 607,445
ANNUALIZED TOTAL RETURNS As of 3/31/06
SINCE 1 YEAR 5 YEARS INCEPTION -------------------------------------------------------------------------- U.S. Small Cap Value Fund Class I 21.97% 20.54% 15.08% Russell 2000 Value Index 23.77% 16.24% 11.36%
10 [CHART]
U.S. SMALL CAP VALUE FUND CLASS II SHARES RUSSELL 2000 VALUE INDEX 11/9/2004 $ 250,000 $ 250,000 11/30/2004 $ 261,025 $ 262,875 12/31/2004 $ 270,370 $ 269,131 1/31/2005 $ 262,529 $ 258,716 2/28/2005 $ 265,994 $ 263,839 3/31/2005 $ 262,217 $ 258,404 4/30/2005 $ 252,882 $ 245,070 5/31/2005 $ 264,793 $ 260,019 6/30/2005 $ 274,749 $ 271,512 7/31/2005 $ 291,482 $ 286,961 8/31/2005 $ 283,495 $ 280,361 9/30/2005 $ 282,446 $ 279,884 10/31/2005 $ 273,549 $ 272,859 11/30/2005 $ 289,552 $ 283,937 12/31/2005 $ 292,621 $ 281,751 1/31/2006 $ 309,066 $ 305,052 2/28/2006 $ 308,263 $ 305,021 3/31/2006 $ 319,853 $ 319,815
ANNUALIZED TOTAL RETURNS As of 3/31/06
1 YEAR SINCE INCEPTION ------------------------------------------------------------------------------- U.S. Small Cap Value Fund Class II 22.15% 19.58% Russell 2000 Value Index 23.77% 19.91%
THE GRAPHS ABOVE SHOW THE VALUE OF A HYPOTHETICAL $250,000 INVESTMENT IN THE FUND'S CLASS I AND II SHARES COMPARED WITH THE RUSSELL 2000 VALUE INDEX FOR THE PERIODS INDICATED. AVERAGE ANNUAL TOTAL RETURN FIGURES INCLUDE CHANGES IN PRINCIPAL VALUE, REINVESTED DIVIDENDS, AND CAPITAL GAIN DISTRIBUTIONS. THE FUND'S PERFORMANCE INCLUDES HISTORICAL PERFORMANCE OF COMPARABLE MANAGED INSTITUTIONAL POOLED ACCOUNTS MANAGED BY THE INVESTMENT ADVISER PRIOR TO THE INCEPTION OF THE FUND. THE FUND COMMENCED OPERATIONS ON MAY 1, 2001. THE TOTAL RETURNS SHOWN ABOVE DO NOT SHOW THE EFFECTS OF INCOME TAXES ON AN INDIVIDUAL'S INVESTMENT. IN MOST CASES, TAXES MAY REDUCE YOUR ACTUAL INVESTMENT RETURNS ON INCOME OR GAINS PAID BY THE FUND OR ANY GAINS YOU MAY REALIZE IF YOU SELL YOUR SHARES. PAST PERFORMANCE CANNOT GUARANTEE FUTURE RESULTS. THE RUSSELL 2000 VALUE INDEX MEASURES THE PERFORMANCE OF THOSE RUSSELL 2000 COMPANIES WITH LOWER PRICE-TO-BOOK RATIOS AND LOWER FORECASTED GROWTH VALUES. THE UNMANAGED INDEX DIFFERS FROM THE FUND IN COMPOSITION, DOES NOT PAY MANAGEMENT FEES OR EXPENSES AND INCLUDES REINVESTED DIVIDENDS. ONE CANNOT INVEST DIRECTLY IN AN INDEX. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS. YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. 11 U.S. SMALL CAP VALUE FUND SCHEDULE OF INVESTMENTS As of March 31, 2006
NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------------------------------- COMMON STOCK - 90.9% AEROSPACE/DEFENSE-EQUIPMENT - 1.5% AAR Corp.* 88,800 $ 2,529,024 --------------- APPAREL MANUFACTURERS - 0.9% Russell Corp. 110,500 1,524,900 --------------- B2B/E-COMMERCE - 0.6% webMethods, Inc.* 111,800 941,356 --------------- BUILDING & CONSTRUCTION-MISCELLANEOUS - 1.9% Dycom Industries, Inc.* 72,800 1,547,000 ElkCorp 45,300 1,528,875 --------------- 3,075,875 --------------- BUILDING-MOBIL HOME/MANUFACTURED HOUSING - 0.9% Champion Enterprises, Inc.* 96,500 1,443,640 --------------- CHEMICALS-SPECIALTY - 1.9% Hercules, Inc.* 136,600 1,885,080 OM Group, Inc.* 54,500 1,253,500 --------------- 3,138,580 --------------- COMMERCIAL BANKS-CENTRAL US - 5.2% Amcore Financial, Inc. 54,000 1,707,480 Associated Banc Corp. 50,000 1,699,000 Gold Banc Corp., Inc. 88,200 1,615,824 Macatawa Bank Corp. 32,194 1,220,475 Mercantile Bank Corp. 33,300 1,302,030 Oak Hill Financial, Inc. 32,900 1,016,939 --------------- 8,561,748 --------------- COMMERCIAL BANKS-EASTERN US - 0.5% Community Bank Systems, Inc. 39,300 877,569 --------------- COMMERCIAL BANKS-WESTERN US - 1.0% Greater Bay Bancorp 57,900 1,606,146 --------------- COMMERCIAL SERVICES-FINANCE - 1.0% TNS, Inc.* 73,700 1,560,966 --------------- COMPUTERS-INTEGRATED SYSTEMS - 0.9% Intergraph Corp.* 36,100 1,503,926 --------------- COMPUTERS-MEMORY DEVICES - 1.1% Hutchinson Technology, Inc.* 60,700 1,831,319 --------------- CONSUMER PRODUCTS-MISCELLANEOUS - 0.9% Prestige Brand Holdings, Inc.* 122,400 1,489,608 --------------- DIVERSIFIED MANUFACTURING OPERATIONS - 2.2% ESCO Technologies, Inc.* 38,900 1,970,285 Griffon Corp.* 68,800 1,708,992 --------------- 3,679,277 --------------- ELECTRIC-INTEGRATED - 2.0% CMS Energy Corp.* 127,600 1,652,420 El Paso Electric Co.* 89,100 1,696,464 --------------- 3,348,884 --------------- ELECTRONIC COMPONENTS-MISCELLANEOUS - 2.7% Benchmark Electronics, Inc.* 29,400 1,127,490 Methode Electronics, Inc. Cl. A 112,800 1,228,392 Rogers Corp.* 36,800 2,004,864 --------------- 4,360,746 --------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS - 0.4% IXYS Corp.* 68,100 627,882 --------------- ENERGY-ALTERNATE SOURCES - 0.9% Covanta Holding Corp.* 93,300 1,555,311 --------------- FINANCE-AUTO LOANS - 1.1% United PanAm Financial Corp.* 57,000 $ 1,761,300 --------------- FINANCE-INVESTMENT BANKERS/BROKERS - 1.0% Knight Capital Group, Inc. Cl. A* 120,500 1,678,565 --------------- FOOD-MISCELLANEOUS/DIVERSIFIED - 0.8% Ralcorp Holdings, Inc.* 35,900 1,365,995 --------------- FUNERAL SERVICES & RELATED ITEMS - 1.0% Stewart Enterprises, Inc. Cl. A 295,600 1,687,876 --------------- GAS-DISTRIBUTION - 2.0% Energen Corp. 43,000 1,505,000 UGI Corp. 82,500 1,738,275 --------------- 3,243,275 --------------- HOTELS & MOTELS - 0.9% Jameson Inns, Inc.* 632,600 1,549,870 --------------- HUMAN RESOURCES - 1.0% Korn/Ferry International* 83,900 1,710,721 --------------- INDEX FUND-SMALL CAP - 4.9% iShares Russell 2000 Value Index Fund* 107,600 8,042,024 --------------- INTERNET APPLICATIONS SOFTWARE - 1.3% Interwoven Inc.* 114,100 1,025,759 MatrixOne, Inc.* 162,400 1,162,784 --------------- 2,188,543 --------------- LASERS-SYSTEMS/COMPONENTS - 1.4% Cymer, Inc.* 28,400 1,290,496 Rofin-Sinar Technologies, Inc.* 18,100 979,753 --------------- 2,270,249 --------------- MACHINERY TOOLS & RELATED PRODUCTS - 1.1% Kennametal, Inc. 29,900 1,828,086 --------------- MACHINERY-GENERAL INDUSTRY - 2.7% Gardner Denver, Inc.* 40,100 2,614,520 Wabtec Corp. 55,400 1,806,040 --------------- 4,420,560 --------------- MEDICAL PRODUCTS - 0.9% HealthTronics, Inc.* 177,500 1,467,925 --------------- MEDICAL-DRUGS - 0.4% Zymogenetics, Inc.* 26,800 579,416 --------------- MEDICAL-HOSPITALS - 1.1% LifePoint Hospitals, Inc.* 44,700 1,390,170 Medcath Corp.* 25,000 478,000 --------------- 1,868,170 --------------- METAL PROCESSORS & FABRICATION - 0.6% Quanex Corp. 15,600 1,039,428 --------------- METAL-ALUMINUM - 1.3% Century Aluminum Co.* 51,500 2,186,175 --------------- MOTION PICTURES & SERVICES - 1.1% Lions Gate Entertainment Corp.*,## 170,800 1,733,620 --------------- MULTIMEDIA - 1.0% Gemstar - TV Guide International, Inc.* 508,600 1,571,574 --------------- NETWORKING PRODUCTS - 1.4% 3COM Corp.* 208,000 1,064,960 Aeroflex, Inc.* 88,400 1,213,732 --------------- 2,278,692 --------------- NON-FERROUS METALS - 1.2% RTI International Metals, Inc.* 36,700 2,012,995 ---------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 12
NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------------------------------- OIL COMPANIES-EXPLORATION & PRODUCTION - 0.8% Forest Oil Corp.* 24,200 $ 899,756 Mariner Energy, Inc.* 19,585 401,688 --------------- 1,301,444 --------------- OIL REFINING & MARKETING - 1.2% Holly Corp. 25,800 1,912,296 --------------- OIL-FIELD SERVICES - 0.7% Superior Energy Services, Inc.* 41,600 1,114,464 --------------- POWER CONVERSION/SUPPLY EQUIPMENT - 1.4% Artesyn Technologies, Inc.* 96,100 1,052,295 Power-One, Inc.* 175,900 1,266,480 --------------- 2,318,775 --------------- PRIVATE CORRECTIONS - 1.2% Corrections Corp. of America* 43,300 1,957,160 --------------- PROPERTY/CASUALTY INSURANCE - 3.8% Castlepoint Holdings, Ltd. 144A#+ 237,400 2,374,000 Navigators Group, Inc.* 36,200 1,795,520 Quanta Capital Holdings, Ltd.* 118,400 355,200 Tower Group, Inc. 74,400 1,718,640 --------------- 6,243,360 --------------- PUBLISHING-NEWSPAPERS - 0.7% Lee Enterprises, Inc. 33,000 1,098,570 --------------- RADIO - 1.0% Entercom Communications Corp. Cl. A 28,700 801,304 Radio One, Inc. Cl. D* 103,800 774,348 --------------- 1,575,652 --------------- REITS-DIVERSIFIED - 1.4% Cousins Properties, Inc. 34,700 1,160,021 Washington Real Estate Investment Trust 31,500 1,144,080 --------------- 2,304,101 --------------- REITS-HEALTH CARE - 0.7% Ventas, Inc. 36,483 1,210,506 --------------- REITS-HOTELS - 1.7% Ashford Hospitality Trust, Inc. 118,000 1,463,200 DiamondRock Hospitality Co. 144A# 101,300 1,398,953 --------------- 2,862,153 --------------- REITS-MORTGAGE - 4.0% Fieldstone Investment Corp. 85,100 1,004,180 Jer Investors Trust, Inc. 9,600 159,552 Jer Investors Trust, Inc. 144A# 63,800 1,060,356 KKR Financial Corp.* 77,150 1,730,474 Newcastle Investment Corp. 77,500 1,853,800 NorthStar Realty Finance Corp. 75,000 821,250 --------------- 6,629,612 --------------- REITS-SHOPPING CENTERS - 0.8% Equity One, Inc. 52,900 1,299,224 --------------- RETAIL-APPAREL/SHOE - 1.7% Charlotte Russe Holding, Inc.* 65,100 1,393,140 Charming Shoppes, Inc.* 95,800 1,424,546 --------------- 2,817,686 --------------- RETAIL-DISCOUNT - 1.0% Tuesday Morning Corp.* 72,900 1,683,261 --------------- RETAIL-PAWN SHOPS - 1.0% Cash America International, Inc. 56,800 1,705,136 --------------- RETAIL-RESTAURANTS - 1.1% Lone Star Steakhouse & Saloon, Inc. 64,600 $ 1,835,932 --------------- RUBBER-TIRES - 1.0% Cooper Tire & Rubber Co. 111,100 1,593,174 --------------- SAVINGS & LOANS/THRIFTS-CENTRAL US - 1.0% MAF Bancorp, Inc. 37,100 1,623,867 --------------- SAVINGS & LOANS/THRIFTS-EASTERN US - 2.5% Brookline Bancorp, Inc. 97,228 1,506,062 First Niagara Financial Group, Inc. 128,700 1,886,742 Parkvale Financial Corp. 25,000 697,500 --------------- 4,090,304 --------------- SCHOOLS - 0.4% Concorde Career Colleges, Inc.* 34,700 572,550 --------------- SEMICONDUCTOR COMPONENTS-INTEGRATED CIRCUITS - 1.6% ASE Test, Ltd.* 150,600 1,355,400 ChipMOS TECHNOLOGIES Bermuda, Ltd.* 172,300 1,231,945 --------------- 2,587,345 --------------- SEMICONDUCTOR EQUIPMENT - 1.3% Mattson Technology, Inc.* 103,700 1,244,400 Varian Semiconductor Equipment Associates, Inc.* 30,000 842,400 --------------- 2,086,800 --------------- TELECOMMUNICATIONS EQUIPMENT - 1.0% Comtech Telecommunications Corp.* 56,700 1,653,939 --------------- THERAPEUTICS - 1.4% CV Therapeutics, Inc.* 40,300 889,824 Medarex, Inc.* 106,300 1,405,286 --------------- 2,295,110 --------------- TRANSPORT-MARINE - 0.8% Genco Shipping & Trading, Ltd.* 73,700 1,254,374 --------------- TRANSPORT-SERVICES - 1.0% Universal Truckload Services* 63,600 1,593,180 ----------------------------------------------------------------------------------------------------------------- Total Common Stock (Cost: $124,808,682) 149,361,791 ----------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT ----------------------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS - 11.8% MONEY MARKET FUNDS - 1.1% Boston Global Investment Trust - Enhanced Sleeve, 4.686%** $ 1,791,300 1,791,300 --------------- TIME DEPOSIT - 10.7% Wells Fargo Bank - Grand Cayman 4.150%, 04/01/06 17,508,950 17,508,950 ----------------------------------------------------------------------------------------------------------------- Total Short Term Investments (Cost: $19,300,250) 19,300,250 ----------------------------------------------------------------------------------------------------------------- Total Investments - 102.7% (Cost: $144,108,932) 168,662,041 ----------------------------------------------------------------------------------------------------------------- Liabilities in Excess of other Assets - (2.7%) (4,437,203) ----------------------------------------------------------------------------------------------------------------- Net Assets - 100.0% $ 164,224,838 -----------------------------------------------------------------------------------------------------------------
* NON-INCOME PRODUCING SECURITIES. ** ALL OF THE SECURITY IS PURCHASED WITH CASH COLLATERAL PROCEEDS FROM SECURITIES LOANS. + ILLIQUID SECURITIES, VALUED BY THE ADVISOR. TOTAL COST OF ILLIQUID SECURITIES AS OF MARCH 31, 2006 WAS $3,998,685. TOTAL MARKET VALUE OF ILLIQUID SECURITIES OWNED AT MARCH 31, 2006 WAS $2,374,000 OR 1.45% OF NET ASSETS. # 144A SECURITY. CERTAIN CONDITION FOR PUBLIC SALE MAY EXIST. THE TOTAL MARKET VALUE OF 144A SECURITIES OWNED AT MARCH 31, 2006 WAS $4,833,309 OR 2.94% OF NET ASSETS. ## ALL OR A PORTION OF THE FUND'S HOLDINGS IN THIS SECURITY WAS ON LOAN AS OF 03/31/06. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 13 SCHEDULE OF INVESTMENTS BY INDUSTRY as of March 31, 2006
PERCENT OF INDUSTRY NET ASSETS ----------------------------------------------------------------------------------------------------------------- Basic Materials 4.5% Communications 6.9 Consumer, Cyclical 9.8 Consumer, Non-cyclical 8.9 Energy 3.5 Financial 25.9 Funds 4.9 Industrial 17.3 Technology 5.2 Utilities 4.0 Short Term Investments 11.8 Liabilities in excess of other assets (2.7) ----------------------------------------------------------------------------------------------------------------- Net Assets 100.0% =================================================================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 14 U.S. LARGE CAP VALUE FUND MANAGEMENT TEAM: STEPHEN SEXAUER, Portfolio Manager; NELSON SHING, Portfolio Manager; MARK W. STUCKELMAN, Portfolio Manager; JAMES FERNANDES, CPA, CFA, Analyst; CHARLES HOEVELER, Analyst CHIEF INVESTMENT OFFICER: HORACIO A. VALEIRAS, CFA GOAL: The U.S. Large Cap Value Fund seeks long-term capital appreciation through investments in a diversified portfolio comprised predominantly of U.S. companies with larger market capitalizations that, in the opinion of the Investment Adviser, are undervalued relative to other market measures. MARKET OVERVIEW: U.S. investors closed fiscal 2005 with robust gains. As measured by the S&P 500 Index, stock prices rose 11.72% in the twelve months to March 31, 2006. The broad-based advance was supported by the second-longest stretch of double-digit quarterly corporate earnings growth since 1950. Another factor supporting equity markets was the quick recovery in economic indicators following the Gulf Coast hurricanes. In the wake of Hurricanes Katrina and Rita, energy prices soared, jobless figures spiked, and consumer confidence tumbled the most in fifteen years. Nevertheless, within a month of the storms, the price of gas was already down 16%, and by first quarter 2006, employment and consumer confidence were at four-year highs. Within the large-cap value market, consumer discretionary was the only sector to close the year with losses. Information technology saw the strongest gains due to robust earnings growth and a brisk pace of mergers and acquisitions. PERFORMANCE: The Fund's Class I shares posted an 11.75% increase during the twelve months ended March 31, 2006. The Russell 1000 Value Index advanced 13.29%. PORTFOLIO SPECIFICS: The Fund produced solid absolute results during the year, but on a comparative basis, slightly underperformed the benchmark. The main detractor to the Fund's results was the financials sector, where stock selection among capital markets and insurance companies and underweighting in diversified financials and consumer finance businesses hurt relative returns. Despite the challenges, stock selection in most sectors generated positive relative returns for the Fund, led by positions in the materials, information technology and consumer discretionary sectors. The three largest contributors to the Fund's results were Freescale Semiconductors, ITT Industries and ConocoPhillips. Freescale saw strong gains on higher-than-anticipated earnings and an upgrade by a major sell-side brokerage firm. ConocoPhillips has benefited from strains on the nation's capacity to refine crude oil into products such as gas, jet fuel and heating oil. As of March 31, 2006, the Fund was well-diversified, with all sector weights within +/-5% of the benchmark's weights. MARKET OUTLOOK: We anticipate solid earnings growth from U.S. companies in 2006, supported by ongoing economic expansion and modest inflation. We continue to believe there is significant value in owning reasonably priced, very large corporations that have strong cash flows, limited debt, solid assets and a catalyst to realize their value. By identifying these types of companies for the Fund, we are confident that we will deliver strong performance over time. [CHART] COMPARISON OF CHANGE IN VALUE OF A $250,000 INVESTMENT IN U.S. LARGE CAP VALUE FUND CLASS I SHARES WITH THE RUSSELL 1000 VALUE INDEX.
U.S. LARGE CAP VALUE FUND CLASS I SHARES RUSSELL 1000 VALUE INDEX 4/30/1996 $ 250,000 $ 250,000 5/31/1996 $ 256,600 $ 253,125 6/30/1996 $ 263,800 $ 253,328 7/31/1996 $ 257,600 $ 243,752 8/31/1996 $ 264,800 $ 250,723 9/30/1996 $ 278,800 $ 260,702 10/31/1996 $ 288,600 $ 270,791 11/30/1996 $ 311,581 $ 290,423 12/31/1996 $ 310,622 $ 286,706 1/31/1997 $ 327,247 $ 300,611 2/28/1997 $ 331,246 $ 305,030 3/31/1997 $ 316,936 $ 294,049 4/30/1997 $ 333,350 $ 306,399 5/31/1997 $ 358,183 $ 323,527 6/30/1997 $ 369,758 $ 337,406 7/31/1997 $ 412,900 $ 362,779 8/31/1997 $ 403,430 $ 349,864 9/30/1997 $ 428,684 $ 370,996 10/31/1997 $ 412,269 $ 360,645 11/30/1997 $ 425,854 $ 376,586 12/31/1997 $ 436,586 $ 387,582 1/31/1998 $ 434,531 $ 382,078 2/28/1998 $ 469,924 $ 407,792 3/31/1998 $ 500,065 $ 432,749 4/30/1998 $ 502,805 $ 435,648 5/31/1998 $ 500,750 $ 429,201 6/30/1998 $ 511,938 $ 434,695 7/31/1998 $ 501,864 $ 427,000 8/31/1998 $ 424,288 $ 363,463 9/30/1998 $ 448,323 $ 384,326 10/31/1998 $ 479,972 $ 414,111 11/30/1998 $ 502,997 $ 433,408 12/31/1998 $ 524,487 $ 448,144 1/31/1999 $ 530,983 $ 451,729 2/28/1999 $ 512,743 $ 445,360 3/31/1999 $ 522,238 $ 454,579 4/30/1999 $ 563,217 $ 497,037 5/31/1999 $ 554,472 $ 491,569 6/30/1999 $ 570,214 $ 505,825 7/31/1999 $ 558,969 $ 491,004 8/31/1999 $ 538,979 $ 472,788 9/30/1999 $ 516,990 $ 456,240 10/31/1999 $ 553,222 $ 482,520 11/30/1999 $ 531,483 $ 478,756 12/31/1999 $ 571,041 $ 481,054 1/31/2000 $ 535,602 $ 465,372 2/29/2000 $ 492,372 $ 430,795 3/31/2000 $ 546,661 $ 483,352 4/30/2000 $ 546,661 $ 477,745 5/31/2000 $ 545,656 $ 482,761 6/30/2000 $ 521,276 $ 460,699 7/31/2000 $ 539,624 $ 466,458 8/31/2000 $ 569,784 $ 492,393 9/30/2000 $ 578,330 $ 496,923 10/31/2000 $ 607,485 $ 509,147 11/30/2000 $ 583,226 $ 490,258 12/31/2000 $ 615,670 $ 514,819 1/31/2001 $ 625,048 $ 516,827 2/28/2001 $ 611,868 $ 502,459 3/31/2001 $ 593,618 $ 484,723 4/30/2001 $ 627,329 $ 508,474 5/31/2001 $ 647,607 $ 519,915 6/30/2001 $ 637,468 $ 508,373 7/31/2001 $ 637,468 $ 507,305 8/31/2001 $ 607,052 $ 486,962 9/30/2001 $ 559,147 $ 452,680 10/31/2001 $ 556,359 $ 448,787 11/30/2001 $ 597,010 $ 474,861 12/31/2001 $ 609,399 $ 486,068 1/31/2002 $ 596,752 $ 482,325 2/28/2002 $ 601,140 $ 483,097 3/31/2002 $ 631,339 $ 505,948 4/30/2002 $ 606,560 $ 488,594 5/31/2002 $ 613,529 $ 491,037 6/30/2002 $ 568,102 $ 462,851 7/31/2002 $ 512,350 $ 419,806 8/31/2002 $ 510,027 $ 422,954 9/30/2002 $ 446,532 $ 375,922 10/31/2002 $ 489,378 $ 403,778 11/30/2002 $ 520,218 $ 429,216 12/31/2002 $ 498,455 $ 410,588 1/31/2003 $ 490,851 $ 400,652 2/28/2003 $ 478,003 $ 389,954 3/31/2003 $ 477,216 $ 390,617 4/30/2003 $ 515,760 $ 424,991 5/31/2003 $ 548,798 $ 452,446 6/30/2003 $ 554,567 $ 458,101 7/31/2003 $ 562,957 $ 464,927 8/31/2003 $ 566,104 $ 472,180 9/30/2003 $ 562,695 $ 467,553 10/31/2003 $ 597,831 $ 496,167 11/30/2003 $ 599,439 $ 502,915 12/31/2003 $ 635,459 $ 533,894 1/31/2004 $ 648,631 $ 543,291 2/29/2004 $ 662,071 $ 554,917 3/31/2004 $ 657,502 $ 550,034 4/30/2004 $ 645,674 $ 536,613 5/31/2004 $ 653,201 $ 542,087 6/30/2004 $ 662,609 $ 554,880 7/31/2004 $ 649,975 $ 547,056 8/30/2004 $ 649,706 $ 554,824 9/30/2004 $ 664,759 $ 563,424 10/31/2004 $ 673,601 $ 572,777 11/30/2004 $ 706,540 $ 601,702 12/31/2004 $ 723,709 $ 621,859 1/31/2005 $ 715,531 $ 610,852 2/28/2005 $ 741,719 $ 631,071 3/31/2005 $ 727,849 $ 622,426 4/30/2005 $ 712,855 $ 611,284 5/31/2005 $ 730,819 $ 626,016 6/30/2005 $ 739,516 $ 632,902 7/31/2005 $ 766,508 $ 651,193 8/31/2005 $ 759,993 $ 648,328 9/30/2005 $ 760,829 $ 657,405 10/31/2005 $ 740,971 $ 640,707 11/30/2005 $ 769,869 $ 661,786 12/31/2005 $ 768,484 $ 665,690 1/31/2006 $ 793,459 $ 691,519 2/28/2006 $ 794,015 $ 695,737 3/31/2006 $ 813,468 $ 705,130
ANNUALIZED TOTAL RETURNS As of 3/31/06
SINCE 1 YEAR 5 YEARS INCEPTION -------------------------------------------------------------------------- U.S. Large Cap Value Fund Class I 11.75% 6.50% 12.62% Russell 1000 Value Index 13.29% 7.79% 11.02%
THE GRAPH ABOVE SHOWS THE VALUE OF A HYPOTHETICAL $250,000 INVESTMENT IN THE FUND'S CLASS I SHARES COMPARED WITH THE RUSSELL 1000 VALUE INDEX FOR THE PERIODS INDICATED. THE FUND'S CLASS I SHARES CALCULATE THEIR PERFORMANCE BASED UPON THE HISTORICAL PERFORMANCE OF THEIR CORRESPONDING SERIES OF NICHOLAS-APPLEGATE MUTUAL FUNDS (RENAMED ING MUTUAL FUNDS). THE NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS' CLASS I SHARES WERE FIRST AVAILABLE ON MAY 7, 1999. AVERAGE ANNUAL TOTAL RETURN FIGURES INCLUDE CHANGES IN PRINCIPAL VALUE, REINVESTED DIVIDENDS, AND CAPITAL GAIN DISTRIBUTIONS. THE TOTAL RETURNS SHOWN ABOVE DO NOT SHOW THE EFFECTS OF INCOME TAXES ON AN INDIVIDUAL'S INVESTMENT. IN MOST CASES, TAXES MAY REDUCE YOUR ACTUAL INVESTMENT RETURNS ON INCOME OR GAINS PAID BY THE FUND OR ANY GAINS YOU MAY REALIZE IF YOU SELL YOUR SHARES. PAST PERFORMANCE CANNOT GUARANTEE FUTURE RESULTS. THE RUSSELL 1000 VALUE INDEX MEASURES THE PERFORMANCE OF THOSE RUSSELL 1000 COMPANIES WITH LOWER PRICE-TO-BOOK RATIOS AND LOWER FORECASTED GROWTH VALUES. THE UNMANAGED INDEX DIFFERS FROM THE FUND IN COMPOSITION, DOES NOT PAY MANAGEMENT FEES OR EXPENSES AND INCLUDES REINVESTED DIVIDENDS. ONE CANNOT INVEST DIRECTLY IN AN INDEX. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS. YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. 15 U.S. LARGE CAP VALUE FUND SCHEDULE OF INVESTMENTS As of March 31, 2006
NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------------------------------- COMMON STOCK - 97.0% AEROSPACE/DEFENSE-EQUIPMENT - 1.6% United Technologies Corp. 7,200 $ 417,384 --------------- APPLICATIONS SOFTWARE - 3.1% Microsoft Corp. 30,200 821,742 --------------- CABLE TV - 1.4% Comcast Corp. Cl. A* 13,700 358,392 --------------- COMMERCIAL BANKS-EASTERN US - 3.5% North Fork Bancorporation 31,550 909,586 --------------- COMPUTERS - 1.4% International Business Machines Corp. 4,400 362,868 --------------- CONSUMER PRODUCTS-MISCELLANEOUS - 0.8% Fortune Brands, Inc. 2,600 209,638 --------------- DIVERSIFIED MANUFACTURING OPERATIONS - 9.4% General Electric Co. 26,900 935,582 ITT Industries, Inc. 17,600 989,472 Textron, Inc. 5,700 532,323 --------------- 2,457,377 --------------- ELECTRIC-INTEGRATED - 2.3% Exelon Corp. 11,400 603,060 --------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS - 3.1% Freescale Semiconductor, Inc. Cl. B* 29,140 809,218 --------------- FIDUCIARY BANKS - 1.3% Bank of New York Co., Inc. 9,400 338,776 --------------- FINANCE-INVESTMENT BANKERS/BROKERS - 5.7% Goldman Sachs Group, Inc. 1,900 298,224 Morgan Stanley 19,000 1,193,580 --------------- 1,491,804 --------------- FINANCE-MORTGAGE LOAN/BANKER - 3.7% Countrywide Credit Industries, Inc. 26,400 968,880 --------------- FINANCIAL GUARANTEE INSURANCE - 1.0% Ambac Financial Group, Inc. 3,500 278,600 --------------- INDUSTRIAL GASES - 2.0% Praxair, Inc. 9,400 518,410 --------------- MEDICAL-DRUGS - 4.1% Abbott Laboratories 8,300 352,501 Pfizer, Inc. 28,800 717,696 --------------- 1,070,197 --------------- MEDICAL-HMO - 2.3% WellPoint, Inc.* 7,900 611,697 --------------- MULTI-LINE INSURANCE - 6.1% Allstate Corp. 9,100 474,201 American International Group, Inc. 17,100 1,130,139 --------------- 1,604,340 --------------- MULTIMEDIA - 3.5% Time Warner, Inc. 39,200 658,168 Walt Disney Co. 9,900 276,111 --------------- 934,279 --------------- OIL COMPANIES-EXPLORATION & PRODUCTION - 3.9% Apache Corp. 15,550 1,018,681 --------------- OIL COMPANIES-INTEGRATED - 8.0% ConocoPhillips 17,520 1,106,388 Marathon Oil Corp. 13,200 1,005,444 --------------- 2,111,832 --------------- OIL REFINING & MARKETING - 2.2% Valero Energy Corp. 9,500 $ 567,910 --------------- RETAIL-APPAREL/SHOE - 2.5% Gap, Inc. 35,000 653,800 --------------- RETAIL-REGIONAL DEPARTMENT STORES - 4.4% Federated Department Stores, Inc. 15,800 1,153,400 --------------- SAVINGS & LOANS/THRIFTS-WESTERN US - 4.0% Washington Mutual, Inc. 24,600 1,048,452 --------------- STEEL-PRODUCERS - 2.9% United States Steel Corp. 12,700 770,636 --------------- SUPER-REGIONAL BANKS-US - 8.6% Bank of America Corp. 10,712 487,824 US Bancorp 27,100 826,550 Wells Fargo & Co. 15,000 958,050 --------------- 2,272,424 --------------- TELEPHONE-INTEGRATED - 2.8% Sprint Corp. 19,900 514,216 Verizon Communications, Inc. 6,400 217,984 --------------- 732,200 --------------- TOBACCO - 1.4% Altria Group, Inc. 5,200 368,472 ----------------------------------------------------------------------------------------------------------------- Total Common Stock (Cost: $20,421,905) 25,464,055 ----------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT ----------------------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS - 3.1% TIME DEPOSIT - 3.1% Citibank Nassau 4.150%, 04/01/06 (Cost: $805,000) $ 805,000 805,000 ----------------------------------------------------------------------------------------------------------------- Total Investments - 100.1% (Cost: $21,226,905) 26,269,055 ----------------------------------------------------------------------------------------------------------------- Liabilities in Excess of Other Assets - (0.1%) (32,101) ----------------------------------------------------------------------------------------------------------------- Net Assets - 100.0% $ 26,236,954 -----------------------------------------------------------------------------------------------------------------
* NON-INCOME PRODUCING SECURITIES. SCHEDULE OF INVESTMENTS BY INDUSTRY as of March 31, 2006
PERCENT OF INDUSTRY NET ASSETS ----------------------------------------------------------------------------------------------------------------- Basic Materials 4.9% Communications 7.7 Consumer, Cyclical 6.9 Consumer, Non-cyclical 8.6 Energy 14.1 Financial 34.0 Industrial 10.9 Technology 7.6 Utilities 2.3 Short Term Investments 3.1 Liabilities in excess of other assets (0.1) ----------------------------------------------------------------------------------------------------------------- Net Assets 100.0% =================================================================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 16 U.S. SYSTEMATIC LARGE CAP GROWTH FUND MANAGEMENT TEAM: JAMES LI, PH.D., CFA, Portfolio Manager; JANE EDMONSON, Portfolio Manager CHIEF INVESTMENT OFFICER: HORACIO A. VALEIRAS, CFA GOAL: The U.S. Systematic Large Cap Growth Fund seeks to maximize long-term capital appreciation by investing primarily in stocks from a universe of large U.S. companies with market capitalizations similar to the upper 90% of the Russell 1000 Growth Index at time of purchase. MARKET OVERVIEW: During the twelve months ending March 31, 2006, U.S. equities advanced, overcoming multiple headwinds. Gains were widespread, with stocks in all major styles and capitalization ranges closing the period in positive territory. From a comparative standpoint, small- and mid-caps outpaced large-caps, while no clear leader emerged in growth versus value. Share prices received support amid: - Strong corporate earnings growth and expectations for ongoing healthy profits - Tight business inventories and accelerating manufacturing activity - Low unemployment and robust gains in payrolls and wage growth Despite the positive overall results, several factors limited potentially greater gains. Foremost among these were the advent of $70/barrel oil, relentless interest rate hikes by the Federal Reserve and early signs of cooling in the housing market. PERFORMANCE: During the twelve months ended March 31, 2006, the Fund's Class I shares registered a 13.98% gain. This compared favorably to the Russell 1000 Growth Index which rose 13.14%. PORTFOLIO SPECIFICS: The Fund outperformed in the period from April 1, 2005 through March 31, 2006, closing the fiscal year with a twelve-month return higher than the benchmark. Investors benefited from strong performance from materials and energy holdings, and strong contributions from the health care and information technology sectors. On a security level, the stocks that contributed the most to Fund performance were Diamond Offshore Drilling, Archer Daniels Midland (ADM) and Nucor. Holdings of Diamond Offshore, a global offshore oil and gas drilling contractor, gained more than 80% during the period as energy prices steadily climbed, driving margins higher. ADM shares rose nearly 16% during the third quarter after second quarter earnings, driven by strong ethanol sales, came in ahead of expectations. Nucor, a large steel manufacturer, saw its stock advance on positive earnings results due to a favorable pricing environment. Stock selection in the consumer discretionary and financials sectors generally detracted from relative performance. As a result of our bottom-up stock selection process, the Fund's sector exposures have shifted over the course of the year. We decreased exposure to the telecommunications and information technology sectors and increased positions in industrials. As of March 31, 2006, the Fund remains broadly diversified. MARKET OUTLOOK: Our process evaluates investment opportunities on a relative basis and is required to remain fully invested. As such, the process neither utilizes nor results in a forecast or outlook on the overall market, but expects to perform equally well versus the Russell 1000 Growth Index in both up and down markets. By applying our disciplined, bottom-up approach in all investment environments, we believe the Fund will generate consistently strong returns over time. [CHART] COMPARISON OF CHANGE IN VALUE OF A $250,000 INVESTMENT IN U.S. SYSTEMATIC LARGE CAP GROWTH FUND CLASS I SHARES WITH THE RUSSELL 1000 GROWTH INDEX.
U.S. SYSTEMATIC LARGE CAP GROWTH FUND CLASS I SHARES RUSSELL 1000 GROWTH INDEX 12/27/1996 $ 250,000 $ 250,000 12/31/1996 $ 247,200 $ 246,185 1/31/1997 $ 272,400 $ 263,452 2/28/1997 $ 267,800 $ 261,669 3/31/1997 $ 260,000 $ 247,507 4/30/1997 $ 270,000 $ 263,941 5/31/1997 $ 300,200 $ 282,990 6/30/1997 $ 311,400 $ 294,315 7/31/1997 $ 350,200 $ 320,345 8/31/1997 $ 342,200 $ 301,595 9/30/1997 $ 359,600 $ 316,436 10/31/1997 $ 359,200 $ 304,741 11/30/1997 $ 354,897 $ 317,683 12/31/1997 $ 361,073 $ 321,241 1/31/1998 $ 366,478 $ 330,846 2/28/1998 $ 400,192 $ 355,733 3/31/1998 $ 424,641 $ 369,912 4/30/1998 $ 438,281 $ 375,032 5/31/1998 $ 427,214 $ 364,388 6/30/1998 $ 458,097 $ 386,707 7/31/1998 $ 448,284 $ 384,147 8/31/1998 $ 373,570 $ 326,494 9/30/1998 $ 420,007 $ 351,576 10/31/1998 $ 451,657 $ 379,832 11/30/1998 $ 494,721 $ 408,726 12/31/1998 $ 580,590 $ 445,580 1/31/1999 $ 645,965 $ 471,745 2/28/1999 $ 632,475 $ 450,195 3/31/1999 $ 697,590 $ 473,907 4/30/1999 $ 730,134 $ 474,514 5/31/1999 $ 735,294 $ 459,932 6/30/1999 $ 770,229 $ 492,146 7/31/1999 $ 760,111 $ 476,505 8/31/1999 $ 755,701 $ 484,291 9/30/1999 $ 769,969 $ 474,116 10/31/1999 $ 825,745 $ 509,922 11/30/1999 $ 920,954 $ 537,432 12/31/1999 $ 1,138,610 $ 593,330 1/31/2000 $ 1,089,839 $ 565,509 2/29/2000 $ 1,248,865 $ 593,157 3/31/2000 $ 1,292,448 $ 635,615 4/30/2000 $ 1,193,089 $ 605,372 5/31/2000 $ 1,117,078 $ 574,886 6/30/2000 $ 1,235,116 $ 618,456 7/31/2000 $ 1,180,637 $ 592,673 8/31/2000 $ 1,334,734 $ 646,334 9/30/2000 $ 1,219,032 $ 585,197 10/31/2000 $ 1,094,249 $ 557,505 11/30/2000 $ 883,799 $ 475,324 12/31/2000 $ 865,615 $ 460,284 1/31/2001 $ 843,954 $ 492,085 2/28/2001 $ 698,749 $ 408,544 3/31/2001 $ 604,620 $ 364,086 4/30/2001 $ 683,507 $ 410,132 5/31/2001 $ 652,754 $ 404,095 6/30/2001 $ 620,130 $ 394,736 7/31/2001 $ 584,564 $ 384,872 8/31/2001 $ 518,513 $ 353,389 9/30/2001 $ 434,278 $ 318,121 10/31/2001 $ 455,938 $ 334,822 11/30/2001 $ 511,560 $ 366,999 12/31/2001 $ 508,886 $ 366,302 1/31/2002 $ 489,365 $ 359,818 2/28/2002 $ 457,810 $ 344,886 3/31/2002 $ 483,482 $ 356,819 4/30/2002 $ 455,404 $ 327,702 5/31/2002 $ 442,033 $ 319,772 6/30/2002 $ 393,631 $ 290,193 7/31/2002 $ 362,611 $ 274,232 8/31/2002 $ 364,483 $ 275,055 9/30/2002 $ 340,951 $ 246,532 10/31/2002 $ 359,403 $ 269,139 11/30/2002 $ 373,041 $ 283,753 12/31/2002 $ 336,940 $ 264,146 1/31/2003 $ 329,987 $ 257,727 2/28/2003 $ 329,185 $ 256,541 3/31/2003 $ 340,416 $ 261,313 4/30/2003 $ 361,809 $ 280,650 5/31/2003 $ 372,506 $ 294,655 6/30/2003 $ 376,517 $ 298,721 7/31/2003 $ 387,213 $ 306,159 8/31/2003 $ 396,573 $ 313,782 9/30/2003 $ 385,876 $ 310,425 10/31/2003 $ 404,060 $ 327,871 11/30/2003 $ 408,606 $ 331,281 12/31/2003 $ 408,072 $ 342,743 1/31/2004 $ 418,768 $ 349,735 2/29/2004 $ 415,827 $ 351,973 3/31/2004 $ 402,991 $ 345,427 4/30/2004 $ 393,631 $ 341,420 5/31/2004 $ 403,793 $ 347,770 6/30/2004 $ 412,618 $ 352,152 7/31/2004 $ 390,957 $ 332,255 8/30/2004 $ 385,609 $ 330,627 9/30/2004 $ 390,688 $ 333,768 10/31/2004 $ 395,767 $ 338,975 11/30/2004 $ 419,315 $ 350,636 12/31/2004 $ 430,259 $ 364,381 1/31/2005 $ 415,544 $ 352,247 2/28/2005 $ 424,104 $ 355,981 3/31/2005 $ 419,015 $ 349,502 4/30/2005 $ 401,081 $ 342,861 5/31/2005 $ 421,657 $ 359,421 6/30/2005 $ 421,910 $ 358,092 7/31/2005 $ 440,094 $ 375,602 8/31/2005 $ 432,348 $ 370,757 9/30/2005 $ 437,147 $ 372,462 10/31/2005 $ 426,175 $ 368,850 11/30/2005 $ 446,248 $ 384,747 12/31/2005 $ 445,980 $ 383,554 1/31/2006 $ 463,106 $ 390,305 2/28/2006 $ 464,727 $ 389,680 3/31/2006 $ 477,553 $ 395,448
ANNUALIZED TOTAL RETURNS As of 3/31/06
SINCE 1 YEAR 5 YEARS INCEPTION -------------------------------------------------------------------------- U.S. Systematic Large Cap Growth Fund Class I 13.98% -4.60% 7.24% Russell 1000 Growth Index 13.14% 1.66% 5.08%
THE GRAPH ABOVE SHOWS THE VALUE OF A HYPOTHETICAL $250,000 INVESTMENT IN THE FUND'S CLASS I SHARES COMPARED WITH THE RUSSELL 1000 GROWTH INDEX FOR THE PERIODS INDICATED. PERFORMANCE IS SHOWN FOR CLASS I SHARES ONLY. CLASS II SHARES ARE NEW AND HAVE NO PRIOR PERFORMANCE. THE FUND'S CLASS I SHARES CALCULATE THEIR PERFORMANCE BASED UPON THE HISTORICAL PERFORMANCE OF THEIR CORRESPONDING SERIES OF NICHOLAS-APPLEGATE MUTUAL FUNDS (RENAMED ING MUTUAL FUNDS), ADJUSTED TO REFLECT ALL FEES AND EXPENSES APPLICABLE TO THE FUND'S CLASS I SHARES. THE NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS' CLASS I SHARES WERE FIRST AVAILABLE ON MAY 7, 1999. AVERAGE ANNUAL TOTAL RETURN FIGURES INCLUDE CHANGES IN PRINCIPAL VALUE, REINVESTED DIVIDENDS, AND CAPITAL GAIN DISTRIBUTIONS. THE TOTAL RETURNS SHOWN ABOVE DO NOT SHOW THE EFFECTS OF INCOME TAXES ON AN INDIVIDUAL'S INVESTMENT. IN MOST CASES, TAXES MAY REDUCE YOUR ACTUAL INVESTMENT RETURNS ON INCOME OR GAINS PAID BY THE FUND OR ANY GAINS YOU MAY REALIZE IF YOU SELL YOUR SHARES. PAST PERFORMANCE CANNOT GUARANTEE FUTURE RESULTS. RUSSELL 1000 GROWTH INDEX MEASURES THE PERFORMANCE OF THOSE RUSSELL 1000 COMPANIES WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHER FORECASTED GROWTH VALUES. THE RUSSELL 1000 INDEX CONSISTS OF THE 1,000 LARGEST SECURITIES IN THE RUSSELL 3000 INDEX, WHICH REPRESENTS APPROXIMATELY 90% OF THE TOTAL MARKET CAPITALIZATION OF THE RUSSELL 3000 INDEX. IT IS A LARGE-CAP, MARKET-ORIENTED INDEX AND IS HIGHLY CORRELATED WITH THE S&P 500 INDEX. THE UNMANAGED INDEX DIFFERS FROM THE FUND IN COMPOSITION, DOES NOT PAY MANAGEMENT FEES OR EXPENSES AND INCLUDES REINVESTED DIVIDENDS. ONE CANNOT INVEST DIRECTLY IN AN INDEX. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS. YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. 17 U.S. SYSTEMATIC LARGE CAP GROWTH FUND SCHEDULE OF INVESTMENTS As of March 31, 2006
NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------------------------------- COMMON STOCK - 99.3% AEROSPACE/DEFENSE - 4.4% Boeing Co. 1,500 $ 116,895 Lockheed Martin Corp. 2,800 210,364 Raytheon Co. 2,800 128,352 --------------- 455,611 --------------- AGRICULTURAL OPERATIONS - 1.7% Archer-Daniels-Midland Co. 5,200 174,980 --------------- AIRLINES - 0.6% AMR Corp.* 2,400 64,920 --------------- APPLICATIONS SOFTWARE - 2.0% Microsoft Corp. 4,100 111,561 Red Hat, Inc.* 3,500 97,930 --------------- 209,491 --------------- BEVERAGES-NON-ALCOHOLIC - 2.0% Coca-Cola Co. 4,900 205,163 --------------- BEVERAGES-WINE/SPIRITS - 1.0% Anheuser Busch Cos., Inc. 2,400 102,648 --------------- BUILDING PRODUCTS-CEMENT/AGGREGATE - 1.8% Martin Marietta Materials, Inc. 1,800 192,654 --------------- CASINO SERVICES - 1.0% International Game Technology 2,900 102,138 --------------- COMMERCIAL SERVICES - 1.3% Weight Watchers International, Inc. 2,700 138,780 --------------- COMPUTER SERVICES - 1.9% Computer Sciences Corp.* 1,900 105,545 Electronic Data Systems Corp. 3,600 96,588 --------------- 202,133 --------------- COMPUTERS - 3.8% Hewlett-Packard Co. 4,100 134,890 International Business Machines Corp. 3,200 263,904 --------------- 398,794 --------------- CONSULTING SERVICES - 1.1% Corporate Executive Board Co. 1,100 110,990 --------------- COSMETICS & TOILETRIES - 0.5% Procter & Gamble Co. 975 56,180 --------------- DISTRIBUTION/WHOLESALE - 0.5% Genuine Parts Co. 1,200 52,596 --------------- DIVERSIFIED MANUFACTURING OPERATIONS - 6.9% General Electric Co. 7,800 271,284 General Mills, Inc. 2,700 136,836 Illinois Tool Works, Inc. 1,700 163,727 Parker Hannifin Corp. 1,900 153,159 --------------- 725,006 --------------- ELECTRIC PRODUCTS-MISCELLANEOUS - 1.6% Emerson Electric Co. 2,000 167,260 --------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS - 5.1% Broadcom Corp. Cl. A* 1,650 71,214 Intersil Corp. Cl. A* 4,600 133,032 LSI Logic Corp.* 5,700 65,892 National Semiconductor Corp. 5,600 155,904 Texas Instruments, Inc. 3,200 103,904 --------------- 529,946 --------------- ELECTRONIC CONNECTORS - 0.6% Thomas & Betts Corp.* 1,200 61,656 --------------- ELECTRONIC DESIGN AUTOMATION - 0.5% Synopsys, Inc.* 2,300 $ 51,405 --------------- ELECTRONIC MEASURE INSTRUMENTS - 1.2% Agilent Technologies, Inc.* 3,400 127,670 --------------- ENTERPRISE SOFTWARE/SERVICES - 1.9% Oracle Corp.* 14,700 201,243 --------------- FOOD-RETAIL - 1.0% Safeway, Inc. 4,300 108,016 --------------- HEALTH CARE COST CONTAINMENT - 1.6% McKesson Corp. 3,200 166,816 --------------- HOME DECORATION PRODUCTS - 1.0% Newell Rubbermaid, Inc. 4,300 108,317 --------------- INVESTMENT MANAGEMENT/ADVISOR SERVICES - 1.0% Legg Mason, Inc. 800 100,264 --------------- MEDICAL INFORMATION SYSTEMS - 1.0% IMS Health, Inc. 4,000 103,080 --------------- MEDICAL PRODUCTS - 6.3% Baxter International, Inc. 3,300 128,073 Becton Dickinson & Co. 2,200 135,476 Johnson & Johnson 6,600 390,852 --------------- 654,401 --------------- MEDICAL-BIOMEDICAL/GENETICS - 1.3% Biogen Idec, Inc.* 2,900 136,590 --------------- MEDICAL-DRUGS - 1.7% Abbott Laboratories 4,200 178,374 --------------- MEDICAL-HMO - 4.2% Aetna, Inc. 3,600 176,904 UnitedHealth Group, Inc. 4,700 262,542 --------------- 439,446 --------------- MEDICAL-NURSING HOMES - 1.3% Manor Care, Inc. 3,100 137,485 --------------- MEDICAL-WHOLESALE DRUG DISTRIBUTORS - 0.9% Cardinal Health, Inc. 1,200 89,424 --------------- MULTI-LINE INSURANCE - 1.6% Allstate Corp. 2,300 119,853 American International Group, Inc. 800 52,872 --------------- 172,725 --------------- NETWORKING PRODUCTS - 2.5% Cisco Systems, Inc.* 12,200 264,374 --------------- OIL & GAS DRILLING - 2.7% Diamond Offshore Drilling, Inc. 1,300 116,350 Helmerich & Payne, Inc. 1,600 111,712 Transocean, Inc.* 700 56,210 --------------- 284,272 --------------- OIL COMPANIES-EXPLORATION & PRODUCTION - 1.2% Devon Energy Corp. 2,000 122,340 --------------- PHARMACY SERVICES - 1.2% Express Scripts, Inc.* 1,400 123,060 --------------- PROPERTY/CASUALTY INSURANCE - 0.9% Chubb Corp. 1,000 95,440 --------------- RESEARCH & DEVELOPMENT - 1.4% Pharmaceutical Product Development, Inc. 4,200 145,362 --------------- RETAIL-APPAREL/SHOE - 3.9% Ann Taylor Stores Corp.* 3,800 139,802 Claire's Stores, Inc. 4,400 159,764 Gap, Inc. 5,800 108,344 --------------- 407,910 ---------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 18
NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------------------------------- RETAIL-DISCOUNT - 1.2% Dollar Tree Stores, Inc. 4,700 $ 130,049 --------------- RETAIL-MAJOR DEPARTMENT STORES - 1.4% JC Penney Co., Inc. 2,400 144,984 --------------- RETAIL-REGIONAL DEPARTMENT STORES - 1.0% Federated Department Stores, Inc. 1,500 109,500 --------------- RETAIL-RESTAURANTS - 1.4% McDonald's Corp. 2,900 99,644 Yum! Brands, Inc. 1,000 48,860 --------------- 148,504 --------------- SEMICONDUCTOR EQUIPMENT - 1.7% Applied Materials, Inc. 9,900 173,349 --------------- STEEL-PRODUCERS - 1.4% Nucor Corp. 1,400 146,706 --------------- TELECOMMUNICATIONS EQUIPMENT FIBER OPTICS - 1.4% Corning, Inc.* 5,300 142,623 --------------- TELEVISION - 0.5% CBS Corp. Cl. B 2,000 47,960 --------------- TOBACCO - 1.0% Altria Group, Inc. 1,500 106,290 --------------- TRANSPORT-RAIL - 3.5% Burlington Northern Santa Fe Corp. 2,100 174,993 CSX Corp. 3,200 191,360 --------------- 366,353 --------------- TRANSPORT-SERVICES - 2.9% Laidlaw International, Inc. 3,800 103,360 United Parcel Service, Inc. Cl. B 2,500 198,450 --------------- 301,810 --------------- WEB PORTALS/ISP - 1.1% Google, Inc. Cl. A 300 117,000 --------------- WIRELESS EQUIPMENT - 2.7% Motorola, Inc. 6,700 153,497 QUALCOMM, Inc. 2,600 131,586 --------------- 285,083 ----------------------------------------------------------------------------------------------------------------- Total Common Stock (Cost: $8,970,513) 10,389,171 ----------------------------------------------------------------------------------------------------------------- Total Investments - 99.3% (Cost: $8,970,513) 10,389,171 ----------------------------------------------------------------------------------------------------------------- Other Assets in Excess of Liabilities - 0.7% 76,159 ----------------------------------------------------------------------------------------------------------------- Net Assets - 100.0% $ 10,465,330 -----------------------------------------------------------------------------------------------------------------
* NON-INCOME PRODUCING SECURITIES. SCHEDULE OF INVESTMENTS BY INDUSTRY as of March 31, 2006
PERCENT OF INDUSTRY NET ASSETS ----------------------------------------------------------------------------------------------------------------- Basic Materials 1.4% Communications 8.2 Consumer, Cyclical 12.1 Consumer, Non-cyclical 29.4 Energy 3.9 Financial 3.5 Industrial 22.9 Technology 17.9 Other assets in excess of liabilities 0.7 ----------------------------------------------------------------------------------------------------------------- Net Assets 100.0% =================================================================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 19 U.S. SYSTEMATIC MIDCAP GROWTH FUND MANAGEMENT TEAM: JANE EDMONDSON, Portfolio Manager; MARK ROEMER, Portfolio Manager; CARMA WALLACE, CFA, Analyst CHIEF INVESTMENT OFFICER: HORACIO A. VALEIRAS, CFA GOAL: The U.S. Systematic MidCap Growth Fund seeks to maximize long-term capital appreciation through investments primarily in stocks of mid-sized U.S. companies. Generally, mid-sized companies are those within the capitalization range of the Russell Midcap Growth Index, as measured at time of purchase. MARKET OVERVIEW: U.S. equity markets landed in positive territory during the twelve months ended March 31, 2006. After a mixed start during the spring of 2005, stocks accelerated into the summer, stalled in the wake of the Gulf hurricanes and then rallied into the New Year. Investors were encouraged during the period by robust job growth, healthy corporate earnings and annualized core consumer price inflation limited to 2.1%. Markets advanced, but there were substantial challenges en route, including record oil prices, unprecedented Gulf Coast hurricanes and a yield curve inversion during December 2005 and January 2006. Although inverted yield curves aren't always followed by economic downturn, they have foreshadowed the past four U.S. economic recessions. On January 23, 2006, in an effort to better reflect its investment style, the Fund made two changes of note. The Fund changed its name from the U.S. Systematic SMID Growth Fund to the U.S. Systematic MidCap Growth Fund. The Fund also changed its benchmark from the Russell 2500 Growth Index to the Russell Midcap Growth Index. PERFORMANCE: The Fund's Class I shares rose 26.73% from April 1, 2005 through March 31, 2006, outperforming the Russell 2500 Growth and the Russell Midcap Growth Indexes, which returned 26.43% and 22.65%, respectively. PORTFOLIO SPECIFICS: Between April 1, 2005 and January 9, 2006, Fund performance was measured against the Russell 2500 Growth Index. During this period, the Fund outpaced its benchmark by 343 basis points. The majority of outperformance can be attributed to stock selection, which was strongest in the health care, financials and industrials sectors. A few of the best-performing positions in the portfolio were Kendle International, a contract research organization; Investment Technology Group (ITG), a trade execution and crossing network provider; and NASDAQ Stock Market, the electronic equity market. Not all of the positions in the Fund generated positive results. Of note, holdings in the utilities and materials sectors detracted from relative performance. For the period of January 10 to March 31, 2006, the Fund was benchmarked against the Russell Midcap Growth Index. During that time, the Fund outperformed its benchmark by 141 basis points. The majority of the excess return was due to stock selection, most notably in the energy and materials sectors. Two of the best-performing stocks were the steel producer, Nucor, and the energy company, Frontier Oil. MARKET OUTLOOK: Our process evaluates investment opportunities on a relative basis and is required to remain fully invested. As such, the process neither utilizes nor results in a forecast or outlook on the overall market, but expects to perform equally well versus the Russell Midcap Growth Index in both up and down markets. Through consistent application of this approach, we believe we will continue to identify companies with excellent growth potential for the Fund. [CHART] COMPARISON OF CHANGE IN VALUE OF A $250,000 INVESTMENT IN U.S. SYSTEMATIC MIDCAP GROWTH FUND CLASS I SHARES WITH THE RUSSELL 2500 GROWTH INDEX AND RUSSELL MIDCAP GROWTH INDEX.
U.S. SYSTEMATIC MIDCAP GROWTH FUND CLASS I SHARES RUSSELL 2500 GROWTH INDEX RUSSELL MIDCAP GROWTH INDEX 2/26/2004 $ 250,000 $ 250,000 $ 250,000 2/29/2004 $ 250,000 $ 252,325 $ 254,750 3/31/2004 $ 247,250 $ 253,208 $ 256,279 4/30/2004 $ 231,995 $ 242,472 $ 243,977 5/31/2004 $ 238,491 $ 247,516 $ 248,954 6/30/2004 $ 246,241 $ 253,555 $ 257,145 7/31/2004 $ 229,990 $ 233,702 $ 242,179 8/30/2004 $ 223,481 $ 229,004 $ 241,549 9/30/2004 $ 237,225 $ 239,332 $ 250,656 10/31/2004 $ 240,214 $ 246,129 $ 256,371 11/30/2004 $ 259,215 $ 262,448 $ 275,522 12/31/2004 $ 269,713 $ 275,019 $ 286,295 1/31/2005 $ 263,213 $ 265,311 $ 276,675 2/28/2005 $ 272,452 $ 270,590 $ 282,928 3/31/2005 $ 267,193 $ 263,122 $ 277,298 4/30/2005 $ 251,696 $ 248,914 $ 264,819 5/31/2005 $ 267,201 $ 265,491 $ 280,841 6/30/2005 $ 277,194 $ 272,500 $ 289,828 7/31/2005 $ 298,926 $ 290,185 $ 306,957 8/31/2005 $ 299,434 $ 286,848 $ 302,383 9/30/2005 $ 302,429 $ 289,631 $ 303,985 10/31/2005 $ 293,416 $ 280,160 $ 294,532 11/30/2005 $ 306,855 $ 295,821 $ 308,757 12/31/2005 $ 309,708 $ 297,507 $ 309,468 1/31/2006 $ 330,242 $ 320,028 $ 331,347 2/28/2006 $ 328,690 $ 319,068 $ 331,082 3/31/2006 $ 338,583 $ 332,692 $ 343,961
ANNUALIZED TOTAL RETURNS As of 3/31/06
1 YEAR SINCE INCEPTION ------------------------------------------------------------------------------- U.S. Systematic MidCap Growth Fund Class I 26.73% 15.63% Russell 2500 Growth Index 26.43% 14.13% Russell Midcap Growth Index 22.65% 14.45%
THE GRAPH ABOVE SHOWS THE VALUE OF A HYPOTHETICAL $250,000 INVESTMENT IN THE FUND'S CLASS I SHARES COMPARED WITH THE RUSSELL 2500 GROWTH INDEX AND RUSSELL MIDCAP GROWTH INDEX FOR THE PERIODS INDICATED. PERFORMANCE IS SHOWN FOR THE CLASS I SHARES ONLY. CLASS II SHARES ARE NEW AND HAVE NO PRIOR PERFORMANCE. AVERAGE ANNUAL TOTAL RETURN FIGURES INCLUDE CHANGES IN PRINCIPAL VALUE, REINVESTED DIVIDENDS, AND CAPITAL GAIN DISTRIBUTIONS. AVERAGE ANNUAL TOTAL RETURN FIGURES INCLUDE CHANGES IN PRINCIPAL VALUE, REINVESTED DIVIDENDS, AND CAPITAL GAIN DISTRIBUTIONS. THE TOTAL RETURNS SHOWN ABOVE DO NOT SHOW THE EFFECTS OF INCOME TAXES ON AN INDIVIDUAL'S INVESTMENT. IN MOST CASES, TAXES MAY REDUCE YOUR ACTUAL INVESTMENT RETURNS ON INCOME OR GAINS PAID BY THE FUND OR ANY GAINS YOU MAY REALIZE IF YOU SELL YOUR SHARES. PAST PERFORMANCE CANNOT GUARANTEE FUTURE RESULTS. THE RUSSELL 2500 GROWTH INDEX MEASURES THE PERFORMANCE OF THE 2,500 SMALLEST COMPANIES IN THE RUSSELL 3000 INDEX, WHICH REPRESENTS APPROXIMATELY 22% OF THE TOTAL MARKET CAPITALIZATION OF THE RUSSELL 3000 INDEX. THE RUSSELL 2500 GROWTH INDEX IS AN UNMANAGED INDEX COMPRISED OF THOSE RUSSELL 2500 COMPANIES WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHER FORECASTED GROWTH VALUES. ONE CANNOT INVEST DIRECTLY IN AN INDEX. THE RUSSELL MIDCAP GROWTH INDEX IS AN UNMANAGED INDEX GENERALLY REPRESENTATIVE OF THE SMALLEST 800 STOCKS IN THE RUSSELL 1000 INDEX AS RANKED BY TOTAL MARKET CAPITALIZATION. THE RUSSELL 1000 INDEX CONSISTS OF THE 1,000 LARGEST SECURITIES IN THE RUSSELL 3000 INDEX, WHICH REPRESENTS APPROXIMATELY 90% OF THE TOTAL MARKET CAPITALIZATION OF THE INDEX. RUSSELL GROWTH INDEXES MEASURE THE PERFORMANCE OF THOSE COMPANIES WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHER FORECASTED GROWTH VALUES. THE FUND WILL COMPARE ITS PERFORMANCE TO THE RUSSELL MIDCAP GROWTH INDEX IN FUTURE REPORTS TO SHAREHOLDER AS ITS COMPOSITION MORE ACCURATELY REFLECTS THAT OF THE FUND'S PORTFOLIO. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS. YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. 20 U.S. SYSTEMATIC MIDCAP GROWTH FUND SCHEDULE OF INVESTMENTS As of March 31, 2006
NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------------------------------- COMMON STOCK - 98.3% AIRLINES - 1.1% Southwest Airlines Co. 15,100 $ 271,649 --------------- APPAREL MANUFACTURERS - 0.5% Coach, Inc.* 3,300 114,114 --------------- APPLIANCES - 1.6% Whirlpool Corp. 4,300 393,321 --------------- APPLICATIONS SOFTWARE - 1.9% Compuware Corp.* 26,300 205,929 Red Hat, Inc.* 9,900 277,002 --------------- 482,931 --------------- BUILDING & CONSTRUCTION PRODUCTS-MISCELLANEOUS - 0.8% Masco Corp. 6,100 198,189 --------------- BUILDING PRODUCTS-CEMENT/AGGREGATE - 1.3% Martin Marietta Materials, Inc. 3,000 321,090 --------------- BUILDING-MAINTENANCE & SERVICE - 1.1% Rollins, Inc. 14,200 287,408 --------------- BUILDING-RESIDENTIAL/COMMERCIAL - 1.1% KB Home 4,100 266,418 --------------- CABLE TV - 1.4% Cablevision Systems Corp. Cl. A* 13,500 360,450 --------------- CHEMICALS-SPECIALTY - 1.1% Eastman Chemical Co. 5,200 266,136 Tronox, Inc. Cl. B 705 11,978 --------------- 278,114 --------------- COMMERCIAL BANKS-SOUTHERN US - 1.0% Synovus Financial Corp. 8,900 241,101 --------------- COMPUTERS-INTEGRATED SYSTEMS - 1.1% Intergraph Corp.* 6,600 274,956 --------------- COMPUTERS-MEMORY DEVICES - 0.7% Network Appliance, Inc.* 5,100 183,753 --------------- CONSULTING SERVICES - 1.8% Corporate Executive Board Co.* 4,500 454,050 --------------- CONTAINERS-METAL/GLASS - 1.1% Crown Holdings, Inc. 15,600 276,744 --------------- DATA PROCESSING/MANAGEMENT - 2.3% CSG Systems International, Inc.* 9,100 211,666 Dun & Bradstreet Corp.* 4,900 375,732 --------------- 587,398 --------------- DISTRIBUTION/WHOLESALE - 2.0% Genuine Parts Co. 8,000 350,640 WW Grainger, Inc. 1,900 143,165 --------------- 493,805 --------------- DIVERSIFIED MANUFACTURING OPERATIONS - 2.7% ITT Industries, Inc. 3,100 174,282 Parker-Hannifin Corp. 3,000 241,830 Teleflex, Inc. 3,600 257,868 --------------- 673,980 --------------- DIVERSIFIED OPERATIONS/COMMERCIAL SERVICES - 0.6% Aramark Corp. Cl. B 5,100 150,654 --------------- DRUG DELIVERY SYSTEMS - 1.2% Hospira, Inc. 7,900 311,734 --------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS - 9.1% Advanced Micro Devices* 8,000 $ 265,280 Broadcom Corp. Cl. A* 6,250 269,750 Freescale Semiconductor, Inc. Cl. B* 13,600 377,672 Intersil Corp. Cl. A* 10,200 294,984 LSI Logic Corp.* 19,200 221,952 Microchip Technology, Inc. 6,500 235,950 Micron Technology, Inc.* 29,900 440,128 Nvidia Corp.* 3,600 206,136 --------------- 2,311,852 --------------- ELECTRONIC CONNECTORS - 1.5% Thomas & Betts Corp.* 7,200 369,936 --------------- ELECTRONIC MEASURE INSTRUMENTS - 2.0% Agilent Technologies, Inc.* 13,500 506,925 --------------- ELECTRONIC PARTS DISTRIBUTION - 0.8% Arrow Electronics, Inc. 5,900 190,393 --------------- ELECTRONICS-MILITARY - 1.3% L-3 Communications Holdings, Inc. 3,700 317,423 --------------- FINANCE-COMMERCIAL - 0.5% CIT Group, Inc. 2,400 128,448 --------------- FINANCE-INVESTMENT BANKERS/BROKERS - 1.6% TD Ameritrade Holding Corp. 19,600 409,052 --------------- FUNERAL SERVICES & RELATED ITEMS - 0.4% Service Corp. International* 13,900 108,420 --------------- HEALTH CARE COST CONTAINMENT - 1.1% McKesson Corp. 5,300 276,289 --------------- HOME DECORATION PRODUCTS - 0.8% Newell Rubbermaid, Inc. 7,700 193,963 --------------- HOTELS & MOTELS - 1.0% Marriott International, Inc. Cl. A 3,600 246,960 --------------- INSTRUMENTS-SCIENTIFIC - 0.8% PerkinElmer, Inc. 9,000 211,230 --------------- INTERNET SECURITY - 0.4% McAfee, Inc.* 4,400 107,052 --------------- LIFE/HEALTH INSURANCE - 1.5% Cigna Corp. 2,900 378,798 --------------- MEDICAL INFORMATION SYSTEMS - 0.9% IMS Health, Inc. 8,800 226,776 --------------- MEDICAL LABS & TESTING SERVICES - 0.9% Quest Diagnostics, Inc. 4,600 235,980 --------------- MEDICAL-BIOMEDICAL/GENETICS - 3.0% Biogen Idec, Inc.* 8,700 409,770 Celgene Corp.* 8,100 358,182 --------------- 767,952 --------------- MEDICAL-DRUGS - 2.3% Forest Laboratories, Inc.* 5,100 227,613 Vertex Pharmaceutical, Inc.* 9,600 351,264 --------------- 578,877 --------------- MEDICAL-GENERIC DRUGS - 0.9% Mylan Laboratories, Inc. 9,800 229,320 --------------- MEDICAL-HMO - 2.2% Coventry Health Care, Inc.* 3,625 195,677 Health Net, Inc.* 7,200 365,904 --------------- 561,581 ---------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 21
NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------------------------------- MEDICAL-OUTPATIENT/HOME MEDICAL CARE - 0.4% Lincare Holdings, Inc. 2,600 $ 101,296 --------------- MEDICAL-WHOLESALE DRUG DISTRIBUTORS - 0.8% AmerisourceBergen Corp. 4,400 212,388 --------------- METAL PROCESSORS & FABRICATION - 1.2% Precision Castparts Corp. 4,900 291,060 --------------- MULTI-LINE INSURANCE - 2.0% Assurant, Inc. 5,900 290,575 CNA Financial Corp.* 6,600 210,144 --------------- 500,719 --------------- OFFICE FURNISHINGS-ORIGINAL - 0.7% HNI Corp. 3,000 177,000 --------------- OIL & GAS DRILLING - 7.3% Diamond Offshore Drilling, Inc. 1,700 152,150 ENSCO International, Inc. 9,200 473,340 Helmerich & Payne, Inc. 6,200 432,884 Pride International, Inc.* 13,700 427,166 Rowan Cos., Inc. 8,300 364,868 --------------- 1,850,408 --------------- OIL COMPANIES-EXPLORATION & PRODUCTION - 1.8% Kerr-McGee Corp. 3,500 334,180 Pogo Producing Co. 2,500 125,625 --------------- 459,805 --------------- OIL COMPANIES-INTEGRATED - 0.8% Amerada Hess Corp. 1,500 213,600 --------------- OIL REFINING & MARKETING - 0.8% Frontier Oil Corp. 3,600 213,660 --------------- PHARMACY SERVICES - 0.9% Express Scripts, Inc. 2,600 228,540 --------------- PIPELINES - 1.0% Williams Cos., Inc. 12,200 260,958 --------------- PROPERTY/CASUALTY INSURANCE - 1.7% WR Berkley Corp. 7,250 420,935 --------------- QUARRYING - 0.7% Vulcan Materials Co. 1,900 164,635 --------------- RETAIL-APPAREL/SHOE - 3.4% Claire's Stores, Inc. 7,900 286,849 Ltd. Brands 8,700 212,802 Nordstrom, Inc. 9,200 360,456 --------------- 860,107 --------------- RETAIL-AUTO PARTS - 0.9% Autozone, Inc.* 2,300 229,287 --------------- RETAIL-BEDDING - 0.8% Bed Bath & Beyond, Inc.* 5,600 215,040 --------------- RETAIL-MAJOR DEPARTMENT STORES - 1.1% JC Penney Co., Inc. 4,800 289,968 --------------- RETAIL-RESTAURANTS - 1.3% Applebees International, Inc. 8,000 196,400 Brinker International, Inc.* 3,000 126,750 --------------- 323,150 --------------- SEMICONDUCTOR EQUIPMENT - 3.9% KLA -Tencor Corp.* 2,200 106,392 LAM Research Corp.* 10,600 455,800 Teradyne, Inc.* 27,500 426,525 --------------- 988,717 --------------- STEEL-PRODUCERS - 1.2% Nucor Corp. 2,800 $ 293,412 --------------- TOOLS-HAND HELD - 1.1% Black & Decker Corp. 3,200 278,048 --------------- TOYS - 1.6% Mattel, Inc. 22,700 411,551 --------------- TRANSPORT-RAIL - 1.7% CSX Corp. 7,300 436,540 --------------- TRANSPORT-SERVICES - 1.0% Laidlaw International, Inc. 9,200 250,240 --------------- WIRELESS EQUIPMENT - 0.8% Crown Castle International Corp.* 7,300 206,955 ----------------------------------------------------------------------------------------------------------------- Total Common Stock (Cost: $22,813,794) 24,857,105 ----------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT ----------------------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS - 1.7% TIME DEPOSIT - 1.7% Citibank Nassau 4.150%, 04/01/06 (Cost: $421,151) $ 421,151 421,151 ----------------------------------------------------------------------------------------------------------------- Total Investments - 100.0% (Cost: $23,234,945) 25,278,256 ----------------------------------------------------------------------------------------------------------------- Other Assets in Excess of Liabilities - 0.0% 7,367 ----------------------------------------------------------------------------------------------------------------- Net Assets - 100.0% $ 25,285,623 -----------------------------------------------------------------------------------------------------------------
* NON-INCOME PRODUCING SECURITIES. SCHEDULE OF INVESTMENTS BY INDUSTRY as of March 31, 2006
PERCENT OF INDUSTRY NET ASSETS ----------------------------------------------------------------------------------------------------------------- Basic Materials 2.9% Communications 2.7 Consumer, Cyclical 17.7 Consumer, Non-cyclical 17.8 Energy 11.9 Financial 8.2 Industrial 17.1 Technology 20.0 Short Term Investments 1.7 Other assets in excess of liabilities 0.0 ----------------------------------------------------------------------------------------------------------------- Net Assets 100.0% =================================================================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 22 U.S. CONVERTIBLE FUND MANAGEMENT TEAM: DOUGLAS G. FORSYTH, CFA, Portfolio Manager; JUSTIN KASS, CFA, Portfolio Manager; WILLIAM L. STICKNEY, Portfolio Manager; MICHAEL E. YEE, Portfolio Manager; ELIZABETH LEMESEVSKI, Analyst; JOANNA WILLARS, Analyst; NICOLE D. LARRABEE, Fixed Income Trading Assistant CHIEF INVESTMENT OFFICER: HORACIO A. VALEIRAS, CFA GOAL: The U.S. Convertible Fund seeks to maximize total return consisting of capital appreciation and current income by investing primarily in convertible securities of U.S. companies across all market capitalizations. MARKET OVERVIEW: Convertible securities posted strong gains in fiscal 2005. During the twelve months ending March 31, 2006, the Merrill Lynch All Convertible Index advanced 11.60%, slightly underperforming the 11.72% gain achieved by the S&P 500 Index. Markets received support during the period amid healthy corporate earnings, ongoing gains in payrolls and wages, and a rapid recovery in economic indicators following the Gulf Coast hurricanes. Investors were faced with substantial challenges during the year. Foremost among these was a more than 20% surge in the price of oil, which ignited fears of inflation and triggered ongoing interest rate hikes at the Federal Reserve. In addition, the U.S. real estate market, which has been a boon to the economy since the technology bubble imploded, displayed signs of cooling. Speculative grade convertible bonds outperformed their investment grade peers throughout the period, except during the fourth quarter of 2005. For the first six months of the fiscal year, energy and utilities companies saw the best performance, but as 2005 drew to a close, the materials and industrials sectors led results. PERFORMANCE: The Fund's Class I shares increased 17.15% during the twelve months ended March 31, 2006, outperforming the Merrill Lynch All Convertibles All Qualities Index, which rose 11.60%. PORTFOLIO SPECIFICS: The Fund's solid absolute and relative performance in fiscal 2005 was a product of superior security selection and portfolio construction. During the year, the Fund successfully avoided companies that lowered revenues and earnings guidance, such as the embattled airlines and automotive industries. The Fund also benefited from exposure to a diverse array of industries. Positions that contributed most to the Fund's results included the drug development company, Celgene, which exceeded revenue estimates on rising sales. Arch Coal was a major contributor, after the company posted better-than-expected revenue and EBITDA in October. The oil services firm, Schlumberger, also saw improved earnings and set guidance higher for 2006. Although the Fund outperformed its benchmark, select issuers hurt results. For example, the financial industry retrenched in the first quarter, despite impressive fourth quarter profits. Health care companies also gave up ground towards the end of the fiscal year as investors rotated into more speculative names. As of March 31, 2006, our conversion premium was 14% versus the Merrill Lynch Convertible universe of 30%. We continue to be well positioned to participate in the upside of an improving economic environment, while not sacrificing downside protection. MARKET OUTLOOK: We believe convertible securities continue to offer compelling investment opportunities. Corporate profits remain strong and default rates are low. We continue to build the Fund one security at a time by finding companies that are opportunistically capitalizing on change. We are also maintaining our discipline of identifying the best convertibles with the optimal risk/reward profile: 70-80% of the upside and 40-50% of the downside. [CHART] COMPARISON OF CHANGE IN VALUE OF A $250,000 INVESTMENT IN U.S. CONVERTIBLE FUND CLASS I SHARES WITH THE MERRILL LYNCH ALL CONVERTIBLES ALL QUALITIES INDEX.
MERRILL LYNCH ALL CONVERTIBLES U.S. CONVERTIBLE FUND CLASS I SHARES ALL QUALITIES INDEX 4/19/1993 $ 250,000 $ 250,000 4/30/1993 $ 255,000 $ 248,560 5/31/1993 $ 265,200 $ 254,242 6/30/1993 $ 273,686 $ 255,910 7/31/1993 $ 276,286 $ 256,862 8/31/1993 $ 292,366 $ 264,098 9/30/1993 $ 297,658 $ 266,712 10/31/1993 $ 305,367 $ 273,263 11/30/1993 $ 298,466 $ 269,481 12/31/1993 $ 307,599 $ 273,588 1/31/1994 $ 318,058 $ 280,728 2/28/1994 $ 314,495 $ 277,174 3/31/1994 $ 300,437 $ 265,724 4/30/1994 $ 297,974 $ 260,511 5/31/1994 $ 295,054 $ 260,430 6/30/1994 $ 286,733 $ 257,487 7/31/1994 $ 290,575 $ 262,057 8/31/1994 $ 296,242 $ 268,834 9/30/1994 $ 292,805 $ 265,401 10/31/1994 $ 292,337 $ 266,335 11/30/1994 $ 283,625 $ 258,202 12/31/1994 $ 284,249 $ 257,169 1/31/1995 $ 282,288 $ 259,015 2/28/1995 $ 285,986 $ 267,112 3/31/1995 $ 294,394 $ 274,364 4/30/1995 $ 297,868 $ 280,087 5/31/1995 $ 303,587 $ 287,821 6/30/1995 $ 315,214 $ 297,644 7/31/1995 $ 330,029 $ 307,710 8/31/1995 $ 335,309 $ 312,218 9/30/1995 $ 343,089 $ 316,280 10/31/1995 $ 337,496 $ 307,681 11/30/1995 $ 344,584 $ 319,483 12/31/1995 $ 347,547 $ 320,665 1/31/1996 $ 357,278 $ 330,551 2/29/1996 $ 367,247 $ 338,015 3/31/1996 $ 372,976 $ 341,544 4/30/1996 $ 383,046 $ 347,893 5/31/1996 $ 394,920 $ 355,582 6/30/1996 $ 386,153 $ 350,316 7/31/1996 $ 365,339 $ 335,392 8/31/1996 $ 387,735 $ 348,328 9/30/1996 $ 406,075 $ 357,918 10/31/1996 $ 406,603 $ 362,234 11/30/1996 $ 417,256 $ 374,474 12/31/1996 $ 420,594 $ 371,722 1/31/1997 $ 436,702 $ 382,554 2/28/1997 $ 430,763 $ 381,127 3/31/1997 $ 426,585 $ 372,948 4/30/1997 $ 431,448 $ 376,338 5/31/1997 $ 453,667 $ 395,430 6/30/1997 $ 471,723 $ 407,834 7/31/1997 $ 500,687 $ 431,117 8/31/1997 $ 494,378 $ 428,781 9/30/1997 $ 518,554 $ 448,603 10/31/1997 $ 508,183 $ 439,963 11/30/1997 $ 509,656 $ 440,148 12/31/1997 $ 518,626 $ 444,453 1/31/1998 $ 513,544 $ 445,822 2/28/1998 $ 537,783 $ 465,562 3/31/1998 $ 562,198 $ 482,677 4/30/1998 $ 568,832 $ 485,708 5/31/1998 $ 555,863 $ 474,978 6/30/1998 $ 577,597 $ 478,987 7/31/1998 $ 581,756 $ 471,381 8/31/1998 $ 497,692 $ 417,219 9/30/1998 $ 525,712 $ 425,547 10/31/1998 $ 537,173 $ 436,539 11/30/1998 $ 571,176 $ 457,392 12/31/1998 $ 630,407 $ 484,154 1/31/1999 $ 667,790 $ 508,038 2/28/1999 $ 634,801 $ 490,287 3/31/1999 $ 674,349 $ 510,575 4/30/1999 $ 695,658 $ 531,299 5/31/1999 $ 684,389 $ 528,616 6/30/1999 $ 717,103 $ 548,101 7/31/1999 $ 695,733 $ 544,599 8/31/1999 $ 701,090 $ 537,737 9/30/1999 $ 704,245 $ 541,275 10/31/1999 $ 749,105 $ 562,493 11/30/1999 $ 817,049 $ 595,072 12/31/1999 $ 955,212 $ 675,681 1/31/2000 $ 960,657 $ 675,519 2/29/2000 $ 1,122,047 $ 732,350 3/31/2000 $ 1,073,463 $ 731,310 4/30/2000 $ 1,003,043 $ 680,879 5/31/2000 $ 938,949 $ 651,390 6/30/2000 $ 1,009,558 $ 684,924 7/31/2000 $ 970,185 $ 664,602 8/31/2000 $ 1,070,502 $ 715,650 9/30/2000 $ 1,069,753 $ 692,299 10/31/2000 $ 1,014,019 $ 665,216 11/30/2000 $ 865,972 $ 585,703 12/31/2000 $ 920,269 $ 608,123 1/31/2001 $ 950,269 $ 645,949 2/28/2001 $ 856,763 $ 597,438 3/31/2001 $ 803,986 $ 571,575 4/30/2001 $ 849,492 $ 609,933 5/31/2001 $ 834,881 $ 606,127 6/30/2001 $ 815,344 $ 596,562 7/31/2001 $ 785,910 $ 587,978 8/31/2001 $ 763,433 $ 577,600 9/30/2001 $ 716,253 $ 543,135 10/31/2001 $ 732,870 $ 554,302 11/30/2001 $ 757,641 $ 569,135 12/31/2001 $ 766,051 $ 581,087 1/31/2002 $ 754,254 $ 571,906 2/28/2002 $ 742,488 $ 555,689 3/31/2002 $ 767,658 $ 575,639 4/30/2002 $ 759,060 $ 567,230 5/31/2002 $ 750,103 $ 562,278 6/30/2002 $ 707,422 $ 531,803 7/31/2002 $ 652,668 $ 499,948 8/31/2002 $ 661,022 $ 506,157 9/30/2002 $ 644,100 $ 488,315 10/31/2002 $ 655,500 $ 499,205 11/30/2002 $ 676,083 $ 535,197 12/31/2002 $ 663,373 $ 531,183 1/31/2003 $ 662,245 $ 539,735 2/28/2003 $ 655,556 $ 538,440 3/31/2003 $ 662,636 $ 547,540 4/30/2003 $ 696,298 $ 575,161 5/31/2003 $ 733,690 $ 601,917 6/30/2003 $ 738,972 $ 605,746 7/31/2003 $ 752,200 $ 607,469 8/31/2003 $ 765,815 $ 615,009 9/30/2003 $ 768,112 $ 622,600 10/31/2003 $ 817,194 $ 644,944 11/30/2003 $ 835,091 $ 655,459 12/31/2003 $ 850,707 $ 675,411 1/31/2004 $ 883,629 $ 695,901 2/29/2004 $ 884,778 $ 701,407 3/31/2004 $ 889,025 $ 704,027 4/30/2004 $ 870,533 $ 687,053 5/31/2004 $ 875,495 $ 688,814 6/30/2004 $ 893,093 $ 700,003 7/31/2004 $ 860,674 $ 681,136 8/30/2004 $ 849,055 $ 682,504 9/30/2004 $ 879,111 $ 694,209 10/31/2004 $ 872,518 $ 697,293 11/30/2004 $ 922,949 $ 722,648 12/31/2004 $ 953,037 $ 740,330 1/31/2005 $ 941,124 $ 724,129 2/28/2005 $ 953,453 $ 722,424 3/31/2005 $ 929,998 $ 705,743 4/30/2005 $ 902,656 $ 682,453 5/31/2005 $ 928,743 $ 699,992 6/30/2005 $ 958,184 $ 714,762 7/31/2005 $ 993,158 $ 737,563 8/31/2005 $ 992,363 $ 737,047 9/30/2005 $ 1,005,264 $ 744,343 10/31/2005 $ 986,365 $ 728,563 11/30/2005 $ 1,013,096 $ 741,823 12/31/2005 $ 1,021,403 $ 747,758 1/31/2006 $ 1,065,528 $ 778,565 2/28/2006 $ 1,066,806 $ 776,775 3/31/2006 $ 1,089,316 $ 787,572
ANNUALIZED TOTAL RETURNS As of 3/31/06
1 YEAR 5 YEARS 10 YEARS ------------------------------------------------------------------------- U.S. Convertible Fund Class I 17.15% 6.26% 11.30% Merrill Lynch All Convertibles All Qualities Index 11.60% 6.62% 8.71%
THE GRAPH ABOVE SHOWS THE VALUE OF A HYPOTHETICAL $250,000 INVESTMENT IN THE FUND'S CLASS I SHARES COMPARED WITH THE MERRILL LYNCH ALL CONVERTIBLES, ALL QUALITIES INDEX FOR THE PERIODS INDICATED. PERFORMANCE IS SHOWN FOR CLASS I SHARES ONLY. CLASS II-IV SHARES ARE NEW AND HAVE NO PRIOR PERFORMANCE. THE FUND'S CLASS I SHARES CALCULATE THEIR PERFORMANCE BASED UPON THE HISTORICAL PERFORMANCE OF THEIR CORRESPONDING SERIES OF NICHOLAS-APPLEGATE MUTUAL FUNDS (RENAMED ING MUTUAL FUNDS), ADJUSTED TO REFLECT ALL FEES AND EXPENSES APPLICABLE TO THE FUND'S CLASS I SHARES. THE NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS' CLASS I SHARES WERE FIRST AVAILABLE ON MAY 7, 1999. AVERAGE ANNUAL TOTAL RETURN FIGURES INCLUDE CHANGES IN PRINCIPAL VALUE, REINVESTED DIVIDENDS, AND CAPITAL GAIN DISTRIBUTIONS. THE TOTAL RETURNS SHOWN ABOVE DO NOT SHOW THE EFFECTS OF INCOME TAXES ON AN INDIVIDUAL'S INVESTMENT. IN MOST CASES, TAXES MAY REDUCE YOUR ACTUAL INVESTMENT RETURNS ON INCOME OR GAINS PAID BY THE FUND OR ANY GAINS YOU MAY REALIZE IF YOU SELL YOUR SHARES. PAST PERFORMANCE CANNOT GUARANTEE FUTURE RESULTS. FOR THE PERIOD FROM THE FUND'S INCEPTION TO DECEMBER 31, 2004, PERFORMANCE IS COMPARED TO THE CREDIT SUISSE FIRST BOSTON CONVERTIBLE INDEX. FOR THE PERIOD FROM JANUARY 1, 2005 TO PRESENT, PERFORMANCE IS COMPARED TO THE MERRILL LYNCH ALL CONVERTIBLES, ALL QUALITIES INDEX. THE CHANGE IN BENCHMARKS WAS PROMPTED BY THE RETIREMENT OF THE CREDIT SUISSE FIRST BOSTON CONVERTIBLE INDEX IN DECEMBER 2004. GOING FORWARD, THE FUND WILL COMPARE ITS PERFORMANCE TO THE MERRILL LYNCH ALL CONVERTIBLES, ALL QUALITIES INDEX WHICH THE INVESTMENT ADVISER BELIEVES IS APPROPRIATE SINCE THE COMPOSITION OF THE FUND CLOSELY MATCHES THE COMPOSITION OF THE AS IT MERRILL LYNCH ALL CONVERTIBLES, ALL QUALITIES INDEX. THE UNMANAGED INDEXES DIFFER FROM THE FUND IN COMPOSITION, DO NOT PAY MANAGEMENT FEES OR EXPENSES AND INCLUDE REINVESTED DIVIDENDS. ONE CANNOT INVEST DIRECTLY IN AN INDEX. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS. YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. 23 U.S. CONVERTIBLE FUND SCHEDULE OF INVESTMENTS As of March 31, 2006
PRINCIPAL AMOUNT VALUE ----------------------------------------------------------------------------------------------------------------- CONVERTIBLE CORPORATE BOND - 80.9% ADVERTISING SALES - 1.5% Lamar Advertising Co. 2.875%, 12/31/10 $ 450,000 $ 522,562 --------------- AEROSPACE/DEFENSE - 4.1% AAR Corp. 144A# 1.750%, 02/01/26 460,000 525,550 Lockheed Martin Corp.++ 4.499%, 08/15/33 505,000 586,861 United Industrial Corp. 3.750%, 09/15/24 195,000 324,919 --------------- 1,437,330 --------------- AIRLINES - 1.0% Airtran Holdings, Inc. 7.000%, 07/01/23 180,000 335,700 --------------- APPLICATIONS SOFTWARE - 1.3% Red Hat, Inc. 0.500%, 01/15/24 390,000 470,925 --------------- BROADCAST SERVICES/PROGRAMMING - 1.3% Liberty Media Corp. 0.750%, 03/30/23 445,000 467,806 --------------- BUILDING & CONSTRUCTION PRODUCTS-MISCELLANEOUS - 1.5% NCI Building Systems, Inc. 2.125%, 11/15/24 345,000 541,650 --------------- CASINO HOTELS - 1.5% Caesars Entertainment, Inc.++ 4.600%, 04/15/24 390,000 525,720 --------------- CASINO SERVICES - 1.7% Scientific Games Corp. 144A# 0.750%, 12/01/24 480,000 615,600 --------------- CELLULAR TELECOMMUNICATIONS - 3.1% Nextel Communications, Inc. 5.250%, 01/15/10 465,000 467,325 NII Holdings, Inc. 144A# 2.750%, 08/15/25 480,000 640,200 --------------- 1,107,525 --------------- COMMERCIAL SERVICES - 0.8% Quanta Services, Inc 4.500%, 10/01/23 170,000 263,925 --------------- COMPUTER SERVICES - 1.5% Electronic Data Systems Corp. 3.875%, 07/15/23 505,000 525,200 --------------- COMPUTERS-MEMORY DEVICES - 0.7% Hutchinson Technology, Inc. 3.250%, 01/15/26 250,000 262,812 --------------- COMPUTERS-PERIPHERAL EQUIPMENT - 1.5% Electronics for Imaging, Inc. 1.500%, 06/01/23 450,000 522,000 --------------- DISTRIBUTION/WHOLESALE - 1.6% WESCO International, Inc. 144A# 2.625%, 10/15/25 325,000 565,094 --------------- DIVERSIFIED MANUFACTURING OPERATIONS - 3.8% Actuant Corp. 2.000%, 11/15/23 446,000 715,273 Roper Industries, Inc. 1.481%, 01/15/34 985,000 629,169 --------------- 1,344,442 --------------- ELECTRIC-INTEGRATED - 1.4% PPL Energy Supply LLC 2.625%, 05/15/23 $ 414,000 $ 493,178 --------------- ELECTRONICS-MILITARY - 1.5% L-3 Communications Corp. 144A# 3.000%, 08/01/35 500,000 516,250 --------------- ENGINEERING/R & D SERVICES - 1.7% Fluor Corp. 1.500%, 02/15/24 370,000 581,362 --------------- ENTERPRISE SOFTWARE/SERVICES - 0.9% CA, Inc. 1.625%, 12/15/09 237,000 330,615 --------------- FINANCE-CONSUMER LOANS - 1.6% SLM Corp.++ 4.573%, 07/25/35 545,000 552,467 --------------- INSTRUMENTS-SCIENTIFIC - 1.4% Fisher Scientific International, Inc. 3.250%, 03/01/24 470,000 507,012 --------------- INTERNET INFRASTRUCTURE SOFTWARE - 1.5% Openwave Systems, Inc. 2.750%, 09/09/08 405,000 522,450 --------------- INVESTMENT MANAGEMENT/ADVISOR SERVICES - 0.9% BlackRock, Inc. 2.625%, 02/15/35 215,000 305,031 --------------- LASERS-SYSTEMS/COMPONENTS - 1.5% Cymer, Inc. 3.500%, 02/15/09 505,000 515,100 --------------- MACHINERY-ELECTRICAL - 1.1% Regal-Beloit Corp. 2.750%, 03/15/24 220,000 370,150 --------------- MEDICAL INSTRUMENTS - 1.7% Medtronic, Inc. 1.250%, 09/15/21 595,000 592,769 --------------- MEDICAL PRODUCTS - 1.5% PSS World Medical, Inc. 2.250%, 03/15/24 440,000 535,150 --------------- MEDICAL-BIOMEDICAL/GENETICS - 3.9% Celgene Corp. 1.750%, 06/01/08 145,000 532,331 Genzyme Corp. 1.250%, 12/01/23 450,000 491,062 PDL BioPharma, Inc. 2.000%, 02/15/12 245,000 366,888 --------------- 1,390,281 --------------- MEDICAL-DRUGS - 2.4% Teva Pharmaceutical Finance LLC 0.250%, 02/01/24 485,000 587,456 Wyeth++ 4.239%, 01/15/24 240,000 256,776 --------------- 844,232 --------------- METAL-DIVERSIFIED - 1.5% Inco, Ltd. 0.000%, 03/29/21 397,000 527,017 --------------- MULTI-LINE INSURANCE - 1.6% American Financial Group, Inc. 1.486%, 06/02/33 1,100,000 550,000 ---------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 24
PRINCIPAL AMOUNT VALUE ----------------------------------------------------------------------------------------------------------------- NETWORKING PRODUCTS - 0.9% Anixter International, Inc. 0.000%, 07/07/33 $ 425,000 $ 308,656 --------------- OIL & GAS DRILLING - 3.4% Diamond Offshore Drilling, Inc. 1.500%, 04/15/31 365,000 672,512 Pride International, Inc. 3.250%, 05/01/33 390,000 520,650 --------------- 1,193,162 --------------- OIL-FIELD SERVICES - 1.8% Schlumberger, Ltd. 1.500%, 06/01/23 355,000 626,575 --------------- OPTICAL SUPPLIES - 0.5% Advanced Medical Optics, Inc. 2.500%, 07/15/24 165,000 179,644 --------------- PHARMACY SERVICES - 0.9% Omnicare, Inc. 3.250%, 12/15/35 330,000 318,038 --------------- PRINTING-COMMERCIAL - 1.4% Bowne & Co., Inc. 5.000%, 10/01/33 460,000 508,300 --------------- RETAIL-BUILDING PRODUCTS - 1.5% Lowe's Cos., Inc. 0.000%, 02/16/21 500,000 532,500 --------------- RETAIL-CONVENIENCE STORE - 1.1% Pantry, Inc. 3.000%, 11/15/12 55,000 81,538 Pantry, Inc. 144A# 3.000%, 11/15/12 210,000 311,325 --------------- 392,863 --------------- RETAIL-DISCOUNT - 1.5% TJX Cos., Inc. 0.000%, 02/13/21 615,000 517,369 --------------- SEMICONDUCTOR COMPONENTS-INTEGRATED CIRCUITS - 1.4% Cypress Semiconductor Corp. 1.250%, 06/15/08 400,000 501,000 --------------- SUPER-REGIONAL BANKS-US - 1.5% Wells Fargo & Co.++ 4.430%, 05/01/33 540,000 539,460 --------------- TELECOMMUNICATIONS EQUIPMENT - 3.0% CommScope, Inc. 1.000%, 03/15/24 405,000 555,862 Harris Corp. 3.500%, 08/15/22 245,000 517,256 --------------- 1,073,118 --------------- TELECOMMUNICATIONS EQUIPMENT FIBER OPTICS - 1.4% Ciena Corp. 3.750%, 02/01/08 530,000 503,500 --------------- TELEPHONE-INTEGRATED - 2.8% CenturyTel, Inc. 4.750%, 08/01/32 550,000 583,687 Qwest Communications International, Inc. 3.500%, 11/15/25 300,000 400,125 --------------- 983,812 --------------- THERAPEUTICS - 0.4% BioMarin Pharmaceuticals, Inc. 2.500%, 03/29/13 $ 140,000 $ 147,000 --------------- TOYS - 1.4% Hasbro, Inc. 2.750%, 12/01/21 460,000 482,425 --------------- TRANSPORT-RAIL - 1.6% CSX Corp. 0.000%, 10/30/21 520,000 562,900 --------------- WIRELESS EQUIPMENT - 1.4% American Tower Corp. 3.000%, 08/15/12 320,000 506,000 ----------------------------------------------------------------------------------------------------------------- Total Convertible Corporate Bond (Cost: $25,588,173) 28,517,677 ----------------------------------------------------------------------------------------------------------------- CONVERTIBLE PREFERRED STOCK - 13.2% ELECTRIC-GENERATION - 1.5% AES Trust III 6.750%, 10/15/29 11,568 539,763 --------------- FINANCE-INVESTMENT BANKERS/BROKERS - 3.2% Citigroup Funding, Inc. 0.000%, 09/27/08 15,145 493,424 E*Trade Financial Corp, Inc. 6.125%, 11/08/08 18,300 635,925 --------------- 1,129,349 --------------- FINANCIAL GUARANTEE INSURANCE - 1.4% PMI Group, Inc. 5.875%, 11/15/06 19,250 512,531 --------------- INDEPENDENT POWER PRODUCER - 1.4% NRG Energy, Inc. 5.750%, 03/16/09 2,000 481,500 --------------- MULTI-LINE INSURANCE - 2.8% Hartford Financial Services Group, Inc. 7.000%, 08/16/06 6,855 493,903 Metlife, Inc. 6.375%, 08/15/08 18,550 497,697 --------------- 991,600 --------------- NON-HAZARDOUS WASTE DISPOSAL - 1.7% Allied Waste Industries, Inc. 6.250%, 03/01/08 1,730 584,091 --------------- STEEL-PRODUCERS - 1.2% United States Steel Corp. 7.000%, 06/15/06 2,100 407,663 ----------------------------------------------------------------------------------------------------------------- Total Convertible Preferred Stock (Cost: $3,976,003) 4,646,497 ----------------------------------------------------------------------------------------------------------------- COMMON STOCK - 4.1% FIDUCIARY BANKS - 1.5% State Street Corp. 8,775 530,274 --------------- LIFE/HEALTH INSURANCE - 1.0% Prudential Financial, Inc. 4,725 358,202 --------------- MEDICAL-HMO - 1.6% WellPoint, Inc.* 7,321 566,865 ----------------------------------------------------------------------------------------------------------------- Total Common Stock (Cost: $805,398) 1,455,341 -----------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 25
PRINCIPAL AMOUNT VALUE ----------------------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS - 2.0% TIME DEPOSIT - 2.0% Bank of America London 4.150%, 04/01/06 (Cost: $709,021) $ 709,021 $ 709,021 ----------------------------------------------------------------------------------------------------------------- Total Investments - 100.2% (Cost: $30,369,574) 35,328,536 ----------------------------------------------------------------------------------------------------------------- Liabilities in Excess of Other Assets - (0.2%) (67,756) ----------------------------------------------------------------------------------------------------------------- Net Assets - 100.0% $ 35,260,780 -----------------------------------------------------------------------------------------------------------------
* NON-INCOME PRODUCING SECURITIES. # 144A SECURITY. CERTAIN CONDITION FOR PUBLIC SALE MAY EXIST. THE TOTAL MARKET VALUE OF 144A SECURITIES OWNED AT MARCH 31, 2006 WAS $3,174,019 OR 9.00% OF NET ASSETS. ++ THE COUPON RATE SHOWN ON FLOATING RATE SECURITIES REPRESENTS THE RATE AT YEAR END. SCHEDULE OF INVESTMENTS BY INDUSTRY as of March 31, 2006
PERCENT OF INDUSTRY NET ASSETS ----------------------------------------------------------------------------------------------------------------- Basic Materials 2.7% Communications 17.0 Consumer, Cyclical 11.2 Consumer, Non-cyclical 15.2 Energy 5.2 Financial 15.5 Industrial 19.7 Technology 7.4 Utilities 4.3 Short Term Investments 2.0 Liabilities in excess of other assets (0.2) ----------------------------------------------------------------------------------------------------------------- Net Assets 100.0% =================================================================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 26 GLOBAL SELECT FUND MANAGEMENT TEAM: NICHOLAS MELHUISH, Portfolio Manager; PEDRO V. MARCAL, Portfolio Manager; JOSHUA M. MOSS, Analyst CHIEF INVESTMENT OFFICER: HORACIO A. VALEIRAS, CFA GOAL: The Global Select Fund seeks to maximize long-term capital appreciation by investing in companies that, in the opinion of the Investment Adviser, represent the "best of the best" globally. MARKET OVERVIEW: Global stock markets registered solid gains for the period April 1, 2005 to March 31, 2006. During the period, investors shrugged off record oil prices, fears of inflation and cyclical tightening in the U.S., Japan and Europe. Instead, the focus was on strong global earnings, a prevalence of cheap debt and surging merger and acquisition activity. From a country standpoint, there was a surfeit of positive developments that further supported investor optimism. In the United States, the S&P 500 Index gained 11.72% during fiscal 2005. The U.S. economy displayed remarkable strength during the period, supported by low unemployment, double-digit corporate earnings growth and tame core consumer prices. Although GDP growth downshifted following the Gulf hurricanes, it is widely believed to have accelerated again in the first quarter of 2006. Overseas markets rallied during the twelve months leading to March 31, 2006. As measured by the MSCI EAFE Index, stocks in developed international markets surged 24.94%. Japan was among the leaders during the period. After fifteen years of deflation-induced slumber, the Japanese economy awoke in 2005. Domestic-led growth quickly translated into robust gains in worker wages, industrial production and exports. European equities also rose during the year, and emerging markets posted sharp gains. PERFORMANCE: During the twelve months ended March 31, 2006, the Fund's Class I shares gained 25.76% and outperformed the 20.28% increase in the MSCI All Country World Index. PORTFOLIO SPECIFICS: The Global Select Fund outpaced its benchmark for each quarter during fiscal 2005, and for the entire year. Outperformance was due in large part to stock selection. On a country level, this was most visible in the U.S., China, Japan and Germany. From a sector standpoint, management had the greatest positive impact in information technology and consumer discretionary. Foxconn International, a China-based assembler of mobile handsets, was the single largest contributor to Fund performance. Ongoing innovations and price pressure in the handset market have led vendors like Motorola and Nokia to increasingly outsource to companies such as Foxconn. Melco International was among the Fund's top performers in the first quarter of 2006. The company's shares saw strong gains when it closed a deal to acquire a Macau casino license with an Australian partner. The transaction should improve the economics of Melco's activities significantly, and the market reacted very positively. Despite outperforming, there were patches of relative weakness within the Fund. For instance, issue selection in Switzerland and in the health care sector generally detracted from performance. MARKET OUTLOOK: We remain optimistic on the global economy. Although growth will probably slow in 2006 as interest rates climb, the fundamentals of the world's major economies suggest ongoing expansion. In the U.S., inflation is tame, corporate earnings growth is healthy, unemployment is low and consumers continue to show confidence despite higher interest rates. We continue to be upbeat on the Japanese economy; however, with the recent run-up in prices, effective stock selection is becoming more critical. The outlook for Europe also looks favorable, as export-led growth segues into improved domestic spending. Against this favorable backdrop, we remain focused on uncovering exciting growth opportunities for the Fund. [CHART] COMPARISON OF CHANGE IN VALUE OF A $250,000 INVESTMENT IN GLOBAL SELECT FUND CLASS I AND II SHARES WITH THE MSCI ALL COUNTRY WORLD INDEX.
GLOBAL SELECT FUND CLASS I SHARES MSCI ALL COUNTRY WORLD INDEX 9/30/1997 $ 250,000 $ 250,000 10/31/1997 $ 235,000 $ 235,125 11/30/1997 $ 236,200 $ 238,722 12/31/1997 $ 247,000 $ 241,850 1/31/1998 $ 255,800 $ 247,170 2/28/1998 $ 275,000 $ 264,077 3/31/1998 $ 296,200 $ 275,353 4/30/1998 $ 310,400 $ 277,941 5/31/1998 $ 311,200 $ 272,660 6/30/1998 $ 325,800 $ 277,568 7/31/1998 $ 334,000 $ 277,651 8/31/1998 $ 277,000 $ 238,753 9/30/1998 $ 286,800 $ 243,504 10/31/1998 $ 298,200 $ 265,736 11/30/1998 $ 319,687 $ 281,866 12/31/1998 $ 361,061 $ 294,944 1/31/1999 $ 397,187 $ 300,961 2/28/1999 $ 377,610 $ 293,407 3/31/1999 $ 413,333 $ 306,610 4/30/1999 $ 428,469 $ 319,856 5/31/1999 $ 414,745 $ 308,565 6/30/1999 $ 463,385 $ 323,932 7/31/1999 $ 473,678 $ 322,603 8/31/1999 $ 491,842 $ 322,216 9/30/1999 $ 507,786 $ 318,736 10/31/1999 $ 557,636 $ 334,864 11/30/1999 $ 652,092 $ 345,279 12/31/1999 $ 828,075 $ 374,040 1/31/2000 $ 772,143 $ 353,880 2/29/2000 $ 903,653 $ 355,083 3/31/2000 $ 870,639 $ 378,412 4/30/2000 $ 805,975 $ 361,421 5/31/2000 $ 766,140 $ 352,024 6/30/2000 $ 816,070 $ 363,958 7/31/2000 $ 792,060 $ 353,257 8/31/2000 $ 854,814 $ 364,244 9/30/2000 $ 789,332 $ 344,247 10/31/2000 $ 724,941 $ 337,499 11/30/2000 $ 659,497 $ 316,575 12/31/2000 $ 702,601 $ 321,861 1/31/2001 $ 693,118 $ 330,004 2/28/2001 $ 596,133 $ 302,251 3/31/2001 $ 554,322 $ 281,910 4/30/2001 $ 615,099 $ 302,433 5/31/2001 $ 601,737 $ 299,076 6/30/2001 $ 594,840 $ 289,924 7/31/2001 $ 578,030 $ 285,343 8/31/2001 $ 533,201 $ 272,217 9/30/2001 $ 472,855 $ 247,364 10/31/2001 $ 489,235 $ 252,608 11/30/2001 $ 536,218 $ 268,143 12/31/2001 $ 559,495 $ 270,664 1/31/2002 $ 553,891 $ 263,248 2/28/2002 $ 552,598 $ 261,326 3/31/2002 $ 589,237 $ 273,138 4/30/2002 $ 573,288 $ 264,479 5/31/2002 $ 562,081 $ 264,850 6/30/2002 $ 515,097 $ 248,694 7/31/2002 $ 465,958 $ 227,828 8/31/2002 $ 470,269 $ 228,421 9/30/2002 $ 437,078 $ 203,363 10/31/2002 $ 467,682 $ 218,331 11/30/2002 $ 495,269 $ 230,273 12/31/2002 $ 454,320 $ 219,289 1/31/2003 $ 448,285 $ 212,886 2/28/2003 $ 440,096 $ 209,160 3/31/2003 $ 442,251 $ 208,366 4/30/2003 $ 475,872 $ 226,973 5/31/2003 $ 510,787 $ 240,183 6/30/2003 $ 522,425 $ 244,794 7/31/2003 $ 538,805 $ 250,228 8/31/2003 $ 571,564 $ 256,159 9/30/2003 $ 561,650 $ 257,798 10/31/2003 $ 599,151 $ 273,447 11/30/2003 $ 603,461 $ 277,630 12/31/2003 $ 632,341 $ 295,232 1/31/2004 $ 653,031 $ 300,281 2/29/2004 $ 663,807 $ 305,836 3/31/2004 $ 671,566 $ 304,215 4/30/2004 $ 644,841 $ 297,218 5/31/2004 $ 646,134 $ 299,715 6/30/2004 $ 659,928 $ 305,769 7/31/2004 $ 629,324 $ 296,076 8/30/2004 $ 626,738 $ 298,000 9/30/2004 $ 650,876 $ 304,288 10/31/2004 $ 666,367 $ 311,804 11/30/2004 $ 720,542 $ 328,922 12/31/2004 $ 737,403 $ 341,750 1/31/2005 $ 721,918 $ 334,573 2/28/2005 $ 752,455 $ 346,317 3/31/2005 $ 733,794 $ 338,837 4/30/2005 $ 710,973 $ 331,552 5/31/2005 $ 737,848 $ 337,984 6/30/2005 $ 752,014 $ 341,566 7/31/2005 $ 788,938 $ 354,273 8/31/2005 $ 788,938 $ 357,142 9/30/2005 $ 815,841 $ 367,999 10/31/2005 $ 783,044 $ 358,174 11/30/2005 $ 815,227 $ 371,390 12/31/2005 $ 847,836 $ 380,601 1/31/2006 $ 898,961 $ 399,402 2/28/2006 $ 890,691 $ 398,963 3/31/2006 $ 923,290 $ 407,541
ANNUALIZED TOTAL RETURNS As of 3/31/06
SINCE 1 YEAR 5 YEARS INCEPTION --------------------------------------------------------------------------- Global Select Fund Class I 25.76% 10.73% 16.60% MSCI All Country World Index 20.28% 7.65% 5.92%
27 [CHART]
GLOBAL SELECT FUND CLASS II SHARES MSCI ALL COUNTRY WORLD INDEX 6/30/2003 $ 250,000 $ 250,000 7/31/2003 $ 257,838 $ 255,550 8/31/2003 $ 273,309 $ 261,607 9/30/2003 $ 268,771 $ 263,281 10/31/2003 $ 286,716 $ 279,262 11/30/2003 $ 288,573 $ 283,535 12/31/2003 $ 302,599 $ 301,511 1/31/2004 $ 312,294 $ 306,667 2/29/2004 $ 317,451 $ 312,340 3/31/2004 $ 321,163 $ 310,685 4/30/2004 $ 308,375 $ 303,539 5/31/2004 $ 309,200 $ 306,089 6/30/2004 $ 315,800 $ 312,272 7/31/2004 $ 301,155 $ 302,373 8/30/2004 $ 299,917 $ 304,338 9/30/2004 $ 311,675 $ 310,759 10/31/2004 $ 319,373 $ 318,435 11/30/2004 $ 336,907 $ 335,917 12/31/2004 $ 350,046 $ 349,018 1/31/2005 $ 342,695 $ 341,689 2/28/2005 $ 354,724 $ 353,682 3/31/2005 $ 347,062 $ 346,042 4/30/2005 $ 339,600 $ 338,603 5/31/2005 $ 346,188 $ 345,171 6/30/2005 $ 349,858 $ 348,830 7/31/2005 $ 362,873 $ 361,807 8/31/2005 $ 365,812 $ 364,737 9/30/2005 $ 376,933 $ 375,825 10/31/2005 $ 366,868 $ 365,791 11/30/2005 $ 380,406 $ 379,289 12/31/2005 $ 389,840 $ 388,695 1/31/2006 $ 409,098 $ 407,896 2/28/2006 $ 408,648 $ 407,448 3/31/2006 $ 417,434 $ 416,208
ANNUALIZED TOTAL RETURNS As of 3/31/06
SINCE 1 YEAR 5 YEARS INCEPTION -------------------------------------------------------------------------- Global Select Fund Class II 25.90% 10.77% 16.61% MSCI All Country World Index 20.28% 7.65% 5.92%
THE GRAPHS ABOVE SHOW THE VALUE OF A HYPOTHETICAL $250,000 INVESTMENT IN THE FUND'S CLASS I AND II SHARES COMPARED WITH THE MORGAN STANLEY CAPITAL INTERNATIONAL ALL COUNTRY WORLD INDEX ("MSCI ACWI") OVER THE PERIODS INDICATED. THE FUND'S CLASS I SHARES CALCULATE THEIR PERFORMANCE BASED UPON THE HISTORICAL PERFORMANCE OF THEIR CORRESPONDING SERIES OF NICHOLAS-APPLEGATE MUTUAL FUNDS (RENAMED ING MUTUAL FUNDS), ADJUSTED TO REFLECT ALL FEES AND EXPENSES APPLICABLE TO THE FUND'S CLASS I SHARES. THE NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS' CLASS I SHARES WERE FIRST AVAILABLE ON MAY 7, 1999. AVERAGE ANNUAL TOTAL RETURN FIGURES INCLUDE CHANGES IN PRINCIPAL VALUE, REINVESTED DIVIDENDS, AND CAPITAL GAIN DISTRIBUTIONS. THE TOTAL RETURNS SHOWN ABOVE DO NOT SHOW THE EFFECTS OF INCOME TAXES ON AN INDIVIDUAL'S INVESTMENT. IN MOST CASES, TAXES MAY REDUCE YOUR ACTUAL INVESTMENT RETURNS ON INCOME OR GAINS PAID BY THE FUND OR ANY GAINS YOU MAY REALIZE IF YOU SELL YOUR SHARES. PAST PERFORMANCE CANNOT GUARANTEE FUTURE RESULTS. THE MSCI ACWI INDEX IS A MARKET CAPITALIZATION WEIGHTED INDEX COMPOSED OF OVER 2000 COMPANIES. THE MSCI ACWI INDEX IS REPRESENTATIVE OF THE MARKET STRUCTURE OF 21 COUNTRIES IN NORTH AMERICA, EUROPE, AND THE PACIFIC RIM, EXCLUDING CLOSED MARKETS AND THOSE SHARES IN OTHERWISE FREE MARKETS THAT ARE NOT PURCHASABLE BY FOREIGNERS. THE UNMANAGED INDEX DIFFERS FROM THE FUND IN COMPOSITION, DOES NOT PAY MANAGEMENT FEES OR EXPENSES AND INCLUDES REINVESTED DIVIDENDS. ONE CANNOT INVEST DIRECTLY IN AN INDEX. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, CURRENCY VOLATILITY AND THE SOCIAL, ECONOMIC AND POLITICAL CLIMATES OF COUNTRIES WHERE THE FUND INVESTS. YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. 28 GLOBAL SELECT FUND SCHEDULE OF INVESTMENTS As of March 31, 2006
NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------------------------------- COMMON STOCK - 97.3% BRAZIL - 0.8% Vivo Participacoes S.A. - ADR*,## 328,800 $ 1,407,264 --------------- FINLAND - 0.7% M-Real OYJ Cl. B 200,100 1,324,566 --------------- FRANCE - 5.2% PPR S.A. 16,812 2,027,383 Publicis Groupe 47,400 1,847,028 Sanofi-Aventis S.A. 34,741 3,300,283 Veolia Environnement 37,348 2,071,364 --------------- 9,246,058 --------------- GERMANY - 2.7% Commerzbank AG 44,700 1,778,601 Henkel KGaA## 15,990 1,718,307 Schwarz Pharma AG 16,525 1,326,849 --------------- 4,823,757 --------------- GREECE - 0.8% OPAP S.A. 34,730 1,327,260 --------------- HONG KONG - 4.9% Cheung Kong Holdings, Ltd. 126,000 1,333,905 Hutchison Telecommunications International, Ltd.* 1,032,000 1,762,147 Jardine Matheson Holdings, Ltd. 44,400 816,960 Jardine Matheson Holdings, Ltd. 48,800 897,920 Melco International Development 935,000 1,927,872 New World Development, Ltd. 1,139,000 2,003,563 --------------- 8,742,367 --------------- INDONESIA - 0.9% Telekomunikasi TBK PT 2,193,500 1,665,583 --------------- IRELAND - 1.5% CRH PLC 74,387 2,593,961 --------------- ISRAEL - 0.6% Israel Chemicals, Ltd. 273,911 976,955 --------------- ITALY - 3.3% Luxottica Group SpA 65,954 1,813,379 Mediaset SpA 142,068 1,671,097 Sanpaolo IMI SpA 128,106 2,289,756 --------------- 5,774,232 --------------- JAPAN - 15.9% Gigas K's Denki Corp. 45,600 1,329,469 Hisamitsu Pharmaceutical Co., Ltd. 52,400 1,305,670 Hokuhoku Financial Group, Inc. 541,000 2,370,514 Japan Tobacco, Inc. 545 1,912,281 JSR Corp. 56,700 1,681,922 NGK Spark Plug Co., Ltd.## 83,000 1,930,969 Nippon Electric Glass Co., Ltd. 58,900 1,462,641 Nisshinbo Industries, Inc. 123,000 1,375,006 Nitori Co., Ltd. 28,350 1,472,883 Rakuten, Inc.## 1,755 1,591,533 Seven & I Holdings Co., Ltd. 39,700 1,567,946 Shimizu Corp. 216,000 1,568,879 Sumco Corp.## 28,100 1,505,145 Sumitomo Mitsui Financial Group 268 2,952,793 Takeuchi Manufacturing Co., Ltd. 16,900 737,647 Teijin, Ltd. 258,000 1,712,128 Tokyo Electron, Ltd. 26,700 1,837,478 --------------- 28,314,904 --------------- MALAYSIA - 1.0% Bumiputra-Commerce Holdings Berhad 1,022,700 1,749,344 --------------- NETHERLANDS - 1.8% ASML Holding NV* 81,996 1,671,983 Royal Numico NV* 36,218 1,600,205 --------------- 3,272,188 --------------- REPUBLIC OF CHINA - 1.2% Bio-Treat Technology, Ltd.* 1,901,000 $ 1,421,506 Shanghai Real Estate, Ltd. 3,102,000 727,545 --------------- 2,149,051 --------------- SOUTH KOREA - 2.2% Kookmin Bank - ADR 21,100 1,804,472 Samsung Electronics Co., Ltd. 3,340 2,165,595 --------------- 3,970,067 --------------- SWEDEN - 2.0% Assa Abloy Cl. B## 104,200 1,931,932 Telefonaktiebolaget LM Ericsson - ADR*,## 44,200 1,667,224 --------------- 3,599,156 --------------- SWITZERLAND - 6.8% Adecco SA 34,881 1,944,432 EFG International 7,470 205,777 Roche Holding AG 20,526 3,048,626 Straumann Holding AG## 5,552 1,261,770 UBS AG 35,532 3,893,471 Ypsomed Holding AG* 10,315 1,722,258 --------------- 12,076,334 --------------- TAIWAN - 0.8% United Microelectronics Corp. - ADR 428,600 1,461,526 --------------- UNITED KINGDOM - 3.5% Arm Holdings PLC 961,224 2,221,665 Bodycote International PLC 320,317 1,533,472 HSBC Holdings PLC 148,687 2,488,784 --------------- 6,243,921 --------------- UNITED STATES - 40.7% Affiliated Managers Group, Inc.*,## 16,700 1,780,387 American International Group, Inc. 50,600 3,344,154 ANSYS, Inc.* 43,100 2,333,865 Boeing Co. 34,200 2,665,206 Central Garden & Pet Co.* 27,300 1,450,722 ConocoPhillips 43,700 2,759,655 Federated Department Stores, Inc. 36,000 2,628,000 First Cash Financial Services, Inc. 68,700 1,373,313 Freescale Semiconductor, Inc. Cl. B* 93,702 2,602,105 Humana, Inc.* 33,600 1,769,040 ITT Industries, Inc. 30,000 1,686,600 J.P. Morgan Chase & Co. 57,100 2,377,644 JLG Industries, Inc. 51,000 1,570,290 Marathon Oil Corp. 27,200 2,071,824 Microsoft Corp. 90,900 2,473,389 Morgan Stanley 49,400 3,103,308 Mylan Laboratories, Inc. 67,700 1,584,180 Nasdaq Stock Market, Inc.* 31,600 1,265,264 Nordstrom, Inc. 43,500 1,704,330 Occidental Petroleum Corp. 19,200 1,778,880 Pike Electric Corp.* 56,400 1,184,964 Pioneer Natural Resources Co. 21,900 969,075 Praxair, Inc. 35,900 1,979,885 QUALCOMM, Inc. 53,900 2,727,879 Quiksilver, Inc.* 148,800 2,062,368 Raytheon Co. 48,200 2,209,488 RTI International Metals, Inc.*,## 30,400 1,667,440 TD Ameritrade Holding Corp. 93,600 1,953,432 Tiffany & Co. 36,400 1,366,456 Transocean, Inc.* 25,100 2,015,530 United Technologies Corp. 38,300 2,220,251 Valero Energy Corp. 40,400 2,415,112 Wal-Mart Stores, Inc. 39,100 1,847,084 WESCO International, Inc.* 28,700 1,951,887 XTO Energy, Inc. 31,900 1,389,883 Yahoo!, Inc.* 62,500 2,016,250 --------------- 72,299,140 ----------------------------------------------------------------------------------------------------------------- Total Common Stock (Cost: $143,618,990) 173,017,634 -----------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 29
NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------------------------------- EQUITY-LINKED SECURITIES - 0.8% TAIWAN - 0.8% Credit Suisse FB Yageo Corp. - 9/15/06* (Cost: $1,241,075) 3,585,000 $ 1,376,640 --------------- PRINCIPAL AMOUNT ----------------------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS - 8.8% MONEY MARKET FUNDS - 8.0% Boston Global Investment Trust - Enhanced Sleeve, 4.686%** $ 14,147,932 14,147,932 --------------- TIME DEPOSITS - 0.8% Wachovia Bank - Grand Cayman 4.150%, 04/01/06 1,489,274 1,489,274 --------------- Total Short Term Investments (Cost: $15,637,206) 15,637,206 --------------- Total Investments - 106.9% (Cost: $160,497,271) 190,031,480 ----------------------------------------------------------------------------------------------------------------- Liabilities in Excess of Other Assets - (6.9%) (12,197,032) ----------------------------------------------------------------------------------------------------------------- Net Assets - 100.0% $ 177,834,448 -----------------------------------------------------------------------------------------------------------------
* NON-INCOME PRODUCING SECURITIES. ** ALL OF THE SECURITY IS PURCHASED WITH CASH COLLATERAL PROCEEDS FROM SECURITIES LOANS. ## ALL OR A PORTION OF THE FUND'S HOLDINGS IN THIS SECURITY WAS ON LOAN AS OF 03/31/06. ADR - AMERICAN DEPOSITORY RECEIPT SCHEDULE OF INVESTMENTS BY INDUSTRY as of March 31, 2006
PERCENT OF INDUSTRY NET ASSETS ----------------------------------------------------------------------------------------------------------------- Basic Materials 4.3% Communications 9.2 Consumer, Cyclical 14.5 Consumer, Non-cyclical 14.5 Diversified 2.9 Energy 7.5 Financial 19.8 Industrial 13.3 Technology 10.3 Utilities 1.8 Short Term Investments 8.8 Liabilities in excess of other assets (6.9) ----------------------------------------------------------------------------------------------------------------- Net Assets 100.0% =================================================================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 30 INTERNATIONAL GROWTH FUND MANAGEMENT TEAM: HORACIO A. VALEIRAS, CFA, Portfolio Manager and Chief Investment Officer; LINDA BA, Portfolio Manager; STEPHEN DERKASH, Analyst; MICHAEL J. FREDERICKS, Analyst; CHRISTOPHER A. HERRERA, Analyst; BARRY KENDALL, Analyst; FLORA KIM, Analyst; ERIC SAGMEISTER, Analyst; SCOTT R. WILLIAMS, Analyst; ALAN TRICE, Assistant Analyst GOAL: The International Growth Fund seeks to maximize long-term capital appreciation through investments primarily in companies located outside the United States with market capitalizations predominantly in the top 75% of publicly traded companies as measured by stock market capitalizations within each country. MARKET OVERVIEW: Directionless at first, international developed markets accelerated into the final nine months of fiscal 2005, closing the year ended March 31, 2006 with substantial gains. Stocks advanced rapidly amid positive developments in Japan and Europe. Since the early 1990s, Japan has languished in a deflation-induced economic limbo. Last summer, the Japanese economy awoke. Prime Minister Koizumi demanded, and won, snap parliamentary elections, establishing a political mandate for economic reform. Emergent domestic-led expansion swiftly segued into accelerating exports and industrial production, and the first back-to-back rise in consumer prices since 1998. Local stocks responded enthusiastically, with the MSCI Japan spiking 37.39% for the fiscal year. Although European equities trailed Pacific peers, they still outpaced stocks in the U.S. The MSCI Europe rose 21.22% in the twelve months to March 31, 2006, as strong corporate profits and healthy balance sheets encouraged a flood of merger and acquisition activity. PERFORMANCE: During the twelve-month period ended March 31, 2006, the Fund's Class I shares rose 33.63%. This compared favorably to the MSCI EAFE Index, which increased 24.94%. PORTFOLIO SPECIFICS: The Fund's outperformance relative to the benchmark was driven by stock selection, particularly in China and Japan, and in the telecommunications services and financials sectors. Among the best-performing positions was China-based Foxconn International, a cell phone handset manufacturer that saw considerable benefit from outsourcing by two of its customers: Nokia and Motorola. Two other major contributors were European-based ABB Ltd. and Millicom International Cellular. ABB, the world's largest maker of power networks, saw strong gains during the fourth quarter amid increasing orders from customers planning to modernize their facilities. Millicom shares surged in January after it became public the company had received buyout offers from several of its peers. Although the Fund outperformed, there were areas of relative weakness, including stock selection in France and in the consumer staples sector. Structurally the make-up of the Fund did not shift much between September 30, 2005 and March 31, 2006. Our largest overweights continued to be in emerging Asia and the telecommunication services sector. The largest underweights were in developed European countries and financials. MARKET OUTLOOK: Although high energy prices will probably dampen global growth in 2006, the fundamentals underlying the world's major economies suggest ongoing expansion. In the months ahead, international stocks should see support from: - The end of cyclical tightening in the U.S. - Rising consumer prices and land prices in Japan - Improving business and consumer confidence in Europe This type of environment bodes well for the Fund, as our stock selection process is focused on identifying and investing in companies benefiting from these trends. [CHART] COMPARISON OF CHANGE IN VALUE OF A $250,000 INVESTMENT IN INTERNATIONAL GROWTH FUND CLASS I SHARES WITH THE MSCI EAFE INDEX.
INTERNATIONAL GROWTH FUND CLASS I SHARES MSCI EAFE INDEX 12/27/1996 $ 250000 $ 250000 12/31/1996 $ 252400 $ 249475 1/31/1997 $ 274600 $ 240744 2/28/1997 $ 277200 $ 244682 3/31/1997 $ 282600 $ 245568 4/30/1997 $ 286600 $ 246871 5/31/1997 $ 313200 $ 262935 6/30/1997 $ 331200 $ 277436 7/31/1997 $ 352400 $ 281924 8/31/1997 $ 334000 $ 260869 9/30/1997 $ 358600 $ 275482 10/31/1997 $ 328800 $ 254307 11/30/1997 $ 325131 $ 251715 12/31/1997 $ 329722 $ 253910 1/31/1998 $ 341826 $ 265523 2/28/1998 $ 365199 $ 282560 3/31/1998 $ 386902 $ 291261 4/30/1998 $ 398171 $ 293566 5/31/1998 $ 407979 $ 292141 6/30/1998 $ 412779 $ 294353 7/31/1998 $ 431143 $ 297337 8/31/1998 $ 369373 $ 260500 9/30/1998 $ 351843 $ 252514 10/31/1998 $ 358312 $ 278836 11/30/1998 $ 379862 $ 293121 12/31/1998 $ 400734 $ 304685 1/31/1999 $ 416179 $ 303785 2/28/1999 $ 399064 $ 296545 3/31/1999 $ 411796 $ 308923 4/30/1999 $ 426823 $ 321440 5/31/1999 $ 410335 $ 304887 6/30/1999 $ 442685 $ 316773 7/31/1999 $ 457296 $ 326189 8/31/1999 $ 464392 $ 327380 9/30/1999 $ 471488 $ 330675 10/31/1999 $ 502378 $ 343061 11/30/1999 $ 567497 $ 354981 12/31/1999 $ 677509 $ 386841 1/31/2000 $ 629265 $ 362261 2/29/2000 $ 705704 $ 372013 3/31/2000 $ 665814 $ 386434 4/30/2000 $ 610886 $ 366099 5/31/2000 $ 578515 $ 357157 6/30/2000 $ 609633 $ 371125 7/31/2000 $ 582692 $ 355566 8/31/2000 $ 606083 $ 358652 9/30/2000 $ 566819 $ 341189 10/31/2000 $ 530897 $ 333129 11/30/2000 $ 504920 $ 320637 12/31/2000 $ 521115 $ 332033 1/31/2001 $ 505364 $ 331862 2/28/2001 $ 462991 $ 306983 3/31/2001 $ 426165 $ 286519 4/30/2001 $ 455671 $ 306430 5/31/2001 $ 441029 $ 295615 6/30/2001 $ 423281 $ 283526 7/31/2001 $ 413076 $ 278367 8/31/2001 $ 395994 $ 271324 9/30/2001 $ 364270 $ 243839 10/31/2001 $ 363827 $ 250081 11/30/2001 $ 371147 $ 259309 12/31/2001 $ 375362 $ 260839 1/31/2002 $ 358724 $ 246989 2/28/2002 $ 361164 $ 248718 3/31/2002 $ 380909 $ 262173 4/30/2002 $ 379134 $ 263904 5/31/2002 $ 378690 $ 267255 6/30/2002 $ 365823 $ 256618 7/31/2002 $ 331215 $ 231290 8/31/2002 $ 328109 $ 230758 9/30/2002 $ 296385 $ 205975 10/31/2002 $ 306812 $ 217036 11/30/2002 $ 315242 $ 226889 12/31/2002 $ 303263 $ 219266 1/31/2003 $ 292614 $ 210122 2/28/2003 $ 288399 $ 205310 3/31/2003 $ 284628 $ 201430 4/30/2003 $ 309696 $ 221412 5/31/2003 $ 329219 $ 235029 6/30/2003 $ 334987 $ 240834 7/31/2003 $ 339202 $ 246710 8/31/2003 $ 352734 $ 252705 9/30/2003 $ 352512 $ 260539 10/31/2003 $ 377803 $ 276797 11/30/2003 $ 380771 $ 282997 12/31/2003 $ 405459 $ 305127 1/31/2004 $ 415023 $ 309460 2/29/2004 $ 420138 $ 316671 3/31/2004 $ 424142 $ 318571 4/30/2004 $ 408573 $ 311626 5/31/2004 $ 408350 $ 312966 6/30/2004 $ 413911 $ 319945 7/31/2004 $ 392114 $ 309611 8/30/2004 $ 393226 $ 311035 9/30/2004 $ 404347 $ 319215 10/31/2004 $ 418823 $ 330132 11/30/2004 $ 449020 $ 352779 12/31/2004 $ 466262 $ 368266 1/31/2005 $ 462625 $ 361527 2/28/2005 $ 485571 $ 377217 3/31/2005 $ 464886 $ 367900 4/30/2005 $ 454426 $ 359659 5/31/2005 $ 460106 $ 360199 6/30/2005 $ 468526 $ 365133 7/31/2005 $ 489423 $ 376343 8/31/2005 $ 493974 $ 385977 9/30/2005 $ 526675 $ 403231 10/31/2005 $ 507136 $ 391497 11/30/2005 $ 531174 $ 401167 12/31/2005 $ 575261 $ 419861 1/31/2006 $ 619326 $ 445682 2/28/2006 $ 600437 $ 444791 3/31/2006 $ 621512 $ 459647
ANNUALIZED TOTAL RETURNS As of 3/31/06
SINCE 1 YEAR 5 YEARS INCEPTION International Growth Fund Class I 33.63% 7.82% 10.33% MSCI EAFE Index 24.94% 10.04% 7.00%
THE GRAPH ABOVE SHOWS THE VALUE OF A HYPOTHETICAL $250,000 INVESTMENT IN THE FUND'S CLASS I SHARES COMPARED WITH THE MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALASIA, FAR EAST INDEX ("MSCI EAFE") OVER THE PERIODS INDICATED. THE FUND'S CLASS II SHARES ARE NEW AND HAVE LESS THAN 1 YEAR'S PERFORMANCE. THE FUND'S CLASS I SHARES CALCULATE THEIR PERFORMANCE BASED UPON THE HISTORICAL PERFORMANCE OF THEIR CORRESPONDING SERIES OF NICHOLAS-APPLEGATE MUTUAL FUNDS (RENAMED ING MUTUAL FUNDS), ADJUSTED TO REFLECT ALL FEES AND EXPENSES APPLICABLE TO THE FUND'S CLASS I SHARES. THE NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS' CLASS I SHARES WERE FIRST 31 AVAILABLE ON MAY 7, 1999. AVERAGE ANNUAL TOTAL RETURN FIGURES INCLUDE CHANGES IN PRINCIPAL VALUE, REINVESTED DIVIDENDS, AND CAPITAL GAIN DISTRIBUTIONS. THE TOTAL RETURNS SHOWN ABOVE DO NOT SHOW THE EFFECTS OF INCOME TAXES ON AN INDIVIDUAL'S INVESTMENT. IN MOST CASES, TAXES MAY REDUCE YOUR ACTUAL INVESTMENT RETURNS ON INCOME OR GAINS PAID BY THE FUND OR ANY GAINS YOU MAY REALIZE IF YOU SELL YOUR SHARES. PAST PERFORMANCE CANNOT GUARANTEE FUTURE RESULTS. THE MSCI 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 UNMANAGED INDEX DIFFERS FROM THE FUND IN COMPOSITION, DOES NOT PAY MANAGEMENT FEES OR EXPENSES AND INCLUDES REINVESTED DIVIDENDS. ONE CANNOT INVEST DIRECTLY IN AN INDEX. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, CURRENCY VOLATILITY AND THE SOCIAL, ECONOMIC AND POLITICAL CLIMATES OF COUNTRIES WHERE THE FUND INVESTS. YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. 32 INTERNATIONAL GROWTH FUND SCHEDULE OF INVESTMENTS As of March 31, 2006
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- COMMON STOCK - 96.3% AUSTRALIA - 1.1% Goodman Fielder, Ltd.* 723,502 $ 1,124,647 --------------- BRAZIL - 1.1% Vivo Participacoes S.A. - ADR*,## 266,400 1,140,192 --------------- CANADA - 7.4% Cameco Corp. 52,100 1,875,707 EnCana Corp. 21,100 985,728 Petrobank Energy & Resources, Ltd.* 34,900 418,824 Rogers Communications, Inc. Cl. B 75,400 2,879,367 Teck Cominco, Ltd. Cl. B 23,900 1,539,385 --------------- 7,699,011 --------------- FINLAND - 2.0% M-Real OYJ Cl. B 116,000 767,864 Nokia OYJ - ADR## 64,500 1,336,440 --------------- 2,104,304 --------------- FRANCE - 8.8% Lafarge S.A. 16,082 1,819,663 Publicis Groupe 26,609 1,036,868 Sanofi-Aventis S.A. 40,224 3,821,150 Total S.A. 5,069 1,335,426 Veolia Environnement 20,294 1,125,529 --------------- 9,138,636 --------------- GERMANY - 3.8% Bayer AG 21,685 867,564 Commerzbank AG 52,572 2,091,826 Siemens AG 11,233 1,047,252 --------------- 4,006,642 --------------- GREECE - 1.5% National Bank of Greece S.A 33,333 1,565,112 --------------- HONG KONG - 3.0% Hutchison Telecommunications International, Ltd.* 1,176,300 2,008,541 Melco International Development 545,000 1,123,733 --------------- 3,132,274 --------------- HUNGARY - 0.8% MOL Magyar Olaj-es Gazipari Rt. 7,723 791,466 --------------- IRELAND - 3.1% Bank of Ireland 55,044 1,022,486 CRH PLC 62,109 2,167,463 --------------- 3,189,949 --------------- ITALY - 5.0% Autogrill SpA 90,450 1,339,767 Mediaset SpA 126,363 1,486,365 Sanpaolo IMI SpA 132,775 2,373,209 --------------- 5,199,341 --------------- JAPAN - 25.4% Aoyama Trading Co., Ltd. 14,400 $ 474,752 Chugai Pharmaceutical Co., Ltd. 53,700 971,688 Fuji Electric Co., Ltd. 202,000 1,099,110 Haseko Corp.* 313,500 1,179,710 Hisamitsu Pharmaceutical Co., Ltd. 20,000 498,347 Hitachi Construction Machinery Co., Ltd. 71,400 1,875,922 Hokuhoku Financial Group, Inc. 448,000 1,963,014 Japan Tobacco, Inc. 510 1,789,474 Kajima Corp. 167,200 1,041,546 Mitsubishi Estate Co., Ltd. 67,600 1,598,474 Mitsui & Co., Ltd. 75,700 1,091,969 Nitori Co., Ltd. 15,200 789,694 Okasan Holdings, Inc. 38,000 433,816 Rakuten, Inc.## 1,919 1,740,258 Seven & I Holdings Co., Ltd. 43,000 1,698,280 Sumco Corp. 20,400 1,092,703 Sumitomo Mitsui Financial Group 276 3,040,936 Teijin, Ltd. 167,300 1,110,229 Tokyo Electron, Ltd. 15,700 1,080,464 Toyota Motor Corp. 35,400 1,929,164 --------------- 26,499,550 --------------- LUXEMBOURG - 1.0% Millicom International Cellular S.A.* 23,100 1,087,779 --------------- NETHERLANDS - 2.0% ASML Holding NV* 51,703 1,054,277 Royal Numico NV 23,465 1,036,744 --------------- 2,091,021 --------------- NORWAY - 2.7% Acergy S.A.*,## 117,800 1,848,800 Telenor ASA 90,400 971,102 --------------- 2,819,902 --------------- PERU - 0.5% Southern Copper Corp.## 6,200 523,776 --------------- REPUBLIC OF CHINA - 0.9% Suntech Power Holdings Co., Ltd. - ADR* 24,000 887,760 --------------- SOUTH AFRICA - 1.4% Harmony Gold Mining Co., Ltd. - ADR* 92,000 1,460,960 --------------- SOUTH KOREA - 3.5% Daewoo Shipbuilding & Marine Engineering Co., Ltd. 35,910 951,662 Kookmin Bank - ADR 12,100 1,034,792 LG Electronics, Inc. 19,790 1,604,952 --------------- 3,591,406 --------------- SWEDEN - 4.3% Assa Abloy Cl. B 85,400 1,583,369 Modern Times Group Cl. B* 22,100 1,037,838 Telefonaktiebolaget LM Ericsson Cl. B 498,000 1,891,374 --------------- 4,512,581 ---------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 33
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- SWITZERLAND - 8.5% ABB, Ltd. 159,476 $ 2,007,407 Adecco SA 22,949 1,279,286 Compagnie Financiere Richemont AG Cl. A 22,027 1,053,440 Roche Holding AG 9,847 1,462,526 Straumann Holding AG## 4,186 951,327 UBS AG 19,481 2,134,659 --------------- 8,888,645 --------------- TAIWAN - 1.2% United Microelectronics Corp. - ADR 352,900 1,203,389 --------------- THAILAND - 0.9% True Corp. PLC* 3,634,200 981,080 --------------- UNITED KINGDOM - 6.4% Aegis Group PLC 455,910 1,081,417 Arm Holdings PLC 734,089 1,696,691 Diageo PLC 68,518 1,077,356 George Wimpey PLC 50,526 490,345 HSBC Holdings PLC 72,254 1,209,417 Travis Perkins PLC 39,862 1,153,991 --------------- 6,709,217 ---------------------------------------------------------------------------------------------------------------- Total Common Stock (Cost: $81,236,172) 100,348,640 ---------------------------------------------------------------------------------------------------------------- PREFERRED STOCK - 1.1% GERMANY - 1.1% Henkel KGaA## (Cost: $1,138,278) 10,265 1,198,369 --------------- EQUITY-LINKED SECURITIES - 1.2% INDIA - 1.2% Merrill Lynch Bharti Televentures - 3/17/11 (Cost: $1,135,757) 130,700 1,210,805 --------------- PRINCIPAL AMOUNT ---------------------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS - 9.7% MONEY MARKET FUNDS - 7.3% Boston Global Investment Trust - Enhanced Sleeve, 4.686%** $ 7,590,839 7,590,839 --------------- TIME DEPOSITS - 2.4% Wells Fargo Bank - Grand Cayman 4.150%, 04/01/06 2,485,718 2,485,718 ---------------------------------------------------------------------------------------------------------------- Total Short Term Investments (Cost: $10,076,557) 10,076,557 ---------------------------------------------------------------------------------------------------------------- Total Investments - 108.3% (Cost: $93,586,764) 112,834,371 ---------------------------------------------------------------------------------------------------------------- Liabilities in Excess of Other Assets - (8.3%) (8,667,996) ---------------------------------------------------------------------------------------------------------------- Net Assets - 100.0% $ 104,166,375 ----------------------------------------------------------------------------------------------------------------
* NON-INCOME PRODUCING SECURITIES. ** ALL OF THE SECURITY IS PURCHASED WITH CASH COLLATERAL PROCEEDS FROM SECURITIES LOANS. ## ALL OR A PORTION OF THE FUND'S HOLDINGS IN THIS SECURITY WAS ON LOAN AS OF 03/31/06. ADR - AMERICAN DEPOSITORY RECEIPT SCHEDULE OF INVESTMENTS BY INDUSTRY as of March 31, 2006
PERCENT OF INDUSTRY NET ASSETS ----------------------------------------------------------------------------------------------------------------- Basic Materials 6.7% Communications 19.1 Consumer, Cyclical 10.7 Consumer, Non-cyclical 14.6 Diversified 1.1 Energy 6.0 Financial 17.7 Industrial 15.7 Technology 5.9 Utilities 1.1 Short Term Investments 9.7 Liabilities in excess of other assets (8.3) ----------------------------------------------------------------------------------------------------------------- Net Assets 100.0% =================================================================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 34 INTERNATIONAL GROWTH OPPORTUNITIES FUND MANAGEMENT TEAM: VINCENT WILLYARD, CFA, Portfolio Manager; JOSEPH DEVINE, Portfolio Manager; STEPHEN DERKASH, Analyst; MICHAEL J. FREDERICKS, Analyst; BARRY KENDALL, Analyst; FLORA KIM, Analyst; SCOTT R. WILLIAMS, Analyst CHIEF INVESTMENT OFFICER: HORACIO A. VALEIRAS, CFA GOAL: The International Growth Opportunities Fund seeks to maximize long-term capital appreciation through investments primarily in companies located outside the United States with market capitalizations predominantly in the bottom 20% of publicly traded companies as measured by the market capitalization in the Citigroup/S&P World Ex U.S. Broad Market Index. MARKET OVERVIEW: International small-cap stocks surged between April 1, 2005 and March 31, 2006, as the dampening effect of soaring energy prices and rising U.S. fed fund interest rates did not deter mounting investor enthusiasm. Markets gathered steam against a backdrop of: - Resurgent economic growth in Japan, following fifteen years in the deflationary doldrums - Export-led growth in Europe and increasing confidence in the region's economy - Anticipation of the end of the Fed interest rate tightening cycle Gains among international small-cap stocks were widespread, with sector-level advances within the Citigroup World ex-U.S. EMI ranging from 14.16% (consumer staples) to 49.09% (energy). From a country standpoint, Luxembourg, Norway and Korea were the strongest performers. PERFORMANCE: The Fund's Class I shares gained 43.34% from April 1, 2005 through March 31, 2006. This compared favorably to the Citigroup World ex-U.S. EMI, which rose 31.97%. PORTFOLIO SPECIFICS: The Fund generated a strong return on both an absolute and relative basis during fiscal 2005. The majority of excess return relative to the benchmark can be attributed to stock selection, particularly in Japan, and in the materials and financials sectors. Gains were broad-based, with holdings in every sector and most countries closing the year in positive territory. Two positions that contributed most to portfolio performance were the Japanese companies Pacific Management, a real estate investment management company, and Toho Titanium, a titanium producer. Pacific Management benefited from strong cash flows into real estate funds, increasing demand for real estate services and rising land prices. Toho Titanium experienced increased demand for the light metal it manufactures in an industry which is experiencing a tight global supply/demand situation and is seeing strong price increases. At period-end, the Fund was overweight those areas that we believe offer the greatest growth potential: China, Germany, information technology and industrials. MARKET OUTLOOK: Although high energy prices, Fed tightening and a slowing housing market will probably dampen U.S. growth in 2006, many overseas economies are undergoing expansion, driven by growth in developing countries as well as increasing domestic spending. In the months ahead, international stocks should see support from: - The end of cyclical tightening in the U.S. - Rising consumer prices and land prices in Japan - Improving business and consumer confidence in Europe This type of environment bodes well for the Fund, as our stock selection process is focused on identifying and investing in growth companies. [CHART] COMPARISON OF CHANGE IN VALUE OF A $250,000 INVESTMENT IN INTERNATIONAL GROWTH OPPORTUNITIES FUND CLASS I AND II SHARES WITH THE CITIGROUP WORLD EX-U.S. EMI, AND CITIGROUP WORLD EX-U.S. EMI GROWTH.
INTERNATIONAL GROWTH OPPORTUNITIES FUND CITIGROUP WORLD CITIGROUP WORLD CLASS I SHARES EMI xUS INDEX EMI xUS GROWTH INDEX 12/31/1997 $ 250,000 $ 250,000 $ 250,000 1/31/1998 $ 255,925 $ 260,428 $ 260,950 2/28/1998 $ 282,388 $ 279,858 $ 279,295 3/31/1998 $ 312,914 $ 293,018 $ 292,170 4/30/1998 $ 329,717 $ 295,252 $ 294,595 5/31/1998 $ 337,861 $ 300,749 $ 300,752 6/30/1998 $ 338,706 $ 291,970 $ 293,414 7/31/1998 $ 345,785 $ 289,960 $ 292,622 8/31/1998 $ 291,151 $ 254,381 $ 255,547 9/30/1998 $ 287,162 $ 247,749 $ 247,982 10/31/1998 $ 298,562 $ 265,256 $ 264,572 11/30/1998 $ 319,342 $ 273,760 $ 274,626 12/31/1998 $ 340,834 $ 280,374 $ 282,892 1/31/1999 $ 367,760 $ 279,515 $ 284,844 2/28/1999 $ 360,773 $ 274,086 $ 279,034 3/31/1999 $ 369,179 $ 284,394 $ 289,274 4/30/1999 $ 391,219 $ 299,804 $ 303,015 5/31/1999 $ 376,000 $ 291,936 $ 295,136 6/30/1999 $ 417,586 $ 301,883 $ 306,174 7/31/1999 $ 453,582 $ 313,187 $ 318,023 8/31/1999 $ 483,110 $ 318,032 $ 324,829 9/30/1999 $ 497,458 $ 317,276 $ 325,771 10/31/1999 $ 531,385 $ 314,115 $ 325,966 11/30/1999 $ 653,072 $ 324,835 $ 350,121 12/31/1999 $ 777,547 $ 346,275 $ 383,347 1/31/2000 $ 801,962 $ 337,720 $ 376,485 2/29/2000 $ 1,013,680 $ 351,859 $ 408,712 3/31/2000 $ 900,047 $ 353,285 $ 400,293 4/30/2000 $ 807,882 $ 331,707 $ 371,992 5/31/2000 $ 756,016 $ 325,969 $ 357,782 6/30/2000 $ 815,288 $ 347,100 $ 378,891 7/31/2000 $ 792,215 $ 335,194 $ 365,630 8/31/2000 $ 830,717 $ 345,502 $ 380,986 9/30/2000 $ 779,046 $ 328,821 $ 357,784 10/31/2000 $ 718,904 $ 310,662 $ 328,983 11/30/2000 $ 649,601 $ 297,880 $ 300,394 12/31/2000 $ 683,121 $ 310,524 $ 310,427 1/31/2001 $ 669,322 $ 313,582 $ 314,090 2/28/2001 $ 626,820 $ 301,264 $ 290,533 3/31/2001 $ 559,750 $ 277,434 $ 262,933 4/30/2001 $ 593,727 $ 297,243 $ 283,100 5/31/2001 $ 589,571 $ 296,530 $ 280,297 6/30/2001 $ 560,210 $ 285,884 $ 264,460 7/31/2001 $ 546,205 $ 278,394 $ 254,860 8/31/2001 $ 525,067 $ 277,476 $ 249,891 9/30/2001 $ 471,090 $ 241,848 $ 217,255 10/31/2001 $ 488,520 $ 251,812 $ 230,029 11/30/2001 $ 497,949 $ 261,406 $ 239,599 12/31/2001 $ 504,820 $ 261,824 $ 239,934 1/31/2002 $ 491,291 $ 255,855 $ 232,160 2/28/2002 $ 494,976 $ 260,613 $ 233,275 3/31/2002 $ 521,606 $ 277,553 $ 249,441 4/30/2002 $ 524,109 $ 283,160 $ 250,937 5/31/2002 $ 534,434 $ 293,722 $ 257,788 6/30/2002 $ 509,423 $ 283,118 $ 245,414 7/31/2002 $ 466,478 $ 258,374 $ 222,762 8/31/2002 $ 461,441 $ 256,591 $ 220,713 9/30/2002 $ 418,988 $ 233,241 $ 200,209 10/31/2002 $ 420,371 $ 237,580 $ 205,194 11/30/2002 $ 432,772 $ 246,180 $ 213,340 12/31/2002 $ 427,016 $ 242,733 $ 208,561 1/31/2003 $ 411,643 $ 237,248 $ 202,576 2/28/2003 $ 404,975 $ 233,428 $ 198,747 3/31/2003 $ 399,224 $ 231,887 $ 197,177 4/30/2003 $ 432,280 $ 254,659 $ 216,382 5/31/2003 $ 470,147 $ 276,279 $ 235,250 6/30/2003 $ 479,785 $ 285,673 $ 242,120 7/31/2003 $ 495,618 $ 295,214 $ 248,754 8/31/2003 $ 523,868 $ 308,942 $ 258,903 9/30/2003 $ 533,036 $ 323,307 $ 272,107 10/31/2003 $ 590,178 $ 346,585 $ 291,835 11/30/2003 $ 598,204 $ 352,339 $ 296,037 12/31/2003 $ 633,079 $ 373,655 $ 313,177 1/31/2004 $ 655,111 $ 386,546 $ 323,387 2/29/2004 $ 669,130 $ 398,761 $ 333,962 3/31/2004 $ 675,554 $ 408,810 $ 342,378 4/30/2004 $ 656,706 $ 397,036 $ 332,175 5/31/2004 $ 655,130 $ 398,426 $ 334,666 6/30/2004 $ 680,811 $ 412,371 $ 344,070 7/31/2004 $ 648,676 $ 396,288 $ 328,828 8/30/2004 $ 648,936 $ 399,142 $ 330,834 9/30/2004 $ 673,271 $ 412,673 $ 342,214 10/31/2004 $ 689,362 $ 425,672 $ 352,686 11/30/2004 $ 746,234 $ 459,002 $ 377,797 12/31/2004 $ 778,024 $ 480,988 $ 395,252 1/31/2005 $ 780,592 $ 486,760 $ 398,690 2/28/2005 $ 825,007 $ 509,686 $ 416,273 3/31/2005 $ 805,867 $ 498,932 $ 406,990 4/30/2005 $ 778,951 $ 483,216 $ 394,861 5/31/2005 $ 787,675 $ 486,115 $ 396,836 6/30/2005 $ 805,162 $ 496,080 $ 405,765 7/31/2005 $ 830,685 $ 514,683 $ 420,818 8/31/2005 $ 848,877 $ 530,072 $ 434,032 9/30/2005 $ 902,781 $ 550,745 $ 449,180 10/31/2005 $ 861,524 $ 532,350 $ 432,695 11/30/2005 $ 912,095 $ 552,686 $ 450,435 12/31/2005 $ 997,376 $ 587,284 $ 479,984 1/31/2006 $ 1,071,082 $ 631,507 $ 516,703 2/28/2006 $ 1,082,007 $ 631,065 $ 512,879 3/31/2006 $ 1,155,476 $ 658,453 $ 535,959
ANNUALIZED TOTAL RETURNS As of 3/31/06
SINCE 1 YEAR 5 YEARS INCEPTION ------------------------------------------------------------------- International Growth Opportunities Fund Class I 43.34% 15.58% 20.38% Citigroup World EMI xUS Index 31.97% 18.84% 12.44% Citigroup World EMI xUS Growth Index 31.67% 15.30% 9.68%
35 [CHART]
INTERNATIONAL GROWTH OPPORTUNITIES FUND CITIGROUP WORLD CITIGROUP WORLD CLASS II SHARES EMI xUS INDEX EMI xUS GROWTH INDEX 6/30/2003 $ 250,000.00 $ 250,000.00 $ 250,000.00 7/31/2003 $ 258,253.59 $ 258,350.00 $ 256,850.00 8/31/2003 $ 273,086.12 $ 270,363.28 $ 267,329.48 9/30/2003 $ 277,870.81 $ 282,935.17 $ 280,963.28 10/31/2003 $ 307,775.12 $ 303,306.50 $ 301,333.12 11/30/2003 $ 311,961.72 $ 308,341.39 $ 305,672.32 12/31/2003 $ 330,263.16 $ 326,996.04 $ 323,370.75 1/31/2004 $ 341,746.41 $ 338,277.40 $ 333,912.63 2/29/2004 $ 349,162.68 $ 348,966.97 $ 344,831.58 3/31/2004 $ 352,511.96 $ 357,760.94 $ 353,521.33 4/30/2004 $ 342,583.73 $ 347,457.42 $ 342,986.40 5/31/2004 $ 341,866.03 $ 348,673.52 $ 345,558.79 6/30/2004 $ 355,382.78 $ 360,877.10 $ 355,269.00 7/31/2004 $ 338,636.36 $ 346,802.89 $ 339,530.58 8/30/2004 $ 338,755.98 $ 349,299.87 $ 341,601.72 9/30/2004 $ 351,435.41 $ 361,141.14 $ 353,352.81 10/31/2004 $ 359,834.72 $ 372,517.08 $ 364,165.41 11/30/2004 $ 389,521.08 $ 401,685.17 $ 390,093.99 12/31/2004 $ 406,114.68 $ 420,925.89 $ 408,116.33 1/31/2005 $ 407,454.86 $ 425,977.00 $ 411,666.94 2/28/2005 $ 430,639.04 $ 446,040.52 $ 429,821.45 3/31/2005 $ 420,562.08 $ 436,629.06 $ 420,236.44 4/30/2005 $ 406,515.31 $ 422,875.25 $ 407,713.39 5/31/2005 $ 411,068.28 $ 425,412.50 $ 409,751.96 6/30/2005 $ 420,194.00 $ 434,133.45 $ 418,971.38 7/31/2005 $ 433,514.15 $ 450,413.46 $ 434,515.21 8/31/2005 $ 443,008.11 $ 463,880.82 $ 448,158.99 9/30/2005 $ 471,139.12 $ 481,972.17 $ 463,799.74 10/31/2005 $ 449,608.06 $ 465,874.30 $ 446,778.29 11/30/2005 $ 476,000.06 $ 483,670.70 $ 465,096.20 12/31/2005 $ 520,506.06 $ 513,948.49 $ 495,606.51 1/31/2006 $ 558,971.46 $ 552,648.81 $ 533,520.41 2/28/2006 $ 564,672.97 $ 552,261.95 $ 529,572.36 3/31/2006 $ 603,014.27 $ 576,230.12 $ 553,403.11
ANNUALIZED TOTAL RETURNS As of 3/31/06
SINCE 1 YEAR 5 YEARS INCEPTION ------------------------------------------------------------------- International Growth Opportunities Fund Class II 43.55% 15.67% 20.44% Citigroup World EMI xUS Index 31.97% 18.84% 12.44% Citigroup World EMI xUS Growth Index 31.67% 15.30% 9.68%
THE GRAPHS ABOVE SHOW THE VALUE OF A HYPOTHETICAL $250,000 INVESTMENT IN THE FUND'S CLASS I AND II SHARES COMPARED WITH THE CITIGROUP WORLD EX-U.S. EMI INDEX AND CITIGROUP WORLD EX-U.S. EMI GROWTH INDEX FOR THE PERIODS INDICATED. THE FUND'S CLASS III-IV SHARES ARE NEW AND HAVE NO PRIOR PERFORMANCE. THE FUND'S CLASS I SHARES CALCULATE THEIR PERFORMANCE BASED UPON THE HISTORICAL PERFORMANCE OF THEIR CORRESPONDING SERIES OF NICHOLAS-APPLEGATE MUTUAL FUNDS (RENAMED ING MUTUAL FUNDS), ADJUSTED TO REFLECT ALL FEES AND EXPENSES APPLICABLE TO THE FUND'S CLASS I SHARES. THE NICHOLASAPPLEGATE INSTITUTIONAL FUNDS' CLASS I SHARES WERE FIRST AVAILABLE ON MAY 7, 1999. AVERAGE ANNUAL TOTAL RETURN FIGURES INCLUDE CHANGES IN PRINCIPAL VALUE, REINVESTED DIVIDENDS, AND CAPITAL GAIN DISTRIBUTIONS. THE TOTAL RETURNS SHOWN ABOVE DO NOT SHOW THE EFFECTS OF INCOME TAXES ON AN INDIVIDUAL'S INVESTMENT. IN MOST CASES, TAXES MAY REDUCE YOUR ACTUAL INVESTMENT RETURNS ON INCOME OR GAINS PAID BY THE FUND OR ANY GAINS YOU MAY REALIZE IF YOU SELL YOUR SHARES. PAST PERFORMANCE CANNOT GUARANTEE FUTURE RESULTS. THE CITIGROUP WORLD EX-U.S. EXTENDED MARKET INDEX ("EMI") IS A WORLD MARKET CAPITALIZATION WEIGHTED INDEX MEASURING CAPITAL APPRECIATION EXCLUDING THE U.S. THE EMI INDEX IS COMPRISED OF COMPANIES IN THE BOTTOM 20% OF ANY GIVEN COUNTRY'S AVAILABLE MARKET CAPITALIZATION. MAJOR CORPORATE EVENTS SUCH AS EXTRAORDINARY DIVIDENDS, SPIN-OFFS, SCRIP ISSUES IN OTHER SECURITIES, AND SHARES REPURCHASED VIA TENDER OFFERS ARE ACCOUNTED FOR IN THE CALCULATION. THE CITIGROUP WORLD EX-U.S. EMI GROWTH COVERS ONLY THOSE COMPANIES IN EACH COUNTRY THAT EXHIBIT GROWTH CHARACTERISTICS RELATIVE TO OTHER COMPANIES IN THE SAME COUNTRY ACCORDING TO A MULTIVARIABLE FORMULA. THE INDICES ARE UNMANAGED AND DO NOT INCLUDE NON-EXTRAORDINARY DIVIDENDS. THE UNMANAGED INDICES DIFFER FROM THE FUND IN COMPOSITION, DO NOT PAY MANAGEMENT FEES OR EXPENSES, AND INCLUDE REINVESTED DIVIDENDS. ONE CAN NOT INVEST DIRECTLY IN AN INDEX. GOING FORWARD, FUND'S PERFORMANCE WILL BE COMPARED TO CITIGROUP WORLD EMI GROWTH BECAUSE ITS COMPOSITION MORE CLOSELY MATCHES THAT OF THE FUND. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, CURRENCY VOLATILITY AND THE SOCIAL, ECONOMIC AND POLITICAL CLIMATES OF COUNTRIES WHERE THE FUND INVESTS. YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. 36 INTERNATIONAL GROWTH OPPORTUNITIES FUND SCHEDULE OF INVESTMENTS As of March 31, 2006
NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------------------------------- COMMON STOCK - 98.3% BELGIUM - 0.7% Umicore 8,819 $ 1,219,845 --------------- BRAZIL - 0.8% Cyrela Brazil Realty S.A. 85,700 1,522,433 --------------- CANADA - 4.2% Alimentation Couche Tard, Inc. Cl. B 72,400 1,576,342 Cryptologic, Inc. 80,100 2,065,779 Eldorado Gold Corp.* 329,100 1,591,054 IPSCO, Inc. 23,400 2,427,454 --------------- 7,660,629 --------------- DENMARK - 1.7% Jyske Bank* 55,450 3,048,309 --------------- FINLAND - 3.0% Cargotec Corp. Cl. B 43,700 1,787,464 YIT OYJ (YIT) 132,100 3,577,685 --------------- 5,365,149 --------------- FRANCE - 4.8% Gemplus International S.A.* 666,911 2,058,009 Neopost S.A. 27,874 3,025,735 Nexans S.A. 25,932 2,016,269 SR Teleperformance* 45,016 1,650,626 --------------- 8,750,639 --------------- GERMANY - 13.4% Aareal Bank AG## 77,664 3,616,546 ADVA AG Optical Networking*,## 104,247 1,204,776 Heidelberger Druckmaschinen AG 60,116 2,648,077 IKB Deutsche Industriebank AG 47,383 1,740,859 Interhyp AG*,## 23,000 2,551,492 IVG Immobilien AG 66,137 1,985,686 QSC AG 274,081 1,684,930 Schwarz Pharma AG 26,867 2,157,244 Solarworld AG 10,100 2,649,841 Stada Arzneimittel AG 57,534 2,478,642 Vivacon AG 37,973 1,641,442 --------------- 24,359,535 --------------- HONG KONG - 1.9% Hengan International Group Co., Ltd. 720,000 1,141,259 Melco International Development 1,126,000 2,321,694 --------------- 3,462,953 --------------- INDIA - 1.1% Satyam Computer Services, Ltd. - ADR 44,800 1,960,448 --------------- INDONESIA - 2.2% Bakrie & Brothers Tbk PT 99,528,000 1,861,974 United Tractors Tbk PT 4,120,000 2,040,277 --------------- 3,902,251 --------------- IRELAND - 2.5% FBD Holdings PLC 32,455 1,549,415 Kingspan Group PLC 198,658 3,021,903 --------------- 4,571,318 --------------- ITALY - 2.4% Buzzi Unicem SpA## 49,015 1,166,736 Davide Campari-Milano SpA 200,310 1,762,285 Fastweb 27,044 1,378,147 --------------- 4,307,168 --------------- JAPAN - 21.8% Disco Corp. 29,200 $ 1,915,484 Haseko Corp.*,## 453,100 1,705,029 Hitachi Construction Machinery Co., Ltd. 217,700 5,719,722 Hoosiers Corp.## 314 1,309,331 Jafco Co., Ltd.## 20,900 1,572,947 Japan General Estate Co., Ltd.## 58,800 1,210,984 Japan Steel Works, Ltd. 383,100 2,607,249 KK DaVinci Advisors* 542 734,978 Komeri Co., Ltd. 40,300 1,502,839 Mitsui Mining & Smelting Co., Ltd. 242,300 1,692,137 Neomax Co., Ltd. 57,400 1,736,740 Pacific Management Corp. 351 963,844 Point, Inc. 10,900 779,693 Taiheiyo Cement Corp. 355,500 1,714,378 Takeuchi Manufacturing Co., Ltd.## 85,400 3,727,519 THK Co., Ltd. 89,300 2,860,870 Toho Tenax Co., Ltd.* 204,000 1,412,560 Toho Titanium Co., Ltd. 13,000 929,909 Tokuyama Corp. 160,800 2,720,204 Tokyu Land Corp. 310,400 2,767,530 --------------- 39,583,947 --------------- MEXICO - 2.1% Corp. Geo S.A. Cl. B* 550,500 2,097,239 Industrias Penoles S.A. de CV## 227,800 1,798,435 --------------- 3,895,674 --------------- NETHERLANDS - 3.0% Koninklijke BAM Groep NV 36,702 3,717,529 SBM Offshore NV 16,596 1,661,922 --------------- 5,379,451 --------------- NORWAY - 9.3% APL ASA* 58,400 916,553 Fjord Seafood ASA 1,092,400 1,329,952 Fred Olsen Energy ASA* 44,600 1,817,884 Stolt Offshore S.A.*,## 129,500 2,032,425 Tandberg Television ASA*,## 235,000 4,923,547 TGS Nopec Geophysical Co. ASA* 94,050 5,753,762 --------------- 16,774,123 --------------- REPUBLIC OF CHINA - 4.7% AAC Acoustic Technology Holdings, Ltd.* 2,737,800 2,557,917 Celestial Nutrifoods, Ltd.*,## 2,073,000 1,575,744 China Fishery Group, Ltd. 1,125,000 1,842,382 FU JI Food & Catering Services Holdings, Ltd. 445,000 923,278 Harbin Power Equipment Cl. H 1,930,000 1,629,091 --------------- 8,528,412 --------------- SINGAPORE - 3.4% Capitaland, Ltd. 679,600 2,032,731 Chartered Semiconductor Manufacturing, Ltd.* 2,891,000 2,804,975 Singapore Petroleum Co., Ltd. 412,800 1,326,552 --------------- 6,164,258 --------------- SOUTH KOREA - 1.4% Industrial Bank of Korea 72,400 1,341,224 Korea Investment Holdings Co., Ltd. 31,210 1,117,798 --------------- 2,459,022 --------------- SPAIN - 1.4% Red Electrica de Espana S.A. 78,021 2,513,384 ---------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 37
NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------------------------------- SWEDEN - 1.0% Alfa Laval AB 70,300 $ 1,889,712 --------------- SWITZERLAND - 3.6% Charles Voegele Holding AG* 9,699 843,843 Phonak Holding AG 57,458 3,262,336 Ypsomed Holding AG* 14,601 2,437,876 --------------- 6,544,055 --------------- TAIWAN - 0.7% Yageo Corp.* 3,327,000 1,276,303 --------------- THAILAND - 1.9% Amata Corp. PCL - NVDR## 3,141,600 1,413,498 Siam Commercial Bank Public Co., Ltd. 1,210,300 2,007,054 --------------- 3,420,552 --------------- UNITED KINGDOM - 5.3% Carphone Warehouse Group PLC 353,428 1,894,289 Michael Page International PLC 300,177 1,775,492 MyTravel Group PLC Cl. A.* 398,617 1,693,982 NDS Group PLC - ADR 35,300 1,836,659 Tullow Oil PLC 232,105 1,364,806 Venture Production PLC* 95,827 1,135,260 --------------- 9,700,488 ----------------------------------------------------------------------------------------------------------------- Total Common Stock (Cost: $134,360,289) 178,260,058 ----------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT ----------------------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS - 10.3% MONEY MARKET FUNDS - 9.2% Boston Global Investment Trust - Enhanced Sleeve, 4.686%** $ 16,618,898 16,618,898 --------------- TIME DEPOSITS - 1.1% Citibank Nassau 4.150%, 04/01/06 2,051,798 2,051,798 ----------------------------------------------------------------------------------------------------------------- Total Short Term Investments (Cost: $18,670,696) 18,670,696 ----------------------------------------------------------------------------------------------------------------- Total Investments - 108.6% (Cost: $153,030,985) 196,930,754 ----------------------------------------------------------------------------------------------------------------- Liabilities in Excess of Other Assets - (8.6%) (15,590,742) ----------------------------------------------------------------------------------------------------------------- Net Assets - 100.0% $ 181,340,012 -----------------------------------------------------------------------------------------------------------------
* NON-INCOME PRODUCING SECURITIES. ** ALL OF THE SECURITY IS PURCHASED WITH CASH COLLATERAL PROCEEDS FROM SECURITIES LOANS. ## ALL OR A PORTION OF THE FUND'S HOLDINGS IN THIS SECURITY WAS ON LOAN AS OF 03/31/06. ADR - AMERICAN DEPOSITORY RECEIPT NVDR - NON VOTING DEPOSITORY RECEIPT SCHEDULE OF INVESTMENTS BY INDUSTRY as of March 31, 2006
PERCENT OF INDUSTRY NET ASSETS ----------------------------------------------------------------------------------------------------------------- Basic Materials 6.8% Communications 9.5 Consumer, Cyclical 7.5 Consumer, Non-cyclical 11.4 Diversified 1.3 Energy 10.3 Financial 17.4 Industrial 27.3 Technology 5.4 Utilities 1.4 Short Term Investments 10.3 Liabilities in excess of other assets (8.6) ----------------------------------------------------------------------------------------------------------------- Net Assets 100.0% =================================================================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 38 EMERGING MARKETS OPPORTUNITIES FUND MANAGEMENT TEAM: JOSEPH DEVINE, Portfolio Manager; VINCENT WILLYARD, CFA, Portfolio Manager; STEPHEN DERKASH, Analyst; MICHAEL J. FREDERICKS, Analyst; CHRISTOPHER A. HERRERA, Analyst; BARRY KENDALL, Analyst; FLORA KIM, Analyst; SCOTT R. WILLIAMS, Analyst CHIEF INVESTMENT OFFICER: HORACIO A. VALEIRAS, CFA GOAL: The Emerging Markets Opportunities Fund seeks to maximize long-term capital appreciation primarily through investments in countries with emerging securities markets. These markets have yet to reach a level of maturity associated with developed foreign stock markets, and are in the opinion of the Investment Adviser, less sophisticated than more developed markets in terms of participation, analyst coverage, liquidity and regulation. MARKET OVERVIEW: The ongoing rally in emerging markets continued in the twelve months ending March 31, 2006, with the MSCI EM Index posting a 47.98% gain. In the past three years, the Index has skyrocketed 215.44%, surpassing by a wide margin advances in the U.S. and in developed international markets. Gains were pervasive, with the average stock in every country and sector within the index closing the fiscal year in positive territory. Latin American equities generated the best results for the period. Colombia, the region's fifth-largest economy, outperformed other countries on falling inflation and interest rates, coupled with rapid acceleration in the materials and financials sectors. Stocks in Europe also saw strong gains. The number-two oil producer in the world, Russia, advanced faster than other markets on rising oil revenues and improved debt ratings by Standard and Poor's. Asian equities trailed the returns of other developing regions. Advances were hampered by higher interest rates in Thailand, Indonesia and Malaysia as central bankers battled rising consumer prices. PERFORMANCE: The Fund's Class I shares gained 65.89% during the twelve months ended March 31, 2006. This compared favorably to the MSCI Emerging Markets Index which increased 47.98%. PORTFOLIO SPECIFICS: The Fund produced strong results in fiscal 2005. After performing in line with the market during the first half of the year, the Fund gathered speed, and finished on March 31, 2006 with a twelve-month return well ahead of the benchmark. Outperformance was largely driven by stock selection, which was a positive factor in every sector and in most countries. The areas where the Fund saw its greatest contributions were among information technology and industrials businesses, and in Brazil and Korea. From a stock standpoint, Brazil-based Cosan and China-based Celestial Nuitrifoods were among the Fund's best performers. As the world's biggest processor of sugar cane, Cosan continues to benefit from elevated oil prices and increasing interest in ethanol as an energy alternative. Celestial manufactures and sells soybean-based food products. Shares in the company have risen because of falling soybean prices and increasing consumer spending in China. At year-end, our bottom-up stock selection process resulted in overweighting in the industrials and consumer discretionary sectors, and in Latin America. MARKET OUTLOOK: We remain cautiously optimistic on the global economy and expect growth to remain on track for the balance of the year. In our opinion, developing countries continue to offer some of the best growth prospects worldwide; however, given the recent run-up in prices, we may see some short-term consolidation. Brazil's economic expansion has continued apace. The Brazilian central bank recently lowered its inflation forecast for 2006, as a stronger real helps to ease consumer price pressure. The revision prompted the new Brazilian Finance Minister, Guido Mantega, to reduce lending rates again in March. We believe some of the best opportunities in 2006 may arise in areas related to emerging market infrastructure and consumption, particularly Chinese consumption. In both the near and long term, we remain confident that our bottom-up stock selection process will continue to uncover attractive investment opportunities for the Fund. [CHART] COMPARISON OF CHANGE IN VALUE OF A $250,000 INVESTMENT IN EMERGING MARKETS OPPORTUNITIES FUND CLASS I AND II SHARES WITH THE MSCI EM INDEX.
EMERGING MARKETS OPPORTUNITIES FUND CLASS I SHARES MSCI EM INDEX 3/27/2004 $ 250,000 $ 250,000 5/31/2004 $ 249,250 $ 249,200 6/30/2004 $ 249,250 $ 250,346 7/31/2004 $ 242,296 $ 245,915 8/30/2004 $ 254,193 $ 256,219 9/30/2004 $ 265,352 $ 271,029 10/31/2004 $ 274,029 $ 277,533 11/30/2004 $ 300,061 $ 303,233 12/31/2004 $ 314,734 $ 317,849 1/31/2005 $ 313,979 $ 318,866 2/28/2005 $ 339,788 $ 346,862 3/31/2005 $ 313,489 $ 324,004 4/30/2005 $ 305,557 $ 315,353 5/31/2005 $ 314,755 $ 326,453 6/30/2005 $ 325,677 $ 337,716 7/31/2005 $ 348,995 $ 361,626 8/31/2005 $ 350,251 $ 364,881 9/30/2005 $ 385,241 $ 398,888 10/31/2005 $ 364,130 $ 372,841 11/30/2005 $ 406,588 $ 403,712 12/31/2005 $ 446,474 $ 427,611 1/31/2006 $ 500,989 $ 475,632 2/28/2006 $ 504,796 $ 475,157 3/31/2006 $ 519,688 $ 479,433
ANNUALIZED TOTAL RETURNS As of 3/31/06
SINCE 1 YEAR INCEPTION Emerging Markets Opportunities Fund Class I 65.89% 49.37% MSCI EM Index 47.98% 42.27%
39 [CHART]
EMERGING MARKETS OPPORTUNITIES FUND CLASS II SHARES MSCI EM INDEX 2/28/2005 $ 250,000 $ 250,000 3/31/2005 $ 251,600 $ 251,325 4/30/2005 $ 245,235 $ 244,615 5/31/2005 $ 252,616 $ 253,225 6/30/2005 $ 261,382 $ 261,961 7/31/2005 $ 280,097 $ 280,508 8/31/2005 $ 281,105 $ 283,033 9/30/2005 $ 309,188 $ 309,411 10/31/2005 $ 292,244 $ 289,207 11/30/2005 $ 326,320 $ 313,153 12/31/2005 $ 358,332 $ 331,692 1/31/2006 $ 402,084 $ 368,941 2/28/2006 $ 405,140 $ 368,572 3/31/2006 $ 417,091 $ 371,889
ANNUALIZED TOTAL RETURNS As of 3/31/06
SINCE 1 YEAR INCEPTION Emerging Markets Opportunities Fund Class II 66.20% 65.52% MSCI EM Index 47.98% 42.27%
THE GRAPHS ABOVE SHOW THE VALUE OF A HYPOTHETICAL $250,000 INVESTMENT IN THE FUND'S CLASS I AND II SHARES COMPARED WITH THE MSCI EMERGING MARKETS ("EM") INDEX FOR THE PERIODS INDICATED. AVERAGE ANNUAL TOTAL RETURN FIGURES INCLUDE CHANGES IN PRINCIPAL VALUE, REINVESTED DIVIDENDS, AND CAPITAL GAIN DISTRIBUTIONS. THE TOTAL RETURNS SHOWN ABOVE DO NOT SHOW THE EFFECTS OF INCOME TAXES ON AN INDIVIDUAL'S INVESTMENT. IN MOST CASES, TAXES MAY REDUCE YOUR ACTUAL INVESTMENT RETURNS ON INCOME OR GAINS PAID BY THE FUND OR ANY GAINS YOU MAY REALIZE IF YOU SELL YOUR SHARES. PAST PERFORMANCE CANNOT GUARANTEE FUTURE RESULTS. THE MSCI EMERGING MARKETS INDEX ("EM") IS A MARKET CAPITALIZATION WEIGHTED INDEX COMPOSED OF OVER 800 COMPANIES REPRESENTATIVE OF THE MARKET STRUCTURE OF EMERGING COUNTRIES IN EUROPE, LATIN AMERICA, AFRICA, MIDDLE EAST AND ASIA. THE MSCI EM INDEX EXCLUDES CLOSED MARKETS AND THOSE SHARES IN OTHERWISE FREE MARKETS THAT ARE NOT PURCHASABLE BY FOREIGNERS. INDEX WEIGHTINGS REPRESENT THE RELATIVE CAPITALIZATIONS OF THE MAJOR OVERSEAS MARKETS INCLUDED IN THE INDEX ON A U.S. DOLLAR ADJUSTED BASIS. THE UNMANAGED INDEX DIFFERS FROM THE FUND IN COMPOSITION, DOES NOT PAY MANAGEMENT FEES OR EXPENSES AND INCLUDES REINVESTED DIVIDENDS. ONE CANNOT INVEST DIRECTLY IN AN INDEX. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, CURRENCY VOLATILITY AND THE SOCIAL, ECONOMIC AND POLITICAL CLIMATES OF COUNTRIES WHERE THE FUND INVESTS. YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. 40 EMERGING MARKETS OPPORTUNITIES FUND SCHEDULE OF INVESTMENTS As of March 31, 2006
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------------------------- COMMON STOCK - 95.0% ARGENTINA - 1.4% Tenaris S.A. - ADR 2,800 $ 505,876 -------------- BRAZIL - 13.7% All America Latina Logistica S.A. 11,240 693,891 Companhia Vale do Rio Doce - ADR 11,200 543,536 Cosan SA Industria Comercio* 5,100 348,678 Cyrela Brazil Realty S.A. 27,300 484,976 Gerdau S.A. - ADR 11,700 263,484 Localiza Rent A Car 21,400 362,812 Lojas Renner S.A. 4,900 266,378 Natura Cosmeticos S.A. 22,500 266,401 Petroleo Brasileiro S.A. - ADR 12,100 1,032,339 Unibanco - Uniao de Bancos Brasileiros S.A. - GDR 8,200 606,062 -------------- 4,868,557 -------------- EGYPT - 2.6% Orascom Construction - GDR 144A# 610 49,961 Orascom Construction Industries - GDR 5,538 454,116 Orascom Telecom Holding SAE 7,713 424,064 -------------- 928,141 -------------- HONG KONG - 1.5% Hengan International Group Co., Ltd. 220,000 348,718 Hutchison Telecommunications International, Ltd.* 103,000 175,873 -------------- 524,591 -------------- HUNGARY - 0.9% Gedeon Richter Rt 1,620 326,171 -------------- INDIA - 3.0% India Tobacco, Ltd. - GDR 144A# 96,000 420,000 Reliance Industries, Ltd. - GDR 144A# 5,418 190,984 Satyam Computer Services, Ltd. - ADR 10,400 455,104 -------------- 1,066,088 -------------- INDONESIA - 7.4% Astra Agro Lestari Tbk PT 146,500 99,956 Bakrie & Brothers Tbk PT* 24,024,500 449,451 Perusahaan Gas Negara PT 482,500 530,978 Perusahaan Perkebunan London Sumatra Indonesia Tbk PT* 647,500 288,585 PT Astra International Tbk 370,500 458,691 PT Bank Niaga Tbk 3,520,000 182,062 PT Ciputra Surya Tbk 1,949,000 126,545 United Tractors Tbk PT 1,029,000 509,574 -------------- 2,645,842 -------------- ISRAEL - 1.0% Bank Hapoalim, Ltd. 75,051 347,860 -------------- MALAYSIA - 2.5% Bumiputra-Commerce Holdings Berhad 262,600 449,181 IOI Corp. Berhad 122,200 441,275 -------------- 890,456 -------------- MEXICO - 5.5% Cemex S.A de CV - ADR 4,100 267,648 Consorcio ARA S.A. de CV 39,400 175,421 Corp. Geo S.A. Cl. B* 83,200 316,967 Empresas ICA S.A. Sociedad Controladora* 54,216 165,735 Impulsora Del Desarrollo Y El Empleo en America Latina S.A. de CV*,## 274,700 310,175 Industrias Penoles S.A. de CV## 72,200 570,004 Sare Holding S.A. de CV Cl. B* 125,430 142,319 -------------- 1,948,269 -------------- OMAN - 0.6% Bank Muscat Saog 144A - GDR# 23,375 $ 227,906 -------------- PERU - 1.5% Credicorp, Ltd. 5,700 150,936 Southern Copper Corp.## 4,600 388,608 -------------- 539,544 -------------- POLAND - 1.1% Grupa Lotos S.A.* 24,990 389,784 -------------- REPUBLIC OF CHINA - 7.8% AAC Acoustic Technology Holdings, Ltd.* 220,000 205,545 Celestial Nutrifoods, Ltd.* 848,000 644,588 China Fishery Group, Ltd.* 321,000 525,693 China GrenTech Corp., Ltd. - ADR* 10,900 186,390 China Hongxing Sports, Ltd.* 238,000 197,089 China Shenhua Energy Co., Ltd.* 113,800 199,447 Foxconn International Holdings, Ltd.* 246,100 463,032 FU JI Food & Catering Services Holdings, Ltd. 74,000 153,534 Suntech Power Holdings Co., Ltd. - ADR* 5,200 192,348 -------------- 2,767,666 -------------- RUSSIAN FEDERATION - 3.3% LUKOIL - ADR 6,800 567,120 RAO Unified Energy System - GDR 3,751 256,193 Surgutneftegaz OJSC - ADR* 2,900 336,414 -------------- 1,159,727 -------------- SOUTH AFRICA - 13.6% Absa Group, Ltd. 18,723 352,319 African Bank Investment, Ltd. 186,857 912,991 Ellerine Holdings, Ltd. 33,666 464,208 Impala Platinum Holdings, Ltd. 1,856 350,757 Imperial Holdings, Ltd. 13,095 363,248 Kumba Resources, Ltd. 15,551 281,303 Naspers, Ltd. Cl. N 17,793 362,239 Pretoria Portland Cement Co., Ltd. 5,308 360,784 Sasol, Ltd. 10,049 379,823 Sun International, Ltd. 23,965 382,927 Wilson Bayly Holmes-Ovcon, Ltd. 67,368 617,453 -------------- 4,828,052 -------------- SOUTH KOREA - 15.2% Cheil Industries, Inc. 14,190 519,903 Daishin Securities Co., Ltd.* 15,130 315,322 Hynix Semiconductor, Inc.* 22,920 681,715 Hyundai Engineering & Construction Co., Ltd.* 13,910 709,351 Industrial Bank of Korea 35,180 651,716 Kia Motors Corp. 11,990 246,180 Korea Investment Holdings Co., Ltd.* 15,570 557,645 Korea Zinc Co., Ltd. 2,460 192,921 LG Electronics, Inc. 6,470 524,712 NHN Corp.* 1,251 386,250 Shinhan Financial Group Co., Ltd. 13,710 613,786 -------------- 5,399,501 -------------- TAIWAN - 8.0% Advanced Semiconductor Engineering, Inc. 331,943 314,003 ASE Test, Ltd.* 45,800 412,200 Asustek Computer, Inc. 141,000 382,326 Catcher Technology Co., Ltd. 45,000 404,881 Cathay Financial Holding Co., Ltd. 125,000 223,393 Siliconware Precision Industries Co. 260,871 339,613 Topco Scientific Co., Ltd. 59,000 178,342 United Microelectronics Corp. - ADR 91,700 312,697 Yageo Corp.* 755,000 289,633 -------------- 2,857,088 --------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 41
NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------------------------------- THAILAND - 1.9% Amata Corp. PCL - NVDR 685,700 $ 308,517 Italian-Thai Development PCL 1,194,900 213,512 Sino Thai Engineering & Construction PCL - NVDR## 709,500 173,293 --------------- 695,322 --------------- TURKEY - 1.4% Akcansa Cimento AS 25,210 159,261 Turkiye Garanti Bankasi AS* 90,953 337,990 --------------- 497,251 --------------- UNITED STATES - 1.1% NII Holdings, Inc.* 6,700 395,099 ----------------------------------------------------------------------------------------------------------------- Total Common Stock (Cost: $22,666,418) 33,808,791 ----------------------------------------------------------------------------------------------------------------- PREFERRED STOCK - 1.2% BRAZIL - 0.7% Lojas Americanas S.A. 6,400,000 269,817 --------------- SOUTH KOREA - 0.5% Hyundai Motor Co. 3,050 168,564 ----------------------------------------------------------------------------------------------------------------- Total Preferred Stock (Cost: $207,236) 438,381 ----------------------------------------------------------------------------------------------------------------- EQUITY-LINKED SECURITIES - 1.2% INDIA - 1.2% Merrill Lynch Associated Cement Co. - 7/28/06 (Cost: $215,127) 24,011 421,393 --------------- PRINCIPAL AMOUNT ----------------------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS - 6.1% MONEY MARKET FUNDS - 3.1% Boston Global Investment Trust - Enhanced Sleeve, 4.686%** $ 1,114,375 1,114,375 --------------- TIME DEPOSITS - 3.0% Wachovia Bank - Grand Cayman 4.150%, 04/01/06 1,057,233 1,057,233 ----------------------------------------------------------------------------------------------------------------- Total Short Term Investments (Cost: $2,171,608) 2,171,608 ----------------------------------------------------------------------------------------------------------------- Total Investments - 103.5% (Cost: $25,260,389) 36,840,173 ----------------------------------------------------------------------------------------------------------------- Liabilities in Excess of Other Assets - (3.5%) (1,234,656) ----------------------------------------------------------------------------------------------------------------- Net Assets - 100.0% $ 35,605,517 -----------------------------------------------------------------------------------------------------------------
* NON-INCOME PRODUCING SECURITIES. ** ALL OF THE SECURITY IS PURCHASED WITH CASH COLLATERAL PROCEEDS FROM SECURITIES LOANS. # 144A SECURITY. CERTAIN CONDITION FOR PUBLIC SALE MAY EXIST. THE TOTAL MARKET VALUE OF 144A SECURITIES OWNED AT MARCH 31, 2006 WAS $888,851 OR 2.50% OF NET ASSETS. ## ALL OR A PORTION OF THE FUND'S HOLDINGS IN THIS SECURITY WAS ON LOAN AS OF 03/31/06. ADR - AMERICAN DEPOSITORY RECEIPT GDR - GLOBAL DEPOSITORY RECEIPT NVDR - NON VOTING DEPOSITORY RECEIPT SCHEDULE OF INVESTMENTS BY INDUSTRY as of March 31, 2006
PERCENT OF INDUSTRY NET ASSETS ----------------------------------------------------------------------------------------------------------------- Basic Materials 9.2% Communications 6.7 Consumer, Cyclical 7.8 Consumer, Non-cyclical 11.9 Diversified 2.3 Energy 8.7 Financial 19.7 Industrial 21.8 Technology 7.1 Utilities 2.2 Short Term Investments 6.1 Liabilities in excess of other assets (3.5) ----------------------------------------------------------------------------------------------------------------- Net Assets 100.0% =================================================================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 42 INTERNATIONAL SYSTEMATIC FUND MANAGEMENT TEAM: HORACIO A. VALEIRAS, CFA, Portfolio Manager and Chief Investment Officer; STEVEN TAEL, PH.D., Portfolio Manager; CHRISTOPHER J. HUFFMAN, Analyst GOAL: The International Systematic Fund seeks to maximize long-term capital appreciation through investments primarily in companies located in the developed countries represented in the MSCI EAFE Index. The Investment Adviser identifies investment opportunities using a quantitative model that integrates stock, sector, country and currency selection decisions. MARKET OVERVIEW: Stocks in developed foreign countries posted solid advances from July 6, 2005 (the inception date of the Fund) through March 31, 2006. During the period, investors brushed aside terrorist attacks in London, skyrocketing oil prices and policy firming in Europe and Asia. Instead, attention was focused on several positive developments which included: - The landslide reelection of Japanese Prime Minister Koizumi, and reemergence of inflation in a country long-beleaguered by falling prices - A brisk pace of merger and acquisition activity in Europe and surging business and consumer confidence - China's revaluation of the yuan, which was viewed as a first step toward correcting ongoing global trade imbalances Stock advances were broad-based, with the large majority of sectors in the MSCI EAFE Index advancing. From a country standpoint, every market registered double-digit gains except for New Zealand, where share prices fell. Mounting inflation and record low unemployment prompted the island-country's top central banker to suggest he was prepared to raise interest rates "in a way that really hurts" in an effort to slow an overheating economy. PERFORMANCE: From its July 6, 2005 inception through March 31, 2006, the Fund's Class I shares rose 38.92%, outperforming the MSCI EAFE Index which gained 26.85% over the same period. PORTFOLIO SPECIFICS: The Fund outperformed its benchmark for every quarter of fiscal 2005, including more than 450 basis points of excess return generated during the three months to March 31, 2006. Effective stock selection drove the Fund's strong results. Management's positive impact was widespread, but most notable in positions taken in Japan, France and England, and in the materials and industrials sectors. Vallourec was among the strongest-contributing stocks in the Fund. Shares of the French steel tubing producer surged more than 200% during the year, driven by growing demand for its products from the energy and power generation markets. Japanese-based Sumitomo Metal was another major contributor, after the company raised guidance amid improved pricing and increased demand for steel piping. The Fund realized very strong returns for the year; nonetheless, there were areas of weakness. Holdings in Singapore and Ireland underperformed the benchmark, as did stock picks in the health care and financials sectors. MARKET OUTLOOK: Our process evaluates investment opportunities on a relative basis and is required to remain fully invested. As such, the process neither utilizes nor results in a forecast or outlook on the overall market, but expects to perform equally well versus the MSCI EAFE Index in both up and down markets. We are confident that our proprietary stock-selection model, in conjunction with our risk-controlled approach to portfolio construction, will continue to add value to the benchmark over time. 43 INTERNATIONAL SYSTEMATIC FUND SCHEDULE OF INVESTMENTS As of March 31, 2006
NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------------------------------- COMMON STOCK - 100.6% AUSTRALIA - 5.2% Broken Hill Proprietary, Ltd. $ 2,300 $ 45,920 Lihir Gold, Ltd.* 18,000 34,269 Macquarie Airports 27,900 67,043 Oxiana, Ltd.* 29,000 55,418 Rio Tinto, Ltd. 700 39,357 --------------- 242,007 --------------- AUSTRIA - 1.1% IMMOFINANZ Immobilien Anlagen AG* 2,100 21,754 Voestalpine AG 200 27,945 --------------- 49,699 --------------- BELGIUM - 6.8% Compagnie Maritime Belge S.A. 200 5,981 Fortis 1,200 42,752 Fortis 3,200 114,161 Groupe Bruxelles Lambert S.A. 600 66,655 KBC Groep NV 800 85,775 --------------- 315,324 --------------- DENMARK - 1.7% Danske Bank A/S 1,800 66,699 Sydbank A/S 400 12,519 --------------- 79,218 --------------- FINLAND - 2.1% Rautaruukki OYJ 2,600 95,902 --------------- FRANCE - 10.1% Bacou Dalloz 100 11,121 BNP Paribas S.A. 800 74,206 BNP Paribas S.A.* 80 7,169 Credit Agricole S.A. 800 31,086 Sanofi-Aventis S.A. 1,300 123,496 Societe Generale 500 75,090 Total S.A. 123 32,404 Vallourec 100 96,449 Vivendi Universal S.A. 600 20,577 --------------- 471,598 --------------- GERMANY - 2.9% Continental AG 200 21,988 DaimlerChrysler AG 100 5,736 Deutsche Bank AG 200 22,811 Hannover Rueckversicherungs AG 700 25,930 Man AG 100 6,931 Volkswagen AG 700 52,783 --------------- 136,179 --------------- HONG KONG - 0.9% Hang Lung Group, Ltd. 3,000 6,862 Hopewell Holdings, Ltd. 3,000 8,699 Sino Land Co. 16,000 23,093 Solomon Systech International, Ltd. 10,000 4,865 --------------- 43,519 --------------- ITALY - 3.9% Banche Popolari Unite Scpa 4,200 101,703 Capitalia SpA 8,400 69,734 Sanpaolo IMI SpA 700 12,512 --------------- 183,949 --------------- JAPAN - 30.8% Aisin Seiki Co., Ltd. $ 2,300 $ 89,279 Astellas Pharma, Inc. 700 26,519 Canon, Inc. 600 39,613 Denso Corp. 2,800 110,348 Fujitsu, Ltd. 1,000 8,416 Honda Motor Co., Ltd. 1,400 86,499 Ibiden Co., Ltd. 1,100 55,471 Itochu Corp. 9,000 77,117 Japan Tobacco, Inc. 28 98,246 JFE Holdings, Inc. 600 24,155 Kobe Steel, Ltd. 3,000 11,365 Koei Co., Ltd. 300 6,217 Komatsu, Ltd. 3,000 57,081 Marubeni Corp. 6,000 31,325 Matsushita Electric Industrial Co., Ltd. 3,000 66,489 Mitsubishi Corp. 4,000 90,855 Mitsui & Co., Ltd. 2,000 28,850 NGK Spark Plug Co., Ltd. 2,000 46,529 Nippon Electric Glass Co., Ltd. 1,000 24,833 Parco Co., Ltd. 2,000 24,917 Shinko Electric Industries Co., Ltd. 400 12,069 Star Micronics Co., Ltd. 1,000 16,400 Sumitomo Corp. 3,000 42,614 Sumitomo Metal Industries, Ltd. 14,000 59,920 Teijin, Ltd. 4,000 26,545 Tokyo Electron, Ltd. 1,100 75,701 Toshiba Corp. 10,000 57,971 Toyota Motor Corp. 1,400 76,295 Xebio Co., Ltd. 1,500 51,615 Yaskawa Electric Corp.* 1,000 11,264 --------------- 1,434,518 --------------- NETHERLANDS - 3.3% ABN AMRO Holding NV 300 8,982 Fugro NV 900 34,580 Heineken NV 900 34,112 ING Groep NV 700 27,616 USG People NV 700 50,614 --------------- 155,904 --------------- NORWAY - 0.9% DNB NOR ASA 3,000 40,341 --------------- REPUBLIC OF CHINA - 0.3% TPV Technology, Ltd. 12,000 13,222 --------------- SINGAPORE - 1.1% Jardine Cycle & Carriage, Ltd. 1,000 6,860 SembCorp Marine, Ltd. 18,000 31,703 Starhub, Ltd. 9,000 12,069 --------------- 50,632 --------------- SPAIN - 3.5% ACS, Actividades de Construccion y Servicios, S.A 900 34,918 Banco Bilbao Vizcaya Argentaria S.A 2,500 52,097 Banco Santander Central Hispano S.A 1,300 18,957 Fadesa Inmobiliaria S.A.* 700 25,201 Gestevision Tecinco S.A 400 9,976 Telefonica S.A 1,300 20,373 --------------- 161,522 ---------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 44
PRINCIPAL AMOUNT VALUE ----------------------------------------------------------------------------------------------------------------- SWEDEN - 2.1% Nordea AB $ 2,000 $ 24,699 Svenska Handelsbanken AB Cl. A 2,700 75,003 --------------- 99,702 --------------- SWITZERLAND - 5.1% Credit Suisse Group 700 39,182 Georg Fischer AG* 53 23,563 Nestle S.A. 23 6,811 Novartis AG 600 33,286 Roche Holding AG 224 33,270 Swiss Reinsurance 200 13,942 UBS AG 500 54,788 Zurich Financial Services AG* 142 33,277 --------------- 238,119 --------------- UNITED KINGDOM - 18.8% AstraZeneca PLC 540 27,163 Aviva PLC 900 12,481 BAE Systems PLC 3,400 24,814 Barrat Developments PLC 500 9,184 BHP Billiton, Ltd. 4,400 80,251 BP PLC 3,900 44,715 British American Tobacco PLC 1,500 36,269 British Energy Group PLC* 2,200 24,804 Cookson Group PLC* 1,700 15,245 First Choice Holidays PLC 4,000 14,934 GlaxoSmithKline PLC 6,100 159,240 HBOS PLC 1,800 30,004 HSBC Holdings PLC 1,100 18,412 Lonmin PLC 800 36,953 Marks & Spencer Group PLC 3,200 30,889 Old Mutual PLC 5,500 19,199 Prudential PLC 600 6,947 Rio Tinto PLC 2,100 106,435 Rolls Royce Group PLC* 2,613 20,758 Rolls-Royce Group PLC Cl. B 49,119 87 Royal Bank of Scotland Group PLC 1,200 38,986 Royal Dutch Shell PLC Cl. B 1,100 35,718 Taylor Woodrow PLC 9,000 63,068 Vodafone Group PLC 10,200 21,319 --------------- 877,875 ----------------------------------------------------------------------------------------------------------------- Total Common Stock (Cost: $3,898,392) 4,689,230 ----------------------------------------------------------------------------------------------------------------- PREFERRED STOCK - 0.3% ITALY - 0.3% Istituto Finanziario Industriale SpA* (Cost: $12,269) 600 12,939 ----------------------------------------------------------------------------------------------------------------- Total Investments - 100.9% (Cost: $3,910,661) 4,702,169 ----------------------------------------------------------------------------------------------------------------- Liabilities in Excess of Other Assets - (0.9%) (40,035) ----------------------------------------------------------------------------------------------------------------- Net Assets - 100.0% $ 4,662,134 -----------------------------------------------------------------------------------------------------------------
* NON-INCOME PRODUCING SECURITIES. SCHEDULE OF INVESTMENTS BY INDUSTRY as of March 31, 2006
PERCENTAGE OF INDUSTRY NET ASSETS ----------------------------------------------------------------------------------------------------------------- Basic Materials 13.3% Communications 1.4 Consumer, Cyclical 23.1 Consumer, Non-cyclical 13.9 Diversified 1.4 Energy 3.2 Financial 30.9 Industrial 9.8 Technology 3.4 Utilities 0.5 Liabilities in excess of other assets (0.9) ----------------------------------------------------------------------------------------------------------------- Net Assets 100.0% =================================================================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 45 INTERNATIONAL ALL CAP GROWTH FUND MANAGEMENT TEAM: VINCENT WILLYARD, CFA, Portfolio Manager; JOSEPH DEVINE, Portfolio Manager; STEPHEN DERKASH, Analyst; MICHAEL J. FREDERICKS, Analyst; BARRY KENDALL, Analyst; FLORA KIM, Analyst; SCOTT R. WILLIAMS, Analyst CHIEF INVESTMENT OFFICER: HORACIO A. VALEIRAS, CFA GOAL: 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. MARKET OVERVIEW: Between November 18, 2005 (the date the Fund was acquired) and March 31, 2006, international growth stocks saw very strong returns. The period was marked by elevated energy prices and inflation concerns, two interest rate hikes at the European Central Bank and the end of ultra-loose money at the Bank of Japan. Regardless, investors focused on positive developments which included: - Mounting evidence in support of Japan's economic recovery, including the first back-to-back rise in consumer prices since 1998 - Signs that export-led growth in Europe was translating into accelerating manufacturing, improved employment and increasing consumer spending - The swearing in of Germany's first woman chancellor, Angela Merkel, following two months of electoral deadlock Stock advances among developed international markets were widespread across sectors and countries. On average, industrials and financials companies saw the strongest results. From a country perspective, New Zealand notably lagged other areas, as a series of hard-hitting interest rate hikes began to cool the country's overheating economy. Portugal and Ireland saw the best results. On a comparative basis, value slightly outperformed growth. PERFORMANCE: From its November 18, 2005 acquisition through March 31, 2006, the Fund's Class I shares rose 25.94%, outperforming the MSCI EAFE Growth Index which rose 15.39% during the same period. PORTFOLIO SPECIFICS: The Fund significantly outpaced the benchmark for the period between the Fund's acquisition through March 31, 2006. In large part, outperformance was due to stock selection, especially in the Asia-Pacific region. For example, in Japan, where the Fund invested approximately 28% of its assets, the Fund outperformed the benchmark by more than 4%. Other areas where stock selection was particularly strong include the industrials, materials and financials sectors. Among the strongest performers within the Fund were the largest independent Japanese real estate management service firm, Pacific Management; one of Brazil's largest banks, Unibanco; and TGS Nopec Geophysical, a leading Norwegian-based provider of marine seismic data to the oil and gas industry. Pacific Management benefited from rising Japanese land prices and demand for real estate services. A healthy Brazilian economy, falling interest rates and strong growth in consumer lending propelled Unibanco upward. While soaring energy prices were cause for concern among consumers and central bankers, they have been a boon to TGS which employs sound waves to map potential oil and gas fields. The Fund generated strong results. Nonetheless, there were a few areas of relative weakness. Issue selection in the consumer staples and consumer discretionary categories, and in the United Kingdom and Egypt, generally detracted from the Fund's results. MARKET OUTLOOK: We remain cautiously optimistic for the remainder of 2006. We view an expected end to monetary policy firming in the U.S. as generally supportive of an earnings multiple expansion, both domestically and for international markets. We continue to be upbeat on the Japanese economy as it transitions out of deflation; however, the recent run-up in prices makes effective stock selection that much more critical. The outlook for Europe, where export-led growth continues to translate into domestic spending, is also favorable. 46 [CHART] COMPARISON OF CHANGE IN VALUE OF A $250,000 INVESTMENT IN INTERNATIONAL ALL CAP GROWTH FUND CLASS I SHARES WITH THE MSCI EAFE INDEX AND MSCI EAFE GROWTH INDEX.
INTERNATIONAL ALL CAP FUND CLASS I SHARES MSCI EAFE INDEX MSCI EAFE GROWTH INDEX 6/30/1999 $ 250,000 $ 250,000 $ 250,000 7/31/1999 $ 258,000 $ 257,350 $ 254,800 8/31/1999 $ 263,753 $ 258,431 $ 256,354 9/30/1999 $ 269,002 $ 261,067 $ 260,456 10/31/1999 $ 292,997 $ 270,648 $ 274,286 11/30/1999 $ 382,244 $ 279,958 $ 294,282 12/31/1999 $ 469,510 $ 304,931 $ 326,976 1/31/2000 $ 484,769 $ 285,354 $ 308,437 2/29/2000 $ 630,006 $ 292,973 $ 325,555 3/31/2000 $ 535,253 $ 304,721 $ 332,001 4/30/2000 $ 451,486 $ 288,906 $ 310,222 5/31/2000 $ 419,250 $ 282,348 $ 291,329 6/30/2000 $ 446,753 $ 293,585 $ 301,730 7/31/2000 $ 427,274 $ 281,196 $ 282,811 8/31/2000 $ 445,006 $ 283,755 $ 285,922 9/30/2000 $ 420,264 $ 269,965 $ 267,051 10/31/2000 $ 385,004 $ 263,431 $ 254,607 11/30/2000 $ 343,500 $ 253,447 $ 242,793 12/31/2000 $ 349,855 $ 262,343 $ 247,260 1/31/2001 $ 336,841 $ 262,212 $ 246,568 2/28/2001 $ 307,098 $ 242,573 $ 221,566 3/31/2001 $ 275,129 $ 226,514 $ 206,344 4/30/2001 $ 286,657 $ 242,393 $ 220,603 5/31/2001 $ 282,930 $ 234,030 $ 211,801 6/30/2001 $ 271,783 $ 224,552 $ 201,550 7/31/2001 $ 256,155 $ 220,488 $ 196,672 8/31/2001 $ 247,241 $ 214,953 $ 187,724 9/30/2001 $ 215,644 $ 193,222 $ 170,002 10/31/2001 $ 225,304 $ 198,168 $ 176,769 11/30/2001 $ 242,788 $ 205,481 $ 185,854 12/31/2001 $ 245,022 $ 206,713 $ 186,932 1/31/2002 $ 239,827 $ 195,737 $ 176,857 2/28/2002 $ 236,110 $ 197,127 $ 179,244 3/31/2002 $ 250,985 $ 207,890 $ 186,145 4/30/2002 $ 246,517 $ 209,387 $ 187,225 5/31/2002 $ 249,500 $ 212,234 $ 187,768 6/30/2002 $ 242,439 $ 203,872 $ 182,961 7/31/2002 $ 213,444 $ 183,770 $ 163,457 8/31/2002 $ 208,620 $ 183,403 $ 162,231 9/30/2002 $ 190,407 $ 163,760 $ 148,150 10/31/2002 $ 191,892 $ 172,571 $ 156,535 11/30/2002 $ 198,206 $ 180,423 $ 161,153 12/31/2002 $ 187,423 $ 174,360 $ 157,446 1/31/2003 $ 184,068 $ 167,090 $ 149,668 2/28/2003 $ 181,086 $ 163,263 $ 146,451 3/31/2003 $ 179,964 $ 160,178 $ 145,015 4/30/2003 $ 200,408 $ 176,067 $ 157,733 5/31/2003 $ 215,659 $ 186,895 $ 166,030 6/30/2003 $ 219,756 $ 191,512 $ 168,969 7/31/2003 $ 230,920 $ 196,185 $ 171,216 8/31/2003 $ 244,683 $ 200,952 $ 174,349 9/30/2003 $ 250,628 $ 207,181 $ 180,277 10/31/2003 $ 271,456 $ 220,110 $ 190,661 11/30/2003 $ 268,470 $ 225,040 $ 195,142 12/31/2003 $ 285,947 $ 242,638 $ 208,567 1/31/2004 $ 295,984 $ 246,084 $ 212,655 2/29/2004 $ 298,588 $ 251,817 $ 216,717 3/31/2004 $ 304,530 $ 253,328 $ 216,955 4/30/2004 $ 294,481 $ 247,806 $ 211,727 5/31/2004 $ 289,651 $ 248,871 $ 211,473 6/30/2004 $ 293,735 $ 254,421 $ 214,222 7/31/2004 $ 281,105 $ 246,203 $ 205,546 8/30/2004 $ 281,105 $ 247,336 $ 205,792 9/30/2004 $ 291,899 $ 253,841 $ 210,896 10/31/2004 $ 298,584 $ 262,522 $ 217,961 11/30/2004 $ 324,978 $ 280,531 $ 233,044 12/31/2004 $ 336,450 $ 292,846 $ 242,925 1/31/2005 $ 331,975 $ 287,487 $ 237,338 2/28/2005 $ 352,126 $ 299,964 $ 246,902 3/31/2005 $ 339,062 $ 292,555 $ 240,952 4/30/2005 $ 326,381 $ 286,002 $ 236,495 5/31/2005 $ 330,494 $ 286,431 $ 237,370 6/30/2005 $ 338,327 $ 290,355 $ 239,340 7/31/2005 $ 353,281 $ 299,269 $ 246,640 8/31/2005 $ 368,966 $ 306,930 $ 253,743 9/30/2005 $ 389,887 $ 320,650 $ 264,476 10/31/2005 $ 373,083 $ 311,319 $ 257,256 11/30/2005 $ 393,154 $ 319,009 $ 262,144 12/31/2005 $ 428,656 $ 333,874 $ 276,037 1/31/2006 $ 462,649 $ 354,408 $ 293,069 2/28/2006 $ 460,428 $ 353,699 $ 289,787 3/31/2006 $ 485,844 $ 365,512 $ 301,146
ANNUALIZED TOTAL RETURNS As of 3/31/06
SINCE 1 YEAR 5 YEARS INCEPTION International All Cap Growth Fund Class I 43.28% 12.03% 10.33% MSCI EAFE Index 24.94% 10.04% 5.79% MSCI EAFE Growth Index 24.98% 7.86% 2.79%
THE GRAPH ABOVE SHOWS THE VALUE OF A HYPOTHETICAL $250,000 INVESTMENT IN THE FUND'S CLASS I SHARES COMPARED WITH THE MSCI EAFE INDEX AND THE MSCI EAFE GROWTH INDEX FOR THE PERIODS INDICATED. PERFORMANCE IS SHOWN FOR CLASS I SHARES ONLY. THE FUND'S CLASS II SHARES HAVE LESS THAN A YEAR'S PERFORMANCE. AVERAGE ANNUAL TOTAL RETURN FIGURES INCLUDE CHANGES IN PRINCIPAL VALUE, REINVESTED DIVIDENDS, AND CAPITAL GAIN DISTRIBUTIONS. THE TOTAL RETURNS SHOWN ABOVE DO NOT SHOW THE EFFECTS OF INCOME TAXES ON AN INDIVIDUAL'S INVESTMENT. IN MOST CASES, TAXES MAY REDUCE YOUR ACTUAL INVESTMENT RETURNS ON INCOME OR GAINS PAID BY THE FUND OR ANY GAINS YOU MAY REALIZE IF YOU SELL YOUR SHARES. PAST PERFORMANCE CANNOT GUARANTEE FUTURE RESULTS. ON NOVEMBER 18, 2005, THE FUND BECAME THE SUCCESSOR ENTITY TO THE NICHOLAS-APPLEGATE INTERNATIONAL ALL CAP GROWTH FUND, A SERIES OF THE PROFESSIONALLY MANAGED PORTFOLIOS ("ACQUIRED FUND"). THE ACQUIRED FUND TRANSFERRED ALL OF ITS ASSETS AND LIABILITIES IN EXCHANGE FOR SHARES OF THE FUND, AND THE INVESTMENT OBJECTIVES, POLICIES AND LIMITATIONS OF THE FUND ARE SUBSTANTIALLY SIMILAR TO THOSE OF THE ACQUIRED FUND. THE PERFORMANCE SHOWN ABOVE INCLUDES THE HISTORICAL PERFORMANCE OF THE ACQUIRED FUND FROM JUNE 30, 1999 TO NOVEMBER 18, 2005. THE MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALIA, FAR EAST INDEX ("MSCI EAFE") IS AN UNMANAGED INDEX THAT IS A GENERALLY ACCEPTED BENCHMARK FOR MAJOR OVERSEAS MARKETS. IT CONSISTS OF THE TOP 50% OF THE MSCI EAFE, THOSE COMPANIES WITH THE HIGHEST PRICE/BOOK VALUE RATIO. THE MSCI EAFE GROWTH INDEX IS AN UNMANAGED INDEX THAT IS A GENERALLY ACCEPTED BENCHMARK FOR MAJOR OVERSEAS MARKETS. IT CONSISTS OF THE TOP 50% OF THE MSCI EAFE, THOSE COMPANIES WITH THE HIGHEST PRICE/BOOK VALUE RATIO. THE MSCI EAFE INDEX CONSISTS OF APPROXIMATELY 900 COMPANIES WITH AVERAGE MARKET CAPITALIZATION OF U.S. $8.7 BILLION. ITS WEIGHTINGS REPRESENT THE RELATIVE CAPITALIZATION OF THE MAJOR OVERSEAS MARKETS INCLUDED IN THE INDEX ON A U.S. DOLLAR ADJUSTED BASIS. THE UNMANAGED INDEXES DIFFER FROM THE FUND IN COMPOSITION, DO NOT PAY MANAGEMENT FEES OR EXPENSES AND INCLUDE REINVESTED DIVIDENDS. ONE CANNOT INVEST DIRECTLY INTO AN INDEX. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, CURRENCY VOLATILITY AND THE SOCIAL, ECONOMIC AND POLITICAL CLIMATES OF COUNTRIES WHERE THE FUND INVESTS. YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. 47 INTERNATIONAL ALL CAP GROWTH FUND SCHEDULE OF INVESTMENTS As of March 31, 2006
NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------------------------------- COMMON STOCK - 98.9% AUSTRALIA - 2.2% Rio Tinto, Ltd. 3,898 $ 219,161 Zinifex, Ltd. 32,777 222,965 --------------- 442,126 --------------- BELGIUM - 0.7% KBC Groep NV 1,306 140,028 --------------- BRAZIL - 1.0% Cyrela Brazil Realty S.A. - ADR 1,200 213,231 --------------- CANADA - 2.6% Cryptologic, Inc. 9,500 245,005 Eldorado Gold Corp.* 39,100 189,031 Talisman Energy, Inc. 1,700 90,377 --------------- 524,413 --------------- EGYPT - 0.4% Orascom Construction - GDR 144A# 258 21,131 Orascom Construction Industries - GDR 755 61,910 --------------- 83,041 --------------- FINLAND - 2.2% YIT OYJ (YIT) 16,300 441,455 --------------- FRANCE - 8.5% Alstom RGPT* 3,075 257,508 Sanofi-Aventis S.A. 2,178 206,903 STMicroelectronics NV 9,400 172,866 Total S.A.- ADR 2,730 359,623 Vallourec 316 304,779 Veolia Environnement 7,987 442,968 --------------- 1,744,647 --------------- GERMANY - 12.5% Commerzbank AG 15,743 626,410 Deutsche Postbank AG 2,817 204,130 Hugo Boss AG 827 35,208 Hypo Real Estate Holding AG 7,460 510,698 IVG Immobilien AG 8,185 245,745 Puma AG Rudolf Dassler Sport* 538 203,430 Schwarz Pharma AG 2,832 227,391 Siemens AG 2,279 212,471 Solarworld AG 1,185 310,897 --------------- 2,576,380 --------------- GREECE - 3.2% National Bank of Greece S.A. 6,171 289,752 Piraeus Bank 11,910 360,322 --------------- 650,074 --------------- HONG KONG - 3.1% Cheung Kong Holdings, Ltd. 20,000 211,731 Hutchison Telecommunications International, Ltd.* 120,000 204,901 Melco International Development 110,000 226,809 --------------- 643,441 --------------- INDIA - 1.0% Satyam Computer Services, Ltd. - ADR 4,800 210,048 --------------- INDONESIA - 2.7% Bakrie & Brothers Tbk PT* 15,483,000 289,657 Perusahaan Gas Negara PT 233,500 256,961 --------------- 546,618 --------------- IRELAND - 2.7% Anglo Irish Bank Corp. PLC 12,131 $ 196,716 Kingspan Group 23,347 355,710 --------------- 552,426 --------------- ITALY - 1.8% Saipem SpA 7,553 174,488 UniCredito Italiano SpA 28,296 204,256 --------------- 378,744 --------------- JAPAN - 25.7% Fanuc, Ltd. 1,100 105,628 Haseko Corp.* 51,900 195,301 Jafco Co., Ltd. 2,400 180,626 Japan Steel Works, Ltd. 30,400 206,892 Kajima Corp. 36,400 226,748 Komatsu, Ltd. 16,400 312,043 Mitsubishi Heavy Industries, Ltd. 83,000 393,932 Mitsubishi UFJ Financial Group, Inc. 42 640,732 Murata Manufacturing Co., Ltd. 2,900 195,889 Neomax Co., Ltd. 5,400 163,387 Nidec Corp. 1,300 106,433 ORIX Corp. 1,030 319,938 Pacific Management Corp. 40 109,840 Sumitomo Realty & Development Co., Ltd. 10,000 276,295 Sumitomo Titanium Corp. 600 102,161 Taiheiyo Cement Corp. 41,900 202,060 Toho Tenax Co., Ltd.* 23,000 159,259 Tokuyama Corp. 10,100 170,859 Tokyo Electron, Ltd. 2,900 199,576 Tokyu Land Corp. 22,000 196,152 Toshiba Corp. 35,000 202,899 Toyota Motor Corp. 5,200 283,380 Yamada Denki Co., Ltd. 2,900 333,528 --------------- 5,283,558 --------------- MEXICO - 1.0% Industrias Penoles S.A. de C.V. 26,500 209,212 --------------- NETHERLANDS - 3.8% ASM Lithography Holding NV* 8,700 177,219 Koninklijke BAM Groep NV 1,933 195,793 Koninklijke Royal Philips Electronics NV 6,350 213,678 SBM Offshore NV 1,916 191,868 --------------- 778,558 --------------- NORWAY - 6.4% APL ASA* 6,800 106,722 Fred Olsen Energy ASA* 5,100 207,875 Tandberg Television ASA* 15,730 329,563 Telenor ASA 17,000 182,619 TGS Nopec Geophysical Co. ASA* 7,900 483,304 --------------- 1,310,083 --------------- PERU - 1.2% Southern Copper Corp. 2,900 244,992 --------------- REPUBLIC OF CHINA - 0.5% FU JI Food & Catering Services Holdings, Ltd. 51,000 105,814 --------------- SINGAPORE - 2.5% Capitaland, Ltd. 173,500 518,951 --------------- SOUTH KOREA - 1.5% Hynix Semiconductor, Inc.* 5,300 157,639 Industrial Bank of Korea 8,230 152,462 --------------- 310,101 ---------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 48 SCHEDULE OF INVESTMENTS As of March 31, 2006
NUMBER OF SHARES VALUE ----------------------------------------------------------------------------------------------------------------- SWEDEN - 1.9% Telefonaktiebolaget LM Ericsson - ADR 10,480 $ 395,306 --------------- SWITZERLAND - 4.6% ABB, Ltd.* 36,251 456,310 Roche Holding AG 1,733 257,394 UBS AG 2,199 240,959 --------------- 954,663 --------------- THAILAND - 1.6% Siam Commercial Bank Public Co., Ltd. 193,800 321,381 --------------- UNITED KINGDOM - 3.6% AstraZeneca PLC - ADR 3,590 180,326 Barclays PLC 33,450 390,769 Diageo PLC 11,131 175,020 --------------- 746,115 ----------------------------------------------------------------------------------------------------------------- Total Common Stock (Cost: $15,246,004) 20,325,406 ----------------------------------------------------------------------------------------------------------------- PREFERRED STOCK - 0.7% GERMANY - 0.7% Hugo Boss AG (Cost: $111,056) 3,273 137,639 ----------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT ----------------------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS - 0.9% TIME DEPOSITS - 0.9% Citibank Nassau 4.200%, 04/01/06 (Cost: $194,099) $ 194,099 194,099 ----------------------------------------------------------------------------------------------------------------- Total Investments - 100.5% (Cost: $15,551,159) 20,657,144 ----------------------------------------------------------------------------------------------------------------- Liabilities in Excess of Other Assets - (0.5%) (95,113) ----------------------------------------------------------------------------------------------------------------- Net Assets - 100.0% $ 20,562,031 -----------------------------------------------------------------------------------------------------------------
* NON-INCOME PRODUCING SECURITIES. # 144A SECURITY. CERTAIN CONDITION FOR PUBLIC SALE MAY EXIST. THE TOTAL MARKET VALUE OF 144A SECURITIES OWNED AT MARCH 31, 2006 WAS $21,131 OR 0.10% OF NET ASSETS. ADR - AMERICAN DEPOSITORY RECEIPT GDR - GLOBAL DEPOSITORY RECEIPT SCHEDULE OF INVESTMENTS BY INDUSTRY as of March 31, 2006
PERCENTAGE OF INDUSTRY NET ASSETS ----------------------------------------------------------------------------------------------------------------- Basic Materials 6.6% Communications 6.7 Consumer, Cyclical 6.5 Consumer, Non-cyclical 5.6 Diversified 1.1 Energy 9.4 Financial 31.9 Industrial 23.9 Technology 4.5 Utilities 3.4 Short Term Investments 0.9 Liabilities in excess of other assets (0.5) ----------------------------------------------------------------------------------------------------------------- Net Assets 100.0% =================================================================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 49 U.S. HIGH YIELD BOND FUND MANAGEMENT TEAM: DOUGLAS G. FORSYTH, CFA, Portfolio Manager; JUSTIN KASS, CFA, Portfolio Manager; WILLIAM L. STICKNEY, Portfolio Manager; MICHAEL E. YEE, Portfolio Manager; ELIZABETH LEMESEVSKI, Analyst; JOANNA WILLARS, Analyst; NICOLE D. LARRABEE, Fixed Income Trading Assistant CHIEF INVESTMENT OFFICER: HORACIO A. VALEIRAS, CFA GOAL: The U.S. High Yield Bond Fund seeks to deliver total return via high current income and capital growth from a diversified portfolio consisting primarily of lower-rated U.S. corporate fixed-income securities. MARKET OVERVIEW: The high-yield bond market accelerated in 2005, generating solid returns in the twelve months ended March 31, 2006. The Merrill Lynch High Yield II Master Index advanced 7.23% for the period, trailing the 11.72% gain in the S&P 500 Index. On a month-to-month basis, market performance was volatile. The fiscal year began on a downbeat, based on tepid economic data and growing uncertainty regarding Detroit's auto industry. In May, investor concerns were realized, and the debt of both Ford and General Motors was cut to junk status. Perhaps relieved by the expected action, the high yield market advanced. Rising interest rates and company-specific credit events weighed on high yield bonds in the fall, but as the holidays approached, advances in forest products and aerospace issues brought investors gains. The high yield market continued to accelerate into the New Year, propelled by gains among lower-quality issues. The best-performing industries during the first six months of fiscal 2005 included energy, telecommunications and steel. Airlines and automotive-related businesses underperformed in the first half, but rebounded strongly during the final six months of the year. Credit upgrades slightly exceeded credit downgrades by the rating agencies during the year. PERFORMANCE: During the twelve months ended March 31, 2006, the Fund's Class I shares rose 7.40%, outperforming the Merrill Lynch High Yield Master Index, which rose 7.23%. PORTFOLIO SPECIFICS: The Fund outpaced the benchmark for the full fiscal year. The Fund experienced a number of issuer upgrades over the course of the year, including twenty-four positive rating actions across a range of different industries during the six months to March 31, 2006. We continued to be rewarded for our credit research. Equally important to long-term performance, the Fund experienced just three downgrades. There were no significant negative performers for the period. MARKET OUTLOOK: We believe the high-yield market remains a compelling area of investment compared to other fixed-income alternatives. The economy remains healthy, corporate balance sheets are solid and defaults are low. While the prospect of further interest rate hikes could weigh on returns, high-yield spreads versus Treasuries should not widen materially given this positive fundamental backdrop. Of course, the long-term driver of total return in a high-yield portfolio is company fundamentals. As such, we continue to build the Fund one security at a time, performing rigorous credit analysis to identify companies that are capitalizing on change. [CHART] COMPARISON OF CHANGE IN VALUE OF A $250,000 INVESTMENT IN U.S. HIGH YIELD BOND FUND CLASS I AND II SHARES WITH THE MERRILL LYNCH HIGH YIELD MASTER II INDEX.
U.S. HIGH YIELD BOND FUND CLASS I SHARES MERRILL LYNCH HIGH YIELD MASTER II INDEX 7/31/1996 $ 250,000 $ 250,000 8/31/1996 $ 256,780 $ 253,100 9/30/1996 $ 265,702 $ 258,997 10/31/1996 $ 268,927 $ 261,251 11/30/1996 $ 273,926 $ 266,502 12/31/1996 $ 278,314 $ 268,714 1/31/1997 $ 283,685 $ 270,729 2/28/1997 $ 289,776 $ 274,898 3/31/1997 $ 284,740 $ 271,132 4/30/1997 $ 285,969 $ 274,603 5/31/1997 $ 298,355 $ 280,397 6/30/1997 $ 305,705 $ 284,743 7/31/1997 $ 315,198 $ 292,289 8/31/1997 $ 318,279 $ 291,938 9/30/1997 $ 331,438 $ 297,193 10/31/1997 $ 332,537 $ 298,708 11/30/1997 $ 336,209 $ 301,516 12/31/1997 $ 337,882 $ 304,411 1/31/1998 $ 349,162 $ 309,251 2/28/1998 $ 353,474 $ 310,519 3/31/1998 $ 357,326 $ 313,469 4/30/1998 $ 360,503 $ 314,817 5/31/1998 $ 361,564 $ 316,706 6/30/1998 $ 363,444 $ 318,352 7/31/1998 $ 366,798 $ 320,390 8/31/1998 $ 346,504 $ 304,210 9/30/1998 $ 338,199 $ 305,001 10/31/1998 $ 329,809 $ 298,474 11/30/1998 $ 349,778 $ 313,965 12/31/1998 $ 353,159 $ 313,400 1/31/1999 $ 361,234 $ 317,631 2/28/1999 $ 360,705 $ 315,471 3/31/1999 $ 363,377 $ 319,130 4/30/1999 $ 374,002 $ 324,970 5/31/1999 $ 369,987 $ 321,981 6/30/1999 $ 372,230 $ 321,176 7/31/1999 $ 374,483 $ 321,593 8/31/1999 $ 371,599 $ 318,184 9/30/1999 $ 371,449 $ 316,912 10/31/1999 $ 372,224 $ 315,200 11/30/1999 $ 380,164 $ 319,298 12/31/1999 $ 386,897 $ 321,214 1/31/2000 $ 387,057 $ 319,993 2/29/2000 $ 390,727 $ 320,665 3/31/2000 $ 386,070 $ 315,951 4/30/2000 $ 389,146 $ 315,951 5/31/2000 $ 385,409 $ 311,970 6/30/2000 $ 395,091 $ 317,991 7/31/2000 $ 397,567 $ 319,708 8/31/2000 $ 397,746 $ 322,842 9/30/2000 $ 391,185 $ 320,065 10/31/2000 $ 380,829 $ 309,887 11/30/2000 $ 363,795 $ 297,987 12/31/2000 $ 373,720 $ 304,782 1/31/2001 $ 395,712 $ 324,074 2/28/2001 $ 400,493 $ 329,000 3/31/2001 $ 389,078 $ 322,420 4/30/2001 $ 385,667 $ 318,035 5/31/2001 $ 388,021 $ 323,633 6/30/2001 $ 378,357 $ 315,121 7/31/2001 $ 383,154 $ 320,226 8/31/2001 $ 385,571 $ 322,756 9/30/2001 $ 362,546 $ 300,453 10/31/2001 $ 375,106 $ 310,068 11/30/2001 $ 387,099 $ 320,982 12/31/2001 $ 384,991 $ 318,447 1/31/2002 $ 385,179 $ 320,198 2/28/2002 $ 383,435 $ 315,971 3/31/2002 $ 390,696 $ 323,934 4/30/2002 $ 395,842 $ 329,117 5/31/2002 $ 395,842 $ 326,583 6/30/2002 $ 384,206 $ 301,305 7/31/2002 $ 380,163 $ 289,614 8/31/2002 $ 385,460 $ 296,855 9/30/2002 $ 380,946 $ 292,224 10/31/2002 $ 381,201 $ 289,769 11/30/2002 $ 400,056 $ 307,880 12/31/2002 $ 400,266 $ 312,375 1/31/2003 $ 402,378 $ 321,746 2/28/2003 $ 405,796 $ 326,090 3/31/2003 $ 416,531 $ 334,698 4/30/2003 $ 435,321 $ 354,144 5/31/2003 $ 435,110 $ 358,217 6/30/2003 $ 448,232 $ 368,247 7/31/2003 $ 446,464 $ 363,239 8/31/2003 $ 450,461 $ 367,888 9/30/2003 $ 460,276 $ 377,858 10/31/2003 $ 468,138 $ 385,680 11/30/2003 $ 471,537 $ 391,002 12/31/2003 $ 482,499 $ 400,269 1/31/2004 $ 487,775 $ 406,753 2/29/2004 $ 484,768 $ 406,306 3/31/2004 $ 485,937 $ 409,028 4/30/2004 $ 485,699 $ 406,329 5/31/2004 $ 478,128 $ 399,949 6/30/2004 $ 483,852 $ 405,748 7/31/2004 $ 488,168 $ 411,226 8/30/2004 $ 495,902 $ 418,710 9/30/2004 $ 502,722 $ 424,530 10/31/2004 $ 511,067 $ 432,724 11/30/2004 $ 515,206 $ 437,224 12/31/2004 $ 521,647 $ 443,826 1/31/2005 $ 521,542 $ 443,383 2/28/2005 $ 526,445 $ 449,723 3/31/2005 $ 512,125 $ 437,445 4/30/2005 $ 507,926 $ 432,765 5/31/2005 $ 516,916 $ 440,511 6/30/2005 $ 524,825 $ 448,881 7/31/2005 $ 532,750 $ 455,928 8/31/2005 $ 533,922 $ 457,570 9/30/2005 $ 531,946 $ 452,994 10/31/2005 $ 529,446 $ 449,687 11/30/2005 $ 533,841 $ 451,846 12/31/2005 $ 539,339 $ 455,957 1/31/2006 $ 544,355 $ 463,162 2/28/2006 $ 548,819 $ 466,080 3/31/2006 $ 550,026 $ 469,016
ANNUALIZED TOTAL RETURNS As of 3/31/06
SINCE 1 YEAR 5 YEARS INCEPTION U.S. High Yield Bond Fund Class I 7.40% 7.17% 8.50% Merrill Lynch High Yield Master II Index 7.23% 7.79% 6.59%
50 [CHART]
U.S. HIGH YIELD BOND MERRILL LYNCH HIGH FUND CLASS II SHARES YIELD MASTER II INDEX 6/30/2003 $ 250,000 $ 250,000 7/31/2003 $ 249,025 $ 246,600 8/31/2003 $ 251,189 $ 249,756 9/30/2003 $ 256,685 $ 256,525 10/31/2003 $ 261,087 $ 261,835 11/30/2003 $ 262,741 $ 265,448 12/31/2003 $ 268,868 $ 271,739 1/31/2004 $ 272,084 $ 276,142 2/29/2004 $ 270,418 $ 275,838 3/31/2004 $ 271,082 $ 277,686 4/30/2004 $ 270,696 $ 275,853 5/31/2004 $ 266,480 $ 271,522 6/30/2004 $ 269,688 $ 275,459 7/31/2004 $ 272,110 $ 279,178 8/30/2004 $ 276,441 $ 284,259 9/30/2004 $ 280,283 $ 288,210 10/31/2004 $ 285,693 $ 293,773 11/30/2004 $ 288,664 $ 296,828 12/31/2004 $ 293,023 $ 301,310 1/31/2005 $ 292,730 $ 301,009 2/28/2005 $ 296,916 $ 305,313 3/31/2005 $ 288,810 $ 296,978 4/30/2005 $ 285,720 $ 293,801 5/31/2005 $ 290,834 $ 299,060 6/30/2005 $ 296,360 $ 304,742 7/31/2005 $ 301,013 $ 309,526 8/31/2005 $ 302,096 $ 310,640 9/30/2005 $ 299,075 $ 307,534 10/31/2005 $ 296,892 $ 305,289 11/30/2005 $ 298,317 $ 306,754 12/31/2005 $ 301,032 $ 309,546 1/31/2006 $ 305,788 $ 314,437 2/28/2006 $ 307,715 $ 316,418 3/31/2006 $ 309,653 $ 318,411
ANNUALIZED TOTAL RETURNS As of 3/31/2006
SINCE 1 YEAR 5 YEARS INCEPTION U.S. High Yield Bond Fund Class II 7.48% 7.18% 8.50% Merrill Lynch High Yield Master II Index 7.23% 7.79% 6.59%
THE GRAPHS ABOVE SHOW THE VALUE OF A HYPOTHETICAL $250,000 INVESTMENT IN THE FUND'S CLASS I AND II SHARES COMPARED WITH THE MERRILL LYNCH HIGH YIELD MASTER II INDEX FOR THE PERIODS INDICATED. THE FUND'S CLASS I SHARES CALCULATE THEIR PERFORMANCE BASED UPON THE HISTORICAL PERFORMANCE OF THEIR CORRESPONDING SERIES OF NICHOLAS-APPLEGATE MUTUAL FUNDS (RENAMED ING MUTUAL FUNDS), ADJUSTED TO REFLECT ALL FEES AND EXPENSES APPLICABLE TO THE FUND'S CLASS I SHARES. THE NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS' CLASS I SHARES WERE FIRST AVAILABLE ON MAY 7, 1999. AVERAGE ANNUAL TOTAL RETURN FIGURES INCLUDE CHANGES IN PRINCIPAL VALUE, REINVESTED DIVIDENDS, AND CAPITAL GAIN DISTRIBUTIONS. THE TOTAL RETURNS SHOWN ABOVE DO NOT SHOW THE EFFECTS OF INCOME TAXES ON AN INDIVIDUAL'S INVESTMENT. IN MOST CASES, TAXES MAY REDUCE YOUR ACTUAL INVESTMENT RETURNS ON INCOME OR GAINS PAID BY THE FUND OR ANY GAINS YOU MAY REALIZE IF YOU SELL YOUR SHARES. PAST PERFORMANCE CANNOT GUARANTEE FUTURE RESULTS. THE MERRILL LYNCH HIGH YIELD MASTER II INDEX IS AN UNMANAGED INDEX CONSISTING OF U.S. DOLLAR DENOMINATED BONDS THAT ARE ISSUED IN COUNTRIES HAVING A BBB3 OR HIGHER DEBT RATING WITH AT LEAST ONE YEAR REMAINING TILL MATURITY. ALL BONDS MUST HAVE A CREDIT RATING BELOW INVESTMENT GRADE BUT NOT IN DEFAULT. THE UNMANAGED INDEX DIFFERS FROM THE FUND IN COMPOSITION, DOES NOT PAY MANAGEMENT FEES OR EXPENSES AND INCLUDES REINVESTED INCOME AND DIVIDENDS. ONE CANNOT INVEST DIRECTLY IN AN INDEX. BOND PRICES, AND THUS THE FUND'S SHARE PRICE, GENERALLY MOVE IN THE OPPOSITE DIRECTION FROM INTEREST RATES. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS. YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. 51 U.S. HIGH YIELD BOND FUND SCHEDULE OF INVESTMENTS As of March 31, 2006
PRINCIPAL AMOUNT VALUE ----------------------------------------------------------------------------------------------------------------- CORPORATE BONDS - 89.5% ADVERTISING SERVICES - 1.5% RH Donnelley Corp. 144A# 8.875%, 01/15/16 $ 1,755,000 $ 1,825,200 --------------- AEROSPACE/DEFENSE-EQUIPMENT - 1.5% BE Aerospace, Inc. Cl. B 8.875%, 05/01/11 1,780,000 1,851,200 --------------- APPAREL MANUFACTURERS - 6.0% Levi Strauss & Co. 9.750%, 01/15/15 1,235,000 1,299,838 Oxford Industries, Inc. 8.875%, 06/01/11 2,190,000 2,255,700 Phillips-Van Heusen Corp. 8.125%, 05/01/13 1,835,000 1,945,100 Quiksilver, Inc. 6.875%, 04/15/15 1,965,000 1,910,963 --------------- 7,411,601 --------------- AUTO/TRUCK PARTS & EQUIPMENT-ORIGINAL - 1.3% Tenneco, Inc. 8.625%, 11/15/14 1,595,000 1,595,000 --------------- AUTO-CARS/LIGHT TRUCKS - 0.5% Ford Motor Co. 7.450%, 07/16/31 905,000 671,962 --------------- BUILDING-RESIDENTIAL/COMMERCIAL - 0.7% William Lyon Homes, Inc. 10.750%, 04/01/13 845,000 851,337 --------------- CABLE TV - 4.8% CCH I LLC 11.000%, 10/01/15 1,050,000 872,812 Echostar DBS Corp. 144A# 7.125%, 02/01/16 1,755,000 1,726,481 LodgeNet Entertainment Corp. 9.500%, 06/15/13 2,000,000 2,160,000 MediaCom LLC 9.500%, 01/15/13 1,160,000 1,148,400 --------------- 5,907,693 --------------- CASINO HOTELS - 2.3% Caesars Entertainment 8.875%, 09/15/08 1,250,000 1,337,500 Wynn Las Vegas LLC 6.625%, 12/01/14 1,590,000 1,544,288 --------------- 2,881,788 --------------- CELLULAR TELECOMMUNICATIONS - 1.3% Nextel Partners, Inc. 8.125%, 07/01/11 1,535,000 1,623,263 --------------- CHEMICALS-DIVERSIFIED - 0.6% Lyondell Chemical Co. 10.875%, 05/01/09 730,000 740,950 --------------- COAL - 2.4% James River Coal Co. 9.375%, 06/01/12 1,760,000 1,839,200 Massey Energy Co. 144A# 6.875%, 12/15/13 1,215,000 1,190,700 --------------- 3,029,900 --------------- COMMERCIAL SERVICES - 1.3% Ventrue, Inc. 9.250%, 04/01/14 1,550,000 1,604,250 --------------- COMPUTER SERVICES - 1.6% Unisys Corp. 8.000%, 10/15/12 $ 1,975,000 $ 1,940,438 --------------- CONSUMER PRODUCTS-MISCELLANEOUS - 3.0% Central Garden & Pet Co. 9.125%, 02/01/13 1,885,000 1,979,250 Jarden Corp. 9.750%, 05/01/12 1,715,000 1,770,737 --------------- 3,749,987 --------------- CONTAINERS-METAL/GLASS - 0.9% Crown Americas LLC & Crown Americas Capital Corp. 144A# 7.750%, 11/15/15 1,085,000 1,125,687 --------------- DIALYSIS CENTERS - 1.8% Davita, Inc. 7.250%, 03/15/15 2,155,000 2,165,775 --------------- ELECTRIC-GENERATION - 3.2% AES Corp. 7.750%, 03/01/14 895,000 939,750 Allegheny Energy, Inc. 144A# 8.250%, 04/15/12 1,145,000 1,255,206 Edison Mission 9.875%, 04/15/11 1,525,000 1,723,250 --------------- 3,918,206 --------------- ELECTRIC-INTEGRATED - 1.6% CMSEnergy Cor. 6.875%, 12/15/15 740,000 748,325 PSEG Energy Holdings 10.000%, 10/01/09 365,000 404,238 VeraSun Energy Corp. 144A# 9.875%, 12/15/12 745,000 789,700 --------------- 1,942,263 --------------- ELECTRONIC COMPONENTS-MISCELLANEOUS - 1.1% Solectron Global Finance, Ltd. 144A# 8.000%, 03/15/16 1,345,000 1,348,363 --------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS - 0.9% Amkor Technology, Inc. 7.750%, 05/15/13 1,225,000 1,127,000 --------------- ELECTRONIC MEASURE INSTRUMENTS - 1.2% Itron, Inc. 7.750%, 05/15/12 1,430,000 1,469,325 --------------- ELECTRONICS-MILITARY - 0.8% L-3 Communications Corp. 6.375%, 10/15/15 1,050,000 1,034,250 --------------- FINANCE-AUTO LOANS - 2.8% Ford Motor Credit Co. 7.000%, 10/01/13 1,525,000 1,363,969 General Motors Acceptance Corp. 6.750%, 12/01/14 2,305,000 2,074,973 --------------- 3,438,942 --------------- FINANCE-INVESTMENT BANKERS/BROKERS - 1.7% E*Trade Financial Corp. 8.000%, 06/15/11 2,025,000 2,103,469 --------------- FINANCE-OTHER SERVICES - 1.2% Alamosa Delaware, Inc. 11.000%, 07/31/10 1,330,000 1,479,625 ---------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 52
PRINCIPAL AMOUNT VALUE ----------------------------------------------------------------------------------------------------------------- FUNERAL SERVICES & RELATED ITEMS - 1.2% Service Corp. International 144A# 7.500%, 06/15/17 $ 1,475,000 $ 1,500,813 --------------- INDEPENDENT POWER PRODUCER - 2.3% Mirant North America LLC 144A# 7.375%, 12/31/13 900,000 918,000 NRG Energy, Inc. 7.375%, 02/01/16 1,915,000 1,955,694 --------------- 2,873,694 --------------- INTIMATE APPAREL - 1.2% Warnaco, Inc. 8.875%, 06/15/13 1,410,000 1,498,125 --------------- MACHINERY-FARM - 1.0% Case New Holland, Inc. 9.250%, 08/01/11 1,160,000 1,238,300 --------------- MEDICAL PRODUCTS - 1.0% Hanger Orthopedic Group, Inc. 10.375%, 02/15/09 1,230,000 1,245,375 --------------- MEDICAL-HOSPITALS - 3.1% Hca, Inc. 6.375%, 01/15/15 2,010,000 1,956,283 Triad Hospitals 7.000%, 05/15/12 740,000 747,548 Triad Hospitals 7.000%, 11/15/13 1,160,000 1,142,600 --------------- 3,846,431 --------------- MEDICAL-OUTPATIENT/HOME MEDICAL CARE - 1.1% Res-Care, Inc. 144A# 7.750%, 10/15/13 1,295,000 1,301,475 --------------- NETWORKING PRODUCTS - 1.5% Anixter Intlernational, Inc. 5.950%, 03/01/15 1,990,000 1,846,624 --------------- NON-HAZARDOUS WASTE DISPOSAL - 2.6% Allied Waste North America, Inc. 6.500%, 11/15/10 1,615,000 1,594,812 Allied Waste North America, Inc. 9.250%, 09/01/12 1,055,000 1,138,081 Allied Waste North America, Inc. 7.375%, 04/15/14 490,000 485,100 --------------- 3,217,993 --------------- OIL COMPANIES-EXPLORATION & PRODUCTION - 1.5% Chesapeake Energy Corp. 6.875%, 01/15/16 1,110,000 1,118,325 Energy Partners, Ltd. 8.750%, 08/01/10 745,000 761,762 --------------- 1,880,087 --------------- PAPER & RELATED PRODUCTS - 0.4% Neenah Paper, Inc. 7.375%, 11/15/14 550,000 517,000 --------------- PHYSICAL THERAPY/REHABILITATION CENTERS - 1.5% Psychiatric Solutions, Inc. 7.750%, 07/15/15 1,830,000 1,862,025 --------------- PIPELINES - 3.2% Copano Energy LLC 144A# 8.125%, 03/01/16 800,000 828,000 Sonat, Inc. 7.625%, 07/15/11 1,960,000 2,018,800 Williams Cos., Inc. 7.625%, 07/15/19 1,050,000 1,118,250 --------------- 3,965,050 --------------- POULTRY - 0.3% Pilgrim's Pride Corp. 9.625%, 09/15/11 $ 330,000 $ 344,025 --------------- RADIO - 1.5% Salem Communications Holding Corp. Ser. B 9.000%, 07/01/11 1,716,000 1,797,510 --------------- REITS-HOTELS - 0.7% Host Marriott LP 7.125%, 11/01/13 895,000 910,662 --------------- RENTAL AUTO/EQUIPMENT - 0.8% United Rentals North America, Inc. 7.000%, 02/15/14 1,000,000 962,500 --------------- RETAIL-APPAREL/SHOE - 0.6% Brown Shoe Co., Inc. 8.750%, 05/01/12 730,000 770,150 --------------- RETAIL-COMPUTER EQUIPMENT - 1.1% GSC Holdings Corp. 144A# 8.000%, 10/01/12 1,365,000 1,354,762 --------------- RETAIL-CONVENIENCE STORE - 1.3% Pantry, Inc. 7.750%, 02/15/14 1,550,000 1,577,125 --------------- RETAIL-PROPANE DISTRIBUTION - 1.4% Inergy LP/Inergy Finance Corp. 144A# 8.250%, 03/01/16 1,635,000 1,675,875 --------------- RETAIL-REGIONAL DEPARTMENT STORES - 2.7% Bon-Ton Stores, Inc. 144A# 10.250%, 03/15/14 1,795,000 1,726,790 Neiman-Marcus Group, Inc. 144A# 10.375%, 10/15/15 1,565,000 1,662,813 --------------- 3,389,603 --------------- SATELLITE TELECOMMUNICATIONS - 1.5% Intelsat Subsidiary Holding Co., Ltd. 8.250%, 01/15/13 1,820,000 1,851,850 --------------- SPECIAL PURPOSE ENTITY - 3.6% AMR HoldCo, Inc. 10.000%, 02/15/15 1,795,000 1,916,162 Medcath Holdings Corp. 9.875%, 07/15/12 1,240,000 1,289,600 Sensus Metering Systems, Inc. 8.625%, 12/15/13 1,275,000 1,236,750 --------------- 4,442,512 --------------- STEEL-PRODUCERS - 0.1% United States Steel LLC 10.750%, 08/01/08 120,000 132,000 --------------- STEEL-SPECIALTY - 1.3% Oregon Steel Mills, Inc. 10.000%, 07/15/09 1,545,000 1,637,700 --------------- TELECOMMUNICATIONS SERVICES - 1.3% Qwest Corp. 7.875%, 09/01/11 765,000 816,638 Time Warner Telecom Holdings, Inc. 9.250%, 02/15/14 785,000 841,913 --------------- 1,658,551 --------------- TELEPHONE-INTEGRATED - 2.8% Qwest Capital Funding, Inc. 7.250%, 02/15/11 1,835,000 1,860,231 Valor Telecom Enterprise 7.750%, 02/15/15 1,565,000 1,639,338 --------------- 3,499,569 ---------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 53
PRINCIPAL AMOUNT VALUE ----------------------------------------------------------------------------------------------------------------- WIRELESS EQUIPMENT - 0.9% American Tower Corp. 7.125%, 10/15/12 $ 1,085,000 $ 1,128,400 ----------------------------------------------------------------------------------------------------------------- Total Corporate Bonds (Cost: $109,501,267) 110,763,260 ----------------------------------------------------------------------------------------------------------------- FOREIGN CORPORATE BONDS - 6.4% CELLULAR TELECOMMUNICATIONS - 3.2% Rogers Wireless, Inc. 8.000%, 12/15/12 1,825,000 1,936,781 Millicom International Cellular S.A. 10.000%, 12/01/13 1,790,000 1,982,425 --------------- 3,919,206 --------------- INDUSTRIAL AUDIO & VIDEO PRODUCTS - 1.6% Imax Corp. 9.625%, 12/01/10 1,880,000 1,992,800 --------------- PAPER & RELATED PRODUCTS - 0.8% Abitibi-Consolidated, Inc. 8.375%, 04/01/15 1,080,000 1,053,000 --------------- RESORTS/THEME PARKS - 0.8% Intrawest Corp. 7.500%, 10/15/13 950,000 963,062 ----------------------------------------------------------------------------------------------------------------- Total Foreign Corporate Bonds (Cost: $7,654,817) 7,928,068 ----------------------------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS - 1.9% TIME DEPOSIT - 1.9% Wells Fargo Bank - Grand Cayman 4.150%, 04/01/06 (Cost: $2,380,313) 2,380,313 2,380,313 ----------------------------------------------------------------------------------------------------------------- Total Investments - 97.8% (Cost: $119,536,397) 121,071,641 ----------------------------------------------------------------------------------------------------------------- Other Assets in Excess of Liabilities - 2.2% 2,763,624 ----------------------------------------------------------------------------------------------------------------- Net Assets - 100.0% $ 123,835,265 -----------------------------------------------------------------------------------------------------------------
# 144A SECURITY. CERTAIN CONDITION FOR PUBLIC SALE MAY EXIST. THE TOTAL MARKET VALUE OF 144A SECURITIES OWNED AT MARCH 31, 2006 WAS $20,229,865 OR 16.34% OF NET ASSETS. SCHEDULE OF INVESTMENTS BY INDUSTRY as of March 31, 2006
PERCENTAGE OF INDUSTRY NET ASSETS ----------------------------------------------------------------------------------------------------------------- Basic Materials 3.3% Communications 20.2 Consumer, Cyclical 19.9 Consumer, Non-cyclical 15.0 Energy 7.2 Financial 8.5 Industrial 9.1 Technology 4.0 Utilities 8.7 Short Term Investments 1.9 Other assets in excess of liabilities 2.2 ----------------------------------------------------------------------------------------------------------------- Net Assets 100.0% =================================================================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 54 (This page intentionally left blank) 55 NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS FINANCIAL HIGHLIGHTS FOR A CLASS I SHARE OUTSTANDING DURING THE PERIOD INDICATED
DISTRIBUTIONS FROM: ------------------------- NET ASSET NET NET REALIZED TOTAL FROM NET NET VALUE, INVESTMENT AND UNREALIZED INVESTMENT INVESTMENT REALIZED BEGINNING INCOME (LOSS) (1) GAINS (LOSS) OPERATIONS INCOME CAPITAL GAINS ---------------------------------------------------------------------------------------------------------------------- U.S. EQUITY FUNDS U.S. MICRO CAP For the year ended 03/31/06 $ 12.83 $ (0.11) $ 5.06 $ 4.95 $ -- $ (0.35) For the year ended 03/31/05 14.69 (0.09) (1.09) (1.18) -- (0.68) For the year ended 03/31/04 7.44 (0.13) 7.38 7.25 -- -- For the year ended 03/31/03 10.88 (0.12) (3.32) (3.44) -- -- For the year ended 03/31/02 9.05 (0.13) 1.96 1.83 -- -- U.S. EMERGING GROWTH For the year ended 03/31/06 $ 9.77 $ (0.11) $ 4.25 $ 4.14 $ -- $ (0.01) For the year ended 03/31/05 9.61 (0.07) 0.23 0.16 -- -- For the year ended 03/31/04 6.32 (0.09) 3.38 3.29 -- -- For the year ended 03/31/03 9.59 (0.07) (3.20) (3.27) -- -- For the year ended 03/31/02 9.57 (0.04) 0.06 0.02 -- -- U.S. SMALL CAP VALUE For the year ended 03/31/06 $ 17.40 $ 0.11 $ 3.58 $ 3.69 $ (0.06) $ (1.18) For the year ended 03/31/05 17.64 0.02 2.06 2.08 (0.01) (2.31) For the year ended 03/31/04 10.23 0.03 7.86 7.89 (0.02) (0.46) For the year ended 03/31/03 15.62 0.07 (3.29) (3.22) (0.12) (2.05) For the year ended 03/31/02 12.50 0.10 3.06 3.16 (0.04) -- U.S. LARGE CAP VALUE For the year ended 03/31/06 $ 26.71 $ 0.34 $ 2.77 $ 3.11 $ (0.50) $ -- For the year ended 03/31/05 24.40 0.43 2.24 2.67 (0.36) -- For the year ended 03/31/04 18.20 0.32 6.44 6.76 (0.56) -- For the year ended 03/31/03 24.46 0.25 (6.20) (5.95) (0.31) -- For the year ended 03/31/02 23.42 0.22 1.24 1.46 (0.05) (0.37) U.S. SYSTEMATIC LARGE CAP GROWTH For the year ended 03/31/06 $ 15.67 $ 0.03 $ 2.16 $ 2.19 $ -- $ -- For the year ended 03/31/05 15.06 0.07 0.54 0.61 -- -- For the year ended 03/31/04 12.73 (0.02) 2.35 2.33 -- -- For the year ended 03/31/03 18.08 (0.05) (5.30) (5.35) -- -- For the year ended 03/31/02 22.61 (0.11) (4.42) (4.53) -- -- U.S. SYSTEMATIC MIDCAP GROWTH For the year ended 03/31/06 $ 10.69 $ (0.04) $ 2.85 $ 2.81 $ -- $ (0.48) For the year ended 03/31/05 9.89 (0.04) 0.84 0.80 -- -- 2/27/04 (Commenced) to 03/31/04 10.00 -- (0.11) (0.11) -- -- U.S. CONVERTIBLE For the year ended 03/31/06 $ 22.44 $ 0.27 $ 3.45 $ 3.72 $ (0.55) $ (1.04) For the year ended 03/31/05 23.11 0.39 0.66 1.05 (0.45) (1.27) For the year ended 03/31/04 17.72 0.55 5.43 5.98 (0.59) -- For the year ended 03/31/03 21.35 0.63 (3.55) (2.92) (0.71) -- For the year ended 03/31/02 23.14 0.64 (1.69) (1.05) (0.74) --
(1) NET INVESTMENT INCOME PER SHARE IS CALCULATED BY DIVIDING NET INVESTMENT INCOME FOR THE PERIOD BY THE AVERAGE SHARES OUTSTANDING DURING THE PERIOD. (2) TOTAL RETURNS ARE NOT ANNUALIZED FOR PERIODS LESS THAN ONE YEAR. (3) RATIOS ARE ANNUALIZED FOR PERIODS OF LESS THAN ONE YEAR. EXPENSE REIMBURSEMENTS REFLECT VOLUNTARY REDUCTIONS TO TOTAL EXPENSES, AS DISCUSSED IN THE NOTES TO FINANCIAL STATEMENTS. SUCH AMOUNTS WOULD DECREASE NET INVESTMENT INCOME (LOSS) RATIOS HAD SUCH REDUCTIONS NOT OCCURRED. (4) NET EXPENSES INCLUDE CERTAIN ITEMS NOT SUBJECT TO EXPENSE REIMBURSEMENT. (5) THE BOARD OF TRUSTEES APPROVED THE AMENDMENTS TO THE EXPENSES LIMITATION AGREEMENT WHEREBY OVERALL OPERATING EXPENSES (EXCLUDING TAXES, INTEREST, BROKERAGE AND EXTRAORDINARY EXPENSES), OF THE U.S. MICRO CAP, U.S. LARGE CAP VALUE, U.S. SYSTEMATIC LARGE CAP GROWTH, GLOBAL SELECT, INTERNATIONAL GROWTH, AND U.S. HIGH YIELD BOND DO NOT EXCEED 1.56%, 1.00%, 1.00%, 1.20%, 1.40%, AND 0.75% FOR THE PERIOD 04/01/02 TO 06/30/02, 1.56%, 0.85% 0.90%, 1.05%, 1.15%, AND 0.75% PERIOD 07/01/02 TO 01/21/03, 1.40%, 1.00%, 1.00%, 1.10%, 1.15%, AND 0.80% FOR THE PERIOD 01/22/03 TO 03/31/03, RESPECTIVELY. U.S. EMERGING GROWTH, U.S. SMALL CAP VALUE, U.S. EQUITY GROWTH, CONVERTIBLE AND INTERNATIONAL GROWTH OPPORTUNITIES HAD RATES THROUGHOUT THE YEAR OF 1.25%, 1.30%, 1.00%, 1.00% AND 1.40% RESPECTIVELY. (6) ON MAY 18, 2001 THE BOARD OF TRUSTEES APPROVED AN AMENDMENT TO THE EXPENSE LIMITATION AGREEMENT WHEREBY OVERALL OPERATING EXPENSES OF THE U.S. EMERGING GROWTH, EXCLUDING TAXES, INTEREST, BROKERAGE AND EXTRAORDINARY EXPENSES, DO NOT EXCEED 1.25% REPRESENTING A .08% INCREASE IN THE FUND'S EXPENSE CAP. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 56
RATIOS TO AVERAGE NET ASSETS (3) ------------------------------------------ NET ASSET NET ASSETS, NET EXPENSE TOTAL VALUE, TOTAL ENDING INVESTMENT TOTAL (REIMBURSEMENTS)/ DISTRIBUTIONS ENDING RETURN (2) (IN 000'S) INCOME (LOSS) EXPENSES RECOUPMENT -------------------------------------------------------------------------------------------------------------------------------- U.S. EQUITY FUNDS U.S. MICRO CAP For the year ended 03/31/06 $ (0.35) $ 17.43 39.04% $ 78,058 (0.78%) 1.64% (0.07%) For the year ended 03/31/05 (0.68) 12.83 (8.17%) 69,246 (0.72%) 1.63% (0.07%) For the year ended 03/31/04 -- 14.69 97.45% 68,876 (1.08%) 1.64% (0.07%) For the year ended 03/31/03 -- 7.44 (31.62%) 35,625 (1.36%) 1.75% (0.16%) For the year ended 03/31/02 -- 10.88 20.22% 88,311 (1.31%) 1.60% (0.03%) U.S. EMERGING GROWTH For the year ended 03/31/06 $ (0.01) $ 13.90 42.38% $ 6,721 (1.04%) 1.89% (0.39%) For the year ended 03/31/05 -- 9.77 1.66% 12,043 (0.75%) 1.63% (0.17%) For the year ended 03/31/04 -- 9.61 52.06% 32,095 (1.04%) 1.48% -- For the year ended 03/31/03 -- 6.32 (34.10%) 36,756 (0.96%) 1.45% (0.17%) For the year ended 03/31/02 -- 9.59 0.21% 173,053 (0.46%) 1.34% (0.12%) U.S. SMALL CAP VALUE For the year ended 03/31/06 $ (1.24) $ 19.85 21.97% $ 120,104 0.60% 1.31% (0.01%) For the year ended 03/31/05 (2.32) 17.40 11.91% 86,017 0.11% 1.33% (0.03%) For the year ended 03/31/04 (0.48) 17.64 77.64% 65,791 0.18% 1.35% (0.01%) For the year ended 03/31/03 (2.17) 10.23 (21.54%) 10,980 0.47% 1.54% (0.26%) For the year ended 03/31/02 (0.04) 15.62 25.33% 58,833 0.79% 1.44% (0.14%) U.S. LARGE CAP VALUE For the year ended 03/31/06 $ (0.50) $ 29.32 11.75% $ 21,650 1.24% 1.21% (0.40%) For the year ended 03/31/05 (0.36) 26.71 10.96% 16,948 1.70% 1.31% (0.50%) For the year ended 03/31/04 (0.56) 24.40 37.44% 12,644 1.38% 1.27% (0.45%) For the year ended 03/31/03 (0.31) 18.20 (24.41%) 27,659 1.24% 1.28% (0.34%) For the year ended 03/31/02 (0.42) 24.46 6.35% 39,358 0.89% 1.14% (0.13%) U.S. SYSTEMATIC LARGE CAP GROWTH For the year ended 03/31/06 $ -- $ 17.86 13.98% $ 667 0.19% 1.67% (0.53%) For the year ended 03/31/05 -- 15.67 4.05% 780 0.45% 1.66% (0.54%) For the year ended 03/31/04 -- 15.06 18.30% 3,518 (0.16%) 1.33% (0.20%) For the year ended 03/31/03 -- 12.73 (29.59%) 18,328 (0.34%) 1.27% (0.30%) For the year ended 03/31/02 -- 18.08 (20.04%) 57,769 (0.54%) 1.09% (0.09%) U.S. SYSTEMATIC MIDCAP GROWTH For the year ended 03/31/06 $ (0.48) $ 13.02 26.73% $ 3,348 (0.33%) 2.15% (0.81%) For the year ended 03/31/05 -- 10.69 8.09% 5,566 (0.36%) 1.97% (0.63%) 2/27/04 (Commenced) to 03/31/04 -- 9.89 (1.10%) 5,347 (0.43%) 4.39% (3.04%) U.S. CONVERTIBLE For the year ended 03/31/06 $ (1.59) $ 24.57 17.15% $ 31,627 1.02% 1.14% (0.11%) For the year ended 03/31/05 (1.72) 22.44 4.62% 35,397 1.68% 1.10% (0.08%) For the year ended 03/31/04 (0.59) 23.11 34.15% 50,103 2.57% 1.10% (0.06%) For the year ended 03/31/03 (0.71) 17.72 (13.69%) 44,901 3.17% 1.16% (0.15%) For the year ended 03/31/02 (0.74) 21.35 (4.51%) 120,359 2.87% 1.05% (0.05%) RATIOS TO AVERAGE NET ASSETS (3) --------------------------------- EXPENSES EXPENSES NET OF FUND'S NET OF REIMBURSEMENT/ PORTFOLIO REIMBURSEMENT/ RECOUPMENT TURNOVER RECOUPMENT AND OFFSET (4) RATE ------------------------------------------------------------------------------- U.S. EQUITY FUNDS U.S. MICRO CAP For the year ended 03/31/06 1.57% 1.10%(9) 180% For the year ended 03/31/05 1.56% 1.12% 266% For the year ended 03/31/04 1.57% 1.19%(7) 298% For the year ended 03/31/03 1.59% 1.55%(5) 164% For the year ended 03/31/02 1.57% 1.57% 170% U.S. EMERGING GROWTH For the year ended 03/31/06 1.50% 1.17%(9) 128% For the year ended 03/31/05 1.46% 1.06% 142% For the year ended 03/31/04 1.48% 1.26%(7) 166% For the year ended 03/31/03 1.28% 1.26%(5) 118% For the year ended 03/31/02 1.22% 1.22%(6) 138% U.S. SMALL CAP VALUE For the year ended 03/31/06 1.30% 0.98%(9) 53% For the year ended 03/31/05 1.30% 1.13% 73% For the year ended 03/31/04 1.34% 1.19%(7) 101% For the year ended 03/31/03 1.28% 1.25%(5) 109% For the year ended 03/31/02 1.30% 1.30% 84% U.S. LARGE CAP VALUE For the year ended 03/31/06 0.81% 0.70%(9) 44% For the year ended 03/31/05 0.81% 0.76% 42% For the year ended 03/31/04 0.82% 0.79%(7) 51% For the year ended 03/31/03 0.94% 0.93%(5) 139% For the year ended 03/31/02 1.01% 1.01% 99% U.S. SYSTEMATIC LARGE CAP GROWTH For the year ended 03/31/06 1.14% 1.04%(9) 147% For the year ended 03/31/05 1.12% 1.00% 197% For the year ended 03/31/04 1.13% 0.93%(7) 172% For the year ended 03/31/03 0.97% 0.95%(5) 193% For the year ended 03/31/02 1.00% 1.00% 224% U.S. SYSTEMATIC MIDCAP GROWTH For the year ended 03/31/06 1.34% 1.01%(9) 160% For the year ended 03/31/05 1.34% 1.21% 146%(8) 2/27/04 (Commenced) to 03/31/04 1.35% 1.35%(7) 14% U.S. CONVERTIBLE For the year ended 03/31/06 1.03% 0.87%(9) 92% For the year ended 03/31/05 1.02% 0.85% 102% For the year ended 03/31/04 1.04% 1.00%(8) 103% For the year ended 03/31/03 1.01% 1.00%(5) 114% For the year ended 03/31/02 1.00% 1.00% 181%
(7) THE BOARD OF TRUSTEES APPROVED THE AMENDMENTS TO THE EXPENSES LIMITATION AGREEMENT WHERE BY OVERALL OPERATING EXPENSES (EXCLUDING TAXES, INTEREST, BROKERAGE AND EXTRAORDINARY EXPENSES), OF THE U.S. MICRO CAP, U.S. EMERGING GROWTH, U.S. LARGE CAP VALUE, U.S. SYSTEMATIC LARGE CAP GROWTH, U.S. EQUITY GROWTH, U.S. CONVERTIBLE, GLOBAL SELECT, INTERNATIONAL GROWTH, INTERNATIONAL GROWTH OPPORTUNITIES, AND U.S. HIGH YIELD BOND DO NOT EXCEED 1.40%, 1.25%, 0.75%, 1.00%, 1.00%, 1.00%, 1.10%, 1.15%, AND 0.60% FOR THE PERIOD 04/01/03 TO 07/28/03, 1.56%, 1.48%, 0.81%, 1.12%, 1.23%, 1.02%, 1.16%, 1.41%, 1.56%, AND 0.63% FOR THE PERIOD 07/29/03 TO 03/31/04, RESPECTIVELY. U.S. SMALL CAP VALUE DOES NOT EXCEED 1.30% FOR THE PERIOD 04/01/03 TO 07/28/03, 1.45% FOR THE PERIOD 07/29/03 TO 02/23/04, 1.30% FOR THE PERIOD 02/24/04 TO 03/31/04. U.S. SYSTEMATIC MIDCAP GROWTH DID NOT EXCEED 1.33% FOR THE PERIOD 02/24/04 TO 03/31/04. (8) DUE TO THE REALIGNMENT OF THE FUND'S PORTFOLIO IN CONNECTION WITH THE COMBINATION WITH U.S. SYSTEMATIC MID CAP GROWTH FUND, THE COST OF PURCHASES OF $1,095,903 AND PROCEEDS FROM SALES OF $1,041,817 HAVE BEEN EXCLUDED FROM THE PORTFOLIO TURNOVER CALCULATION. (9) THE BOARD OF TRUSTEES APPROVED THE AMENDMENTS TO THE EXPENSE LIMITATION AGREEMENT WHEREBY OVERALL OPERATING EXPENSES (EXCLUDING TAXES, INTEREST, BROKERAGE AND EXTRAORDINARY EXPENSES), OF THE U.S. EMERGING GROWTH, GLOBAL SELECT, INTERNATIONAL GROWTH, INTERNATIONAL GROWTH OPPORTUNITIES, EMERGING MARKET OPPORTUNITIES AND INTERNATIONAL ALL CAP GROWTH DO NOT EXCEED 1.20%, 1.15%, 1.39%, 1.42%, 1.55% AND 1.15% FOR THE PERIOD 01/24/06 TO 03/31/06 RESPECTIVELY. U.S. MICRO CAP, U.S. SMALL CAP VALUE, U.S. LARGE CAP VALUE, U.S. SYSTEMATIC LARGE CAP GROWTH, U.S. SYSTEMATIC MIDCAP GROWTH, U.S. CONVERTIBLE AND U.S. HIGH YIELD BOND HAD RATES THROUGHOUT THE YEAR OF 1.56%, 1.30%, 0.81%, 1.12%, 1.33%, 1.02% AND 0.63% RESPECTIVELY. 57
DISTRIBUTIONS FROM: ------------------------- NET ASSET NET NET REALIZED TOTAL FROM NET NET VALUE, INVESTMENT AND UNREALIZED INVESTMENT INVESTMENT REALIZED BEGINNING INCOME (LOSS) (1) GAINS (LOSS) OPERATIONS INCOME CAPITAL GAINS ------------------------------------------------------------------------------------------------------------------------ GLOBAL EQUITY FUNDS GLOBAL SELECT For the year ended 03/31/06 $ 16.09 $ 0.03 $ 3.97 $ 4.00 $ (0.03) $ (1.10) For the year ended 03/31/05 15.58 0.06 1.37 1.43 -- (0.92) For the year ended 03/31/04 10.26 (0.01) 5.33 5.32 -- -- For the year ended 03/31/03 13.67 (0.02) (3.39) (3.41) -- -- For the year ended 03/31/02 12.86 (0.06) 0.87 0.81 -- -- INTERNATIONAL GROWTH For the year ended 03/31/06 $ 20.47 $ 0.16 $ 6.05 $ 6.21 $ -- $ (3.99) For the year ended 03/31/05 19.09 0.08 1.72 1.80 -- (0.42) For the year ended 03/31/04 12.83 0.30 6.00 6.30 (0.04) -- For the year ended 03/31/03 17.17 0.12 (4.46) (4.34) -- -- For the year ended 03/31/02 19.21 0.06 (2.10) (2.04) -- -- INTERNATIONAL GROWTH OPPORTUNITIES For the year ended 03/31/06 $ 35.01 $ (0.01) $ 15.10 $ 15.09 $ (0.24) $ -- For the year ended 03/31/05 29.43 0.32 5.35 5.67 (0.09) -- For the year ended 03/31/04 17.39 0.18 11.86 12.04 -- -- For the year ended 03/31/03 22.72 0.07 (5.40) (5.33) -- -- For the year ended 03/31/02 24.38 0.09 (1.75) (1.66) -- -- EMERGING MARKETS OPPORTUNITIES For the year ended 03/31/06 $ 12.62 $ 0.28 $ 7.96 $ 8.24 $ (0.27) $ -- 5/27/04 (Commenced) to 03/31/05 10.00 0.08 2.55 2.63 (0.01) -- INTERNATIONAL SYSTEMATIC 7/06/05 (Commenced) to 03/31/06 $ 10.00 $ 0.06 $ 3.81 $ 3.87 $ (0.01) $ (0.16) INTERNATIONAL ALL CAP GROWTH For the year ended 03/31/06 $ 9.08 $ 0.01 $ 3.92 $ 3.93 $ (0.01) $ -- For the year ended 03/31/05 8.19 0.01 0.92 0.93 -- (0.04) For the year ended 03/31/04 4.84 (0.01) 3.36 3.35 -- -- For the year ended 03/31/03 6.74 (0.03) (1.87)(14) (1.90) -- -- For the year ended 03/31/02 7.40 (0.08) (0.58) (0.66) -- -- FIXED INCOME FUNDS U.S. HIGH YIELD BOND For the year ended 03/31/06 $ 10.04 $ 0.70 $ 0.02 $ 0.72 $ (0.76) $ -- For the year ended 03/31/05 10.34 0.85 (0.31) 0.54 (0.84) (0.00)(10) For the year ended 03/31/04 9.65 0.86 0.63 1.49 (0.80) -- For the year ended 03/31/03 9.88 0.83 (0.23) 0.60 (0.83) -- For the year ended 03/31/02 10.82 0.93 (0.91) 0.02 (0.96) --
(1) NET INVESTMENT INCOME PER SHARE IS CALCULATED BY DIVIDING NET INVESTMENT INCOME FOR THE PERIOD BY THE AVERAGE SHARES OUTSTANDING DURING THE PERIOD. (2) TOTAL RETURNS ARE NOT ANNUALIZED FOR PERIODS LESS THAN ONE YEAR. (3) RATIOS ARE ANNUALIZED FOR PERIODS OF LESS THAN ONE YEAR. EXPENSE REIMBURSEMENTS REFLECT VOLUNTARY REDUCTIONS TO TOTAL EXPENSES, AS DISCUSSED IN THE NOTES TO FINANCIAL STATEMENTS. SUCH AMOUNTS WOULD DECREASE NET INVESTMENT INCOME (LOSS) RATIOS HAD SUCH REDUCTIONS NOT OCCURRED. (4) NET EXPENSES INCLUDE CERTAIN ITEMS NOT SUBJECT TO EXPENSE REIMBURSEMENT. (5) THE BOARD OF TRUSTEES APPROVED THE AMENDMENTS TO THE EXPENSES LIMITATION AGREEMENT WHEREBY OVERALL OPERATING EXPENSES (EXCLUDING TAXES, INTEREST, BROKERAGE AND EXTRAORDINARY EXPENSES), OF THE U.S. MICRO CAP, U.S. LARGE CAP VALUE, U.S. SYSTEMATIC LARGE CAP GROWTH, GLOBAL SELECT, INTERNATIONAL GROWTH, AND U.S. HIGH YIELD BOND DO NOT EXCEED 1.56%, 1.00%, 1.00%, 1.20%, 1.40%, AND 0.75% FOR THE PERIOD 04/01/02 TO 06/30/02, 1.56%, 0.85% 0.90%, 1.05%, 1.15%, AND 0.75% PERIOD 07/01/02 TO 01/21/03, 1.40%, 1.00%, 1.00%, 1.10%, 1.15%, AND 0.80% FOR THE PERIOD 01/22/03 TO 03/31/03, RESPECTIVELY. U.S. EMERGING GROWTH, U.S. SMALL CAP VALUE, U.S. EQUITY GROWTH, CONVERTIBLE AND INTERNATIONAL GROWTH OPPORTUNITIES HAD RATES THROUGHOUT THE YEAR OF 1.25%, 1.30%, 1.00%, 1.00% AND 1.40% RESPECTIVELY. (6) DUE TO THE REALIGNMENT OF THE FUND'S PORTFOLIO IN CONNECTION WITH THE COMBINATION WITH GLOBAL TECHNOLOGY FUND AND GLOBAL HEALTHCARE FUND, THE COST OF PURCHASES OF $27,251,277 AND PROCEEDS FROM SALES OF $35,006,695 HAVE BEEN EXCLUDED FROM THE PORTFOLIO TURNOVER CALCULATION. (7) THE BOARD OF TRUSTEES APPROVED THE AMENDMENTS TO THE EXPENSES LIMITATION AGREEMENT WHERE BY OVERALL OPERATING EXPENSES (EXCLUDING TAXES, INTEREST, BROKERAGE AND EXTRAORDINARY EXPENSES), OF THE U.S. MICRO CAP, U.S. EMERGING GROWTH, U.S. LARGE CAP VALUE, U.S. SYSTEMATIC LARGE CAP GROWTH, U.S. EQUITY GROWTH, U.S. CONVERTIBLE, GLOBAL SELECT, INTERNATIONAL GROWTH, INTERNATIONAL GROWTH OPPORTUNITIES, AND U.S. HIGH YIELD BOND DO NOT EXCEED 1.40%, 1.25%, 0.75%, 1.00%, 1.00%, 1.00%, 1.10%, 1.15%, AND 0.60% FOR THE PERIOD 04/01/03 TO 07/28/03, 1.56%, 1.48%, 0.81%, 1.12%, 1.23%, 1.02%, 1.16%, 1.41%, 1.56%, AND 0.63% FOR THE PERIOD 07/29/03 TO 03/31/04, RESPECTIVELY. U.S. SMALL CAP VALUE DOES NOT EXCEED 1.30% FOR THE PERIOD 04/01/03 TO 07/28/03, 1.45% FOR THE PERIOD 07/29/03 TO 02/23/04, 1.30% FOR THE PERIOD 02/24/04 TO 03/31/04. U.S. SYSTEMATIC MIDCAP GROWTH DID NOT EXCEED 1.33% FOR THE PERIOD 02/24/04 TO 03/31/04. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 58
RATIOS TO AVERAGE NET ASSETS (3) ------------------------------------------ NET ASSET NET ASSETS, NET EXPENSE TOTAL VALUE, TOTAL ENDING INVESTMENT TOTAL (REIMBURSEMENTS)/ DISTRIBUTIONS ENDING RETURN (2) (IN 000'S) INCOME (LOSS) EXPENSES RECOUPMENT -------------------------------------------------------------------------------------------------------------------------------- GLOBAL EQUITY FUNDS GLOBAL SELECT For the year ended 03/31/06 $ (1.13) $ 18.96 25.76% $ 77,225 0.16% 1.13% (0.00%) For the year ended 03/31/05 (0.92) 16.09 9.27% 66,115 0.41% 1.15% (0.01%) For the year ended 03/31/04 -- 15.58 51.85% 78,327 (0.05%) 1.28% (0.10%) For the year ended 03/31/03 -- 10.26 (24.95%) 69,776 (0.16%) 1.42% (0.27%) For the year ended 03/31/02 -- 13.67 6.30% 41,219 (0.43%) 1.37% (0.14%) INTERNATIONAL GROWTH For the year ended 03/31/06 $ (3.99) $ 22.69 33.63% $ 45,889 0.73% 1.37% -- For the year ended 03/31/05 (0.42) 20.47 9.49% 41,394 0.42% 1.39% -- For the year ended 03/31/04 (0.04) 19.09 49.17% 51,450 1.35% 1.49% (0.04%) For the year ended 03/31/03 -- 12.83 (25.28%) 88,029 0.76% 1.46% (0.21%) For the year ended 03/31/02 -- 17.17 (10.62%) 214,920 0.32% 1.36% 0.01% INTERNATIONAL GROWTH OPPORTUNITIES For the year ended 03/31/06 $ (0.24) $ 49.86 43.34% $ 107,749 (0.02%) 1.38% -- For the year ended 03/31/05 (0.09) 35.01 19.28% 55,462 1.05% 1.42% -- For the year ended 03/31/04 -- 29.43 69.24% 54,015 0.74% 1.47% -- For the year ended 03/31/03 -- 17.39 (23.46%) 65,351 0.36% 1.54% (0.10%) For the year ended 03/31/02 -- 22.72 (6.81%) 144,429 0.40% 1.42% (0.01%) EMERGING MARKETS OPPORTUNITIES For the year ended 03/31/06 $ (0.27) $ 20.59 65.89% $ 20,725 1.88% 2.21% (0.53%) 5/27/04 (Commenced) to 03/31/05 (0.01) 12.62 26.32%(8) 26,517 0.56% 2.83% (1.08%) INTERNATIONAL SYSTEMATIC 7/06/05 (Commenced) to 03/31/06 $ (0.17) $ 13.70 38.92%(8) $ 4,662 0.78% 2.94% (1.69%) INTERNATIONAL ALL CAP GROWTH For the year ended 03/31/06 $ (0.01) $ 13.00 43.28% $ 20,562 0.08% 1.89% (0.47%) For the year ended 03/31/05 (0.04) 9.08 11.34% 33,900 (0.42%) 2.07% (0.59%) For the year ended 03/31/04 -- 8.19 69.21% 28,700 (0.87%) 2.25% (0.77%) For the year ended 03/31/03 -- 4.84 (28.19%) 19,700 (1.37%) 2.47% (0.98%) For the year ended 03/31/02 -- 6.74 (8.92%) 33,000 (1.47%) 2.39% (0.91%) FIXED INCOME FUNDS U.S. HIGH YIELD BOND For the year ended 03/31/06 $ (0.76) $ 10.00 7.40% $ 81,187 6.70% 0.82% (0.18%) For the year ended 03/31/05 (0.84) 10.04 5.40% 131,677 7.82% 0.82% (0.19%) For the year ended 03/31/04 (0.80) 10.34 16.67% 102,110 8.43% 0.87% (0.23%) For the year ended 03/31/03 (0.83) 9.65 6.61% 120,182 8.78% 1.01% (0.24%) For the year ended 03/31/02 (0.96) 9.88 0.42% 71,369 9.28% 1.03% (0.27%) RATIOS TO AVERAGE NET ASSETS (3) --------------------------------- EXPENSES EXPENSES NET OF FUND'S NET OF REIMBURSEMENT/ PORTFOLIO REIMBURSEMENT/ RECOUPMENT TURNOVER RECOUPMENT AND OFFSET (4) RATE ------------------------------------------------------------------------------- GLOBAL EQUITY FUNDS GLOBAL SELECT For the year ended 03/31/06 1.13% 0.88%(13) 139% For the year ended 03/31/05 1.14% 0.95% 164% For the year ended 03/31/04 1.18% 1.01%(7) 226% For the year ended 03/31/03 1.15% 1.13%(5) 230%(6) For the year ended 03/31/02 1.23% 1.23% 401% INTERNATIONAL GROWTH For the year ended 03/31/06 1.37% 0.99%(13) 167% For the year ended 03/31/05 1.39% 1.08% 203% For the year ended 03/31/04 1.45% 1.19%(7) 186% For the year ended 03/31/03 1.25% 1.23%(5) 203% For the year ended 03/31/02 1.37% 1.37% 232% INTERNATIONAL GROWTH OPPORTUNITIES For the year ended 03/31/06 1.38% 1.07%(13) 168% For the year ended 03/31/05 1.42% 1.11% 110% For the year ended 03/31/04 1.47% 1.28%(7) 124% For the year ended 03/31/03 1.44% 1.42%(5) 129% For the year ended 03/31/02 1.41% 1.41% 168% EMERGING MARKETS OPPORTUNITIES For the year ended 03/31/06 1.68% 1.19%(13) 119% 5/27/04 (Commenced) to 03/31/05 1.75% 1.69%(11) 59%(9) INTERNATIONAL SYSTEMATIC 7/06/05 (Commenced) to 03/31/06 1.25% 1.11%(12) 103% INTERNATIONAL ALL CAP GROWTH For the year ended 03/31/06 1.42% 1.39%(12) 196% For the year ended 03/31/05 1.48% 1.48% 166% For the year ended 03/31/04 1.48% 1.48% 153% For the year ended 03/31/03 1.49% 1.49%(15) 190% For the year ended 03/31/02 1.48% 1.48% 259% FIXED INCOME FUNDS U.S. HIGH YIELD BOND For the year ended 03/31/06 0.64% 0.56%(13) 112% For the year ended 03/31/05 0.63% 0.60% 123% For the year ended 03/31/04 0.64% 0.61%(7) 134% For the year ended 03/31/03 0.77% 0.77%(5) 137% For the year ended 03/31/02 0.76% 0.76% 113%
(8) INCEPTION TO DATE RETURN. (9) DUE TO THE REALIGNMENT OF THE FUND'S PORTFOLIO IN CONNECTION WITH THE COMBINATION WITH EMERGING COUNTRIES FUND, THE COST OF PURCHASES OF $2,958,229 AND PROCEEDS FROM SALES OF $3,564,155 HAVE BEEN EXCLUDED FROM THE PORTFOLIO TURNOVER CALCULATION. (10) LESS THAN ONE PENNY PER SHARE. (11) THE BOARD OF TRUSTEES APPROVED THE AMENDMENTS TO THE EXPENSES LIMITATION AGREEMENT WHEREBY OVERALL OPERATING EXPENSES (EXCLUDING TAXES, INTEREST, BROKERAGE AND EXTRAORDINARY EXPENSES), EMERGING MARKETS OPPORTUNITIES FUND DO NOT EXCEED 1.75% FOR THE PERIOD 04/01/04 TO 03/23/05 AND 1.65% FOR THE PERIOD 03/24/05 TO 03/31/05, RESPECTIVELY. (12) THE BOARD OF TRUSTEES APPROVED THE AMENDMENTS TO THE EXPENSES LIMITATION AGREEMENT WHERE BY OVERALL OPERATING EXPENSES (EXCLUDING TAXES, INTEREST, BROKERAGE AND EXTRAORDINARY EXPENSES), OF THE INTERNATIONAL SYSTEMATIC FUND DO NOT EXCEED 1.75% FOR THE PERIOD 07/06/05 TO 07/31/05 AND 1.20% FOR THE PERIOD 08/01/05 TO 01/23/06 AND 1.00% FOR THE PERIOD 01/24/06 TO 3/31/06, RESPECTIVELY. (13) THE BOARD OF TRUSTEES APPROVED THE AMENDMENTS TO THE EXPENSES LIMITATION AGREEMENT WHEREBY OVERALL OPERATING EXPENSES (EXCLUDING TAXES, INTEREST, BROKERAGE AND EXTRAORDINARY EXPENSES), OF THE U.S. EMERGING GROWTH, GLOBAL SELECT, INTERNATIONAL GROWTH, INTERNATIONAL GROWTH OPPORTUNITIES, EMERGING MARKET OPPORTUNITIES AND INTERNATIONAL ALL CAP GROWTH DO NOT EXCEED 1.20%, 1.15%, 1.39%, 1.42%, 1.55% AND 1.15% FOR THE PERIOD 01/24/06 TO 03/31/06 RESPECTIVELY. U.S. MICRO CAP, U.S. SMALL CAP VALUE, U.S. LARGE CAP VALUE, U.S. SYSTEMATIC LARGE CAP GROWTH, U.S. SYSTEMATIC MIDCAP GROWTH, U.S. CONVERTIBLE AND U.S. HIGH YIELD BOND HAD RATES THROUGHOUT THE YEAR OF 1.56%, 1.30%, 0.81%, 1.12%, 1.33%, 1.02% AND 0.63% RESPECTIVELY. (14) INCLUDES PAID-IN CAPITAL OF $0.01 FROM REDEMPTION FEES. (15) FOR THE YEAR ENDED MARCH 31, 2003 RATIOS INCLUDE 12b-1 FEES FROM CLASS R WHICH WERE EXCHANGED TO CLASS I SHARES ON SEPTEMBER 30, 2002. HAD THOSE FEES NOT BEEN INCLUDED, THE EXPENSE AND NET INVESTMENT INCOME LOSS RATIOS WOULD HAVE BEEN 1.48% AND (1.38%) RESPECTIVELY. 59 FOR A CLASS II SHARE OUTSTANDING DURING THE PERIOD INDICATED
DISTRIBUTIONS FROM: ------------------------- NET ASSET NET NET REALIZED TOTAL FROM NET NET VALUE, INVESTMENT AND UNREALIZED INVESTMENT INVESTMENT REALIZED BEGINNING INCOME (LOSS) (1) GAINS (LOSS) OPERATIONS INCOME CAPITAL GAINS ------------------------------------------------------------------------------------------------------------------------ U.S. EQUITY FUNDS U.S. MICRO CAP For the year ended 03/31/06 $ 12.85 $ (0.09) $ 5.09 $ 5.00 $ -- $ (0.35) 09/30/04 (commenced) to 03/31/05 12.49 (0.03) 1.07 1.04 -- (0.68) U.S. SMALL CAP VALUE For the year ended 03/31/06 $ 17.39 $ 0.13 $ 3.57 $ 3.70 $ (0.08) $ (1.18) 11/10/04 (commenced) to 03/31/05 18.82 -- 0.93 0.93 (0.04) (2.32) U.S. SYSTEMATIC LARGE CAP GROWTH 09/30/05 (Commenced) to 03/31/06 16.35 $ 0.02 $ 1.51 $ 1.53 $ (0.13) $ -- U.S. SYSTEMATIC MIDCAP GROWTH 09/30/05 (Commenced) to 03/31/06 12.10 $ (0.01) $ 1.46 $ 1.45 $ -- $ (0.48) U.S. CONVERTIBLE 09/30/05 (Commenced) to 03/31/06 23.97 $ 0.30 $ 1.63 $ 1.93 $ (0.28) $ (1.04) GLOBAL FUNDS GLOBAL SELECT For the year ended 03/31/06 $ 16.09 $ 0.04 $ 3.98 $ 4.02 $ (0.04) $ (1.10) For the year ended 03/31/05 15.58 0.07 1.36 1.43 -- (0.92) 6/30/03 (Commenced) to 03/31/04 12.12 (0.01) 3.47 3.46 -- -- INTERNATIONAL GROWTH 1/23/06 (Commenced) to 03/31/06 $ 21.64 $ 1.85 $ (0.78) $ 1.07 $ -- $ -- INTERNATIONAL GROWTH OPPORTUNITIES For the year ended 03/31/06 $ 35.02 $ 0.13 $ 15.06 $ 15.19 $ (0.20) $ -- For the year ended 03/31/05 29.47 0.38 5.32 5.70 (0.15) -- 6/05/03 (Commenced) to 03/31/04 20.85 0.14 8.48 8.62 -- -- EMERGING MARKETS OPPORTUNITIES For the year ended 03/31/06 $ 12.62 $ 0.31 $ 7.97 $ 8.28 $ (0.25) $ -- 03/24/05 (Commenced) to 03/31/05 12.55 -- 0.07 0.07 -- -- FIXED INCOME FUNDS U.S. HIGH YIELD BOND For the year ended 03/31/06 $ 10.02 $ 0.69 $ 0.03 $ 0.72 $ (0.76) $ -- For the year ended 03/31/05 10.33 0.85 (0.32) 0.53 (0.84) (0.00)(6) 6/30/03 (Commenced) to 03/31/04 10.18 0.66 0.10 0.76 (0.61) --
For a class III share outstanding during the period indicated
DISTRIBUTIONS FROM: ------------------------- NET ASSET NET NET REALIZED TOTAL FROM NET NET VALUE, INVESTMENT AND UNREALIZED INVESTMENT INVESTMENT REALIZED BEGINNING INCOME (LOSS) (1) GAINS (LOSS) OPERATIONS INCOME CAPITAL GAINS ------------------------------------------------------------------------------------------------------------------------ GLOBAL FUNDS INTERNATIONAL GROWTH OPPORTUNITIES 09/30/05 (Commenced) to 03/31/06 $ 39.26 $ (0.10) $ 11.03 $ 10.93 (0.32) $ --
For a class IV share outstanding during the period indicated
DISTRIBUTIONS FROM: ------------------------- NET ASSET NET NET REALIZED TOTAL FROM NET NET VALUE, INVESTMENT AND UNREALIZED INVESTMENT INVESTMENT REALIZED BEGINNING INCOME (LOSS) (1) GAINS (LOSS) OPERATIONS INCOME CAPITAL GAINS ------------------------------------------------------------------------------------------------------------------------ INTERNATIONAL GROWTH OPPORTUNITIES 08/31/05 (Commenced) to 03/31/06 $ 36.91 $ (0.07) $ 13.38 $ 13.31 (0.32) $ --
(1) NET INVESTMENT INCOME PER SHARE IS CALCULATED BY DIVIDING NET INVESTMENT INCOME FOR THE PERIOD BY THE AVERAGE SHARES OUTSTANDING DURING THE PERIOD. (2) TOTAL RETURNS ARE NOT ANNUALIZED FOR PERIODS LESS THAN ONE YEAR. (3) RATIOS ARE ANNUALIZED FOR PERIODS OF LESS THAN ONE YEAR. EXPENSE REIMBURSEMENTS REFLECT VOLUNTARY REDUCTIONS TO TOTAL EXPENSES, AS DISCUSSED IN THE NOTES TO FINANCIAL STATEMENTS. SUCH AMOUNTS WOULD DECREASE NET INVESTMENT INCOME (LOSS) RATIOS HAD SUCH REDUCTIONS NOT OCCURRED. (4) NET EXPENSES INCLUDE CERTAIN ITEMS NOT SUBJECT TO EXPENSE REIMBURSEMENT. (5) INCEPTION TO DATE RETURN. (6) LESS THAN ONE PENNY PER SHARE. (7) THE BOARD OF TRUSTEES APPROVED THE AMENDMENTS TO THE EXPENSES LIMITATION AGREEMENT WHERE BY OVERALL OPERATING EXPENSES (EXCLUDING TAXES, INTEREST, BROKERAGE AND EXTRAORDINARY EXPENSES), EMERGING MARKETS OPPORTUNITY FUND CLASS II DO NOT EXCEED 1.60% FOR THE PERIOD 04/01/04 TO 03/23/05 AND 1.50% FOR THE PERIOD 03/24/05 TO 03/31/05, RESPECTIVELY. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 60
RATIOS TO AVERAGE NET ASSETS (3) ------------------------------------------ NET ASSET NET ASSETS, NET EXPENSE TOTAL VALUE, TOTAL ENDING INVESTMENT TOTAL (REIMBURSEMENTS)/ DISTRIBUTIONS ENDING RETURN (2) (IN 000'S) INCOME (LOSS) EXPENSES RECOUPMENT -------------------------------------------------------------------------------------------------------------------------------- U.S. EQUITY FUNDS U.S. MICRO CAP For the year ended 03/31/06 $ (0.35) $ 17.50 39.37% $ 5,875 (0.56%) 1.40% (0.09%) 09/30/04 (commenced) to 03/31/05 (0.68) 12.85 8.17%(5) 15,200 (0.41%) 1.37% (0.06%) U.S. SMALL CAP VALUE For the year ended 03/31/06 $ (1.26) $ 19.83 22.15% $ 43,365 0.76% 1.21% (0.01%) 11/10/04 (commenced) to 03/31/05 (2.36) 17.39 4.95%(5) 17,691 0.33% 1.26% (0.06%) U.S. SYSTEMATIC LARGE CAP GROWTH 09/30/05 (Commenced) to 03/31/06 $ (0.13) $ 17.75 9.43%(5) $ 3,743 0.27% 1.37% (0.37%) U.S. SYSTEMATIC MIDCAP GROWTH 09/30/05 (Commenced) to 03/31/06 $ (0.48) $ 13.07 12.39%(5) $ 21,937 (0.25%) 2.82% (0.62%) U.S. CONVERTIBLE 09/30/05 (Commenced) to 03/31/06 $ (1.32) $ 24.58 8.47%(5) $ 3,634 2.26% 1.01% (0.09%) GLOBAL FUNDS GLOBAL SELECT For the year ended 03/31/06 $ (1.14) $ 18.97 25.90% $ 100,610 0.21% 1.08% (0.00%) For the year ended 03/31/05 (0.92) 16.09 9.27% 69,548 0.44% 1.10% (0.01%) 6/30/03 (Commenced) to 03/31/04 -- 15.58 28.55% 35,817 (0.08%) 1.24% (0.12%) INTERNATIONAL GROWTH 1/23/06 (Commenced) to 03/31/06 $ -- $ 22.71 4.94%(5) $ 56,501 1.21% 0.99% -- INTERNATIONAL GROWTH OPPORTUNITIES For the year ended 03/31/06 $ (0.20) $ 50.01 43.55% $ 32,565 0.36% 1.22% -- For the year ended 03/31/05 (0.15) 35.02 19.40% 35,233 1.19% 1.27% -- 6/05/03 (Commenced) to 03/31/04 -- 29.47 41.34% 60,394 0.66% 1.29% -- EMERGING MARKETS OPPORTUNITIES For the year ended 03/31/06 $ (0.25) $ 20.65 66.20% $ 14,881 1.69% 1.88% (0.40%) 03/24/05 (Commenced) to 03/31/05 -- 12.62 0.56%(5) 9,111 1.43% 1.46% 0.06% FIXED INCOME FUNDS U.S. HIGH YIELD BOND For the year ended 03/31/06 $ (0.76) $ 9.98 7.48% $ 42,648 6.76% 0.76% (0.17%) For the year ended 03/31/05 (0.84) 10.02 5.36% 42,710 7.88% 0.77% (0.19%) 6/30/03 (Commenced) to 03/31/04 (0.61) 10.33 8.43% 68,952 8.68% 0.82% (0.24%) RATIOS TO AVERAGE NET ASSETS (3) --------------------------------- EXPENSES EXPENSES NET OF FUND'S NET OF REIMBURSEMENT/ PORTFOLIO REIMBURSEMENT/ RECOUPMENT TURNOVER RECOUPMENT AND OFFSET (4) RATE ------------------------------------------------------------------------------- U.S. EQUITY FUNDS U.S. MICRO CAP For the year ended 03/31/06 1.31% 0.85%(8) 180% 09/30/04 (commenced) to 03/31/05 1.31% 0.97% 266% U.S. SMALL CAP VALUE For the year ended 03/31/06 1.20% 0.87%(8) 53% 11/10/04 (commenced) to 03/31/05 1.20% 0.93% 73% U.S. SYSTEMATIC LARGE CAP GROWTH 09/30/05 (Commenced) to 03/31/06 1.00% 0.94%(8) 147% U.S. SYSTEMATIC MIDCAP GROWTH 09/30/05 (Commenced) to 03/31/06 2.2% 1.92%(8) 160% U.S. CONVERTIBLE 09/30/05 (Commenced) to 03/31/06 0.92% 0.77%(8) 92% GLOBAL FUNDS GLOBAL SELECT For the year ended 03/31/06 1.08% 0.83%(8) 139% For the year ended 03/31/05 1.09% 0.90% 164% 6/30/03 (Commenced) to 03/31/04 1.12% 0.94% 226% INTERNATIONAL GROWTH 1/23/06 (Commenced) to 03/31/06 0.99% 0.73%(8) 167% INTERNATIONAL GROWTH OPPORTUNITIES For the year ended 03/31/06 1.22% 0.91%(8) 168% For the year ended 03/31/05 1.27% 0.97% 110% 6/05/03 (Commenced) to 03/31/04 1.29% 1.11% 124% EMERGING MARKETS OPPORTUNITIES For the year ended 03/31/06 1.48% 1.05%(8) 119% 03/24/05 (Commenced) to 03/31/05 1.40% 1.41%(7) 59% FIXED INCOME FUNDS U.S. HIGH YIELD BOND For the year ended 03/31/06 0.59% 0.50%(8) 112% For the year ended 03/31/05 0.58% 0.54% 123% 6/30/03 (Commenced) to 03/31/04 0.58% 0.57% 134%
RATIOS TO AVERAGE NET ASSETS (3) ------------------------------------------ NET ASSET NET ASSETS, NET EXPENSE TOTAL VALUE, TOTAL ENDING INVESTMENT TOTAL (REIMBURSEMENTS)/ DISTRIBUTIONS ENDING RETURN (2) (IN 000'S) INCOME (LOSS) EXPENSES RECOUPMENT -------------------------------------------------------------------------------------------------------------------------------- GLOBAL FUNDS INTERNATIONAL GROWTH OPPORTUNITIES 09/30/05 (Commenced) to 03/31/06 $ (0.32) $ 49.87 28.05%(5) $ 6,771 (0.46%) 1.18% -- RATIOS TO AVERAGE NET ASSETS (3) --------------------------------- EXPENSES EXPENSES NET OF FUND'S NET OF REIMBURSEMENT/ PORTFOLIO REIMBURSEMENT/ RECOUPMENT TURNOVER RECOUPMENT AND OFFSET (4) RATE ------------------------------------------------------------------------------- GLOBAL FUNDS INTERNATIONAL GROWTH OPPORTUNITIES 09/30/05 (Commenced) to 03/31/06 1.18% 0.87%(9) 168%
RATIOS TO AVERAGE NET ASSETS (3) ------------------------------------------ NET ASSET NET ASSETS, NET EXPENSE TOTAL VALUE, TOTAL ENDING INVESTMENT TOTAL (REIMBURSEMENTS)/ DISTRIBUTIONS ENDING RETURN (2) (IN 000'S) INCOME (LOSS) EXPENSES RECOUPMENT -------------------------------------------------------------------------------------------------------------------------------- INTERNATIONAL GROWTH OPPORTUNITIES 08/31/05 (Commenced) to 03/31/06 $ (0.32) $ 49.90 36.29%(5) $ 34,255 (0.28%) 1.13% -- RATIOS TO AVERAGE NET ASSETS (3) --------------------------------- EXPENSES EXPENSES NET OF FUND'S NET OF REIMBURSEMENT/ PORTFOLIO REIMBURSEMENT/ RECOUPMENT TURNOVER RECOUPMENT AND OFFSET (4) RATE ------------------------------------------------------------------------------- INTERNATIONAL GROWTH OPPORTUNITIES 08/31/05 (Commenced) to 03/31/06 1.13% 0.84%(10) 168%
(8) THE BOARD OF TRUSTEES APPROVED THE AMENDMENTS TO THE EXPENSE LIMITATION AGREEMENT WHEREBY OVERALL OPERATING EXPENSES (EXCLUDING TAXES, INTEREST, BROKERAGE AND EXTRAORDINARY EXPENSES), OF THE U.S. SYSTEMATIC LARGE CAP GROWTH CLASS II, U.S. SYSTEMATIC MIDCAP GROWTH CLASS II, GLOBAL SELECT CLASS II, INTERNATIONAL GROWTH CLASS II, INTERNATIONAL GROWTH OPPORTUNITIES CLASS II AND EMERGING MARKET OPPORTUNITIES CLASS II DO NOT EXCEED 0.97%, 1.13%, 1.10%, 0.99%, 1.27% AND 1.40% FOR THE PERIOD 01/24/06 TO 03/31/06 RESPECTIVELY. U.S. MICRO CAP CLASS II, U.S. SMALL CAP VALUE CLASS II, AND U.S. HIGH YIELD BOND CLASS II HAD RATES THROUGHOUT THE YEAR OF 1.31%, 1.20% AND 0.58% RESPECTIVELY. U.S. CONVERTIBLE FUND CLASS II HAD RATE OF 0.92% SINCE INCEPTION 09.30.05. (9) THE BOARD OF TRUSTEES APPROVED THE AMENDMENTS TO THE EXPENSES LIMITATION AGREEMENT WHERE BY OVERALL OPERATING EXPENSES (EXCLUDING TAXES, INTEREST, BROKERAGE AND EXTRAORDINARY EXPENSES), INTERNATIONAL GROWTH OPPORTUNITIES FUND CLASS III DO NOT EXCEED 1.22% FOR THE PERIOD 01/24/06 TO 03/31/06. (10) THE BOARD OF TRUSTEES APPROVED THE AMENDMENTS TO THE EXPENSES LIMITATION AGREEMENT WHERE BY OVERALL OPERATING EXPENSES (EXCLUDING TAXES, INTEREST, BROKERAGE AND EXTRAORDINARY EXPENSES), INTERNATIONAL GROWTH OPPORTUNITIES FUND CLASS IV DO NOT EXCEED 1.17% FOR THE PERIOD 01/24/06 TO 03/31/06. 61 NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS STATEMENTS OF ASSETS AND LIABILITIES
U.S. MICRO U.S. EMERGING U.S. SMALL CAP MARCH 31, 2006 CAP GROWTH VALUE -------------------------------------------------------------------------------------------------------- Assets Investments, at value* $ 102,246,775 $ 10,983,628 $ 168,662,041 Foreign currencies, at value** -- -- -- Cash -- -- -- Receivables: Investment securities sold 1,597,999 123,736 -- Capital shares sold 10,902 30,910 219,011 Dividends 13,407 1,553 192,134 Foreign taxes receivable -- -- -- Interest -- -- -- Other 72,546 9,619 150,083 Other assets -- -- -- -------------- -------------- -------------- Total assets 103,941,629 11,149,446 169,223,269 -------------- -------------- -------------- Liabilities Payables: Bank overdraft $ -- $ -- $ -- Investments purchased 2,904,188 190,245 2,957,692 Capital shares redeemed 12,272 -- 22,994 Collateral on securities loaned 16,937,269 1,039,350 1,791,300 Distributions fee -- 640 159 To investment advisor 67,643 5,927 101,654 Accrued Expenses and other liabilities 87,326 18,853 124,632 -------------- -------------- -------------- Total Liabilities 20,008,698 1,255,015 4,998,431 -------------- -------------- -------------- NET ASSETS 83,932,931 9,894,431 164,224,838 ============== ============== ============== * Investments, at cost 84,365,282 8,391,145 144,108,932 ============== ============== ============== ** Foreign currencies, at cost -- -- -- ============== ============== ============== Net Assets Consist of: Paid-in capital $ 57,863,291 $ 14,518,267 $ 130,097,298 Undistributed net investment income (loss) -- -- 207,964 Accumulated net realized gain (loss) on investments and foreign currencies 8,188,147 (7,216,319) 9,366,467 Net unrealized appreciation (depreciation) of investments and of other assets and liabilities denominated in foreign currencies 17,881,493 2,592,483 24,553,109 -------------- -------------- -------------- Net Assets applicable to all shares outstanding $ 83,932,931 $ 9,894,431 $ 164,224,838 ============== ============== ============== Net Assets of Class I shares $ 78,057,568 $ 6,721,377 $ 120,103,889 Net Assets of Class II shares 5,875,363 -- 43,365,133 Net Assets of Class III shares -- -- -- Net Assets of Class IV shares -- -- -- Net Assets of Class R shares -- 3,173,054 755,816 ============== ============== ============== Class I Shares outstanding 4,478,804 483,653 6,049,783 Class II Shares outstanding 335,716 -- 2,187,046 Class III Shares outstanding -- -- -- Class IV Shares outstanding -- -- -- Class R Shares outstanding -- 231,710 38,098 ============== ============== ============== Net Asset Value -- Class I Share $ 17.43 $ 13.90 $ 19.85 Net Asset Value -- Class II Share $ 17.50 $ -- $ 19.83 Net Asset Value -- Class III Share $ -- $ -- $ -- Net Asset Value -- Class IV Share $ -- $ -- $ -- Net Asset Value -- Class R Share $ -- $ 13.69 $ 19.84 ============== ============== ============== U.S. SYSTEMATIC U.S. LARGE CAP LARGE CAP U.S. SYSTEMATIC MARCH 31, 2006 VALUE GROWTH MIDCAP GROWTH -------------------------------------------------------------------------------------------------------- Assets Investments, at value* $ 26,269,055 $ 10,389,171 $ 25,278,256 Foreign currencies, at value** -- -- -- Cash -- -- -- Receivables: Investment securities sold -- 100,387 -- Capital shares sold 17,259 38,782 320,596 Dividends 33,908 11,076 11,685 Foreign taxes receivable -- -- -- Interest -- -- -- Other 8,199 5,756 12,586 Other assets -- -- 1,124 -------------- -------------- -------------- Total assets 26,328,421 10,545,172 25,624,247 -------------- -------------- -------------- Liabilities Payables: Bank overdraft $ -- $ 48,377 $ -- Investments purchased -- -- -- Capital shares redeemed 51,790 3,934 323,853 Collateral on securities loaned -- -- -- Distributions fee 975 1,270 -- To investment advisor 9,940 3,993 14,771 Accrued Expenses and other liabilities 28,762 22,268 -- -------------- -------------- -------------- Total Liabilities 91,467 79,842 338,624 -------------- -------------- -------------- NET ASSETS 26,236,954 10,465,330 25,285,623 ============== ============== ============== * Investments, at cost 21,226,905 8,970,513 23,234,945 ============== ============== ============== ** Foreign currencies, at cost -- -- -- ============== ============== ============== Net Assets Consist of: Paid-in capital $ 25,141,323 $ 18,105,741 $ 24,567,419 Undistributed net investment income (loss) 272,037 1,377 -- Accumulated net realized gain (loss) on investments and foreign currencies (4,218,556) (9,060,446) (1,325,107) Net unrealized appreciation (depreciation) of investments and of other assets and liabilities denominated in foreign currencies 5,042,150 1,418,658 2,043,311 -------------- -------------- -------------- Net Assets applicable to all shares outstanding $ 26,236,954 $ 10,465,330 $ 25,285,623 ============== ============== ============== Net Assets of Class I shares $ 21,650,319 $ 667,348 $ 3,348,190 Net Assets of Class II shares -- 3,742,692 21,937,433 Net Assets of Class III shares -- -- -- Net Assets of Class IV shares -- -- -- Net Assets of Class R shares 4,586,635 6,055,290 -- ============== ============== ============== Class I Shares outstanding 738,429 37,361 257,123 Class II Shares outstanding -- 210,866 1,678,816 Class III Shares outstanding -- -- -- Class IV Shares outstanding -- -- -- Class R Shares outstanding 156,263 344,189 -- ============== ============== ============== Net Asset Value -- Class I Share $ 29.32 $ 17.86 $ 13.02 Net Asset Value -- Class II Share $ -- $ 17.75 $ 13.07 Net Asset Value -- Class III Share $ -- $ -- $ -- Net Asset Value -- Class IV Share $ -- $ -- $ -- Net Asset Value -- Class R Share $ 29.35 $ 17.59 $ -- ============== ============== ==============
(1) COMMENCED OPERATIONS ON 7/06/05 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 62
INTERNATIONAL GLOBAL INTERNATIONAL GROWTH MARCH 31, 2006 U.S. CONVERTIBLE SELECT GROWTH OPPORTUNITIES ---------------------------------------------------------------------------------------------------------------------- Assets Investments, at value* $ 35,328,536 $ 190,031,480 $ 112,834,371 $ 196,930,754 Foreign currencies, at value** -- 1 1,356 229,355 Cash -- -- -- -- Receivables: Investment securities sold -- 5,421,631 1,142,711 8,964,936 Capital shares sold -- 4,012 108,775 8,773 Dividends 1,667 247,104 243,982 147,730 Foreign taxes receivable -- 15,151 12,755 11,590 Interest 129,356 -- -- -- Other 11,538 74,135 69,014 108,757 Other assets -- -- -- -- -------------- -------------- -------------- -------------- Total assets 35,471,097 195,793,514 114,412,964 206,401,895 -------------- -------------- -------------- -------------- Liabilities Payables: Bank overdraft $ -- $ -- $ -- $ -- Investments purchased 157,382 3,525,216 2,506,186 8,190,097 Capital shares redeemed -- 71,502 5,076 33,800 Collateral on securities loaned -- 14,147,932 7,590,839 16,618,898 Distributions fee -- -- 332 -- To investment advisor 16,257 95,901 42,648 102,443 Accrued Expenses and other liabilities 36,678 118,515 101,508 116,645 -------------- -------------- -------------- -------------- Total Liabilities 210,317 17,959,066 10,246,589 25,061,883 -------------- -------------- -------------- -------------- NET ASSETS 35,260,780 177,834,448 104,166,375 181,340,012 ============== ============== ============== ============== * Investments, at cost 30,369,574 160,497,271 93,586,764 153,030,985 ============== ============== ============== ============== ** Foreign currencies, at cost -- 1 1,262 225,146 ============== ============== ============== ============== Net Assets Consist of: Paid-in capital $ 35,939,140 $ 136,515,021 $ 91,450,167 $ 168,132,793 Undistributed net investment income (loss) 96,931 53,117 461,278 -- Accumulated net realized gain (loss) on investments and foreign currencies (5,734,253) 11,730,617 (6,991,399) (30,705,974) Net unrealized appreciation (depreciation) of investments and of other assets and liabilities denominated in foreign currencies 4,958,962 29,535,693 19,246,329 43,913,193 -------------- -------------- -------------- -------------- Net Assets applicable to all shares outstanding $ 35,260,780 $ 177,834,448 $ 104,166,375 $ 181,340,012 ============== ============== ============== ============== Net Assets of Class I shares $ 31,626,774 $ 77,224,858 $ 45,889,400 $ 107,749,071 Net Assets of Class II shares 3,634,006 100,609,590 56,500,786 32,565,035 Net Assets of Class III shares -- -- -- 6,771,063 Net Assets of Class IV shares -- -- -- 34,254,843 Net Assets of Class R shares -- -- 1,776,189 -- ============== ============== ============== ============== Class I Shares outstanding 1,287,261 4,072,132 2,022,093 2,161,018 Class II Shares outstanding 147,864 5,303,873 2,488,012 651,209 Class III Shares outstanding -- -- -- 135,762 Class IV Shares outstanding -- -- -- 686,443 Class R Shares outstanding -- -- 79,798 -- ============== ============== ============== ============== Net Asset Value -- Class I Share $ 24.57 $ 18.96 $ 22.69 $ 49.86 Net Asset Value -- Class II Share $ 24.58 $ 18.97 $ 22.71 $ 50.01 Net Asset Value -- Class III Share $ -- $ -- $ -- $ 49.87 Net Asset Value -- Class IV Share $ -- $ -- $ -- $ 49.90 Net Asset Value -- Class R Share $ -- $ -- $ 22.26 $ -- ============== ============== ============== ============== EMERGING MARKETS INTERNATIONAL INTERNATIONAL U.S. HIGH YIELD MARCH 31, 2006 OPPORTUNITIES SYSTEMATIC (1) ALL CAP GROWTH BOND ---------------------------------------------------------------------------------------------------------------------- Assets Investments, at value* $ 36,840,173 $ 4,702,169 $ 20,657,144 $ 121,071,641 Foreign currencies, at value** 495,428 -- -- -- Cash 1,701 -- -- -- Receivables: Investment securities sold 420,335 1,466,333 679,445 1,355,682 Capital shares sold 32,146 300 -- 94,944 Dividends 86,281 20,548 42,080 -- Foreign taxes receivable 159 780 10,355 -- Interest -- -- -- 2,723,131 Other 12,481 867 3,487 41,613 Other assets 101 -- 11,643 -- -------------- -------------- -------------- -------------- Total assets 37,888,805 6,190,997 21,404,154 125,287,011 -------------- -------------- -------------- -------------- Liabilities Payables: Bank overdraft $ -- $ 41,749 $ 54 $ -- Investments purchased 1,097,746 1,482,620 802,171 1,269,778 Capital shares redeemed 5,367 -- -- -- Collateral on securities loaned 1,114,375 -- -- -- Distributions fee -- -- -- -- To investment advisor 26,075 1,960 22,747 43,078 Accrued Expenses and other liabilities 39,725 2,534 17,151 138,890 -------------- -------------- -------------- -------------- Total Liabilities 2,283,288 1,528,863 842,123 1,451,746 -------------- -------------- -------------- -------------- NET ASSETS 35,605,517 4,662,134 20,562,031 123,835,265 ============== ============== ============== ============== * Investments, at cost 25,260,389 3,910,661 15,551,159 119,536,397 ============== ============== ============== ============== ** Foreign currencies, at cost 495,854 -- (53) -- ============== ============== ============== ============== Net Assets Consist of: Paid-in capital $ 37,942,008 $ 3,571,758 $ 22,337,568 $ 126,653,623 Undistributed net investment income (loss) (19,983) 15,135 (29,652) 128,517 Accumulated net realized gain (loss) on investments and foreign currencies (13,897,571) 283,877 (6,851,759) (4,482,119) Net unrealized appreciation (depreciation) of investments and of other assets and liabilities denominated in foreign currencies 11,581,063 791,364 5,105,874 1,535,244 -------------- -------------- -------------- -------------- Net Assets applicable to all shares outstanding $ 35,605,517 $ 4,662,134 $ 20,562,031 $ 123,835,265 ============== ============== ============== ============== Net Assets of Class I shares $ 20,724,572 $ 4,662,134 $ 20,562,031 $ 81,187,306 Net Assets of Class II shares 14,880,945 -- -- 42,647,959 Net Assets of Class III shares -- -- -- -- Net Assets of Class IV shares -- -- -- -- Net Assets of Class R shares -- -- -- -- ============== ============== ============== ============== Class I Shares outstanding 1,006,298 340,193 1,582,271 8,116,465 Class II Shares outstanding 720,476 -- -- 4,273,773 Class III Shares outstanding -- -- -- -- Class IV Shares outstanding -- -- -- -- Class R Shares outstanding -- -- -- -- ============== ============== ============== ============== Net Asset Value -- Class I Share $ 20.59 $ 13.70 $ 13.00 $ 10.00 Net Asset Value -- Class II Share $ 20.65 $ -- $ -- $ 9.98 Net Asset Value -- Class III Share $ -- $ -- $ -- $ -- Net Asset Value -- Class IV Share $ -- $ -- $ -- $ -- Net Asset Value -- Class R Share $ -- $ -- $ -- $ -- ============== ============== ============== ==============
63 STATEMENTS OF OPERATIONS
U.S. MICRO U.S. EMERGING U.S. SMALL CAP U.S. LARGE CAP YEAR ENDED MARCH 31, 2006 CAP GROWTH VALUE VALUE ---------------------------------------------------------------------------------------------------------------------- Investment Income Dividends, net of foreign taxes* $ 237,475 $ 16,578 $ 1,988,983 $ 447,904 Interest 2 -- 26,018 1 -------------- -------------- -------------- --------------- Total Income 237,477 16,578 2,015,001 447,905 -------------- -------------- -------------- --------------- Expenses Advisory fee 759,429 90,353 951,182 104,147 Accounting fees 65,361 15,973 100,941 22,386 Administration fee 79,451 7,756 150,811 16,967 Custodian fees 74,845 30,795 36,526 20,820 Transfer agent fees and expenses 22,652 18,562 24,037 18,908 Shareholder servicing fees 70,388 20,390 120,419 36,771 Administrative services fee 64,973 12,389 108,893 22,117 Professional fees 35,142 6,707 60,219 11,484 Shareholder reporting 5,909 3,437 18,423 7,851 Registration fees 16,298 13,747 37,369 25,714 Trustees'fees and expenses 8,510 1,476 12,612 2,417 Interest and credit facility fee 1,341 387 1,644 331 Insurance 9,625 2,756 7,977 2,704 Miscellaneous 9,220 8,217 10,904 2,705 -------------- -------------- -------------- --------------- Total Expenses 1,223,144 232,945 1,641,957 295,322 Expense offset (352,284) (39,107) (408,645) (25,545) Expenses (reimbursed)/recouped (57,031) (45,772) (14,272) (93,914) -------------- -------------- -------------- --------------- Net Expenses 813,829 148,066 1,219,040 175,863 -------------- -------------- -------------- --------------- Net Investment Income (Loss) (576,352) (131,488) 795,961 272,042 -------------- -------------- -------------- --------------- Net Realized and Unrealized Gain (Loss) on Investments Realized gain from: Securities 13,711,832 3,962,899 14,420,355 1,864,853 Foreign currency transactions -- -- -- -- -------------- -------------- -------------- --------------- Net realized gain (loss) 13,711,832 3,962,899 14,420,355 1,864,853 -------------- -------------- -------------- --------------- Change in unrealized appreciation (depreciation) of: Investments 11,455,610 241,623 11,266,796 445,579 Other assets and liabilities denominated in foreign currencies -- -- -- -- -------------- -------------- -------------- --------------- Net unrealized appreciation (depreciation) 11,455,610 241,623 11,266,796 445,579 -------------- -------------- -------------- --------------- Net Gain (Loss) on Investments 25,167,442 4,204,522 25,687,151 2,310,432 -------------- -------------- -------------- --------------- Net Increase (Decrease) in Net Assets Resulting from Operations $ 24,591,090 $ 4,073,034 $ 26,483,112 $ 2,582,474 ============== ============== ============== =============== * Foreign taxes withheld $ -- $ -- $ -- $ -- -------------- -------------- -------------- --------------- U.S. SYSTEMATIC LARGE CAP U.S. SYSTEMATIC YEAR ENDED MARCH 31, 2006 GROWTH MIDCAP GROWTH ------------------------------------------------------------------------------------ Investment Income Dividends, net of foreign taxes* $ 123,894 $ 105,904 Interest 5 -- -------------- --------------- Total Income 123,899 105,904 -------------- --------------- Expenses Advisory fee 46,665 91,376 Accounting fees 12,776 10,844 Administration fee 11,713 20,395 Custodian fees 18,649 21,806 Transfer agent fees and expenses 18,578 26,209 Shareholder servicing fees 28,473 5,094 Administrative services fee 12,181 5,094 Professional fees 5,036 6,271 Shareholder reporting 4,513 705 Registration fees 17,138 22,327 Trustees'fees and expenses 1,113 -- Interest and credit facility fee 191 301 Insurance 1,483 604 Miscellaneous 1,654 21,016 -------------- --------------- Total Expenses 180,163 232,042 Expense offset (8,814) (30,505) Expenses (reimbursed)/recouped (48,827) (72,149) -------------- --------------- Net Expenses 122,522 129,388 -------------- --------------- Net Investment Income (Loss) 1,377 (23,484) -------------- --------------- Net Realized and Unrealized Gain (Loss) on Investments Realized gain from: Securities 795,200 1,932,084 Foreign currency transactions -- -- -------------- --------------- Net realized gain (loss) 795,200 1,932,084 -------------- --------------- Change in unrealized appreciation (depreciation) of: Investments 692,335 1,599,679 Other assets and liabilities denominated in foreign currencies -- -- -------------- --------------- Net unrealized appreciation (depreciation) 692,335 1,599,679 -------------- --------------- Net Gain (Loss) on Investments 1,487,535 3,531,763 -------------- --------------- Net Increase (Decrease) in Net Assets Resulting from Operations $ 1,488,912 $ 3,508,279 ============== =============== * Foreign taxes withheld $ 377 $ -- -------------- ---------------
(1) COMMENCED OPERATIONS ON 7/06/05 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 64
INTERNATIONAL GLOBAL INTERNATIONAL GROWTH YEAR ENDED MARCH 31, 2006 U.S. CONVERTIBLE SELECT GROWTH OPPORTUNITIES ---------------------------------------------------------------------------------------------------------------------- Investment Income Dividends, net of foreign taxes* $ 272,732 $ 1,535,684 $ 1,784,433 $ 1,296,796 Interest 429,838 111 2,008 13,424 --------------- -------------- -------------- -------------- Total Income 702,570 1,535,795 1,786,441 1,310,220 --------------- -------------- -------------- -------------- Expenses Advisory fee 186,942 954,787 499,131 895,909 Accounting fees 26,983 91,249 59,876 54,819 Administration fee 29,527 148,028 123,075 199,648 Custodian fees 19,718 109,916 109,424 134,130 Transfer agent fees and expenses 18,793 31,167 22,511 25,116 Shareholder servicing fees 27,059 73,312 122,705 111,525 Administrative services fee 27,059 68,131 117,547 107,788 Professional fees 19,086 62,010 42,082 65,869 Shareholder reporting 9,004 19,318 10,458 19,099 Registration fees 6,458 16,697 20,792 14,498 Trustees'fees and expenses 3,908 14,427 10,549 13,100 Interest and credit facility fee 626 2,038 1,292 1,502 Insurance 4,220 15,432 12,660 11,228 Miscellaneous 5,121 12,485 10,451 11,181 --------------- -------------- -------------- -------------- Total Expenses 384,504 1,618,997 1,162,553 1,665,412 Expense offset (53,084) (359,909) (381,339) (393,294) Expenses (reimbursed)/recouped (38,054) (339) (221) -- --------------- -------------- -------------- -------------- Net Expenses 293,366 1,258,749 780,993 1,272,118 --------------- -------------- -------------- -------------- Net Investment Income (Loss) 409,204 277,046 1,005,448 38,102 --------------- -------------- -------------- -------------- Net Realized and Unrealized Gain (Loss) on Investments Realized gain from: Securities 5,286,535 22,197,633 20,268,066 29,186,914 Foreign currency transactions -- (106,960) (280,815) (502,244) --------------- -------------- -------------- -------------- Net realized gain (loss) 5,286,535 22,090,673 19,987,251 28,684,670 --------------- -------------- -------------- -------------- Change in unrealized appreciation (depreciation) of: Investments (263,420) 13,467,995 7,908,380 24,824,731 Other assets and liabilities denominated in foreign currencies -- 2,146 (2,092) (6,333) --------------- -------------- -------------- -------------- Net unrealized appreciation (depreciation) (263,420) 13,470,141 7,906,288 24,818,398 --------------- -------------- -------------- -------------- Net Gain (Loss) on Investments 5,023,115 35,560,814 27,893,539 53,503,068 --------------- -------------- -------------- -------------- Net Increase (Decrease) in Net Assets Resulting from Operations $ 5,432,319 $ 35,837,860 $ 28,898,987 $ 53,541,170 =============== ============== ============== ============== * Foreign taxes withheld $ -- $ 79,438 $ 182,081 $ 162,582 --------------- -------------- -------------- -------------- EMERGING MARKETS INTERNATIONAL INTERNATIONAL U.S. HIGH YIELD YEAR ENDED MARCH 31, 2006 OPPORTUNITIES SYSTEMATIC (1) ALL CAP GROWTH BOND --------------------------------------------------------------------------------------------------------------------- Investment Income Dividends, net of foreign taxes* $ 809,844 $ 46,266 $ 402,509 $ -- Interest 14,902 -- 8,631 10,822,666 -------------- -------------- -------------- -------------- Total Income 824,746 46,266 411,140 10,822,666 -------------- -------------- -------------- -------------- Expenses Advisory fee 247,884 13,394 325,948 584,933 Accounting fees 17,825 1,528 74,162 127,228 Administration fee 35,801 4,127 10,901 49,435 Custodian fees 118,808 29,473 32,488 44,604 Transfer agent fees and expenses 24,414 13,487 24,330 27,030 Shareholder servicing fees 40,340 3,329 5,085 87,769 Administrative services fee 39,980 3,144 5,085 78,982 Professional fees 17,613 1,588 16,153 73,163 Shareholder reporting 14,723 859 9,912 18,133 Registration fees 20,579 48 14,261 19,033 Trustees'fees and expenses 3,020 239 4,267 16,744 Interest and credit facility fee 2,124 32 57 2,586 Insurance 1,211 -- 1,085 21,364 Miscellaneous 3,926 831 4,324 16,699 -------------- -------------- -------------- -------------- Total Expenses 588,248 72,079 528,058 1,167,703 Expense offset (132,388) (3,627) (6,576) (111,760) Expenses (reimbursed)/recouped (137,239) (41,335) (132,617) (264,450) -------------- -------------- -------------- -------------- Net Expenses 318,621 27,117 388,865 791,493 -------------- -------------- -------------- -------------- Net Investment Income (Loss) 506,125 19,149 22,275 10,031,173 -------------- -------------- -------------- -------------- Net Realized and Unrealized Gain (Loss) on Investments Realized gain from: Securities 8,873,700 336,972 6,874,493 1,896,197 Foreign currency transactions (151,165) (72) (65,748) -- -------------- -------------- -------------- -------------- Net realized gain (loss) 8,722,535 336,900 6,808,745 1,896,197 -------------- -------------- -------------- -------------- Change in unrealized appreciation (depreciation) of: Investments 4,120,030 791,508 781,634 (1,320,960) Other assets and liabilities denominated in foreign currencies 21,365 (144) (111) -- -------------- -------------- -------------- -------------- Net unrealized appreciation (depreciation) 4,141,395 791,364 781,523 (1,320,960) -------------- -------------- -------------- -------------- Net Gain (Loss) on Investments 12,863,930 1,128,264 7,590,268 575,237 -------------- -------------- -------------- -------------- Net Increase (Decrease) in Net Assets Resulting from Operations $ 13,370,055 $ 1,147,413 $ 7,612,543 $ 10,606,410 ============== ============== ============== ============== * Foreign taxes withheld $ 86,768 $ 3,042 $ 55,514 $ -- -------------- -------------- -------------- --------------
65 STATEMENTS OF CHANGES IN NET ASSETS
U.S. MICRO CAP U.S. EMERGING GROWTH ----------------------------- ----------------------------- YEARS ENDED MARCH 31 2006 2005 2006 2005 ----------------------------------------------------------------------------------------------------------------- Increase (Decrease) in Net Assets from Investment Operations: Net investment income (loss) $ (576,352) $ (548,233) $ (131,488) $ (208,527) Net realized gain (loss) 13,711,832 (2,416,911) 3,962,899 3,800,670 Net unrealized appreciation (depreciation) 11,455,610 (3,296,868) 241,623 (4,281,928) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets from investment operations 24,591,090 (6,262,012) 4,073,034 (689,785) ------------- ------------- ------------- ------------- Distributions to Shareholders: From net investment income -- -- -- -- From net realized gains (1,668,172) (4,336,439) (7,167) -- ------------- ------------- ------------- ------------- Total distributions (1,668,172) (4,336,439) (7,167) -- ------------- ------------- ------------- ------------- From Capital Share Transactions: Proceeds from shares sold Class I 8,572,354 35,151,206 1,499,847 1,968,884 Class II 38,388 14,157,049 -- -- Class IV -- -- -- -- Class R -- -- 350,928 575,960 Distributions reinvested Class I 1,439,456 3,478,525 5,184 -- Class II 165,230 770,144 -- -- Class IV -- -- -- -- Class R -- -- 1,983 -- Cost of shares redeemed Class I (22,059,033) (27,283,804) (9,948,897) (21,275,687) Class II (11,592,735) (104,807) -- -- Class IV -- -- -- -- Class R -- -- (1,804,143) (898,510) Net assets received in conjunction with merger agreement Class IV -- -- -- -- ------------- ------------- ------------- ------------- Net increase (decrease) in net assets from share transactions (23,436,340) 26,168,313 (9,895,098) (19,629,353) ------------- ------------- ------------- ------------- Net Increase (Decrease) in Net Assets (513,422) 15,569,862 (5,829,231) (20,319,138) Net Assets Beginning 84,446,353 68,876,491 15,723,662 36,042,800 ------------- ------------- ------------- ------------- Ending $ 83,932,931 $ 84,446,353 $ 9,894,431 $ 15,723,662 ============= ============= ============= ============= Undistributed net investment income (loss), ending $ -- $ -- $ -- $ -- ============= ============= ============= ============= Class I -- Capital Share Activity Shares sold 583,935 2,477,916 129,381 209,252 Distributions reinvested 97,656 262,332 460 -- Shares redeemed (1,600,418) (2,031,573) (879,179) (2,315,669) ============= ============= ============= ============= Net Class I Share Activity (918,827) 708,675 (749,338) (2,106,417) ============= ============= ============= ============= Class II -- Capital Share Activity Shares sold 2,726 1,133,021 -- -- Distributions reinvested 11,172 58,036 -- -- Shares redeemed (861,481) (7,758) -- -- ============= ============= ============= ============= Net Class II Share Activity (847,583) 1,183,299 -- -- ============= ============= ============= ============= Class III -- Capital Share Activity Shares sold -- -- -- -- Shares redeemed -- -- -- -- ============= ============= ============= ============= Net Class III Share Activity -- -- -- -- ============= ============= ============= ============= Class IV -- Capital Share Activity Shares sold -- -- -- -- Distributions reinvested -- -- -- -- Shares redeemed -- -- -- -- ============= ============= ============= ============= Net Class IV Share Activity -- -- -- -- ============= ============= ============= ============= Class R -- Capital Share Activity Shares sold -- -- 31,266 61,609 Distributions reinvested -- -- 178 -- Shares redeemed -- -- (181,217) (94,910) ============= ============= ============= ============= Net Class R Share Activity -- -- (149,773) (33,301) ============= ============= ============= ============= U.S. SMALL CAP VALUE ----------------------------- YEARS ENDED MARCH 31 2006 2005 --------------------------------------------------------------------------------- Increase (Decrease) in Net Assets from Investment Operations: Net investment income (loss) $ 795,961 $ 97,437 Net realized gain (loss) 14,420,355 8,644,160 Net unrealized appreciation (depreciation) 11,266,796 (1,752,501) ------------- ------------- Net increase (decrease) in net assets from investment operations 26,483,112 6,989,096 ------------- ------------- Distributions to Shareholders: From net investment income (415,210) (54,300) From net realized gains (7,768,635) (8,482,337) ------------- ------------- Total distributions (8,183,845) (8,536,637) ------------- ------------- From Capital Share Transactions: Proceeds from shares sold Class I 33,364,315 64,014,161 Class II 20,190,331 17,909,758 Class IV -- -- Class R 70,738 670,138 Distributions reinvested Class I 6,277,485 8,024,945 Class II 1,741,176 408,836 Class IV -- -- Class R 43,447 -- Cost of shares redeemed Class I (19,888,795) (50,897,777) Class II (128,724) -- Class IV -- -- Class R (110,870) (7,316) Net assets received in conjunction with merger agreement Class IV -- -- ------------- ------------- Net increase (decrease) in net assets from share transactions 41,559,103 40,122,745 ------------- ------------- Net Increase (Decrease) in Net Assets 59,858,370 38,575,204 Net Assets Beginning 104,366,468 65,791,264 ------------- ------------- Ending $ 164,224,838 $ 104,366,468 ============= ============= Undistributed net investment income (loss), ending $ 207,964 $ -- ============= ============= Class I -- Capital Share Activity Shares sold 1,831,695 3,657,363 Distributions reinvested 350,697 464,406 Shares redeemed (1,075,546) (2,909,001) ============= ============= Net Class I Share Activity 1,106,846 1,212,768 ============= ============= Class II -- Capital Share Activity Shares sold 1,079,112 993,783 Distributions reinvested 97,436 23,686 Shares redeemed (6,971) -- ============= ============= Net Class II Share Activity 1,169,577 1,017,469 ============= ============= Class III -- Capital Share Activity Shares sold -- -- Shares redeemed -- -- ============= ============= Net Class III Share Activity -- -- ============= ============= Class IV -- Capital Share Activity Shares sold -- -- Distributions reinvested -- -- Shares redeemed -- -- ============= ============= Net Class IV Share Activity -- -- ============= ============= Class R -- Capital Share Activity Shares sold 3,853 38,257 Distributions reinvested 2,427 -- Shares redeemed (6,024) (415) ============= ============= Net Class R Share Activity 256 37,842 ============= =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 66
U.S. SYSTEMATIC U.S. LARGE CAP VALUE LARGE CAP GROWTH ----------------------------- ----------------------------- YEARS ENDED MARCH 31 2006 2005 2006 2005 ----------------------------------------------------------------------------------------------------------------- Increase (Decrease) in Net Assets from Investment Operations: Net investment income (loss) $ 272,042 $ 363,112 $ 1,377 $ 26,492 Net realized gain (loss) 1,864,853 1,535,914 795,200 1,661,538 Net unrealized appreciation (depreciation) 445,579 542,896 692,335 (1,198,653) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets from investment operations 2,582,474 2,441,922 1,488,912 489,377 ------------- ------------- ------------- ------------- Distributions to Shareholders: From net investment income (363,116) (308,287) (26,492) -- From net realized gains -- -- -- -- ------------- ------------- ------------- ------------- Total distributions (363,116) (308,287) (26,492) -- ------------- ------------- ------------- ------------- From Capital Share Transactions: Proceeds from shares sold Class I 6,081,743 6,528,160 3,132,257 240,548 Class II -- -- 3,424,053 -- Class IV -- -- -- -- Class R 253,866 584,575 501,618 753,732 Distributions reinvested Class I 313,005 206,894 -- -- Class II -- -- 26,492 -- Class IV -- -- -- -- Class R 50,110 101,393 -- -- Cost of shares redeemed Class I (3,449,778) (3,793,816) (3,624,807) (3,102,539) Class II -- -- -- -- Class IV -- -- -- -- Class R (4,225,956) (1,814,722) (4,555,093) (2,029,789) Net assets received in conjunction with merger agreement Class IV -- -- -- -- ------------- ------------- ------------- ------------- Net increase (decrease) in net assets from share transactions (977,010) 1,812,484 (1,095,480) (4,138,048) ------------- ------------- ------------- ------------- Net Increase (Decrease) in Net Assets 1,242,348 3,946,119 366,940 (3,648,671) Net Assets Beginning 24,994,606 21,048,487 10,098,390 13,747,061 ------------- ------------- ------------- ------------- Ending $ 26,236,954 $ 24,994,606 $ 10,465,330 $ 10,098,390 ============= ============= ============= ============= Undistributed net investment income (loss), ending $ 272,037 $ 363,111 $ 1,377 $ 26,492 ============= ============= ============= ============= Class I -- Capital Share Activity Shares sold 218,484 257,276 208,507 15,848 Distributions reinvested 11,215 7,961 -- -- Shares redeemed (125,785) (148,861) (220,921) (199,645) ============= ============= ============= ============= Net Class I Share Activity 103,914 116,376 (12,414) (183,797) ============= ============= ============= ============= Class II -- Capital Share Activity Shares sold -- -- 209,270 -- Distributions reinvested -- -- 1,596 -- Shares redeemed -- -- -- -- ============= ============= ============= ============= Net Class II Share Activity -- -- 210,866 -- ============= ============= ============= ============= Class III -- Capital Share Activity Shares sold -- -- -- -- Shares redeemed -- -- -- -- ============= ============= ============= ============= Net Class III Share Activity -- -- -- -- ============= ============= ============= ============= Class IV -- Capital Share Activity Shares sold -- -- -- -- Distributions reinvested -- -- -- -- Shares redeemed -- -- -- -- ============= ============= ============= ============= Net Class IV Share Activity -- -- -- -- ============= ============= ============= ============= Class R -- Capital Share Activity Shares sold 9,217 23,362 31,429 50,204 Distributions reinvested 1,792 3,912 -- -- Shares redeemed (157,044) (70,407) (289,950) (134,105) ============= ============= ============= ============= Net Class R Share Activity (146,035) (43,133) (258,521) (83,901) ============= ============= ============= ============= U.S. SYSTEMATIC MIDCAP GROWTH U.S. CONVERTIBLE ----------------------------- ----------------------------- YEARS ENDED MARCH 31 2006 2005 2006 2005 ----------------------------------------------------------------------------------------------------------------- Increase (Decrease) in Net Assets from Investment Operations: Net investment income (loss) $ (23,484) $ (21,306) $ 409,204 $ 704,060 Net realized gain (loss) 1,932,084 770,346 5,286,535 3,618,730 Net unrealized appreciation (depreciation) 1,599,679 (600,304) (263,420) (3,078,628) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets from investment operations 3,508,279 148,736 5,432,319 1,244,162 ------------- ------------- ------------- ------------- Distributions to Shareholders: From net investment income -- -- (776,075) (802,756) From net realized gains (863,189) -- (1,442,402) (2,016,444) ------------- ------------- ------------- ------------- Total distributions (863,189) -- (2,218,477) (2,819,200) ------------- ------------- ------------- ------------- From Capital Share Transactions: Proceeds from shares sold Class I 474,215 74,485 3,537,830 2,125,817 Class II 21,772,058 -- 3,353,900 -- Class IV 1,054,818 -- -- -- Class R -- -- -- -- Distributions reinvested Class I 106,463 -- 2,002,954 2,711,864 Class II 661,945 -- 178,843 -- Class IV 94,576 -- -- -- Class R -- -- -- -- Cost of shares redeemed Class I (3,604,980) (241,493) (12,423,302) (17,968,407) Class II (1,978,651) -- (329) -- Class IV (2,774,114) (6,160,891) -- -- Class R -- -- -- -- Net assets received in conjunction with merger agreement Class IV -- 7,666,060 -- -- ------------- ------------- ------------- ------------- Net increase (decrease) in net assets from share transactions 15,806,330 1,338,161 (3,350,104) (13,130,726) ------------- ------------- ------------- ------------- Net Increase (Decrease) in Net Assets 18,451,420 1,486,897 (136,262) (14,705,764) Net Assets Beginning 6,834,203 5,347,306 35,397,042 50,102,806 ------------- ------------- ------------- ------------- Ending $ 25,285,623 $ 6,834,203 $ 35,260,780 $ 35,397,042 ============= ============= ============= ============= Undistributed net investment income (loss), ending $ -- $ -- $ 96,931 $ 150,974 ============= ============= ============= ============= Class I -- Capital Share Activity Shares sold 37,339 7,357 154,320 93,699 Distributions reinvested 9,043 -- 86,189 120,111 Shares redeemed (309,803) (27,458) (530,327) (804,648) ============= ============= ============= ============= Net Class I Share Activity (263,421) (20,101) (289,818) (590,838) ============= ============= ============= ============= Class II -- Capital Share Activity Shares sold 1,778,810 -- 140,172 -- Distributions reinvested 56,144 -- 7,706 -- Shares redeemed (156,138) -- (14) -- ============= ============= ============= ============= Net Class II Share Activity 1,678,816 -- 147,864 -- ============= ============= ============= ============= Class III -- Capital Share Activity Shares sold -- -- -- -- Shares redeemed -- -- -- -- ============= ============= ============= ============= Net Class III Share Activity -- -- -- -- ============= ============= ============= ============= Class IV -- Capital Share Activity Shares sold 98,798 690,636 -- -- Distributions reinvested 8,021 -- -- -- Shares redeemed (225,497) (571,958) -- -- ============= ============= ============= ============= Net Class IV Share Activity (118,678) 118,678 -- -- ============= ============= ============= ============= Class R -- Capital Share Activity Shares sold -- -- -- -- Distributions reinvested -- -- -- -- Shares redeemed -- -- -- -- ============= ============= ============= ============= Net Class R Share Activity -- -- -- -- ============= ============= ============= =============
67
GLOBAL SELECT INTERNATIONAL GROWTH ----------------------------- ----------------------------- PERIODS ENDED MARCH 31 2006 2005 2006 2005 --------------------------------------------------------------------------------------------------------------------------------- Increase (Decrease) In Net Assets from Investment Operations: Net investment income $ 277,046 $ 526,419 $ 1,005,448 $ 640,795 Net realized gain 22,090,673 13,051,329 19,987,251 18,736,998 Net unrealized appreciation (depreciation) 13,470,141 (1,033,846) 7,906,288 (10,100,763) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets from investment operations 35,837,860 12,543,902 28,898,987 9,277,030 ------------- ------------- ------------- ------------- Distributions to Shareholders: From net investment income (297,555) -- -- (327,979) From net realized gains (9,700,448) (7,767,831) (15,080,798) (2,360,474) ------------- ------------- ------------- ------------- Total distributions (9,998,003) (7,767,831) (15,080,798) (2,688,453) ------------- ------------- ------------- ------------- From Capital Share Transactions: Proceeds from shares sold Class I 20,080,568 24,166,928 6,546,866 6,031,712 Class II 21,725,096 28,492,987 53,840,583 -- Class III -- -- -- -- Class IV -- -- 45,381,290 -- Class R -- -- 670,079 431,257 Distributions reinvested Class I 4,052,988 3,702,143 6,615,202 991,479 Class II 5,377,960 3,494,951 -- -- Class III -- -- -- 995,381 Class IV -- -- 8,221,384 658,803 Class R -- -- 216,270 39,004 Cost of shares redeemed Class I (24,718,526) (42,957,378) (13,487,399) (19,994,044) Class II (10,186,408) (156,677) -- (15,355,579) Class III -- -- (43,546,717) -- Class IV -- -- (82,681,011) (34,895) Class R -- -- (999,155) (7,774,143) Net assets received in conjunction with merger agreement Class I -- -- -- -- Class II -- -- -- -- ------------- ------------- ------------- ------------- Net increase (decrease) in net assets from share transactions 16,331,678 16,742,954 (19,222,608) (34,011,025) ------------- ------------- ------------- ------------- Net Increase (Decrease) in Net Assets 42,171,535 21,519,025 (5,404,419) (27,422,448) Net Assets Beginning 135,662,913 114,143,888 109,570,794 136,993,242 ------------- ------------- ------------- ------------- Ending $ 177,834,448 $ 135,662,913 $ 104,166,375 $ 109,570,794 ============= ============= ============= ============= Undistributed net investment income (loss), ending $ 53,117 $ 180,559 $ 461,278 $ (263,355) ============= ============= ============= ============= Class I -- Capital Share Activity Shares sold 1,183,767 1,574,870 305,670 309,079 Distributions reinvested 241,393 233,721 340,639 50,049 Shares redeemed (1,462,753) (2,726,407) (646,622) (1,031,238) Shares received in conjunction with merger agreement -- -- -- -- ============= ============= ============= ============= Net Class I Share Activity (37,593) (917,816) (313) (672,110) ============= ============= ============= ============= Class II -- Capital Share Activity Shares sold 1,283,290 1,811,742 2,488,012 -- Distributions reinvested 320,307 220,641 -- -- Shares redeemed (621,513) (9,803) -- (825,784) Shares received in conjunction with merger agreement -- -- -- -- ============= ============= ============= ============= Net Class II Share Activity 982,084 2,022,580 2,488,012 (825,784) ============= ============= ============= ============= Class III -- Capital Share Activity Shares sold -- -- -- -- Distributions reinvested -- -- -- 50,425 Shares redeemed -- -- (1,979,233) -- ============= ============= ============= ============= Net Class III Share Activity -- -- (1,979,233) 50,425 ============= ============= ============= ============= Class IV -- Capital Share Activity Shares sold -- -- 2,059,584 -- Distributions reinvested -- -- 422,693 33,340 Shares redeemed -- -- (3,755,023) (1,793) ============= ============= ============= ============= Net Class IV Share Activity -- -- (1,272,746) 31,547 ============= ============= ============= ============= Class R -- Capital Share Activity Shares sold -- -- 30,959 22,903 Distributions reinvested -- -- 11,347 1,994 Shares redeemed -- -- (49,170) (426,253) ============= ============= ============= ============= Net Class R Share Activity -- -- (6,864) (401,356) ============= ============= ============= =============
(1) COMMENCED OPERATIONS ON 7/06/05 SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 68
INTERNATIONAL EMERGING MARKETS GROWTH OPPORTUNITIES OPPORTUNITIES ----------------------------- ----------------------------- PERIODS ENDED MARCH 31 2006 2005 2006 2005 --------------------------------------------------------------------------------------------------------------------------------- Increase (Decrease) In Net Assets from Investment Operations: Net investment income $ 38,102 $ 1,174,557 $ 506,125 $ 47,263 Net realized gain 28,684,670 23,326,597 8,722,535 1,823,581 Net unrealized appreciation (depreciation) 24,818,398 (7,631,977) 4,141,395 406,526 ------------- ------------- ------------- ------------- Net increase (decrease) in net assets from investment operations 53,541,170 16,869,177 13,370,055 2,277,370 ------------- ------------- ------------- ------------- Distributions to Shareholders: From net investment income (909,444) (378,002) (393,841) (10,112) From net realized gains -- -- -- -- ------------- ------------- ------------- ------------- Total distributions (909,444) (378,002) (393,841) (10,112) ------------- ------------- ------------- ------------- From Capital Share Transactions: Proceeds from shares sold Class I 36,863,789 11,251,408 7,698,450 8,419,651 Class II 10,543,685 26,839 12,723,002 21,697 Class III 6,971,235 -- -- -- Class IV 33,326,621 -- -- -- Class R -- -- -- -- Distributions reinvested Class I 456,359 122,273 306,892 10,106 Class II 132,879 241,302 27,984 -- Class III 56,269 -- -- -- Class IV 215,598 -- -- -- Class R -- -- -- -- Cost of shares redeemed Class I (15,469,116) (18,459,658) (23,859,520) (465,382) Class II (24,544,547) (33,387,515) (9,896,005) -- Class III (2,000,000) -- -- -- Class IV (8,540,000) -- -- -- Class R -- -- -- -- Net assets received in conjunction with merger agreement Class I -- -- -- 16,335,599 Class II -- -- -- 9,039,571 ------------- ------------- ------------- ------------- Net increase (decrease) in net assets from share transactions 38,012,772 (40,205,351) (12,999,197) 33,361,242 ------------- ------------- ------------- ------------- Net Increase (Decrease) in Net Assets 90,644,498 (23,714,176) (22,983) 35,628,500 Net Assets Beginning 90,695,514 114,409,690 35,628,500 -- ------------- ------------- ------------- ------------- Ending $ 181,340,012 $ 90,695,514 $ 35,605,517 $ 35,628,500 ============= ============= ============= ============= Undistributed net investment income (loss), ending $ -- $ 827,487 $ (19,983) $ (380) ============= ============= ============= ============= Class I -- Capital Share Activity Shares sold 927,308 362,089 443,937 836,364 Distributions reinvested 11,669 3,766 19,121 801 Shares redeemed (362,293) (616,612) (1,558,483) (37,075) Shares received in conjunction with merger agreement -- -- -- 1,301,633 ============= ============= ============= ============= Net Class I Share Activity 576,684 (250,757) (1,095,425) 2,101,723 ============= ============= ============= ============= Class II -- Capital Share Activity Shares sold 301,249 898 756,782 1,731 Distributions reinvested 3,389 7,429 1,740 -- Shares redeemed (659,426) (1,051,601) (760,151) -- Shares received in conjunction with merger agreement -- -- -- 720,374 ============= ============= ============= ============= Net Class II Share Activity (354,788) (1,043,274) (1,629) 722,105 ============= ============= ============= ============= Class III -- Capital Share Activity Shares sold 177,565 -- -- -- Distributions reinvested 1,440 -- -- -- Shares redeemed (43,243) -- -- -- ============= ============= ============= ============= Net Class III Share Activity 135,762 -- -- -- ============= ============= ============= ============= Class IV -- Capital Share Activity Shares sold 902,575 -- -- -- Distributions reinvested 5,513 -- -- -- Shares redeemed (221,645) -- -- -- ============= ============= ============= ============= Net Class IV Share Activity 686,443 -- -- -- ============= ============= ============= ============= Class R -- Capital Share Activity Shares sold -- -- -- -- Distributions reinvested -- -- -- -- Shares redeemed -- -- -- -- ============= ============= ============= ============= Net Class R Share Activity -- -- -- -- ============= ============= ============= ============= INTERNATIONAL INTERNATIONAL SYSTEMATIC (1) ALL CAP GROWTH -------------- ----------------------------- PERIODS ENDED MARCH 31 2006 2006 2005 ------------------------------------------------------------------------------------------------------------------ Increase (Decrease) In Net Assets from Investment Operations: Net investment income $ 19,149 $ 22,275 $ 49,920 Net realized gain 336,900 6,808,745 4,719,908 Net unrealized appreciation (depreciation) 791,364 781,523 (1,393,822) -------------- ------------- ------------- Net increase (decrease) in net assets from investment operations 1,147,413 7,612,543 3,376,006 -------------- ------------- ------------- Distributions to Shareholders: From net investment income (4,289) (13,020) (137,060) From net realized gains (52,748) -- -- -------------- ------------- ------------- Total distributions (57,037) (13,020) (137,060) -------------- ------------- ------------- From Capital Share Transactions: Proceeds from shares sold Class I 3,608,886 262,832 1,892,025 Class II -- -- -- Class III -- -- -- Class IV -- -- -- Class R -- -- -- Distributions reinvested Class I 57,037 13,020 137,060 Class II -- -- -- Class III -- -- -- Class IV -- -- -- Class R -- -- -- Cost of shares redeemed Class I (94,165) (21,173,301) (66,622) Class II -- -- -- Class III -- -- -- Class IV -- -- -- Class R -- -- -- Net assets received in conjunction with merger agreement Class I -- -- -- Class II -- -- -- -------------- ------------- ------------- Net increase (decrease) in net assets from share transactions 3,571,758 (20,897,449) 1,962,463 -------------- ------------- ------------- Net Increase (Decrease) in Net Assets 4,662,134 (13,297,926) 5,201,409 Net Assets Beginning -- 33,859,957 28,658,548 -------------- ------------- ------------- Ending $ 4,662,134 $ 20,562,031 $ 33,859,957 ============== ============= ============= Undistributed net investment income (loss), ending $ 15,135 $ (29,652) $ 8,108 ============== ============= ============= Class I -- Capital Share Activity Shares sold 342,323 1,672,171 224,038 Distributions reinvested 4,694 1,238 15,827 Shares redeemed (6,824) (3,820,232) (7,814) Shares received in conjunction with merger agreement -- -- -- ============== ============= ============= Net Class I Share Activity 340,193 (2,147,423) 232,051 ============== ============= ============= Class II -- Capital Share Activity Shares sold -- -- -- Distributions reinvested -- -- -- Shares redeemed -- -- -- Shares received in conjunction with merger agreement -- -- -- ============== ============= ============= Net Class II Share Activity -- -- -- ============== ============= ============= Class III -- Capital Share Activity Shares sold -- -- -- Distributions reinvested -- -- -- Shares redeemed -- -- -- ============== ============= ============= Net Class III Share Activity -- -- -- ============== ============= ============= Class IV -- Capital Share Activity Shares sold -- -- -- Distributions reinvested -- -- -- Shares redeemed -- -- -- ============== ============= ============= Net Class IV Share Activity -- -- -- ============== ============= ============= Class R -- Capital Share Activity Shares sold -- -- -- Distributions reinvested -- -- -- Shares redeemed -- -- -- ============== ============= ============= Net Class R Share Activity -- -- -- ============== ============= ============= U.S. HIGH YIELD BOND ----------------------------- PERIODS ENDED MARCH 31 2006 2005 ------------------------------------------------------------------------------------------------- Increase (Decrease) In Net Assets from Investment Operations: Net investment income $ 10,031,173 $ 14,073,026 Net realized gain 1,896,197 1,308,142 Net unrealized appreciation (depreciation) (1,320,960) (5,352,084) ------------- ------------- Net increase (decrease) in net assets from investment operations 10,606,410 10,029,084 ------------- ------------- Distributions to Shareholders: From net investment income (10,900,316) (14,966,784) From net realized gains -- (83,400) ------------- ------------- Total distributions (10,900,316) (15,050,184) ------------- ------------- From Capital Share Transactions: Proceeds from shares sold Class I 18,574,415 79,787,315 Class II 108,109 20,007,367 Class III -- -- Class IV -- -- Class R -- -- Distributions reinvested Class I 6,754,819 11,194,655 Class II 13,019 24,462 Class III -- -- Class IV -- -- Class R -- -- Cost of shares redeemed Class I (75,706,764) (57,720,694) Class II (1,067) (44,946,652) Class III -- -- Class IV -- -- Class R -- -- Net assets received in conjunction with merger agreement Class I -- -- Class II -- -- ------------- ------------- Net increase (decrease) in net assets from share transactions (50,257,469) 8,346,453 ------------- ------------- Net Increase (Decrease) in Net Assets (50,551,375) 3,325,353 Net Assets Beginning 174,386,640 171,061,287 ------------- ------------- Ending $ 123,835,265 $ 174,386,640 ============= ============= Undistributed net investment income (loss), ending $ 128,517 $ -- ============= ============= Class I -- Capital Share Activity Shares sold 1,854,714 7,724,084 Distributions reinvested 674,088 1,093,440 Shares redeemed (7,523,270) (5,581,872) Shares received in conjunction with merger agreement -- -- ============= ============= Net Class I Share Activity (4,994,468) 3,235,652 ============= ============= Class II -- Capital Share Activity Shares sold 10,737 1,927,496 Distributions reinvested 1,302 2,379 Shares redeemed (107) (4,345,722) Shares received in conjunction with merger agreement -- -- ============= ============= Net Class II Share Activity 11,932 (2,415,847) ============= ============= Class III -- Capital Share Activity Shares sold -- -- Distributions reinvested -- -- Shares redeemed -- -- ============= ============= Net Class III Share Activity -- -- ============= ============= Class IV -- Capital Share Activity Shares sold -- -- Distributions reinvested -- -- Shares redeemed -- -- ============= ============= Net Class IV Share Activity -- -- ============= ============= Class R -- Capital Share Activity Shares sold -- -- Distributions reinvested -- -- Shares redeemed -- -- ============= ============= Net Class R Share Activity -- -- ============= =============
69 NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS NOTE A -- ORGANIZATION Nicholas-Applegate Institutional Funds (the "Trust") is an open-end investment management company. The Trust was established as a Delaware business trust on December 17, 1992 and consists of fourteen separate portfolios (collectively the "Funds" and each a "Fund"). Each Fund's investment objectives, strategies and risks are discussed in the Funds' current prospectuses. All of the Funds have issued Class I shares ("Class I"), ten Funds have issued Class II shares ("Class II"), one Fund has issued Class III shares ("Class III"), one Fund has issued Class IV shares ("Class IV") and five Funds have issued Retirement shares ("Class R"). No shares have a sales charge. Class R has a distribution fee. All Funds had a shareholder services fee until January 23, 2006. The Funds offering Class I, Class II, Class III and Class IV shares are covered in this report. On November 18, 2005, Nicholas-Applegate International All Cap Growth Fund, a series of the Trust, acquired substantially all of the assets and liabilities of the Nicholas-Applegate International Fund (formerly, Duncan-Hurst International Growth Fund) a series of the Professionally Managed Portfolios. Pursuant to the terms of the Agreement and Plan of Reorganization, the Duncan-Hurst International Fund shareholders became entitled to receive an equivalent dollar amount of full and fractional shares of common stock of the Fund. Based on the net asset values of the Duncan-Hurst International Fund as of November 18, 2005, the conversion ratio was 1.0 shares of the Fund for each share of Duncan-Hurst International Fund. Based upon the opinion of Fund counsel, the reorganization qualified as a tax-free for Federal income tax purposes, with no gain or loss recognized to the Funds or their shareholders. On December 15, 2005 the names of the following Funds were changed to more accurately reflect their investment policies.
OLD NEW ------------------------- -------------------------- U.S. Mini Cap Growth U.S. Micro Cap U. S. Systematic SMID Growth U. S. Systematic MidCap Growth
NOTE B -- SIGNIFICANT ACCOUNTING POLICIES Significant accounting policies consistently followed by the Funds in preparing these financial statements are described below. The policies conform with accounting principles generally accepted in the United States. SECURITY VALUATIONS Equity securities, including ADRs and GDRs, 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 that is 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. The Funds value long-term debt obligations, including high quality and high yield corporate securities, municipal securities, asset-backed securities, collateralized mortgage obligations and US Government and Agency issues, at the quoted bid price provided by an approved bond pricing service. Convertible securities are normally priced at the mean between the bids and ask prices. Short-term debt instruments, (e.g., commercial paper, bankers acceptances, U.S. Treasury Bills, etc.) having a maturity of less than 60 days will be valued at amortized cost. If a fixed income security has a maturity of greater than 60 days, it will be valued at market price. 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. 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. SECURITY TRANSACTIONS AND INVESTMENT INCOME Security transactions are accounted for as of trade date. Realized gains and losses from security transactions are determined on an identified-cost basis. Dividend income is recorded on the ex-dividend date or, for certain non-U.S. securities, when the information becomes available to the Funds. Interest income is recorded on an accrual basis. Discounts and premiums on debt securities are accreted and amortized on the yield to maturity basis. NON-U.S. CURRENCY TRANSACTIONS At each net asset valuation date, the value of assets and liabilities denominated in non-U.S. currencies are translated into U.S. dollars using the current exchange rate at the spot rate at 11:00 a.m. Eastern Time against the U.S. dollar, as provided by an approved pricing service. Security transactions, income and expenses are converted at the 70 prevailing exchange rate on the day of the event. The effect of changes in exchange rates on securities denominated in a non-U.S. currency is included with the net realized and unrealized gain or loss of the associated security. Other Non-U.S. currency gains or losses are reported separately. Certain Funds may use forward non-U.S. currency contracts to reduce their exposure to currency fluctuations of their non-U.S. securities. These contracts are commitments to purchase or sell a non-U.S. currency at a specified rate on a future date. When the contract is fulfilled or closed, gains or losses are realized. Until then, the gain or loss is included in unrealized appreciation or depreciation of investments. The contract commitment is fully collateralized by cash or securities of the Fund. Non-U.S. denominated assets and forward currency contracts may involve more risks than U.S. transactions, including currency risk, political and economic risk, regulatory and market risk. Evaluating and monitoring such risk exposure is a part of the Funds' management strategy. There were no such forward non-U.S. currency contracts at March 31, 2006. FUTURES CONTRACTS Each Fund may enter into futures contracts involving non-U.S. currency, interest rates, securities, and securities indices, for hedging purposes only. A futures contract obligates the seller of the contract to deliver and the purchaser of the contract to take delivery of the type of non-U.S. currency, financial instrument or security called for in the contract at a specified future time for a specified price. Upon entering into such a contract, a Fund is required to deposit and maintain as collateral such initial margin as required by the exchange on which the contract is traded. Pursuant to the contract, a Fund agrees to receive from or pay to the broker an amount equal to the daily fluctuations in the value of the contract. Such receipts or payments are known as variation margin and are recorded as unrealized gains or losses by the Fund. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. There were no such futures contracts at March 31, 2006. OPTIONS CONTRACTS The Funds may: (a) buy call options on non-U.S. currency in anticipation of an increase in the value of the underlying asset; (b) buy put options on non-U.S. currency, portfolio securities, and futures in anticipation of a decrease in the value of the underlying asset; and (c) write call options on portfolio securities and futures to generate income from premiums, and in anticipation of a decrease or only limited increase in the value of the underlying asset. If a call written by a Fund is exercised, the Fund foregoes any possible profit from an increase in the market price of the underlying asset over the exercise price plus the premium received. When a Fund writes options on futures contracts, it will be subject to margin requirements similar to those applied to futures contracts. EQUITY-LINKED SECURITIES Certain Funds 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 of the underlying securities, there is a 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 a 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. SECURITIES LENDING In order to generate expense offset credits, each of the Funds may lend portfolio securities, on a short-term or a long-term basis, up to 30% of a Fund's total assets to broker/dealers, banks, or other institutional borrowers of securities. A Fund will only enter into loan arrangements with broker/dealers, banks, or other institutions which the Investment Adviser has determined are creditworthy and under the guidelines established by the Board of Trustees and will receive collateral in the form of cash or U.S. government securities equal to at least 102% of the value of the securities loaned on U.S. securities and 105% on non-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, loose the opportunity to sell 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. The market value of securities on loan and the related collateral at the period ended March 31, 2006 were:
FUND MARKET VALUE COLLATERAL ------------------------------------------------------------------------------ U.S. Micro Cap $ 16,472,615 $ 16,937,269 U.S. Emerging Growth 1,014,096 1,039,350 U.S. Small Cap Value 1,755,474 1,791,300 Global Select 13,594,813 14,147,932 International Growth 7,261,574 7,590,839 International Growth Opportunities 15,465,544 16,618,898 Emerging Markets Opportunities 1,005,143 1,114,375
CREDIT FACILITY The Trust has a $15 million credit facility available to fund temporary or emergency borrowing expiring in March 2007. Each Fund pays its pro-rata share of an annual commitment fee plus interest on its specific borrowings. During the period ended March 31, 2006, the Emerging Markets Opportunities Fund borrowed against the credit facility for a period of six days. The average interest rate was 3.44%. At March 31, 2006, there were no outstanding borrowings on the credit facility. 71 COMMITMENTS AND CONTINGENCIES In the normal course of business, the Funds may enter into contracts and agreements that contain a variety of representations and warranties which provide general indemnifications. The maximum exposure to the Funds under these arrangements is unknown, as this would involve future claims that may be made against the Funds that have not yet occurred. However, based on experience, the Funds expect the risks of loss to be remote. FUND EXPENSES AND MULTI-CLASS ALLOCATIONS Each Fund bears expenses incurred specifically on its behalf plus an allocation of its share of Trust level expenses. Each share offered by a Fund has equal rights to assets but incurs certain Class specific expenses. The Funds allocate income, gains and losses, both realized and unrealized, and expenses, except for Class specific expenses, based on the relative net assets of each share class. Many of the brokers with whom the Investment Adviser places trades on behalf of the Fund provided services to the Fund in addition to trade execution. These services included payments of certain expenses on behalf of the Fund. In addition, through arrangements with the Funds custodian, credits realized as a result of uninvested cash balances were used to reduce the Funds expenses. The Funds reduce 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. During the period, the credits used to reduce the Funds expenses were:
CREDIT DIRECTED SECURITY INTEREST BROKERAGE LENDING FUND OFFSET OFFSET OFFSET ----------------------------------------------------------------------------- ---------- U.S. Micro Cap 30,681 158,975 162,628 U.S. Emerging Growth 11,929 16,252 10,926 U.S. Small Cap Value 315,317 64,582 28,746 U.S. Large Cap Value 13,142 7,248 5,155 U.S. Systematic Large Cap Growth 2,487 252 6,075 U.S. Systematic MidCap Growth 18,172 422 11,911 U.S. Convertible 29,228 169 23,687 Global Select 74,650 237,840 47,419 International Growth 63,410 239,010 78,919 International Growth Opportunities 160,703 86,227 146,364 Emerging Markets Opportunities 2,845 84,505 45,038 International Systematic 2,672 955 -- International All Cap Growth 6,186 390 -- U.S. High Yield Bond 111,760 -- --
USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. NOTE C -- FEDERAL INCOME TAXES The Funds intend to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of their taxable income to shareholders. Accordingly, no provision for federal income taxes is required. A Fund investing in foreign securities records any foreign taxes on income and gains on such investments in accordance with the applicable tax rules. The Funds' tax accounting treatment of loss deferrals, accretion, passive foreign investment companies and expiration of capital loss carryforwards are different from the financial statement recognition of income and gains. Capital loss carryforwards may be used to offset current or future capital gains until expiration. DISTRIBUTIONS TO SHAREHOLDERS The Funds record distributions to shareholders on the ex-dividend date. Distributions are determined in accordance with income tax regulations that may differ from generally accepted accounting principles. Accordingly, the Funds' capital accounts are periodically reclassified to reflect income and gains available for distribution under income tax regulations. The Funds make income and capital gain distributions at least annually. Funds with income objectives make distributions either quarterly or monthly in accordance with the prospectuses. 72 The tax characters of distributions paid during the fiscal year ended March 31, 2006 were as follows:
DISTRIBUTION PAID FROM: ------------------------------------------------------------------------------- NET TOTAL TOTAL ORDINARY LONG TERM TAXABLE TAX RETURN DISTRIBUTIONS FUND INCOME CAPITAL GAIN DISTRIBUTIONS OF CAPITAL PAID(1) --------------------------------------------------------------------------------------------------------------------------------- U.S. Micro Cap -- 1,668,172 1,668,172 -- 1,668,172 U.S. Emerging Growth -- 7,167 7,167 -- 7,167 U.S. Small Cap Value 2,708,994 5,474,851 8,183,845 -- 8,183,845 U.S. Large Cap Value 363,116 -- 363,116 -- 363,116 U.S. Systematic Large Cap Growth 26,492 -- 26,492 -- 26,492 U.S. Systematic MidCap Growth 599,243 263,946 863,189 -- 863,189 U.S. Convertible 776,075 1,442,402 2,218,477 -- 2,218,477 Global Select 4,352,441 5,645,562 9,998,003 -- 9,998,003 International Growth 7,292,658 7,788,140 15,080,798 -- 15,080,798 International Growth Opportunities 909,444 -- 909,444 -- 909,444 Emerging Markets Opportunities 393,841 -- 393,841 -- 393,841 International Systematic Fund 57,037 -- 57,037 -- 57,037 International All Cap Growth Fund 13,020 -- 13,020 -- 13,020 U.S. High Yield Bond 10,900,316 -- 10,900,316 -- 10,900,316
The tax characters of distributions paid during the fiscal year ended March 31, 2005 were as follows:
DISTRIBUTION PAID FROM: ------------------------------------------------------------------------------- NET TOTAL TOTAL ORDINARY LONG TERM TAXABLE TAX RETURN DISTRIBUTIONS FUND INCOME CAPITAL GAIN DISTRIBUTIONS OF CAPITAL PAID(1) --------------------------------------------------------------------------------------------------------------------------------- U.S. Micro Cap 1,735,886 2,600,553 4,336,439 -- 4,336,439 U.S. Emerging Growth -- -- -- -- -- U.S. Small Cap Value 4,987,214 3,549,423 8,536,637 -- 8,536,637 U.S. Large Cap Value 308,287 -- 308,287 -- 308,287 U.S. Systematic Large Cap Growth -- -- -- -- -- U.S. Systematic MidCap Growth -- -- -- -- -- U.S. Convertible 2,819,200 -- 2,819,200 -- 2,819,200 Global Select 4,719,987 3,047,844 7,767,831 -- 7,767,831 International Growth 327,979 2,360,474 2,688,453 -- 2,688,453 International Growth Opportunities 378,002 -- 378,002 -- 378,002 Emerging Markets Opportunities 10,112 -- 10,112 -- 10,112 International Systematic -- -- -- -- -- International All Cap Growth 137,060 -- -- -- 137,060 U.S. High Yield Bond 14,966,784 83,400 15,050,184 -- 15,050,184
73 As of March 31, 2006 the components of accumulated earnings/(deficit) on a tax basis were as follows:
COMPONENTS OF ACCUMULATED EARNINGS/(DEFICIT): ------------------------------------------------------------------------------------------------ UNDISTRIBUTED UNDISTRIBUTED ACCUMULATED UNREALIZED TOTAL ORDINARY LONG-TERM ACCUMULATED CAPITAL AND APPRECIATION/ ACCUMULATED FUND INCOME CAPITAL GAINS EARNINGS OTHER LOSSES (DEPRECIATION) EARNING/(DEFICIT) ----------------------------------------------------------------------------------------------------------------------------------- U.S. Micro Cap 5,630,643 2,618,268 8,248,911 -- 17,820,729(3) 26,069,640 U.S. Emerging Growth -- -- -- (7,178,932)(2) 2,555,096(3) (4,623,836) U.S. Small Cap Value 3,951,005 5,498,868 9,449,873 -- 24,677,667(7) 34,127,540 U.S. Large Cap Value 272,037 -- 272,037 (4,103,927)(2) 4,927,521(3) 1,095,631 U.S. Systematic Large Cap Growth 1,377 -- 1,377 (9,033,883)(2) 1,392,095(3) (7,640,411) U.S. Systematic MidCap Growth 652,162 569,702 1,221,864 (2,529,500)(2) 2,025,840(6) 718,204 U.S. Convertible 96,931 3,315,512 3,412,443 (9,044,377)(2) 4,953,574(3) (678,360) Global Select 8,281,340 10,424,931 18,706,271 (6,670,909)(2) 29,284,065(3) 41,319,427 International Growth 6,644,280 7,370,286 14,014,566 (20,519,842)(2) 19,221,484(3) 12,716,208 International Growth Opportunities -- 7,183,678 7,183,678 (37,604,032)(2) 43,627,573(3) 13,207,219 Emerging Markets Opportunities -- 717,631 717,631 (14,536,151)(2) 11,482,029(4) (2,336,491) International Systematic Fund 300,150 -- 300,150 -- 790,226(5) 1,090,376 International All Cap Growth Fund 120,969 814,481 935,450 (7,633,910)(2) 4,922,923(5) (1,775,537) U.S. High Yield Bond 128,517 -- 128,517 (4,376,582)(2) 1,429,707(3) (2,818,358)
(1) TOTAL DISTRIBUTIONS PAID DIFFER FROM THE STATEMENT OF CHANGES IN NET ASSETS BECAUSE FOR THE TAX PURPOSES DIVIDENDS ARE RECOGNIZED WHEN ACTUALLY PAID. (2) THE FOLLOWING FUNDS HAD NET CAPITAL LOSS CARRYFORWARDS OF APPROXIMATELY:
NET CAPITAL LOSS POST OCTOBER CARRYFORWARD LOSSES FUND (IN 000'S) EXPIRATION (IN 000'S) --------------------------------------------------------------------------------------------------------------- U.S. Emerging Growth 1,030* March 31, 2011 -- 6,149* March 31, 2010 -- U.S. Large Cap Value 4,104* March 31, 2011 -- U.S. Systematic Large Cap Growth 321* March 31, 2012 -- 2,665* March 31, 2011 -- 6,049* March 31, 2010 -- U.S. Systematic MidCap Growth 506* March 31, 2010 -- 2,024* March 31, 2009 -- U.S. Convertible 6,792* March 31, 2011 -- 2,252* March 31, 2010 -- Global Select 3,432* March 31, 2010 -- 2,158* March 31, 2009 -- 1,081* March 31, 2008 -- International Growth 10,739* March 31, 2011 -- 9,781* March 31, 2010 -- International Growth Opportunities 25,562* March 31, 2011 178 12,042* March 31, 2010 -- Emerging Markets Opportunities 3,947* March 31, 2010 -- 3,947* March 31, 2009 -- 6,642* March 31, 2008 -- International All Cap Growth Fund 1,527* March 31, 2011 -- 6,107* March 31, 2010 -- U.S. High Yield Bond 2,948 March 31, 2011 -- 1,429 March 31, 2010 --
* AMOUNTS MAY BE SUBJECT TO SECTION 382 LIMITATION. 74 TO THE EXTENT FUTURE CAPITAL GAINS ARE OFFSET BY CAPITAL LOSS CARRYFORWARDS, SUCH GAINS WILL NOT BE DISTRIBUTED. NET CAPITAL LOSSES INCURRED AFTER OCTOBER 31, AND WITHIN THE TAXABLE YEAR ARE DEEMED TO ARISE ON THE FIRST BUSINESS DAY OF THE FUND'S NEXT TAXABLE YEAR. FOR THE YEAR ENDED MARCH 31, 2006, THE FUND DEFERRED TO APRIL 1, 2006, POST OCTOBER CURRENCY LOSSES. (3) THE DIFFERENCES BETWEEN BOOK-BASIS AND TAX-BASIS UNREALIZED APPRECIATION/(DEPRECIATION) IS ATTRIBUTABLE PRIMARILY TO THE TAX DEFERRAL OF LOSSES ON WASH SALES. (4) THE DIFFERENCES BETWEEN BOOK-BASIS AND TAX-BASIS UNREALIZED APPRECIATION/(DEPRECIATION) IS ATTRIBUTABLE PRIMARILY TO THE TAX DEFERRAL OF LOSSES ON WASH SALES AND CURRENT YEAR CURRENCY POST OCTOBER LOSS. (5) THE DIFFERENCES BETWEEN BOOK-BASIS AND TAX-BASIS UNREALIZED APPRECIATION/(DEPRECIATION) IS ATTRIBUTABLE PRIMARILY TO THE TAX DEFERRAL OF LOSSES ON WASH SALES AND MARK TO MARKET ON PFICs. (6) THE DIFFERENCES BETWEEN BOOK-BASIS AND TAX-BASIS UNREALIZED APPRECIATION/(DEPRECIATION) IS ATTRIBUTABLE PRIMARILY TO THE TAX DEFERRAL OF LOSSES ON WASH SALES AND ADJUSTMENTS FOR PARTNERSHIPS. (7) THE DIFFERENCES BETWEEN BOOK-BASIS AND TAX-BASIS UNREALIZED APPRECIATION/(DEPRECIATION) IS ATTRIBUTABLE PRIMARILY TO THE TAX DEFERRAL OF LOSSES ON WASH SALES AND REIT ADJUSTMENTS. NOTE D -- TRANSACTIONS WITH AFFILIATES Nicholas-Applegate Capital Management LLC ("NACM") serves as Adviser (the "Adviser") to the Trust. The Adviser receives a monthly fee at an annual rate based on the average daily net assets of the Funds. The investment Advisory Fee rates for each of the Funds is listed below. For the period from April 1, 2005 through January 23, 2006, pursuant to the Administrative and Shareholder Services agreements the Investment Adviser provided account servicing to the Funds and received the following annual fees payable monthly based on the average daily net assets of each Fund.
ADMINISTRATIVE SERVICES FEE SHAREHOLDER SERVICES FEE --------------------------------------- -------------------------------------- FUND ADVISORY FEE CLASS I CLASS II CLASS III CLASS IV CLASS I CLASS II CLASS III CLASS IV -------------------------------------------------------------------------------------------------------------------------------- U.S. Micro Cap 1.00% 0.12% 0.05% -- -- 0.13% 0.05% -- -- U.S. Emerging Growth 0.75% 0.12% -- -- -- 0.13% -- -- -- U.S. Small Cap Value 0.75% 0.12% 0.07% -- -- 0.13% 0.08% -- -- U.S. Large Cap Value 0.45% 0.12% -- -- -- 0.13% -- -- -- U.S. Systematic Large Cap Growth 0.45% 0.15% 0.10% -- -- 0.15% 0.10% -- -- U.S. Systematic MidCap Growth 0.70% 0.10% 0.05% -- -- 0.10% 0.05% -- -- U.S. Convertible 0.55% 0.10% 0.05% -- -- 0.10% 0.05% -- -- Global Select 0.65% 0.07% 0.05% -- -- 0.08% 0.05% -- -- International Growth 0.50% 0.25% 0.17% 0.12% 0.05% 0.25% 0.18% 0.13% 0.05% International Growth Opportunities 0.70% 0.15% 0.07% 0.05% 0.02% 0.15% 0.08% 0.05% 0.03% Emerging Markets Opportunities 0.90% 0.20% 0.12% -- -- 0.20% 0.13% -- -- International Systematic 0.50% 0.17% -- -- -- 0.18% -- -- -- International All Cap Growth* 0.85% 0.15% -- -- -- 0.15% -- -- -- U.S. High Yield Bond 0.40% 0.07% 0.05% -- -- 0.08% 0.05% -- --
* FOR THE PERIOD FROM APRIL 1, 2005 THROUGH JULY 28, 2005, THE PREDECESSOR ADVISER CHARGED 1.25% OF AVERAGE DAILY NET ASSETS. FOR THE PERIOD JULY 29, 2005 THROUGH NOVEMBER 17, 2005 THE ADVISER CHARGED 1.45% OF AVERAGE DAILY NET ASSETS. FOR THE PERIOD NOVEMBER 18, 2005 THROUGH JANUARY 23, 2006, THE ADVISER CHARGED 0.95% OF AVERAGE DAILY NET ASSETS. 75 On January 24, 2006, the Funds entered into a new Administration Agreement. Under the terms of the Administration Agreement, NACM (the "Administrator") provides administrative services to the Trust for which it receives a monthly administrative fee based on average daily net assets. As Administrator, NACM bears the cost of various third-party services, including audit, custodial, legal, portfolio accounting, transfer agency and printing costs. The Administration Fee is charged at the following annual rates:
ADMINISTRATION FEE --------------------------------------------------------- FUND CLASS I CLASS II CLASS III CLASS IV --------------------------------------------------------------------------------------------------- U.S. Micro Cap 0.56% 0.31% -- -- U.S. Emerging Growth 0.45% -- -- -- U.S. Small Cap Value 0.55% 0.45% -- -- U.S. Large Cap Value 0.36% -- -- -- U.S. Systematic Large Cap Growth 0.67% 0.52% -- -- U.S. Systematic MidCap Growth 0.63% 0.43% -- -- U.S. Convertible 0.47% 0.37% -- -- Global Select 0.50% 0.45% -- -- International Growth 0.89% 0.49% -- -- International Growth Opportunities 0.72% 0.57% 0.52% 0.47% Emerging Markets Opportunities 0.65% 0.50% -- -- International Systematic 0.50% -- -- -- International All Cap Growth 0.30% -- -- -- U.S. High Yield Bond 0.23% 0.18% -- --
The Investment Adviser has agreed to waive its fees and absorb other operating expenses of the Funds so that total operating expenses are limited to certain levels through January 23, 2006. The Investment Adviser will recover expense reimbursements paid to the Funds to the extent of the difference between the Funds' actual expenses (exclusive of taxes, interest and brokerage expenses) when they fall below the limit in the year such reimbursement is paid. Commencing January 24, 2006, the Funds' Management Fees and Administration Fees were capped as follows:
CLASS I CLASS II CLASS III CLASS IV ------------------ ------------------- ------------------ ------------------ 4/1/05 1/24/06 4/1/05 1/24/06 4/1/05 1/24/06 4/1/05 4/1/04 TO TO TO TO TO TO TO TO FUND 1/23/06 3/31/06 1/23/06 3/31/06 1/23/06 3/31/06 1/23/06 3/31/06 ---------------------------------------------------------------------------------------------------------------------- U.S. Micro Cap 1.56% 1.56% 1.31% 1.31% -- -- -- -- U.S. Emerging Growth 1.48% 1.20% -- -- -- -- -- -- U.S. Small Cap Value 1.30% 1.30% 1.20% 1.20% -- -- -- -- U.S. Large Cap Value 0.81% 0.81% -- -- -- -- -- -- U.S. Systematic Large Cap Growth 1.12% 1.12% 1.02% 0.97% -- -- -- -- U.S. Systematic MidCap Growth 1.33% 1.33% 1.23% 1.13% -- -- 1.13% -- U.S. Convertible 1.02% 1.02% 0.92% 0.92% -- -- -- -- Global Select 1.16% 1.15% 1.11% 1.10% -- -- -- -- International Growth 1.41% 1.39% -- 0.99% 1.16% -- 1.01% -- International Growth Opportunities 1.56% 1.42% 1.41% 1.27% 1.36% 1.22% 1.31% 1.17% Emerging Market Opportunities 1.65% 1.55% 1.50% 1.40% -- -- -- -- International Systematic 1.20% 1.00% -- -- -- -- -- -- International All Cap Growth 1.25% 1.15% -- -- -- -- -- -- U.S. High Yield Bond 0.63% 0.63% 0.58% 0.58% -- -- -- --
76 TRUSTEE COMPENSATION Certain officers of the Trust are also officers of the Investment Adviser and Distributor. The Trustees who are not affiliated with the Investment Adviser receive annual compensation of approximately $35,000 each from the Trust, except for the chairman of the Trust who will receive annual compensation of approximately $42,000 from the Trust. NOTE E -- INVESTMENT TRANSACTIONS The following table presents purchases and sales of securities, excluding short-term investments, during the period ended March 31, 2006 to indicate the volume of transactions in each Fund. The tax cost of securities held at March 31, 2006, and the related gross and net unrealized appreciation and depreciation, provide aggregate information on a tax basis against which future gains and losses on these investments are measured for distribution purposes.
GROSS GROSS UNREALIZED UNREALIZED PURCHASES SALES TAX COST APPRECIATION DEPRECIATION FUND (IN 000'S) (IN 000'S) (IN 000'S) (IN 000'S) (IN 000'S) ------------------------------------------------------------------------------------------------------------------------------- U.S. Micro Cap $ 136,344 $ 159,987 $ 84,426 $ 18,844 $ (1,023) U.S. Emerging Growth 15,111 24,994 8,429 2,624 (70) U.S. Small Cap Value 79,364 62,786 144,266 27,787 (3,391) U.S. Large Cap Value 10,020 11,267 21,342 5,242 (315) U.S. Systematic Large Cap Growth 15,012 16,058 8,997 1,479 (87) U.S. Systematic MidCap Growth 35,591 20,926 23,252 2,316 (290) U.S. Convertible 30,863 38,419 30,375 5,078 (124) Global Select 211,022 203,384 160,749 30,308 (1,026) International Growth 150,843 182,296 93,612 19,639 (417) International Growth Opportunities 227,975 207,653 153,317 44,382 (768) Emerging Markets Opportunities 32,694 45,308 25,339 11,817 (316) International Systematic Fund 7,356 3,782 3,912 806 (16) International All Cap Growth Fund 53,093 75,774 15,734 5,142 (219) U.S. High Yield Bond 158,303 212,517 119,642 2,343 (913)
Gains and losses resulting from the redemptions-in-kind are included in the realized gain/loss from securities and non-U.S. currency transactions. During the period, the International Growth, Emerging Market Opportunities and International All Cap Growth Funds had redemptions-in-kind valued at $114,700,105, $34,793,298 and $20,000,303, respectively. NOTE F -- FINANCIAL INSTRUMENTS During the period, several of the Funds have been party to financial instruments with off-balance sheet risks, including forward non-U.S. currency contracts, primarily in an attempt to minimize the risk to the Fund, in respect of its portfolio transactions. These instruments involve market and/or credit risk in excess of the amount recognized in the Statement of Assets and Liabilities. Risks arise from the possible inability of counterparties to meet the terms of their contracts and from unexpected movement in currencies, securities values and interest rates. The contract amounts indicate the extent of the Funds' involvement in such contracts. 77 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Trustees of Nicholas-Applegate Institutional Funds In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations and changes in net assets and the financial highlights present fairly, in all material respects, the financial position of each of the portfolios comprising the Nicholas-Applegate Institutional Funds (collectively, the "Funds") at March 31, 2006, and the results of each of their operations for the year then ended, the changes in each of their net assets for the two years in the period then ended (for the Nicholas-Applegate International All-Cap Growth Fund, for the single year ended March 31, 2006) and each of their financial highlights for the four years in the period then ended (for the Nicholas-Applegate International All-Cap Growth Fund, for the single year ended March 31, 2006), in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities owned at March 31, 2006 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights of the Funds, excluding the Nicholas-Applegate International All-Cap Growth Fund for year ended March 31, 2002 were audited by other independent accountants whose report dated May 1, 2002 expressed an unqualified opinion on those financial highlights. The statement of changes in net assets of the Nicholas-Applegate International All-Cap Growth Fund for the year ended March 31, 2005, and the financial highlights for the four years in the period then ended were audited by another independent registered public accounting firm whose report dated April 22, 2005 expressed an unqualified opinion thereon. PRICEWATERHOUSECOOPERS LLP Los Angeles, California May 22, 2006 78 SHAREHOLDER EXPENSE EXAMPLE -- (Unaudited) As a shareholder of a Fund, you incur two types of costs: (1) transaction costs, including redemption fees, and (2) ongoing costs, including management fees and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (October 1, 2005 to March 31, 2006). ACTUAL EXPENSES The first line of the table below for each fund provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line for a fund under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below for each fund provides information about hypothetical account values and hypothetical expenses based on a fund's actual expense ratio and an assumed rate of return if 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
EXPENSES PAID BEGINNING ACCOUNT ENDING ACCOUNT DURING THE PERIOD* ANNUALIZED VALUE VALUE OCTOBER 1, 2005 TO EXPENSE OCTOBER 1, 2005 MARCH 31, 2006 MARCH 31, 2006 RATIO -------------------------------------------------------------------------------------------------------------------------- U.S. MICRO CAP -- CLASS I Actual $ 1,000.00 $ 1,203.70 $ 8.57 1.56% Hypothetical (5% return before expenses) $ 1,000.00 $ 1,017.15 $ 7.85 1.56% U.S. MICRO CAP -- CLASS II Actual $ 1,000.00 $ 1,205.20 $ 7.20 1.31% Hypothetical (5% return before expenses) $ 1,000.00 $ 1,018.40 $ 6.59 1.31% U.S. EMERGING GROWTH -- CLASS I Actual $ 1,000.00 $ 1,246.50 $ 7.73 1.38% Hypothetical (5% return before expenses) $ 1,000.00 $ 1,018.05 $ 6.94 1.38% U.S. SMALL CAP VALUE -- CLASS I Actual $ 1,000.00 $ 1,132.50 $ 6.91 1.30% Hypothetical (5% return before expenses) $ 1,000.00 $ 1,018.45 $ 6.54 1.30% U.S. SMALL CAP VALUE -- CLASS II Actual $ 1,000.00 $ 1,133.40 $ 6.38 1.20% Hypothetical (5% return before expenses) $ 1,000.00 $ 1,018.95 $ 6.04 1.20% U.S. LARGE CAP VALUE -- CLASS I Actual $ 1,000.00 $ 1,069.10 $ 4.18 0.81% Hypothetical (5% return before expenses) $ 1,000.00 $ 1,020.89 $ 4.08 0.81% U.S. SYSTEMATIC LARGE CAP GROWTH -- CLASS I Actual $ 1,000.00 $ 1,093.70 $ 5.85 1.12% Hypothetical (5% return before expenses) $ 1,000.00 $ 1,019.35 $ 5.64 1.12% U.S. SYSTEMATIC LARGE CAP GROWTH -- CLASS II Actual $ 1,000.00 $ 1,094.30 $ 5.22 1.00% Hypothetical (5% return before expenses) $ 1,000.00 $ 1,019.95 $ 5.04 1.00% U.S. SYSTEMATIC MIDCAP GROWTH -- CLASS I Actual $ 1,000.00 $ 1,120.60 $ 7.03 1.33% Hypothetical (5% return before expenses) $ 1,000.00 $ 1,018.30 $ 6.69 1.33% U.S. SYSTEMATIC MIDCAP GROWTH -- CLASS II Actual $ 1,000.00 $ 1,123.90 $ 6.25 1.18% Hypothetical (5% return before expenses) $ 1,000.00 $ 1,019.05 $ 5.94 1.18%
79
EXPENSES PAID BEGINNING ACCOUNT ENDING ACCOUNT DURING THE PERIOD* ANNUALIZED VALUE VALUE OCTOBER 1, 2005 TO EXPENSE OCTOBER 1, 2005 MARCH 31, 2006 MARCH 31, 2006 RATIO -------------------------------------------------------------------------------------------------------------------------- U.S. CONVERTIBLE -- CLASS I Actual $ 1,000.00 $ 1,083.70 $ 5.30 1.02% Hypothetical (5% return before expenses) $ 1,000.00 $ 1,019.85 $ 5.14 1.02% U.S. CONVERTIBLE -- CLASS II Actual $ 1,000.00 $ 1,084.70 $ 4.78 0.92% Hypothetical (5% return before expenses) $ 1,000.00 $ 1,020.34 $ 4.63 0.92% GLOBAL SELECT -- CLASS I Actual $ 1,000.00 $ 1,131.00 $ 6.00 1.13% Hypothetical (5% return before expenses) $ 1,000.00 $ 1,019.30 $ 5.69 1.13% GLOBAL SELECT -- CLASS II Actual $ 1,000.00 $ 1,131.70 $ 5.74 1.08% Hypothetical (5% return before expenses) $ 1,000.00 $ 1,019.55 $ 5.44 1.08% INTERNATIONAL GROWTH -- CLASS I Actual $ 1,000.00 $ 1,180.10 $ 7.45 1.37% Hypothetical (5% return before expenses) $ 1,000.00 $ 1,018.10 $ 6.89 1.37% INTERNATIONAL GROWTH -- CLASS II (1) Actual $ 1,000.00 $ 1,049.40 $ 1.86 0.99% Hypothetical (5% return before expenses) $ 1,000.00 $ 1,007.36 $ 1.82 0.99% INTERNATIONAL GROWTH OPPORTUNITIES -- CLASS I Actual $ 1,000.00 $ 1,279.80 $ 7.90 1.39% Hypothetical (5% return before expenses) $ 1,000.00 $ 1,018.00 $ 6.99 1.39% INTERNATIONAL GROWTH OPPORTUNITIES -- CLASS II Actual $ 1,000.00 $ 1,280.50 $ 7.05 1.24% Hypothetical (5% return before expenses) $ 1,000.00 $ 1,018.75 $ 6.24 1.24% INTERNATIONAL GROWTH OPPORTUNITIES -- CLASS III Actual $ 1,000.00 $ 1,280.50 $ 6.77 1.19% Hypothetical (5% return before expenses) $ 1,000.00 $ 1,019.00 $ 5.99 1.19% INTERNATIONAL GROWTH OPPORTUNITIES -- CLASS IV Actual $ 1,000.00 $ 1,281.00 $ 6.54 1.15% Hypothetical (5% return before expenses) $ 1,000.00 $ 1,019.20 $ 5.79 1.15% EMERGING MARKETS OPPORTUNITIES FUND -- CLASS I Actual $ 1,000.00 $ 1,349.00 $ 9.60 1.64% Hypothetical (5% return before expenses) $ 1,000.00 $ 1,016.75 $ 8.25 1.64% EMERGING MARKETS OPPORTUNITIES FUND -- CLASS II Actual $ 1,000.00 $ 1,350.60 $ 8.32 1.42% Hypothetical (5% return before expenses) $ 1,000.00 $ 1,017.85 $ 7.14 1.42% INTERNATIONAL SYSTEMATIC FUND -- CLASS I Actual $ 1,000.00 $ 1,194.50 $ 8.15 1.49% Hypothetical (5% return before expenses) $ 1,000.00 $ 1,017.50 $ 7.49 1.49% INTERNATIONAL ALL CAP GROWTH -- CLASS I Actual $ 1,000.00 $ 1,246.10 $ 5.77 1.41% Hypothetical (5% return before expenses) $ 1,000.00 $ 1,013.08 $ 5.17 1.41% U.S. HIGH YIELD BOND-- CLASS I Actual $ 1,000.00 $ 1,034.00 $ 3.19 0.63% Hypothetical (5% return before expenses) $ 1,000.00 $ 1,021.79 $ 3.18 0.63% U.S. HIGH YIELD BOND -- CLASS II Actual $ 1,000.00 $ 1,035.40 $ 2.94 0.58% Hypothetical (5% return before expenses) $ 1,000.00 $ 1,022.04 $ 2.92 0.58%
(1) FUND'S CLASS II BEGINNING ACCOUNT VALUE ON 1/23/06 (CLASS INCEPTION DATE) * EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO (SHOW IN THE TABLE BELOW); MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD. 80 SUPPLEMENTARY INFORMATION-- (Unaudited) PROXY VOTING (Unaudited) The Investment Adviser votes proxies on behalf of the Funds pursuant to written policies and procedures adopted by the Funds. A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities is available, without charge, upon request by calling. To obtain free information on how your Funds' securities were voted, please call the Funds at 1-800-551-8043 or visit the Funds' website at www.nacm.com. You may also view how the Fund's securities were voted by visiting the Securities & Exchange Commission's website at www.sec.gov. Additionally, information regarding each Fund's proxy voting record for the most recent twelve month period ended June 30 is also available, free of charge, by calling the Funds at 1-800-551-8043 and from the SEC's website at http:///www.sec.gov. ADDITIONAL FEDERAL TAX INFORMATION (UNAUDITED) The Jobs and Growth Tax Relief Reconciliation Act of 2003 allows a fund to distribute certain dividends paid to its eligible shareholders as qualified dividend income. Of the ordinary income (including short-term capital gain) distributions made by the Funds during the fiscal year ended March 31, 2006, the following percentages represent the amount of qualified income within each Fund: U.S. Small Cap Value 39.16% U.S. Large Cap Value 100.00 U.S. Systematic Large Cap Growth 100.00 U.S. Systematic MidCap Growth 10.55 U.S. Convertible 19.25 Global Select 34.13 International Growth 22.00 International Growth Opportunities 100.00 Emerging Markets Opportunities 100.00 International Systematic 24.08 International All Cap Growth 100.00 U.S. High Yield Bond --
The amounts which represent income derived from sources within, and taxes paid to non-U.S. countries or possessions of the United States are as follows:
FOREIGN SOURCE FUND INCOME FTC TOTAL: -------------------------------------------------------------------------------- Global Select 1,052,591 74,134 International Growth 1,872,014 171,013 International Growth Opportunities 1,414,266 145,945 Emerging Markets Opportunities 825,140 77,484 International Systematic Fund 49,351 2,435 International All Cap Growth Fund 440,654 54,422
The percentage of ordinary dividends paid by the Funds during the year ended March 31, 2006, which qualify for the Dividends Received Deduction available to corporate shareholders was:
FUND PERCENTAGE: ------------------------------------------------------------------------------- U.S. Small Cap Value 32.64% U.S. Large Cap Value 100.00 U.S. Systematic Large Cap Growth 100.00 U.S. Systematic MidCap Growth 16.79 U.S. Convertible 18.73 Global Select 12.71 International Growth 1.18 Emerging Markets Opportunities 6.48 International All Cap Growth Fund 100.00
The Funds hereby designate the following approximate amounts as capital gains distributions for the purpose of the Dividends Paid Deduction:
FUND AMOUNTS: ------------------------------------------------------------------------------- U.S. Micro Cap 1,668,172 U.S. Emerging Growth 7,167 U.S. Small Cap Value 5,474,851 U.S. Systematic MidCap Growth 263,946 U.S. Convertible 1,442,402 Global Select 5,645,562 International Growth 7,788,140
QUARTERLY PORTFOLIO SCHEDULE FILING (UNAUDITED) The Funds provide a complete schedules of their holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the schedules appear in the Funds' semiannual and annual reports to shareholders. For the first and third quarters, the Funds file the schedules with the SEC on Form N-Q. Shareholders can look up the Funds' Form N-Q on the SEC's website at www.sec.gov. The Funds' Form N-Q may also be reviewed and copied at the SEC's Public Reference Room in Washington, DC. To find out more about this public service, call the SEC at 1-800-SEC-0330. 81 TRUSTEE APPROVAL OF MANAGEMENT FEE (UNAUDITED) Based upon the recommendation of the Contract Committee of the Board of Trustees, a Committee comprised of all of the independent Trustees, the Trustees unanimously approved the continuance of the Investment Advisory Agreement between the Funds and Nicholas-Applegate Capital Management ("Nicholas-Applegate") at a meeting held November 11, 2005. In approving the Investment Advisory Agreement, the Board of Trustees, through its Contract Committee, evaluated a comprehensive package of materials, including performance and expense data for other funds with similar investment objectives/policies that had been provided by an independent organization. Prior to making its recommendation, the Contract Committee reviewed the proposed continuance of the Investment Advisory Agreement with representatives of Nicholas-Applegate and with independent legal counsel who prepared a legal memorandum outlining the legal guidelines for review of the Investment Advisory Agreement. Members of the Contract Committee also met privately with independent legal counsel to discuss the factors they felt were relevant. The factors included: 1. comparative performance data for each of the Funds and other funds with similar investment objectives/policies and to a relevant index; 2. the nature, extent and quality of investment advisory services rendered by Nicholas-Applegate; 3. the Funds' marketing and sales efforts; 4. payments received by Nicholas-Applegate; 5. costs borne by Nicholas-Applegate; 6. comparative fee and expense data for each of the Funds and other funds with similar investment objectives/policies; 7. Nicholas-Applegate's policies and practices regarding allocation of portfolio transactions, best price and execution of portfolio transactions, and soft dollar arrangements; 8. portfolio turnover rates; 9. fall-out benefits, such as research received pursuant to Section 28(e) of the Securities Exchange Act of 1934; 10. fees that Nicholas-Applegate charges its other clients with similar investment objectives/policies; 11. experience and qualifications of each of the members of the portfolio management teams; The Contract Committee also considered the nature and quality of the services provided by Nicholas-Applegate, their confidence in Nicholas-Applegate's integrity and competence, and Nicholas-Applegate's responsiveness to questions and issues raised by the Trustees, including its willingness to consider and implement changes designed to improve investment and operational results. In their deliberations, the Contract Committee did not identify any particular information that was controlling, and each member of the Contract Committee attributed different weights to the various factors. The Contract Committee determined that the fees of the Investment Advisory Agreement between each of the Funds and Nicholas-Applegate were fair and reasonable in light of the services performed, expenses incurred and such other matters as the Contract Committee considered relevant in the exercise of their reasonable judgment. The Contract Committee also separately discussed the material factors and conclusions that formed the basis for the Contract Committee to recommend to the Board of Trustees approval of the Investment Advisory Agreement for each of the Funds. NATURE, EXTENT AND QUALITY OF THE SERVICES PROVIDED BY NICHOLAS-APPLEGATE The Contract Committee noted that Nicholas-Applegate manages the portfolios of each of the Funds under the direction of the Board of Trustees. Nicholas-Applegate manages each Fund consistent with each Fund's objectives and policies. Nicholas-Applegate provides each Fund with office space and such other services and personnel as are necessary for its operations. The Contract Committee considered the scope and quality of services provided by Nicholas-Applegate under the Investment Advisory Agreement. The Contract Committee considered the quality of the investment research capabilities of Nicholas-Applegate and the other services to be provided to the Funds by Nicholas-Applegate, such as selecting broker-dealers for executing portfolio transactions, servicing as the Funds' administrator, monitoring adherence to the Funds' investment restrictions, producing shareholder reports, providing support services for the Trustees and Trustee committees and overseeing the activities of other service providers, including monitoring compliance with various Fund policies and procedures and with applicable securities laws and regulations. The Contract Committee concluded that the nature, extent and quality of the services to be provided by Nicholas-Applegate to the Funds were appropriate and consistent with the terms of the Investment Advisory Agreement and that the Funds' will continue to benefit from services provided under their agreement with Nicholas-Applegate. COST OF SERVICES The Contract Committee examined the fee information and expenses for each of the Funds in comparison to information from other comparable funds as provided by Morningstar. The Contract Committee agreed that overall the Funds' management fees and expense ratios were reasonable in relation to the management fees and expense ratios of the Funds' peer groups selected by Morningstar. 82 The Contract Committee also reviewed Nicholas-Applegate's management fees for its institutional separate accounts and for its subadvised funds (funds for which the Nicholas-Applegate provides portfolio management services only). In most instances subadvisory and institutional separate account fees are lower than the Funds' management fee. However, the Contract Committee noted that Nicholas-Applegate performs significant additional services to the Funds that it does not provide to those other clients, including administrative services, oversight of the Funds' other service providers, trustee support, regulatory compliance and numerous other services. The Contract Committee reviewed the profitability analysis for each Fund and discussed the methodology used by Nicholas-Applegate to assess profitability. They noted that only 3 of the Funds were profitable and found it to be fair and reasonable as compared to similar separate accounts and sub-advised funds managed by Nicholas-Applegate. The Contract Committee also considered Nicholas-Applegate's proposal to lower and restructure the fees and expenses of the Funds in order to increase the competitive position of the Funds in the institutional marketplace thereby positioning them for growth. The Contract Committee concluded that the management fees and other compensation to be paid by the Funds to Nicholas-Applegate were reasonable in relation to the nature and quality of the services to be provided, taking into account the fees charged by other advisers for managing comparable mutual funds with similar strategies and the fees that Nicholas-Applegate charges to other clients, and that the estimated overall expense ratio of the Funds, taking into account the agreed upon fee reduction and restructuring and the Funds' expense offset arrangements with its brokers, custodian and third party services providers, was comparable to or more favorable than the mean or median expense ratios of their peers. INVESTMENT RESULTS The Contract Committee considered the investment results of each of the Funds as compared to investment companies with similar investment objectives and policies as determined by Morningstar and with relevant securities indices. In addition to the information received by the Contract Committee for their meeting, Nicholas-Applegate provides detailed performance information for each Fund at each regular meeting of the Board of Trustees during the year. At the meeting of the Contract Committee, the members reviewed information showing absolute and relative performance of each Fund over 1-year, 3-year, and 5-year periods. US MICRO CAP FUND. The Contract Committee reviewed the information showing performance of the Fund compared to its peer group and the Russell 2000 Growth Index. The comparative information showed the Fund had outperformed both its peers and the Index for the 1-year, 3-year and 5-year periods. Based on their review, the Contract Committee concluded the Fund's relative performance over time had been very good. US EMERGING GROWTH FUND. The Contract Committee reviewed information showing performance of the Fund compared to its peer group and the Russell 2000 Growth Index. The comparative information showed the Fund was at the top of its peer group and had outperformed the Index for the 1-year period, but had underperformed in the 3-year and 5-year periods. The Contract Committee concluded that the Fund's relative performance over time had been satisfactory. US SMALL CAP VALUE FUND. The Contract Committee reviewed information showing performance of the Fund compared to its peer group and the Russell 2000 Value Index. The comparative information showed the Fund had underperformed relative to its peers but outperformed the Index in the 1-year period and had outperformed both the peer group and the Index for the 3-year period. Based on their review, the Contract Committee concluded the Fund's relative performance over time had been satisfactory. US LARGE CAP VALUE FUND. The Contract Committee reviewed information showing performance of the Fund compared to its peer group and the Russell 1000 Value Index. The comparative information showed the Fund underperformed both its peers and the Index in the 1-year period and outperformed its peer group in the 3-year and 5-year periods yet underperformed relative to the Index. Based on their review, the Contract Committee concluded the Fund's relative investment performance over time had been satisfactory. US SYSTEMATIC LARGE CAP GROWTH FUND. The Contract Committee reviewed information showing performance of the Fund compared to its peer group and the Russell 1000 Growth Index. The comparative information showed the Fund had underperformed its peer group yet outperformed the Index for the 1-year period, and underperformed both its peers and the Index in the 3-year and 5-year periods. In early 2004, Nicholas-Applegate changed portfolio manager teams from one focusing on a traditional approach to one that followed a quantitative approach that relied on analytical investment models prepared by the team. Since that time, the Fund has outperformed the Index. The Contract Committee considered Nicholas-Applegate's change in the Fund's portfolio management team and the relative performance of the Fund since the change. Based on their review, the Contract Committee concluded that, although the Fund's relative performance over time had compared unfavorably to its peers, Nicholas-Applegate was addressing the Committee's concerns about investment performance and retained confidence in Nicholas-Applegate's overall capabilities to manage the Fund. US SYSTEMATIC MIDCAP GROWTH FUND (FORMERLY, US SYSTEMATIC SMID GROWTH FUND). The Fund has been in operation less than one year so there was little performance information for the Contract Committee to evaluate. However, the Contract Committee reviewed comparative expense ratio information. The comparative information showed that the Fund had a lower investment advisory fee than its peers but had higher overall net expenses. The Contract Committee considered the Funds average assets of approximately $5.5 million compared to the peer group average of approximately $17.29 million. Based on their review, the Contract Committee concluded that, although the Fund's net expense ratio exceeded the peer group average, expenses 83 would decrease to more favorable levels as assets increased. Based on this review, the Contract Committee concluded to approve the Investment Advisory Agreement. US CONVERTIBLE FUND. The Contract Committee reviewed information showing performance of the Fund compared to its peer group and the Merrill Lynch Convertibles Bonds All Qualities Index. The comparative information showed that the Fund had outperformed its peer group and Index for the 1-year period, outperformed the Index yet underperformed relative to its peers in the 3-year period and underperformed both the Index and its peers in the 5-year period. Based on their review, the Contract Committee concluded that, although the Fund's relative performance for the 5-year period had compared not as favorably as the 1-year and 3-year periods, Nicholas-Applegate was improving Fund investment performance and retained confidence in Nicholas-Applegate's overall capabilities to manage the Fund. The Contract Committee concluded to approve the Investment Advisory Agreement. GLOBAL SELECT FUND. The Contract Committee reviewed information showing performance of the Fund compared to its peer group and the MSCI World Index. The comparative information showed the Fund had outperformed both the Index and its peers for the 1-year, 3-year, and 5-year periods. Based on this review, the Contract Committee concluded the Fund's relative investment performance over time had been very good and concluded to approve the Investment Advisory Agreement. INTERNATIONAL GROWTH FUND. The Contract Committee reviewed information showing performance of the Fund compared to its peer group and the MSCI EAFE Index. The comparative information showed the Fund had outperformed the Index and its peer group for the 1-year period and underperformed the Index yet outperformed its peers in the 3-year period and underperformed relative to the Index and peer group in the 5-year period and concluded to approve the Investment Advisory Agreement. The Contract Committee considered the change in Lead Portfolio Managers, the addition of two new analysts late 2004, and ongoing enhancement of its investment process. Based on their review, the Contract Committee concluded that, although the Fund's relative investment performance over time had compared unfavorably to its peers and the Index, Nicholas-Applegate was addressing the Committee's concerns about investment performance and retained confidence in Nicholas-Applegate's overall capabilities to manage the Fund. INTERNATIONAL GROWTH OPPORTUNITIES FUND. The Contract Committed reviewed information showing performance of the Fund compared to its peer group and the MSCI EAFE Index. The comparative information showed that the Fund had outperformed the index in the 1-year and 3-year periods while underperforming relative to its peers. The Fund's 5 year performance trailed that of the Index and its peer group average. The Contract Committee considered the change in the investment team and enhancements made to the international investment process. Based on their review, the Contract Committee concluded that, although the Fund's relative investment performance over time had compared unfavorably to its peers and the Index, Nicholas-Applegate was addressing the Committee's concerns about the Fund's investment performance and retained confidence in Nicholas-Applegate's overall capabilities to manage the Fund. The Contract Committee concluded to approve the Investment Advisory Agreement. INTERNATIONAL ALL CAP GROWTH FUND. The Fund is a new series of the trust and was not in operation and accordingly there was no performance information for the Committee to evaluate. However, the Committee reviewed comparative expense ratio information. The comparative information showed that the Fund had lower investment fee and overall net expense than its peers. Based on their review, the Contract Committee concluded that the Fund was positioned well for growth in assets. EMERGING MARKETS OPPORTUNITIES FUND. The Fund has been in operation for only 1-year and therefore no long term performance comparisons were available for the Contract Committee to review. In the Fund's first year of operations, the Fund outperformed the Index and its peers. The Committee reviewed the expense ratios of the Fund compared with its peers. The comparative information showed the Fund had a lower advisory fee and a higher net expense ratio than its peers. Additionally, the Committee considered the Funds average assets of approximately $26.5 million compared to the peer group average of approximately $53.4 million. Based on their review, the Contract Committee concluded that, although the Fund's net expense ratio exceeded the peer group average, expenses would decrease to more favorable levels as assets increased and approved the Investment Advisory Agreement. INTERNATIONAL SYSTEMATIC FUND. The Fund has been in operation less than and accordingly there was little performance information for the Committee to evaluate. However, the Committee reviewed comparative expense ratio information. The comparative information showed that the Fund had lower Advisory fee and lower net expenses than its peers. The Contract Committee considered the Funds average assets of approximately $3.4 million compared to the peer group average of approximately $32.9 million. Based on their review, the Contract Committee concluded that the Fund was positioned well for growth in assets and concluded to approve the Investment Advisory Agreement. US HIGH YIELD BOND FUND. The Contract Committee reviewed information showing performance of the Fund compared to its peer group and the CSFB High Yield Index. The comparative information showed that the Fund had outperformed its peer group and underperformed relative to the Index for the 1-year period and underperformed both its peers and the Index in the 3-year and 5-year periods. The Contract Committee considered the Fund's relative performance periods had been adversely affected by Nicholas-Applegate's decision to avoid the risk of investing in distressed and lower rated high yield bonds (CCC or below). Based on their review, the Contact Committee retained confidence in Nicholas-Applegate's overall capabilities to manage the Fund and concluded to approve the Investment Advisory Agreement. 84 INVESTMENT ADVISORY FEE AND OTHER EXPENSES The Contract Committee considered the investment advisory fee paid by each Fund. The Contract Committee recognized that it is difficult to make comparisons of investment advisory fees because there are variations in the services that are included in the fees paid by other funds. The Contract Committee also considered the fees that Nicholas-Applegate charges other clients with similar investment objectives/policies. Nicholas-Applegate acts as sub-adviser to several open-end and closed-end registered investment companies, non-US investment companies, and investment adviser for separately managed institutional investor accounts. For funds where Nicholas-Applegate acts as sub-adviser, the investment advisory fee for those funds is lower. For separately managed accounts where Nicholas-Applegate acts as investment adviser, the investment advisory fee is comparable and in some cases higher. Representatives of Nicholas-Applegate reviewed with the Contract Committee the significant differences in the scope of services provided and financial commitments and risks involved in managing the various types of accounts. The Contract Committee also considered the total expense ratio for each Fund in comparison to their respective peers. (Expenses for US Systematic Mid Cap Growth Fund, Emerging Markets Opportunities Fund, International Systematic Fund, and International All Cap Growth Fund discussed in the section above) US MICRO CAP FUND. The peer group consisted of funds with net assets, on average, of $223.9 million compared with $78 million for the Fund. The information showed that the Fund's investment advisory fee was identical to its peer group, its gross expenses were approximately the same, and its net expenses were higher (16 basis points) than its peer group median. Nicholas-Applegate explained that gross expenses were comparable to the peer group but other advisers had waived and/or reimbursed more than Nicholas-Applegate. The Contract Committee concluded that the Fund's expense ratio was acceptable in light of the quality of services offered and other factors considered. US EMERGING GROWTH FUND. The peer group consisted of funds with net assets, on average, of $34 million compared with $25 million for the Fund. The information showed that the Fund's investment advisory fee was less than the peer group median, gross expense ratio slightly higher than the peer group average, and net expense ratio higher than the peer group median although it was not the highest one in the group. Nicholas-Applegate explained the gross expense ratio was very favorable to that of the peer group but the other advisers had waiver and/or reimbursed more than Nicholas-Applegate. The Contract Committee concluded that the Fund's expense ratio was acceptable in light of quality of services and other factors considered. US SMALL CAP VALUE FUND. The peer group consisted of funds with net assets, on average, of $108 million compared with $78 million for the Fund. The information showed that the Fund's investment advisory fee was lower than its peer group median and its net expense ratio was higher than its peer group median but it was not the highest in the group. Nicholas-Applegate explained that the Fund's higher than average net expense ratio was a product of its lower than average net asset base and that it expected the expense ratio to decrease as assets increased. The Contract Committee concluded that the expense ratio was acceptable in light of the quality of services offered and other factors considered. US LARGE CAP VALUE FUND. The peer group consisted of funds with net assets, on average, of $30 million compared with $16 million for the Fund. The information showed that the Fund's investment advisory fee was lower than its peer group and its net expense ratio was slightly lower (8 basis points) to its peer group median. The Contract Committee concluded that the Fund's expense ratio was acceptable in light of the quality of services offered and other factors considered. US SYSTEMATIC LARGE CAP GROWTH FUND. The peer group consisted of funds with net assets, on average, of $22 million compared with $11.6 million for the Fund. The information showed that the Fund's investment advisory fee was well below the peer group median, gross expenses were above the peer group median, and net expenses were higher (9 basis points) than the peer group median. Nicholas-Applegate explained that the Fund's expense ratio were higher to that of the peer group given smaller asset size and other advisers had waived and/or reimbursed more than Nicholas-Applegate. The Contract Committee concluded that the Fund's expense ratio was acceptable in light of the quality of services and other factors considered. US CONVERTIBLE FUND. The peer group consisted of funds with net assets, on average, of $138 million compared with $42 million for the Fund. The information showed that the Fund's investment advisory fee was well below the peer group average and its net expenses higher than its peer group median. Nicholas-Applegate explained that gross expenses and net expenses were higher due to the fund's relatively small asset size compared to its peers. GLOBAL SELECT FUND. The peer group consisted of funds with net assets, on average, of $133 million compared with $122 million for the Fund. The information showed that the Fund's investment advisory fee and net expense ratio was lower than its peer group median and average. The Contract Committee concluded that the Fund's expense ratio was acceptable in light of the quality of services and other factors considered. INTERNATIONAL GROWTH FUND. The peer group consisted of funds with net assets, on average, of $115 million compared to $37 million for the Fund. The information showed that the Fund's investment advisory fee was higher (7 basis points) than the peer group and its net and gross expense ratios were essentially equivalent to the peer group average. The Contract Committee concluded that the Fund's expense ratio was acceptable in light of the quality of services offered and other factors considered. INTERNATIONAL GROWTH OPPORTUNITIES FUND. The peer group consisted of funds with net assets, on average, of $140 million compared to $100 million for the Fund. The information showed that the Fund's investment advisory fee was equal to the median investment advsiory fee in its peer group and its 85 net expense ratio was about equal to the peer group average. The Fund's gross expense ratio was higher than the median. The Contract Committee concluded that the Fund's expense ratio was acceptable in light of the quality of services offered and other factors considered. HIGH YIELD BOND FUND. The peer group consisted of funds with net assets, on average, of $156 million compared with $184 million for the Fund. The information showed that the Fund's investment advisory fee as lower than the peer group median as well as its gross and net expense ratios. The Contract Committee concluded that the Fund's expense ratio was acceptable in light of the quality of services and other factors considered. ECONOMIES OF SCALE The Contract Committee noted that the investment advisory fee schedules for the Funds do not contain breakpoints that reduce the fee rate on assets above specified levels. However, the Contract Committee did note that overall fees paid to Nicholas-Applegate (investment advisory, administration, and shareholder service) contain the functional equivalent of breakpoints through four to five different share classes that reduce the fees paid to Nicholas-Applegate based on the asset level of the account. The Contract Committee recognized that the existing fee structure is consistent with the institutional nature of the Funds and of Nicholas-Applegate's business, which caters to large institutional investors (e.g. pension plans, endowments, public funds). Having taken these factors into consideration, the Contract Committee believed the Funds' current multiple share class fee structure establishes a reasonable basis for realizing economies of scale for the Funds which may exist when assets increase. At current asset levels, the Contract Committee also noted that the Funds have not realized any economies of scale in respect to other expenses. 86 CORPORATE GOVERNANCE (UNAUDITED)
NAME, ADDRESS (1) AGE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS POSITION(S) HELD WITH FUND OTHER DIRECTORSHIP HELD BY TRUSTEE LENGTH OF TIME SERVED (2) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE ------------------------------------------------------------------------------------------------------------------------------------ DISINTERESTED TRUSTEES: GEORGE F. KEANE PRINCIPAL OCCUPATIONS: President Emeritus and founding Chief Executive Officer, The Common Fund (76) (1971-1993); and Endowment Advisors (1987-1999) (organizations that provide investment management Chairman of the Board & programs for colleges and universities) Trustee Since August 2004 OTHER DIRECTORSHIPS HELD: Director, Bramwell Funds (since 1994); Director, Longview Oil & Gas (since 2000); Director, Security Capital U.S. Real Estate (since 1997); Director, The Universal Bond Fund (since 1997); 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). NUMBER OF PORTFOLIOS OVERSEEN BY TRUSTEE: 14 WALTER E. AUCH PRINCIPAL OCCUPATIONS: Retired; prior thereto, Chairman and CEO of Chicago Board of Options (85) Exchange (1979-1986); Senior Executive Vice President PaineWebber, Inc. Trustee Since May 1999 OTHER DIRECTORSHIPS HELD: Trustee, LLBS Funds (since 1994 and Brinson Supplementary Trust (since 1997); Director, Thompson Asset Management Corp (1987-1999; Director, Smith Barney Trak Fund (since 1992) and Smith Barney Advisors (since 1992); Director, PIMCO Advisors L.P (since 1994); 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). NUMBER OF PORTFOLIOS OVERSEEN BY TRUSTEE: 14 DARLENE DEREMER PRINCIPAL OCCUPATIONS: Partner, Grail Partners LLC (since 2005); Managing Director, Putnam (50) Lovell NBF Private Equity (2004-2005); Managing Director, NewRiver E-Business Advisory Services Trustee Division (2000-2003); Prior to, President and Founder, DeRemer Associates, a strategic and Since May 1999 marketing consulting firm for the financial services industry (1987-2003); Vice President and Director, Asset Management Division, State Street Bank and Trust Company, now referred to as State Street Global Advisers, (1982-1987); Vice President, T. Rowe Price & Associates (1979-1982); Member, Boston Club (since 1998); Member, Financial Women's Association Advisory Board (since 1995); Founder, Mutual Fund Cafe Website. OTHER DIRECTORSHIPS HELD: Founding Member and Director, National Defined Contribution Council (since 1997); Trustee, Boston Alzheimer's Association (since 1998); Director, King's Wood Montessori School (since 1995); Editorial Board, National Association of Variable Annuities (since 1997); Director, Nicholas-Applegate Strategic Opportunities, Ltd. (1994-1997); Trustee, Nicholas-Applegate Mutual Funds (1994-1999); Director, Jurika & Voyles Fund Group (since 1994-2000); Director, Nicholas-Applegate Southeast Asia Fund, Ltd. (since 2004). NUMBER OF PORTFOLIOS OVERSEEN BY TRUSTEE: 14 JOHN J. MURPHY PRINCIPAL OCCUPATIONS: Founder and senior principal, Murphy Capital Management (62) Trustee OTHER DIRECTORSHIPS HELD: Director, Smith Barney Multiple Discipline Trust; Director, Barclays Since September 2005 International Funds Group Ltd. and affiliated companies. NUMBER OF PORTFOLIOS OVERSEEN BY TRUSTEE: 14 ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEES: HORACIO A. VALEIRAS PRINCIPAL OCCUPATIONS: Managing Director (since 2004) and Chief Investment Officer. (47) Nicholas-Applegate Capital Management, Nicholas-Applegate Securities (since 2002); Managing President & Trustee Director of Morgan Stanley Investment Management, London (1997-2002); Head of International Since August 2004 Equity and Asset Allocation, Miller Anderson & Sherred; Director and Chief of Investment Strategies, Credit Suisse First Boston. OTHER DIRECTORSHIPS HELD: Trustee, The Bishops School (since 2002); Trustee, San Diego Rowing Club (since 2002). NUMBER OF PORTFOLIOS OVERSEEN BY TRUSTEE: 14
87 CORPORATE GOVERNANCE (UNAUDITED)
NAME, ADDRESS (1) AGE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS POSITION(S) HELD WITH FUND OTHER DIRECTORSHIP HELD BY TRUSTEE LENGTH OF TIME SERVED (2) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS: CHARLES H. FIELD, JR. PRINCIPAL OCCUPATIONS: General Counsel, Nicholas-Applegate Capital Management, (50) Nicholas-Applegate Securities LLC, Nicholas-Applegate Holdings LLC (since February 2004), Deputy Secretary and Chief General Counsel, Nicholas-Applegate Capital Management, LLC (1996-2004). Compliance Officer Since May 2002 OTHER DIRECTORSHIPS HELD: NA NUMBER OF PORTFOLIOS OVERSEEN BY TRUSTEE: 14 THOMAS MUSCARELLA PRINCIPAL OCCUPATIONS: Vice President, Director of Mutual Fund Operations (since 1998). (50) Treasurer OTHER DIRECTORSHIPS HELD: NA Since May 2005 NUMBER OF PORTFOLIOS OVERSEEN BY TRUSTEE: 14
(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. 88 (This page intentionally left blank) (This page intentionally left blank) TRUSTEES OF NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS George F. Keane, CHAIRMAN Walter E. Auch Darlene T. DeRemer John J. Murphy Horacio A. Valeiras OFFICERS Horacio A. Valeiras, PRESIDENT Charles H. Field, Jr., SECRETARY Thomas Muscarella, TREASURER INVESTMENT ADVISER Nicholas-Applegate Capital Management DISTRIBUTOR Nicholas-Applegate Securities CUSTODIAN Brown Brothers Harriman & Co., Private Bankers TRANSFER AGENT UMB Fund Services Group, Inc. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM PricewaterhouseCoopers LLP [NICHOLAS APPLEGATE(R) INSTITUTIONAL FUNDS LOGO] Nicholas-Applegate Securities, Distributor [A COMPANY OF ALLIANZ GLOBAL INVESTORS LOGO] ANN0306INST 600 West Broadway San Diego, California 92101 800.551.8043 [NICHOLAS APPLEGATE(R) INSTITUTIONAL FUNDS LOGO] MARCH 31, 2006 ANNUAL REPORT CLASS R SHARES U.S. EMERGING GROWTH U.S. SMALL CAP VALUE U.S. LARGE CAP VALUE U.S. SYSTEMATIC LARGE CAP GROWTH INTERNATIONAL GROWTH LETTER TO SHAREHOLDERS Dear Fellow Shareholder, Equity markets around the world posted solid gains during the twelve months ended March 31, 2006. The global economy appeared healthy during the year, in spite of a spike in commodity prices and rising interest rates in the United States, Europe and Asia. In this annual report, we review the performance of the financial markets and your investments over the fiscal year. We also share our view on the dynamics shaping the investment landscape and our outlook for the months ahead. As 2005 drew to a close, U.S. stock markets flirted with five-year highs. The S&P 500 Index, which measures the performance of large companies, tacked on 11.72% between April 1, 2005 and March 31, 2006. This return, though respectable, trailed the rapid ascension of small company stocks. According to the Russell 2000 Index, which is a fair approximation of the small-cap market, small company shares jumped 25.84% during the same period. Market optimism oscillated over the course of the year, but the positive end-result can be traced back to strong corporate earnings growth amid tame price inflation. The fourth quarter of 2005 capped the tenth consecutive season of double-digit profit growth for S&P 500 companies, and the third-longest such stretch since 1950. Although soaring oil prices produced discomfort, the broader impact to inflation was mild. Outside of food and energy costs, core consumer prices rose just 2.1% in the twelve months to March 31, 2006. Unwelcome, but not unexpected, the Federal Open Market Committee raised short-term lending rates by 0.25% on eight separate occasions during the year. In developed overseas markets, the MSCI EAFE Index advanced 24.94% in U.S. dollar terms. Performance in local currencies was even higher given the respective 7.10% and 9.41% appreciation of the dollar versus the euro and yen. Japan was the darling of the global investment community in 2005, as the country's economy sprang to life following fifteen years of deflationary malaise. The MSCI Japan Index gained 37.39% during the fiscal year, based on Prime Minister Koizumi's reform-inspired reelection and rising worker wages, consumer prices and industrial production. The ongoing rally in developing economies stretched into extra innings in 2005, with the MSCI Emerging Markets Index ratcheting up 47.98%. Stocks advanced on a surge in investors' risk appetites, abundant liquidity, improving fundamentals and record commodity prices. Brazil was one of the top performers during the year. Slowing inflation allowed the country's central bank to cut interest rates and prepay debt to the International Monetary Fund. The MSCI Brazil gained 81.99%. Emerging Europe stocks also saw strong gains, propelled forward by integration with the European Union and record-breaking merger and acquisition activity. Against this backdrop, Nicholas-Applegate Institutional Funds turned in a banner year in terms of both absolute and relative performance and assets under management. All of the funds closed the year in positive territory, with twelve of our fourteen funds outperforming their benchmark on a net-of-fees basis. As fiscal 2005 drew to a close, total fund assets crossed the $1 billion mark, a gain of more than $200 million over the prior twelve months. We continue to make investments in the depth and breadth of our business. In July 2005 we acquired the international equity arm of Duncan-Hurst Capital Management. The investment professionals who joined us from Duncan-Hurst are already contributing discernible value to our investment process. We welcomed several additional highly qualified individuals to our U.S. and international investment teams during the year, further augmenting our research capabilities and evidencing our commitment to providing shareholders with the highest-caliber talent. In an effort to capitalize on our core competencies and to further address the needs of our clients, we launched two new mutual fund products in 2005, the International Systematic Fund and the International All Cap Growth Fund. Both funds significantly exceeded their benchmarks for the period of inception to March 31, 2006. Looking ahead, we remain vigilant, but optimistic on the world's equity markets. Although high energy prices will likely dampen growth in 2006, the major economies are fundamentally healthy and poised for continued expansion. In the United States, we expect equities to receive a boost from increasing visibility on an end to Federal Reserve policy firming. Europe's business environment is improving, but upward potential may be handicapped by European Central Bank interest rates hikes. 2006 should be an interesting year for Japanese equities, as reflationary forces in the country take hold. From a corporate standpoint, earnings growth has passed its peak; however, we expect profits to continue expanding at healthy levels. The combination of solid economic and earnings growth bodes well for investors. Given this environment, we believe larger companies capable of delivering strong earnings growth should once again command premium pricing. Following the conclusion of the last two Federal Reserve tightening cycles, large-cap stocks outperformed small-cap stocks and growth outperformed value during the subsequent twelve-month periods. This transitional phase is ideal for bottom-up security selection, particularly for investing in companies where positive change is translating into increased earnings estimates. We continue to focus our efforts on identifying those companies in a timely manner and buying them for the benefit of our shareholders. On behalf of everyone at Nicholas-Applegate, thank you for your participation in the Nicholas-Applegate Institutional Funds. We appreciate the continuing trust you place in us. Best Regards, /s/ Horacio A. Valeiras Horacio A. Valeiras, CFA President and Chief Investment Officer March 31, 2006 TABLE OF CONTENTS THE FUNDS' REVIEW AND OUTLOOK, PERFORMANCE AND SCHEDULE OF INVESTMENTS U.S. Emerging Growth 1 U.S. Small Cap Value 5 U.S. Large Cap Value 9 U.S. Systematic Large Cap Growth 11 International Growth 14 THE FUNDS': Financial Highlights 18 Statements of Assets and Liabilities 20 Statements of Operations 21 Statements of Changes in Net Assets 22 Notes to Financial Statements 24 Report of Independent Registered Public Accounting Firm 29 Shareholder Expense Example 30 Supplementary Information 31
THIS REPORT IS AUTHORIZED FOR DISTRIBUTION TO SHAREHOLDERS AND TO OTHERS ONLY WHEN PRECEDED OR ACCOMPANIED BY A CURRENTLY EFFECTIVE PROSPECTUS FOR NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS CLASS R SHARES. DISTRIBUTOR: NICHOLAS-APPLEGATE SECURITIES. U.S. EMERGING GROWTH FUND MANAGEMENT TEAM: JOHN C. MCCRAW, Portfolio Manager; TRAVIS T. PRENTICE, Portfolio Manager; MONTIE L. WEISENBERGER, Portfolio Manager; K. MATHEW AXLINE, CFA, Analyst; STEPHEN W. LYFORD, Analyst CHIEF INVESTMENT OFFICER: HORACIO A. VALEIRAS, CFA GOAL: The U.S. Emerging Growth Fund seeks to maximize long-term capital appreciation through investments primarily in U.S. companies with market capitalizations similar to the Russell 2000 Growth Index at time of purchase. MARKET OVERVIEW: Fiscal 2005 was a solid year for U.S. equity markets. Across capitalization ranges and investment styles stocks generated positive results, with most equity categories finishing the twelve months to March 31, 2006 with double-digit returns. Although gains were widespread, they were most notable among small- and medium-sized companies. Investors bid share prices up amid: - Robust corporate earnings growth and expectations for continued healthy profits - A tight job market, with unemployment hovering near historic lows - Tame core consumer prices, up just 2.1% annually through the end of the first quarter of 2006, despite a 20% spike in energy prices These positive corporate and economic factors offset the dampening impact of eight consecutive interest rate hikes at the Federal Reserve during the fiscal year, a record Gulf Coast hurricane season and ongoing signs of cooling in the housing market. Given this environment, between April 1, 2005 and March 31, 2006 the energy and materials sectors in the Russell 2000 Growth Index produced the strongest performance. Companies in the consumer staples and consumer discretionary sectors tended to lag. PERFORMANCE: The Fund's Class R shares rose 41.98% during the twelve months ended March 31, 2006 and outperformed the 27.82% gain in the Russell 2000 Growth Index. PORTFOLIO SPECIFICS: The majority of the Fund's outperformance can be attributed to stock selection, which was most effective among consumer discretionary, information technology and industrials businesses. Investor gains for the period were broad-based and, on a sector level, the Fund saw returns of at least 25% in eight of ten categories. A few of the strongest performers within the Fund were: Hansen Natural, Rackable Systems and NutriSystem. A beverage maker, Hansen's shares surged after third quarter earnings easily topped Wall Street expectations. The company ascribed its rapid expansion to increasing exposure to the energy drink market. Rackable Systems, a provider of computer servers and storage systems for large data centers, experienced robust revenue growth driven by both new and existing customers. NutriSystem saw rapid customer gains, fueled by the success of its Web-based, direct-to-consumer marketing strategy. Despite the Fund's outperformance, there were pockets of relative weakness. For example, underweighting in utilities and stock selection in the health care and energy sectors generally detracted from Fund results. MARKET OUTLOOK: Despite fifteen consecutive interest rate hikes and persistently high energy prices, the U.S. economy still looks strong. Core inflation is tame, business inventories are tight and corporate earnings growth has been robust. U.S. GDP growth in 2006 is expected to be a solid 3.4%, with expansion moderating slightly in the second half of the year as additional 'policy firming' at the Federal Reserve takes effect. As events unfold, we remain confident that our focus on identifying companies with exceptional growth potential will continue to benefit the Fund. [CHART] COMPARISON OF CHANGE IN VALUE OF A $250,000 INVESTMENT IN U.S. EMERGING GROWTH FUND CLASS R SHARES WITH THE RUSSELL 2000 GROWTH INDEX.
U.S. EMERGING GROWTH FUND CLASS R SHARES RUSSELL 2000 GROWTH INDEX 10/1/1993 $ 250,000.00 $ 250,000.00 10/31/1993 $ 250,400.00 $ 257,230.00 11/30/1993 $ 237,400.00 $ 246,825.05 12/31/1993 $ 249,920.00 $ 256,564.76 1/31/1994 $ 257,143.12 $ 263,394.52 2/28/1994 $ 255,285.75 $ 262,235.58 3/31/1994 $ 234,854.63 $ 246,126.45 4/30/1994 $ 235,473.76 $ 246,503.02 5/31/1994 $ 229,076.14 $ 240,978.89 6/30/1994 $ 217,519.14 $ 230,681.86 7/31/1994 $ 222,678.51 $ 233,969.08 8/31/1994 $ 237,743.88 $ 251,137.73 9/30/1994 $ 240,633.13 $ 252,190.00 10/31/1994 $ 243,935.13 $ 254,875.82 11/30/1994 $ 231,552.63 $ 244,563.54 12/31/1994 $ 241,146.93 $ 250,325.46 1/31/1995 $ 231,007.29 $ 245,226.33 2/28/1995 $ 243,351.19 $ 256,558.24 3/31/1995 $ 255,254.24 $ 264,052.31 4/30/1995 $ 259,442.35 $ 268,023.65 5/31/1995 $ 261,426.19 $ 271,534.76 6/30/1995 $ 284,571.01 $ 290,246.22 7/31/1995 $ 312,124.36 $ 312,868.01 8/31/1995 $ 313,006.06 $ 316,728.81 9/30/1995 $ 319,618.87 $ 323,250.25 10/31/1995 $ 307,054.54 $ 307,349.57 11/30/1995 $ 320,721.00 $ 320,915.98 12/31/1995 $ 327,708.03 $ 328,027.48 1/31/1996 $ 323,033.16 $ 325,311.41 2/29/1996 $ 342,667.60 $ 340,145.61 3/31/1996 $ 352,952.30 $ 346,870.29 4/30/1996 $ 389,649.99 $ 373,499.52 5/31/1996 $ 411,388.11 $ 392,652.58 6/30/1996 $ 386,377.58 $ 367,138.02 7/31/1996 $ 341,966.37 $ 322,317.81 8/31/1996 $ 372,352.99 $ 346,178.99 9/30/1996 $ 397,129.77 $ 364,007.21 10/31/1996 $ 379,832.77 $ 348,303.94 11/30/1996 $ 383,573.74 $ 357,990.27 12/31/1996 $ 389,595.30 $ 364,971.08 1/31/1997 $ 394,412.55 $ 374,088.06 2/28/1997 $ 351,960.52 $ 351,496.88 3/31/1997 $ 332,992.58 $ 326,691.75 4/30/1997 $ 327,874.25 $ 322,911.92 5/31/1997 $ 379,960.80 $ 371,445.59 6/30/1997 $ 407,660.00 $ 384,041.31 7/31/1997 $ 436,864.59 $ 403,719.58 8/31/1997 $ 445,294.78 $ 415,835.21 9/30/1997 $ 487,144.67 $ 449,018.86 10/31/1997 $ 452,520.66 $ 422,050.79 11/30/1997 $ 435,016.67 $ 411,989.09 12/31/1997 $ 436,748.43 $ 412,219.81 1/31/1998 $ 426,704.25 $ 406,720.80 2/28/1998 $ 464,802.85 $ 442,630.18 3/31/1998 $ 490,779.16 $ 461,198.51 4/30/1998 $ 490,779.16 $ 464,025.66 5/31/1998 $ 452,334.22 $ 430,314.19 6/30/1998 $ 468,959.06 $ 434,712.00 7/31/1998 $ 468,959.06 $ 398,413.55 8/31/1998 $ 325,072.58 $ 306,443.77 9/30/1998 $ 358,956.36 $ 337,514.10 10/31/1998 $ 363,544.79 $ 355,118.84 11/30/1998 $ 401,943.53 $ 382,665.41 12/31/1998 $ 455,853.84 $ 417,292.80 1/31/1999 $ 500,962.47 $ 436,062.63 2/28/1999 $ 447,785.63 $ 396,171.62 3/31/1999 $ 495,828.16 $ 410,283.25 4/30/1999 $ 525,167.10 $ 446,515.37 5/31/1999 $ 504,263.10 $ 447,220.86 6/30/1999 $ 567,341.83 $ 470,780.45 7/31/1999 $ 569,542.25 $ 456,223.92 8/31/1999 $ 564,774.67 $ 439,161.15 9/30/1999 $ 581,644.57 $ 447,632.57 10/31/1999 $ 636,288.35 $ 459,096.44 11/30/1999 $ 719,417.04 $ 507,641.29 12/31/1999 $ 881,444.55 $ 597,113.07 1/31/2000 $ 860,164.44 $ 591,553.95 2/29/2000 $ 1,157,339.30 $ 729,184.89 3/31/2000 $ 1,009,871.87 $ 652,532.98 4/30/2000 $ 866,884.47 $ 586,646.72 5/31/2000 $ 761,230.59 $ 535,279.93 6/30/2000 $ 917,284.73 $ 604,427.40 7/31/2000 $ 820,964.23 $ 552,627.97 8/31/2000 $ 940,804.85 $ 610,758.90 9/30/2000 $ 885,177.90 $ 580,416.40 10/31/2000 $ 791,097.41 $ 533,304.00 11/30/2000 $ 609,448.07 $ 436,472.00 12/31/2000 $ 663,207.24 $ 463,179.72 1/31/2001 $ 674,384.89 $ 500,669.48 2/28/2001 $ 562,076.12 $ 432,037.71 3/31/2001 $ 508,316.95 $ 392,756.84 4/30/2001 $ 568,995.62 $ 440,842.06 5/31/2001 $ 571,124.69 $ 451,051.96 6/30/2001 $ 581,237.81 $ 463,352.15 7/31/2001 $ 543,978.97 $ 423,823.58 8/31/2001 $ 507,252.41 $ 397,334.61 9/30/2001 $ 421,557.09 $ 333,204.80 10/31/2001 $ 456,686.85 $ 365,259.10 11/30/2001 $ 492,881.14 $ 395,758.24 12/31/2001 $ 515,236.44 $ 420,413.97 1/31/2002 $ 500,865.18 $ 405,447.24 2/28/2002 $ 469,461.31 $ 379,214.80 3/31/2002 $ 507,784.68 $ 412,168.57 4/30/2002 $ 499,800.64 $ 403,265.73 5/31/2002 $ 473,187.19 $ 379,674.68 6/30/2002 $ 439,654.24 $ 347,478.27 7/31/2002 $ 377,378.76 $ 294,070.86 8/31/2002 $ 376,314.22 $ 293,923.82 9/30/2002 $ 355,555.73 $ 272,702.52 10/31/2002 $ 361,942.96 $ 286,501.27 11/30/2002 $ 379,507.84 $ 314,893.55 12/31/2002 $ 353,958.92 $ 293,165.89 1/31/2003 $ 343,845.81 $ 285,191.78 2/28/2003 $ 333,200.43 $ 277,577.16 3/31/2003 $ 333,732.70 $ 281,768.57 4/30/2003 $ 365,136.57 $ 308,423.88 5/31/2003 $ 397,604.98 $ 343,183.25 6/30/2003 $ 407,185.83 $ 349,806.69 7/31/2003 $ 438,057.43 $ 376,252.08 8/31/2003 $ 465,203.15 $ 396,456.81 9/30/2003 $ 442,847.85 $ 386,426.45 10/31/2003 $ 483,832.57 $ 419,813.70 11/30/2003 $ 496,074.76 $ 433,499.63 12/31/2003 $ 487,026.18 $ 435,450.37 1/31/2004 $ 515,768.71 $ 458,311.52 2/29/2004 $ 506,720.14 $ 457,624.05 3/31/2004 $ 506,720.14 $ 459,774.89 4/30/2004 $ 475,848.53 $ 436,694.19 5/31/2004 $ 480,638.96 $ 445,384.40 6/30/2004 $ 501,397.45 $ 460,171.16 7/31/2004 $ 457,751.39 $ 418,893.81 8/30/2004 $ 439,654.24 $ 409,887.59 9/30/2004 $ 470,525.84 $ 432,554.38 10/31/2004 $ 483,135.93 $ 443,065.45 11/30/2004 $ 522,076.69 $ 480,504.48 12/31/2004 $ 539,983.92 $ 497,754.59 1/31/2005 $ 518,924.55 $ 475,305.86 2/28/2005 $ 532,105.23 $ 481,817.55 3/31/2005 $ 514,226.49 $ 463,749.39 4/30/2005 $ 481,573.11 $ 434,254.93 5/31/2005 $ 514,753.50 $ 464,869.90 6/30/2005 $ 537,917.41 $ 479,885.20 7/31/2005 $ 577,400.54 $ 513,429.17 8/31/2005 $ 581,615.57 $ 506,189.82 9/30/2005 $ 587,431.72 $ 510,188.72 10/31/2005 $ 572,158.50 $ 491,311.74 11/30/2005 $ 598,935.52 $ 519,119.98 12/31/2005 $ 611,034.01 $ 518,341.30 1/31/2006 $ 680,569.68 $ 568,361.24 2/28/2006 $ 690,029.60 $ 565,348.92 3/31/2006 $ 732,190.41 $ 592,824.88
ANNUALIZED TOTAL RETURNS AS OF 3/31/06
1 YEAR 5 YEARS 10 YEARS ------------------------------------------------------------------------------ U.S. Emerging Growth Fund Class R Shares 41.98% 7.48% 7.52% Russell 2000 Growth Index 27.82% 8.59% 5.51%
THE GRAPH ABOVE SHOWS THE VALUE OF A HYPOTHETICAL $250,000 INVESTMENT IN THE FUND COMPARED WITH THE RUSSELL 2000 GROWTH INDEX FOR THE PERIODS INDICATED. THE FUND'S CLASS R SHARES WERE FIRST AVAILABLE ON MAY 21, 1999. PERFORMANCE PRIOR TO THE INTRODUCTION OF CLASS R SHARES REFLECTS THE HISTORICAL PERFORMANCE OF THE FUND'S CLASS I SHARES. CLASS R SHARES HAVE DISTRIBUTION AND SHAREHOLDER SERVICES FEES OF UP TO .25% OF THEIR AVERAGE DAILY NET ASSETS. HISTORICAL PERFORMANCE RETURNS OF THE CLASS I SHARES DO NOT REFLECT THE SHAREHOLDER SERVICING FEE PRIOR TO THE ADOPTION OF THE SHAREHOLDER SERVICES PLAN IN 2003 AND DISTRIBUTION FEE APPLICABLE TO CLASS R SHARES WHICH WOULD HAVE MADE RETURNS SLIGHTLY LOWER. THE FUND'S CLASS I SHARES CALCULATE THEIR PERFORMANCE BASED UPON THE HISTORICAL PERFORMANCE OF A CORRESPONDING SERIES OF NICHOLAS-APPLEGATE MUTUAL FUNDS (RENAMED ING MUTUAL FUNDS), ADJUSTED TO REFLECT ALL FEES AND EXPENSES APPLICABLE TO THE FUND'S CLASS I SHARES. AVERAGE ANNUAL TOTAL RETURN FIGURES INCLUDE CHANGES IN PRINCIPAL VALUE, REINVESTED DIVIDENDS, AND CAPITAL GAIN DISTRIBUTIONS. THE TOTAL RETURNS SHOWN ABOVE DO NOT SHOW THE EFFECTS OF INCOME TAXES ON AN INDIVIDUAL'S INVESTMENT. IN MOST CASES, TAXES MAY REDUCE YOUR ACTUAL INVESTMENT RETURNS ON INCOME OR GAINS PAID BY THE FUND OR ANY GAINS YOU MAY REALIZE IF YOU SELL YOUR SHARES. PAST PERFORMANCE CANNOT GUARANTEE FUTURE RESULTS. THE RUSSELL 2000 GROWTH INDEX IS AN UNMANAGED INDEX COMPRISED OF THOSE RUSSELL 2000 COMPANIES WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHER FORECASTED GROWTH VALUES. THE RUSSELL 2000 INDEX IS AN UNMANAGED INDEX GENERALLY REPRESENTATIVE OF THE 2,000 SMALLEST COMPANIES IN THE RUSSELL 3000 INDEX, WHICH REPRESENTS APPROXIMATELY 10% OF THE TOTAL MARKET CAPITALIZATION OF THE RUSSELL 3000 INDEX. THE UNMANAGED INDEX DIFFERS FROM THE FUND IN COMPOSITION, DOES NOT PAY MANAGEMENT FEES OR EXPENSES AND INCLUDES REINVESTED DIVIDENDS. ONE CANNOT INVEST DIRECTLY IN AN INDEX. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS. YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. 1 U.S. EMERGING GROWTH FUND SCHEDULE OF INVESTMENTS As of March 31, 2006
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------- COMMON STOCK - 94.3% ADVANCED MATERIALS/PRODUCTS - 0.4% Hexcel Corp.* 1,700 $ 37,349 -------------- ADVERTISING SERVICES - 0.6% Ventiv Health, Inc.* 1,900 63,118 -------------- AEROSPACE/DEFENSE - 1.6% Armor Holdings, Inc.* 1,500 87,435 United Industrial Corp. 1,200 73,116 -------------- 160,551 -------------- AEROSPACE/DEFENSE-EQUIPMENT - 2.9% AAR Corp.* 2,700 76,896 BE Aerospace, Inc.*,## 2,700 67,824 Kaman Corp.## 3,100 77,996 LMI Aerospace, Inc.* 3,300 59,862 -------------- 282,578 -------------- AGRICULTURAL OPERATIONS - 1.1% The Andersons, Inc. 1,400 109,522 -------------- AIRLINES - 1.0% AirTran Holdings, Inc.* 2,700 48,897 Skywest, Inc. 1,700 49,759 -------------- 98,656 -------------- APPAREL MANUFACTURERS - 1.2% Carter's, Inc.* 1,200 80,988 Gymboree Corp.* 1,600 41,664 -------------- 122,652 -------------- APPLICATIONS SOFTWARE - 0.8% American Reprographics Co.* 1,500 52,035 Quest Software, Inc.* 1,700 28,390 -------------- 80,425 -------------- AUTO/TRUCK PARTS & EQUIPMENT-ORIGINAL - 0.5% Keystone Automotive Industries, Inc.* 1,200 50,652 -------------- BEVERAGES-NON-ALCOHOLIC - 0.5% Hansen Natural Corp.*,## 400 50,420 -------------- BUILDING & CONSTRUCTION PRODUCTS-MISCELLANEOUS - 1.3% Drew Industries, Inc.* 1,700 60,435 NCI Building Systems, Inc.* 1,100 65,747 -------------- 126,182 -------------- BUILDING PRODUCTS-AIR & HEATING - 0.6% Comfort Systems USA, Inc. 4,100 55,350 -------------- BUILDING PRODUCTS-CEMENT/AGGREGATE - 0.6% Eagle Materials, Inc.## 900 57,384 -------------- BUILDING PRODUCTS-LIGHT FIXTURES - 0.5% Genlyte Group, Inc.* 700 47,698 -------------- BUILDING-HEAVY CONSTRUCTION - 1.1% Perini Corp.* 2,200 66,814 Washington Group International, Inc.* 700 40,173 -------------- 106,987 -------------- CIRCUIT BOARDS - 0.6% Multi-Fineline Electronix, Inc.*,## 1,000 58,490 -------------- COMMERCIAL BANKS-WESTERN US - 1.1% SVB Financial Group* 1,100 58,355 UCBH Holdings, Inc. 2,700 51,084 -------------- 109,439 -------------- COMMERCIAL SERVICES-FINANCE - 0.5% Jackson Hewitt Tax Service, Inc. 1,500 $ 47,370 -------------- COMPUTER AIDED DESIGN - 1.4% ANSYS, Inc.* 1,300 70,395 Aspen Technology, Inc.* 5,300 67,045 -------------- 137,440 -------------- COMPUTER GRAPHICS - 0.4% Trident Microsystems, Inc.* 1,200 34,872 -------------- COMPUTERS - 1.3% Neoware Systems, Inc.* 2,400 71,088 Rackable Systems, Inc.* 1,000 52,850 -------------- 123,938 -------------- COMPUTERS-INTEGRATED SYSTEMS - 1.0% MTS Systems Corp. 1,200 50,196 Radiant Systems, Inc.* 3,500 47,320 -------------- 97,516 -------------- COMPUTERS-PERIPHERAL EQUIPMENT - 0.6% Electronics for Imaging* 2,000 55,940 -------------- DISTRIBUTION/WHOLESALE - 2.5% Beacon Roofing Supply, Inc.* 1,800 73,152 LKQ Corp.* 3,500 72,835 WESCO International, Inc.* 1,500 102,015 -------------- 248,002 -------------- DIVERSIFIED MANUFACTURING OPERATIONS - 0.5% Ameron International Corp. 700 51,261 -------------- DRUG DELIVERY SYSTEMS - 1.2% Conor Medsystems, Inc.* 2,400 70,560 Matrixx Initiatives, Inc.*,## 2,100 48,930 -------------- 119,490 -------------- E-COMMERCE/PRODUCTS - 0.6% Nutri/System, Inc.*,## 1,300 61,776 -------------- E-COMMERCE/SERVICES - 0.3% Homestore, Inc.* 5,000 32,800 -------------- ELECTRIC PRODUCTS-MISCELLANEOUS - 0.7% Littlefuse, Inc.* 2,000 68,260 -------------- ELECTRIC-INTEGRATED - 0.5% Pike Electric Corp.* 2,400 50,424 -------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS - 2.3% Emcore Corp.* 6,400 65,408 Ikanos Communications, Inc.* 2,500 49,275 Microsemi Corp.* 1,800 52,398 Pixelplus Co., Ltd. - ADR* 5,100 58,140 -------------- 225,221 -------------- ELECTRONIC CONNECTORS - 0.8% Thomas & Betts Corp.* 1,500 77,070 -------------- ELECTRONIC SECURITY DEVICES - 1.0% American Science & Engineering, Inc.* 500 46,700 LoJack Corp.* 2,200 52,756 -------------- 99,456 -------------- E-MARKETING/INFORMATION - 1.1% aQuantive, Inc.* 2,400 56,496 Digitas, Inc.* 3,700 53,280 -------------- 109,776 -------------- ENGINEERING/R & D SERVICES - 0.7% URS Corp.* 1,700 68,425 --------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 2 SCHEDULE OF INVESTMENTS As of March 31, 2006
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------- ENTERPRISE SOFTWARE/SERVICES - 2.1% Concur Technologies, Inc.* 3,100 $ 57,443 Lawson Software, Inc.*,## 4,500 34,515 Mantech International Corp. Cl. A* 1,700 56,474 Ultimate Software Group, Inc.* 2,200 56,870 -------------- 205,302 -------------- ENTERTAINMENT SOFTWARE - 0.6% THQ, Inc.* 2,150 55,664 -------------- E-SERVICES/CONSULTING - 0.5% RightNow Technologies, Inc.* 3,000 47,610 -------------- FINANCE-INVESTMENT BANKERS/BROKERS - 1.5% GFI Group, Inc.* 1,100 57,101 Thomas Weisel Partners Group, Inc.*,## 4,300 94,170 -------------- 151,271 -------------- FOOD-WHOLESALE/DISTRIBUTION - 0.5% Performance Food Group Co.* 1,700 53,023 -------------- FOOTWEAR & RELATED APPAREL - 1.4% CROCS, Inc.*,## 3,000 75,450 Iconix Brand Group, Inc.* 4,400 64,020 -------------- 139,470 -------------- GOLF - 0.8% Callaway Golf Co. 4,600 79,120 -------------- HOTELS & MOTELS - 0.9% Orient-Express Hotels, Ltd. Cl. A 2,300 90,229 -------------- HUMAN RESOURCES - 0.4% Labor Ready, Inc.* 1,700 40,715 -------------- INDUSTRIAL AUTOMATION/ROBOTICS - 0.5% Hurco Cos., Inc.* 1,700 46,274 -------------- INSTRUMENTS-SCIENTIFIC - 0.9% OYO Geospace Corp.* 1,500 88,485 -------------- INTERNET APPLICATIONS SOFTWARE - 1.5% DealerTrack Holdings, Inc.* 7,200 153,432 -------------- INTERNET INFRASTRUCTURE SOFTWARE - 1.3% Openwave Systems, Inc.* 3,100 66,898 RADvision, Ltd.* 3,400 60,690 -------------- 127,588 -------------- INTERNET TELEPHONE - 0.5% j2 Global Communications, Inc.*,## 1,100 51,700 -------------- INVESTMENT MANAGEMENT/ADVISOR SERVICES - 0.4% Affiliated Managers Group, Inc.*,## 400 42,644 -------------- LASERS-SYSTEMS/COMPONENTS - 0.5% Cymer, Inc.* 1,200 54,528 -------------- LEISURE & RECREATIONAL PRODUCTS - 0.6% Multimedia Games, Inc.*,## 4,000 59,520 -------------- MACHINERY-CONSTRUCTION & MINING - 0.9% Astec Industries, Inc. 1,200 43,080 JLG Industries, Inc. 1,600 49,264 -------------- 92,344 -------------- MACHINERY-GENERAL INDUSTRY - 3.0% Gardner Denver, Inc.* 1,100 71,720 Intevac, Inc.* 3,600 103,608 Manitowoc Co., Inc. 500 45,575 Wabtec Corp. 2,300 74,980 -------------- 295,883 -------------- MEDICAL INFORMATION SYSTEMS - 0.6% Allscripts Healthcare Solutions, Inc.*,## 1,700 $ 31,127 Quality Systems, Inc.## 1,000 33,100 -------------- 64,227 -------------- MEDICAL INSTRUMENTS - 2.1% Angiodynamics, Inc.* 2,100 63,126 DexCom, Inc.* 2,500 50,675 NuVasive, Inc.* 2,000 37,700 Stereotaxis, Inc.*,## 4,200 52,962 -------------- 204,463 -------------- MEDICAL LASER SYSTEMS - 0.5% LCA-Vision, Inc. 900 45,099 -------------- MEDICAL PRODUCTS - 0.6% Viasys Healthcare, Inc.* 1,900 57,152 -------------- MEDICAL-BIOMEDICAL/GENETICS - 2.2% InterMune, Inc.*,## 2,300 42,642 Keryx Biopharmaceuticals, Inc.* 4,100 78,351 Martek Biosciences Corp.*,## 1,900 62,377 Myogen, Inc.* 900 32,607 -------------- 215,977 -------------- MEDICAL-DRUGS - 0.6% New River Pharmaceuticals, Inc.* 1,800 59,778 -------------- MEDICAL-HMO - 0.5% WellCare Health Plans, Inc.* 1,100 49,984 -------------- MEDICAL-OUTPATIENT/HOME MEDICAL CARE - 1.0% Hythiam, Inc. 5,300 48,707 Option Care, Inc. 3,250 45,955 -------------- 94,662 -------------- NETWORKING PRODUCTS - 0.7% Atheros Communications, Inc.* 2,700 70,713 -------------- NON-FERROUS METALS - 0.8% RTI International Metals, Inc.* 1,500 82,275 -------------- NON-HAZARDOUS WASTE DISPOSAL - 0.4% Waste Connections, Inc.* 900 35,829 -------------- OFFICE FURNISHINGS-ORIGINAL - 1.2% Interface, Inc. Cl. A* 4,400 60,764 Knoll, Inc.## 2,700 57,564 -------------- 118,328 -------------- OIL & GAS DRILLING - 0.4% Bronco Drilling Co., Inc.* 1,600 42,080 -------------- OIL COMPANIES-EXPLORATION & PRODUCTION - 0.4% GMX Resources, Inc.* 1,000 37,450 -------------- OIL FIELD MACHINERY & EQUIPMENT - 0.9% Hydril* 600 46,770 Lufkin Industries, Inc. 700 38,808 -------------- 85,578 -------------- OIL-FIELD SERVICES - 4.8% Core Laboratories NV* 1,200 57,060 Dresser-Rand Group, Inc.* 2,100 52,185 Global Industries, Ltd.* 3,100 44,919 Helix Energy Solutions Group, Inc.* 1,200 45,480 Hornbeck Offshore Services* 1,500 54,105 Oceaneering International, Inc.* 1,100 63,030 Superior Energy Services, Inc.* 2,100 56,259 Tetra Technologies, Inc.* 1,000 47,040 Universal Compression Holdings, Inc.* 1,100 55,737 -------------- 475,815 --------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 3
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------- PHARMACY SERVICES - 0.6% HealthExtras, Inc.* 1,700 $ 60,010 -------------- PHYSICAL PRACTICE MANAGEMENT - 0.6% Healthways, Inc.* 1,200 61,128 -------------- PHYSICAL THERAPY/REHABILITATION CENTERS - 0.4% Psychiatric Solutions, Inc.* 1,200 39,756 -------------- PRIVATE CORRECTIONS - 0.5% Corrections Corporation of America* 1,200 54,240 -------------- PROPERTY/CASUALTY INSURANCE - 1.2% Navigators Group, Inc.* 1,100 54,560 Ohio Casualty Corp. 2,000 63,400 -------------- 117,960 -------------- REAL ESTATE MANAGEMENT/SERVICES - 1.6% Jones Lang LaSalle, Inc. 800 61,232 Trammell Crow Co.* 2,700 96,282 -------------- 157,514 -------------- RENTAL AUTO/EQUIPMENT - 0.9% Aaron Rents, Inc. 1,600 43,472 H&E Equipment Services, Inc.* 1,600 46,592 -------------- 90,064 -------------- RESORTS/THEME PARKS - 0.5% Vail Resorts, Inc.* 1,400 53,508 -------------- RETAIL-APPAREL/SHOE - 3.8% Aeropostale, Inc.* 2,000 60,320 Charming Shoppes, Inc.* 4,600 68,402 Dress Barn, Inc.*,## 900 43,155 DSW, Inc. Cl. A*,## 1,700 53,244 JOS A. Bank Clothiers, Inc.* 1,500 71,925 New York & Co., Inc.* 2,300 34,362 Too, Inc.* 1,300 44,655 -------------- 376,063 -------------- RETAIL-ARTS & CRAFTS - 0.6% AC Moore Arts & Crafts, Inc.* 3,400 62,560 -------------- RETAIL-LEISURE PRODUCTS - 0.6% MarineMax, Inc.* 1,800 60,336 -------------- RETIREMENT/AGED CARE - 0.6% American Retirement Corp.* 2,400 61,488 -------------- RUBBER & PLASTICS - 0.7% PW Eagle, Inc.## 2,500 69,500 -------------- SEMICONDUCTOR COMPONENTS-INTEGRATED CIRCUITS - 1.3% Anadigics, Inc.* 8,000 63,200 Atmel Corp.* 14,000 66,080 -------------- 129,280 -------------- SEMICONDUCTOR EQUIPMENT - 3.8% Axcelis Technologies, Inc.* 8,200 48,052 Brooks Automation, Inc.* 3,500 49,840 GSI Group, Inc.* 4,300 47,515 Rudolph Technologies, Inc.* 3,600 61,380 Ultratech, Inc.* 2,700 66,096 Varian Semiconductor Equipment Associates, Inc.* 1,050 29,484 Veeco Instruments, Inc.* 3,000 70,050 -------------- 372,417 -------------- STEEL PIPE &TUBE - 0.4% NS Group, Inc.* 900 41,427 -------------- STEEL-PRODUCERS - 0.5% Chaparral Steel Co.* 700 $ 45,444 -------------- TELECOMMUNICATIONS EQUIPMENT - 1.2% Arris Group, Inc.* 4,100 56,416 CommScope, Inc.* 2,300 65,665 -------------- 122,081 -------------- TELECOMMUNICATIONS EQUIPMENT FIBER OPTICS - 0.8% Avanex Corp.*,## 24,500 79,870 -------------- THERAPEUTICS - 0.5% CV Therapeutics, Inc.*,## 1,800 39,744 United Therapeutics Corp.* 100 6,628 -------------- 46,372 -------------- TRANSPORT-MARINE - 0.4% American Commercial Lines, Inc. 900 42,480 -------------- VITAMINS & NUTRITION PRODUCTS - 0.7% Herbalife, Ltd.* 2,200 74,294 -------------- WIRE & CABLE PRODUCTS - 1.4% General Cable Corp.* 2,600 78,858 Superior Essex, Inc.* 2,200 55,968 -------------- 134,826 -------------- WIRELESS EQUIPMENT - 0.4% ID Systems, Inc.* 1,600 40,000 ---------------------------------------------------------------------------------------------- Total Common Stock (Cost: $6,740,837) 9,333,320 ---------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT -------------- SHORT TERM INVESTMENTS - 16.7% MONEY MARKET FUNDS - 10.5% Boston Global Investment Trust - Enhanced Sleeve, 4.686%** $ 1,039,350 1,039,350 -------------- TIME DEPOSIT - 6.2% Wells Fargo Bank - Grand Cayman 4.150%, 04/01/06 610,958 610,958 ---------------------------------------------------------------------------------------------- Total Short Term Investments (Cost: $1,650,308) 1,650,308 ---------------------------------------------------------------------------------------------- Total Investments - 111.0% (Cost: $8,391,145) 10,983,628 ---------------------------------------------------------------------------------------------- Liabilities in Excess of Other Assets - (11.0%) (1,089,197) ---------------------------------------------------------------------------------------------- Net Assets - 100.0% $ 9,894,431 ----------------------------------------------------------------------------------------------
* NON-INCOME PRODUCING SECURITIES. ** ALL OF THE SECURITY IS PURCHASED WITH CASH COLLATERAL PROCEEDS FROM SECURITIES LOANS. ## ALL OR A PORTION OF THE FUND'S HOLDINGS IN THIS SECURITY WAS ON LOAN AS OF 03/31/06. ADR - AMERICAN DEPOSITORY RECEIPT SCHEDULE OF INVESTMENTS BY INDUSTRY as of March 31, 2006
PERCENT OF INDUSTRY NET ASSETS ---------------------------------------------------------------------------------------------- Basic Materials 1.3% Communications 10.7 Consumer, Cyclical 15.7 Consumer, Non-cyclical 15.0 Energy 6.5 Financial 6.4 Industrial 22.2 Technology 16.0 Utilities 0.5 Short Term Investments 16.7 Liabilities in excess of other assets (11.0) ---------------------------------------------------------------------------------------------- Net Assets 100.0% ==============================================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 4 U.S. SMALL CAP VALUE FUND MANAGEMENT TEAM: MARK W. STUCKELMAN, Portfolio Manager; STEPHEN SEXAUER, Portfolio Manager; NELSON SHING, Portfolio Manager; JAMES FERNANDES, CPA, CFA, Analyst; CHARLES HOEVELER, Analyst CHIEF INVESTMENT OFFICER: HORACIO A. VALEIRAS, CFA GOAL: The U.S. Small Cap Value Fund seeks to maximize long-term capital appreciation through investments primarily in smaller U.S. companies with market capitalizations corresponding to the Russell 2000 Value Index that, in the opinion of the Investment Adviser, are undervalued in the marketplace. MARKET OVERVIEW: U.S. equities shifted into high gear in 2005, closing the twelve months ending March 31, 2006 with solid gains. Healthy corporate earnings growth, a robust job market and tame core consumer prices were the overarching themes in support of accelerating stock prices. In spite of the positive final results, 2005 was wrought with crosswinds that threatened to derail economic growth. Throughout the year, investors struggled with soaring energy prices, cooling in the housing market and eight consecutive quarter-basis point interest rate hikes at the Federal Reserve. Market advances were widespread, but lopsided. In general, small- and mid-cap stocks generated substantially greater gains than large-cap stocks. From a style standpoint, neither growth nor value provided clear, consistent leadership. Within the Russell 2000 Value Index, telecommunications and industrials companies saw the best results. Utilities companies tended to trail after a long period of outperformance, while consumer-oriented businesses suffered amid elevated oil prices. PERFORMANCE: From April 1, 2005 through March 31, 2006, the Fund's Class R shares gained 21.68%. The Russell 2000 Value Index rose 23.77%. PORTFOLIO SPECIFICS: The Fund posted solid returns in fiscal 2005, but modestly trailed the benchmark. Stock selection in the information technology sector detracted most from relative performance, with a position in Comtech Telecommunications the category's most notable underperformer. Comtech shares dropped sharply late in the fourth quarter of 2005, following disappointing earnings guidance and news that a major contract is running off faster than expected. Other areas of relative weakness included stock selection in the financials sector and underweighting in the energy sector, which offset favorable stock selection within the group. On the plus side, stock selection in several sectors was beneficial to relative performance, including industrials, health care and materials. A few of the strongest performers within the Fund more than doubled in price. AAR Corporation, a company that distributes aircraft parts and provides aircraft maintenance, secured a slew of new outsourcing contracts and benefited from a strong aerospace environment. Universal Truckload Services, a truckload company, reported better-than-expected earnings with strong organic growth and improved operating margins. The health care firm Candela, which produces cosmetic lasers, surged on better-than-expected earnings. MARKET OUTLOOK: We expect an end to the current, prolonged cycle of Federal Reserve interest rate hikes later this year. We also see continued strength in personal consumption, supported by low unemployment and ongoing wage gains. Both of these factors bode well for equities, and should help offset the challenges presented by a cooling housing market and elevated energy prices. We remain focused on identifying and investing in attractively priced, financially strong small-cap companies poised to benefit from change. Through intense, fundamental research and a diversified, risk-controlled approach to portfolio construction, we are confident we will continue producing excess return over time. The Fund is currently closed to new investors. The Fund will continue to accept additional investments from existing shareholders. [CHART] COMPARISON OF CHANGE IN VALUE OF A $250,000 INVESTMENT IN U.S. SMALL CAP VALUE FUND CLASS R SHARES WITH THE RUSSELL 2000 VALUE INDEX.
U.S. SMALL CAP VALUE FUND CLASS R SHARES RUSSELL 2000 VALUE INDEX 11/30/2004 $ 250,000.00 $ 250,000.00 12/31/2004 $ 258,950.00 $ 255,950.00 1/31/2005 $ 251,440.45 $ 246,044.74 2/28/2005 $ 254,759.46 $ 250,916.42 3/31/2005 $ 251,141.88 $ 245,747.54 4/30/2005 $ 242,201.23 $ 233,066.97 5/31/2005 $ 253,608.91 $ 247,284.05 6/30/2005 $ 263,144.60 $ 258,214.01 7/31/2005 $ 279,170.11 $ 272,906.39 8/31/2005 $ 271,520.85 $ 266,629.54 9/30/2005 $ 270,516.22 $ 266,176.27 10/31/2005 $ 261,994.96 $ 259,495.25 11/30/2005 $ 277,321.66 $ 270,030.75 12/31/2005 $ 280,261.27 $ 267,951.52 1/31/2006 $ 296,011.96 $ 290,111.11 2/28/2006 $ 295,242.33 $ 290,082.09 3/31/2006 $ 306,343.44 $ 304,151.08
ANNUALIZED TOTAL RETURNS AS OF 3/31/06
1 YEAR SINCE INCEPTION ------------------------------------------------------------------------------ U.S. Small Cap Value Fund Class R Shares 21.68% 15.25% Russell 2000 Value Index 23.77% 15.14%
THE GRAPH ABOVE SHOWS THE VALUE OF A HYPOTHETICAL $250,000 INVESTMENT IN THE FUND COMPARED WITH THE RUSSELL 2000 VALUE INDEX FOR THE PERIODS INDICATED. AVERAGE ANNUAL TOTAL RETURN FIGURES INCLUDE CHANGES IN PRINCIPAL VALUE, REINVESTED DIVIDENDS, AND CAPITAL GAIN DISTRIBUTIONS. THE FUND'S PERFORMANCE INCLUDES HISTORICAL PERFORMANCE OF COMPARABLE MANAGED INSTITUTIONAL POOLED ACCOUNTS MANAGED BY THE INVESTMENT ADVISER PRIOR TO THE INCEPTION OF THE FUND. THE FUND COMMENCED OPERATIONS ON MAY 1, 2001. THE TOTAL RETURNS SHOWN ABOVE DO NOT SHOW THE EFFECTS OF INCOME TAXES ON AN INDIVIDUAL'S INVESTMENT. IN MOST CASES, TAXES MAY REDUCE YOUR ACTUAL INVESTMENT RETURNS ON INCOME OR GAINS PAID BY THE FUND OR ANY GAINS YOU MAY REALIZE IF YOU SELL YOUR SHARES. PAST PERFORMANCE CANNOT GUARANTEE FUTURE RESULTS. THE RUSSELL 2000 VALUE INDEX MEASURES THE PERFORMANCE OF THOSE RUSSELL 2000 COMPANIES WITH LOWER PRICE-TO-BOOK RATIOS AND LOWER FORECASTED GROWTH VALUES. THE UNMANAGED INDEX DIFFERS FROM THE FUND IN COMPOSITION, DOES NOT PAY MANAGEMENT FEES OR EXPENSES AND INCLUDES REINVESTED DIVIDENDS. ONE CANNOT INVEST DIRECTLY IN AN INDEX. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS. YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. 5 U.S. SMALL CAP VALUE FUND SCHEDULE OF INVESTMENTS As of March 31, 2006
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------- COMMON STOCK - 90.9% AEROSPACE/DEFENSE-EQUIPMENT - 1.5% AAR Corp.* 88,800 $ 2,529,024 -------------- APPAREL MANUFACTURERS - 0.9% Russell Corp. 110,500 1,524,900 -------------- B2B/E-COMMERCE - 0.6% webMethods, Inc.* 111,800 941,356 -------------- BUILDING & CONSTRUCTION-MISCELLANEOUS - 1.9% Dycom Industries, Inc.* 72,800 1,547,000 ElkCorp 45,300 1,528,875 -------------- 3,075,875 -------------- BUILDING-MOBIL HOME/MANUFACTURED HOUSING - 0.9% Champion Enterprises, Inc.* 96,500 1,443,640 -------------- CHEMICALS-SPECIALTY - 1.9% Hercules, Inc.* 136,600 1,885,080 OM Group, Inc.* 54,500 1,253,500 -------------- 3,138,580 -------------- COMMERCIAL BANKS-CENTRAL US - 5.2% Amcore Financial, Inc. 54,000 1,707,480 Associated Banc Corp. 50,000 1,699,000 Gold Banc Corp., Inc. 88,200 1,615,824 Macatawa Bank Corp. 32,194 1,220,475 Mercantile Bank Corp. 33,300 1,302,030 Oak Hill Financial, Inc. 32,900 1,016,939 -------------- 8,561,748 -------------- COMMERCIAL BANKS-EASTERN US - 0.5% Community Bank Systems, Inc. 39,300 877,569 -------------- COMMERCIAL BANKS-WESTERN US - 1.0% Greater Bay Bancorp 57,900 1,606,146 -------------- COMMERCIAL SERVICES-FINANCE - 1.0% TNS, Inc.* 73,700 1,560,966 -------------- COMPUTERS-INTEGRATED SYSTEMS - 0.9% Intergraph Corp.* 36,100 1,503,926 -------------- COMPUTERS-MEMORY DEVICES - 1.1% Hutchinson Technology, Inc.* 60,700 1,831,319 -------------- CONSUMER PRODUCTS-MISCELLANEOUS - 0.9% Prestige Brand Holdings, Inc.* 122,400 1,489,608 -------------- DIVERSIFIED MANUFACTURING OPERATIONS - 2.2% ESCO Technologies, Inc.* 38,900 1,970,285 Griffon Corp.* 68,800 1,708,992 -------------- 3,679,277 -------------- ELECTRIC-INTEGRATED - 2.0% CMS Energy Corp.* 127,600 1,652,420 El Paso Electric Co.* 89,100 1,696,464 -------------- 3,348,884 -------------- ELECTRONIC COMPONENTS-MISCELLANEOUS - 2.7% Benchmark Electronics, Inc.* 29,400 1,127,490 Methode Electronics, Inc. Cl. A 112,800 1,228,392 Rogers Corp.* 36,800 2,004,864 -------------- 4,360,746 -------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS - 0.4% IXYS Corp.* 68,100 627,882 -------------- ENERGY-ALTERNATE SOURCES - 0.9% Covanta Holding Corp.* 93,300 1,555,311 -------------- FINANCE-AUTO LOANS - 1.1% United PanAm Financial Corp.* 57,000 $ 1,761,300 -------------- FINANCE-INVESTMENT BANKERS/BROKERS - 1.0% Knight Capital Group, Inc. Cl. A* 120,500 1,678,565 -------------- FOOD-MISCELLANEOUS/DIVERSIFIED - 0.8% Ralcorp Holdings, Inc.* 35,900 1,365,995 -------------- FUNERAL SERVICES & RELATED ITEMS - 1.0% Stewart Enterprises, Inc. Cl. A 295,600 1,687,876 -------------- GAS-DISTRIBUTION - 2.0% Energen Corp. 43,000 1,505,000 UGI Corp. 82,500 1,738,275 -------------- 3,243,275 -------------- HOTELS & MOTELS - 0.9% Jameson Inns, Inc.* 632,600 1,549,870 -------------- HUMAN RESOURCES - 1.0% Korn/Ferry International* 83,900 1,710,721 -------------- INDEX FUND-SMALL CAP - 4.9% iShares Russell 2000 Value Index Fund* 107,600 8,042,024 -------------- INTERNET APPLICATIONS SOFTWARE - 1.3% Interwoven Inc.* 114,100 1,025,759 MatrixOne, Inc.* 162,400 1,162,784 -------------- 2,188,543 -------------- LASERS-SYSTEMS/COMPONENTS - 1.4% Cymer, Inc.* 28,400 1,290,496 Rofin-Sinar Technologies, Inc.* 18,100 979,753 -------------- 2,270,249 -------------- MACHINERY TOOLS & RELATED PRODUCTS - 1.1% Kennametal, Inc. 29,900 1,828,086 -------------- MACHINERY-GENERAL INDUSTRY - 2.7% Gardner Denver, Inc.* 40,100 2,614,520 Wabtec Corp. 55,400 1,806,040 -------------- 4,420,560 -------------- MEDICAL PRODUCTS - 0.9% HealthTronics, Inc.* 177,500 1,467,925 -------------- MEDICAL-DRUGS - 0.4% Zymogenetics, Inc.* 26,800 579,416 -------------- MEDICAL-HOSPITALS - 1.1% LifePoint Hospitals, Inc.* 44,700 1,390,170 Medcath Corp.* 25,000 478,000 -------------- 1,868,170 -------------- METAL PROCESSORS & FABRICATION - 0.6% Quanex Corp. 15,600 1,039,428 -------------- METAL-ALUMINUM - 1.3% Century Aluminum Co.* 51,500 2,186,175 -------------- MOTION PICTURES & SERVICES - 1.1% Lions Gate Entertainment Corp.*,## 170,800 1,733,620 -------------- MULTIMEDIA - 1.0% Gemstar - TV Guide International, Inc.* 508,600 1,571,574 -------------- NETWORKING PRODUCTS - 1.4% 3COM Corp.* 208,000 1,064,960 Aeroflex, Inc.* 88,400 1,213,732 -------------- 2,278,692 -------------- NON-FERROUS METALS - 1.2% RTI International Metals, Inc.* 36,700 2,012,995 --------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 6 SCHEDULE OF INVESTMENTS As of March 31, 2006
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------- OIL COMPANIES-EXPLORATION & PRODUCTION - 0.8% Forest Oil Corp.* 24,200 $ 899,756 Mariner Energy, Inc.* 19,585 401,688 -------------- 1,301,444 -------------- OIL REFINING & MARKETING - 1.2% Holly Corp. 25,800 1,912,296 -------------- OIL-FIELD SERVICES - 0.7% Superior Energy Services, Inc.* 41,600 1,114,464 -------------- POWER CONVERSION/SUPPLY EQUIPMENT - 1.4% Artesyn Technologies, Inc.* 96,100 1,052,295 Power-One, Inc.* 175,900 1,266,480 -------------- 2,318,775 -------------- PRIVATE CORRECTIONS - 1.2% Corrections Corp. of America* 43,300 1,957,160 -------------- PROPERTY/CASUALTY INSURANCE - 3.8% Castlepoint Holdings, Ltd. 144A#+ 237,400 2,374,000 Navigators Group, Inc.* 36,200 1,795,520 Quanta Capital Holdings, Ltd.* 118,400 355,200 Tower Group, Inc. 74,400 1,718,640 -------------- 6,243,360 -------------- PUBLISHING-NEWSPAPERS - 0.7% Lee Enterprises, Inc. 33,000 1,098,570 -------------- RADIO - 1.0% Entercom Communications Corp. Cl. A 28,700 801,304 Radio One, Inc. Cl. D* 103,800 774,348 -------------- 1,575,652 -------------- REITS-DIVERSIFIED - 1.4% Cousins Properties, Inc. 34,700 1,160,021 Washington Real Estate Investment Trust 31,500 1,144,080 -------------- 2,304,101 -------------- REITS-HEALTH CARE - 0.7% Ventas, Inc. 36,483 1,210,506 -------------- REITS-HOTELS - 1.7% Ashford Hospitality Trust, Inc. 118,000 1,463,200 DiamondRock Hospitality Co. 144A# 101,300 1,398,953 -------------- 2,862,153 -------------- REITS-MORTGAGE - 4.0% Fieldstone Investment Corp. 85,100 1,004,180 Jer Investors Trust, Inc. 9,600 159,552 Jer Investors Trust, Inc. 144A# 63,800 1,060,356 KKR Financial Corp.* 77,150 1,730,474 Newcastle Investment Corp. 77,500 1,853,800 NorthStar Realty Finance Corp. 75,000 821,250 -------------- 6,629,612 -------------- REITS-SHOPPING CENTERS - 0.8% Equity One, Inc. 52,900 1,299,224 -------------- RETAIL-APPAREL/SHOE - 1.7% Charlotte Russe Holding, Inc.* 65,100 1,393,140 Charming Shoppes, Inc.* 95,800 1,424,546 -------------- 2,817,686 -------------- RETAIL-DISCOUNT - 1.0% Tuesday Morning Corp.* 72,900 1,683,261 -------------- RETAIL-PAWN SHOPS - 1.0% Cash America International, Inc. 56,800 1,705,136 -------------- RETAIL-RESTAURANTS - 1.1% Lone Star Steakhouse & Saloon, Inc. 64,600 $ 1,835,932 -------------- RUBBER-TIRES - 1.0% Cooper Tire & Rubber Co. 111,100 1,593,174 -------------- SAVINGS & LOANS/THRIFTS-CENTRAL US - 1.0% MAF Bancorp, Inc. 37,100 1,623,867 -------------- SAVINGS & LOANS/THRIFTS-EASTERN US - 2.5% Brookline Bancorp, Inc. 97,228 1,506,062 First Niagara Financial Group, Inc. 128,700 1,886,742 Parkvale Financial Corp. 25,000 697,500 -------------- 4,090,304 -------------- SCHOOLS - 0.4% Concorde Career Colleges, Inc.* 34,700 572,550 -------------- SEMICONDUCTOR COMPONENTS-INTEGRATED CIRCUITS - 1.6% ASE Test, Ltd.* 150,600 1,355,400 ChipMOS TECHNOLOGIES Bermuda, Ltd.* 172,300 1,231,945 -------------- 2,587,345 -------------- SEMICONDUCTOR EQUIPMENT - 1.3% Mattson Technology, Inc.* 103,700 1,244,400 Varian Semiconductor Equipment Associates, Inc.* 30,000 842,400 -------------- 2,086,800 -------------- TELECOMMUNICATIONS EQUIPMENT - 1.0% Comtech Telecommunications Corp.* 56,700 1,653,939 -------------- THERAPEUTICS - 1.4% CV Therapeutics, Inc.* 40,300 889,824 Medarex, Inc.* 106,300 1,405,286 -------------- 2,295,110 -------------- TRANSPORT-MARINE - 0.8% Genco Shipping & Trading, Ltd.* 73,700 1,254,374 -------------- TRANSPORT-SERVICES - 1.0% Universal Truckload Services* 63,600 1,593,180 ---------------------------------------------------------------------------------------------- Total Common Stock (Cost: $124,808,682) 149,361,791 ---------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT ---------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS - 11.8% MONEY MARKET FUNDS - 1.1% Boston Global Investment Trust - Enhanced Sleeve, 4.686%** $ 1,791,300 1,791,300 -------------- TIME DEPOSIT - 10.7% Wells Fargo Bank - Grand Cayman 4.150%, 04/01/06 17,508,950 17,508,950 ---------------------------------------------------------------------------------------------- Total Short Term Investments (Cost: $19,300,250) 19,300,250 ---------------------------------------------------------------------------------------------- Total Investments - 102.7% (Cost: $144,108,932) 168,662,041 ---------------------------------------------------------------------------------------------- Liabilities in Excess of other Assets - (2.7%) (4,437,203) ---------------------------------------------------------------------------------------------- Net Assets - 100.0% $ 164,224,838 ----------------------------------------------------------------------------------------------
* NON-INCOME PRODUCING SECURITIES. ** ALL OF THE SECURITY IS PURCHASED WITH CASH COLLATERAL PROCEEDS FROM SECURITIES LOANS. + ILLIQUID SECURITIES, VALUED BY THE ADVISOR. TOTAL COST OF ILLIQUID SECURITIES AS OF MARCH 31, 2006 WAS $3,998,685. TOTAL MARKET VALUE OF ILLIQUID SECURITIES OWNED AT MARCH 31, 2006 WAS $2,374,000 OR 1.45% OF NET ASSETS. # 144A SECURITY. CERTAIN CONDITION FOR PUBLIC SALE MAY EXIST. THE TOTAL MARKET VALUE OF 144A SECURITIES OWNED AT MARCH 31, 2006 WAS $4,833,309 OR 2.94% OF NET ASSETS. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 7 SCHEDULE OF INVESTMENTS BY INDUSTRY as of March 31, 2006
PERCENT OF INDUSTRY NET ASSETS ---------------------------------------------------------------------------------------------- Basic Materials 4.5% Communications 6.9 Consumer, Cyclical 9.8 Consumer, Non-cyclical 8.9 Energy 3.5 Financial 25.9 Funds 4.9 Industrial 17.3 Technology 5.2 Utilities 4.0 Short Term Investments 11.8 Liabilities in excess of other assets (2.7) ---------------------------------------------------------------------------------------------- Net Assets 100.0% ==============================================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 8 U.S. LARGE CAP VALUE FUND MANAGEMENT TEAM: STEPHEN SEXAUER, Portfolio Manager; NELSON SHING, Portfolio Manager; MARK W. STUCKELMAN, Portfolio Manager; JAMES FERNANDES, CPA, CFA, Analyst; CHARLES HOEVELER, Analyst CHIEF INVESTMENT OFFICER: HORACIO A. VALEIRAS, CFA GOAL: The U.S. Large Cap Value Fund seeks long-term capital appreciation through investments in a diversified portfolio comprised predominantly of U.S. companies with larger market capitalizations that, in the opinion of the Investment Adviser, are undervalued relative to other market measures. MARKET OVERVIEW: U.S. investors closed fiscal 2005 with robust gains. As measured by the S&P 500 Index, stock prices rose 11.72% in the twelve months to March 31, 2006. The broad-based advance was supported by the second-longest stretch of double-digit quarterly corporate earnings growth since 1950. Another factor supporting equity markets was the quick recovery in economic indicators following the Gulf Coast hurricanes. In the wake of Hurricanes Katrina and Rita, energy prices soared, jobless figures spiked, and consumer confidence tumbled the most in fifteen years. Nevertheless, within a month of the storms, the price of gas was already down 16%, and by first quarter 2006, employment and consumer confidence were at four-year highs. Within the large-cap value market, consumer discretionary was the only sector to close the year with losses. Information technology saw the strongest gains due to robust earnings growth and a brisk pace of mergers and acquisitions. PERFORMANCE: The Fund's Class R shares posted an 11.47% increase during the twelve months ended March 31, 2006. The Russell 1000 Value Index advanced 13.29%. PORTFOLIO SPECIFICS: The Fund produced solid absolute results during the year, but on a comparative basis, slightly underperformed the benchmark. The main detractor to the Fund's results was the financials sector, where stock selection among capital markets and insurance companies and underweighting in diversified financials and consumer finance businesses hurt relative returns. Despite the challenges, stock selection in most sectors generated positive relative returns for the Fund, led by positions in the materials, information technology and consumer discretionary sectors. The three largest contributors to the Fund's results were Freescale Semiconductors, ITT Industries and ConocoPhillips. Freescale saw strong gains on higher-than-anticipated earnings and an upgrade by a major sell-side brokerage firm. ConocoPhillips has benefited from strains on the nation's capacity to refine crude oil into products such as gas, jet fuel and heating oil. As of March 31, 2006, the Fund was well-diversified, with all sector weights within +/-5% of the benchmark's weights. MARKET OUTLOOK: We anticipate solid earnings growth from U.S. companies in 2006, supported by ongoing economic expansion and modest inflation. We continue to believe there is significant value in owning reasonably priced, very large corporations that have strong cash flows, limited debt, solid assets and a catalyst to realize their value. By identifying these types of companies for the Fund, we are confident that we will deliver strong performance over time. [CHART] COMPARISON OF CHANGE IN VALUE OF A $250,000 INVESTMENT IN U.S. LARGE CAP VALUE FUND CLASS R SHARES WITH THE RUSSELL 1000 VALUE INDEX.
U.S. LARGE CAP VALUE FUND CLASS R SHARES RUSSELL 1000 VALUE INDEX 4/30/1996 $ 250,000.00 $ 250,000.00 5/31/1996 $ 256,600.00 $ 253,125.00 6/30/1996 $ 263,800.00 $ 253,327.50 7/31/1996 $ 257,600.00 $ 243,751.72 8/31/1996 $ 264,800.00 $ 250,723.02 9/30/1996 $ 278,800.00 $ 260,701.80 10/31/1996 $ 288,600.00 $ 270,790.96 11/30/1996 $ 311,580.76 $ 290,423.30 12/31/1996 $ 310,622.05 $ 286,705.88 1/31/1997 $ 327,247.49 $ 300,611.12 2/28/1997 $ 331,246.01 $ 305,030.10 3/31/1997 $ 316,935.51 $ 294,049.02 4/30/1997 $ 333,350.49 $ 306,399.08 5/31/1997 $ 358,183.42 $ 323,526.78 6/30/1997 $ 369,758.09 $ 337,406.08 7/31/1997 $ 412,900.04 $ 362,779.02 8/31/1997 $ 403,429.86 $ 349,864.09 9/30/1997 $ 428,683.68 $ 370,995.88 10/31/1997 $ 412,268.70 $ 360,645.09 11/30/1997 $ 425,854.22 $ 376,585.61 12/31/1997 $ 436,586.20 $ 387,581.91 1/31/1998 $ 434,531.14 $ 382,078.24 2/28/1998 $ 469,923.85 $ 407,792.11 3/31/1998 $ 500,064.74 $ 432,748.99 4/30/1998 $ 502,804.82 $ 435,648.40 5/31/1998 $ 500,749.76 $ 429,200.81 6/30/1998 $ 511,938.43 $ 434,694.58 7/31/1998 $ 501,864.37 $ 427,000.48 8/31/1998 $ 424,288.37 $ 363,462.81 9/30/1998 $ 448,322.65 $ 384,325.58 10/31/1998 $ 479,971.75 $ 414,110.81 11/30/1998 $ 502,997.40 $ 433,408.37 12/31/1998 $ 524,486.61 $ 448,144.26 1/31/1999 $ 530,983.34 $ 451,729.41 2/28/1999 $ 512,742.51 $ 445,360.03 3/31/1999 $ 522,237.74 $ 454,578.98 4/30/1999 $ 563,217.16 $ 497,036.66 5/31/1999 $ 554,721.42 $ 491,569.25 6/30/1999 $ 570,213.64 $ 505,824.76 7/31/1999 $ 558,719.42 $ 491,004.10 8/31/1999 $ 538,729.45 $ 472,787.84 9/30/1999 $ 516,740.50 $ 456,240.27 10/31/1999 $ 546,225.69 $ 482,519.71 11/30/1999 $ 530,983.34 $ 478,756.05 12/31/1999 $ 570,488.00 $ 481,054.08 1/31/2000 $ 534,848.18 $ 465,371.72 2/29/2000 $ 491,678.83 $ 430,794.60 3/31/2000 $ 545,640.52 $ 483,351.54 4/30/2000 $ 545,640.52 $ 477,744.67 5/31/2000 $ 544,636.58 $ 482,760.98 6/30/2000 $ 520,291.08 $ 460,698.81 7/31/2000 $ 538,361.97 $ 466,457.54 8/31/2000 $ 568,229.14 $ 492,392.58 9/30/2000 $ 576,511.63 $ 496,922.59 10/31/2000 $ 605,625.84 $ 509,146.89 11/30/2000 $ 581,408.50 $ 490,257.54 12/31/2000 $ 613,498.41 $ 514,819.44 1/31/2001 $ 622,847.44 $ 516,827.24 2/28/2001 $ 609,455.59 $ 502,459.44 3/31/2001 $ 591,010.21 $ 484,722.62 4/30/2001 $ 624,616.18 $ 508,474.03 5/31/2001 $ 644,830.29 $ 519,914.70 6/30/2001 $ 634,470.56 $ 508,372.59 7/31/2001 $ 634,470.56 $ 507,305.01 8/31/2001 $ 604,149.38 $ 486,962.08 9/30/2001 $ 556,140.86 $ 452,679.95 10/31/2001 $ 553,361.42 $ 448,786.90 11/30/2001 $ 593,536.91 $ 474,861.42 12/31/2001 $ 605,623.67 $ 486,068.15 1/31/2002 $ 593,022.58 $ 482,325.42 2/28/2002 $ 597,394.39 $ 483,097.14 3/31/2002 $ 627,225.53 $ 505,947.64 4/30/2002 $ 602,537.69 $ 488,593.63 5/31/2002 $ 609,223.98 $ 491,036.60 6/30/2002 $ 563,962.93 $ 462,851.10 7/31/2002 $ 508,672.45 $ 419,805.95 8/31/2002 $ 506,100.80 $ 422,954.49 9/30/2002 $ 443,095.37 $ 375,921.95 10/31/2002 $ 485,270.43 $ 403,777.77 11/30/2002 $ 516,011.09 $ 429,215.77 12/31/2002 $ 494,130.76 $ 410,587.81 1/31/2003 $ 486,576.83 $ 400,651.58 2/28/2003 $ 473,813.31 $ 389,954.18 3/31/2003 $ 473,031.87 $ 390,617.11 4/30/2003 $ 510,801.48 $ 424,991.41 5/31/2003 $ 543,101.02 $ 452,445.86 6/30/2003 $ 549,092.06 $ 458,101.43 7/31/2003 $ 557,166.94 $ 464,927.14 8/31/2003 $ 560,292.70 $ 472,180.00 9/30/2003 $ 556,645.98 $ 467,552.64 10/31/2003 $ 591,289.84 $ 496,166.86 11/30/2003 $ 592,708.49 $ 502,914.73 12/31/2003 $ 628,404.19 $ 533,894.28 1/31/2004 $ 641,190.71 $ 543,290.82 2/29/2004 $ 654,510.01 $ 554,917.24 3/31/2004 $ 648,383.13 $ 550,033.97 4/30/2004 $ 637,727.70 $ 536,613.14 5/31/2004 $ 645,186.50 $ 542,086.60 6/30/2004 $ 654,510.01 $ 554,879.84 7/31/2004 $ 641,723.48 $ 547,056.03 8/30/2004 $ 641,457.10 $ 554,824.23 9/30/2004 $ 656,108.32 $ 563,424.00 10/31/2004 $ 664,834.56 $ 572,776.84 11/30/2004 $ 697,344.97 $ 601,702.07 12/31/2004 $ 714,290.45 $ 621,859.09 1/31/2005 $ 706,218.97 $ 610,852.19 2/28/2005 $ 732,066.59 $ 631,071.39 3/31/2005 $ 718,376.94 $ 622,425.72 4/30/2005 $ 703,578.38 $ 611,284.30 5/31/2005 $ 721,308.55 $ 626,016.25 6/30/2005 $ 729,892.12 $ 632,902.43 7/31/2005 $ 756,533.18 $ 651,193.31 8/31/2005 $ 750,102.65 $ 648,328.06 9/30/2005 $ 750,927.77 $ 657,404.65 10/31/2005 $ 731,328.55 $ 640,706.57 11/30/2005 $ 759,850.36 $ 661,785.82 12/31/2005 $ 758,482.63 $ 665,690.35 1/31/2006 $ 783,133.32 $ 691,519.14 2/28/2006 $ 783,681.51 $ 695,737.41 3/31/2006 $ 802,881.71 $ 705,129.86
ANNUALIZED TOTAL RETURNS AS OF 3/31/06
SINCE 1 YEAR 5 YEARS INCEPTION ---------------------------------------------------------------------------- U.S. Large Cap Value Fund Class R Shares 11.47% 6.23% 12.43% Russell 1000 Value Index 13.29% 7.79% 11.02%
THE GRAPH ABOVE SHOWS THE VALUE OF A HYPOTHETICAL $250,000 INVESTMENT IN THE FUND COMPARED WITH THE RUSSELL 1000 VALUE INDEX FOR THE PERIODS INDICATED. THE FUND'S CLASS R SHARES WERE FIRST AVAILABLE ON MAY 21, 1999. PERFORMANCE PRIOR TO THE INTRODUCTION OF CLASS R SHARES REFLECTS THE HISTORICAL PERFORMANCE OF THE FUND'S CLASS I SHARES. CLASS I SHARES HAVE NO SALES CHARGE OR DISTRIBUTION FEE, BUT HAVE A SHAREHOLDER SERVICE FEE OF UP TO .25% OF THEIR AVERAGE DAILY NET ASSETS. CLASS R SHARES HAVE DISTRIBUTION AND SHAREHOLDER SERVICES FEES UP TO .25% OF THEIR AVERAGE DAILY NET ASSETS. HISTORICAL PERFORMANCE RETURNS OF THE CLASS I SHARES DO NOT REFLECT THE SHAREHOLDER SERVICING FEE PRIOR TO THE ADOPTION OF THE SHAREHOLDER SERVICES PLAN IN 2003 OR DISTRIBUTION FEES APPLICABLE TO CLASS R SHARES, WHICH WOULD HAVE MADE RETURNS SLIGHTLY LOWER. THE FUND'S CLASS I SHARES CALCULATE THEIR PERFORMANCE BASED UPON THE HISTORICAL PERFORMANCE OF A CORRESPONDING SERIES OF NICHOLAS-APPLEGATE MUTUAL FUNDS (RENAMED ING MUTUAL FUNDS). AVERAGE ANNUAL TOTAL RETURN FIGURES INCLUDE CHANGES IN PRINCIPAL VALUE, REINVESTED DIVIDENDS, AND CAPITAL GAIN DISTRIBUTIONS. ABSENT EXPENSE LIMITATIONS, TOTAL RETURNS WOULD HAVE BEEN SLIGHTLY LOWER. THE TOTAL RETURNS SHOWN ABOVE DO NOT SHOW THE EFFECTS OF INCOME TAXES ON AN INDIVIDUAL'S INVESTMENT. IN MOST CASES, TAXES MAY REDUCE YOUR ACTUAL INVESTMENT RETURNS ON INCOME OR GAINS PAID BY THE FUND OR ANY GAINS YOU MAY REALIZE IF YOU SELL YOUR SHARES. PAST PERFORMANCE CANNOT GUARANTEE FUTURE RESULTS. THE RUSSELL 1000 VALUE INDEX MEASURES THE PERFORMANCE OF THOSE RUSSELL 1000 COMPANIES WITH LOWER PRICE-TO-BOOK RATIOS AND LOWER FORECASTED GROWTH VALUES. THE UNMANAGED INDEX DIFFERS FROM THE FUND IN COMPOSITION, DOES NOT PAY MANAGEMENT FEES OR EXPENSES AND INCLUDES REINVESTED DIVIDENDS. ONE CANNOT INVEST DIRECTLY IN AN INDEX. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS. YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. 9 U.S. LARGE CAP VALUE FUND SCHEDULE OF INVESTMENTS As of March 31, 2006
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------- COMMON STOCK - 97.0% AEROSPACE/DEFENSE-EQUIPMENT - 1.6% United Technologies Corp. 7,200 $ 417,384 -------------- APPLICATIONS SOFTWARE - 3.1% Microsoft Corp. 30,200 821,742 -------------- CABLE TV - 1.4% Comcast Corp. Cl. A* 13,700 358,392 -------------- COMMERCIAL BANKS-EASTERN US - 3.5% North Fork Bancorporation 31,550 909,586 -------------- COMPUTERS - 1.4% International Business Machines Corp. 4,400 362,868 -------------- CONSUMER PRODUCTS-MISCELLANEOUS - 0.8% Fortune Brands, Inc. 2,600 209,638 -------------- DIVERSIFIED MANUFACTURING OPERATIONS - 9.4% General Electric Co. 26,900 935,582 ITT Industries, Inc. 17,600 989,472 Textron, Inc. 5,700 532,323 -------------- 2,457,377 -------------- ELECTRIC-INTEGRATED - 2.3% Exelon Corp. 11,400 603,060 -------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS - 3.1% Freescale Semiconductor, Inc. Cl. B* 29,140 809,218 -------------- FIDUCIARY BANKS - 1.3% Bank of New York Co., Inc. 9,400 338,776 -------------- FINANCE-INVESTMENT BANKERS/BROKERS - 5.7% Goldman Sachs Group, Inc. 1,900 298,224 Morgan Stanley 19,000 1,193,580 -------------- 1,491,804 -------------- FINANCE-MORTGAGE LOAN/BANKER - 3.7% Countrywide Credit Industries, Inc. 26,400 968,880 -------------- FINANCIAL GUARANTEE INSURANCE - 1.0% Ambac Financial Group, Inc. 3,500 278,600 -------------- INDUSTRIAL GASES - 2.0% Praxair, Inc. 9,400 518,410 -------------- MEDICAL-DRUGS - 4.1% Abbott Laboratories 8,300 352,501 Pfizer, Inc. 28,800 717,696 -------------- 1,070,197 -------------- MEDICAL-HMO - 2.3% WellPoint, Inc.* 7,900 611,697 -------------- MULTI-LINE INSURANCE - 6.1% Allstate Corp. 9,100 474,201 American International Group, Inc. 17,100 1,130,139 -------------- 1,604,340 -------------- MULTIMEDIA - 3.5% Time Warner, Inc. 39,200 658,168 Walt Disney Co. 9,900 276,111 -------------- 934,279 -------------- OIL COMPANIES-EXPLORATION & PRODUCTION - 3.9% Apache Corp. 15,550 1,018,681 -------------- OIL COMPANIES-INTEGRATED - 8.0% ConocoPhillips 17,520 1,106,388 Marathon Oil Corp. 13,200 1,005,444 -------------- 2,111,832 -------------- OIL REFINING & MARKETING - 2.2% Valero Energy Corp. 9,500 $ 567,910 -------------- RETAIL-APPAREL/SHOE - 2.5% Gap, Inc. 35,000 653,800 -------------- RETAIL-REGIONAL DEPARTMENT STORES - 4.4% Federated Department Stores, Inc. 15,800 1,153,400 -------------- SAVINGS & LOANS/THRIFTS-WESTERN US - 4.0% Washington Mutual, Inc. 24,600 1,048,452 -------------- STEEL-PRODUCERS - 2.9% United States Steel Corp. 12,700 770,636 -------------- SUPER-REGIONAL BANKS-US - 8.6% Bank of America Corp. 10,712 487,824 US Bancorp 27,100 826,550 Wells Fargo & Co. 15,000 958,050 -------------- 2,272,424 -------------- TELEPHONE-INTEGRATED - 2.8% Sprint Corp. 19,900 514,216 Verizon Communications, Inc. 6,400 217,984 -------------- 732,200 -------------- TOBACCO - 1.4% Altria Group, Inc. 5,200 368,472 ---------------------------------------------------------------------------------------------- Total Common Stock (Cost: $20,421,905) 25,464,055 ---------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT ---------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS - 3.1% TIME DEPOSIT - 3.1% Citibank Nassau 4.150%, 04/01/06 (Cost: $805,000) $ 805,000 805,000 ---------------------------------------------------------------------------------------------- Total Investments - 100.1% (Cost: $21,226,905) 26,269,055 ---------------------------------------------------------------------------------------------- Liabilities in Excess of Other Assets - (0.1%) (32,101) ---------------------------------------------------------------------------------------------- Net Assets - 100.0% $ 26,236,954 ----------------------------------------------------------------------------------------------
* NON-INCOME PRODUCING SECURITIES. SCHEDULE OF INVESTMENTS BY INDUSTRY as of March 31, 2006
PERCENT OF INDUSTRY NET ASSETS ---------------------------------------------------------------------------------------------- Basic Materials 4.9% Communications 7.7 Consumer, Cyclical 6.9 Consumer, Non-cyclical 8.6 Energy 14.1 Financial 34.0 Industrial 10.9 Technology 7.6 Utilities 2.3 Short Term Investments 3.1 Liabilities in excess of other assets (0.1) ---------------------------------------------------------------------------------------------- Net Assets 100.0% ==============================================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 10 U.S. SYSTEMATIC LARGE CAP GROWTH FUND MANAGEMENT TEAM: JAMES LI, PH.D., CFA, Portfolio Manager; JANE EDMONSON, Portfolio Manager CHIEF INVESTMENT OFFICER: HORACIO A. VALEIRAS, CFA GOAL: The U.S. Systematic Large Cap Growth Fund seeks to maximize long-term capital appreciation by investing primarily in stocks from a universe of large U.S. companies with market capitalizations similar to the upper 90% of the Russell 1000 Growth Index at time of purchase. MARKET OVERVIEW: During the twelve months ending March 31, 2006, U.S. equities advanced, overcoming multiple headwinds. Gains were widespread, with stocks in all major styles and capitalization ranges closing the period in positive territory. From a comparative standpoint, small- and mid-caps outpaced large-caps, while no clear leader emerged in growth versus value. Share prices received support amid: - Strong corporate earnings growth and expectations for ongoing healthy profits - Tight business inventories and accelerating manufacturing activity - Low unemployment and robust gains in payrolls and wage growth Despite the positive overall results, several factors limited potentially greater gains. Foremost among these were the advent of $70/barrel oil, relentless interest rate hikes by the Federal Reserve and early signs of cooling in the housing market. PERFORMANCE: During the twelve months ended March 31, 2006, the Fund's Class R shares registered a 13.78% gain. This compared favorably to the Russell 1000 Growth Index which rose 13.14%. PORTFOLIO SPECIFICS: The Fund outperformed in the period from April 30, 2005 through March 31, 2006, closing the fiscal year with a twelve-month return higher than the benchmark. Investors benefited from strong performance from materials and energy holdings, and strong contributions from the health care and information technology sectors. On a security level, the stocks that contributed the most to Fund performance were Diamond Offshore Drilling, Archer Daniels Midland (ADM) and Nucor. Holdings of Diamond Offshore, a global offshore oil and gas drilling contractor, gained more than 80% during the period as energy prices steadily climbed, driving margins higher. ADM shares rose nearly 16% during the third quarter after second quarter earnings, driven by strong ethanol sales, came in ahead of expectations. Nucor, a large steel manufacturer, saw its stock advance on positive earnings results due to a favorable pricing environment. Stock selection in the consumer discretionary and financials sectors generally detracted from relative performance. As a result of our bottom-up stock selection process, the Fund's sector exposures have shifted over the course of the year. We decreased exposure to the telecommunications and information technology sectors and increased positions in industrials. As of March 31, 2006, the Fund remains broadly diversified. MARKET OUTLOOK: Our process evaluates investment opportunities on a relative basis and is required to remain fully invested. As such, the process neither utilizes nor results in a forecast or outlook on the overall market, but expects to perform equally well versus the Russell 1000 Growth Index in both up and down markets. By applying our disciplined, bottom-up approach in all investment environments, we believe the Fund will generate consistently strong returns over time. [CHART] COMPARISON OF CHANGE IN VALUE OF A $250,000 INVESTMENT IN U.S. SYSTEMATIC LARGE CAP GROWTH FUND CLASS R SHARES WITH THE RUSSELL 1000 GROWTH INDEX.
U.S. SYSTEMATIC LARGE CAP GROWTH FUND CLASS R SHARES RUSSELL 1000 GROWTH INDEX 12/27/1996 $ 250,000.00 $ 250,000.00 12/31/1996 $ 247,420.02 $ 246,184.68 1/31/1997 $ 272,445.82 $ 263,452.07 2/28/1997 $ 267,801.86 $ 261,668.50 3/31/1997 $ 260,061.92 $ 247,507.00 4/30/1997 $ 269,865.84 $ 263,941.47 5/31/1997 $ 300,051.60 $ 282,990.12 6/30/1997 $ 311,145.51 $ 294,315.39 7/31/1997 $ 349,845.20 $ 320,344.64 8/31/1997 $ 341,847.27 $ 301,594.87 9/30/1997 $ 359,133.13 $ 316,436.35 10/31/1997 $ 358,617.13 $ 304,740.87 11/30/1997 $ 354,231.17 $ 317,683.21 12/31/1997 $ 360,423.12 $ 321,241.26 1/31/1998 $ 365,583.08 $ 330,846.38 2/28/1998 $ 399,122.81 $ 355,732.64 3/31/1998 $ 423,632.61 $ 369,912.14 4/30/1998 $ 437,048.50 $ 375,031.73 5/31/1998 $ 425,954.59 $ 364,388.33 6/30/1998 $ 456,656.35 $ 386,707.11 7/31/1998 $ 446,852.43 $ 384,147.11 8/31/1998 $ 372,291.02 $ 326,494.31 9/30/1998 $ 418,472.65 $ 351,575.61 10/31/1998 $ 449,690.40 $ 379,831.74 11/30/1998 $ 492,518.06 $ 408,725.54 12/31/1998 $ 577,915.38 $ 445,580.32 1/31/1999 $ 642,930.86 $ 471,744.80 2/28/1999 $ 629,256.97 $ 450,195.49 3/31/1999 $ 694,014.45 $ 473,907.29 4/30/1999 $ 730,134.16 $ 474,513.89 5/31/1999 $ 735,294.12 $ 459,932.08 6/30/1999 $ 766,253.87 $ 492,145.72 7/31/1999 $ 755,933.95 $ 476,505.33 8/31/1999 $ 751,289.99 $ 484,291.43 9/30/1999 $ 765,479.88 $ 474,116.47 10/31/1999 $ 820,691.43 $ 509,921.74 11/30/1999 $ 915,118.68 $ 537,432.02 12/31/1999 $ 1,131,320.95 $ 593,330.32 1/31/2000 $ 1,082,301.34 $ 565,509.06 2/29/2000 $ 1,240,196.08 $ 593,156.80 3/31/2000 $ 1,283,281.73 $ 635,614.97 4/30/2000 $ 1,184,726.52 $ 605,372.41 5/31/2000 $ 1,109,133.13 $ 574,885.85 6/30/2000 $ 1,226,006.19 $ 618,456.45 7/31/2000 $ 1,171,568.63 $ 592,673.00 8/31/2000 $ 1,324,045.41 $ 646,333.62 9/30/2000 $ 1,208,978.33 $ 585,196.92 10/31/2000 $ 1,085,139.32 $ 557,505.40 11/30/2000 $ 876,102.27 $ 475,323.53 12/31/2000 $ 858,016.37 $ 460,284.29 1/31/2001 $ 836,206.90 $ 492,085.33 2/28/2001 $ 692,051.64 $ 408,544.01 3/31/2001 $ 598,962.45 $ 364,086.25 4/30/2001 $ 676,625.43 $ 410,132.24 5/31/2001 $ 646,304.95 $ 404,095.09 6/30/2001 $ 613,856.72 $ 394,736.25 7/31/2001 $ 578,482.83 $ 384,871.79 8/31/2001 $ 513,054.42 $ 353,389.28 9/30/2001 $ 429,540.12 $ 318,121.03 10/31/2001 $ 453,308.83 $ 334,822.38 11/30/2001 $ 508,668.67 $ 366,998.81 12/31/2001 $ 505,726.84 $ 366,301.51 1/31/2002 $ 486,203.81 $ 359,817.98 2/28/2002 $ 454,913.46 $ 344,885.53 3/31/2002 $ 480,320.15 $ 356,818.57 4/30/2002 $ 452,239.07 $ 327,702.17 5/31/2002 $ 438,867.13 $ 319,771.78 6/30/2002 $ 390,728.14 $ 290,192.89 7/31/2002 $ 359,972.68 $ 274,232.28 8/31/2002 $ 361,577.31 $ 275,054.98 9/30/2002 $ 338,310.13 $ 246,531.78 10/31/2002 $ 356,495.97 $ 269,138.74 11/30/2002 $ 369,867.91 $ 283,752.98 12/31/2002 $ 334,031.11 $ 264,145.65 1/31/2003 $ 327,345.14 $ 257,726.91 2/28/2003 $ 326,007.94 $ 256,541.36 3/31/2003 $ 337,240.37 $ 261,313.03 4/30/2003 $ 358,635.48 $ 280,650.20 5/31/2003 $ 368,798.16 $ 294,654.64 6/30/2003 $ 372,809.74 $ 298,720.88 7/31/2003 $ 383,507.29 $ 306,159.03 8/31/2003 $ 392,600.21 $ 313,782.38 9/30/2003 $ 381,902.66 $ 310,424.91 10/31/2003 $ 399,821.06 $ 327,870.79 11/30/2003 $ 404,367.52 $ 331,280.65 12/31/2003 $ 403,565.21 $ 342,742.96 1/31/2004 $ 414,262.76 $ 349,734.92 2/29/2004 $ 411,053.49 $ 351,973.22 3/31/2004 $ 398,483.87 $ 345,426.52 4/30/2004 $ 389,390.95 $ 341,419.57 5/31/2004 $ 399,286.18 $ 347,769.97 6/30/2004 $ 408,111.67 $ 352,151.88 7/31/2004 $ 386,181.68 $ 332,255.30 8/30/2004 $ 381,100.34 $ 330,627.24 9/30/2004 $ 385,914.24 $ 333,768.20 10/31/2004 $ 390,931.13 $ 338,974.99 11/30/2004 $ 414,191.53 $ 350,635.73 12/31/2004 $ 425,001.93 $ 364,380.65 1/31/2005 $ 410,466.86 $ 352,246.77 2/28/2005 $ 418,922.48 $ 355,980.59 3/31/2005 $ 413,895.41 $ 349,501.74 4/30/2005 $ 396,180.68 $ 342,861.21 5/31/2005 $ 416,504.75 $ 359,421.40 6/30/2005 $ 416,754.66 $ 358,091.54 7/31/2005 $ 434,716.78 $ 375,602.22 8/31/2005 $ 427,065.77 $ 370,756.95 9/30/2005 $ 431,806.20 $ 372,462.43 10/31/2005 $ 420,967.86 $ 368,849.55 11/30/2005 $ 440,795.45 $ 384,746.96 12/31/2005 $ 440,530.97 $ 383,554.25 1/31/2006 $ 457,447.36 $ 390,304.80 2/28/2006 $ 459,048.42 $ 389,680.32 3/31/2006 $ 471,718.16 $ 395,447.58
ANNUALIZED TOTAL RETURNS AS OF 3/31/06
SINCE 1 YEAR 5 YEARS INCEPTION ------------------------------------------------------------------------------------------ U.S. Systematic Large Cap Growth Fund Class R Shares 13.78% -4.82% 7.06% Russell 1000 Growth Index 13.14% 1.66% 5.08%
THE GRAPH ABOVE SHOWS THE VALUE OF A HYPOTHETICAL $250,000 INVESTMENT IN THE FUND COMPARED WITH THE RUSSELL 1000 GROWTH INDEX FOR THE PERIODS INDICATED. THE FUND'S CLASS R SHARES WERE FIRST AVAILABLE ON MAY 21, 1999. PERFORMANCE PRIOR TO THE INTRODUCTION OF CLASS R SHARES REFLECTS THE HISTORICAL PERFORMANCE OF THE FUND'S CLASS I SHARES. CLASS I SHARES HAVE NO SALES CHARGE OR DISTRIBUTION FEE, BUT HAVE A SHAREHOLDER SERVICE FEE OF UP TO .25% OF THEIR AVERAGE DAILY NET ASSETS. CLASS R SHARES HAVE DISTRIBUTION AND SHAREHOLDER SERVICES FEES UP TO .25% OF THEIR DAILY NET ASSETS. HISTORICAL PERFORMANCE RETURNS OF THE CLASS I SHARES DO NOT REFLECT THE SHAREHOLDER SERVICING FEE PRIOR TO THE ADOPTION OF THE SHAREHOLDER SERVICES PLAN IN 2003 AND DISTRIBUTION FEES APPLICABLE TO CLASS R SHARES WHICH WOULD HAVE MADE RETURNS SLIGHTLY LOWER. THE FUND'S CLASS I SHARES CALCULATE THEIR PERFORMANCE BASED UPON THE HISTORICAL PERFORMANCE OF A CORRESPONDING SERIES OF NICHOLAS-APPLEGATE MUTUAL FUNDS (RENAMED ING MUTUAL FUNDS), ADJUSTED TO REFLECT ALL FEES AND EXPENSES APPLICABLE TO THE FUND'S CLASS I SHARES. AVERAGE ANNUAL TOTAL RETURN FIGURES INCLUDE CHANGES IN PRINCIPAL VALUE, REINVESTED DIVIDENDS, AND CAPITAL GAIN DISTRIBUTIONS. ABSENT EXPENSE LIMITATIONS, TOTAL RETURNS WOULD HAVE BEEN SLIGHTLY LOWER. THE TOTAL RETURNS SHOWN ABOVE DO NOT SHOW THE EFFECTS OF INCOME TAXES ON AN INDIVIDUAL'S INVESTMENT. IN MOST CASES, TAXES MAY REDUCE YOUR ACTUAL INVESTMENT RETURNS ON INCOME OR GAINS PAID BY THE FUND OR ANY GAINS YOU MAY REALIZE IF YOU SELL YOUR SHARES. PAST PERFORMANCE CANNOT GUARANTEE FUTURE RESULTS. RUSSELL 1000 GROWTH INDEX MEASURES THE PERFORMANCE OF THOSE RUSSELL 1000 COMPANIES WITH HIGHER PRICE-TO-BOOK RATIOS AND HIGHER FORECASTED GROWTH VALUES. THE RUSSELL 1000 INDEX CONSISTS OF THE 1,000 LARGEST SECURITIES IN THE RUSSELL 3000 INDEX, WHICH REPRESENTS APPROXIMATELY 90% OF THE TOTAL MARKET CAPITALIZATION OF THE RUSSELL 3000 INDEX. IT IS A LARGE-CAP, MARKET-ORIENTED INDEX AND IS HIGHLY CORRELATED WITH THE S&P 500 INDEX. THE UNMANAGED INDEX DIFFERS FROM THE FUND IN COMPOSITION, DOES NOT PAY MANAGEMENT FEES OR EXPENSES AND INCLUDES REINVESTED DIVIDENDS. ONE CANNOT INVEST DIRECTLY IN AN INDEX. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS. YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. 11 U.S. SYSTEMATIC LARGE CAP GROWTH FUND SCHEDULE OF INVESTMENTS As of March 31, 2006
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------- COMMON STOCK - 99.3% AEROSPACE/DEFENSE - 4.4% Boeing Co. 1,500 $ 116,895 Lockheed Martin Corp. 2,800 210,364 Raytheon Co. 2,800 128,352 -------------- 455,611 -------------- AGRICULTURAL OPERATIONS - 1.7% Archer-Daniels-Midland Co. 5,200 174,980 -------------- AIRLINES - 0.6% AMR Corp.* 2,400 64,920 -------------- APPLICATIONS SOFTWARE - 2.0% Microsoft Corp. 4,100 111,561 Red Hat, Inc.* 3,500 97,930 -------------- 209,491 -------------- BEVERAGES-NON-ALCOHOLIC - 2.0% Coca-Cola Co. 4,900 205,163 -------------- BEVERAGES-WINE/SPIRITS - 1.0% Anheuser Busch Cos., Inc. 2,400 102,648 -------------- BUILDING PRODUCTS-CEMENT/AGGREGATE - 1.8% Martin Marietta Materials, Inc. 1,800 192,654 -------------- CASINO SERVICES - 1.0% International Game Technology 2,900 102,138 -------------- COMMERCIAL SERVICES - 1.3% Weight Watchers International, Inc. 2,700 138,780 -------------- COMPUTER SERVICES - 1.9% Computer Sciences Corp.* 1,900 105,545 Electronic Data Systems Corp. 3,600 96,588 -------------- 202,133 -------------- COMPUTERS - 3.8% Hewlett-Packard Co. 4,100 134,890 International Business Machines Corp. 3,200 263,904 -------------- 398,794 -------------- CONSULTING SERVICES - 1.1% Corporate Executive Board Co. 1,100 110,990 -------------- COSMETICS & TOILETRIES - 0.5% Procter & Gamble Co. 975 56,180 -------------- DISTRIBUTION/WHOLESALE - 0.5% Genuine Parts Co. 1,200 52,596 -------------- DIVERSIFIED MANUFACTURING OPERATIONS - 6.9% General Electric Co. 7,800 271,284 General Mills, Inc. 2,700 136,836 Illinois Tool Works, Inc. 1,700 163,727 Parker Hannifin Corp. 1,900 153,159 -------------- 725,006 -------------- ELECTRIC PRODUCTS-MISCELLANEOUS - 1.6% Emerson Electric Co. 2,000 167,260 -------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS - 5.1% Broadcom Corp. Cl. A* 1,650 71,214 Intersil Corp. Cl. A* 4,600 133,032 LSI Logic Corp.* 5,700 65,892 National Semiconductor Corp. 5,600 155,904 Texas Instruments, Inc. 3,200 103,904 -------------- 529,946 -------------- ELECTRONIC CONNECTORS - 0.6% Thomas & Betts Corp.* 1,200 61,656 -------------- ELECTRONIC DESIGN AUTOMATION - 0.5% Synopsys, Inc.* 2,300 $ 51,405 -------------- ELECTRONIC MEASURE INSTRUMENTS - 1.2% Agilent Technologies, Inc.* 3,400 127,670 -------------- ENTERPRISE SOFTWARE/SERVICES - 1.9% Oracle Corp.* 14,700 201,243 -------------- FOOD-RETAIL - 1.0% Safeway, Inc. 4,300 108,016 -------------- HEALTH CARE COST CONTAINMENT - 1.6% McKesson Corp. 3,200 166,816 -------------- HOME DECORATION PRODUCTS - 1.0% Newell Rubbermaid, Inc. 4,300 108,317 -------------- INVESTMENT MANAGEMENT/ADVISOR SERVICES - 1.0% Legg Mason, Inc. 800 100,264 -------------- MEDICAL INFORMATION SYSTEMS - 1.0% IMS Health, Inc. 4,000 103,080 -------------- MEDICAL PRODUCTS - 6.3% Baxter International, Inc. 3,300 128,073 Becton Dickinson & Co. 2,200 135,476 Johnson & Johnson 6,600 390,852 -------------- 654,401 -------------- MEDICAL-BIOMEDICAL/GENETICS - 1.3% Biogen Idec, Inc.* 2,900 136,590 -------------- MEDICAL-DRUGS - 1.7% Abbott Laboratories 4,200 178,374 -------------- MEDICAL-HMO - 4.2% Aetna, Inc. 3,600 176,904 UnitedHealth Group, Inc. 4,700 262,542 -------------- 439,446 -------------- MEDICAL-NURSING HOMES - 1.3% Manor Care, Inc. 3,100 137,485 -------------- MEDICAL-WHOLESALE DRUG DISTRIBUTORS - 0.9% Cardinal Health, Inc. 1,200 89,424 -------------- MULTI-LINE INSURANCE - 1.6% Allstate Corp. 2,300 119,853 American International Group, Inc. 800 52,872 -------------- 172,725 -------------- NETWORKING PRODUCTS - 2.5% Cisco Systems, Inc.* 12,200 264,374 -------------- OIL & GAS DRILLING - 2.7% Diamond Offshore Drilling, Inc. 1,300 116,350 Helmerich & Payne, Inc. 1,600 111,712 Transocean, Inc.* 700 56,210 -------------- 284,272 -------------- OIL COMPANIES-EXPLORATION & PRODUCTION - 1.2% Devon Energy Corp. 2,000 122,340 -------------- PHARMACY SERVICES - 1.2% Express Scripts, Inc.* 1,400 123,060 -------------- PROPERTY/CASUALTY INSURANCE - 0.9% Chubb Corp. 1,000 95,440 -------------- RESEARCH & DEVELOPMENT - 1.4% Pharmaceutical Product Development, Inc. 4,200 145,362 -------------- RETAIL-APPAREL/SHOE - 3.9% Ann Taylor Stores Corp.* 3,800 139,802 Claire's Stores, Inc. 4,400 159,764 Gap, Inc. 5,800 108,344 -------------- 407,910 --------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 12 SCHEDULE OF INVESTMENTS As of March 31, 2006
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------- RETAIL-DISCOUNT - 1.2% Dollar Tree Stores, Inc. 4,700 $ 130,049 -------------- RETAIL-MAJOR DEPARTMENT STORES - 1.4% JC Penney Co., Inc. 2,400 144,984 -------------- RETAIL-REGIONAL DEPARTMENT STORES - 1.0% Federated Department Stores, Inc. 1,500 109,500 -------------- RETAIL-RESTAURANTS - 1.4% McDonald's Corp. 2,900 99,644 Yum! Brands, Inc. 1,000 48,860 -------------- 148,504 -------------- SEMICONDUCTOR EQUIPMENT - 1.7% Applied Materials, Inc. 9,900 173,349 -------------- STEEL-PRODUCERS - 1.4% Nucor Corp. 1,400 146,706 -------------- TELECOMMUNICATIONS EQUIPMENT FIBER OPTICS - 1.4% Corning, Inc.* 5,300 142,623 -------------- TELEVISION - 0.5% CBS Corp. Cl. B 2,000 47,960 -------------- TOBACCO - 1.0% Altria Group, Inc. 1,500 106,290 -------------- TRANSPORT-RAIL - 3.5% Burlington Northern Santa Fe Corp. 2,100 174,993 CSX Corp. 3,200 191,360 -------------- 366,353 -------------- TRANSPORT-SERVICES - 2.9% Laidlaw International, Inc. 3,800 103,360 United Parcel Service, Inc. Cl. B 2,500 198,450 -------------- 301,810 -------------- WEB PORTALS/ISP - 1.1% Google, Inc. Cl. A 300 117,000 -------------- WIRELESS EQUIPMENT - 2.7% Motorola, Inc. 6,700 153,497 QUALCOMM, Inc. 2,600 131,586 -------------- 285,083 ---------------------------------------------------------------------------------------------- Total Common Stock (Cost: $8,970,513) 10,389,171 ---------------------------------------------------------------------------------------------- Total Investments - 99.3% (Cost: $8,970,513) 10,389,171 Other Assets in Excess of Liabilities - 0.7% 76,159 ---------------------------------------------------------------------------------------------- Net Assets - 100.0% $ 10,465,330 ----------------------------------------------------------------------------------------------
* NON-INCOME PRODUCING SECURITIES. SCHEDULE OF INVESTMENTS BY INDUSTRY as of March 31, 2006
PERCENT OF INDUSTRY NET ASSETS ---------------------------------------------------------------------------------------------- Basic Materials 1.4% Communications 8.2 Consumer, Cyclical 12.1 Consumer, Non-cyclical 29.4 Energy 3.9 Financial 3.5 Industrial 22.9 Technology 17.9 Other assets in excess of liabilities 0.7 ---------------------------------------------------------------------------------------------- Net Assets 100.0% ==============================================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 13 INTERNATIONAL GROWTH FUND MANAGEMENT TEAM: HORACIO A. VALEIRAS, CFA, Portfolio Manager and Chief Investment Officer; LINDA BA, Portfolio Manager; STEPHEN DERKASH, Analyst; MICHAEL J. FREDERICKS, Analyst; CHRISTOPHER A. HERRERA, Analyst; BARRY KENDALL, Analyst; FLORA KIM, Analyst; ERIC SAGMEISTER, Analyst; SCOTT R. WILLIAMS, Analyst; ALAN TRICE, Assistant Analyst GOAL: The International Growth Fund seeks to maximize long-term capital appreciation through investments primarily in companies located outside the United States with market capitalizations predominantly in the top 75% of publicly traded companies as measured by stock market capitalizations within each country. MARKET OVERVIEW: Directionless at first, international developed markets accelerated into the final nine months of fiscal 2005, closing the year ended March 31, 2006 with substantial gains. Stocks advanced rapidly amid positive developments in Japan and Europe. Since the early 1990s, Japan has languished in a deflation-induced economic limbo. Last summer, the Japanese economy awoke. Prime Minister Koizumi demanded, and won, snap parliamentary elections, establishing a political mandate for economic reform. Emergent domestic-led expansion swiftly segued into accelerating exports and industrial production, and the first back-to-back rise in consumer prices since 1998. Local stocks responded enthusiastically, with the MSCI Japan spiking 37.39% for the fiscal year. Although European equities trailed Pacific peers, they still outpaced stocks in the U.S. The MSCI Europe rose 21.22% in the twelve months to March 31, 2006, as strong corporate profits and healthy balance sheets encouraged a flood of merger and acquisition activity. PERFORMANCE: During the twelve-month period ended March 31, 2006, the Fund's Class R shares rose 33.34%. This compared favorably to the MSCI EAFE Index, which increased 24.94%. PORTFOLIO SPECIFICS: The Fund's outperformance relative to the benchmark was driven by stock selection, particularly in China and Japan, and in the telecommunications services and financials sectors. Among the best-performing positions was China-based Foxconn International, a cell phone handset manufacturer that saw considerable benefit from outsourcing by two of its customers: Nokia and Motorola. Two other major contributors were European-based ABB Ltd. and Millicom International Cellular. ABB, the world's largest maker of power networks, saw strong gains during the fourth quarter amid increasing orders from customers planning to modernize their facilities. Millicom shares surged in January after it became public the company had received buyout offers from several of its peers. Although the Fund outperformed, there were areas of relative weakness, including stock selection in France and in the consumer staples sector. Structurally the make-up of the Fund did not shift much between September 30, 2005 and March 31, 2006. Our largest overweights continued to be in emerging Asia and the telecommunication services sector. The largest underweights were in developed European countries and financials. MARKET OUTLOOK: Although high energy prices will probably dampen global growth in 2006, the fundamentals underlying the world's major economies suggest ongoing expansion. In the months ahead, international stocks should see support from: - The end of cyclical tightening in the U.S. - Rising consumer prices and land prices in Japan - Improving business and consumer confidence in Europe This type of environment bodes well for the Fund, as our stock selection process is focused on identifying and investing in companies benefiting from these trends. [CHART] COMPARISON OF CHANGE IN VALUE OF A $250,000 INVESTMENT IN INTERNATIONAL GROWTH FUND CLASS R SHARES WITH THE MSCI EAFE INDEX.
INTERNATIONAL GROWTH FUND CLASS R SHARES MSCI EAFE INDEX 12/27/1996 $ 250,000 $ 250,000 12/31/1996 $ 252,400 $ 249,475 1/31/1997 $ 274,600 $ 240,744 2/28/1997 $ 277,200 $ 244,682 3/31/1997 $ 282,600 $ 245,568 4/30/1997 $ 286,600 $ 246,871 5/31/1997 $ 313,200 $ 262,935 6/30/1997 $ 331,200 $ 277,436 7/31/1997 $ 352,400 $ 281,924 8/31/1997 $ 334,000 $ 260,869 9/30/1997 $ 358,600 $ 275,482 10/31/1997 $ 328,800 $ 254,307 11/30/1997 $ 325,131 $ 251,715 12/31/1997 $ 329,722 $ 253,910 1/31/1998 $ 341,826 $ 265,523 2/28/1998 $ 365,199 $ 282,560 3/31/1998 $ 386,902 $ 291,261 4/30/1998 $ 398,171 $ 293,566 5/31/1998 $ 407,979 $ 292,141 6/30/1998 $ 412,779 $ 294,353 7/31/1998 $ 431,143 $ 297,337 8/31/1998 $ 369,373 $ 260,500 9/30/1998 $ 351,843 $ 252,514 10/31/1998 $ 358,312 $ 278,836 11/30/1998 $ 379,862 $ 293,121 12/31/1998 $ 400,734 $ 304,685 1/31/1999 $ 416,179 $ 303,785 2/28/1999 $ 399,064 $ 296,545 3/31/1999 $ 411,796 $ 308,923 4/30/1999 $ 426,823 $ 321,440 5/31/1999 $ 410,543 $ 304,887 6/30/1999 $ 442,894 $ 316,773 7/31/1999 $ 457,087 $ 326,189 8/31/1999 $ 464,183 $ 327,380 9/30/1999 $ 471,071 $ 330,675 10/31/1999 $ 501,961 $ 343,061 11/30/1999 $ 566,871 $ 354,981 12/31/1999 $ 676,523 $ 386,841 1/31/2000 $ 628,304 $ 362,261 2/29/2000 $ 704,494 $ 372,013 3/31/2000 $ 664,625 $ 386,434 4/30/2000 $ 609,727 $ 366,099 5/31/2000 $ 577,163 $ 357,157 6/30/2000 $ 608,057 $ 371,125 7/31/2000 $ 581,129 $ 355,566 8/31/2000 $ 604,299 $ 358,652 9/30/2000 $ 565,265 $ 341,189 10/31/2000 $ 529,362 $ 333,129 11/30/2000 $ 503,190 $ 320,637 12/31/2000 $ 519,379 $ 332,033 1/31/2001 $ 503,412 $ 331,862 2/28/2001 $ 461,054 $ 306,983 3/31/2001 $ 424,241 $ 286,519 4/30/2001 $ 453,736 $ 306,430 5/31/2001 $ 439,099 $ 295,615 6/30/2001 $ 421,136 $ 283,526 7/31/2001 $ 410,935 $ 278,367 8/31/2001 $ 393,859 $ 271,324 9/30/2001 $ 362,368 $ 243,839 10/31/2001 $ 361,924 $ 250,081 11/30/2001 $ 369,021 $ 259,309 12/31/2001 $ 373,234 $ 260,839 1/31/2002 $ 356,602 $ 246,989 2/28/2002 $ 358,819 $ 248,718 3/31/2002 $ 378,557 $ 262,173 4/30/2002 $ 376,561 $ 263,904 5/31/2002 $ 376,117 $ 267,255 6/30/2002 $ 363,255 $ 256,618 7/31/2002 $ 328,881 $ 231,290 8/31/2002 $ 325,554 $ 230,758 9/30/2002 $ 294,285 $ 205,975 10/31/2002 $ 304,265 $ 217,036 11/30/2002 $ 312,692 $ 226,889 12/31/2002 $ 300,716 $ 219,266 1/31/2003 $ 290,072 $ 210,122 2/28/2003 $ 285,858 $ 205,310 3/31/2003 $ 282,088 $ 201,430 4/30/2003 $ 306,926 $ 221,412 5/31/2003 $ 326,220 $ 235,029 6/30/2003 $ 331,764 $ 240,834 7/31/2003 $ 335,977 $ 246,710 8/31/2003 $ 349,062 $ 252,705 9/30/2003 $ 348,840 $ 260,539 10/31/2003 $ 373,900 $ 276,797 11/30/2003 $ 376,888 $ 282,997 12/31/2003 $ 401,068 $ 305,127 1/31/2004 $ 410,384 $ 309,460 2/29/2004 $ 415,487 $ 316,671 3/31/2004 $ 419,479 $ 318,571 4/30/2004 $ 403,730 $ 311,626 5/31/2004 $ 403,508 $ 312,966 6/30/2004 $ 408,166 $ 319,945 7/31/2004 $ 386,649 $ 309,611 8/30/2004 $ 387,536 $ 311,035 9/30/2004 $ 398,406 $ 319,215 10/31/2004 $ 412,669 $ 330,132 11/30/2004 $ 442,422 $ 352,779 12/31/2004 $ 459,411 $ 368,266 1/31/2005 $ 455,828 $ 361,527 2/28/2005 $ 478,437 $ 377,217 3/31/2005 $ 458,055 $ 367,900 4/30/2005 $ 447,749 $ 359,659 5/31/2005 $ 453,346 $ 360,199 6/30/2005 $ 461,642 $ 365,133 7/31/2005 $ 482,231 $ 376,343 8/31/2005 $ 486,716 $ 385,977 9/30/2005 $ 518,937 $ 403,231 10/31/2005 $ 499,684 $ 391,497 11/30/2005 $ 523,369 $ 401,167 12/31/2005 $ 566,809 $ 419,861 1/31/2006 $ 610,226 $ 445,682 2/28/2006 $ 591,614 $ 444,791 3/31/2006 $ 612,380 $ 459,647
ANNUALIZED TOTAL RETURNS AS OF 3/31/06
SINCE 1 YEAR 5 YEARS INCEPTION ----------------------------------------------------------------------------- International Growth Fund Class R Shares 33.34% 7.53% 10.11% MSCI EAFE Index 24.94% 10.04% 7.00%
THE GRAPH ABOVE SHOWS THE VALUE OF A HYPOTHETICAL $250,000 INVESTMENT IN THE FUND COMPARED WITH THE MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALASIA, FAR EAST INDEX ("MSCI EAFE") OVER THE PERIODS INDICATED. THE FUND'S CLASS R SHARES WERE FIRST AVAILABLE ON MAY 21, 1999. PERFORMANCE PRIOR TO THE INTRODUCTION OF CLASS R SHARES REFLECTS THE HISTORICAL PERFORMANCE OF THE FUND'S CLASS I SHARES. CLASS I SHARES HAVE NO SALES CHARGE OR DISTRIBUTION FEE, BUT HAVE A SHAREHOLDER SERVICE FEE OF UP TO .25% OF THEIR AVERAGE DAILY NET ASSETS. CLASS R SHARES HAVE DISTRIBUTION AND SHAREHOLDER SERVICES FEES OF UP TO .25% OF THEIR AVERAGE DAILY NET ASSETS. HISTORICAL PERFORMANCE RETURNS OF THE CLASS I SHARES DO NOT REFLECT THE SHAREHOLDER SERVICING FEE PRIOR TO THE ADOPTION OF THE SHAREHOLDER SERVICES PLAN IN 2003 AND DISTRIBUTION FEES APPLICABLE TO THE CLASS R SHARES, WHICH WOULD HAVE MADE RETURNS SLIGHTLY LOWER. THE FUND'S CLASS I SHARES CALCULATE THEIR PERFORMANCE BASED UPON THE HISTORICAL PERFORMANCE OF A CORRESPONDING SERIES OF NICHOLAS-APPLEGATE MUTUAL FUNDS (RENAMED ING MUTUAL FUNDS), ADJUSTED TO REFLECT ALL FEES AND EXPENSES APPLICABLE TO THE FUND'S CLASS I SHARES. AVERAGE ANNUAL TOTAL RETURN FIGURES INCLUDE CHANGES IN PRINCIPAL VALUE, REINVESTED DIVIDENDS, AND CAPITAL GAIN DISTRIBUTIONS. ABSENT EXPENSE LIMITATIONS, TOTAL RETURNS WOULD HAVE BEEN SLIGHTLY LOWER. THE TOTAL RETURNS SHOWN ABOVE DO NOT SHOW THE EFFECTS OF INCOME TAXES ON AN INDIVIDUAL'S INVESTMENT. IN MOST CASES, TAXES MAY REDUCE YOUR ACTUAL INVESTMENT RETURNS ON INCOME OR GAINS PAID BY THE FUND OR ANY GAINS YOU MAY REALIZE IF YOU SELL YOUR SHARES. PAST PERFORMANCE CANNOT GUARANTEE FUTURE RESULTS. THE MSCI 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 UNMANAGED INDEX DIFFERS FROM THE FUND IN COMPOSITION, DOES NOT PAY MANAGEMENT FEES OR EXPENSES AND INCLUDES REINVESTED DIVIDENDS. ONE CANNOT INVEST DIRECTLY IN AN INDEX. SINCE MARKETS CAN GO DOWN AS WELL AS UP, INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE WITH MARKET CONDITIONS, CURRENCY VOLATILITY AND THE SOCIAL, ECONOMIC AND POLITICAL CLIMATES OF COUNTRIES WHERE THE FUND INVESTS. YOU MAY HAVE A GAIN OR LOSS WHEN YOU SELL YOUR SHARES. 14 INTERNATIONAL GROWTH FUND SCHEDULE OF INVESTMENTS As of March 31, 2006
NUMBER OF SHARES VALUE ------------------------------------------------------------------------------------------------ COMMON STOCK - 96.3% AUSTRALIA - 1.1% Goodman Fielder, Ltd.* 723,502 $ 1,124,647 --------------- BRAZIL - 1.1% Vivo Participacoes S.A. - ADR*,## 266,400 1,140,192 --------------- CANADA - 7.4% Cameco Corp. 52,100 1,875,707 EnCana Corp. 21,100 985,728 Petrobank Energy & Resources, Ltd.* 34,900 418,824 Rogers Communications, Inc. Cl. B 75,400 2,879,367 Teck Cominco, Ltd. Cl. B 23,900 1,539,385 --------------- 7,699,011 --------------- FINLAND - 2.0% M-Real OYJ Cl. B 116,000 767,864 Nokia OYJ - ADR## 64,500 1,336,440 --------------- 2,104,304 --------------- FRANCE - 8.8% Lafarge S.A. 16,082 1,819,663 Publicis Groupe 26,609 1,036,868 Sanofi-Aventis S.A. 40,224 3,821,150 Total S.A. 5,069 1,335,426 Veolia Environnement 20,294 1,125,529 --------------- 9,138,636 --------------- GERMANY - 3.8% Bayer AG 21,685 867,564 Commerzbank AG 52,572 2,091,826 Siemens AG 11,233 1,047,252 --------------- 4,006,642 --------------- GREECE - 1.5% National Bank of Greece S.A. 33,333 1,565,112 --------------- HONG KONG - 3.0% Hutchison Telecommunications International, Ltd.* 1,176,300 2,008,541 Melco International Development 545,000 1,123,733 --------------- 3,132,274 --------------- HUNGARY - 0.8% MOL Magyar Olaj-es Gazipari Rt. 7,723 791,466 --------------- IRELAND - 3.1% Bank of Ireland 55,044 1,022,486 CRH PLC 62,109 2,167,463 --------------- 3,189,949 --------------- ITALY - 5.0% Autogrill SpA 90,450 1,339,767 Mediaset SpA 126,363 1,486,365 Sanpaolo IMI SpA 132,775 2,373,209 --------------- 5,199,341 --------------- JAPAN - 25.4% Aoyama Trading Co., Ltd. 14,400 $ 474,752 Chugai Pharmaceutical Co., Ltd. 53,700 971,688 Fuji Electric Co., Ltd. 202,000 1,099,110 Haseko Corp.* 313,500 1,179,710 Hisamitsu Pharmaceutical Co., Ltd. 20,000 498,347 Hitachi Construction Machinery Co., Ltd. 71,400 1,875,922 Hokuhoku Financial Group, Inc. 448,000 1,963,014 Japan Tobacco, Inc. 510 1,789,474 Kajima Corp. 167,200 1,041,546 Mitsubishi Estate Co., Ltd. 67,600 1,598,474 Mitsui & Co., Ltd. 75,700 1,091,969 Nitori Co., Ltd. 15,200 789,694 Okasan Holdings, Inc. 38,000 433,816 Rakuten, Inc.## 1,919 1,740,258 Seven & I Holdings Co., Ltd. 43,000 1,698,280 Sumco Corp. 20,400 1,092,703 Sumitomo Mitsui Financial Group 276 3,040,936 Teijin, Ltd. 167,300 1,110,229 Tokyo Electron, Ltd. 15,700 1,080,464 Toyota Motor Corp. 35,400 1,929,164 --------------- 26,499,550 --------------- LUXEMBOURG - 1.0% Millicom International Cellular S.A.* 23,100 1,087,779 --------------- NETHERLANDS - 2.0% ASML Holding NV* 51,703 1,054,277 Royal Numico NV 23,465 1,036,744 --------------- 2,091,021 --------------- NORWAY - 2.7% Acergy S.A.*,## 117,800 1,848,800 Telenor ASA 90,400 971,102 --------------- 2,819,902 --------------- PERU - 0.5% Southern Copper Corp.## 6,200 523,776 --------------- REPUBLIC OF CHINA - 0.9% Suntech Power Holdings Co., Ltd. - ADR* 24,000 887,760 --------------- SOUTH AFRICA - 1.4% Harmony Gold Mining Co., Ltd. - ADR* 92,000 1,460,960 --------------- SOUTH KOREA - 3.5% Daewoo Shipbuilding & Marine Engineering Co., Ltd. 35,910 951,662 Kookmin Bank - ADR 12,100 1,034,792 LG Electronics, Inc. 19,790 1,604,952 --------------- 3,591,406 --------------- SWEDEN - 4.3% Assa Abloy Cl. B 85,400 1,583,369 Modern Times Group Cl. B* 22,100 1,037,838 Telefonaktiebolaget LM Ericsson Cl. B 498,000 1,891,374 --------------- 4,512,581 ---------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 15
NUMBER OF SHARES VALUE ---------------------------------------------------------------------------------------------- SWITZERLAND - 8.5% ABB, Ltd. 159,476 $ 2,007,407 Adecco SA 22,949 1,279,286 Compagnie Financiere Richemont AG Cl. A 22,027 1,053,440 Roche Holding AG 9,847 1,462,526 Straumann Holding AG## 4,186 951,327 UBS AG 19,481 2,134,659 -------------- 8,888,645 -------------- TAIWAN - 1.2% United Microelectronics Corp. - ADR 352,900 1,203,389 -------------- THAILAND - 0.9% True Corp. PLC* 3,634,200 981,080 -------------- UNITED KINGDOM - 6.4% Aegis Group PLC 455,910 1,081,417 Arm Holdings PLC 734,089 1,696,691 Diageo PLC 68,518 1,077,356 George Wimpey PLC 50,526 490,345 HSBC Holdings PLC 72,254 1,209,417 Travis Perkins PLC 39,862 1,153,991 -------------- 6,709,217 ---------------------------------------------------------------------------------------------- Total Common Stock (Cost: $81,236,172) 100,348,640 ---------------------------------------------------------------------------------------------- PREFERRED STOCK - 1.1% GERMANY - 1.1% Henkel KGaA## (Cost: $1,138,278) 10,265 1,198,369 ---------------------------------------------------------------------------------------------- EQUITY-LINKED SECURITIES - 1.2% INDIA - 1.2% Merrill Lynch Bharti Televentures - 3/17/11 (Cost: $1,135,757) 130,700 1,210,805 ---------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT ---------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS - 9.7% MONEY MARKET FUNDS - 7.3% Boston Global Investment Trust - Enhanced Sleeve, 4.686%** $ 7,590,839 7,590,839 TIME DEPOSITS - 2.4% Wells Fargo Bank - Grand Cayman 4.150%, 04/01/06 2,485,718 2,485,718 ---------------------------------------------------------------------------------------------- Total Short Term Investments (Cost: $10,076,557) 10,076,557 ---------------------------------------------------------------------------------------------- Total Investments - 108.3% (Cost: $93,586,764) 112,834,371 ---------------------------------------------------------------------------------------------- Liabilities in Excess of Other Assets - (8.3%) (8,667,996) ---------------------------------------------------------------------------------------------- Net Assets - 100.0% $ 104,166,375 ----------------------------------------------------------------------------------------------
* NON-INCOME PRODUCING SECURITIES. ** ALL OF THE SECURITY IS PURCHASED WITH CASH COLLATERAL PROCEEDS FROM SECURITIES LOANS. ## ALL OR A PORTION OF THE FUND'S HOLDINGS IN THIS SECURITY WAS ON LOAN AS OF 03/31/06. ADR - AMERICAN DEPOSITORY RECEIPT SCHEDULE OF INVESTMENTS BY INDUSTRY as of March 31, 2006
PERCENT OF INDUSTRY NET ASSETS ---------------------------------------------------------------------------------------------- Basic Materials 6.7% Communications 19.1 Consumer, Cyclical 10.7 Consumer, Non-cyclical 14.6 Diversified 1.1 Energy 6.0 Financial 17.7 Industrial 15.7 Technology 5.9 Utilities 1.1 Short Term Investments 9.7 Liabilities in excess of other assets (8.3) ---------------------------------------------------------------------------------------------- Net Assets 100.0% ==============================================================================================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 16 (This page intentionally left blank) 17 NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS FINANCIAL HIGHLIGHTS For a Class R share outstanding during the period indicated
NET ASSET NET NET REALIZED TOTAL FROM VALUE, INVESTMENT AND UNREALIZED INVESTMENT BEGINNING INCOME (LOSS) (1) GAINS (LOSS) OPERATIONS ----------------------------------------------------------------------------------------------------------------- U.S. EQUITY FUNDS U.S. EMERGING GROWTH For the year ended 03/31/06 $ 9.65 $ (0.14) $ 4.18 $ 4.04 For the year ended 03/31/05 9.52 (0.10) 0.23 0.13 For the year ended 03/31/04 6.27 (0.11) 3.36 3.25 For the year ended 03/31/03 9.54 (0.09) (3.18) (3.27) For the year ended 03/31/02 9.55 (0.07) 0.06 (0.01) U.S. SMALL CAP VALUE For the year ended 03/31/06 $ 17.39 $ 0.06 $ 3.58 $ 3.64 12/03/04 (commenced) to 03/31/05 17.53 (0.00)(8) (0.14) (0.14) U.S. LARGE CAP VALUE For the year ended 03/31/06 $ 26.62 $ 0.27 $ 2.77 $ 3.04 For the year ended 03/31/05 24.33 0.36 2.23 2.59 For the year ended 03/31/04 18.15 0.24 6.45 6.69 For the year ended 03/31/03 24.39 0.21 (6.20) (5.99) For the year ended 03/31/02 23.39 0.15 1.26 1.41 U.S. SYSTEMATIC LARGE CAP GROWTH For the year ended 03/31/06 $ 15.46 $ (0.02) $ 2.15 $ 2.13 For the year ended 03/31/05 14.90 0.02 0.54 0.56 For the year ended 03/31/04 12.61 (0.06) 2.35 2.29 For the year ended 03/31/03 17.96 (0.08) (5.27) (5.35) For the year ended 03/31/02 22.52 (0.16) (4.40) (4.56) GLOBAL EQUITY FUNDS INTERNATIONAL GROWTH For the year ended 03/31/06 $ 20.19 $ 0.12 $ 5.94 $ 6.06 For the year ended 03/31/05 18.93 0.15 1.53 1.68 For the year ended 03/31/04 12.72 0.12 6.10 6.22 For the year ended 03/31/03 17.07 0.10 (4.45) (4.35) For the year ended 03/31/02 19.13 0.02 (2.08) (2.06) DISTRIBUTIONS FROM: ----------------------------------- NET NET INVESTMENT REALIZED INCOME CAPITAL GAINS ---------------------------------------------------------------------- U.S. EQUITY FUNDS U.S. EMERGING GROWTH For the year ended 03/31/06 $ -- $ -- For the year ended 03/31/05 -- -- For the year ended 03/31/04 -- -- For the year ended 03/31/03 -- -- For the year ended 03/31/02 -- -- U.S. SMALL CAP VALUE For the year ended 03/31/06 $ (0.01) $ (1.18) 12/03/04 (commenced) to 03/31/05 -- -- U.S. LARGE CAP VALUE For the year ended 03/31/06 $ (0.31) $ -- For the year ended 03/31/05 (0.30) -- For the year ended 03/31/04 (0.51) -- For the year ended 03/31/03 (0.25) -- For the year ended 03/31/02 (0.04) (0.37) U.S. SYSTEMATIC LARGE CAP GROWTH For the year ended 03/31/06 $ -- $ -- For the year ended 03/31/05 -- -- For the year ended 03/31/04 -- -- For the year ended 03/31/03 -- -- For the year ended 03/31/02 -- -- GLOBAL EQUITY FUNDS INTERNATIONAL GROWTH For the year ended 03/31/06 $ -- $ (3.99) For the year ended 03/31/05 -- (0.42) For the year ended 03/31/04 (0.01) -- For the year ended 03/31/03 -- -- For the year ended 03/31/02 -- --
(1) NET INVESTMENT INCOME PER SHARE IS CALCULATED BY DIVIDING NET INVESTMENT INCOME FOR THE PERIOD BY THE AVERAGE SHARES OUTSTANDING DURING THE PERIOD. (2) TOTAL RETURNS ARE NOT ANNUALIZED FOR PERIODS LESS THAN ONE YEAR. (3) RATIOS ARE ANNUALIZED FOR PERIODS OF LESS THAN ONE YEAR. EXPENSE REIMBURSEMENTS REFLECT VOLUNTARY REDUCTIONS TO TOTAL EXPENSES, AS DISCUSSED IN THE NOTES TO FINANCIAL STATEMENTS. SUCH AMOUNTS WOULD DECREASE NET INVESTMENT INCOME (LOSS) RATIOS HAD SUCH REDUCTIONS NOT OCCURRED. (4) THIS CALCULATION INCLUDES EXPENSES NOT PART OF THE EXPENSE REIMBURSEMENT CALCULATION. (5) THE BOARD OF TRUSTEES APPROVED THE AMENDMENTS TO THE EXPENSE LIMITATION AGREEMENT WHEREBY OVERALL OPERATING EXPENSES (EXCLUDING TAXES, INTEREST, BROKERAGE AND EXTRAORDINARY EXPENSES) OF THE U.S. EMERGING GROWTH, U.S. LARGE CAP VALUE, U.S. SYSTEMATIC LARGE CAP GROWTH AND INTERNATIONAL GROWTH DO NOT EXCEED 1.25%, 1.00%, 1.00% AND 1.15%, FOR THE PERIOD 4/1/03 TO 7/28/03, 1.48%, 0.81%, 1.12% AND 1.41% FOR THE PERIOD 7/29/03 TO 3/31/04, RESPECTIVELY. (6) THE BOARD OF TRUSTEES APPROVED AN AMENDMENT TO THE EXPENSE LIMITATION AGREEMENT WHEREBY OVERALL OPERATING EXPENSES (EXCLUDING TAXES, INTEREST, BROKERAGE AND EXTRAORDINARY EXPENSE) OF U.S. LARGE CAP VALUE, U.S. SYSTEMATIC LARGE CAP GROWTH, AND INTERNATIONAL GROWTH EXCLUDING TAXES, INTEREST, BROKERAGE AND EXTRAORDINARY EXPENSES, DO NOT EXCEED 1.25%, 1.25% AND 1.65% FOR THE PERIOD 4/1/02 TO 6/30/02. 1.10%, 1.15% AND 1.40% FOR THE PERIOD 7/1/02 TO 1/21/03, 1.25%, 1.25% AND 1.40% FOR THE PERIOD 1/22/03 TO 3/31/03, RESPECTIVELY. EMERGING GROWTH HAD RATES THROUGHOUT THE YEAR OF 1.50%. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 18
NET ASSET NET ASSETS, TOTAL VALUE, TOTAL ENDING DISTRIBUTIONS ENDING RETURN (2) (IN 000'S) -------------------------------------------------------------------------------------------------------------- U.S. EQUITY FUNDS U.S. EMERGING GROWTH For the year ended 03/31/06 $ -- $ 13.69 41.98% $ 3,173 For the year ended 03/31/05 -- 9.65 1.37% 3,681 For the year ended 03/31/04 -- 9.52 51.83% 3,948 For the year ended 03/31/03 -- 6.27 (34.28%) 2,879 For the year ended 03/31/02 -- 9.54 (0.10%) 4,597 U.S. SMALL CAP VALUE For the year ended 03/31/06 $ (1.19) $ 19.84 21.68% $ 756 12/03/04 (commenced) to 03/31/05 -- 17.39 (0.80%)(9) 658 U.S. LARGE CAP VALUE For the year ended 03/31/06 $ (0.31) $ 29.35 11.47% $ 4,587 For the year ended 03/31/05 (0.30) 26.62 10.69% 8,047 For the year ended 03/31/04 (0.51) 24.33 37.09% 8,405 For the year ended 03/31/03 (0.25) 18.15 24.58% 6,749 For the year ended 03/31/02 (0.41) 24.39 6.13% 11,423 U.S. SYSTEMATIC LARGE CAP GROWTH For the year ended 03/31/06 $ -- $ 17.59 13.78% $ 6,055 For the year ended 03/31/05 -- 15.46 3.76% 9,318 For the year ended 03/31/04 -- 14.90 18.16% 10,229 For the year ended 03/31/03 -- 12.61 (29.79%) 9,052 For the year ended 03/31/02 -- 17.96 (20.25%) 38,386 GLOBAL EQUITY FUNDS INTERNATIONAL GROWTH For the year ended 03/31/06 $ (3.99) $ 22.26 33.34% $ 1,776 For the year ended 03/31/05 (0.42) 20.19 8.94% 1,749 For the year ended 03/31/04 (0.01) 18.93 48.86% 9,236 For the year ended 03/31/03 -- 12.72 (25.48%) 7,845 For the year ended 03/31/02 -- 17.07 (10.77%) 11,199 RATIOS TO AVERAGE NET ASSETS (3) ----------------------------------------------------------------------------- EXPENSES EXPENSES NET OF FUND'S NET EXPENSE NET OF REIMBURSEMENT/ PORTFOLIO INVESTMENT TOTAL (REIMBURSEMENTS)/ REIMBURSEMENT/ RECOUPMENT TURNOVER INCOME (LOSS) EXPENSES RECOUPMENT RECOUPMENT AND OFFSET (4) RATE ---------------------------------------------------------------------------------------------------------------------------------- U.S. EQUITY FUNDS U.S. EMERGING GROWTH For the year ended 03/31/06 (1.27%) 2.09% (0.36%) 1.73% 1.42%(10) 128% For the year ended 03/31/05 (1.06%) 1.89% (0.20%) 1.69% 1.26% 142% For the year ended 03/31/04 (1.28%) 1.73% -- 1.73% 1.51%(5) 166% For the year ended 03/31/03 (1.20%) 1.74% (0.20%) 1.54% 1.50%(6) 118% For the year ended 03/31/02 (0.73%) 1.59% (0.11%) 1.48% 1.48%(7) 138% U.S. SMALL CAP VALUE For the year ended 03/31/06 0.34% 1.57% (0.01%) 1.56% 1.23%(10) 53% 12/03/04 (commenced) to 03/31/05 (0.02%) 1.59% (0.03%) 1.56% 1.29% 73% U.S. LARGE CAP VALUE For the year ended 03/31/06 0.96% 1.50% (0.43%) 1.07% 0.96%(10) 44% For the year ended 03/31/05 1.44% 1.56% (0.50%) 1.06% 1.01% 42% For the year ended 03/31/04 1.10% 1.52% (0.45%) 1.07% 1.04%(5) 51% For the year ended 03/31/03 1.03% 1.54% (0.34%) 1.20% 1.19%(6) 139% For the year ended 03/31/02 0.63% 1.39% (0.13%) 1.26% 1.26% 99% U.S. SYSTEMATIC LARGE CAP GROWTH For the year ended 03/31/06 (0.11%) 1.86% (0.48%) 1.38% 1.29%(10) 147% For the year ended 03/31/05 0.14% 1.94% (0.57%) 1.37% 1.29% 197% For the year ended 03/31/04 (0.41%) 1.58% (0.20%) 1.38% 1.18%(5) 172% For the year ended 03/31/03 (0.59%) 1.51% (0.30%) 1.21% 1.20%(6) 193% For the year ended 03/31/02 (0.79%) 1.35% (0.10%) 1.25% 1.25% 224% GLOBAL EQUITY FUNDS INTERNATIONAL GROWTH For the year ended 03/31/06 0.57% 1.62% 0.00% 1.62% 1.24%(10) 167% For the year ended 03/31/05 0.80% 1.66% (0.02%) 1.64% 1.32% 203% For the year ended 03/31/04 0.71% 1.74% (0.04%) 1.70% 1.44%(5) 186% For the year ended 03/31/03 0.65% 1.72% (0.21%) 1.51% 1.48%(6) 203% For the year ended 03/31/02 (0.09%) 1.61% 0.01% 1.62% 1.62% 232%
(7) ON MAY 18, 2001 THE BOARD OF TRUSTEES APPROVED AN AMENDMENT TO THE EXPENSE LIMITATION AGREEMENT WHEREBY OVERALL OPERATING EXPENSES OF THE EMERGING GROWTH, EXCLUDING TAXES, INTEREST, BROKERAGE AND EXTRAORDINARY EXPENSES, DO NOT EXCEED 1.50% REPRESENTING A .08% INCREASE IN THE FUND'S EXPENSE CAP. (8) AMOUNT LESS THAN ONE PENNY. (9) INCEPTION TO DATE RETURN. (10) THE BOARD OF TRUSTEES APPROVED THE AMENDMENTS TO THE EXPENSE LIMITATION AGREEMENT WHEREBY OVERALL OPERATING EXPENSES (EXCLUDING TAXES, INTEREST, BROKERAGE AND EXTRAORDINARY EXPENSES), OF THE U.S. EMERGING GROWTH AND INTERNATIONAL GROWTH, DO NOT EXCEED 1.45% AND 1.64%, FOR THE PERIOD 01/24/06 TO 03/31/06 RESPECTIVELY. U.S. SMALL CAP VALUE, U.S. LARGE CAP VALUE AND U.S. SYSTEMATIC LARGE CAP GROWTH HAD RATES THROUGHOUT THE YEAR OF 1.55%, 1.06% AND 1.37% RESPECTIVELY. 19 NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS STATEMENTS OF ASSETS AND LIABILITIES
U.S. SYSTEMATIC U.S. EMERGING U.S. SMALL CAP U.S. LARGE CAP LARGE CAP INTERNATIONAL MARCH 31, 2006 GROWTH VALUE VALUE GROWTH GROWTH ---------------------------------------------------------------------------------------------------------------------------------- Assets Investments, at value* $ 10,983,628 $ 168,662,041 $ 26,269,055 $ 10,389,171 $ 112,834,37 Foreign currencies, at value** -- -- -- -- 1,356 Cash -- -- -- -- -- Receivables: Investment securities sold 123,736 -- -- 100,387 1,142,711 Capital shares sold 30,910 219,011 17,259 38,782 108,775 Dividends 1,553 192,134 33,908 11,076 243,982 Foreign taxes receivable -- -- -- -- 12,755 Interest -- -- -- -- -- Other 9,619 150,083 8,199 5,756 69,014 Other assets -- -- -- -- -- ------------- ------------- ------------- ------------- ------------- Total assets 11,149,446 169,223,269 26,328,421 10,545,172 114,412,964 ------------- ------------- ------------- ------------- ------------- Liabilities Payables: Bank overdraft $ -- $ -- $ -- $ 48,377 $ -- Investments purchased 190,245 2,957,692 -- -- 2,506,186 Capital shares redeemed -- 22,994 51,790 3,934 5,076 Collateral on securities loaned 1,039,350 1,791,300 -- -- 7,590,839 Distributions fee 640 159 975 1,270 332 To investment advisor 5,927 101,654 9,940 3,993 42,648 Accrued Expenses and other liabilities 18,853 124,632 28,762 22,268 101,508 ------------- ------------- ------------- ------------- ------------- Total Liabilities 1,255,015 4,998,431 91,467 79,842 10,246,589 ------------- ------------- ------------- ------------- ------------- NET ASSETS 9,894,431 164,224,838 26,236,954 10,465,330 104,166,375 ============= ============= ============= ============= ============= * Investments, at cost 8,391,145 144,108,932 21,226,905 8,970,513 93,586,764 ============= ============= ============= ============= ============= ** Foreign currencies, at cost -- -- -- -- 1,262 ============= ============= ============= ============= ============= Net Assets Consist of: Paid-in capital $ 14,518,267 $ 130,097,298 $ 25,141,323 $ 18,105,741 $ 91,450,167 Undistributed net investment income (loss) -- 207,964 272,037 1,377 461,278 Accumulated net realized gain (loss) on investments and foreign currencies (7,216,319) 9,366,467 (4,218,556) (9,060,446) (6,991,399) Net unrealized appreciation (depreciation) of investments and of other assets and liabilities denominated in foreign currencies 2,592,483 24,553,109 5,042,150 1,418,658 19,246,329 ------------- ------------- ------------- ------------- ------------- Net Assets applicable to all shares outstanding $ 9,894,431 $ 164,224,838 $ 26,236,954 $ 10,465,330 $ 104,166,375 ============= ============= ============= ============= ============= Net Assets of Class I shares $ 6,721,377 $ 120,103,889 $ 21,650,319 $ 667,348 $ 45,889,400 Net Assets of Class II shares -- 43,365,133 -- 3,742,692 56,500,786 Net Assets of Class III shares -- -- -- -- -- Net Assets of Class IV shares -- -- -- -- -- Net Assets of Class R shares 3,173,054 755,816 4,586,635 6,055,290 1,776,189 ============= ============= ============= ============= ============= Class I Shares outstanding 483,653 6,049,783 738,429 37,361 2,022,093 Class II Shares outstanding -- 2,187,046 -- 210,866 2,488,012 Class III Shares outstanding -- -- -- -- -- Class IV Shares outstanding -- -- -- -- -- Class R Shares outstanding 231,710 38,098 156,263 344,189 79,798 ============= ============= ============= ============= ============= Net Asset Value -- Class I Share $ 13.90 $ 19.85 $ 29.32 $ 17.86 $ 22.69 Net Asset Value -- Class II Share $ -- $ 19.83 $ -- $ 17.75 $ 22.71 Net Asset Value -- Class III Share $ -- $ -- $ -- $ -- $ -- Net Asset Value -- Class IV Share $ -- $ -- $ -- $ -- $ -- Net Asset Value -- Class R Share $ 13.69 $ 19.84 $ 29.35 $ 17.59 $ 22.26 ============= ============= ============= ============= =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 20 NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS STATEMENTS OF OPERATIONS
U.S. SYSTEMATIC U.S. EMERGING U.S. SMALL CAP U.S. LARGE CAP LARGE CAP INTERNATIONAL YEAR ENDED MARCH 31, 2006 GROWTH VALUE VALUE GROWTH GROWTH ----------------------------------------------------------------------------------------------------------------------------------- Investment Income Dividends, net of foreign taxes* $ 16,578 $ 1,988,983 $ 447,904 $ 123,894 $ 1,784,433 Interest -- 26,018 1 5 2,008 -------------- -------------- -------------- -------------- -------------- Total Income 16,578 2,015,001 447,905 123,899 1,786,441 -------------- -------------- -------------- -------------- -------------- Expenses Advisory fee 90,353 951,182 104,147 46,665 499,131 Accounting fees 15,973 100,941 22,386 12,776 59,876 Administration fee 7,756 150,811 16,967 11,713 123,075 Custodian fees 30,795 36,526 20,820 18,649 109,424 Transfer agent fees and expenses 18,562 24,037 18,908 18,578 22,511 Shareholder servicing fees 20,390 120,419 36,771 28,473 122,705 Administrative services fee 12,389 108,893 22,117 12,181 117,547 Professional fees 6,707 60,219 11,484 5,036 42,082 Shareholder reporting 3,437 18,423 7,851 4,513 10,458 Registration fees 13,747 37,369 25,714 17,138 20,792 Trustees' fees and expenses 1,476 12,612 2,417 1,113 10,549 Interest and credit facility fee 387 1,644 331 191 1,292 Insurance 2,756 7,977 2,704 1,483 12,660 Miscellaneous 8,217 10,904 2,705 1,654 10,451 -------------- -------------- -------------- -------------- -------------- Total Expenses 232,945 1,641,957 295,322 180,163 1,162,553 Expense offset (39,107) (408,645) (25,545) (8,814) (381,339) Expenses (reimbursed)/recouped (45,772) (14,272) (93,914) (48,827) (221) -------------- -------------- -------------- -------------- -------------- Net Expenses 148,066 1,219,040 175,863 122,522 780,993 -------------- -------------- -------------- -------------- -------------- Net Investment Income (Loss) (131,488) 795,961 272,042 1,377 1,005,448 -------------- -------------- -------------- -------------- -------------- Net Realized and Unrealized Gain (Loss) on Investments Realized gain from: Securities 3,962,899 14,420,355 1,864,853 795,200 20,268,066 Foreign currency transactions -- -- -- -- (280,815) -------------- -------------- -------------- -------------- -------------- Net realized gain (loss) 3,962,899 14,420,355 1,864,853 795,200 19,987,251 -------------- -------------- -------------- -------------- -------------- Change in unrealized appreciation (depreciation) of: Investments 241,623 11,266,796 445,579 692,335 7,908,380 Other assets and liabilities denominated in foreign currencies -- -- -- -- (2,092) -------------- -------------- -------------- -------------- -------------- Net unrealized appreciation (depreciation) 241,623 11,266,796 445,579 692,335 7,906,288 -------------- -------------- -------------- -------------- -------------- Net Gain (Loss) on Investments 4,204,522 25,687,151 2,310,432 1,487,535 27,893,539 -------------- -------------- -------------- -------------- -------------- Net Increase (Decrease) in Net Assets Resulting from Operations $ 4,073,034 $ 26,483,112 $ 2,582,474 $ 1,488,912 $ 28,898,987 ============== ============== ============== ============== ============== * Foreign taxes withheld $ -- $ -- $ -- $ 377 $ 182,081 -------------- -------------- -------------- -------------- --------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 21 NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS STATEMENTS OF CHANGES IN NET ASSETS
U.S. EMERGING GROWTH U.S. SMALL CAP VALUE ----------------------------- ----------------------------- YEARS ENDED MARCH 31 2006 2005 2006 2005 -------------------------------------------------------------------------------------------------------------------------------- Increase (Decrease) in Net Assets from Investment Operations: Net investment income (loss) $ (131,488) $ (208,527) $ 795,961 $ 97,437 Net realized gain (loss) 3,962,899 3,800,670 14,420,355 8,644,160 Net unrealized appreciation (depreciation) 241,623 (4,281,928) 11,266,796 (1,752,501) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets from investment operations 4,073,034 (689,785) 26,483,112 6,989,096 ------------- ------------- ------------- ------------- Distributions to Shareholders: From net investment income -- -- (415,210) (54,300) From net realized gains (7,167) -- (7,768,635) (8,482,337) ------------- ------------- ------------- ------------- Total distributions (7,167) -- (8,183,845) (8,536,637) ------------- ------------- ------------- ------------- From Capital Share Transactions: Proceeds from shares sold Class I 1,499,847 1,968,884 33,364,315 64,014,161 Class II -- -- 20,190,331 17,909,758 Class III -- -- -- -- Class IV -- -- -- -- Class R 350,928 575,960 70,738 670,138 Distributions reinvested Class I 5,184 -- 6,277,485 8,024,945 Class II -- -- 1,741,176 408,836 Class III -- -- -- -- Class IV -- -- -- -- Class R 1,983 -- 43,447 -- Cost of shares redeemed Class I (9,948,897) (21,275,687) (19,888,795) (50,897,777) Class II -- -- (128,724) -- Class III -- -- -- -- Class IV -- -- -- -- Class R (1,804,143) (898,510) (110,870) (7,316) Net assets received in conjunction with merger agreement Class I -- -- -- -- Class II -- -- -- -- Class IV -- -- -- -- ------------- ------------- ------------- ------------- Net increase (decrease) in net assets from share transactions (9,895,098) (19,629,353) 41,559,103 40,122,745 ------------- ------------- ------------- ------------- Net Increase (Decrease) in Net Assets (5,829,231) (20,319,138) 59,858,370 38,575,204 Net Assets Beginning 15,723,662 36,042,800 104,366,468 65,791,264 ------------- ------------- ------------- ------------- Ending $ 9,894,431 $ 15,723,662 $ 164,224,838 $ 104,366,468 ============= ============= ============= ============= Undistributed net investment income (loss), ending $ -- $ -- $ 207,964 $ -- ============= ============= ============= ============= Class I -- Capital Share Activity Shares sold 129,381 209,252 1,831,695 3,657,363 Distributions reinvested 460 -- 350,697 464,406 Shares redeemed (879,179) (2,315,669) (1,075,546) (2,909,001) Shares received in conjunction with merger agreement -- -- -- -- ============= ============= ============= ============= Net Class I Share Activity (749,338) (2,106,417) 1,106,846 1,212,768 ============= ============= ============= ============= Class II -- Capital Share Activity Shares sold -- -- 1,079,112 993,783 Distributions reinvested -- -- 97,436 23,686 Shares redeemed -- -- (6,971) -- Shares received in conjunction with merger agreement -- -- -- -- ============= ============= ============= ============= Net Class II Share Activity -- -- 1,169,577 1,017,469 ============= ============= ============= ============= Class III -- Capital Share Activity Shares sold -- -- -- -- Distributions reinvested -- -- -- -- Shares redeemed -- -- -- -- ============= ============= ============= ============= Net Class III Share Activity -- -- -- -- ============= ============= ============= ============= Class IV -- Capital Share Activity Shares sold -- -- -- -- Distributions reinvested -- -- -- -- Shares redeemed -- -- -- -- ============= ============= ============= ============= Net Class IV Share Activity -- -- -- -- ============= ============= ============= ============= Class R -- Capital Share Activity Shares sold 31,266 61,609 3,853 38,257 Distributions reinvested 178 -- 2,427 -- Shares redeemed (181,217) (94,910) (6,024) (415) ============= ============= ============= ============= Net Class R Share Activity (149,773) (33,301) 256 37,842 ============= ============= ============= =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 22
U.S. SYSTEMATIC U.S. LARGE CAP VALUE LARGE CAP GROWTH ----------------------------- ----------------------------- YEARS ENDED MARCH 31 2006 2005 2006 2005 -------------------------------------------------------------------------------------------------------------------------------- Increase (Decrease) in Net Assets from Investment Operations: Net investment income (loss) $ 272,042 $ 363,112 $ 1,377 $ 26,492 Net realized gain (loss) 1,864,853 1,535,914 795,200 1,661,538 Net unrealized appreciation (depreciation) 445,579 542,896 692,335 (1,198,653) ------------- ------------- ------------- ------------- Net increase (decrease) in net assets from investment operations 2,582,474 2,441,922 1,488,912 489,377 ------------- ------------- ------------- ------------- Distributions to Shareholders: From net investment income (363,116) (308,287) (26,492) -- From net realized gains -- -- -- -- ------------- ------------- ------------- ------------- Total distributions (363,116) (308,287) (26,492) -- ------------- ------------- ------------- ------------- From Capital Share Transactions: Proceeds from shares sold Class I 6,081,743 6,528,160 3,132,257 240,548 Class II -- -- 3,424,053 -- Class III -- -- -- -- Class IV -- -- -- -- Class R 253,866 584,575 501,618 753,732 Distributions reinvested Class I 313,005 206,894 -- -- Class II -- -- 26,492 -- Class III -- -- -- -- Class IV -- -- -- -- Class R 50,110 101,393 -- -- Cost of shares redeemed Class I (3,449,778) (3,793,816) (3,624,807) (3,102,539) Class II -- -- -- -- Class III -- -- -- -- Class IV -- -- -- -- Class R (4,225,956) (1,814,722) (4,555,093) (2,029,789) Net assets received in conjunction with merger agreement Class I -- -- -- -- Class II -- -- -- -- Class IV -- -- -- -- ------------- ------------- ------------- ------------- Net increase (decrease) in net assets from share transactions (977,010) 1,812,484 (1,095,480) (4,138,048) ------------- ------------- ------------- ------------- Net Increase (Decrease) in Net Assets 1,242,348 3,946,119 366,940 (3,648,671) Net Assets Beginning 24,994,606 21,048,487 10,098,390 13,747,061 ------------- ------------- ------------- ------------- Ending $ 26,236,954 $ 24,994,606 $ 10,465,330 $ 10,098,390 ============= ============= ============= ============= Undistributed net investment income (loss), ending $ 272,037 $ 363,111 $ 1,377 $ 26,492 ============= ============= ============= ============= Class I -- Capital Share Activity Shares sold 218,484 257,276 208,507 15,848 Distributions reinvested 11,215 7,961 -- -- Shares redeemed (125,785) (148,861) (220,921) (199,645) Shares received in conjunction with merger agreement -- -- -- -- ============= ============= ============= ============= Net Class I Share Activity 103,914 116,376 (12,414) (183,797) ============= ============= ============= ============= Class II -- Capital Share Activity Shares sold -- -- 209,270 -- Distributions reinvested -- -- 1,596 -- Shares redeemed -- -- -- -- Shares received in conjunction with merger agreement -- -- -- -- ============= ============= ============= ============= Net Class II Share Activity -- -- 210,866 -- ============= ============= ============= ============= Class III -- Capital Share Activity Shares sold -- -- -- -- Distributions reinvested -- -- -- -- Shares redeemed -- -- -- -- ============= ============= ============= ============= Net Class III Share Activity -- -- -- -- ============= ============= ============= ============= Class IV -- Capital Share Activity Shares sold -- -- -- -- Distributions reinvested -- -- -- -- Shares redeemed -- -- -- -- ============= ============= ============= ============= Net Class IV Share Activity -- -- -- -- ============= ============= ============= ============= Class R -- Capital Share Activity Shares sold 9,217 23,362 31,429 50,204 Distributions reinvested 1,792 3,912 -- -- Shares redeemed (157,044) (70,407) (289,950) (134,105) ============= ============= ============= ============= Net Class R Share Activity (146,035) (43,133) (258,521) (83,901) ============= ============= ============= ============= INTERNATIONAL GROWTH ----------------------------- YEARS ENDED MARCH 31 2006 2005 ------------------------------------------------------------------------------------------------ Increase (Decrease) in Net Assets from Investment Operations: Net investment income (loss) $ 1,005,448 $ 640,795 Net realized gain (loss) 19,987,251 18,736,998 Net unrealized appreciation (depreciation) 7,906,288 (10,100,763) ------------- ------------- Net increase (decrease) in net assets from investment operations 28,898,987 9,277,030 ------------- ------------- Distributions to Shareholders: From net investment income -- (327,979) From net realized gains 15,080,798 (2,360,474) ------------- ------------- Total distributions (15,080,798) (2,688,453) ------------- ------------- From Capital Share Transactions: Proceeds from shares sold Class I 6,546,866 6,031,712 Class II 53,840,583 -- Class III -- -- Class IV 45,381,290 -- Class R 670,079 431,257 Distributions reinvested Class I 6,615,202 991,479 Class II -- -- Class III -- 995,381 Class IV 8,221,384 658,803 Class R 216,270 39,004 Cost of shares redeemed Class I (13,487,399) (19,994,044) Class II -- (15,355,579) Class III (43,546,717) -- Class IV (82,681,011) (34,895) Class R (999,155) (7,774,143) Net assets received in conjunction with merger agreement Class I -- -- Class II -- -- Class IV -- -- ------------- ------------- Net increase (decrease) in net assets from share transactions (19,222,608) (34,011,025) ------------- ------------- Net Increase (Decrease) in Net Assets (5,404,419) (27,422,448) Net Assets Beginning 109,570,794 136,993,242 ------------- ------------- Ending $ 104,166,375 $ 109,570,794 ============= ============= Undistributed net investment income (loss), ending $ 461,278 $ (263,355) ============= ============= Class I -- Capital Share Activity Shares sold 305,670 309,079 Distributions reinvested 340,639 50,049 Shares redeemed (646,622) (1,031,238) Shares received in conjunction with merger agreement -- -- ============= ============= Net Class I Share Activity (313) (672,110) ============= ============= Class II -- Capital Share Activity Shares sold 2,488,012 -- Distributions reinvested -- -- Shares redeemed -- (825,784) Shares received in conjunction with merger agreement -- -- ============= ============= Net Class II Share Activity 2,488,012 (825,784) ============= ============= Class III -- Capital Share Activity Shares sold -- -- Distributions reinvested -- 50,425 Shares redeemed (1,979,233) -- ============= ============= Net Class III Share Activity (1,979,233) 50,425 ============= ============= Class IV -- Capital Share Activity Shares sold 2,059,584 -- Distributions reinvested 422,693 33,340 Shares redeemed (3,755,023) (1,793) ============= ============= Net Class IV Share Activity (1,272,746) 31,547 ============= ============= Class R -- Capital Share Activity Shares sold 30,959 22,903 Distributions reinvested 11,347 1,994 Shares redeemed (49,170) (426,253) ============= ============= Net Class R Share Activity (6,864) (401,356) ============= =============
23 NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS NOTE A -- ORGANIZATION Nicholas-Applegate Institutional Funds (formerly Nicholas-Applegate Investment Trust) (the "Trust") is an open-end investment management company. The Trust was established as a Delaware business trust on December 17, 1992 and consists of fourteen separate portfolios (collectively the "Funds" and each a "Fund"). Each Fund's investment objectives, strategies and risks are discussed in the Funds' current prospectuses. All of the Funds have issued Class I shares ("Class I"), ten Funds have issued Class II shares ("Class II"), one Fund has issued Class III shares ("Class III"), one Fund has issued Class IV shares ("Class IV") and five Funds have issued Retirement shares ("Class R"). No shares have a sales charge. Class R has a distribution fee. All Funds had a shareholder services fee until January 23, 2006. The Funds offering Class R shares are covered in this report. NOTE B -- SIGNIFICANT ACCOUNTING POLICIES Significant accounting policies consistently followed by the Funds in preparing these financial statements are described below. The policies conform with accounting principles generally accepted in the United States. SECURITY VALUATIONS Equity securities, including ADRs and GDRs, 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 that is 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. The Funds value long-term debt obligations, including high quality and high yield corporate securities, municipal securities, asset-backed securities, collateralized mortgage obligations and US Government and Agency issues, at the quoted bid price provided by an approved bond pricing service. Convertible securities are normally priced at the mean between the bids and ask prices. Short-term debt instruments, (e.g., commercial paper, bankers acceptances, U.S. Treasury Bills, etc.) having a maturity of less than 60 days will be valued at amortized cost. If a fixed income security has a maturity of greater than 60 days, it will be valued at market price. 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. 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. SECURITY TRANSACTIONS AND INVESTMENT INCOME Security transactions are accounted for as of trade date. Realized gains and losses from security transactions are determined on an identified-cost basis. Dividend income is recorded on the ex-dividend date or, for certain non-U.S. securities, when the information becomes available to the Funds. Interest income is recorded on an accrual basis. Discounts and premiums on debt securities are accreted and amortized on the yield to maturity basis. NON-U.S. CURRENCY TRANSACTIONS At each net asset valuation date, the value of assets and liabilities denominated in non-U.S. currencies are translated into U.S. dollars using the current exchange rate at the spot rate at 11:00 a.m. Eastern Time against the U.S. dollar, as provided by an approved pricing service. Security transactions, income and expenses are converted at the prevailing exchange rate on the day of the event. The effect of changes in exchange rates on securities denominated in a non-U.S. currency is included with the net realized and unrealized gain or loss of the associated security. Other Non-U.S. currency gains or losses are reported separately. Certain Funds may use forward non-U.S. currency contracts to reduce their exposure to currency fluctuations of their non-U.S. securities. These contracts are commitments to purchase or sell a non-U.S. currency at a specified rate on a future date. When the contract is fulfilled or closed, gains or losses are realized. Until then, the gain or loss is included in unrealized appreciation or depreciation of investments. The contract commitment is fully collateralized by cash or securities of the Fund. Non-U.S. denominated assets and forward currency contracts may involve more risks than U.S. transactions, including currency risk, political and economic risk, regulatory and market risk. Evaluating and monitoring such risk exposure is a part of the Funds' management strategy. There were no such forward non-U.S. currency contracts at March 31, 2006. 24 FUTURES CONTRACTS Each Fund may enter into futures contracts involving non-U.S. currency, interest rates, securities, and securities indices, for hedging purposes only. A futures contract obligates the seller of the contract to deliver and the purchaser of the contract to take delivery of the type of non-U.S. currency, financial instrument or security called for in the contract at a specified future time for a specified price. Upon entering into such a contract, a Fund is required to deposit and maintain as collateral such initial margin as required by the exchange on which the contract is traded. Pursuant to the contract, a Fund agrees to receive from or pay to the broker an amount equal to the daily fluctuations in the value of the contract. Such receipts or payments are known as variation margin and are recorded as unrealized gains or losses by the Fund. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. There were no such futures contracts at March 31, 2006. OPTIONS CONTRACTS The Funds may: (a) buy call options on non-U.S. currency in anticipation of an increase in the value of the underlying asset; (b) buy put options on non-U.S. currency, portfolio securities, and futures in anticipation of a decrease in the value of the underlying asset; and (c) write call options on portfolio securities and futures to generate income from premiums, and in anticipation of a decrease or only limited increase in the value of the underlying asset. If a call written by a Fund is exercised, the Fund foregoes any possible profit from an increase in the market price of the underlying asset over the exercise price plus the premium received. When a Fund writes options on futures contracts, it will be subject to margin requirements similar to those applied to futures contracts. EQUITY-LINKED SECURITIES Certain Funds 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 of the underlying securities, there is a 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 a 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. SECURITIES LENDING In order to generate expense offset credits, each of the Funds may lend portfolio securities, on a short-term or a long-term basis, up to 30% of a Fund's total assets to broker/dealers, banks, or other institutional borrowers of securities. A Fund will only enter into loan arrangements with broker/dealers, banks, or other institutions which the Investment Adviser has determined are creditworthy and under the guidelines established by the Board of Trustees and will receive collateral in the form of cash or U.S. government securities equal to at least 102% of the value of the securities loaned on U.S. securities and 105% on non-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, loose the opportunity to sell 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. The market value of securities on loan and the related collateral at the period ended March 31, 2006 were:
FUND MARKET VALUE COLLATERAL -------------------------------------------------------------------------------- U.S. Emerging Growth $ 16,472,615 $ 16,937,269 U.S. Small Cap Value 1,755,474 1,791,300 International Growth 7,261,574 7,590,839
CREDIT FACILITY The Trust has a $15 million credit facility available to fund temporary or emergency borrowing expiring in March 2007. Each Fund pays its pro-rata share of an annual commitment fee plus interest on its specific borrowings. For the period ended March 31, 2006, the Funds did not borrow against the line of credit. COMMITMENTS AND CONTINGENCIES In the normal course of business, the Funds may enter into contracts and agreements that contain a variety of representations and warranties which provide general indemnifications. The maximum exposure to the Funds under these arrangements is unknown, as this would involve future claims that may be made against the Funds that have not yet occurred. However, based on experience, the Funds expect the risks of loss to be remote. FUND EXPENSES AND MULTI-CLASS ALLOCATIONS Each Fund bears expenses incurred specifically on its behalf plus an allocation of its share of Trust level expenses. Each share offered by a Fund has equal rights to assets but incurs certain Class specific expenses. The Funds allocate income, gains and losses, both realized and unrealized, and expenses, except for Class specific expenses, based on the relative net assets of each share class. Many of the brokers with whom the Investment Adviser places trades on behalf of the Fund provided services to the Fund in addition to trade execution. These services included payments of certain expenses on behalf of the Fund. In addition, through arrangements with the Funds custodian, credits realized as a 25 result of uninvested cash balances were used to reduce the Funds expenses. The Funds reduce 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. During the period, the credits used to reduce the Funds expenses were:
CREDIT DIRECTED SECURITY INTEREST BROKERAGE LENDING FUND OFFSET OFFSET OFFSET -------------------------------------------------------------------------------- U.S. Emerging Growth 11,929 16,252 10,926 U.S. Small Cap Value 315,317 64,582 28,746 U.S. Large Cap Value 13,142 7,248 5,155 U.S. Systematic Large Cap Growth 2,487 252 6,075 International Growth 63,410 239,010 78,919
USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. NOTE C -- FEDERAL INCOME TAXES The Funds intend to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of their taxable income to shareholders. Accordingly, no provision for federal income taxes is required. A Fund investing in foreign securities records any foreign taxes on income and gains on such investments in accordance with the applicable tax rules. The Funds' tax accounting treatment of loss deferrals, accretion, passive foreign investment companies and expiration of capital loss carryforwards are different from the financial statement recognition of income and gains. Capital loss carryforwards may be used to offset current or future capital gains until expiration. DISTRIBUTIONS TO SHAREHOLDERS The Funds record distributions to shareholders on the ex-dividend date. Distributions are determined in accordance with income tax regulations that may differ from generally accepted accounting principles. Accordingly, the Funds' capital accounts are periodically reclassified to reflect income and gains available for distribution under income tax regulations. The Funds make income and capital gain distributions at least annually. Funds with income objectives make distributions either quarterly or monthly in accordance with the prospectuses. The tax characters of distributions paid during the fiscal year ended March 31, 2006 were as follows:
DISTRIBUTION PAID FROM: -------------------------------------------------------------------------- NET TOTAL TOTAL ORDINARY LONG TERM TAXABLE TAX RETURN DISTRIBUTIONS FUND INCOME CAPITAL GAIN DISTRIBUTIONS OF CAPITAL PAID(1) ------------------------------------------------------------------------------------------------------------- U.S. Emerging Growth -- 7,167 7,167 -- 7,167 U.S. Small Cap Value 2,708,994 5,474,851 8,183,845 -- 8,183,845 U.S. Large Cap Value 363,116 -- 363,116 -- 363,116 U.S. Systematic Large Cap Growth 26,492 -- 26,492 -- 26,492 International Growth 7,292,658 7,788,140 15,080,798 -- 15,080,798
The tax characters of distributions paid during the fiscal year ended March 31, 2005 were as follows:
DISTRIBUTION PAID FROM: -------------------------------------------------------------------------- NET TOTAL TOTAL ORDINARY LONG TERM TAXABLE TAX RETURN DISTRIBUTIONS FUND INCOME CAPITAL GAIN DISTRIBUTIONS OF CAPITAL PAID(1) ------------------------------------------------------------------------------------------------------------- U.S. Emerging Growth -- -- -- -- -- U.S. Small Cap Value 4,987,214 3,549,423 8,536,637 -- 8,536,637 U.S. Large Cap Value 308,287 -- 308,287 -- 308,287 U.S. Systematic Large Cap Growth -- -- -- -- -- International Growth 327,979 2,360,474 2,688,453 -- 2,688,453
26 As of March 31, 2006 the components of accumulated earnings/(deficit) on a tax basis were as follows:
COMPONENTS OF ACCUMULATED EARNINGS/(DEFICIT): ------------------------------------------------------------------------------------------------ UNDISTRIBUTED UNDISTRIBUTED ACCUMULATED UNREALIZED TOTAL ORDINARY LONG-TERM ACCUMULATED CAPITAL AND APPRECIATION/ ACCUMULATED FUND INCOME CAPITAL GAINS EARNINGS OTHER LOSSES(2) (DEPRECIATION) EARNING/(DEFICIT) ---------------------------------------------------------------------------------------------------------------------------------- U.S. Emerging Growth -- -- -- (7,178,932) 2,555,096(3) (4,623,836) U.S. Small Cap Value 3,951,005 5,498,868 9,449,873 -- 24,677,667(4) 34,127,540 U.S. Large Cap Value 272,037 -- 272,037 (4,103,927) 4,927,521(3) 1,095,631 U.S. Systematic Large Cap Growth 1,377 -- 1,377 (9,033,883) 1,392,095(3) (7,640,411) International Growth 6,644,280 7,370,286 14,014,566 (20,519,842) 19,221,484(3) 12,716,208
(2) THE FOLLOWING FUNDS HAD NET CAPITAL LOSS CARRYFORWARDS OF APPROXIMATELY:
CAPITAL LOSS POST OCTOBER CARRYFORWARD EXPIRATION LOSSES FUND (IN 000'S) DATE (IN 000'S) ------------------------------------------------------------------------------------------- U.S. Emerging Growth 1,030 March 31, 2011 -- 6,149 March 31, 2010 -- U.S. Large Cap Value 4,104 March 31, 2011 -- U.S. Systematic Large Cap Growth 321 March 31, 2012 -- 2,665 March 31, 2011 -- 6,049 March 31, 2010 -- International Growth 10,739 March 31, 2011 -- 9,781 March 31, 2010 --
To the extent future capital gains are offset by capital loss carryforwards, such gains will not be distributed. Net capital losses incurred after October 31 and within the taxable year are deemed to arise on the first business day of the Fund's next taxable year. For the year ended March 31, 2006, the Fund deferred to April 1, 2006, post October capital and currency losses. (3) THE DIFFERENCES BETWEEN BOOK-BASIS AND TAX-BASIS UNREALIZED APPRECIATION/(DEPRECIATION) IS ATTRIBUTABLE PRIMARILY TO THE TAX DEFERRAL OF LOSSES ON WASH SALES. (4) THE DIFFERENCES BETWEEN BOOK-BASIS AND TAX-BASIS UNREALIZED APPRECIATION/(DEPRECIATION) IS ATTRIBUTABLE PRIMARILY TO THE TAX DEFERRAL OF LOSSES ON WASH SALES AND REIT ADJUSTMENTS. NOTE D -- TRANSACTIONS WITH AFFILIATES Nicholas-Applegate Capital Management LLC ("NACM") serves as Adviser (the" Adviser") to the Trust. The Adviser receives a monthly fee at an annual rate based on average daily net assets of the Funds. The Investment Advisory Fee rates for each of the Funds are listed below. For the period from April 1, 2005 through January 23, 2006, pursuant to the Administrative and Shareholder Services agreements the Investment Adviser provided operational support services to the Funds and received the following annual fees payable monthly based on average daily net assets of each Fund.
ADVISORY ADMINISTRATIVE SHAREHOLDER FUND FEE SERVICES FEE SERVICES FEE -------------------------------------------------------------------------------- U.S. Emerging Growth 0.75% 0.12% 0.13% U.S. Small Cap Value 0.75% 0.12% 0.13% U.S. Large Cap Value 0.45% 0.12% 0.13% U.S. Systematic Large Cap Growth 0.45% 0.15% 0.15% International Growth 0.50% 0.25% 0.25%
On January 24, 2006, the Funds entered into a new Administration Agreement. Under the terms of the Administration Agreement, NACM (the "Administrator") provides administrative services to the Trust for which it receives a monthly administrative fee based on average daily assets. As Administrator, NACM bears the cost of various third-party services, including audit, custodial, legal, portfolio accounting, transfer agency and printing costs. The Administrative Fee is charged at the following annual rates:
FUND ADMINISTRATION FEE ---------------------------------------------------------------- U.S. Emerging Growth 0.45% U.S. Small Cap Value 0.55% U.S. Large Cap Value 0.36% U.S. Systematic Large Cap Growth 0.67% International Growth 0.89%
The Investment Adviser has agreed to waive its fees and absorb other operating expenses of the Funds so that total operating expenses are limited to certain levels through January 23, 2006. The Investment Adviser will recover expense reimbursements paid to the Funds to the extent of the difference between the Funds' actual expenses (exclusive of taxes, interest and brokerage expenses when they fall below the limit in the year such reimbursement is paid. 27 The Funds' Management and Administration Fees were as follow:
4/1/05 TO 1/24/06 TO FUND 1/23/06 3/31/06 -------------------------------------------------------------------------------- U.S. Emerging Growth 1.73% 1.45% U.S. Small Cap Value 1.55% 1.55% U.S. Large Cap Value 1.06% 1.06% U.S. Systematic Large Cap Growth 1.37% 1.37% International Growth 1.66% 1.64%
TRUSTEE COMPENSATION Certain officers of the Trust are also officers of the Investment Adviser and Distributor. The Trustees who are not affiliated with the Investment Adviser receive annual compensation of approximately $35,000 each from the Trust, except for the chairman of the Trust who will receive annual compensation of approximately $42,000 from the Trust. NOTE E -- INVESTMENT TRANSACTIONS The following table presents purchases and sales of securities, excluding short-term investments, during the period ended March 31, 2006 to indicate the volume of transactions in each Fund. The tax cost of securities held at March 31, 2006, and the related gross and net unrealized appreciation and depreciation, provide aggregate information on a tax basis against which future gains and losses on these investments are measured for distribution purposes.
GROSS GROSS UNREALIZED UNREALIZED PURCHASES SALES TAX COST APPRECIATION DEPRECIATION FUND (IN 000'S) (IN 000'S) (IN 000'S) (IN 000'S) (IN 000'S) ---------------------------------------------------------------------------------------------------------- U.S. Emerging Growth $ 15,111 $ 24,994 $ 8,429 $ 2,624 $ (70) U.S. Small Cap Value 79,364 62,786 144,266 27,787 (3,391) U.S. Large Cap Value 10,020 11,267 21,342 5,242 (315) U.S. Systematic Large Cap Growth 15,012 16,058 8,997 1,479 (87) International Growth 150,843 182,296 93,612 19,639 (417)
Gains and losses resulting from the redemptions-in-kind are included in the realized gain/loss from securities and non-U.S. currency transactions. During the period, the only the International Growth Fund had redemptions-in-kind valued at $114,700,105. NOTE F -- FINANCIAL INSTRUMENTS During the period, several of the Funds have been party to financial instruments with off-balance sheet risks, including forward non-U.S. currency contracts, primarily in an attempt to minimize the risk to the Fund, in respect of its portfolio transactions. These instruments involve market and/or credit risk in excess of the amount recognized in the Statement of Assets and Liabilities. Risks arise from the possible inability of counterparties to meet the terms of their contracts and from unexpected movement in currencies, securities values and interest rates. The contract amounts indicate the extent of the Funds' involvement in such contracts. 28 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Trustees of Nicholas-Applegate Institutional Funds In our opinion, the accompanying statements of assets and liabilities, including the schedules of investments, and the related statements of operations and changes in net assets and the financial highlights present fairly, in all material respects, the financial position of each of the portfolios comprising the Nicholas-Applegate Institutional Funds (collectively, the "Funds") at March 31, 2006, and the results of each of their operations for the year then ended, the changes in each of their net assets for the two years in the period then ended and each of their financial highlights for the four years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Funds' management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at March 31, 2006 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights of the Funds for year ended March 31, 2002 were audited by other independent accountants whose report dated May 1, 2002 expressed an unqualified opinion on those financial highlights. /s/ PRICEWATERHOUSECOOPERS LLP PRICEWATERHOUSECOOPERS LLP Los Angeles, California May 22, 2006 29 SHAREHOLDER EXPENSE EXAMPLE -- (Unaudited) As a shareholder of a Fund, you incur two types of costs: (1) transaction costs, including redemption fees, and (2) ongoing costs, including management fees and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (October 1, 2005 to March 31, 2006). ACTUAL EXPENSES The first line of the table below for each fund provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line for a fund under the heading "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below for each fund provides information about hypothetical account values and hypothetical expenses based on a fund's actual expense ratio and an assumed rate of return if 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
EXPENSES PAID BEGINNING ACCOUNT ENDING ACCOUNT DURING THE PERIOD* ANNUALIZED VALUE VALUE OCTOBER 1, 2005 TO EXPENSE OCTOBER 1, 2005 MARCH 31, 2006 MARCH 31, 2006 RATIO ------------------------------------------------------------------------------------------------------------------- U.S. EMERGING GROWTH -- CLASS R Actual $ 1,000.00 $ 1,244.40 $ 9.12 1.63% Hypothetical (5% return before expenses) $ 1,000.00 $ 1,016.80 $ 8.20 1.63% U.S. SMALL CAP VALUE -- CLASS R Actual $ 1,000.00 $ 1,131.50 $ 8.24 1.55% Hypothetical (5% return before expenses) $ 1,000.00 $ 1,017.20 $ 7.80 1.55% U.S. LARGE CAP VALUE -- CLASS R Actual $ 1,000.00 $ 1,067.70 $ 5.46 1.06% Hypothetical (5% return before expenses) $ 1,000.00 $ 1,019.65 $ 5.34 1.06% U.S. SYSTEMATIC LARGE CAP GROWTH -- CLASS R Actual $ 1,000.00 $ 1,091.90 $ 7.15 1.37% Hypothetical (5% return before expenses) $ 1,000.00 $ 1,018.10 $ 6.89 1.37% INTERNATIONAL GROWTH -- CLASS R Actual $ 1,000.00 $ 1,078.70 $ 8.80 1.62% Hypothetical (5% return before expenses) $ 1,000.00 $ 1,016.85 $ 8.15 1.62%
* EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO (SHOW IN THE TABLE BELOW); MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD. 30 SUPPLEMENTARY INFORMATION -- (Unaudited) NOTE G -- PROXY VOTING (UNAUDITED) The Investment Adviser votes proxies on behalf of the Funds pursuant to written policies and procedures adopted by the Funds. A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities is available, without charge, upon request by calling To obtain free information on how your Funds' securities were voted, please call the Funds at 1-800-551-8043 or visit the Funds' website at www.nacm.com. You may also view how the Fund's securities were voted by visiting the Securities & Exchange Commission's website at www.sec.gov. Additionally, information regarding each Fund's proxy voting record for the most recent twelve month period ended June 30 is also available, free of charge, by calling the Funds at 1-800-551-8043 and from the SEC's website at http:///www.sec.gov. ADDITIONAL FEDERAL TAX INFORMATION (UNAUDITED) The Funds intends to distribute the maximum amount of qualified dividend income allowable. The amount of qualified dividend income distributed by each Funds will reported to shareholders on the 2005 Form 1099-DIV. The amounts which represent income derived from sources within, and taxes paid to non-U.S. countries or possessions of the United States are as follows:
FOREIGN SOURCE FUND INCOME FTC TOTAL: -------------------------------------------------------------------------------- International Growth 1,872,014 171,013
The percentage of ordinary dividends paid by the Funds during the year ended March 31, 2006, which qualify for the Dividends Received Deduction available to corporate shareholders, was:
FUND PERCENTAGE: -------------------------------------------------------------------------------- U.S. Small Cap Value 32.64% U.S. Large Cap Value 100.00 U.S. Systematic Large Cap Growth 100.00 International Growth 1.18
The Funds hereby designate the following approximate amounts as capital gains distributions for the purpose of the Dividends Paid Deduction:
FUND AMOUNTS: -------------------------------------------------------------------------------- U.S. Emerging Growth 7,167 U.S. Small Cap Value 5,474,851 International Growth 7,788,140
QUARTERLY PORTFOLIO SCHEDULE FILING (UNAUDITED) The Funds provide complete schedules of their holdings four times in each fiscal year, at the quarter-ends. For the second and fourth quarters, the schedules appear in the Funds' semiannual and annual reports to shareholders. For the first and third quarters, the Funds file the schedules with the SEC on Form N-Q. Shareholders can look up the Funds' Form N-Q on the SEC's website at www.sec.gov. The Funds' Form N-Q may also be reviewed and copied at the SEC's Public Reference Room in Washington, DC. To find out more about this public service, call the SEC at 1-800-SEC-0330. TRUSTEE APPROVAL OF MANAGEMENT FEE (UNAUDITED) Based upon the recommendation of the Contract Committee of the Board of Trustees, a Committee comprised of all of the independent Trustees, the Trustees unanimously approved the continuance of the Investment Advisory Agreement between the Funds and Nicholas-Applegate Capital Management ("Nicholas Applegate") at a meeting held November 11, 2005. In approving the Investment Advisory Agreement, the Board of Trustees, through its Contract Committee, evaluated a comprehensive package of materials, including performance and expense data for other funds with similar investment objectives/policies that had been provided by an independent organization. Prior to making its recommendation, the Contract Committee reviewed the proposed continuance of the Investment Advisory Agreement with representatives of Nicholas-Applegate and with independent legal counsel who prepared a legal memorandum outlining the legal guidelines for review of the Investment Advisory Agreement. Members of the Contract Committee also met privately with independent legal counsel to discuss the factors they felt were relevant. The factors included: 1. comparative performance data for each of the Funds and other funds with similar investment objectives/policies and to a relevant index; 2. the nature, extent and quality of investment services rendered by Nicholas-Applegate; 3. the Funds' marketing and sales efforts 4. payments received by Nicholas-Applegate; 5. costs borne by Nicholas-Applegate; 6. comparative fee and expense data for each of the Funds and other funds with similar investment objectives/policies; 7. Nicholas-Applegate's policies and practices regarding allocation of portfolio transactions, best price and execution of portfolio transactions, and soft dollar arrangements; 8. portfolio turnover rates; 31 9. fall-out benefits, such as research received pursuant to Section 28(e) of the Securities Exchange Act of 1934; 10. fees that Nicholas-Applegate charges its other clients with similar investment objectives/policies; 11. experience and qualifications of each of the members of the portfolio management teams; The Contract Committee also considered the nature and quality of the services provided by Nicholas-Applegate, their confidence in Nicholas-Applegate's integrity and competence, and Nicholas-Applegate's responsiveness to questions and issues raised by the Trustees, including its willingness to consider and implement changes designed to improve investment and operational results. In their deliberations, the Contract Committee did not identify any particular information that was controlling, and each member of the Contract Committee attributed different weights to the various factors. The Contract Committee determined that the fees of the Investment Advisory Agreement between each of the Funds and Nicholas-Applegate were fair and reasonable in light of the services performed, expenses incurred and such other matters as the Contract Committee considered relevant in the exercise of their reasonable judgment. The Contract Committee also separately discussed the material factors and conclusions that formed the basis for the Contract Committee to recommend to the Board of Trustees approval of the Investment Advisory Agreement for each of the Funds. NATURE, EXTENT AND QUALITY OF THE SERVICES PROVIDED BY NICHOLAS-APPLEGATE The Contract Committee noted that Nicholas-Applegate manages the portfolios of each of the Funds under the direction of the Board of Trustees. Nicholas-Applegate manages each Fund consistent with each Fund's objectives and policies. Nicholas-Applegate provides each Fund with office space and such other services and personnel as are necessary for its operations. The Contract Committee considered the scope and quality of services provided by Nicholas-Applegate under the Investment Advisory Agreement. The Contract Committee considered the quality of the investment research capabilities of Nicholas-Applegate and the other services to be provided to the Funds by Nicholas-Applegate, such as selecting broker-dealers for executing portfolio transactions, servicing as the Funds' administrator, monitoring adherence to the Funds' investment restrictions, producing shareholder reports, providing support services for the Trustees and Trustee committees and overseeing the activities of other service providers, including monitoring compliance with various Fund policies and procedures and with applicable securities laws and regulations. The Contract Committee concluded that the nature, extent and quality of the services to be provided by Nicholas-Applegate to the Funds were appropriate and consistent with the terms of the Investment Advisory Agreement and that the Funds' will continue to benefit from services provided under their agreement with Nicholas-Applegate. COST OF SERVICES The Contract Committee examined the fee information and expenses for each of the Funds in comparison to information fro other comparable funds as provided by Morningstar. The Contract Committee agreed that overall the Funds' management fees and expense ratios were reasonable in relation to the management fees and expense ratios of the Funds' peer groups selected by Morningstar. The Contract Committee also reviewed Nicholas-Applegate's management fees for its institutional separate accounts and for its subadvised funds (funds for which the Nicholas-Applegate provides portfolio management services only). In most instances subadvisory and institutional separate account fees are lower than the Funds' management fee. However, the Contract Committee noted that Nicholas-Applegate performs significant additional services to the Funds that it does not provide to those other clients, including administrative services, oversight of the Funds' other service providers, trustee support, regulatory compliance and numerous other services. The Contract Committee reviewed the profitability analysis for each Fund and discussed the methodology used by Nicholas-Applegate to assess profitability. They noted that only 3 of the Funds were profitable and found it to be fair and reasonable as compared to similar separate accounts and sub-advised funds managed by Nicholas-Applegate. The Contract Committee also considered Nicholas-Applegate's proposal to lower and restructure the fees and expenses of the Funds in order to increase the competitive position of the Funds in the institutional marketplace thereby positioning them for growth. The Contract Committee concluded that the management fees and other compensation to be paid by the Funds to Nicholas-Applegate were reasonable in relation to the nature and quality of the services to be provided, taking into account the fees charged by other advisers for managing comparable mutual funds with similar strategies and the fees that Nicholas-Applegate charges to other clients, and that the estimated overall expense ratio of the Funds, taking into account the agreed upon fee reduction and restructuring and the Funds' expense offset arrangements with its brokers, custodian and third party services providers, was comparable to or more favorable than the mean or median expense ratios of their peers. INVESTMENT RESULTS The Contract Committee considered the investment results of each of the Funds as compared to investment companies with similar investment objectives and policies as determined by Morningstar and with relevant securities indices. In addition to the information received by the Contract Committee for their meeting, Nicholas-Applegate provides detailed performance information for each Fund at each regular meeting of the Board of Trustees during the year. At the meeting of the Contract Committee, the members reviewed information showing absolute and relative performance of each Fund over 1-year, 3-year, and 5-year periods. 32 US EMERGING GROWTH FUND. The Contract Committee reviewed information showing performance of the Fund compared to its peer group and the Russell 2000 Growth Index. The comparative information showed the Fund was at the top of its peer group and had outperformed the Index for the 1-year period, but had underperformed in the 3-year and 5 year periods. The Contract Committee concluded that the Fund's relative performance over time had been satisfactory. US SMALL CAP VALUE FUND. The Contract Committee reviewed information showing performance of the Fund compared to its peer group and the Russell 2000 Value Index. The comparative information showed the Fund had underperformed relative to its peers but outperformed the Index in the 1-year period and had outperformed both the peer group and the Index for the 3-year period. Based on their review, the Contract Committee concluded the Fund's relative performance over time had been satisfactory. US LARGE CAP VALUE FUND. The Contract Committee reviewed information showing performance of the Fund compared to its peer group and the Russell 1000 Value Index. The comparative information showed the Fund underperformed both its peers and the Index in the 1-year period and outperformed its peer group in the 3-year and 5-year periods yet underperformed relative to the Index. Based on their review, the Contract Committee concluded the Fund's relative investment performance over time had been satisfactory. US SYSTEMATIC LARGE CAP GROWTH FUND. The Contract Committee reviewed information showing performance of the Fund compared to its peer group and the Russell 1000 Growth Index. The comparative information showed the Fund had underperformed its peer group yet outperformed the Index for the 1-year period, and underperformed both its peers and the Index in the 3-year and 5-year periods. In early 2004, Nicholas-Applegate changed portfolio manager teams from one focusing on a traditional approach to one that followed a quantitative approach that relied on analytical investment models prepared by the team. Since that time, the Fund has outperformed the Index. The Contract Committee considered Nicholas-Applegate's change in the Fund's portfolio management team and the relative performance of the Fund since the change. Based on their review, the Contract Committee concluded that, although the Fund's relative performance over time had compared unfavorably to its peers, Nicholas-Applegate was addressing the Committee's concerns about investment performance and retained confidence in Nicholas-Applegate's overall capabilities to manage the Fund. INTERNATIONAL GROWTH FUND. The Contract Committee reviewed information showing performance of the Fund compared to its peer group and the MSCI EAFE Index. The comparative information showed the Fund had outperformed the Index and its peer group for the 1-year period and underperformed the Index yet outperformed its peers in the 3-year period and underperformed relative to the Index and peer group in the 5-year period and concluded to approve the Investment Advisory Agreement. The Contract Committee considered the change in Lead Portfolio Managers, the addition of two new analysts late 2004, and ongoing enhancement of its investment process. Based on their review, the Contract Committee concluded that, although the Fund's relative performance over time had compared unfavorably to its peers and the Index, Nicholas-Applegate was addressing the Committee's concerns about investment performance and retained confidence in Nicholas-Applegate's overall capabilities to manage the Fund. INVESTMENT ADVISORY FEE AND OTHER EXPENSES The Contract Committee considered the investment advisory fee paid by each Fund. The Contract Committee recognized that it is difficult to make comparisons of investment advisory fees because there are variations in the services that are included in the fees paid by other funds. The Contract Committee also considered the fees that Nicholas-Applegate charges other clients with similar investment objectives/policies, Nicholas-Applegate acts as sub-adviser to several open-end and closed-end registered investment companies, non-US investment companies, and investment adviser for separately managed institutional investor accounts. For funds where Nicholas-Applegate acts as sub-adviser, the investment advisory fee for those funds is lower. For separately managed accounts where Nicholas-Applegate acts as investment adviser, the investment advisory fee is comparable and in some cases higher. Representatives of Nicholas-Applegate reviewed with the Contracts Committee the significant differences in the scope of services provided and financial commitments and risks involved in managing the various types of accounts. The Contract Committee also considered the total expense ratio for each Fund in comparison to their respective peers. US EMERGING GROWTH FUND. The peer group consisted of funds with net assets, on average, of $34 million compared with $25 million for the Fund. The information showed that the Fund's investment advisory fee was less than the peer group median, gross expense ratio slightly higher than the peer group average, and net expense ratio higher than the peer group median although it was not the highest one in the group. Nicholas-Applegate explained the gross expense ratio was very favorable to that of the peer group but the other advisers had waiver and/or reimbursed more than Nicholas-Applegate. The Contract Committee concluded that the Fund's expense ratio was acceptable in light of quality of services and other factors considered. US SMALL CAP VALUE FUND. The peer group consisted of funds with net assets, on average, of $108 million compared with $78 million for the Fund. The information showed that the Fund's investment advisory fee was lower than its peer group median and its net expense ratio was higher than its peer group median but it was not the highest in the group. 33 Nicholas-Applegate explained that the Fund's higher than average net expense ratio was a product of its lower than average net asset base and that it expected the expense ratio to decrease as assets increased. The Contract Committee concluded that the expense ratio was acceptable in light of the quality of services offered and other factors considered. US LARGE CAP VALUE FUND. The peer group consisted of funds with net assets, on average, of $30 million compared with $16 million for the Fund. The information showed that the Fund's investment advisory fee was lower than its peer group and its net expense ratio was slightly lower (8 basis points) to its peer group median. The Contract Committee concluded that the Fund's expense ratio was acceptable in light of the quality of services offered and other factors considered. US SYSTEMATIC LARGE CAP GROWTH FUND. The peer group consisted of funds with net assets, on average, of $22 million compared with $11.6 million for the Fund. The information showed that the Fund's investment advisory fee was well below the peer group median, gross expenses were above the peer group median, and net expenses were higher (9 basis points) than the peer group median. Nicholas-Applegate explained that the Fund's gross expense ratio were higher to that of the peer group given smaller asset size and other advisers had waived and/or reimbursed more than Nicholas-Applegate. The Contract Committee concluded that the Fund's expense ratio was acceptable in light of the quality of services and other factors considered. INTERNATIONAL GROWTH FUND. The peer group consisted of funds with net assets, on average, of $115 million compared to $37 million for the fund. The information showed that the Fund's investment advisory fee was higher (7 basis points) than the peer group and its net and gross expense ratios were essentially equivalent to the peer group average. The Contract Committee concluded that the Fund's expense ratio was acceptable in light of the quality of services offered and other factors considered. ECONOMIES OF SCALE The Contract Committee noted that the investment advisory fee schedules for the Funds do not contain breakpoints that reduce the fee rate on assets above specified levels. However, the Contract Committee did note that overall fees paid to Nicholas-Applegate (investment advisory, administration, and shareholder service) contain the functional equivalent of breakpoints through four to five different share classes that reduce the fees paid to Nicholas-Applegate based on the asset level of the account. The Contract Committee recognized that the existing fee structure is consistent with the institutional nature of the Funds and of Nicholas-Applegate's business, which caters to large institutional investors (e.g. pension plans, endowments, public funds). Having taken these factors into consideration, the Contract Committee believed the Funds' current multiple share class fee structure establishes a reasonable basis for realizing economies of scale for the Funds which may exist when assets increase. At current asset levels, the Contract Committee also noted that the Funds have not realized any economies of scale in respect to other expenses. 34 CORPORATE GOVERNANCE -- (UNAUDITED)
NAME, ADDRESS (1) AGE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS POSITION(S) HELD WITH FUND OTHER DIRECTORSHIP HELD BY TRUSTEE LENGTH OF TIME SERVED (2) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE ------------------------------------------------------------------------------------------------------------------ DISINTERESTED TRUSTEES: GEORGE F. KEANE PRINCIPAL OCCUPATIONS: President Emeritus and founding Chief Executive Officer, (76) The Common Fund (1971-1993); and Endowment Advisors (1987-1999) (organizations Chairman of the Board & Trustee that provide investment management programs for colleges and universities) Since August 2004 OTHER DIRECTORSHIPS HELD: Director, Bramwell Funds (since 1994); Director, Longview Oil & Gas (since 2000); Director, Security Capital U.S. Real Estate (since 1997); Director, The Universal Bond Fund (since 1997); 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). NUMBER OF PORTFOLIOS OVERSEEN BY TRUSTEE: 14 WALTER E. AUCH PRINCIPAL OCCUPATIONS: Retired; prior thereto, Chairman and CEO of Chicago Board (85) of Options Exchange (1979-1986); Senior Executive Vice President PaineWebber, Trustee Inc. Since May 1999 OTHER DIRECTORSHIPS HELD: Trustee, LLBS Funds (since 1994 and Brinson Supplementary Trust (since 1997); Director, Thompson Asset Management Corp (1987-1999; Director, Smith Barney Trak Fund (since 1992) and Smith Barney Advisors (since 1992); Director, PIMCO Advisors L.P (since 1994); 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). NUMBER OF PORTFOLIOS OVERSEEN BY TRUSTEE: 14 DARLENE DEREMER PRINCIPAL OCCUPATIONS: Partner, Grail Partners LLC (since 2005); Managing (50) Director, Putnam Lovell NBF Private Equity (2004-2005); Managing Director, Trustee NewRiver E-Business Advisory Services Division (2000-2003); Prior to, President Since May 1999 and Founder, DeRemer Associates, a strategic and marketing consulting firm for the financial services industry (1987-2003); Vice President and Director, Asset Management Division, State Street Bank and Trust Company, now referred to as State Street Global Advisers, (1982-1987); Vice President, T. Rowe Price & Associates (1979-1982); Member, Boston Club (since 1998); Member, Financial Women's Association Advisory Board (since 1995); Founder, Mutual Fund Cafe Website. OTHER DIRECTORSHIPS HELD: Founding Member and Director, National Defined Contribution Council (since 1997); Trustee, Boston Alzheimer's Association (since 1998); Director, King's Wood Montessori School (since 1995); Editorial Board, National Association of Variable Annuities (since 1997); Director, Nicholas-Applegate Strategic Opportunities, Ltd. (1994-1997); Trustee, Nicholas-Applegate Mutual Funds (1994-1999); Director, Jurika & Voyles Fund Group (since 1994-2000); Director, Nicholas-Applegate Southeast Asia Fund, Ltd. (since 2004). NUMBER OF PORTFOLIOS OVERSEEN BY TRUSTEE: 14 JOHN J. MURPHY PRINCIPAL OCCUPATIONS: Founder and senior principal, Murphy Capital Management (62) Trustee OTHER DIRECTORSHIPS HELD: Director, Smith Barney Multiple Discipline Trust; Since September 2005 Director, Barclays International Funds Group Ltd. and affiliated companies. NUMBER OF PORTFOLIOS OVERSEEN BY TRUSTEE: 14 INTERESTED TRUSTEES: HORACIO A. VALEIRAS PRINCIPAL OCCUPATIONS: Managing Director (since 2004) and Chief Investment (47) Officer. Nicholas-Applegate Capital Management, Nicholas-Applegate Securities President & Trustee (since 2002); Managing Director of Morgan Stanley Investment Management, London Since August 2004 (1997-2002); Head of International Equity and Asset Allocation, Miller Anderson & Sherred; Director and Chief of Investment Strategies, Credit Suisse First Boston. OTHER DIRECTORSHIPS HELD: Trustee, The Bishops School (since 2002); Trustee, San Diego Rowing Club (since 2002). NUMBER OF PORTFOLIOS OVERSEEN BY TRUSTEE: 14
35
NAME, ADDRESS (1) AGE PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS POSITION(S) HELD WITH FUND OTHER DIRECTORSHIP HELD BY TRUSTEE LENGTH OF TIME SERVED (2) NUMBER OF PORTFOLIOS IN FUND COMPLEX OVERSEEN BY TRUSTEE ------------------------------------------------------------------------------------------------------------------ OFFICERS: CHARLES H. FIELD, JR. PRINCIPAL OCCUPATIONS: General Counsel, Nicholas-Applegate Capital Management, (50 ) Nicholas-Applegate Securities LLC, Nicholas-Applegate Holdings LLC (since Secretary and Chief Compliance February 2004), Deputy General Counsel, Nicholas-Applegate Capital Management, Officer LLC (1996-2004). Since May 2002 OTHER DIRECTORSHIPS HELD: NA NUMBER OF PORTFOLIOS OVERSEEN BY TRUSTEE: 14 THOMAS MUSCARELLA Principal Occupations: Vice President, Director of Mutual Fund Operations (since (50) 1998). Treasurer Since May 2005 OTHER DIRECTORSHIPS HELD: NA NUMBER OF PORTFOLIOS OVERSEEN BY TRUSTEE: 14
(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. 36 (This page intentionally left blank) (This page intentionally left blank) TRUSTEES OF NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS George F. Keane, CHAIRMAN Walter E. Auch Darlene T. DeRemer John J. Murphy Horacio A. Valeiras OFFICERS Horacio A. Valeiras, PRESIDENT Charles H. Field, Jr., SECRETARY Thomas Muscarella, TREASURER INVESTMENT ADVISER Nicholas-Applegate Capital Management DISTRIBUTOR Nicholas-Applegate Securities CUSTODIAN Brown Brothers Harriman & Co., Private Bankers TRANSFER AGENT UMB Fund Services Group, Inc. INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM PricewaterhouseCoopers LLP [NICHOLAS APPLEGATE(R) INSTITUTIONAL FUNDS LOGO] Nicholas-Applegate Securities, Distributor ANN0306RET [A COMPANY OF ALLIANZ GLOBAL INVESTORS LOGO] 600 West Broadway San Diego, California 92101 800.551.8043 ITEM 2. CODE OF ETHICS. (a) The registrant has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions. (b) The registrant has adopted a code of ethics that is reasonably designed to defer wrongdoing and to promote: (1) Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; (2) Full, fair, accurate, timely, and understandable disclosure in reports and documents that a registrant files with, or submits to, the Commission and in other public communications made by the registrant; (3) Compliance with applicable governmental laws, rules, and regulations; (4) The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and (5) Accountability for adherence to the code. (c) There have been no amendments, during the period covered by this Report, to a provision of the code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of weather these individuals are employed by the registrant or a third party, and that relates to any element of the code of ethics description. (d) The registrant has not granted any waivers, including an implicit waiver, from a provision of the code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. (e) Not applicable. (f) (1) A copy of the code of ethics referenced in Item 2(a) of this Form N-CSR is filed as Exhibit 12(a)(1) of this Form N-CSR. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. (a)(1) The registrant's Board of Trustees has determined that the registrant has at least one audit committee financial expert serving on its audit committee. (2) The following independent Trustees have been designated as audit committee financial experts by the Board of Trustees: George F. Keane, Walter E. Auch, Darlene T. DeRemer and John J. Murphy. Messrs. Keane, Auch and Murphy and Ms. DeRemer are "independent" as defined in Item 3(a) (2) of Form N-CSR. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a) AUDIT FEES The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years are $239,266.00 for 2006 and $251,300.00 for 2005. (b) AUDIT-RELATED FEES Not applicable. (c) Tax Fees The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice and tax planning are $45,840.00 for 2006 and $29,670.50 for 2005. These services consisted of (i) review or preparation of U.S. federal, state, local and excise tax returns; (ii) U.S. federal, state, local and Mauritius entity tax planning, advice and assistance regarding statutory, regulatory or administrative developments, and (iii) tax advice regarding tax qualification. (d) All Other Fees The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item are $17,730.00 for 2006 and $10,300.00 for 2005. These services consisted of review of ownership changes for the NAIF Funds and consulting services related to preparation of 382 limit calculation. (e) (1) The registrant has adopted pre-approval policies and procedures consistent with Rule 2-01(c) (7) of Regulation S-X. The policies and procedures allow for the pre-approval of the following non-audit services: consultations on GAAP and/or financial statement disclosure matters not exceeding $25,000/year; consultations on tax accounting matters not exceeding $25,000/year; review of annual excise distribution provisions not exceeding $15,000/year; and, various regulatory and tax filings in foreign jurisdictions (such as India, Taiwan and Venezuela) not exceeding $25,000/year. The policies and procedures require quarterly reporting to the Audit Committee of all such services performed and related fees billed pursuant to the policies and procedures. (2) The percentage of services described in each of paragraphs (b) through (d) of this Item that were approved by the Audit Committee pursuant to paragraph (c)(7)(i)(c) of Rule 2-01 of Regulation S-X are as follows: (b) Not applicable. (c) 100% (d) Not applicable. (f) If greater than 50% The percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees was 0%. (g) The aggregate non-audit fees billed by the registrant's accountant for services rendered to the registrant, and rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant was $0 for 2006 and $0 for 2005. (h) The registrant's Audit Committee has considered whether the provision of non-audit services that were rendered to the registrant's investment advisor (not including any subadvisor whose role is primarily portfolio management and is subcontracted with or overseen by another investment advisor), and any entity controlling, controlled by, or under common control with the investment advisor that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant's independence. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. SCHEDULE OF INVESTMENTS Not applicable. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS Not applicable. ITEM 9. PURCHASE OF EQUITY SECURITIES BY CLOSE-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 11. CONTROLS AND PROCEDURES. Item 11(a) The registrant's principal executive and financial officers have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act") are effective, as of a date within 90 days of the filing date of the report, that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1933, as amended. Item 11(b) There were no changes in the registrant's internal controls over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the registrant's last fiscal half-year that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 12. EXHIBITS. (a)(1) The registrant's code of ethics that is the subject of the disclosure required by Item 2 is filed as Exhibit 12(a) (1) (a)(2) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Act (17 CFR 270.30a-2) is filed as Exhibit 12(a) (2). (b) The certifications required by Rule 30a-2(b) under the Act and Section 1350 of Chapter 63 of Title 18 of the United States Code are attached as exhibit 12(b). SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) Nicholas-Applegate Institutional Funds ------------------------------------- By (Signature and Title) /s/ Horacio A. Valeiras ======================= Horacio A. Valeiras Title: President (Principal Executive Officer) and Trustee Date: June 14, 2006 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. By (Signature and Title) /s/ Chris Siriani ======================= Chris Siriani Title: Treasurer (Principal Financial Officer and Principal Accounting Officer) Date: June 14, 2006 * Print name and title of each signing officer under his or her signature.