-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LGnSxK792uHd13ahS/EKckeAv5q3/1oD3bpCzdr4KxcCo1jYOpbFeU71vOIrH+MV DQvgL+U7Fz5Ov8GolpYS2w== 0001047469-04-036187.txt : 20041206 0001047469-04-036187.hdr.sgml : 20041206 20041206102015 ACCESSION NUMBER: 0001047469-04-036187 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041206 DATE AS OF CHANGE: 20041206 EFFECTIVENESS DATE: 20041206 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NICHOLAS APPLEGATE INSTITUTIONAL FUNDS CENTRAL INDEX KEY: 0000895414 IRS NUMBER: 000000000 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-07384 FILM NUMBER: 041185397 BUSINESS ADDRESS: STREET 1: 600 W BROADWAY STREET 2: 29TH FL CITY: SAN DIEGO STATE: CA ZIP: 92101 BUSINESS PHONE: 8188521000 FORMER COMPANY: FORMER CONFORMED NAME: NICHOLAS APPLEGATE INVESTMENT TRUST DATE OF NAME CHANGE: 19930714 N-CSRS 1 a2145251zn-csrs.txt N-CSRS ================================================================================ 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: September 30, 2004 Date of reporting period: September 30, 2004 ITEM 1. REPORT TO STOCKHOLDERS. [NICHOLAS APPLEGATE(R) INSTITUTIONAL FUNDS LOGO] SEMI-ANNUAL REPORT (UNAUDITED) CLASS I, II, III & IV SHARES SEPTEMBER 30, 2004 LETTER TO SHAREHOLDERS DEAR FELLOW SHAREHOLDER, Following the impressive gains we reported to you for the twelve months ended March 31, 2004, equity markets worldwide paused between April 1 and September 30, 2004. Headwinds such as rising interest rates, high oil prices and geopolitical concerns eclipsed a generally favorable economic and corporate earnings environment. In this semi-annual report, we review the performance of the financial markets and our mutual funds over the past six months. We also share our perspective on the dynamics shaping the investment landscape and our outlook for the months ahead. In the United States, broad equity indices posted flat returns, including the S&P 500 Index, which rose 0.18%. Amid reasonable job growth and a mild pickup in inflation, the Federal Reserve began raising interest rates from 40-year lows, boosting the target funds rate by 0.25% on June 30. The U.S. economy hit a "soft patch" over the summer, given uncertainties surrounding the Fed's actions, the upcoming U.S. presidential election and tensions in Iraq. The central bank subsequently raised rates another 0.50%, however, and stated the economy appeared to have regained its footing. In developed markets overseas, the MSCI EAFE Index registered a 0.21% increase. Continental European economies have grown by only about 2% in the past year, reflected in lackluster equity performance in France, Germany and Switzerland. U.K. stocks fared better, where second-quarter GDP growth of 3.7% and double-digit house-price inflation have led the Bank of England to raise interest rates five times since November 2003. In Japan, equities traded lower as the country's economy hit a soft patch of its own, with a downward revision to second-quarter GDP that left growth at a tepid 0.3%. We believe Japan's recovery remains on track, however, as the Tankan survey of business confidence hit a 13-year high in September. After falling sharply in April and May, equities in developing countries staged a comeback that left them only modestly down for the six-month period. The MSCI Emerging Markets Index lost 2.10%, led by weakness in Asia where fears of a slowdown in the booming Chinese economy affected the entire region. In contrast, the MSCI EM Latin America Index rose 5.88%, as a surge in commodity prices benefited raw-materials producers, such as Brazil and Venezuela. After taking a breather in the second quarter of 2004, commodity prices resumed their rapid ascent of the past twelve months. The Commodity Research Bureau (CRB) Index rose 8% in the third quarter driven by a spike in oil prices, which touched $50 a barrel. Value stocks outperformed their growth counterparts around the world. As expected, value stocks have had a good run through this stage of the global economic recovery due to robust demand for basic materials and commodities, coupled with historically low interest rates. Recent signs point to weakening in traditional value sectors, however. For example, earnings growth of consumer staples companies is being challenged by their inability to pass higher input costs onto consumers. Of course, we believe current equity valuations make the strongest case for a return to growth: the difference between P/E ratios for growth stocks and value stocks is the narrowest it's been in a decade. Against this backdrop, we are pleased to report that many of our mutual funds outperformed or kept pace with their benchmarks. In particular, all of the funds in which we implement Nicholas-Applegate Systematic strategies outperformed. Our Systematic strategies use an internally-developed stock selection model, overlaid with traditional, fundamental analysis, to identify companies benefiting from positive, sustainable change. In August, Nicholas-Applegate proudly celebrated our twentieth year in business and two decades of success in our U.S. Emerging Growth strategy, our flagship small-cap growth approach. Twenty years marks a coming of age in many societies, and we believe this holds true for our firm. We have experienced the highs and lows of the securities markets, yet maintain our tradition of innovation and creativity. A good illustration of this is the Emerging Markets Opportunities Fund, which we launched in May 2004. The Fund provides exposure beyond the scope of conventional emerging markets universes by focusing on companies whose earnings are driven by country and regional factors rather than global ones. Like Nicholas-Applegate, the asset management business has matured over the past few years, amid new mutual fund laws and other regulations governing our industry. Throughout, we have steadily invested in talent, systems and risk tools to enable us to do our best as stewards of your assets. We welcomed several highly qualified professionals to our U.S. and international investment teams during this six-month period. We also made a number of enhancements to our technology platform. For example, we implemented a new system designed to help ensure our continued compliance with applicable regulatory requirements. Looking forward, we are positive in our outlook for equity markets worldwide. Leading indicators in both the United States and Japan continue to point to healthy economic growth. Continental European economies remain sluggish, but we expect the European Central Bank to maintain rates at their present low level for some time. And while the pace of earnings growth has moderated, corporate profits are expected to increase at a robust clip over the coming quarters. We believe this type of environment is ideal for bottom-up security selection - -- particularly for investing in companies where positive change is leading to increasing earnings estimates. We continue to search out those companies in all of our funds. On behalf of everyone at Nicholas-Applegate, thank you for your participation in the Nicholas-Applegate Institutional Funds. We appreciate the trust you have placed in us. Best Regards, /s/ Horacio A. Valeiras Horacio A. Valeiras, CFA President and Chief Investment Officer September 30, 2004 TABLE OF CONTENTS
PAGE The Funds' Review and Outlook, Performance and Schedule of Investments U.S. Mini Cap Growth 1 U.S. Emerging Growth 7 U.S. Small Cap Value 14 U.S. Large Cap Value 20 U.S. Systematic Large Cap Growth 25 U.S. Systematic Mid Cap Growth 30 U.S. Systematic SMID Growth 36 U.S. Convertible 41 Global Select 47 International Growth 52 International Growth Opportunities 58 Emerging Countries 63 Emerging Markets Opportunities 69 U.S. High Yield Bond 74 The Funds': Shareholder Expense Example 80 Financial Highlights 84 Statements of Assets and Liabilities 92 Statements of Operations 94 Statements of Changes in Net Assets 96 Notes to the Financial Statements 102
- ---------- 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. (This page intentionally left blank) U.S. MINI CAP GROWTH FUND MANAGEMENT TEAM: JOHN C. MCCRAW, Lead Portfolio Manager; TRAVIS T. PRENTICE, Portfolio Manager; K. MATHEW AXLINE, Investment Analyst; MICHAEL P. GIGGIE, Investment Analyst; MONTIE L. WEISENBERGER, Investment Analyst CHIEF INVESTMENT OFFICER: HORACIO A. VALEIRAS, CFA GOAL: The U.S. Mini Cap Growth Fund seeks to maximize long-term capital appreciation by investing primarily in U.S. companies with "mini" market capitalizations that offer superior growth prospects. MARKET OVERVIEW: Following gains in 2003 and the first quarter of 2004, major U.S. stock market indices turned in uninspiring performance during the six months ended September 30, 2004. The S&P 500 Index dipped 0.18%, and the Dow Jones Industrial Average fell 1.71%. In the first half of the period, equities posted moderate increases, as strong economic news and robust corporate fundamentals overshadowed concerns about geopolitical issues, higher inflation and interest rates. Throughout much of the second quarter, investors focused on when the Federal Reserve would begin the process of normalizing monetary policy. On June 30, the central bank raised the funds target by 25 basis points to 1.25%, stating it would increase rates at a measured pace. Equities succumbed to selling pressure over the summer amid a sharp spike in oil prices, two additional rate hikes from the Fed and weakening demand for information technology. Reversing course once again, the period ended on a positive note, with stock prices rising in September. During the month, the government reported lower-than-expected inflation figures for August. In addition, the Fed stated that output growth appeared to have regained some traction after hitting a soft patch over the summer. PERFORMANCE: The Fund lost 14.98% during the six months ended September 30, 2004 versus a drop of 5.93% in the Russell 2000 Growth Index. PORTFOLIO SPECIFICS: In absolute terms, the Fund's performance was strongest in the energy and consumer staples sectors, where positions registered gains, and weakest in the information technology and materials sectors, where holdings fell sharply. Compared to the benchmark, an underweight in semiconductor and semiconductor equipment stocks helped relative results. These names were generally weak on concerns that the semiconductor cycle had peaked. Issue selection in the media, beverages and electrical equipment industries was also favorable. For example, one of the best-performing stocks was AMX Corporation, which makes control systems used in a variety of electronic devices. On the negative side, the Fund's market capitalization hurt relative results. Given its focus on mini-cap stocks, the Fund's weighted-average market cap was lower than that of the index. This was unfavorable since the very smallest stocks within the small-cap growth market underperformed. Stock selection in the information technology and health care sectors also detracted. MARKET OUTLOOK: A number of factors inspire optimism about the return prospects for small-cap stocks, including: - Many companies have become more rationally valued in the market over the past few months - Despite higher interest rates, rates still remain near historic lows - The economy continues to grow, and the outlook for corporate profits remains healthy We believe our commitment to identifying positive change at the company level will lead us to stocks with exciting growth potential for the Fund. 1 [CHART] COMPARISON OF CHANGE IN VALUE OF A $250,000 INVESTMENT IN U.S. MINI CAP GROWTH FUND CLASS I SHARES WITH THE RUSSELL 2000 GROWTH INDEX. ANNUALIZED TOTAL RETURNS As of 9/30/04
SINCE 1 YEAR 5 YEARS INCEPTION 4.43% 8.09% 14.32%
U.S. MINI CAP GROWTH RUSSELL 2000 FUND CLASS I SHARES 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
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. Class I shares have a shareholder services fee of up to .25% of their average daily net assets. 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. 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 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 SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2004 -- UNAUDITED U.S. MINI CAP GROWTH FUND
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------- COMMON STOCK -- 99.5% ADVERTISING SERVICES -- 0.7% Marchex, Inc. Cl. B* ## 35,000 $ 436,100 -------------- AEROSPACE/DEFENSE -- 0.9% United Industrial Corp.## 17,300 568,997 -------------- AEROSPACE/DEFENSE-EQUIPMENT -- 3.3% AAR Corp.* ## 52,000 647,400 BE Aerospace* ## 52,500 477,750 Innovative Solutions & Support, Inc.* 19,600 480,788 Sensytech, Inc.* ## 17,200 481,600 -------------- 2,087,538 -------------- APPAREL MANUFACTURERS -- 1.0% Hartmarx Corp.* ## 86,000 638,120 -------------- APPLICATIONS SOFTWARE -- 0.7% PalmSource, Inc.* 21,800 452,132 -------------- AUDIO/VIDEO PRODUCTS -- 0.7% Universal Electronics, Inc.* ## 26,100 437,958 -------------- AUTO/TRUCK PARTS & EQUIPMENT-REPLACEMENT -- 1.0% Commercial Vehicle Group, Inc.* ## 39,300 622,512 -------------- AUTO-MEDIUM & HEAVY DUTY TRUCKS -- 0.8% A. S. V., Inc.* ## 14,400 538,992 -------------- BATTERIES/BATTERY SYSTEMS -- 0.9% Energy Conversion Devices, Inc.* ## 43,500 576,810 -------------- BEVERAGES-NON-ALCOHOLIC -- 0.7% Jones Soda Co.* 108,800 437,376 -------------- BUILDING-MAINTENANCE & SERVICE -- 0.8% Healthcare Services Group, Inc. 29,750 534,310 -------------- CIRCUIT BOARDS -- 1.8% Merix Corp.* ## 58,600 607,096 TTM Technologies, Inc.* ## 58,600 520,954 -------------- 1,128,050 -------------- COMMERCIAL BANKS-WESTERN US -- 4.2% Center Financial Corp.## 31,800 604,836 Hanmi Financial Corp. 15,700 474,140 Nara Bancorp, Inc. 25,100 505,765 Vineyard National Bancorp Co.## 19,100 541,103 Wilshire Bancorp, Inc.* ## 19,200 579,456 -------------- 2,705,300 -------------- COMMERCIAL SERVICES-FINANCE -- 0.8% Bankrate, Inc.* 43,600 490,064 -------------- COMMUNICATIONS SOFTWARE -- 1.6% Smith Micro Software, Inc.* ## 116,100 $ 435,375 Witness Systems, Inc.* 36,700 589,769 -------------- 1,025,144 -------------- COMPUTERS-INTEGRATED SYSTEMS -- 1.1% Stratasys Inc.* ## 21,800 687,899 -------------- COMPUTERS-PERIPHERAL EQUIPMENT -- 0.8% AMX Corp.* 26,700 481,668 -------------- DIVERSIFIED MANUFACTURING OPERATIONS -- 0.8% Raven Industries, Inc. 11,300 502,285 -------------- DRUG DELIVERY SYSTEMS -- 1.3% I-Flow Corp.* ## 32,700 473,496 Noven Pharmaceuticals, Inc.* ## 16,700 348,028 -------------- 821,524 -------------- E-COMMERCE/PRODUCTS -- 0.8% Stamps.Com, Inc.* 39,100 520,030 -------------- ELECTRONIC COMPONENTS-MISCELLANEOUS -- 1.5% California Mircro Devices Corp.* 78,700 608,351 NVE Corp.* ## 11,200 370,160 -------------- 978,511 -------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS -- 5.7% Diodes Inc.* ## 22,800 587,328 Leadis Technology, Inc.* ## 55,300 623,784 Microtune, Inc.* ## 126,000 665,280 Pixelworks, Inc.* ## 48,000 480,480 Virage Logic Corp.* 51,600 636,228 Volterra Semiconductor Corp.* ## 50,900 632,687 -------------- 3,625,787 -------------- ELECTRONIC MEASURE INSTRUMENTS -- 1.6% Faro Technologies Inc.* ## 23,800 484,092 Molecular Devices Corp.* ## 21,900 516,183 -------------- 1,000,275 -------------- ELECTRONIC SECURITY DEVICES -- 1.5% American Science & Engineering, Inc.* 10,300 339,385 LoJack Corp.* 55,300 619,360 -------------- 958,745 -------------- ELECTRONICS-MILITARY -- 0.8% TVI Corp.* ## 99,600 539,832 -------------- E-MARKETING/INFORMATION -- 1.1% Aptimus, Inc.* ## 41,400 724,500 -------------- E-SERVICES/CONSULTING -- 2.1% Niku Corp.* 47,900 728,080 RightNow Technologies, Inc.* ## 49,100 615,223 -------------- 1,343,303 --------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 3
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------- COMMON STOCK (Continued) FINANCE-CREDIT CARD -- 1.0% Advanta Corp. Cl. B## 25,700 $ 621,683 -------------- FOOTWEAR & RELATED APPAREL -- 0.9% Deckers Outdoor Corp.* ## 17,830 606,220 -------------- INDUSTRIAL AUTOMATION/ROBOTICS -- 1.0% Hurco Cos., Inc.* 47,300 633,347 -------------- INSTRUMENTS-CONTROLS -- 0.7% BEI Technologies, Inc. 17,000 465,800 -------------- INTERNET CONTENT-INFO/NEWS -- 0.9% Jupitermedia Corp.* ## 34,000 605,200 -------------- INTERNET INFRASTRUCTURE SOFTWARE -- 0.8% Supportsoft, Inc.* ## 50,200 488,948 -------------- INVESTMENT COMPANIES -- 0.7% Gladstone Capital Corp.* ## 20,700 470,097 -------------- LASERS-SYSTEMS/COMPONENTS -- 1.6% II-VI, Inc.* ## 13,800 483,138 Rofin-Sinar Technologies, Inc.* 18,400 540,592 -------------- 1,023,730 -------------- MEDICAL INFORMATION SYSTEMS -- 0.8% Quality Systems, Inc.* 10,000 505,100 -------------- MEDICAL INSTRUMENTS -- 2.5% Endologix, Inc.* 103,500 701,730 Natus Medical, Inc.* 78,700 544,604 Young Innovations, Inc.## 10,900 359,700 -------------- 1,606,034 -------------- MEDICAL LASER SYSTEMS -- 1.6% Candela Corp.* 52,500 605,850 Palomar Medical Technologies, Inc.* ## 18,600 407,712 -------------- 1,013,562 -------------- MEDICAL PRODUCTS -- 0.7% Cantel Medical Corp.* ## 17,500 420,000 -------------- MEDICAL-BIOMEDICAL/GENETICS -- 3.7% LifeCell Corp.* ## 60,100 601,000 Myriad Genetics, Inc.* ## 32,700 559,170 SuperGen, Inc.* ## 85,100 525,918 Third Wave Technologies* ## 100,300 690,064 -------------- 2,376,152 -------------- MEDICAL-DRUGS -- 2.6% DUSA Pharmaceuticals, Inc.* 54,700 627,956 Rigel Pharmaceuticals, Inc.* ## 26,300 665,390 Vaxgen, Inc.* ## 29,000 387,150 -------------- 1,680,496 -------------- MEDICAL-OUTPATIENT/HOME MEDICAL CARE -- 1.8% Amedisys, Inc.* ## 19,000 $ 569,050 Matria Healthcare, Inc.* ## 20,600 583,186 -------------- 1,152,236 -------------- METAL PROCESSORS & FABRICATION -- 0.5% Sun Hydraulics, Inc. 26,300 336,114 -------------- MRI/MEDICAL DIAGNOSTIC IMAGING CENTERS -- 0.9% Alliance Imaging Inc.* 76,100 568,467 -------------- NETWORKING PRODUCTS -- 0.7% Paradyne Networks, Inc.* ## 99,800 459,080 -------------- NON-FERROUS METALS -- 0.5% RTI International Metals, Inc.* 17,200 333,164 -------------- OFFICE SUPPLIES & FORMS -- 1.0% Ennis, Inc. 30,900 661,878 -------------- OIL COMPANIES-EXPLORATION & PRODUCTION -- 5.2% ATP Oil & Gas Corp.* 48,200 587,076 Callon Petroleum Co.* ## 27,100 343,628 Delta Petroleum Corp.* ## 29,200 380,768 Edge Petroleum Corp.* 38,500 614,845 Goodrich Petroleum Corp.* 48,200 641,060 Petroleum Development Corp.* ## 17,400 762,468 -------------- 3,329,845 -------------- PAPER & RELATED PRODUCTS -- 1.0% Caraustar Industries, Inc.* ## 38,100 638,937 -------------- PATIENT MONITORING EQUIPMENT -- 2.2% Aspect Medical Systems, Inc.* ## 31,200 564,408 Lifeline Systems, Inc.* 20,600 503,052 Somanetics Corp.* 25,400 334,010 -------------- 1,401,470 -------------- RECYCLING -- 0.9% Metal Management, Inc.* 32,700 594,486 -------------- RESEARCH & DEVELOPMENT -- 0.7% SFBC International, Inc.* ## 16,700 439,377 -------------- RETAIL-APPAREL/SHOE -- 1.9% Goody's Family Clothing, Inc. 69,900 588,558 Jos A Bank Clothiers, Inc.* ## 22,200 614,496 -------------- 1,203,054 -------------- RETAIL-CATALOG SHOPPING -- 0.6% Coldwater Creek, Inc.* 17,900 373,573 -------------- RETAIL-HYPERMARKETS -- 0.6% Smart & Final, Inc.* ## 23,500 393,860 -------------- SEISMIC DATA COLLECTION -- 1.0% Input/Output, Inc.* ## 58,800 606,228 --------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 4
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------- COMMON STOCK (Continued) SEMICONDUCTOR COMPONENTS-INTEGRATED CIRCUITS -- 1.8% Genesis Microchip, Inc.* 41,400 $ 558,900 TriQuint Semiconductor, Inc.* ## 152,700 595,530 -------------- 1,154,430 -------------- SEMICONDUCTOR EQUIPMENT -- 4.4% Ade Corp./Mass* ## 26,100 444,614 Aetrium, Inc.* 5,000 25,650 August Technology Corp.* 49,100 337,317 inTEST Corp.* ## 62,400 485,472 Mykrolis Corp.* ## 50,200 505,514 Rudolph Technologies, Inc.* 28,400 475,416 Ultratech Stepper, Inc.* 36,000 564,120 -------------- 2,838,103 -------------- STEEL-PRODUCERS -- 1.0% Wheeling-Pittsburgh Corp.* 19,800 619,938 -------------- TELECOMMUNICATIONS EQUIPMENT -- 1.0% Comtech Telecommunications* 22,900 620,590 -------------- TELECOMMUNICATIONS EQUIPMENT FIBER OPTICS -- 1.0% Essex Corp.* ## 53,400 615,702 -------------- THERAPEUTICS -- 2.8% Anika Therapeutics, Inc.* 30,100 415,380 Bioenvision, Inc.* ## 50,200 401,098 Bone Care International, Inc.* ## 18,600 451,980 NitroMed, Inc.* ## 20,800 495,872 -------------- 1,764,330 -------------- TOYS -- 1.0% Jakks Pacific, Inc.* ## 26,600 611,800 -------------- TRANSPORT-EQUIPMENT & LEASING -- 1.1% Greenbrier Companies, Inc.## 28,200 676,800 -------------- TRANSPORT-MARINE -- 0.9% K-Sea Transportation Partners L.P.## 18,300 570,411 -------------- TRANSPORT-SERVICES -- 1.0% Dynamex, Inc.* 36,100 $ 622,364 -------------- TRANSPORT-TRUCK -- 3.2% Celadon Group, Inc.* 27,000 514,350 Covenant Transport, Inc. Cl. A* ## 26,300 508,116 Old Dominion Freight Line, Inc.* 16,700 481,127 U.S. Xpress Enterprises, Inc. Cl. A* 27,600 511,704 -------------- 2,015,297 -------------- VITAMINS & NUTRITION PRODUCTS -- 0.1% Omega Protein Corp.* ## 10,800 83,160 -------------- WIRELESS EQUIPMENT -- 2.2% ID Systems, Inc.* ## 49,900 702,043 SBA Communications Corp.* 97,900 685,300 -------------- 1,387,343 -------------- TOTAL COMMON STOCK (Cost: $58,808,159) 63,452,168 -------------- PRINCIPAL AMOUNT - ---------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS -- 34.9% MONEY MARKET FUNDS -- 34.9% Federated Prime Obligations Fund** (Cost: $22,304,175) $ 22,304,175 22,304,175 -------------- TOTAL INVESTMENTS -- 134.4% (Cost: $81,112,334) 85,756,343 LIABILITIES IN EXCESS OF OTHER ASSETS -- (34.4%) (21,972,207) -------------- NET ASSETS -- 100.0% $ 63,784,136 ==============
- ---------- * 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 9/30/04. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 5 SCHEDULE OF INVESTMENTS BY INDUSTRY AS OF SEPTEMBER 30, 2004 -- UNAUDITED U.S. MINI CAP GROWTH FUND
PERCENTAGE OF INDUSTRY NET ASSETS - -------- ------------- Basic Materials 2.5% Communications 11.3 Consumer, Cyclical 8.5 Consumer, Non-cyclical 24.2 Energy 6.2 Financial 6.7 Industrial 29.7% Technology 10.4 Short Terms Investments 34.9 Liabilities in excess of other assets (34.4) ----- NET ASSETS 100.0% =====
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 6 U.S. EMERGING GROWTH FUND MANAGEMENT TEAM: JOHN C. McCRAW, Lead Portfolio Manager; TRAVIS T. PRENTICE, Portfolio Manager; K. MATHEW AXLINE, Investment Analyst; MICHAEL P. GIGGIE, Investment Analyst; MONTIE L. WEISENBERGER, Investment 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: Key barometers of the U.S. stock market posted disappointing results from April 1, 2004 through September 30, 2004. During the period, the S&P 500 Index slipped 0.18% and the tech-laden NASDAQ Composite lost 4.87%. Headwinds that had been in place most of the year dampened investor enthusiasm, such as: - Ongoing conflict in Iraq and concerns about terrorism - Higher interest rates, as the Federal Reserve raised the funds target by 75 basis points to 1.75% during the period - Price of oil rocketing toward $50 a barrel Signs that economic growth might be moderating also weighed on the market. For example, retail sales were weaker than expected during the back-to-school season, and gains in the job market continued but not at the robust pace seen in the spring. These influences tended to obscure favorable corporate fundamentals. Second quarter 2004 earnings for small-cap companies grew at approximately 40%, year over year, and expectations were for healthy growth in the third and fourth quarters. PERFORMANCE: From April 1, 2004 through September 30, 2004, the Fund posted a 6.97% decline. During the same period, the Russell 2000 Growth Index fell 5.93%. PORTFOLIO SPECIFICS: Holdings in the energy, industrials and materials sectors generated strong gains for the Fund. However, strength in these groups was unable to offset losses in the information technology and consumer discretionary sectors, which detracted from both absolute and relative returns. Versus the benchmark, performance was helped by stock selection in the consumer staples and health care sectors. An overweight in energy stocks was also beneficial. On the negative side, issue selection was unfavorable in the information technology sector, particularly in the Internet software and services industry. Issue selection was also weak among hotel, restaurant and leisure companies. Turning to individual stocks, top-performing holdings included Ceradyne, a maker of advanced technical ceramic products; Lone Star Technologies, a manufacturer of pipes for the oil and gas industry; and Coldwater Creek, a retailer of women's apparel. AtheroGenics, a biotechnology firm, was also a top performer. The company's stock price jumped after it reported positive test results for a drug designed to reverse hardening of the arteries. MARKET OUTLOOK: Recent developments, such as rising oil prices and weaker-than-expected economic data, have caused many companies to become more rationally valued in the marketplace. In addition, interest rates remain at 40-year lows, and expectations are that companies will continue to deliver double-digit earnings growth. These factors should lend support to stock prices over the months ahead, particularly after the U.S. presidential election is decided in November. As always, we remain focused on finding and investing in small, rapidly growing companies with the strongest fundamentals for the Fund. 7 [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. ANNUALIZED TOTAL RETURNS As of 9/30/04
SINCE 1 YEAR 5 YEARS INCEPTION 6.56% - 3.92% 6.03%
U.S. EMERGING GROWTH RUSSELL 2000 FUND CLASS I SHARES 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
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. Class I shares have a shareholder services fee of up to .25% of their average daily net assets. 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. 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 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. 8 SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2004 -- UNAUDITED U.S. EMERGING GROWTH FUND
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------- COMMON STOCK -- 98.2% ADVANCED MATERIALS/PRODUCTS -- 0.5% Ceradyne, Inc.* ## 2,600 $ 114,166 -------------- ADVERTISING SERVICES -- 0.4% Greenfield Online, Inc.* ## 4,700 95,457 -------------- AEROSPACE/DEFENSE -- 0.6% Esterline Technologies Corp.* 4,400 134,596 -------------- AEROSPACE/DEFENSE-EQUIPMENT -- 0.4% BE Aerospace* ## 10,200 92,820 -------------- APPAREL MANUFACTURERS -- 2.2% Carter's, Inc.* 4,900 135,681 Guess?, Inc.* 6,500 115,765 Oxford Industries, Inc.## 3,200 119,200 Quiksilver, Inc.* 5,400 137,268 -------------- 507,914 -------------- APPLICATIONS SOFTWARE -- 1.0% PalmSource, Inc.* 5,500 114,070 Serena Software, Inc.* ## 6,900 115,437 -------------- 229,507 -------------- AUDIO/VIDEO PRODUCTS -- 0.0% Vialta, Inc.* 193 46 -------------- AUTO/TRUCK PARTS & EQUIPMENT-ORIGINAL -- 0.4% Tenneco Automotive, Inc.* ## 6,600 86,460 -------------- BUILDING & CONSTRUCTION PRODUCTS-MISCELLANEOUS -- 1.5% NCI Building Systems, Inc.* 5,400 172,260 Simpson Manufacturing Co., Inc.## 2,700 170,640 -------------- 342,900 -------------- BUILDING PRODUCTS-CEMENT/AGGREGATE -- 0.6% Texas Industries, Inc. 2,600 133,744 -------------- BUILDING-MOBIL HOME/MANUFACTURED HOUSING -- 0.6% Champion Enterprises, Inc.* ## 13,600 139,944 -------------- CASINO HOTELS -- 0.7% Boyd Gaming Corp.## 5,200 146,380 -------------- CASINO SERVICES -- 0.7% Shuffle Master, Inc.* ## 4,400 164,824 -------------- CELLULAR TELECOMMUNICATIONS -- 0.8% Alamosa Holdings, Inc.* ## 22,900 174,956 JAMDAT Mobile, Inc.* 700 16,149 -------------- 191,105 -------------- CHEMICALS-SPECIALTY -- 0.7% Cabot Microelectronics Corp.* ## 4,100 148,625 -------------- COAL -- 0.4% Massey Energy Co.## 3,300 95,469 -------------- COMMERCIAL BANKS-WESTERN US -- 0.6% Silicon Valley Bancshares* 3,400 $ 126,378 -------------- COMPUTER AIDED DESIGN -- 0.4% ANSYS, Inc.* ## 2,000 99,460 -------------- COMPUTERS -- 0.5% Mentor Corp.## 2,800 94,304 PalmOne, Inc.* ## 300 9,132 -------------- 103,436 -------------- COMPUTERS-INTEGRATED SYSTEMS -- 1.0% Intergraph Corp.* ## 5,400 146,718 Radisys Corp.* ## 5,600 78,120 -------------- 224,838 -------------- CONSULTING SERVICES -- 0.7% Charles River Associates, Inc.* ## 2,200 84,238 Navigant Consulting, Inc.* ## 3,700 81,252 -------------- 165,490 -------------- CONSUMER PRODUCTS-MISCELLANEOUS -- 2.0% American Greetings Corp. Cl. A* 4,400 110,528 Fossil, Inc.* ## 3,350 103,649 Jarden Corp.* ## 6,300 229,887 -------------- 444,064 -------------- COSMETICS & TOILETRIES -- 1.3% Chattem, Inc.* 5,000 161,250 Elizabeth Arden, Inc.* ## 6,500 136,890 -------------- 298,140 -------------- DATA PROCESSING/MANAGEMENT -- 0.7% CSG Systems International, Inc.* ## 6,700 103,247 eFunds Corp.* 3,500 65,065 -------------- 168,312 -------------- DIAGNOSTIC EQUIPMENT -- 2.5% Cytyc Corp.* 6,600 159,390 Gen-Probe, Inc.* 4,100 163,467 Immucor, Inc.* ## 10,150 251,212 -------------- 574,069 -------------- DISTRIBUTION/WHOLESALE -- 0.1% LKQ Corp.* ## 1,700 31,059 -------------- DIVERSIFIED MANUFACTURING OPERATIONS -- 1.3% Esco Technologies, Inc.* 2,600 176,176 Jacuzzi Brands, Inc.* 12,000 111,600 -------------- 287,776 -------------- DRUG DELIVERY SYSTEMS -- 0.5% Noven Pharmaceuticals, Inc.* ## 5,900 122,956 -------------- E-COMMERCE/PRODUCTS -- 0.8% Stamps.Com, Inc.* 13,100 174,230 --------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 9
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------- COMMON STOCK (Continued) ELECTRONIC COMPONENTS-MISCELLANEOUS -- 0.4% DSP Group, Inc.* 1,700 $ 35,785 NVE Corp.* ## 1,500 49,575 -------------- 85,360 -------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS -- 1.1% Microsemi Corp.* 5,300 74,730 Silicon Image, Inc.* 14,300 180,752 -------------- 255,482 -------------- ELECTRONIC DESIGN AUTOMATION -- 0.5% Magma Design Automation* ## 7,800 117,624 -------------- ELECTRONIC MEASURE INSTRUMENTS -- 1.6% Measurement Specialties, Inc.* 5,500 136,675 Molecular Devices Corp.* ## 700 16,499 Trimble Navigation, Ltd.* 6,400 202,240 -------------- 355,414 -------------- ELECTRONICS-MILITARY -- 0.6% EDO Corp.## 5,100 141,525 -------------- ENERGY-ALTERNATE SOURCES -- 0.9% Headwaters, Inc.* ## 6,200 191,332 -------------- ENTERPRISE SOFTWARE/SERVICES -- 0.5% Microstrategy, Inc.* 3,000 123,270 -------------- ENTERTAINMENT SOFTWARE -- 0.6% Take -- Two Interactive Software, Inc.* 4,400 144,540 -------------- ENVIRON MONITORING & DET -- 0.5% Mine Safety Appliances Co.## 2,600 105,872 -------------- FILTRATION/SEPARATE PRODUCTS -- 0.7% Cuno, Inc.* 2,700 155,925 -------------- FINANCE-AUTO LOANS -- 0.5% Westcorp## 2,900 123,308 -------------- FINANCE-CREDIT CARD -- 0.8% Metris Companies, Inc.* 17,800 174,084 -------------- FINANCE-INVESTMENT BANKERS/BROKERS -- 0.5% Raymond James Financial, Inc. 4,750 114,570 -------------- FOOD-WHOLESALE/DISTRIBUTION -- 1.1% United Natural Foods, Inc.* 9,300 247,380 -------------- FOOTWEAR & RELATED APPAREL -- 0.7% Skechers USA, Inc. Cl. A* 11,600 168,432 -------------- HUMAN RESOURCES -- 2.8% Heidrick & Struggles Intl* 6,300 181,566 Hudson Highland Group, Inc.* ## 5,900 172,221 Korn/Ferry International* 8,900 162,247 Resources Connection, Inc.* ## 3,000 113,340 -------------- 629,374 -------------- IDENTIFICATION SYSTEMS/DEVICES -- 0.3% Cogent, Inc.* ## 3,200 $ 58,304 -------------- INDUSTRIAL AUTOMATION/ROBOTICS -- 0.6% Unova, Inc.* ## 9,000 126,450 -------------- INSTRUMENTS-SCIENTIFIC -- 0.8% Varian, Inc.* 4,500 170,415 -------------- INTERNET CONNECTIVITY SERVICES -- 0.5% Redback Networks, Inc.* ## 23,100 120,582 -------------- INTERNET CONTENT-INFO/NEWS -- 1.5% Cnet Networks Inc.* 18,800 172,020 InfoSpace, Inc.* ## 3,700 175,343 -------------- 347,363 -------------- INTERNET INFRASTRUCTURE SOFTWARE -- 0.6% RADWARE, Ltd.* 6,600 145,200 -------------- INTERNET SECURITY -- 0.2% WatchGuard Technologies, Inc.* ## 11,600 54,288 -------------- LASERS-SYSTEMS/COMPONENTS -- 0.8% Cymer, Inc.* 6,300 180,558 -------------- LEISURE & RECREATIONAL PRODUCTS -- 0.6% K2, Inc.* ## 9,300 133,083 -------------- MACHINERY-CONSTRUCTION & MINING -- 0.8% Bucyrus International, Inc. Cl. A* 400 13,440 Terex Corp.* 3,600 156,240 -------------- 169,680 -------------- MACHINERY-GENERAL INDUSTRY -- 0.4% Gardner Denver, Inc.* ## 3,500 96,495 -------------- MACHINERY-PUMPS -- 1.0% Graco, Inc. ## 6,600 221,100 -------------- MEDICAL INFORMATION SYSTEMS -- 1.3% Allscripts Healthcare Solutions, Inc.* 14,800 133,200 IDX Systems Corp.* 4,800 155,760 -------------- 288,960 -------------- MEDICAL INSTRUMENTS -- 1.2% Intuitive Surgical, Inc.* ## 5,400 133,650 Ventana Medical Systems, Inc.* 2,600 131,144 -------------- 264,794 -------------- MEDICAL PRODUCTS -- 0.4% EPIX Medical, Inc.* ## 4,400 84,964 -------------- MEDICAL-BIOMEDICAL/GENETICS -- 2.0% Northfield Laboratories, Inc.* ## 5,500 73,535 Serologicals Corp.* ## 7,900 184,307 Telik, Inc.* ## 9,000 200,700 -------------- 458,542 --------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 10
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------- COMMON STOCK (Continued) MEDICAL-DRUGS -- 1.4% Pharmion Corp.* ## 600 $ 31,018 Salix Pharmaceuticals, Ltd.* ## 8,050 173,236 Vaxgen, Inc.* ## 8,800 117,480 -------------- 321,734 -------------- MEDICAL-HMO -- 0.6% AMERIGROUP Corp.* 2,300 129,375 -------------- MEDICAL-NURSING HOMES -- 0.6% Kindred Healthcare, Inc.* 5,900 143,960 -------------- MEDICAL-OUTPATIENT/HOME MEDICAL CARE -- 0.6% Amedisys, Inc.* ## 4,500 134,775 -------------- MULTILEVEL DIRECT SELLING -- 0.6% Nu Skin Enterprises, Inc. Cl. A## 5,400 126,954 -------------- NETWORKING PRODUCTS -- 1.0% Aeroflex, Inc.* 11,000 116,270 Ixia* ## 10,200 99,144 -------------- 215,414 -------------- NON-HAZARDOUS WASTE DISPOSAL -- 0.6% Waste Connections, Inc.* ## 4,200 133,056 -------------- OIL & GAS DRILLING -- 0.8% Grey Wolf, Inc.* 28,400 138,876 Todco Cl. A* 2,600 45,110 -------------- 183,986 -------------- OIL COMPANIES-EXPLORATION & PRODUCTION -- 2.6% Cheniere Energy, Inc.* ## 6,600 130,416 Southwestern Energy Co.* ## 3,100 130,169 Swift Energy Co.* 7,400 177,304 Unit Corp.* 4,400 154,352 -------------- 592,241 -------------- OIL FIELD MACHINERY & EQUIPMENT -- 1.1% Carbo Ceramics, Inc.## 1,500 108,210 Lone Star Technologies Inc.* 3,800 143,640 -------------- 251,850 -------------- OIL-FIELD SERVICES -- 2.5% Cal Dive International, Inc.* 5,800 206,596 Tetra Technologies, Inc.* 5,600 173,880 Varco International, Inc.* 6,600 177,012 -------------- 557,488 -------------- OPTICAL SUPPLIES -- 0.8% Advanced Medical Optics, Inc.* ## 4,400 174,108 -------------- PHARMACY SERVICES -- 0.5% Healthextras, Inc.* 7,900 110,126 -------------- PHYSICAL PRACTICE MANAGEMENT -- 1.0% American Healthways, Inc.* ## 7,900 $ 229,969 -------------- RACETRACKS -- 0.3% Penn National Gaming, Inc.* 1,900 76,760 -------------- REAL ESTATE MANAGEMENT/SERVICES -- 0.9% Jones Lang LaSalle, Inc.* ## 6,000 198,060 -------------- REAL ESTATE OPERATION/DEVELOPMENT -- 0.3% Corrections Corp. of America* 1,900 67,184 -------------- RECREATIONAL CENTERS -- 0.2% Life Times Fitness, Inc.* ## 1,700 43,622 -------------- RESEARCH & DEVELOPMENT -- 0.5% SFBC International, Inc.* 4,100 107,871 -------------- RESPIRATORY PRODUCTS -- 0.6% Respironics, Inc.* 2,700 144,288 -------------- RETAIL-APPAREL/SHOE -- 2.0% Aeropostale, Inc.* 2,000 52,400 Children's Place Retail Stores, Inc.* 5,900 141,069 Jos A Bank Clothiers, Inc.* ## 5,825 161,236 Stein Mart, Inc.* 6,400 97,408 -------------- 452,113 -------------- RETAIL-CATALOG SHOPPING -- 0.4% Coldwater Creek, Inc.* 4,400 91,828 -------------- RETAIL-HOME FURNISHINGS -- 0.2% Design Within Reach, Inc.* 2,500 42,975 -------------- RETAIL-LEISURE PRODUCTS -- 0.6% MarineMax, Inc.* 5,700 128,364 -------------- RETAIL-PAWN SHOPS -- 0.8% Cash America International, Inc. 7,700 188,342 -------------- RETAIL-RESTAURANTS -- 1.5% Buffalo Wild Wings, Inc.* 6,400 179,456 CKE Restaurants, Inc.* 5,400 59,670 McCormick & Schmick's Seafood Restaurants, Inc.* ## 8,000 95,920 -------------- 335,046 -------------- RETAIL-SPORTING GOODS -- 0.9% Dick's Sporting Goods, Inc.* 3,800 135,356 Gander Mountain Co.* ## 3,500 70,052 -------------- 205,408 -------------- SCHOOLS -- 0.7% Laureate Education, Inc.* 4,500 167,490 -------------- SEISMIC DATA COLLECTION -- 1.1% Input/Output, Inc.* ## 12,700 130,937 Veritas DGC, Inc.* 5,300 120,734 -------------- 251,671 --------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 11
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------- COMMON STOCK (Continued) SEMICONDUCTOR COMPONENTS-INTEGRATED CIRCUITS -- 1.1% Genesis Microchip, Inc.* 9,400 $ 126,900 Sigmatel Inc.* 5,500 116,655 -------------- 243,555 -------------- SEMICONDUCTOR EQUIPMENT -- 3.8% ASE Test, Ltd.* 20,300 106,575 Brooks Automation, Inc.* 10,200 144,330 Credence Systems Corp.* ## 21,900 157,680 DuPont Photomasks, Inc.* ## 6,700 114,168 Entegris, Inc.* 13,500 112,590 Rudolph Technologies, Inc.* 6,800 113,832 Varian Semiconductor Equipment Associates, Inc.* ## 3,700 114,330 -------------- 863,505 -------------- STEEL PIPE & TUBE -- 0.8% Maverick Tube Corp.* 5,800 178,698 -------------- STEEL-PRODUCERS -- 1.8% AK Steel Holding Corp.* 24,100 196,656 Carpenter Technology Corp.## 4,500 214,830 -------------- 411,486 -------------- SUPERCONDUCTOR PRODUCTS & SYSTEMS -- 0.9% Intermagnetics General Corp.* 9,050 209,508 -------------- TELECOMMUNICATIONS EQUIPMENT -- 1.0% Ditech Communications Corp.* 5,138 115,040 Tekelec* 6,200 103,416 -------------- 218,456 -------------- TELECOMMUNICATIONS SERVICES -- 0.5% PTEK Holdings, Inc.* 11,800 101,126 -------------- TEXTILE-APPAREL -- 0.9% DHB Industries, Inc.* ## 14,200 201,640 -------------- THERAPEUTICS -- 5.6% Atherogenics, Inc.* ## 4,400 144,980 Bioenvision, Inc.* ## 15,300 122,247 Bone Care International, Inc.* ## 6,400 155,520 Dendreon Corp.* ## 10,300 86,623 Eyetech Pharmaceuticals, Inc.* ## 4,100 139,359 Nabi Biopharmaceuticals* ## 12,400 165,912 NitroMed, Inc.* ## 6,700 159,728 Onyx Pharmaceuticals, Inc.* ## 4,400 189,244 Tanox, Inc.* ## 6,300 106,281 -------------- 1,269,894 -------------- TRANSACTIONAL SOFTWARE -- 0.8% Open Solutions, Inc.* 1,400 $ 34,958 Transaction Systems Architects, Inc. Cl. A* 8,300 154,256 -------------- 189,214 -------------- TRANSPORT-AIR FREIGHT -- 0.7% EGL, Inc.* 5,500 166,430 -------------- TRANSPORT-TRUCK -- 1.6% Arkansas Best Corp. 4,400 161,128 Overnite Corp. 6,600 207,438 -------------- 368,566 -------------- WIRE & CABLE PRODUCTS -- 0.5% General Cable Corp.* 10,400 110,656 -------------- WIRELESS EQUIPMENT -- 1.8% Audiovox Corp. Cl. A* ## 9,500 159,980 Novatel Wireless, Inc.* 5,900 138,650 RF Micro Devices, Inc.* ## 18,200 115,388 -------------- 414,018 -------------- TOTAL COMMON STOCK (Cost: $19,130,877) 22,251,245 -------------- PRINCIPAL AMOUNT - ---------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS -- 29.2% MONEY MARKET FUNDS -- 28.1% Federated Prime Obligations Fund** $ 6,364,875 6,364,875 -------------- TIME DEPOSIT -- 1.1% HSBC Bank USA 1.300%, 10/01/04 256,149 256,149 -------------- TOTAL SHORT TERM INVESTMENTS (Cost: $6,621,024) 6,621,024 -------------- TOTAL INVESTMENTS -- 127.4% (Cost: $25,751,901) 28,872,269 LIABILITIES IN EXCESS OF OTHER ASSETS -- (27.4%) (6,205,061) -------------- NET ASSETS -- 100.0% $ 22,667,208 ==============
- ---------- * 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 9/30/04. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 12 SCHEDULE OF INVESTMENTS BY INDUSTRY AS OF SEPTEMBER 30, 2004 -- UNAUDITED U.S. EMERGING GROWTH FUND
PERCENTAGE OF INDUSTRY NET ASSETS - -------- --------------- Basic Materials 2.5% Communications 9.1 Consumer, Cyclical 20.0 Consumer, Non-cyclical 21.8 Energy 9.4 Financial 3.6 Industrial 18.5% Technology 13.3 Short Terms Investments 29.2 Liabilities in excess of other assets (27.4) ----- NET ASSETS 100.0% =====
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 13 U.S. SMALL CAP VALUE FUND MANAGEMENT TEAM: MARK W. STUCKELMAN, Lead Portfolio Manager; STEPHEN SEXAUER, Portfolio Manager; CHARLES HOEVELER, Investment Analyst; JOHN MAZUR, Investment Analyst; NELSON W. SHING, Investment Analyst; AERUS TRAN, Investment Analyst; MARK P. ROEMER, Portfolio Specialist. 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: Major U.S. stock market indices, including the S&P 500 Index and the Dow Jones Industrial Average, drifted slightly lower during the six months ended September 30, 2004. After posting gains in the first half of the period, equities weakened in July and August as a result of: - Rising oil prices and higher interest rates - Perceived slowdown in China, where strong growth has helped drive robust demand for basic materials - Weakening demand in the technology sector The period ended on a strong note, with equities rebounding somewhat in September. Within the U.S. equity market, small-cap value stocks did comparatively well, with the Russell 2000 Value Index registering a modest increase. Among small-cap value stocks, information technology and telecommunication services issues lagged, while energy, materials and industrials outperformed. PERFORMANCE: The Fund gained 1.47% from April 1, 2004 through September 30, 2004. The Russell 2000 Value Index rose 0.99%. PORTFOLIO SPECIFICS: Holdings in a number of sectors added value relative to the index, including industrials, consumer discretionary and utilities. Solid results in these groups offset relative weakness in other areas, such as energy and financials. In industrials, the portfolio benefited from being overweight the sector and positive stock selection. Top-performing positions included ESCO Technologies and Joy Global. ESCO, which makes meters used for time-of-use meter reading, benefited from a surge of interest among utility companies moving to a time-of-use fee structure to encourage energy conservation. Joy Global, a manufacturer of coal and copper mining equipment, benefited from strong copper and coal prices. Stock selection also drove relative strength in the consumer discretionary and utilities sectors. For example, Lions Gate, a film production company, performed well due to the success of its slate of movies being shown at theaters. Shares of Energen, a natural gas utility, rose amid better-than-expected operating results and increased earnings guidance. MARKET OUTLOOK: The economy continues to improve, which should bode well for further stock market gains. However, high commodity prices, election uncertainty, the threat of terrorism and the war in Iraq all pose significant risks to the economy and the stock market. Regardless of the direction on the stock market, we are confident our diversified approach to managing the Fund will enable us to add value in any environment. 14 [CHART] COMPARISON OF CHANGE IN VALUE OF A $250,000 INVESTMENT IN U.S. SMALL CAP VALUE FUND CLASS I SHARES WITH THE RUSSELL 2000 VALUE INDEX. ANNUALIZED TOTAL RETURNS As of 9/30/04
SINCE 1 YEAR 5 YEARS INCEPTION 30.51% 19.88% 13.63%
U.S. SMALL CAP VALUE RUSSELL 2000 FUND CLASS I SHARES 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
The graph above shows the value of a hypothetical $250,000 investment in the Fund's Class I shares compared with the Russell 2000 Value Index for the periods indicated. Class I shares have a shareholder services fee of up to .25% of their average daily net assets. Performance is shown for 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. 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. 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 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. 15 SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2004 -- UNAUDITED U.S. SMALL CAP VALUE FUND
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------- COMMON STOCK -- 96.9% AEROSPACE/DEFENSE-EQUIPMENT -- 1.5% AAR Corp.* ## 75,200 $ 936,240 -------------- APPAREL MANUFACTURERS -- 0.7% Kellwood Co. 12,500 455,625 -------------- APPLICATIONS SOFTWARE -- 0.9% Actuant Corp. Cl. A* 14,200 585,182 -------------- AUTO-MEDIUM & HEAVY DUTY TRUCKS -- 1.1% Oshkosh Truck Co. 12,000 684,720 -------------- BROADCAST SERVICES/PROGRAMMING -- 1.2% UnitedGlobalCom, Inc. Cl. A* 99,132 740,516 -------------- BUILDING & CONSTRUCTION-MISCELLANEOUS -- 1.4% Dycom Industries, Inc.* 30,200 857,378 -------------- BUILDING PRODUCTS-CEMENT/AGGREGATE -- 1.2% Florida Rock Industries 15,700 769,143 -------------- BUILDING-HEAVY CONSTRUCTION -- 0.7% Washington Group International, Inc.* 12,100 418,902 -------------- CELLULAR TELECOMMUNICATIONS -- 1.0% NII Holdings, Inc. Cl. B* 15,000 618,150 -------------- CHEMICALS-PLASTICS -- 1.2% Spartech Corp. 29,600 742,960 -------------- CHEMICALS-SPECIALTY -- 1.4% Millennium Chemicals, Inc.* ## 41,400 878,094 -------------- COMMERCIAL BANKS-CENTRAL US -- 1.9% Associated Banc Corp. 28,350 909,184 Macatawa Bank Corp. 10,605 297,470 -------------- 1,206,654 -------------- COMMERCIAL BANKS-EASTERN US -- 1.4% Community Bank Systems, Inc. 34,400 864,472 -------------- COMMERCIAL BANKS-WESTERN US -- 1.1% Greater Bay Bancorp## 23,000 661,250 -------------- COMMERCIAL SERVICES -- 0.9% SOURCECORP, Inc.* 26,300 582,282 -------------- COMPUTER AIDED DESIGN -- 0.6% MSC, Software Corp.* 45,800 368,232 -------------- COMPUTER SERVICES -- 0.2% PEC Solutions, Inc.* 11,400 133,608 -------------- COMPUTERS-INTEGRATED SYSTEMS -- 1.1% MTS Systems Corp. 16,300 346,375 Radisys Corp.* 25,700 358,515 -------------- 704,890 -------------- COMPUTERS-MEMORY DEVICES -- 0.3% M-Systems Flash Disk Pioneers* 10,500 $ 173,460 -------------- DIVERSIFIED MANUFACTURING OPERATIONS -- 6.9% Ameron International Corp. 18,300 602,070 Carlisle Cos, Inc. 15,400 984,522 Esco Technologies, Inc.* 12,800 867,328 The Brink's Co. 29,600 893,032 Tredegar Corp. 55,200 1,004,640 -------------- 4,351,592 -------------- ELECTRONIC COMPONENTS-MISCELLANEOUS -- 1.2% Methode Electronics, Inc. 59,400 759,726 -------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS -- 0.4% Richardson Electronics, Ltd. 28,100 270,041 -------------- ENGINES-INTERNAL COMBUST -- 1.5% Briggs & Stratton Corp. 11,900 966,280 -------------- FINANCE-AUTO LOANS -- 1.5% AmeriCredit Corp.* 44,100 920,808 -------------- FINANCE-INVESTMENT BANKERS/BROKERS -- 1.1% Knight Trading Group, Inc.* 76,300 704,249 -------------- FINANCIAL GUARANTEE INSURANCE -- 1.1% Assured Guaranty, Ltd. 42,300 704,718 -------------- FUNERAL SERVICES & RELATED ITEMS -- 1.2% Stewart Enterprises, Inc. Cl. A* 105,100 730,445 -------------- GARDEN PRODUCTS -- 1.4% Toro Co. 12,800 874,240 -------------- GAS-DISTRIBUTION -- 3.1% Energen Corp. 18,500 953,675 UGI Corp. 26,850 1,000,431 -------------- 1,954,106 -------------- HOTELS & MOTELS -- 0.9% Jameson Inns, Inc.* 310,500 552,690 -------------- INVESTMENT MANAGEMENT/ADVISOR SERVICES -- 1.3% Fieldstone Investment Corp. 48,500 824,500 -------------- LASERS-SYSTEMS/COMPONENTS -- 1.2% Electronics for Imaging, Inc.* 15,300 248,472 Rofin-Sinar Technologies, Inc.* 18,100 531,778 -------------- 780,250 -------------- MACHINERY-CONSTRUCTION & MINING -- 1.2% Joy Global, Inc. 22,100 759,798 -------------- MACHINERY-GENERAL INDUSTRY -- 2.5% Gardner Denver, Inc.* 27,100 747,147 Middleby Corp.## 15,800 831,870 -------------- 1,579,017 --------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 16
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------- COMMON STOCK (Continued) MEDICAL LASER SYSTEMS -- 1.3% Candela Corp.* 73,300 $ 845,882 -------------- MEDICAL PRODUCTS -- 0.9% Inamed Corp.* 11,649 555,308 -------------- MEDICAL-BIOMEDICAL/GENETICS -- 0.6% Applera Corp. -- Celera Genomics Group* 30,700 358,883 -------------- MEDICAL-HOSPITALS -- 1.0% LifePoint Hospitals, Inc.* 21,200 636,212 -------------- MEDICAL-NURSING HOMES -- 1.0% Kindred Healthcare, Inc.* 26,800 653,920 -------------- METAL PROCESSORS & FABRICATION -- 1.4% Quanex Corp. 17,400 892,272 -------------- METAL-ALUMINUM -- 2.0% Century Aluminum Co.* 22,100 612,833 Commonwealth Industries, Inc.* 69,400 648,196 -------------- 1,261,029 -------------- MOTION PICTURES & SERVICES -- 1.3% Lions Gate Entertainment Corp.* 93,700 815,190 -------------- PAPER & RELATED PRODUCTS -- 0.9% P.H. Glatfelter Co. 43,400 537,726 -------------- PIPELINES -- 1.2% Aquila, Inc.* ## 245,500 765,960 -------------- POLLUTION CONTROL -- 0.8% Duratek, Inc.* 30,000 533,700 -------------- POWER CONVERSION/SUPPLY EQUIPMENT -- 0.7% Artesyn Technologies, Inc.* ## 46,300 462,074 -------------- PROPERTY/CASUALTY INSURANCE -- 3.5% Meadowbrook Insurance Group* 150,400 732,448 Quanta Capital Holdings, Ltd.* 77,400 630,810 Selective Insurance Group 22,300 829,560 -------------- 2,192,818 -------------- PUBLISHING-NEWSPAPERS -- 1.0% Lee Enterprises 14,000 648,760 -------------- REAL ESTATE OPERATION/DEVELOPMENT -- 1.2% Corrections Corp. of America* 21,900 774,384 -------------- REINSURANCE -- 1.1% PXRE Group, Ltd. 28,500 667,185 -------------- REITS-DIVERSIFIED -- 6.6% Capital Automotive 18,100 565,987 Diamondrock Hospitality Co.* 87,700 877,000 Jer Investors Trust, Inc.* 89,200 1,338,000 Provident Senior Living Trust* 54,000 $ 810,000 Washington Real Estate Investment Trust 19,400 587,820 -------------- 4,178,807 -------------- REITS-HOTELS -- 0.9% Ashford Hospitality Trust 62,900 591,260 -------------- REITS-MANUFACTURED HOMES -- 0.9% Manufactured Home Communities, Inc. 17,000 565,080 -------------- REITS-MORTGAGE -- 2.3% Homebanc Corp.* 85,000 765,000 Luminent Mortgage Capital, Inc. 55,600 705,008 -------------- 1,470,008 -------------- REITS-SHOPPING CENTERS -- 1.0% Equity One, Inc. 33,700 661,194 -------------- RETAIL-HOME FURNISHINGS -- 1.1% Haverty Furniture Cos., Inc. 40,400 708,616 -------------- RETAIL-REGIONAL DEPARTMENT STORES -- 0.9% Neiman Marcus Group, Inc. Cl. A 9,800 563,500 -------------- RETAIL-RESTAURANTS -- 0.9% Lone Star Steakhouse & Saloon, Inc. 21,600 557,928 -------------- RETAIL-SPORTING GOODS -- 0.9% Hibbett Sporting Goods, Inc.* 26,800 549,132 -------------- SAVINGS & LOANS/THRIFTS-CENTRAL US -- 1.1% Bank Mutual Corp. 56,985 683,820 -------------- SAVINGS & LOANS/THRIFTS-EASTERN US -- 3.0% Brookline Bancorp, Inc. 40,828 639,775 First Niagara Financial Group, Inc. 61,600 824,208 Parkvale Financial Corp. 17,000 459,000 -------------- 1,922,983 -------------- SCHOOLS -- 0.5% Concorde Career Colleges, Inc.* 22,100 339,677 -------------- SEMICONDUCTOR EQUIPMENT -- 1.5% ASE Test, Ltd.* 61,500 322,875 Mattson Technology, Inc.* 37,200 286,068 Photronics, Inc.* 19,900 330,738 -------------- 939,681 -------------- SUPER-REGIONAL BANKS-US -- 1.2% National City Corp. 20,203 780,240 -------------- TELECOMMUNICATIONS EQUIPMENT -- 0.7% Comtech Telecommunications* 16,500 447,150 -------------- TELECOMMUNICATIONS SERVICES -- 0.6% PTEK Holdings, Inc.* 46,400 397,648 --------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 17
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------- COMMON STOCK (Continued) THEATERS -- 1.2% Carmike Cinemas, Inc. 21,500 $ 757,015 -------------- THERAPEUTICS -- 0.9% Medarex, Inc.* ## 80,600 594,828 -------------- TRANSPORT-RAIL -- 1.5% Genesee & Wyoming, Inc. Cl. A* 38,250 968,490 -------------- TRANSPORT-SERVICES -- 0.4% Laidlaw International Inc.* 14,800 243,460 -------------- TRANSPORT-TRUCK -- 1.1% Old Dominion Freight Line, Inc.* 24,900 717,369 -------------- VENTURE CAPITAL -- 1.5% Kohlberg Kravis Roberts Corp. 144A#* 89,600 918,400 -------------- TOTAL COMMON STOCK (Cost: $49,757,311) 61,271,807 -------------- PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS -- 8.3% MONEY MARKET FUNDS -- 6.2% Federated Prime Obligations Fund** $ 3,937,825 $ 3,937,825 -------------- TIME DEPOSIT -- 2.1% HSBC Bank USA 1.300%, 10/01/04 1,313,623 1,313,623 -------------- TOTAL SHORT TERM INVESTMENTS (Cost: $5,251,448) 5,251,448 -------------- TOTAL INVESTMENTS -- 105.2% (Cost: $55,008,759) 66,523,255 LIABILITIES IN EXCESS OF OTHER ASSETS -- (5.2%) (3,315,362) -------------- NET ASSETS -- 100.0% $ 63,207,893 ==============
- ---------- * Non-income producing securities. ** All of the security is purchased with cash collateral proceeds from securities loans. # 144A security. Certain conditions for public sale may exsist. Total market value of 144A securities owned at September 30, 2004 was $918,400 or 1.45% of net assets. ## All or a portion of the Fund's holdings in this security was on loan as of 9/30/04. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 18 SCHEDULE OF INVESTMENTS BY INDUSTRY AS OF SEPTEMBER 30, 2004 -- UNAUDITED U.S. SMALL CAP VALUE FUND
PERCENTAGE OF INDUSTRY NET ASSETS - -------- --------------- Basic Materials 5.5% Communications 4.5 Consumer, Cyclical 10.4 Consumer, Non-cyclical 8.3 Energy 1.2 Financial 33.7 Industrial 25.2% Technology 5.0 Utilities 3.1 Short Term Investments 8.3 Liabilities in excess of other assets (5.2) ----- NET ASSETS 100.0% =====
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 19 U.S. LARGE CAP VALUE FUND MANAGEMENT TEAM: STEPHEN SEXAUER, Lead Portfolio Manager; MARK W. STUCKELMAN, Portfolio Manager; CHARLES HOEVELER, Investment Analyst; JOHN MAZUR, Investment Analyst; NELSON W. SHING, Investment Analyst; AERUS TRAN, Investment Analyst; MARK P. ROEMER, Portfolio Specialist. 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: The broad U.S. equity market treaded water during the six months ended September 30, 2004. Stock prices changed direction from month to month but finished in approximately the same place they began. For the full period, the S&P 500 Index dipped 0.18%. Equity prices fell in April on rising interest rate concerns, only to rebound in May and June. A stronger-than-anticipated jobs report, followed by other strong economic data, led the Federal Reserve to begin raising short-term interest rates for the first time in four years on June 30. All together, the Fed raised the target funds rate three times during the six-month period for a total increase of 0.75%. Investors sent equity prices lower in July as second-quarter profit reports were followed by weaker-than-expected earnings guidance. While stocks rallied toward the end of the period, gains were unable to fully offset prior months' losses. Large-cap stocks beat small caps this period, and value continued to outpace growth. Stocks in many value-oriented sectors, such as materials and industrials, have benefited from the recovery in the economy and historically low interest rates. PERFORMANCE: During the six months ended September 30, 2004, the Fund rose 1.35% and the Russell 1000 Value Index gained 2.44%. PORTFOLIO SPECIFICS: In absolute terms, sector returns in the Fund were mixed. For example, holdings in the energy and materials sectors posted double-digit gains, while positions in the consumer discretionary and health care sectors declined. Versus the index, the Fund's performance was hurt by stock selection in the consumer discretionary sector, most notably in the retail area. An overweight was also unfavorable, as consumer discretionary stocks lagged the broad large-cap value market. An overweight and issue selection in financials, particularly among commercial banks, was another source of relative weakness. In contrast, stock selection was positive in the information technology sector, although this was partially offset by an overweight in the group. Issue selection was also favorable among consumer staples and telecommunication services firms. Amid surging oil prices, the best-performing stocks included ConocoPhillips and Exxon Mobil. Microsoft and Verizon were also top performers, as both companies reported better-than-expected operating results. Not owning Merck was a plus, as the stock fell sharply after the company announced it would pull its Vioxx arthritis drug off the market. MARKET OUTLOOK: The outlook for U.S. equities remains favorable. While rising energy and commodity prices remain a source of concern, earnings and profit margins have remained relatively resilient. In addition, the economy is expected to expand at a moderate pace with employment and corporate investment showing improvement in the months ahead. Regardless of how macro events unfold, our focus on valuation, financial strength and positive change should enable us to deliver consistent, long-term performance in the Fund relative to the benchmark. 20 [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. ANNUALIZED TOTAL RETURNS As of 9/30/04
SINCE 1 YEAR 5 YEARS INCEPTION 18.14% 5.15% 12.31%
U.S. LARGE CAP VALUE RUSSELL 1000 FUND CLASS I SHARES 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
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. Class I shares have a shareholder services fee of up to .25% of their average daily net assets. 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. 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. 21 SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2004 -- UNAUDITED U.S. LARGE CAP VALUE FUND
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------- COMMON STOCK -- 96.4% AEROSPACE/DEFENSE -- 1.0% Raytheon Co. 6,000 $ 227,880 -------------- APPLICATIONS SOFTWARE -- 3.5% Microsoft Corp. 28,900 799,085 -------------- BEVERAGES-NON-ALCOHOLIC -- 1.2% PepsiCo, Inc. 5,400 262,710 -------------- COMMERCIAL BANKS-EASTERN US -- 2.3% North Fork Bancorp. 11,500 511,175 -------------- COMPUTERS -- 1.6% Hewlett-Packard Co. 19,400 363,750 -------------- CONSUMER PRODUCTS-MISCELLANEOUS -- 1.6% Fortune Brands, Inc. 5,000 370,450 -------------- COSMETICS & TOILETRIES -- 2.9% Kimberly-Clark Corp. 5,200 335,868 Procter & Gamble Co. 5,700 308,484 -------------- 644,352 -------------- DIVERSIFIED MANUFACTURING OPERATIONS -- 7.2% ITT Industries, Inc. 9,700 775,903 Textron, Inc. 7,300 469,171 Tyco International, Ltd. 12,300 377,118 -------------- 1,622,192 -------------- ELECTRIC-INTEGRATED -- 1.1% Public Services Enterprise Group 5,800 247,080 -------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS -- 2.7% PPL Corp. 5,200 245,336 Texas Instuments, Inc. 16,800 357,504 -------------- 602,840 -------------- FIDUCIARY BANKS -- 2.4% Bank of New York Co., Inc. 18,700 545,479 -------------- FINANCE-INVESTMENT BANKERS/BROKERS -- 7.2% J.P. Morgan Chase & Co. 19,500 774,735 Morgan Stanley Dean Witter & Co. 17,000 838,100 -------------- 1,612,835 -------------- FINANCIAL GUARANTEE INSURANCE -- 1.8% Ambac Financial Group, Inc. 5,200 415,740 -------------- INDUSTRIAL GASES -- 2.6% Praxair, Inc. 13,700 585,538 -------------- MEDICAL-DRUGS -- 4.1% Abbott Laboratories 9,000 381,240 Pfizer, Inc. 17,700 541,620 -------------- 922,860 -------------- MEDICAL-HMO -- 1.3% Wellpoint Health Networks, Inc.* 2,800 $ 294,252 -------------- MULTI-LINE INSURANCE -- 5.9% Allstate Corp. 8,500 407,915 American International Group, Inc. 13,600 924,664 -------------- 1,332,579 -------------- MULTIMEDIA -- 5.1% Time Warner, Inc.* 37,900 611,706 Viacom, Inc. Cl. B 8,700 291,972 Walt Disney Co. 10,700 241,285 -------------- 1,144,963 -------------- OIL COMPANIES-EXPLORATION & PRODUCTION -- 2.1% Apache Corp. 9,350 468,528 -------------- OIL COMPANIES-INTEGRATED -- 11.3% Chevrontexaco Corp. 7,400 396,936 ConocoPhillips 12,810 1,061,309 Exxon Mobil Corp. 22,400 1,082,592 -------------- 2,540,837 -------------- PROPERTY/CASUALTY INSURANCE -- 0.7% St Paul Travelers Cos Inc. 4,688 154,985 -------------- RETAIL-DISCOUNT -- 1.4% TJX Cos., Inc. 14,800 326,192 -------------- RETAIL-REGIONAL DEPARTMENT STORES -- 2.0% Federated Department Stores, Inc. 10,000 454,300 -------------- RETAIL-RESTAURANTS -- 0.6% McDonalds Corp. 4,500 126,135 -------------- SAVINGS & LOANS/THRIFTS-WESTERN US -- 3.9% Washington Mutual, Inc. 22,500 879,300 -------------- STEEL-PRODUCERS -- 0.8% United States Steel Corp. 4,500 169,290 -------------- SUPER-REGIONAL BANKS-US -- 9.6% Bank of America Corp. 22,012 953,780 US Bancorp. 11,100 320,790 Wells Fargo & Co. 14,700 876,561 -------------- 2,151,131 -------------- TELECOMMUNICATIONS EQUIPMENT -- 0.9% ADC Telecommunication, Inc.* 109,700 198,557 -------------- TELEPHONE-INTEGRATED -- 3.8% Verizon Communications, Inc. 21,600 850,608 -------------- WIRELESS EQUIPMENT -- 3.8% Motorola, Inc. 47,200 851,488 -------------- TOTAL COMMON STOCK (Cost: $18,214,139) 21,677,111 --------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 22
PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS -- 4.4% TIME DEPOSIT -- 4.4% HSBC Bank USA 1.300%, 10/01/04 (Cost: $994,292) $ 994,292 $ 994,292 -------------- TOTAL INVESTMENTS -- 100.8% (Cost: $19,208,431) 22,671,403 LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.8%) (173,342) -------------- NET ASSETS -- 100.0% $ 22,498,061 ==============
- ---------- * Non-income producing securities. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 23 SCHEDULE OF INVESTMENTS BY INDUSTRY AS OF SEPTEMBER 30, 2004 -- UNAUDITED U.S. LARGE CAP VALUE FUND
PERCENTAGE OF INDUSTRY NET ASSETS - -------- ------------- Basic Materials 0.8% Communications 13.6 Consumer, Cyclical 4.0 Consumer, Non-cyclical 11.1 Energy 13.4 Financial 33.8 Industrial 13.5% Technology 5.1 Utilities 1.1 Short Terms Investments 4.4 Liabilities in excess of other assets (0.8) ----- NET ASSETS 100.0% =====
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 24 U.S. SYSTEMATIC LARGE CAP GROWTH FUND MANAGEMENT TEAM: DAVID J. PAVAN, CFA, Portfolio Manager; STACEY R. NUTT, PH.D., Portfolio Manager; ZHUANXIN DING, PH.D., Investment Analyst; JANE EDMONSON, Investment Analyst; FRANK FENG, PH.D., Investment Analyst; JAMES LI, PH.D., CFA, Investment Analyst; AERUS TRAN, Investment Analyst; MARK P. ROEMER, Portfolio Specialist 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: Key U.S. equity indices were flat to down during the six months ended September 30, 2004 as a rally late in the period was unable to erase the summer's losses. A better-than-expected employment report in April, followed by other strong economic data, led the Federal Reserve to begin raising short-term interest rates in June. As the period progressed, however, reports pointed to more subdued economic growth. For example, consumer confidence slipped in August, and retail sales during the back-to-school period were weaker than anticipated. The rapid rise in oil prices also weighed on market sentiment. Healthy corporate profits, tame inflation and the lowest unemployment rate since September 2001 were unable to spark investor enthusiasm. Within the large-cap market, sector returns were mixed. Energy stocks were the leaders, posting double-digit increases amid rising oil prices. Utilities, telecommunication services, materials and industrial companies also generated solid gains. Information technology stocks fared the worst, down sharply on reports of rising inventories at tech bellwethers such as Intel and Texas Instruments. PERFORMANCE: The Fund registered a 2.99% decline during the six-month period from April 1, 2004 to September 30, 2004. During the same time, the Russell 1000 Growth Index lost 3.38%. PORTFOLIO SPECIFICS: The Fund modestly outperformed its benchmark, with holdings in the majority of sectors benefiting relative results. Positive stock selection and an overweight in materials stocks, which led the broader large-cap growth market, had the largest favorable effect on results versus the index. For example, the stock price of Phelps Dodge, one of the world's largest copper producers, surged as copper prices continued to rise. Dow Chemical and forest products company Weyerhaeuser also did especially well. Stock selection was also favorable among industrial and consumer discretionary names, where Norfolk Southern and Harman International were top performers. Shares of rail operator Norfolk Southern rose on better-than-expected earnings and record freight volumes. Harman International, a maker of audio and video products, reported fiscal year fourth-quarter earnings that beat analysts' expectations by increasing more than 40%, year over year. On the negative side, stock selection in information technology made this group the Fund's weakest sector in terms of relative performance. In particular, returns among semiconductor and semiconductor equipment stocks were unfavorable. 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. Through consistent application of this approach, we believe we will continue to identify companies with excellent growth potential for the Fund. 25 [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. ANNUALIZED TOTAL RETURNS As of 9/04/04
SINCE 1 YEAR 5 YEARS INCEPTION 1.25% - 12.68% 5.92%
U.S. SYSTEMATIC LARGE CAP RUSSELL 1000 GROWTH FUND CLASS I SHARES 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
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. Class I shares have a shareholder services fee of up to .25% of their average daily net assets. 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. 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. 26 SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2004 -- UNAUDITED U.S. SYSTEMATIC LARGE CAP GROWTH FUND
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------- COMMON STOCK -- 99.6% APPLICATIONS SOFTWARE -- 2.3% Microsoft Corp. 10,500 $ 290,325 -------------- AUDIO/VIDEO PRODUCTS -- 1.8% Harman International Industries, Inc. 2,100 226,275 -------------- AUTO/TRUCK PARTS & EQUIPMENT-ORIGINAL -- 0.4% Advanced Auto Parts, Inc.* 1,400 48,160 -------------- BUILDING & CONSTRUCTION PRODUCTS-MISCELLANEOUS -- 1.3% Masco Corp. 4,600 158,838 -------------- CABLE TV -- 1.3% Comcast Corp. Cl. A* 5,800 163,792 -------------- CELLULAR TELECOMMUNICATIONS -- 1.0% Western Wireless Corp. Cl. A* 5,100 131,121 -------------- CHEMICALS-DIVERSIFIED -- 2.7% Dow Chemical Co. 4,300 194,274 Du Pont (Ei) De Nemours 3,500 149,800 -------------- 344,074 -------------- COMPUTER AIDED DESIGN -- 0.8% Autodesk, Inc. 2,000 97,260 -------------- COMPUTERS -- 4.5% Dell, Inc.* 1,900 67,640 Hewlett-Packard Co. 4,100 76,875 International Business Machines Corp. 4,900 420,126 -------------- 564,641 -------------- COSMETICS & TOILETRIES -- 5.1% Procter & Gamble Co. 7,200 389,664 The Gillette Co. 6,100 254,614 -------------- 644,278 -------------- DISTRIBUTION/WHOLESALE -- 1.4% WW Grainger, Inc. 3,000 172,950 -------------- DIVERSIFIED FINANCIAL SERVICES -- 1.3% CIT Group, Inc. 4,400 164,516 -------------- DIVERSIFIED MANUFACTURING OPERATIONS -- 2.8% 3M Co. 2,300 183,931 Textron, Inc. 2,600 167,102 -------------- 351,033 -------------- ELECTRIC PRODUCTS-MISCELLANEOUS -- 1.4% Emerson Electric Co. 2,900 179,481 -------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS -- 1.0% Intel Corp. 6,400 128,384 -------------- ELECTRONIC MEASURE INSTRUMENTS -- 1.2% Agilent Technologies, Inc.* 7,100 $ 153,147 -------------- ENTERPRISE SOFTWARE/SERVICES -- 1.2% BMC Software, Inc.* 9,800 154,938 -------------- FINANCE-INVESTMENT BANKERS/BROKERS -- 2.8% Citigroup, Inc. 3,900 172,068 Morgan Stanley Dean Witter & Co. 3,600 177,480 -------------- 349,548 -------------- FOOD-MISCELLANEOUS/DIVERSIFIED -- 1.2% Kraft Foods, Inc. Cl. A 4,800 152,256 -------------- FORESTRY -- 1.5% Weyerhaeuser Co. 2,800 186,144 -------------- INSTRUMENTS-CONTROLS -- 1.3% Parker-Hannifin Corp. 2,800 164,808 -------------- INSTRUMENTS-SCIENTIFIC -- 1.2% PerkinElmer, Inc. 8,600 148,092 -------------- INTERNET SECURITY -- 0.6% CheckFree Corp.* 2,700 74,709 -------------- LEISURE & RECREATIONAL PRODUCTS -- 1.3% Brunswick Corp. 3,500 160,160 -------------- LIFE/HEALTH INSURANCE -- 1.6% AFLAC, Inc. 5,300 207,813 -------------- MEDICAL INFORMATION SYSTEMS -- 1.5% IMS Health, Inc. 7,700 184,184 -------------- MEDICAL PRODUCTS -- 3.0% Becton Dickinson & Co. 3,200 165,440 Johnson & Johnson 3,900 219,687 -------------- 385,127 -------------- MEDICAL-BIOMEDICAL/GENETICS -- 0.6% Genentech, Inc.* 1,500 78,630 -------------- MEDICAL-DRUGS -- 10.2% Bristol-Myers Squibb Co. 8,200 194,094 Celgene Corp.* 1,100 64,053 Endo Pharmaceuticals Holdings, Inc.* 4,600 84,456 Merck & Co., Inc. 5,900 194,700 Pfizer, Inc. 24,700 755,820 -------------- 1,293,123 -------------- MEDICAL-HMO -- 5.0% Aetna, Inc. 2,200 219,846 Coventry Health Care, Inc.* 3,900 208,143 UnitedHealth Group, Inc. 2,700 199,098 -------------- 627,087 --------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 27
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------- COMMON STOCK (Continued) MEDICAL-HOSPITALS -- 0.8% Community Health Systems, Inc.* 3,800 $ 101,384 -------------- METAL-COPPER -- 1.0% Phelps Dodge Corp. 1,400 128,842 -------------- MULTI-LINE INSURANCE -- 1.4% American International Group, Inc. 2,600 176,774 -------------- MULTIMEDIA -- 4.3% Gemstar -- TV Guide International, Inc.* 22,200 125,430 McGraw-Hill Co., Inc. 3,000 239,070 Time Warner, Inc.* 11,400 183,996 -------------- 548,496 -------------- NETWORKING PRODUCTS -- 3.3% Cisco Systems, Inc.* 22,900 414,490 -------------- OIL FIELD MACHINERY & EQUIPMENT -- 1.3% Grant Prideco, Inc.* 7,900 161,871 -------------- OPTICAL SUPPLIES -- 1.1% Bausch & Lomb, Inc. 2,100 139,545 -------------- PROPERTY/CASUALTY INSURANCE -- 2.5% Ace Ltd. 3,900 156,234 Chubb Corp. 2,300 161,644 -------------- 317,878 -------------- RETAIL-APPAREL/SHOE -- 2.6% Gap, Inc. 9,400 175,780 Nordstrom, Inc. 4,100 156,784 -------------- 332,564 -------------- RETAIL-DISCOUNT -- 1.0% Wal-Mart Stores, Inc. 2,400 127,680 -------------- RETAIL-MAJOR DEPARTMENT STORES -- 2.4% JC Penney Co., Inc. 4,500 158,760 May Deptartment Stores Co. 5,700 146,091 -------------- 304,851 -------------- RETAIL-OFFICE SUPPLIES -- 1.8% Staples, Inc. 7,700 229,614 -------------- SEMICONDUCTOR COMPONENTS-INTEGRATED CIRCUITS -- 1.2% Maxim Integrated Products, Inc. 3,600 152,244 -------------- STEEL-PRODUCERS -- 1.2% United States Steel Corp. 4,200 $ 158,004 -------------- TELECOMMUNICATIONS EQUIPMENT -- 3.8% Avaya, Inc.* 10,500 146,370 QUALCOMM, Inc. 8,600 335,744 -------------- 482,114 -------------- TELECOMMUNICATIONS EQUIPMENT FIBER OPTICS -- 0.5% Corning, Inc.* 5,600 62,048 -------------- TELEPHONE-INTEGRATED -- 1.3% Verizon Communications, Inc. 4,300 169,334 -------------- TRANSPORT-AIR FREIGHT -- 1.3% CNF, Inc. 4,100 168,059 -------------- TRANSPORT-RAIL -- 1.2% Norfolk Southern Corp. 5,300 157,622 -------------- WIRELESS EQUIPMENT -- 2.3% Motorola, Inc. 16,000 288,640 -------------- TOTAL COMMON STOCK (Cost: $12,423,872) 12,606,948 -------------- PRINCIPAL AMOUNT - ---------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS -- 0.6% TIME DEPOSIT -- 0.6% Brown Brothers Harriman & Co. 1.300%, 10/01/04 (Cost: $74,703) $ 74,703 74,703 -------------- TOTAL INVESTMENTS -- 100.2% (Cost: $12,498,575) 12,681,651 LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.2%) (23,162) -------------- NET ASSETS -- 100.0% $ 12,658,489 ==============
- ---------- * Non-income producing securities. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 28 SCHEDULE OF INVESTMENTS BY INDUSTRY AS OF SEPTEMBER 30, 2004 -- UNAUDITED U.S. SYSTEMATIC LARGE CAP GROWTH FUND
PERCENTAGE OF INDUSTRY NET ASSETS - -------- ------------- Basic Materials 6.4% Communications 18.4 Consumer, Cyclical 12.7 Consumer, Non-cyclical 27.0 Energy 1.3 Financial 9.6 Industrial 12.7% Technology 11.5 Short Terms Investments 0.6 Liabilities in excess of other assets (0.2) ----- NET ASSETS 100.0% =====
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 29 U.S. SYSTEMATIC MID CAP GROWTH FUND MANAGEMENT TEAM: TODD N. WOLTER, CFA, Portfolio Manager; STACEY R. NUTT, PH.D., Lead Portfolio Manager; CARMA WALLACE, CFA, Investment Analyst; MARK P. ROEMER, Portfolio Specialist CHIEF INVESTMENT OFFICER: HORACIO A. VALEIRAS, CFA GOAL: The U.S. Systematic Mid Cap Growth Fund seeks to maximize long-term capital appreciation through investments in U.S. securities with market capitalizations similar to the Russell Midcap Growth Index at time of purchase. MARKET OVERVIEW: From April 1, 2004 through September 30, 2004, major U.S. stock market indices posted lackluster performance. During the period, the S&P 500 Index dipped 0.18%, the Dow Jones Industrial Average lost 1.71% and the tech-heavy NASDAQ Composite fell 4.87%. A number of headwinds that had been in place most of the year kept buyers on the sidelines, including: - Ongoing geopolitical concerns and conflict in Iraq - Higher interest rates, as the Federal Reserve raised the funds target rate by 75 basis points during the period to 1.75%. - Price of crude oil touching $50 a barrel In addition, there were signs that economic growth might be moderating. Gains in employment continued but not at the pace seen earlier in the year. The manufacturing sector expanded at a solid clip, but growth showed evidence of peaking. All of these influences tended to obscure favorable corporate fundamentals. Second quarter 2004 earnings for companies in the S&P 500 Index grew by 25% year over year, and expectations were for healthy growth in the third and fourth quarters. PERFORMANCE: During the six-month period ended September 30, 2004, the Fund posted a 2.89% loss, outperforming the Russell Midcap Growth Index, which fell 3.32%. PORTFOLIO SPECIFICS: A number of sectors both helped and hurt performance versus the index. On the negative side, stock selection in the technology sector was the primary detractor, with positions in the semiconductor and electronic equipment industries posting sharp declines. Issue selection among financials and health care companies also hurt relative results. On a positive note, holdings among industrial companies benefited relative performance due to an overweight in the sector and strong stock selection. Top-performing names included Terex, a manufacturer of heavy equipment, and Masco, a maker of building and home improvement products. Shares of Terex rose sharply on a strengthening outlook for mining equipment. Masco exceeded second-quarter expectations and raised earnings guidance for the year. Other sources of relative strength were issue selection in the consumer discretionary sector and an overweight in materials, a group that led the broad mid-cap growth market. As of September 30, 2004, the Fund remained well diversified across sectors and industries. The largest overweight was in materials, and the largest underweight was in consumer discretionary names. 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. We are confident that our proprietary stock-selection model, in conjunction with our risk-controlled approach to portfolio construction, will produce strong results for shareholders over the long term. 30 [CHART] COMPARISON OF CHANGE IN VALUE OF A $250,000 INVESTMENT IN U.S. SYSTEMATIC MID CAP GROWTH FUND CLASS I SHARES WITH THE RUSSELL MID CAP GROWTH INDEX. ANNUALIZED TOTAL RETURNS As of 9/30/04
1 YEAR 5 YEARS 10 YEARS 10.03% - 7.14% 5.85%
U.S. SYSTEMATIC MID CAP GROWTH RUSSELL MID CAP FUND CLASS I SHARES GROWTH INDEX 9/30/1985 $ 250,000.00 $ 250,000.00 10/31/1985 $ 263,066.67 n/a 11/30/1985 $ 289,075.19 n/a 12/31/1985 $ 311,844.68 n/a 1/31/1986 $ 325,056.50 $ 254,807.50 2/28/1986 $ 353,130.55 $ 277,271.33 3/31/1986 $ 388,396.52 $ 293,918.70 4/30/1986 $ 386,014.35 $ 297,128.29 5/31/1986 $ 420,047.95 $ 315,779.03 6/30/1986 $ 437,507.94 $ 320,667.29 7/31/1986 $ 413,911.68 $ 295,148.59 8/31/1986 $ 435,669.64 $ 308,539.48 9/30/1986 $ 388,689.93 $ 282,970.82 10/31/1986 $ 426,535.37 $ 300,053.76 11/30/1986 $ 426,862.38 $ 302,871.27 12/31/1986 $ 414,298.40 $ 293,875.99 1/31/1987 $ 479,743.74 $ 334,696.54 2/28/1987 $ 504,626.45 $ 359,632.44 3/31/1987 $ 508,798.02 $ 364,488.56 4/30/1987 $ 503,489.57 $ 355,010.40 5/31/1987 $ 505,637.79 $ 357,300.92 6/30/1987 $ 523,217.13 $ 371,925.25 7/31/1987 $ 560,975.96 $ 388,852.31 8/31/1987 $ 578,628.01 $ 404,896.75 9/30/1987 $ 570,276.48 $ 395,952.58 10/31/1987 $ 410,751.14 $ 287,175.69 11/30/1987 $ 376,686.18 $ 267,199.18 12/31/1987 $ 429,183.67 $ 301,986.91 1/31/1988 $ 414,233.77 $ 305,044.83 2/29/1988 $ 445,494.62 $ 330,063.69 3/31/1988 $ 439,955.63 $ 331,553.93 4/30/1988 $ 443,944.56 $ 333,426.87 5/31/1988 $ 447,747.69 $ 327,524.55 6/30/1988 $ 488,925.55 $ 352,276.89 7/31/1988 $ 470,867.90 $ 338,944.62 8/31/1988 $ 452,959.23 $ 326,033.20 9/30/1988 $ 478,445.73 $ 338,929.77 10/31/1988 $ 482,735.80 $ 336,882.64 11/30/1988 $ 467,079.06 $ 328,772.86 12/31/1988 $ 483,551.39 $ 341,011.10 1/31/1989 $ 513,031.90 $ 361,108.59 2/28/1989 $ 500,496.82 $ 358,145.70 3/31/1989 $ 509,489.08 $ 362,534.41 4/30/1989 $ 536,525.97 $ 383,183.29 5/31/1989 $ 569,665.39 $ 403,541.81 6/30/1989 $ 542,074.60 $ 398,132.34 7/31/1989 $ 603,744.62 $ 429,326.00 8/31/1989 $ 625,700.80 $ 445,943.93 9/30/1989 $ 637,943.67 $ 445,786.51 10/31/1989 $ 619,358.25 $ 427,200.33 11/30/1989 $ 641,324.82 $ 437,312.16 12/31/1989 $ 647,588.43 $ 448,368.29 1/31/1990 $ 609,035.33 $ 406,819.34 2/28/1990 $ 635,690.78 $ 415,182.74 3/31/1990 $ 655,820.98 $ 432,584.71 4/30/1990 $ 640,452.91 $ 420,620.71 5/31/1990 $ 744,313.03 $ 463,876.50 6/30/1990 $ 753,889.85 $ 469,603.06 7/31/1990 $ 728,383.25 $ 454,630.70 8/31/1990 $ 669,141.41 $ 401,762.61 9/30/1990 $ 618,532.01 $ 374,546.41 10/31/1990 $ 604,532.57 $ 367,544.64 11/30/1990 $ 644,411.57 $ 406,884.41 12/31/1990 $ 652,316.35 $ 425,351.67 1/31/1991 $ 716,025.92 $ 457,257.30 2/28/1991 $ 782,807.27 $ 497,512.86 3/31/1991 $ 822,078.10 $ 523,510.89 4/30/1991 $ 801,991.99 $ 518,850.60 5/31/1991 $ 839,658.88 $ 545,081.09 6/30/1991 $ 785,304.96 $ 515,371.45 7/31/1991 $ 844,961.96 $ 541,370.39 8/31/1991 $ 884,985.00 $ 558,290.38 9/30/1991 $ 886,371.47 $ 557,646.67 10/31/1991 $ 913,819.44 $ 570,159.15 11/30/1991 $ 873,763.69 $ 551,355.30 12/31/1991 $ 1,014,497.89 $ 625,385.77 1/31/1992 $ 1,022,275.71 $ 630,952.96 2/29/1992 $ 1,039,006.96 $ 632,314.55 3/31/1992 $ 987,749.28 $ 606,340.34 4/30/1992 $ 959,664.28 $ 594,734.98 5/31/1992 $ 949,651.78 $ 595,894.12 6/30/1992 $ 919,326.23 $ 578,165.08 7/31/1992 $ 953,770.32 $ 603,939.10 8/31/1992 $ 929,226.63 $ 596,031.73 9/30/1992 $ 964,692.12 $ 609,088.40 10/31/1992 $ 1,019,936.82 $ 627,436.58 11/30/1992 $ 1,099,151.91 $ 667,083.04 12/31/1992 $ 1,151,984.48 $ 679,861.01 1/31/1993 $ 1,184,316.84 $ 687,876.58 2/28/1993 $ 1,169,591.84 $ 666,697.54 3/31/1993 $ 1,226,044.14 $ 686,001.77 4/30/1993 $ 1,194,788.41 $ 657,826.99 5/31/1993 $ 1,273,544.56 $ 688,869.85 6/30/1993 $ 1,305,239.10 $ 686,038.59 7/31/1993 $ 1,319,645.72 $ 683,876.20 8/31/1993 $ 1,391,678.78 $ 723,633.34 9/30/1993 $ 1,408,006.28 $ 732,292.34 10/31/1993 $ 1,405,124.95 $ 744,089.57 11/30/1993 $ 1,349,419.38 $ 726,779.81 12/31/1993 $ 1,379,769.31 $ 755,946.21 1/31/1994 $ 1,402,023.66 $ 775,396.71 2/28/1994 $ 1,374,711.51 $ 768,729.85 3/31/1994 $ 1,282,659.45 $ 732,495.77 4/30/1994 $ 1,292,775.06 $ 730,705.55 5/31/1994 $ 1,271,532.28 $ 731,775.30 6/30/1994 $ 1,208,815.49 $ 700,290.67 7/31/1994 $ 1,230,058.27 $ 719,688.72 8/31/1994 $ 1,290,751.94 $ 762,617.43 9/30/1994 $ 1,268,497.60 $ 750,039.58 10/31/1994 $ 1,284,682.57 $ 763,001.02 11/30/1994 $ 1,205,780.81 $ 729,350.38 12/31/1994 $ 1,234,649.94 $ 739,572.96 1/31/1995 $ 1,211,552.75 $ 748,464.10 2/28/1995 $ 1,280,844.33 $ 788,290.63 3/31/1995 $ 1,324,938.97 $ 819,555.02 4/30/1995 $ 1,350,135.91 $ 826,431.09 5/31/1995 $ 1,371,133.36 $ 846,805.92 6/30/1995 $ 1,472,970.98 $ 885,344.06 7/31/1995 $ 1,591,606.56 $ 941,058.76 8/31/1995 $ 1,626,252.35 $ 951,363.35 9/30/1995 $ 1,659,848.27 $ 972,540.70 10/31/1995 $ 1,642,000.44 $ 947,964.60 11/30/1995 $ 1,673,496.61 $ 990,329.14 12/31/1995 $ 1,710,915.34 $ 990,863.91 1/31/1996 $ 1,729,728.77 $ 1,008,362.57 2/29/1996 $ 1,799,449.12 $ 1,046,508.93 3/31/1996 $ 1,799,449.12 $ 1,054,755.42 4/30/1996 $ 1,916,756.38 $ 1,105,710.65 5/31/1996 $ 1,994,223.44 $ 1,128,289.26 6/30/1996 $ 1,945,529.86 $ 1,094,192.36 7/31/1996 $ 1,798,342.45 $ 1,009,250.21 8/31/1996 $ 1,882,449.54 $ 1,063,810.27 9/30/1996 $ 2,000,863.48 $ 1,131,383.50 10/31/1996 $ 1,974,303.34 $ 1,118,112.37 11/30/1996 $ 2,041,311.77 $ 1,183,980.37 12/31/1996 $ 1,992,539.17 $ 1,164,042.14 1/31/1997 $ 2,075,809.46 $ 1,215,551.01 2/28/1997 $ 1,941,387.42 $ 1,188,784.58 3/31/1997 $ 1,830,756.88 $ 1,121,606.36 4/30/1997 $ 1,833,136.03 $ 1,149,074.50 5/31/1997 $ 1,990,160.02 $ 1,252,043.07 6/30/1997 $ 2,065,103.28 $ 1,286,687.10 7/31/1997 $ 2,275,658.16 $ 1,409,848.79 8/31/1997 $ 2,242,350.05 $ 1,396,088.66 9/30/1997 $ 2,389,857.42 $ 1,466,744.71 10/31/1997 $ 2,249,487.50 $ 1,393,304.80 11/30/1997 $ 2,249,940.26 $ 1,407,948.44 12/31/1997 $ 2,324,431.52 $ 1,426,434.80 1/31/1998 $ 2,266,662.78 $ 1,400,744.71 2/28/1998 $ 2,484,055.66 $ 1,532,442.72 3/31/1998 $ 2,608,714.51 $ 1,596,682.72 4/30/1998 $ 2,578,309.91 $ 1,618,365.68 5/31/1998 $ 2,427,807.15 $ 1,551,802.29 6/30/1998 $ 2,579,830.14 $ 1,595,702.78 7/31/1998 $ 2,467,593.58 $ 1,527,342.87 8/31/1998 $ 1,935,212.64 $ 1,235,834.21 9/30/1998 $ 2,126,364.25 $ 1,329,312.71 10/31/1998 $ 2,180,076.28 $ 1,427,190.01 11/30/1998 $ 2,326,994.46 $ 1,523,453.97 12/31/1998 $ 2,665,064.26 $ 1,681,222.87 1/31/1999 $ 2,938,363.68 $ 1,731,625.93 2/28/1999 $ 2,695,079.80 $ 1,646,949.42 3/31/1999 $ 3,028,410.30 $ 1,738,668.04 4/30/1999 $ 3,148,472.48 $ 1,817,899.14 5/31/1999 $ 3,003,134.06 $ 1,794,520.95 6/30/1999 $ 3,243,258.40 $ 1,919,796.46 7/31/1999 $ 3,194,285.67 $ 1,858,670.14 8/31/1999 $ 3,249,577.46 $ 1,839,358.56 9/30/1999 $ 3,246,417.93 $ 1,823,705.62 10/31/1999 $ 3,630,300.93 $ 1,964,714.54 11/30/1999 $ 4,093,172.20 $ 2,168,180.38 12/31/1999 $ 5,306,432.04 $ 2,543,600.81 1/31/2000 $ 5,336,447.58 $ 2,543,092.09 2/29/2000 $ 7,345,909.19 $ 3,077,726.34 3/31/2000 $ 6,556,026.48 $ 3,080,896.39 4/30/2000 $ 5,608,167.23 $ 2,781,833.78 5/31/2000 $ 5,011,015.90 $ 2,579,065.92 6/30/2000 $ 5,897,264.30 $ 2,852,730.60 7/31/2000 $ 5,573,412.39 $ 2,672,095.70 8/31/2000 $ 6,521,271.64 $ 3,075,074.45 9/30/2000 $ 6,434,384.54 $ 2,924,734.06 10/31/2000 $ 5,537,077.79 $ 2,724,565.26 11/30/2000 $ 4,125,683.52 $ 2,132,489.99 12/31/2000 $ 4,576,444.42 $ 2,244,786.91 1/31/2001 $ 4,498,727.02 $ 2,373,009.14 2/28/2001 $ 3,568,338.76 $ 1,962,549.75 3/31/2001 $ 3,019,875.99 $ 1,681,669.63 4/30/2001 $ 3,483,959.87 $ 1,961,987.14 5/31/2001 $ 3,339,627.56 $ 1,952,765.80 6/30/2001 $ 3,248,587.18 $ 1,953,800.76 7/31/2001 $ 2,884,425.67 $ 1,822,036.44 8/31/2001 $ 2,582,438.07 $ 1,689,938.80 9/30/2001 $ 2,122,795.18 $ 1,410,591.91 10/31/2001 $ 2,342,811.84 $ 1,558,845.12 11/30/2001 $ 2,518,245.14 $ 1,726,732.74 12/31/2001 $ 2,595,968.75 $ 1,792,348.59 1/31/2002 $ 2,504,921.09 $ 1,734,097.26 2/28/2002 $ 2,322,825.76 $ 1,635,773.95 3/31/2002 $ 2,531,569.19 $ 1,760,583.50 4/30/2002 $ 2,418,314.78 $ 1,667,448.63 5/31/2002 $ 2,298,398.34 $ 1,617,758.66 6/30/2002 $ 2,085,213.57 $ 1,439,158.10 7/31/2002 $ 1,869,808.12 $ 1,299,271.94 8/31/2002 $ 1,872,028.79 $ 1,294,724.49 9/30/2002 $ 1,805,408.55 $ 1,191,793.89 10/31/2002 $ 1,860,925.42 $ 1,284,157.91 11/30/2002 $ 1,918,662.96 $ 1,384,707.48 12/31/2002 $ 1,785,422.48 $ 1,301,071.15 1/31/2003 $ 1,763,215.73 $ 1,288,320.65 2/28/2003 $ 1,734,346.96 $ 1,277,112.26 3/31/2003 $ 1,763,215.73 $ 1,300,866.55 4/30/2003 $ 1,834,277.32 $ 1,389,455.56 5/31/2003 $ 1,945,311.06 $ 1,523,121.19 6/30/2003 $ 1,943,090.38 $ 1,544,901.82 7/31/2003 $ 2,003,048.60 $ 1,600,054.81 8/31/2003 $ 2,122,965.04 $ 1,688,217.83 9/30/2003 $ 2,036,195.79 $ 1,655,466.41 10/31/2003 $ 2,224,938.04 $ 1,788,897.00 11/30/2003 $ 2,280,450.47 $ 1,836,839.44 12/31/2003 $ 2,244,922.52 $ 1,856,860.99 1/31/2004 $ 2,295,993.95 $ 1,918,137.40 2/29/2004 $ 2,327,080.91 $ 1,950,362.11 3/31/2004 $ 2,307,096.43 $ 1,946,656.42 4/30/2004 $ 2,198,292.08 $ 1,891,760.71 5/31/2004 $ 2,264,906.99 $ 1,936,406.26 6/30/2004 $ 2,322,639.91 $ 1,967,195.12 7/31/2004 $ 2,198,292.08 $ 1,836,770.09 8/30/2004 $ 2,140,559.16 $ 1,814,177.82 9/30/2004 $ 2,240,481.52 $ 1,882,028.07
The graph above shows the value of a hypothetical $250,000 investment in the Fund's Class I shares compared with the Russell Mid Cap Growth Index for the periods indicated. Class I shares have a shareholder services fee of up to .25% of their average daily net assets. 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 Fund's performance includes historical performance of comparable managed institutional separate accounts managed by the Investment Adviser prior to the Nicholas-Applegate Mutual Fund's inception. 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. 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 Mid Cap Growth Index measures the performance of those Russell Mid cap companies with higher price-to-book ratios and higher forecasted growth values. The stocks are also members of the Russell 1000 Growth index. The Russell Mid Cap Index is an unmanaged index generally representative of the smallest 800 stocks in the Russell 1000 Index as ranked by total market capitalization. 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. 31 SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2004 -- UNAUDITED U.S. SYSTEMATIC MID CAP GROWTH FUND
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------- COMMON STOCK -- 95.3% AEROSPACE/DEFENSE-EQUIPMENT -- 1.3% Goodrich Corp. 4,500 $ 141,120 -------------- APPAREL MANUFACTURERS -- 1.1% Coach, Inc.* 2,800 118,776 -------------- AUDIO/VIDEO PRODUCTS -- 1.4% Harman International Industries, Inc. 1,500 161,625 -------------- AUTO/TRUCK PARTS & EQUIPMENT-ORIGINAL -- 1.2% BorgWarner, Inc.## 1,800 77,922 Advanced Auto Parts, Inc.* 1,600 55,040 -------------- 132,962 -------------- BUILDING & CONSTRUCTION PRODUCTS-MISCELLANEOUS -- 1.5% Masco Corp. 3,100 107,043 Vulcan Materials Co.## 1,200 61,140 -------------- 168,183 -------------- BUILDING PRODUCTS-CEMENT/AGGREGATE -- 0.8% Martin Marietta Materials, Inc. 1,900 86,013 -------------- BUILDING-RESIDENTIAL/COMMERCIAL -- 1.0% Lennar Corp. -- Cl. A 2,400 114,240 -------------- CELLULAR TELECOMMUNICATIONS -- 1.1% Western Wireless Corp. Cl. A* 4,900 125,979 -------------- CHEMICALS-SPECIALTY -- 1.0% Ashland, Inc. 2,000 112,160 -------------- COMMERCIAL BANKS-CENTRAL US -- 0.8% Associated Banc Corp. 2,950 94,606 -------------- COMMERCIAL BANKS-EASTERN US -- 1.1% Commerce Bancorp, Inc.## 2,200 121,440 -------------- COMMERCIAL SERVICES-FINANCE -- 1.7% H&R Block, Inc. 2,300 113,666 Moody's Corp. 1,100 80,575 -------------- 194,241 -------------- COMPUTERS-PERIPHERAL EQUIPMENT -- 1.0% Lexmark Internaitonal, Inc.* 1,400 117,614 -------------- DATA PROCESSING/MANAGEMENT -- 2.0% Fiserv, Inc.* 2,200 76,692 The Dun & Bradstreet Corp.* 2,500 146,750 -------------- 223,442 -------------- DIALYSIS CENTERS -- 1.0% Davita, Inc.* 3,650 113,697 -------------- DISPOSABLE MEDICAL PRODUCTS -- 1.4% C. R. Bard, Inc. 2,800 158,564 -------------- DISTRIBUTION/WHOLESALE -- 0.8% WW Grainger, Inc. 1,600 $ 92,240 -------------- DIVERSIFIED FINANCIAL SERVICES -- 1.3% CIT Group, Inc. 3,800 142,082 -------------- DIVERSIFIED MANUFACTURING OPERATIONS -- 3.7% ITT Industries, Inc. 1,700 135,983 Textron, Inc. 2,700 173,529 The Brink's Co. 3,400 102,578 -------------- 412,090 -------------- DIVERSIFIED OPERATIONS/COMMERCIAL SERVICES -- 0.9% Aramark Corp. Cl. B 4,300 103,802 -------------- ELECTRONIC COMPONENTS-MISCELLANEOUS -- 1.5% Sanmina Corp.* 14,400 101,520 Solectron Corp.* 12,900 63,855 -------------- 165,375 -------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS -- 3.3% Altera Corp.* 3,900 76,323 International Rectifier Corp.* 3,500 120,050 Microchip Technology, Inc. 4,100 110,044 PMC-Sierra, Inc.* ## 7,300 64,313 -------------- 370,730 -------------- ELECTRONIC CONNECTORS -- 0.7% Amphenol Corp. Cl. A* 2,300 78,798 -------------- ELECTRONIC FORMS -- 0.9% Adobe Systems, Inc. 2,000 98,940 -------------- ELECTRONIC MEASURE INSTRUMENTS -- 0.9% Agilent Technologies, Inc.* 4,700 101,379 -------------- ELECTRONIC PARTS DISTRIBUTION -- 0.8% Avnet, Inc.* 5,400 92,448 -------------- ENTERPRISE SOFTWARE/SERVICES -- 0.7% BMC Software, Inc.* 4,800 75,888 -------------- ENTERTAINMENT SOFTWARE -- 1.0% Activision, Inc.* 8,100 112,347 -------------- FIDUCIARY BANKS -- 1.2% Investors Financial Services Corp. 2,900 130,877 -------------- FINANCE-INVESTMENT BANKERS/BROKERS -- 0.7% E*Trade Financial Corp.* 7,300 83,366 -------------- FINANCE-OTHER SERVICES -- 0.9% Chicago Mercantile Exchange## 650 104,845 -------------- FINANCIAL GUARANTEE INSURANCE -- 0.9% Ambac Financial Group, Inc. 1,200 95,940 --------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 32
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------- COMMON STOCK (Continued) FOOD-WHOLESALE/DISTRIBUTION -- 0.8% Supervalu, Inc. 3,400 $ 93,670 -------------- FORESTRY -- 1.4% Weyerhaeuser Co. 2,400 159,552 -------------- FUNERAL SERVICES & RELATED ITEMS -- 1.1% Service Corp. International* ## 19,900 123,579 -------------- HUMAN RESOURCES -- 1.0% Korn/Ferry International* 6,400 116,672 -------------- INSTRUMENTS-CONTROLS -- 1.1% Parker-Hannifin Corp.## 2,100 123,606 -------------- INSTRUMENTS-SCIENTIFIC -- 1.4% PerkinElmer, Inc. 9,000 154,980 -------------- INTERNET SECURITY -- 1.9% VeriSign, Inc.* 3,900 77,532 CheckFree Corp.* 4,800 132,816 -------------- 210,348 -------------- LIFE/HEALTH INSURANCE -- 0.8% Lincoln National Corp. 1,900 89,300 -------------- MACHINERY-CONSTRUCTION & MINING -- 1.1% Terex Corp.* 2,900 125,860 -------------- MEDICAL INFORMATION SYSTEMS -- 1.2% IMS Health, Inc. 5,400 129,168 -------------- MEDICAL INSTRUMENTS -- 0.8% Biomet, Inc. 1,800 84,384 -------------- MEDICAL LABS & TESTING SERVICES -- 1.1% Covance, Inc.* ## 3,000 119,910 -------------- MEDICAL PRODUCTS -- 1.5% Varian Medical Systems, Inc.* 5,000 172,850 -------------- MEDICAL-BIOMEDICAL/GENETICS -- 0.8% Invitrogen Corp.* 1,700 93,483 -------------- MEDICAL-DRUGS -- 0.7% Celgene Corp.* 1,400 81,522 -------------- MEDICAL-HMO -- 2.6% Coventry Health Care, Inc.* ## 1,850 98,735 Humana, Inc.* 4,700 93,906 WellChoice, Inc.* 2,800 104,524 -------------- 297,165 -------------- MEDICAL-NURSING HOMES -- 1.0% Manor Care, Inc. 3,600 107,856 -------------- MEDICAL-WHOLESALE DRUG DISTRIBUTORS -- 0.6% AmeriSource Bergen Corp. 1,300 69,823 -------------- METAL-COPPER -- 0.7% Phelps Dodge Corp. 900 $ 82,827 -------------- METAL-DIVERSIFIED -- 0.8% Freeport-McMoran Copper & Gold, Inc. Cl. B 2,300 93,150 -------------- MULTI-LINE INSURANCE -- 0.9% CNA Financial Corp.* 4,100 98,441 -------------- MULTIMEDIA -- 0.6% Meredith Corp. 1,400 71,932 -------------- NETWORKING PRODUCTS -- 0.9% Juniper Networks, Inc.* 4,200 99,120 -------------- OFFICE FURNISHINGS-ORIGINAL -- 1.0% HNI Corp. 2,900 114,782 -------------- OIL COMPANIES-EXPLORATION & PRODUCTION -- 1.9% Kerr-McGee Corp. 2,100 120,225 Pogo Producing Co. 2,000 94,900 -------------- 215,125 -------------- OIL FIELD MACHINERY & EQUIPMENT -- 1.1% Grant Prideco, Inc.* 6,100 124,989 -------------- OIL-FIELD SERVICES -- 1.3% Baker Hughes, Inc. 3,300 144,276 -------------- OPTICAL SUPPLIES -- 1.3% Bausch & Lomb, Inc. 2,200 146,190 -------------- PAPER & RELATED PRODUCTS -- 2.0% Georgia-Pacific Corp. 3,800 136,610 Temple-Inland, Inc. 1,300 87,295 -------------- 223,905 -------------- PROPERTY/CASUALTY INSURANCE -- 1.1% Berkley Corp. 3,000 126,480 -------------- RETAIL-APPAREL/SHOE -- 1.4% Claires Stores, Inc. 3,000 75,120 Nordstrom, Inc. 2,100 80,304 -------------- 155,424 -------------- RETAIL-AUTO PARTS -- 0.5% Pep Boys 4,400 61,600 -------------- RETAIL-COMPUTER EQUIPMENT -- 1.0% CDW Computer Centers, Inc. 1,900 110,257 -------------- RETAIL-CONVENIENCE STORE -- 0.7% Seven-Eleven, Inc.* 3,800 75,924 -------------- RETAIL-DISCOUNT -- 1.0% Dollar General Corp. 5,700 114,855 -------------- RETAIL-MAJOR DEPARTMENT STORES -- 1.1% May Deptartment Stores Co. 5,000 128,150 --------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 33
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------- COMMON STOCK (Continued) RETAIL-REGIONAL DEPARTMENT STORES -- 0.9% Federated Department Stores, Inc. 2,300 $ 104,489 -------------- RETAIL-RESTAURANTS -- 2.0% Brinker International, Inc.* 2,900 90,335 Yum! Brands, Inc. 3,400 138,244 -------------- 228,579 -------------- SAVINGS & LOANS/THRIFTS-EASTERN US -- 1.4% Hudson City Bancorp, Inc.## 2,600 92,924 New York Community Bancorp, Inc. 3,100 63,674 -------------- 156,598 -------------- SEMICONDUCTOR COMPONENTS-INTEGRATED CIRCUITS -- 1.5% Atmel Corp.* ## 29,300 106,066 Cypress Semiconductor Corp.* 7,500 66,300 -------------- 172,366 -------------- SEMICONDUCTOR EQUIPMENT -- 0.7% KLA-Tencor Corp.* 2,000 82,960 -------------- STEEL-PRODUCERS -- 1.5% United States Steel Corp. 4,400 165,528 -------------- TELECOMMUNICATIONS EQUIPMENT -- 3.1% Harris Corp. 2,800 153,832 Avaya, Inc.* 8,700 121,278 Tellabs, Inc.* 7,900 72,601 -------------- 347,711 -------------- TELECOMMUNICATIONS EQUIPMENT FIBER OPTICS -- 0.6% Corning, Inc.* 5,600 62,048 -------------- THERAPEUTICS -- 1.2% Imclone Systems, Inc.* 1,500 79,275 MGI Pharma, Inc.* 2,100 56,049 -------------- 135,324 -------------- TOOLS-HAND HELD -- 1.0% The Black & Decker Corp. 1,400 $ 108,416 -------------- TOYS -- 0.8% Hasbro, Inc. 4,500 84,600 -------------- TRANSPORT-AIR FREIGHT -- 0.8% CNF, Inc. 2,200 90,178 -------------- TOTAL COMMON STOCK (Cost: $10,405,628) 10,725,761 -------------- PRINCIPAL AMOUNT - ---------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS -- 11.0% MONEY MARKET FUNDS -- 6.7% Federated Prime Obligations Fund** $ 753,475 753,475 -------------- TIME DEPOSIT -- 4.3% Brown Brothers Harriman & Co. 1.300%, 10/01/04 476,900 476,900 -------------- TOTAL SHORT TERM INVESTMENTS (Cost: $1,230,375) 1,230,375 -------------- TOTAL INVESTMENTS -- 106.3% (Cost: $11,636,003) 11,956,136 LIABILITIES IN EXCESS OF OTHER ASSETS -- (6.3%) (705,216) -------------- NET ASSETS -- 100.0% $ 11,250,920 ==============
- ---------- * 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 9/30/04. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 34 SCHEDULE OF INVESTMENTS BY INDUSTRY AS OF SEPTEMBER 30, 2004 -- UNAUDITED U.S. SYSTEMATIC MID CAP GROWTH FUND
PERCENTAGE OF INDUSTRY NET ASSETS - -------- ------------- Basic Materials 7.4% Communications 8.2 Consumer, Cyclical 15.9 Consumer, Non-cyclical 17.8 Energy 4.3 Financial 12.8 Industrial 16.6% Technology 12.3 Short Terms Investments 11.0 Liabilities in excess of other assets (6.3) ----- NET ASSETS 100.0% =====
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 35 U.S. SYSTEMATIC SMID GROWTH FUND MANAGEMENT TEAM: STACEY R. NUTT, PH.D., Lead Portfolio Manager; TODD N. WOLTER, CFA, Portfolio Manager; CARMA WALLACE, CFA, Investment Analyst; AERUS TRAN, Investment Analyst; MARK P. ROEMER, Portfolio Specialist. CHIEF INVESTMENT OFFICER: HORACIO A. VALEIRAS, CFA GOAL: The U.S. Systematic SMID Growth Fund seeks to maximize long-term capital appreciation through investments primarily in stocks of U.S. companies with small-mid (SMID) market capitalizations. Generally, small to mid companies are those within the capitalization range of the Russell 2500 Growth Index, as measured at time of purchase. MARKET OVERVIEW: U.S. stock markets were choppy during the six months ended September 30, 2004, with major equity indices finishing the period flat to down. In April, stocks traded lower as investors anticipated that the surging U.S. economy would prompt the Federal Reserve to begin the process of normalizing monetary policy. In May and June, strong economic reports offset concerns about higher rates, sparking a rally that left stocks in positive territory for the second quarter. Equities succumbed to selling pressure in July, amid reports of falling retail sales, declining factory orders and lower-than-expected growth in non-farm payrolls. As the summer progressed, equities reversed course once again. Investors sent most market indices higher in September, despite oil prices touching $50 a barrel. While the Fed increased the target funds rate to 1.75% in three separate policy actions, rates remained near 40-year lows. In addition, companies reported strong second-quarter operating results, and the outlook for third- and fourth-quarter profits was generally favorable. PERFORMANCE: The Fund lost 4.04% during the six months ended September 30, 2004. This compared favorably to the Russell 2500 Growth Index, which declined 5.48%. The Fund has less than a year's performance. PORTFOLIO SPECIFICS: While posting a loss this period, the Fund outperformed its benchmark. Sources of relative strength included holdings in the industrials, energy and materials sectors. In these groups, the Fund benefited from a combination of positive stock selection and above-index exposure. Stock selection in the consumer discretionary sector was also beneficial. On the negative side, technology was the worst-performing sector on a relative basis due to unfavorable issue selection. At the individual company level, notably strong performers included Tesoro Petroleum, an oil refiner; Coldwater Creek, a retailer of women's apparel; and Century Aluminum, an aluminum producer. Coventry Health Care, a managed health care provider, also performed exceptionally well. The company reported higher-than-expected second-quarter earnings as revenues surged nearly 20% compared to the second quarter of 2003. The Fund was broadly diversified at September 30, 2004. With the exception of an overweight in energy and an underweight in technology, all sector weights were within 5% of the index weights. 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 2500 Growth Index in both up and down markets. Nicholas-Applegate is confident that consistent application of this approach will lead us to companies with strong growth prospects for the Fund. 36 SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2004 -- UNAUDITED U.S. SYSTEMATIC SMID GROWTH FUND
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------- COMMON STOCK -- 97.9% ADVERTISING SERVICES -- 1.0% Getty Images, Inc.* 900 $ 49,770 -------------- AEROSPACE/DEFENSE-EQUIPMENT -- 1.2% Goodrich Corp. 1,800 56,448 -------------- APPLICATIONS SOFTWARE -- 1.3% Progress Software Corp.* 1,100 21,890 SS&C Technologies, Inc. 2,200 42,966 -------------- 64,856 -------------- AUDIO/VIDEO PRODUCTS -- 0.9% Harman International Industries, Inc. 400 43,100 -------------- AUTO/TRUCK PARTS & EQUIPMENT-ORIGINAL -- 3.4% Advanced Auto Parts, Inc.* 1,000 34,400 Autoliv, Inc. 1,400 56,560 Dana Corp. 2,900 51,301 Tenneco Automotive, Inc.* 1,700 22,270 -------------- 164,531 -------------- BROADCAST SERVICES/PROGRAMMING -- 0.5% World Wrestling Entertainment, Inc. 2,000 24,440 -------------- BUILDING PRODUCTS-CEMENT/AGGREGATE -- 0.4% Martin Marietta Materials, Inc. 400 18,108 -------------- BUILDING-MAINTENANCE & SERVICE -- 0.8% ABM Industries, Inc. 2,000 40,300 -------------- CELLULAR TELECOMMUNICATIONS -- 1.9% Nextel Partners, Inc. Cl. A* 2,400 39,792 Western Wireless Corp. Cl. A* 2,100 53,991 -------------- 93,783 -------------- CIRCUIT BOARDS -- 0.6% Park Electrochemical Corp. 1,300 27,560 -------------- COMMERCIAL BANKS-CENTRAL US -- 1.0% Corus Bankshares, Inc. 1,100 47,443 -------------- COMMERCIAL BANKS-WESTERN US -- 0.8% Nara Bancorp, Inc. 2,000 40,300 -------------- COMMERCIAL SERVICES-FINANCE -- 0.5% ACE Cash Express, Inc.* 900 23,436 -------------- COMPUTER AIDED DESIGN -- 0.7% Autodesk, Inc. 700 34,041 -------------- CONSULTING SERVICES -- 0.3% Clark, Inc.* 1,100 14,894 -------------- DATA PROCESSING/MANAGEMENT -- 1.8% The Dun & Bradstreet Corp.* 1,500 88,050 -------------- DIAGNOSTIC EQUIPMENT -- 0.5% Gen-Probe, Inc.* 600 $ 23,922 -------------- DIALYSIS CENTERS -- 1.2% Davita, Inc.* 1,850 57,627 -------------- DISTRIBUTION/WHOLESALE -- 0.2% Aviall Inc.* 500 10,200 -------------- DIVERSIFIED MANUFACTURING OPERATIONS -- 0.9% The Brink's Co. 1,400 42,238 -------------- ELECTRIC PRODUCTS-MISCELLANEOUS -- 0.4% Littlefuse, Inc.* 600 20,718 -------------- ELECTRONIC COMPONENTS-MISCELLANEOUS -- 0.8% Sanmina Corp.* 5,500 38,775 -------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS -- 2.8% Fairchild Semiconductor International, Inc. Cl. A* 2,800 39,676 International Rectifier Corp.* 1,300 44,590 LSI Logic Corp.* 6,900 29,739 PMC-Sierra, Inc.* 2,900 25,549 -------------- 139,554 -------------- ELECTRONIC CONNECTORS -- 1.0% Thomas & Betts Corp.* 1,800 48,276 -------------- ELECTRONIC PARTS DISTRIBUTION -- 0.8% Avnet, Inc.* 2,200 37,664 -------------- ENTERTAINMENT SOFTWARE -- 0.9% Activision, Inc.* 3,300 45,771 -------------- ENVIRON MONITORING & DET -- 1.1% Mine Safety Appliances Co. 1,300 52,936 -------------- FIDUCIARY BANKS -- 1.3% Investors Financial Services Corp. 1,400 63,182 -------------- FILTRATION/SEPARATE PRODUCTS -- 0.5% Clarcor, Inc. 500 23,835 -------------- FINANCE-AUTO LOANS -- 0.9% AmeriCredit Corp.* 2,100 43,848 -------------- FINANCE-INVESTMENT BANKERS/BROKERS -- 1.8% E*Trade Financial Corp.* 2,300 26,266 Friedman, Billings, Ramsey Group 2,200 42,020 Jefferies Group, Inc. 600 20,682 -------------- 88,968 -------------- FINANCE-MORTGAGE LOAN/BANKER -- 0.9% CharterMac 2,100 46,179 -------------- FINANCE-OTHER SERVICES -- 0.7% Chicago Mercantile Exchange 200 32,260 -------------- FOOD-BAKING -- 0.6% Flowers Foods, Inc. 1,100 28,435 --------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 37
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------- COMMON STOCK (Continued) FOOD-MISCELLANEOUS/DIVERSIFIED -- 0.8% Corn Products International, Inc. 800 $ 36,880 -------------- FOOD-WHOLESALE/DISTRIBUTION -- 0.7% Supervalu, Inc. 1,300 35,815 -------------- FUNERAL SERVICES & RELATED ITEMS -- 1.8% Service Corp. International* 8,800 54,648 Stewart Enterprises, Inc. Cl. A* 4,800 33,360 -------------- 88,008 -------------- GAS-DISTRIBUTION -- 0.7% UGI Corp. 900 33,534 -------------- HOSPITAL BEDS/EQUIPMENT -- 0.7% Kinetic Concepts, Inc.* 700 36,785 -------------- HOTELS & MOTELS -- 0.9% Choice Hotels International, Inc. 800 46,072 -------------- HUMAN RESOURCES -- 3.1% Heidrick & Struggles International* 900 25,938 Hewitt Associates, Inc.* 1,200 31,752 Korn/Ferry International* 3,400 61,982 Resources Connection, Inc.* 900 34,002 -------------- 153,674 -------------- IDENTIFICATION SYSTEMS/DEVICES -- 0.6% Checkpoint Systems, Inc.* 1,800 28,026 -------------- INDUSTRIAL AUTOMATION/ROBOTICS -- 0.8% Nordson Corp. 1,100 37,763 -------------- INSTRUMENTS-CONTROLS -- 0.5% Woodward Governor Co. 400 26,996 -------------- INSTRUMENTS-SCIENTIFIC -- 1.4% PerkinElmer, Inc. 4,100 70,602 -------------- INTERNET SECURITY -- 2.2% CheckFree Corp.* 2,000 55,340 McAfee, Inc.* 1,700 34,170 VeriSign, Inc.* 900 17,892 -------------- 107,402 -------------- INTIMATE APPAREL -- 1.0% Warnaco Group, Inc.* 2,100 46,683 -------------- LEISURE & RECREATIONAL PRODUCTS -- 1.1% Brunswick Corp. 1,200 54,912 -------------- MACHINERY-CONSTRUCTION & MINING -- 1.2% Joy Global, Inc. 1,000 34,380 Terex Corp.* 600 26,040 -------------- 60,420 -------------- MACHINERY-ELECTRICAL -- 0.8% Regal-Beloit Corp. 1,700 41,123 -------------- MACHINERY-GENERAL INDUSTRY -- 1.6% Gardner Denver, Inc.* 1,300 $ 35,841 Middleby Corp. 800 42,120 -------------- 77,961 -------------- MEDICAL INSTRUMENTS -- 0.4% Abaxis, Inc.* 1,700 22,117 -------------- MEDICAL LABS & TESTING SERVICES -- 1.1% Covance, Inc.* 1,300 51,961 -------------- MEDICAL LASER SYSTEMS -- 0.8% Lca-Vision, Inc. 1,500 38,685 -------------- MEDICAL-BIOMEDICAL/GENETICS -- 0.7% Invitrogen Corp.* 600 32,994 -------------- MEDICAL-DRUGS -- 2.3% Cephalon, Inc.* 800 38,320 First Horizon Pharmaceutical Corp.* 2,100 42,021 Sepracor, Inc.* 700 34,146 -------------- 114,487 -------------- MEDICAL-HMO -- 2.1% Coventry Health Care, Inc.* 600 32,022 Humana, Inc.* 1,900 37,962 WellChoice, Inc.* 900 33,597 -------------- 103,581 -------------- MEDICAL-HOSPITALS -- 0.5% Vca Antech, Inc.* 1,200 24,756 -------------- MEDICAL-OUTPATIENT/HOME MEDICAL CARE -- 0.8% Amedisys, Inc.* 1,300 38,935 -------------- METAL-ALUMINUM -- 0.9% Century Aluminum Co.* 1,600 44,368 -------------- METAL-COPPER -- 0.7% Southern Peru Copper Corp. 700 36,162 -------------- MISCELLANEOUS MANUFACTURING -- 1.2% Armor Holdings, Inc.* 1,400 58,254 -------------- MULTIMEDIA -- 0.6% Gemstar-TV Guide International, Inc.* 5,200 29,380 -------------- OFFICE FURNISHINGS-ORIGINAL -- 1.0% HNI Corp. 1,300 51,454 -------------- OIL COMPANIES-EXPLORATION & PRODUCTION -- 3.9% Clayton Williams Energy, Inc.* 1,300 27,859 Houston Exploration Co.* 1,000 59,350 Meridian Resource Corp.* 4,300 37,969 Plains Exploration & Product Company* 1,800 42,948 Pogo Producing Co. 500 23,725 -------------- 191,851 --------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 38
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------- COMMON STOCK (Continued) OIL FIELD MACHINERY & EQUIPMENT -- 2.7% Carbo Ceramics, Inc. 500 $ 36,070 Grant Prideco, Inc.* 2,800 57,372 Universal Compression Holdings, Inc.* 1,200 40,884 -------------- 134,326 -------------- OIL REFINING & MARKETING -- 2.0% Giant Industries, Inc.* 1,200 29,160 Tesoro Petroleum Corp.* 2,300 67,919 -------------- 97,079 -------------- OPTICAL SUPPLIES -- 2.7% Advanced Medical Optics, Inc.* 1,000 39,570 Bausch & Lomb, Inc. 600 39,870 Ocular Sciences, Inc.* 1,100 52,767 -------------- 132,207 -------------- PAPER & RELATED PRODUCTS -- 1.0% Potlatch Corp. 1,100 51,491 -------------- PROPERTY/CASUALTY INSURANCE -- 2.0% Berkley Corp. 1,700 71,672 Landamerica Financial Group, Inc. 600 27,300 -------------- 98,972 -------------- RETAIL-APPAREL/SHOE -- 0.6% Stein Mart, Inc.* 2,000 30,440 -------------- RETAIL-AUTO PARTS -- 0.4% Pep Boys 1,400 19,600 -------------- RETAIL-CATALOG SHOPPING -- 1.2% Coldwater Creek, Inc.* 2,750 57,393 -------------- RETAIL-CONVENIENCE STORE -- 1.5% Seven-Eleven, Inc.* 1,600 31,968 The Pantry, Inc.* 1,600 40,272 -------------- 72,240 -------------- RETAIL-RESTAURANTS -- 1.1% Brinker International, Inc.* 900 28,035 CKE Restaurants, Inc.* 2,400 26,520 -------------- 54,555 -------------- RUBBER-TIRES -- 0.7% Goodyear Tire & Rubber Co.* 3,000 32,220 -------------- SAVINGS & LOANS/THRIFTS-SOUTHERN US -- 1.1% BankAtlantic Bancorp, Inc. Cl. A 1,300 23,816 Harbor Florida Bancshares, Inc. 1,000 31,100 -------------- 54,916 -------------- SEMICONDUCTOR COMPONENTS-INTEGRATED CIRCUITS -- 1.4% Atmel Corp.* 11,900 43,078 Cypress Semiconductor Corp.* 2,800 24,752 -------------- 67,830 -------------- STEEL PIPE &TUBE -- 0.7% Maverick Tube Corp.* 1,100 $ 33,891 -------------- STEEL-PRODUCERS -- 1.0% Reliance Steel & Aluminum Co. 1,200 47,640 -------------- TELECOMMUNICATIONS EQUIPMENT -- 1.4% Harris Corp. 500 27,470 Tellabs, Inc.* 4,400 40,436 -------------- 67,906 -------------- THERAPEUTICS -- 1.0% Imclone Systems, Inc.* 400 21,140 MGI Pharma, Inc.* 1,100 29,359 -------------- 50,499 -------------- TOYS -- 0.7% Hasbro, Inc. 1,700 31,960 -------------- TRANSPORT-AIR FREIGHT -- 0.7% CNF, Inc. 800 32,792 -------------- TRANSPORT-MARINE -- 0.8% Omi Corp. 2,400 38,448 -------------- TRANSPORT-SERVICES -- 1.6% Hub Group, Inc. Cl. A* 1,500 55,875 Pacer International, Inc.* 1,300 21,320 -------------- 77,195 -------------- WIRE & CABLE PRODUCTS -- 0.3% Encore Wire Corp.* 1,300 17,212 -------------- TOTAL COMMON STOCK (Cost: $4,716,336) 4,797,901 -------------- PRINCIPAL AMOUNT - ---------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS -- 2.0% TIME DEPOSIT -- 2.0% Brown Brothers Harriman & Co. 1.300%, 10/01/04 (Cost: $101,243) $ 101,243 101,243 -------------- TOTAL INVESTMENTS -- 99.9% (Cost: $4,817,579) 4,899,144 OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.1% 2,925 -------------- NET ASSETS -- 100.0% $ 4,902,069 ==============
- ---------- * Non-income producing securities. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 39 SCHEDULE OF INVESTMENTS BY INDUSTRY AS OF SEPTEMBER 30, 2004 -- UNAUDITED U.S. SYSTEMATIC SMID GROWTH FUND
PERCENTAGE OF INDUSTRY NET ASSETS - -------- ------------- Basic Materials 3.6% Communications 7.6 Consumer, Cyclical 14.7 Consumer, Non-cyclical 23.4 Energy 8.6 Financial 10.5 Industrial 19.9% Technology 8.9 Utilities 0.7 Short Terms Investments 2.0 Other assets in excess of liabilities 0.1 ----- NET ASSETS 100.0% =====
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 40 U.S. CONVERTIBLE FUND MANAGEMENT TEAM: DOUGLAS G. FORSYTH, CFA, Lead Portfolio Manager; JUSTIN KASS, CFA, Portfolio Manager; WILLIAM L. STICKNEY, Portfolio Manager; MICHAEL E. YEE, Portfolio Manager; ELIZABETH LEMESEVSKI, Investment 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: The CS First Boston Convertible Index posted a 1.14% decline during the six months ended September 30, 2004, as slowing corporate profit growth, higher energy prices and a flattening yield curve weighed on equity prices. With the large-cap S&P 500 Index dipping 0.18% and the small-cap Russell 2000 Index falling 2.40%, convertibles performed as expected, showing good downside protection. Throughout the first half of the period, economic reports were generally strong, prompting the Federal Reserve to begin the process of raising short-term interest rates from their lowest levels in more than 40 years. As the period progressed, however, economic data became mixed. This led investors to question the strength of the economy and push the price of the ten-year Treasury security higher. Yield-oriented convertibles benefited from the Treasury rally, driving their outperformance of total-return and equity-sensitive issues this period. Larger-cap companies outperformed their smaller-cap counterparts, as smaller companies were more influenced by some of the mixed economic news. This also allowed investment-grade convertibles to outperform non-investment-grade issues for the first time in several quarters. PERFORMANCE: During the six-month period ended September 30, 2004, the Fund lost 1.11%. The CS First Boston Convertible Index fell 1.14%. PORTFOLIO SPECIFICS: The Fund's holdings in many industries benefited its performance. Energy companies, such as Pride and Valero, posted record earnings on higher oil and gas prices and improved drilling activity. L-3 Communications and FLIR Systems, both defense companies, advanced as procurement spending from the Department of Defense improved dramatically. Health care firms Gilead and Celgene moved higher as product revenues exceeded analysts' expectations. In contrast, some issuers negatively impacted the Fund. For example, auto-related companies came under pressure as industry production was pared back, casting uncertainty on monthly sales and future revenue forecasts. In addition, select retailers were down, despite strong profits, on fears that higher energy prices and difficult same-store-sales comparisons would cause future earnings to erode. The Fund's conversion premium was 19% as of September 30, 2004, compared to the market's premium of 47%. The Fund continued to be well positioned to participate in the upside of an improving economic environment. MARKET OUTLOOK: Convertible securities remain a compelling area of the financial markets for investment. Corporate profits continue to be healthy, companies have improved their balance sheets and default rates are at historic lows. 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. 41 [CHART] COMPARISON OF CHANGE IN VALUE OF A $250,000 INVESTMENT IN U.S. CONVERTIBLE FUND CLASS I SHARES WITH THE CS FIRST BOSTON CONVERTIBLE INDEX. ANNUALIZED TOTAL RETURNS As of 9/30/04
1 YEAR 5 YEARS 10 YEARS 14.45% 4.53% 11.60%
U.S. CONVERTIBLE FUND CS FIRST BOSTON CLASS I SHARES CONVERTIBLE INDEX 12/31/1986 $ 250,000.00 $ 250,000.00 1/31/1987 $ 274,316.67 $ 268,000.00 2/28/1987 $ 285,197.89 $ 279,095.20 3/31/1987 $ 282,650.13 $ 281,969.88 4/30/1987 $ 278,259.63 $ 282,054.47 5/31/1987 $ 280,365.13 $ 282,900.63 6/30/1987 $ 283,327.65 $ 288,813.26 7/31/1987 $ 299,354.55 $ 300,596.84 8/31/1987 $ 305,960.31 $ 306,608.78 9/30/1987 $ 298,974.21 $ 302,101.63 10/31/1987 $ 232,382.69 $ 245,276.31 11/30/1987 $ 235,465.64 $ 237,402.94 12/31/1987 $ 242,192.10 $ 249,486.75 1/31/1988 $ 244,945.02 $ 256,422.48 2/29/1988 $ 252,824.09 $ 268,217.92 3/31/1988 $ 256,810.28 $ 267,305.98 4/30/1988 $ 265,199.41 $ 272,839.21 5/31/1988 $ 265,482.29 $ 270,138.10 6/30/1988 $ 277,738.73 $ 280,538.42 7/31/1988 $ 274,840.99 $ 277,620.82 8/31/1988 $ 271,423.80 $ 272,706.93 9/30/1988 $ 277,006.08 $ 277,615.66 10/31/1988 $ 280,154.71 $ 281,141.37 11/30/1988 $ 285,972.59 $ 276,586.88 12/31/1988 $ 290,338.44 $ 283,003.70 1/31/1989 $ 309,258.83 $ 295,710.57 2/28/1989 $ 315,650.18 $ 295,651.42 3/31/1989 $ 324,951.34 $ 299,494.89 4/30/1989 $ 335,403.94 $ 309,557.92 5/31/1989 $ 344,549.29 $ 315,841.95 6/30/1989 $ 343,056.24 $ 313,536.30 7/31/1989 $ 356,389.69 $ 322,534.79 8/31/1989 $ 362,935.38 $ 329,630.56 9/30/1989 $ 363,685.45 $ 326,762.77 10/31/1989 $ 358,218.05 $ 316,437.07 11/30/1989 $ 366,086.90 $ 321,594.99 12/31/1989 $ 372,774.09 $ 321,948.75 1/31/1990 $ 365,268.90 $ 309,135.19 2/28/1990 $ 378,296.83 $ 313,246.68 3/31/1990 $ 390,389.72 $ 318,039.36 4/30/1990 $ 378,508.86 $ 310,947.08 5/31/1990 $ 413,735.41 $ 326,028.01 6/30/1990 $ 412,935.53 $ 325,636.78 7/31/1990 $ 407,388.42 $ 322,738.61 8/31/1990 $ 386,679.51 $ 304,148.87 9/30/1990 $ 365,476.59 $ 290,887.98 10/31/1990 $ 351,247.36 $ 279,979.68 11/30/1990 $ 368,587.28 $ 293,670.69 12/31/1990 $ 379,632.61 $ 299,837.77 1/31/1991 $ 399,057.14 $ 313,300.49 2/28/1991 $ 421,630.48 $ 332,004.52 3/31/1991 $ 436,752.96 $ 340,138.64 4/30/1991 $ 438,878.49 $ 343,574.04 5/31/1991 $ 463,133.84 $ 353,778.18 6/30/1991 $ 444,500.42 $ 343,907.77 7/31/1991 $ 466,710.62 $ 356,976.27 8/31/1991 $ 486,250.24 $ 370,291.48 9/30/1991 $ 492,798.41 $ 369,587.93 10/31/1991 $ 497,020.05 $ 374,910.00 11/30/1991 $ 492,331.50 $ 365,912.16 12/31/1991 $ 525,252.06 $ 387,171.65 1/31/1992 $ 535,844.65 $ 398,360.91 2/29/1992 $ 541,828.24 $ 408,519.12 3/31/1992 $ 528,860.49 $ 405,577.78 4/30/1992 $ 515,885.78 $ 410,485.27 5/31/1992 $ 525,154.53 $ 417,627.71 6/30/1992 $ 509,644.96 $ 415,706.63 7/31/1992 $ 514,418.64 $ 426,057.72 8/31/1992 $ 515,636.09 $ 423,373.56 9/30/1992 $ 529,747.33 $ 431,841.03 10/31/1992 $ 542,443.61 $ 432,877.45 11/30/1992 $ 563,580.83 $ 445,387.61 12/31/1992 $ 576,918.91 $ 455,275.21 1/31/1993 $ 590,399.58 $ 469,479.80 2/28/1993 $ 569,125.52 $ 471,076.03 3/31/1993 $ 600,579.19 $ 488,600.06 4/30/1993 $ 607,790.25 $ 488,502.34 5/31/1993 $ 632,101.86 $ 497,051.13 6/30/1993 $ 652,313.87 $ 501,773.11 7/31/1993 $ 658,540.06 $ 506,941.38 8/31/1993 $ 696,855.12 $ 520,831.57 9/30/1993 $ 709,451.20 $ 526,716.97 10/31/1993 $ 727,803.24 $ 539,147.49 11/30/1993 $ 711,382.99 $ 531,006.36 12/31/1993 $ 733,163.96 $ 539,767.96 1/31/1994 $ 758,079.88 $ 555,259.31 2/28/1994 $ 749,597.86 $ 546,430.68 3/31/1994 $ 716,093.91 $ 524,136.31 4/30/1994 $ 710,211.14 $ 514,597.03 5/31/1994 $ 703,258.77 $ 515,729.14 6/30/1994 $ 683,417.78 $ 509,901.40 7/31/1994 $ 692,602.05 $ 524,280.62 8/31/1994 $ 706,108.34 $ 534,608.95 9/30/1994 $ 697,896.52 $ 525,146.37 10/31/1994 $ 696,803.49 $ 529,662.63 11/30/1994 $ 676,036.02 $ 510,435.88 12/31/1994 $ 677,511.21 $ 514,315.19 1/31/1995 $ 672,826.60 $ 513,646.58 2/28/1995 $ 681,610.24 $ 530,442.82 3/31/1995 $ 701,636.93 $ 544,446.52 4/30/1995 $ 709,919.33 $ 556,805.45 5/31/1995 $ 723,526.11 $ 573,231.21 6/30/1995 $ 751,212.97 $ 594,096.83 7/31/1995 $ 786,500.84 $ 615,187.27 8/31/1995 $ 799,060.93 $ 621,646.73 9/30/1995 $ 817,602.01 $ 630,909.27 10/31/1995 $ 804,307.67 $ 611,540.35 11/30/1995 $ 821,227.74 $ 632,821.96 12/31/1995 $ 828,291.41 $ 636,302.48 1/31/1996 $ 851,451.87 $ 650,364.76 2/29/1996 $ 875,221.82 $ 667,859.58 3/31/1996 $ 888,874.31 $ 673,469.60 4/30/1996 $ 912,864.69 $ 689,161.44 5/31/1996 $ 941,161.03 $ 704,529.74 6/30/1996 $ 920,307.86 $ 687,832.38 7/31/1996 $ 870,662.12 $ 661,006.92 8/31/1996 $ 924,031.29 $ 685,596.38 9/30/1996 $ 967,781.59 $ 703,490.44 10/31/1996 $ 969,032.77 $ 707,852.08 11/30/1996 $ 994,433.60 $ 729,937.07 12/31/1996 $ 1,002,375.72 $ 724,389.55 1/31/1997 $ 1,040,721.64 $ 747,425.13 2/28/1997 $ 1,026,594.19 $ 743,538.52 3/31/1997 $ 1,016,637.71 $ 728,147.28 4/30/1997 $ 1,028,182.69 $ 735,501.56 5/31/1997 $ 1,081,153.80 $ 769,555.29 6/30/1997 $ 1,124,209.80 $ 791,949.34 7/31/1997 $ 1,193,276.21 $ 835,348.17 8/31/1997 $ 1,178,232.04 $ 835,932.91 9/30/1997 $ 1,235,810.18 $ 871,209.28 10/31/1997 $ 1,211,066.49 $ 847,338.15 11/30/1997 $ 1,214,519.82 $ 842,254.12 12/31/1997 $ 1,235,942.36 $ 846,970.74 1/31/1998 $ 1,223,825.28 $ 846,716.65 2/28/1998 $ 1,281,559.61 $ 884,564.88 3/31/1998 $ 1,339,721.60 $ 916,497.68 4/30/1998 $ 1,355,533.77 $ 924,654.51 5/31/1998 $ 1,324,628.17 $ 898,024.46 6/30/1998 $ 1,376,377.08 $ 902,694.18 7/31/1998 $ 1,386,306.10 $ 882,112.76 8/31/1998 $ 1,185,964.39 $ 773,877.52 9/30/1998 $ 1,252,764.46 $ 786,569.11 10/31/1998 $ 1,280,030.51 $ 814,806.94 11/30/1998 $ 1,361,091.74 $ 853,673.23 12/31/1998 $ 1,502,171.25 $ 902,417.98 1/31/1999 $ 1,591,232.79 $ 931,746.56 2/28/1999 $ 1,512,561.76 $ 899,414.95 3/31/1999 $ 1,606,750.81 $ 937,550.15 4/30/1999 $ 1,657,498.16 $ 975,520.93 5/31/1999 $ 1,630,631.92 $ 966,546.14 6/30/1999 $ 1,708,640.29 $ 1,008,300.93 7/31/1999 $ 1,657,770.09 $ 994,991.36 8/31/1999 $ 1,670,487.64 $ 997,976.33 9/30/1999 $ 1,677,943.42 $ 1,000,571.07 10/31/1999 $ 1,784,885.96 $ 1,035,190.83 11/30/1999 $ 1,946,805.99 $ 1,114,693.49 12/31/1999 $ 2,275,956.27 $ 1,284,126.90 1/31/2000 $ 2,288,827.61 $ 1,264,736.58 2/29/2000 $ 2,673,453.62 $ 1,397,533.92 3/31/2000 $ 2,557,757.52 $ 1,367,486.94 4/30/2000 $ 2,389,873.82 $ 1,300,753.58 5/31/2000 $ 2,237,183.22 $ 1,231,033.19 6/30/2000 $ 2,405,318.89 $ 1,311,050.34 7/31/2000 $ 2,311,396.91 $ 1,271,456.62 8/31/2000 $ 2,550,401.61 $ 1,369,231.64 9/30/2000 $ 2,548,504.53 $ 1,349,788.55 10/31/2000 $ 2,415,705.95 $ 1,287,833.25 11/30/2000 $ 2,062,949.38 $ 1,131,876.65 12/31/2000 $ 2,192,212.37 $ 1,183,603.41 1/31/2001 $ 2,263,724.36 $ 1,253,317.65 2/28/2001 $ 2,040,968.63 $ 1,157,188.19 3/31/2001 $ 1,915,234.54 $ 1,110,090.63 4/30/2001 $ 2,023,659.66 $ 1,184,910.74 5/31/2001 $ 1,988,897.41 $ 1,178,156.74 6/30/2001 $ 1,942,291.09 $ 1,155,889.58 7/31/2001 $ 1,872,117.99 $ 1,133,118.56 8/31/2001 $ 1,818,652.77 $ 1,104,110.72 9/30/2001 $ 1,706,249.53 $ 1,028,699.96 10/31/2001 $ 1,745,910.13 $ 1,054,314.59 11/30/2001 $ 1,804,979.10 $ 1,091,637.33 12/31/2001 $ 1,825,174.13 $ 1,107,575.23 1/31/2002 $ 1,797,107.62 $ 1,093,398.27 2/28/2002 $ 1,769,041.10 $ 1,060,596.32 3/31/2002 $ 1,828,954.25 $ 1,105,989.84 4/30/2002 $ 1,808,394.57 $ 1,084,423.04 5/31/2002 $ 1,786,978.25 $ 1,074,012.58 6/30/2002 $ 1,685,341.42 $ 1,012,256.86 7/31/2002 $ 1,554,835.50 $ 948,990.80 8/31/2002 $ 1,574,713.88 $ 955,064.34 9/30/2002 $ 1,534,426.84 $ 926,507.92 10/31/2002 $ 1,561,530.67 $ 952,913.39 11/30/2002 $ 1,610,492.44 $ 1,028,670.01 12/31/2002 $ 1,580,274.48 $ 1,017,560.37 1/31/2003 $ 1,577,625.98 $ 1,039,132.65 2/28/2003 $ 1,561,734.95 $ 1,040,899.18 3/31/2003 $ 1,578,592.83 $ 1,056,304.49 4/30/2003 $ 1,658,769.67 $ 1,111,760.47 5/31/2003 $ 1,747,855.04 $ 1,161,122.64 6/30/2003 $ 1,760,518.96 $ 1,168,669.93 7/31/2003 $ 1,791,988.91 $ 1,173,928.95 8/31/2003 $ 1,824,358.01 $ 1,193,181.38 9/30/2003 $ 1,829,758.86 $ 1,199,863.20 10/31/2003 $ 1,946,667.67 $ 1,239,098.73 11/30/2003 $ 1,989,262.36 $ 1,266,978.45 12/31/2003 $ 2,026,370.96 $ 1,302,327.15 1/31/2004 $ 2,104,764.08 $ 1,322,903.92 2/29/2004 $ 2,107,498.72 $ 1,337,588.15 3/31/2004 $ 2,117,593.62 $ 1,343,339.78 4/30/2004 $ 2,073,610.71 $ 1,317,413.32 5/31/2004 $ 2,085,522.75 $ 1,325,844.77 6/30/2004 $ 2,127,423.26 $ 1,339,368.38 7/31/2004 $ 2,050,162.75 $ 1,310,170.15 8/30/2004 $ 2,017,051.10 $ 1,304,798.45 9/30/2004 $ 2,094,137.99 $ 1,328,023.87
The graph above shows the value of a hypothetical $250,000 investment in the Fund's Class I shares compared with the CS First Boston Convertible Index for the periods indicated. Class I shares have a shareholder services fee of up to ..25% of their average daily net assets. 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 Fund's performance includes historical performance of comparable managed institutional separate accounts managed by the Investment Adviser prior to the Nicholas-Applegate Mutual Fund's inception. 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. 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 unmanaged CS First Boston Convertible Index is a market weighted index representing the universe of convertible securities including convertible preferred stocks or convertible bonds. 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. 42 SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2004 -- UNAUDITED U.S. CONVERTIBLE FUND
PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------- CONVERTIBLE CORPORATE BOND -- 65.2% APPLICATIONS SOFTWARE -- 1.9% Actuant Corp. 2.000%, 11/15/23 $ 611,000 $ 753,058 -------------- CABLE TV -- 1.7% Echostar Communication Corp. 5.750%, 05/15/08 646,000 659,728 -------------- CELLULAR TELECOMMUNICATIONS -- 3.9% Nextel Communications, Inc. Cl. A 5.250%, 01/15/10 285,000 285,356 Nextel Partners, Inc. 1.500%, 11/15/08 305,000 691,206 NII Holdings, Inc. 3.500%, 09/15/33 326,000 563,572 -------------- 1,540,134 -------------- COMPUTERS -- 1.0% Mentor Corp. 2.750%, 01/01/24 320,000 409,200 -------------- COMPUTERS-MEMORY DEVICES -- 0.8% Sandisk Corp. 4.500%, 11/15/06 100,000 318,250 -------------- CRUISE LINES -- 1.9% Carnival Corp. 0.000%, 10/24/21 920,000 750,950 -------------- DATA PROCESSING/MANAGEMENT -- 1.6% Acxiom Corp. 3.750%, 02/15/09 482,000 643,470 -------------- DIVERSIFIED MANUFACTURING OPERATIONS -- 2.1% Tyco International Group S.A. 3.125%, 01/15/23 551,000 827,877 -------------- ELECTRIC-INTEGRATED -- 1.8% PPL Energy Supply LLC 2.625%, 05/15/23 659,000 701,835 -------------- ELECTRONIC MEASURE INSTRUMENTS -- 1.5% FLIR Systems, Inc. 3.000%, 06/01/23 384,000 592,800 -------------- ELECTRONICS-MILITARY -- 1.8% L-3 Communications Holdings 4.000%, 09/15/11+ 580,000 727,175 -------------- ENTERPRISE SOFTWARE/SERVICES -- 1.6% Computer Associates International, Inc. 1.625%, 12/15/09 442,000 646,978 -------------- FINANCE-AUTO LOANS -- 0.7% AmeriCredit Corp. 1.750%, 11/15/23 215,000 280,306 -------------- HOTELS & MOTELS -- 1.6% Hilton Hotels Corp. 3.375%, 04/15/23 $ 590,000 $ 651,212 -------------- HUMAN RESOURCES -- 1.6% Manpower, Inc. 0.000%, 08/17/21 965,000 630,869 -------------- INSTRUMENTS-SCIENTIFIC -- 1.7% Fisher Scientific International, Inc. 2.500%, 10/01/23 487,000 696,410 -------------- INTERNET SECURITY -- 2.2% Symantec Corp. 3.000%, 11/01/06 273,000 879,060 -------------- MEDICAL-DRUGS -- 5.1% Celgene Corp. 1.750%, 06/01/08 580,000 809,100 Sepracor, Inc. 0.000%, 12/15/10 394,000 692,455 Teva Pharmaceutical Finance 0.375%, 11/15/22 425,000 549,844 -------------- 2,051,399 -------------- MEDICAL-HMO -- 1.8% Sierra Health Services, Inc. 2.250%, 03/15/23 261,000 702,090 -------------- METAL-DIVERSIFIED -- 1.8% Inco Ltd. 0.000%, 03/29/21 677,000 721,005 -------------- NETWORKING PRODUCTS -- 0.8% Juniper Networks, Inc. 0.000%, 06/15/08 239,000 327,430 -------------- OIL & GAS DRILLING -- 1.7% Pride International, Inc. 2.500%, 03/01/07 529,000 657,944 -------------- OIL-FIELD SERVICES -- 1.6% Schlumberger, Ltd. 1.500%, 06/01/23 595,000 654,500 -------------- OPTICAL SUPPLIES -- 3.7% Advanced Medical Optics, Inc. 2.500%, 07/15/24 695,000 764,500 Bausch & Lomb, Inc. 2.486%, 08/01/23+ 527,000 710,960 -------------- 1,475,460 -------------- POWER CONVERSION/SUPPLY EQUIPMENT -- 1.2% Artesyn Technologies, Inc. 5.500%, 08/15/10 314,000 495,335 -------------- PRINTING-COMMERCIAL -- 1.2% Bowne & Co., Inc. 5.000%, 10/01/33 447,000 460,969 --------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 43
PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------- CONVERTIBLE CORPORATE BOND (Continued) RENTAL AUTO/EQUIPMENT -- 0.9% United Rentals, Inc. 1.875%, 10/15/23 $ 405,000 $ 374,119 -------------- RETAIL-APPAREL/SHOE -- 1.5% Gap, Inc. 5.750%, 03/15/09 494,000 605,150 -------------- RETAIL-BUILDING PRODUCTS -- 1.7% Lowe's Cos., Inc. 0.000%, 02/16/21 770,000 696,850 -------------- RETAIL-MAJOR DEPARTMENT STORES -- 1.8% JC Penney Co., Inc. 5.000%, 10/15/08 566,000 703,255 -------------- RETAIL-MUSIC STORE -- 1.9% Guitar Center, Inc. 4.000%, 07/15/13 531,000 749,374 -------------- RUBBER-TIRES -- 1.5% Goodyear Tire & Rubber Co. 144A 4.000%, 06/15/34# 520,000 607,750 -------------- TELECOMMUNICATIONS EQUIPMENT -- 1.8% Comverse Technology, Inc. 0.000%, 05/15/23 584,000 713,940 -------------- THERAPEUTICS -- 1.9% Gilead Sciences Inc. 2.000%, 12/15/07 455,000 737,669 -------------- TOYS -- 1.0% Hasbro, Inc. 2.750%, 12/01/21 385,000 417,725 -------------- WEB PORTALS/ISP -- 1.2% Yahoo, Inc. 0.000%, 04/01/08 265,000 465,737 -------------- WIRELESS EQUIPMENT -- 1.7% Crown Castle International Corp. 4.000%, 07/15/10 407,000 658,322 -------------- TOTAL CONVERTIBLE CORPORATE BOND (Cost: $22,602,104) 25,985,335 -------------- NUMBER OF SHARES - ---------------------------------------------------------------------------------------------- CONVERTIBLE PREFERRED STOCK -- 28.2% AUTO-CARS/LIGHT TRUCKS -- 3.8% Ford Motor Co. 6.500%, 01/15/32 13,592 710,590 General Motors Corp. 6.250%, 07/15/33 28,100 791,015 -------------- 1,501,605 -------------- NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------- CELLULAR TELECOMMUNICATIONS -- 0.9% Alamosa Holdings, Inc. 7.500%, 07/31/13 $ 610 $ 363,953 -------------- COAL -- 1.7% Arch Coal, Inc. 5.000%, 12/31/49 7,195 660,591 -------------- ELECTRIC-GENERATION -- 1.8% AES Trust III 6.750%, 10/15/29 15,893 703,901 -------------- FINANCE-CREDIT CARD -- 1.8% Capital One Financial Corp. 6.250%, 05/17/05 13,461 712,625 -------------- FINANCIAL GUARANTEE INSURANCE -- 1.7% PMI Group, Inc. 5.875%, 11/15/06## 25,850 674,685 -------------- MEDICAL-DRUGS -- 1.6% Schering-Plough Corp. 6.000%, 09/14/07 11,941 632,276 -------------- MEDICAL-HMO -- 1.8% Anthem, Inc. 6.000%, 11/15/04 7,284 729,128 -------------- MULTI-LINE INSURANCE -- 1.8% Prudential Financial, Inc. 6.750%, 11/15/04 10,059 702,319 -------------- OFFICE AUTOMATION & EQUIPMENT -- 1.7% Xerox Corp. 144A 7.500%, 11/27/21# 8,820 689,062 -------------- OIL COMPANIES-EXPLORATION & PRODUCTION -- 1.9% Chesapeake Energy Corp. 6.000%, 12/31/49 9,645 775,217 -------------- OIL COMPANIES-INTEGRATED -- 2.0% Amerada Hess Corp. 7.000%, 12/01/06 9,775 780,241 -------------- OIL REFINING & MARKETING -- 1.9% Valero Energy Corp. 2.000%, 07/01/06 19,245 772,206 -------------- REINSURANCE -- 1.1% Platinum Underwriters Holdings, Inc. 7.000%, 11/15/05 14,820 439,042 -------------- STEEL-PRODUCERS -- 1.8% U.S. Steel Corp. 7.000%, 06/15/06 5,975 731,191 -------------- TELECOMMUNICATIONS EQUIPMENT FIBER OPTICS -- 0.9% Corning, Inc. 7.000%, 08/16/05 653 371,884 -------------- TOTAL CONVERTIBLE PREFERRED STOCK (Cost: $8,658,043) 11,239,926 --------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 44
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------- COMMON STOCK -- 5.3% DIVERSIFIED OPERATIONS/COMMERCIAL SERVICES -- 1.7% Cendant Corp. 30,861 $ 666,597 -------------- OIL COMPANIES-EXPLORATION & PRODUCTION -- 2.6% Apache Corp. 11,640 583,280 Devon Energy Corp. 6,167 437,919 -------------- 1,021,199 -------------- PROPERTY/CASUALTY INSURANCE -- 1.0% Ace, Ltd. 10,127 405,688 -------------- TOTAL COMMON STOCK (Cost: $1,545,990) 2,093,484 --------------
PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS -- 1.1% MONEY MARKET FUNDS -- 0.0% Federated Prime Obligations Fund** $ 26,250 $ 26,250 -------------- TIME DEPOSIT -- 1.1% Wells Fargo Bank Nassau 1.300%, 10/01/04 425,248 425,248 -------------- TOTAL SHORT TERM INVESTMENTS (Cost: $451,498) 451,498 -------------- TOTAL INVESTMENTS -- 99.8% (Cost: $33,257,635) 39,770,243 OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.2% 62,885 -------------- NET ASSETS -- 100.0% $ 39,833,128 ==============
- ---------- ** All of the security is purchased with cash collateral proceeds from securities loans. # 144A Security. Certain conditions for public sale may exist. Total market value of 144A securities owned at September 30, 2004 was $1,296,812 or 3.26% of net assets. + The coupon rate shown on floating rate securities represents the rate at period end. ## All or a portion of the Fund's holdings in this security was on loan as of 9/30/04. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 45 SCHEDULE OF INVESTMENTS BY INDUSTRY AS OF SEPTEMBER 30, 2004 -- UNAUDITED U.S. CONVERTIBLE FUND
PERCENTAGE OF INDUSTRY NET ASSETS - -------- ------------- Basic Materials 3.6% Communications 15.1 Consumer, Cyclical 16.7 Consumer, Non-cyclical 21.3 Energy 13.4 Financial 8.1 Industrial 8.3% Technology 8.6 Utilities 3.6 Short Terms Investments 1.1 Other assets in excess of liabilities 0.2 ----- NET ASSETS 100.0% =====
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 46 GLOBAL SELECT FUND MANAGEMENT TEAM: NICHOLAS MELHUISH, Lead Portfolio Manager; PEDRO V. MARCAL, Lead Portfolio Manager. 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: During the six months ended September 30, 2004, global equity markets posted flat returns, as measured by the MSCI All Country World Index. Markets were generally choppy, moving up and down from month to month within a relatively narrow range. While company fundamentals were attractive, they were obscured by a number of factors, such as: - Rapidly rising commodity prices, including crude oil which touched $50 a barrel - Rising U.S. interest rates and signs the U.S. economy had hit a soft patch over the summer - Uncertainty about whether Chinese policymakers would be able to slow the country's economy without disrupting global growth expectations While global equity performance was flat overall, returns varied significantly by country and sector. For example, stocks in Finland and Japan suffered losses, while markets in Norway, Belgium and Ireland registered double-digit increases. Driven by gains in commodity prices, energy and materials companies did well. In contrast, fears of inventory buildup across the information technology sector contributed to steep declines among tech stocks. PERFORMANCE: The Fund's Class I Shares lost 3.08% from April 1, 2004 through September 30, 2004. Its benchmark, the MSCI All Country World Index, registered a slight increase of 0.03%. PORTFOLIO SPECIFICS: In absolute terms, the Fund's country and sector returns were mixed, similar to the broad market. For example, holdings in Hong Kong and the energy sector rose sharply, while positions in Taiwan and information technology were weak. In relative terms, the Fund trailed the index. One reason for this was its emphasis on growth stocks, which were out of favor this period, as its style-neutral benchmark includes both growth and value names. Unfavorable stock selection in Japan, the United Kingdom and among consumer discretionary companies also weighed on relative returns. On a positive note, issue selection in the United States and the health care sector helped relative results. An overweight in Ireland, a country where stocks were up more than 10%, was also favorable. Top-performing positions included U.S.-based companies Mine Safety Appliances, a maker of health and safety products, and Burlington Resources, an oil and gas producer. Internet search engine firm Yahoo! also did very well. Yahoo! is benefiting from increased and more sophisticated use of the Internet as an advertising media. MARKET OUTLOOK: Near term, we expect the global equity markets to remain choppy given the upcoming U.S. presidential election and geopolitical concerns. That said, we continue to be positive about the longer-term prospects for stock markets worldwide given the favorable earnings environment. We are somewhat concerned by high energy prices, although they appear to be having a smaller-than-expected effect on the global economy. Over the remainder of 2004 and beyond, we are confident our focus on investing in companies poised to outpace growth expectations will benefit the Fund. 47 [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. ANNUALIZED TOTAL RETURNS As of 9/30/04
SINCE 1 YEAR 5 YEAR INCEPTION 15.89% 5.08% 14.64%
GLOBAL SELECT FUND MSCI ALL COUNTRY CLASS I SHARES 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
SINCE 1 YEAR INCEPTION 15.96% 14.65%
[CHART]
GLOBAL SELECT FUND MSCI ALL COUNTRY CLASS II SHARES 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
The graph above shows 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. Performance is shown for the Fund's Class I and II shares. Class I and II shares have a shareholder services fee of up to .25% of their average daily net assets. 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. 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 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. 48 SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2004 -- UNAUDITED GLOBAL SELECT FUND
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------- COMMON STOCK -- 97.0% AUSTRALIA -- 0.8% News Corp., Ltd. -- ADR 29,600 $ 972,952 -------------- BRAZIL -- 1.1% Petroleo Brasileiro S.A. -- ADR 39,100 1,248,072 -------------- CANADA -- 1.9% Alcan, Inc. 25,100 1,199,780 Cott Corp.* 32,200 928,648 -------------- 2,128,428 -------------- FRANCE -- 2.9% JC Decaux S.A.* 53,447 1,214,775 Metropole Television M6 38,950 1,042,017 Sanofi -- Synthelabo S.A.## 15,500 1,124,258 -------------- 3,381,050 -------------- GERMANY -- 5.4% BASF AG 22,104 1,298,535 Bayer Vereinsbank* 50,359 961,956 Hypo Real Estate Holding AG* 32,959 1,125,715 SAP AG 9,005 1,403,618 Siemens AG 19,364 1,418,955 -------------- 6,208,779 -------------- HONG KONG -- 4.9% Cheung Kong (Holdings), Ltd. 114,000 979,476 Dah Sing Financial 113,600 815,794 Dickson Concepts International, Ltd. 818,950 798,151 Jardine Matheson Holdings Limited 85,600 1,206,960 New World Development Co., Ltd. 769,000 724,816 Sino Land Company, Ltd. 1,463,000 1,088,144 -------------- 5,613,341 -------------- INDONESIA -- 0.9% Telekomunikasi TBK PT 2,224,000 1,007,598 -------------- IRELAND -- 3.4% Anglo Irish Bank Corp. PLC 65,700 1,203,591 CRH PLC 47,088 1,125,803 Elan Corporation PLC* 31,677 741,219 Kerry Group A 37,475 826,155 -------------- 3,896,768 -------------- ISRAEL -- 0.6% Teva Pharmaceutical Industries, Ltd. -- ADR 26,400 685,080 -------------- JAPAN -- 7.5% Dentsu, Inc. 343 918,069 Fuji Fire & Marine Insurance 319,000 1,010,126 JSR Corp. 46,300 747,757 Mitsubishi Estate 103,000 1,074,718 Mitsubishi Tokyo Financial Group, Inc. 147 $ 1,225,722 Mizuho Financial Group, Inc. 320 1,202,014 Nippon Electric Glass Co. 38,000 844,713 Sekisui House, Ltd. 92,000 878,138 Yamada Denki Co., Ltd.## 21,200 730,935 -------------- 8,632,192 -------------- LUXEMBOURG -- 1.0% Arcelor S.A. 59,283 1,095,607 -------------- MALAYSIA -- 0.7% Telekom Malaysia Berhad 285,400 841,179 -------------- MEXICO -- 1.0% America Movil S.A. de CV -- Ser L -- ADR 28,200 1,100,646 -------------- NETHERLANDS -- 2.2% ING Groep NV 68,013 1,716,474 Royal Numico NV* 25,780 820,961 -------------- 2,537,435 -------------- PHILIPPINES -- 0.7% Philippine Long Distance Telephone Co. -- ADR* 31,300 783,752 -------------- SOUTH KOREA -- 2.0% LG Electronics, Inc. 22,480 1,292,380 Samsung Electronics Co., Ltd. 2,630 1,046,062 -------------- 2,338,442 -------------- SWEDEN -- 1.4% Telefonaktiebolaget LM Ericsson -- ADR* ## 50,400 1,574,496 -------------- SWITZERLAND -- 3.7% Actelion, Ltd.* 8,284 849,165 Holcim Ltd.-Reg 18,272 963,571 The Swatch Group AG-Reg 35,316 971,494 UBS AG 20,928 1,473,189 -------------- 4,257,419 -------------- TAIWAN -- 0.7% Chinatrust Financial Holding 790,000 851,163 -------------- THAILAND -- 1.0% Bangkok Bank Public Co.* ## 482,200 1,100,010 -------------- UNITED KINGDOM -- 4.8% HSBC Holdings PLC (HK Registered) 91,200 1,450,209 Man Group PLC 38,100 819,742 Morrison Supermarkets 329,234 1,146,848 Royal Bank of Scotland Group PLC 35,302 1,019,536 WPP Group PLC 109,355 1,018,110 -------------- 5,454,445 --------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 49
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------- COMMON STOCK (Continued) UNITED STATES -- 48.4% Allscripts Healthcare Solutions, Inc.* 67,600 $ 608,400 American Healthways, Inc.* 20,600 599,666 American International Group, Inc. 34,000 2,311,660 Amgen, Inc.* 21,600 1,224,288 Apache Corp. 27,200 1,362,992 Applebee's International, Inc.## 34,300 867,104 Autodesk, Inc. 21,500 1,045,545 BJ Services Co. 20,100 1,053,441 Burlington Resources, Inc. 33,800 1,379,040 Cisco Systems, Inc.* 82,700 1,496,870 Citrix Systems, Inc.* 49,500 867,240 Coach, Inc.* ## 30,800 1,306,536 ConocoPhillips 11,800 977,630 Dell, Inc.* 38,200 1,359,920 Exxon Mobil Corp. 60,400 2,919,132 Fossil, Inc.* ## 26,250 812,175 Gilead Sciences, Inc.* 42,800 1,599,864 Goodrich Corp. 26,900 843,584 Halliburton Co. 40,800 1,374,552 Ingersoll-Rand Co. Cl. A 22,700 1,542,919 Intel Corp. 44,800 898,688 ITT Industries, Inc. 16,700 1,335,833 J.P. Morgan Chase & Co. 39,900 1,585,227 Jabil Circuit, Inc.* 26,100 600,300 Kinetic Concepts, Inc.* ## 20,300 1,066,765 McDonalds Corp. 40,100 1,124,003 Microsoft Corp. 95,200 2,632,280 Mine Safety Appliances Co.## 20,500 834,760 Morgan Stanley Dean Witter & Co. 28,400 1,400,120 Motorola, Inc. 102,400 1,847,296 Nabors Industries, Ltd.* 17,700 838,095 Praxair, Inc. 38,200 1,632,668 Procter & Gamble Co. 17,700 957,924 QUALCOMM, Inc. 42,100 1,643,584 Quiksilver, Inc.* 44,000 1,118,480 Silicon Laboratories, Inc.* 19,000 628,710 Sybron Dental Specialties* ## 31,300 929,297 Symantec Corp.* 23,100 1,267,728 Synthes, Inc.* 9,943 1,082,925 Texas Instuments, Inc. 56,500 1,202,320 Tyco International, Ltd. 49,100 1,505,406 UnitedHealth Group, Inc. 21,500 1,585,410 Wells Fargo & Co. 18,300 1,091,229 Williams Cos., Inc.## 91,272 1,104,391 -------------- 55,465,997 -------------- TOTAL COMMON STOCK (Cost: $99,433,366) 111,174,851 -------------- EQUITY-LINKED SECURITIES -- 1.9% TAIWAN -- 1.9% Credit Suisse FB Taiwan Hon Hai Precision Industry Co., Ltd. -- 11/22/04 317,780 $ 1,094,434 Credit Suisse FB United Microelectronics Corp. -- 01/26/07 6,604 3,982 Merrill Lynch Asustek Computer, Inc. 399,000 1,076,502 -------------- 2,174,918 -------------- TOTAL EQUITY-LINKED SECURITIES (Cost: $2,241,845) 2,174,918 -------------- PRINCIPAL AMOUNT - ---------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS -- 9.7% MONEY MARKET FUNDS -- 8.2% Federated Prime Obligations Fund** $ 9,419,695 9,419,695 -------------- TIME DEPOSITS -- 1.5% Brown Brothers Harriman & Co. 1.300%, 10/01/04 1,655,348 1,655,348 -------------- TOTAL SHORT TERM INVESTMENTS (Cost: $11,075,043) 11,075,043 -------------- TOTAL INVESTMENTS -- 108.6% (Cost: $112,750,254) 124,424,812 LIABILITIES IN EXCESS OF OTHER ASSETS -- (8.6%) (9,874,079) -------------- NET ASSETS -- 100.0% $ 114,550,733 ==============
- ---------- * Non-income producing securities. ** All of the security is purchased with cash collateral proceeds from securities loans. ADR -- American Depository Receipt ## All or a portion of the Fund's holdings in this security was on loan as of 9/30/04. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 50 SCHEDULE OF INVESTMENTS BY INDUSTRY AS OF SEPTEMBER 30, 2004 -- UNAUDITED GLOBAL SELECT FUND
PERCENTAGE OF INDUSTRY NET ASSETS - -------- ------------- Basic Materials 5.3% Communications 14.7 Consumer, Cyclical 6.7 Consumer, Non-cyclical 15.3 Diversified 1.1 Energy 10.7 Financial 22.3% Industrial 15.5 Technology 7.3 Short Terms Investments 9.7 Liabilities in excess of other assets (8.6) ----- NET ASSETS 100.0% =====
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 51 INTERNATIONAL GROWTH FUND MANAGEMENT TEAM: HORACIO A. VALEIRAS, CFA, Lead Portfolio Manager and Chief Investment Officer; LINDA BA, Portfolio Manager; JASON CAMPBELL, Portfolio Manager; REBECCA K. HAGSTROM, CFA, Investment Analyst; FLORA KIM, Investment Analyst; KARL RICHTENBURG, Investment Analyst; ERIC SAGMEISTER, Investment Analyst; SCOTT R. WILLIAMS, Investment Analyst; MICHAEL J. FREDERICKS, Portfolio Specialist. 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: In non-U.S. developed countries, equity returns were mixed during the six months ended September 30, 2004. While the MSCI EAFE Index eked out a slight increase, performance across countries and sectors was varied. Stocks in Japan, a major component of the index, fell during the period. The Japanese economy continued to recover, but the pace of progress appeared to be less than investors had hoped for. In Continental Europe, sluggish economic growth was reflected in equity results that were flat to up slightly in major markets, such as France, Germany and Switzerland. U.K. equities fared better against a backdrop of low unemployment, rising income and robust consumer spending. Returns were strong in several smaller European markets, such as Austria and Belgium, where equities rose more than 10%. Rising commodity prices had a big effect on sector returns, with energy and materials stocks posting solid gains. Information technology was the weakest sector by far. Tech stocks tumbled on evidence of softening demand and building inventories. PERFORMANCE: During the six months ended September 30, 2004, the Fund's Class I Shares lost 4.77%. The MSCI EAFE Index posted a modest gain of 0.21%. PORTFOLIO SPECIFICS: The Fund emphasizes investment in companies with above-average earnings growth prospects. However, its style-neutral benchmark includes both growth and value names. This style difference hurt the Fund's relative performance this period, as international value stocks outperformed their growth counterparts. Issue selection in the United Kingdom, Taiwan and the financials sector also detracted from relative results, as did an overweight in information technology. On the plus side, stock selection in Canada, Hong Kong and the consumer discretionary sector helped performance versus the index. For example, among the Fund's best-performing stocks were Canada-based Precision Drilling, a contract driller, and Hong Kong-based Esprit Holdings, a specialty retailer. Hong Kong-based Sino Land and Australia-based WMC Resources were also top performers. Sino Land, a property development, trading and investment firm, benefited from a decline in financing costs. WMC, the fourth-largest global producer of mined nickel, saw its stock price rise sharply in response to high nickel prices. MARKET OUTLOOK: We continue to find exciting investment opportunities in developed markets overseas. While the pace of economic activity has moderated in many countries, corporate earnings continue to grow. We are particularly optimistic in our outlook for international growth stocks. Recent analysis we've done suggests that, if history is a guide, value stocks' leadership of the past several years is unlikely to continue much longer. Regardless of what the future holds, we remain committed to our bottom-up, stock selection process. By consistently applying our approach, we are confident we will identify companies with superior return potential for the Fund. 52 [CHART] COMPARISON OF CHANGE IN VALUE OF A $250,000 INVESTMENT IN INTERNATIONAL GROWTH FUND CLASS I, III AND IV SHARES WITH THE MSCI EAFE INDEX. ANNUALIZED TOTAL RETURNS As of 9/30/04
SINCE 1 YEAR 5 YEARS INCEPTION 14.70% - 3.02% 6.39%
INTERNATIONAL GROWTH FUND CLASS I 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 $ 410,335 $ 304,887 6/30/1999 $ 442,685 $ 316,773 7/31/1999 $ 457,296 $ 326,189 8/31/1999 $ 464,392 $ 327,380 9/30/1999 $ 471,488 $ 330,675 10/31/1999 $ 502,378 $ 343,061 11/30/1999 $ 567,497 $ 354,981 12/31/1999 $ 677,509 $ 386,841 1/31/2000 $ 629,265 $ 362,261 2/29/2000 $ 705,704 $ 372,013 3/31/2000 $ 665,814 $ 386,434 4/30/2000 $ 610,886 $ 366,099 5/31/2000 $ 578,515 $ 357,157 6/30/2000 $ 609,633 $ 371,125 7/31/2000 $ 582,692 $ 355,566 8/31/2000 $ 606,083 $ 358,652 9/30/2000 $ 566,819 $ 341,189 10/31/2000 $ 530,897 $ 333,129 11/30/2000 $ 504,920 $ 320,637 12/31/2000 $ 521,115 $ 332,033 1/31/2001 $ 505,364 $ 331,862 2/28/2001 $ 462,991 $ 306,983 3/31/2001 $ 426,165 $ 286,519 4/30/2001 $ 455,671 $ 306,430 5/31/2001 $ 441,029 $ 295,615 6/30/2001 $ 423,281 $ 283,526 7/31/2001 $ 413,076 $ 278,367 8/31/2001 $ 395,994 $ 271,324 9/30/2001 $ 364,270 $ 243,839 10/31/2001 $ 363,827 $ 250,081 11/30/2001 $ 371,147 $ 259,309 12/31/2001 $ 375,362 $ 260,839 1/31/2002 $ 358,724 $ 246,989 2/28/2002 $ 361,164 $ 248,718 3/31/2002 $ 380,909 $ 262,173 4/30/2002 $ 379,134 $ 263,904 5/31/2002 $ 378,690 $ 267,255 6/30/2002 $ 365,823 $ 256,618 7/31/2002 $ 331,215 $ 231,290 8/31/2002 $ 328,109 $ 230,758 9/30/2002 $ 296,385 $ 205,975 10/31/2002 $ 306,812 $ 217,036 11/30/2002 $ 315,242 $ 226,889 12/31/2002 $ 303,263 $ 219,266 1/31/2003 $ 292,614 $ 210,122 2/28/2003 $ 288,399 $ 205,310 3/31/2003 $ 284,628 $ 201,430 4/30/2003 $ 309,696 $ 221,412 5/31/2003 $ 329,219 $ 235,029 6/30/2003 $ 334,987 $ 240,834 7/31/2003 $ 339,202 $ 246,710 8/31/2003 $ 352,734 $ 252,705 9/30/2003 $ 352,512 $ 260,539 10/31/2003 $ 377,803 $ 276,797 11/30/2003 $ 380,771 $ 282,997 12/31/2003 $ 405,459 $ 305,127 1/31/2004 $ 415,023 $ 309,460 2/29/2004 $ 420,138 $ 316,671 3/31/2004 $ 424,142 $ 318,571 4/30/2004 $ 408,573 $ 311,626 5/31/2004 $ 408,350 $ 312,966 6/30/2004 $ 413,911 $ 319,945 7/31/2004 $ 392,114 $ 309,611 8/30/2004 $ 393,226 $ 311,035 9/30/2004 $ 404,347 $ 319,215
SINCE 1 YEAR INCEPTION 14.98% 6.42%
[CHART]
INTERNATIONAL GROWTH FUND CLASS III SHARES MSCI EAFE INDEX 9/30/2003 $ 250,000 $ 250,000 10/31/2003 $ 267,936 $ 265,600 11/30/2003 $ 270,234 $ 271,549 12/31/2003 $ 287,924 $ 292,785 1/31/2004 $ 294,715 $ 296,942 2/29/2004 $ 298,348 $ 303,861 3/31/2004 $ 301,348 $ 305,684 4/30/2004 $ 290,135 $ 299,020 5/31/2004 $ 289,977 $ 300,306 6/30/2004 $ 294,083 $ 307,003 7/31/2004 $ 278,605 $ 297,087 8/30/2004 $ 279,395 $ 298,453 9/30/2004 $ 287,450 $ 306,302
53 [CHART] ANNUALIZED TOTAL RETURNS As of 9/30/04
SINCE 1 YEAR INCEPTION 15.17% 6.44%
INTERNATIONAL GROWTH FUND CLASS IV SHARES MSCI EAFE INDEX 9/30/2003 $ 250,000 $ 250,000 10/31/2003 $ 268,093 $ 265,600 11/30/2003 $ 270,392 $ 271,549 12/31/2003 $ 287,924 $ 292,785 1/31/2004 $ 294,873 $ 296,942 2/29/2004 $ 298,506 $ 303,861 3/31/2004 $ 301,664 $ 305,684 4/30/2004 $ 290,451 $ 299,020 5/31/2004 $ 290,293 $ 300,306 6/30/2004 $ 294,399 $ 307,003 7/31/2004 $ 278,921 $ 297,087 8/30/2004 $ 279,869 $ 298,453 9/30/2004 $ 287,924 $ 306,302
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. Class I, III and IV shares have a shareholder services fee of up to .25% of their average daily net assets. Performance is shown for class I, III and IV shares. 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. 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. 54 SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2004 -- UNAUDITED INTERNATIONAL GROWTH FUND
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------- COMMON STOCK -- 94.9% AUSTRALIA -- 2.5% WMC Resources, Ltd. 424,306 $ 1,647,375 Woodside Petroleum Ltd. 66,219 935,332 -------------- 2,582,707 -------------- BELGIUM -- 1.0% Interbrew 31,460 1,048,728 -------------- BRAZIL -- 0.9% Empresa Brasiliera de Aeronautica S.A. -- ADR 34,800 918,720 -------------- CANADA -- 2.9% ATI Technologies, Inc.* 48,900 749,637 Petro-Canada 12,100 628,544 Precision Drilling Corp.* 27,000 1,552,500 -------------- 2,930,681 -------------- FINLAND -- 1.0% Stora Enso OYJ R Shares 72,800 983,743 -------------- FRANCE -- 8.8% BNP Paribas S.A. 16,225 1,047,875 Dassault Systems S.A. 34,337 1,604,363 Metropole Television M6 40,143 1,073,933 Renault S.A. 13,437 1,098,954 Sanofi -- Synthelabo S.A.## 29,825 2,163,291 TotalFinaElf S.A.## 10,021 2,041,157 -------------- 9,029,573 -------------- GERMANY -- 5.9% Adidas Salomon AG 7,534 1,049,881 Bayer AG 40,513 1,106,977 Bayer Vereinsbank* 55,029 1,051,162 Deutsche Telekom AG* 99,665 1,844,381 Merck KGaA 17,956 1,014,712 -------------- 6,067,113 -------------- GREECE -- 1.0% Greek Organization of Football Prognostics S.A. 53,260 1,022,662 -------------- INDONESIA -- 1.2% PT Indosat -- ADR## 50,300 1,207,200 -------------- ITALY -- 3.3% ENI SpA 42,600 954,482 Mediaset SpA 48,369 549,079 Saipem SpA 81,000 910,448 Telecom Italia Mobile SpA 184,200 992,890 -------------- 3,406,899 -------------- JAPAN -- 18.4% Asahi Glass Co., Ltd. 112,300 1,021,974 Canon, Inc. 22,400 1,052,779 Fuji Photo Film Co., Ltd. 44,000 1,445,175 Matsushita Electric Industries 75,000 1,000,998 Mitsubishi Estate## 106,000 1,106,020 Mitsubishi Tokyo Financial Group, Inc. 92 $ 767,119 Mitsui O.S.K Lines, Ltd. 134,000 803,647 Mizuho Financial Group, Inc. 441 1,656,526 Shin-Etsu Chemical Co., Ltd. 33,800 1,214,426 Sumitomo Corp. 150,000 1,116,001 Sumitomo Mitsui Financial Group 286 1,634,805 T and D Holdings, Inc.* 23,550 1,029,905 Tokyo Gas Co., Ltd. 276,000 979,141 Toppan Printing Co., Ltd. 94,000 921,962 Toyota Motor Corp. 33,200 1,271,188 UFJ Holdings, Inc.* 190 832,645 Yamanouchi Pharmaceutical Co., Ltd. 31,300 1,011,006 -------------- 18,865,317 -------------- MALAYSIA -- 1.0% Telekom Malaysia Berhad 348,600 1,027,453 -------------- MEXICO -- 2.2% America Movil S.A. de CV -- Ser L -- ADR 57,100 2,228,613 -------------- NETHERLANDS -- 3.7% ASM International NV* 52,133 696,701 ING Groep NV 57,006 1,438,685 Vedior NV 107,999 1,669,978 -------------- 3,805,364 -------------- NORWAY -- 0.5% Telenor ASA 70,813 539,132 -------------- PHILIPPINES -- 0.8% Philippine Long Distance Telephone Co. -- ADR* 32,200 806,288 -------------- REPUBLIC OF CHINA -- 3.4% Esprit Holdings Ltd. 167,500 857,041 Hutchison Whampoa, Ltd. 135,000 1,056,033 PetroChina Co., Ltd. -- Ser H 1,036,000 554,664 Sino Land Company, Ltd. 1,326,000 986,247 -------------- 3,453,985 -------------- SOUTH KOREA -- 3.3% Hyundai Motor Co. -- GDR 144A# 18,100 414,852 Hyundai Motor Co., Ltd. 8,970 413,640 LG Electronics, Inc. 33,180 1,907,526 NHN Corp. 8,072 675,062 -------------- 3,411,080 -------------- SPAIN -- 1.5% Banco Bilbao Vizcaya Argentaria S.A. 70,613 971,731 Grupo Ferrovial 13,535 604,336 -------------- 1,576,067 --------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 55
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------- COMMON STOCK (Continued) SWEDEN -- 2.0% Telefonaktiebolaget LM Ericsson -- ADR* 66,600 $ 2,080,584 -------------- SWITZERLAND -- 6.0% Actelion, Ltd.* 8,135 833,891 Holcim Ltd.-Reg 18,771 989,886 Roche Holding AG-Genusschein 27,182 2,808,103 UBS AG 21,744 1,530,630 -------------- 6,162,510 -------------- TAIWAN -- 2.6% Asustek Computer, Inc. -- GDR 144A# 498,410 1,076,566 Cathay Financial Holding, Co.* 812,000 1,526,560 -------------- 2,603,126 -------------- THAILAND -- 1.1% Shin Corp. PCL 662,700 598,310 TelecomAsia Corp. Public Co., Ltd.* 4,128,600 528,222 -------------- 1,126,532 -------------- UNITED KINGDOM -- 18.9% Aegis Group PLC 759,361 1,329,443 AstraZeneca PLC 34,500 1,414,028 BPB Industries PLC 194,974 1,510,049 Carnival PLC 39,438 1,938,988 George Wimpey PLC 133,710 972,659 HSBC Holdings PLC 123,160 1,954,519 Man Group PLC 60,600 1,303,842 Morrison Supermarkets 565,062 1,968,328 Next PLC 45,568 1,346,532 Reckitt Benckiser PLC 24,721 605,697 Royal Bank of Scotland Group PLC 61,512 1,776,492 United Business Media PLC 196,793 1,662,128 Vodafone Group PLC 654,996 1,567,490 -------------- 19,350,195 -------------- UNITED STATES -- 1.0% Synthes, Inc.* 9,539 1,038,924 -------------- TOTAL COMMON STOCK (Cost: $88,786,376) 97,273,196 -------------- PREFERRED STOCK -- 1.6% GERMANY -- 1.6% ProSiebenSat.1 Media AG (Cost: $1,591,454) 90,040 1,643,896 -------------- COMMON STOCK AND EQUIVILANTS -- 0.0% HONG KONG -- 0.0% Hutchison Whampoa, Ltd. 1,800 $ 0 -------------- (Cost: $0) 1,800 0 -------------- EQUITY-LINKED SECURITIES -- 0.8% TAIWAN -- 0.8% Credit Suisse FB United Microelectronics Corp. -- 01/26/07 7,866 4,743 Credit Suisse FB Yageo Corp. 9/15/04* 2,079,000 779,625 -------------- 784,368 -------------- TOTAL EQUITY-LINKED SECURITIES (Cost: $1,107,378) 784,368 -------------- PRINCIPAL AMOUNT - ---------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS -- 7.4% MONEY MARKET FUNDS -- 5.3% Federated Prime Obligations Fund** $ 5,449,918 5,449,918 -------------- TIME DEPOSITS -- 2.1% Brown Brothers Harriman & Co. 1.300%, 10/01/04 2,119,516 2,119,516 -------------- TOTAL SHORT TERM INVESTMENTS (Cost: $7,569,434) 7,569,434 -------------- TOTAL INVESTMENTS -- 104.7% (Cost: $99,054,642) 107,270,894 LIABILITIES IN EXCESS OF OTHER ASSETS -- (4.7%) (4,812,203) -------------- NET ASSETS -- 100.0% $ 102,458,691 ==============
- ---------- * Non-income producing securities. ** All of the security is purchased with cash collateral proceeds from securities loans. # 144A Security. Certain conditions for public sale may exist. Total market value of 144A securities owned at September 30, 2004 was $1,491,418 or 1.46% of net assets. ## All or a portion of the Fund's holdings in this security was on loan as of 9/30/04. ADR -- American Depository Receipt GDR -- Global Depository Receipt SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 56 SCHEDULE OF INVESTMENTS BY INDUSTRY AS OF SEPTEMBER 30, 2004 -- UNAUDITED INTERNATIONAL GROWTH FUND
PERCENTAGE OF INDUSTRY NET ASSETS - -------- ------------- Basic Materials 4.9% Communications 19.9 Consumer, Cyclical 12.1 Consumer, Non-cyclical 16.0 Diversified 1.0 Energy 7.4 Financial 20.2 Industrial 10.8% Technology 4.0 Utilities 1.0 Short Term Investments 7.4 Liabilities in excess of other assets (4.7) ----- NET ASSETS 100.0% =====
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 57 INTERNATIONAL GROWTH OPPORTUNITIES FUND MANAGEMENT TEAM: CHRISTOPHER A. HERRERA, Portfolio Manager; LINDA BA, Portfolio Manager; JASON CAMPBELL, Portfolio Manager; REBECCA K. HAGSTROM, CFA, Investment Analyst; FLORA KIM, Investment Analyst; KARL RICHTENBURG, Investment Analyst; ERIC SAGMEISTER, Investment Analyst; SCOTT R. WILLIAMS, Investment Analyst; MICHAEL J. FREDERICKS, Portfolio Specialist 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 25% of publicly traded companies as measured by the market capitalization in each country. MARKET OVERVIEW: International small-cap stocks registered small gains during the six months ended September 30, 2004. Equity prices traded in a narrow range throughout the period, rising and falling from month to month. Several factors contributed to choppy market conditions, including: - Renewed rise in commodity prices after prices had stabilized in the second quarter - Signs that Chinese and U.S. economic growth were starting to moderate Japanese stocks came under pressure on concerns of slowing growth in China and the United States, the two main destinations for Japan's exports. In contrast, Australian equities posted solid gains. This was largely due to the soaring price of energy and metals, of which the country is a net exporter. PERFORMANCE: Between April 1, 2004 and September 30, 2004, the Fund's Class I Shares registered a minor decline of 0.34%. The Citigroup World ex-U.S. EMI posted a small gain of 0.94%. PORTFOLIO SPECIFICS: During the period, investors preferred international small-cap value stocks over their growth counterparts. This hurt the Fund's relative return since, consistent with our philosophy, the Fund's holdings are concentrated in growth issues while its style-neutral benchmark represents a blend of growth and value names. Stock selection in the United Kingdom was also unfavorable, as was an overweight in information technology stocks, which trailed the broad small-cap market. In contrast, issue selection in Norway and the transportation sector was positive. Norway-based Frontline, an oil tanker company, was one of the Fund's best-performing names. Frontline is benefiting from favorable industry dynamics, as demand for ships is outpacing vessel capacity. Issue selection in Singapore and the consumer non-cyclicals group also boosted relative performance. As a result of our stock-by-stock investment decisions, holdings tended to move away from early-stage cyclical growth companies toward later-cycle companies during the period. For example, the Fund's exposure to the materials sector decreased, while its health care exposure increased. MARKET OUTLOOK: Our outlook for international small-cap stocks is favorable. Recently, the Bank of Japan's TANKAN survey of business confidence rose to its highest level in 13 years. While economic growth in Europe has been weak, we expect the European Central Bank to maintain interest rates at their present low levels for some time. We are especially positive about the return prospects of international small-cap growth stocks, as valuations are at attractive levels compared to historical averages. This bodes well for the Fund. 58 [CHART] COMPARISON OF CHANGE IN VALUE OF A $250,000 INVESTMENT IN INTERNATIONAL GROWTH OPPORTUNITIES FUND CLASS I AND II SHARES WITH THE MSCI ALL COUNTRY WORLD INDEX. ANNUALIZED TOTAL RETURNS As of 9/30/04
1 YEAR 5 YEARS 10 YEARS 26.31% 6.24% 13.96%
INTERNATIONAL GROWTH OPPORTUNITIES CITIGROUP WORLD FUND CLASS I SHARES EX-US EMI 12/31/1994 $ 276,653 $ 267,870 1/31/1995 $ 265,298 $ 259,172 2/28/1995 $ 259,724 $ 255,369 3/31/1995 $ 270,253 $ 266,269 4/30/1995 $ 281,195 $ 274,252 5/31/1995 $ 277,892 $ 269,451 6/30/1995 $ 274,382 $ 266,138 7/31/1995 $ 292,344 $ 281,651 8/31/1995 $ 289,247 $ 274,516 9/30/1995 $ 293,376 $ 276,662 10/31/1995 $ 282,641 $ 268,698 11/30/1995 $ 285,944 $ 271,541 12/31/1995 $ 293,257 $ 281,952 1/31/1996 $ 297,214 $ 286,979 2/29/1996 $ 300,963 $ 291,441 3/31/1996 $ 313,460 $ 298,162 4/30/1996 $ 327,206 $ 313,864 5/31/1996 $ 330,331 $ 311,322 6/30/1996 $ 333,246 $ 311,360 7/31/1996 $ 319,500 $ 299,574 8/31/1996 $ 322,624 $ 302,605 9/30/1996 $ 329,914 $ 304,300 10/31/1996 $ 330,955 $ 303,095 11/30/1996 $ 346,856 $ 308,065 12/31/1996 $ 346,835 $ 302,398 1/31/1997 $ 356,599 $ 295,865 2/28/1997 $ 361,268 $ 300,836 3/31/1997 $ 361,481 $ 296,844 4/30/1997 $ 359,358 $ 292,420 5/31/1997 $ 383,980 $ 311,172 6/30/1997 $ 409,452 $ 318,194 7/31/1997 $ 425,796 $ 313,374 8/31/1997 $ 408,178 $ 300,007 9/30/1997 $ 437,258 $ 305,335 10/31/1997 $ 406,268 $ 293,267 11/30/1997 $ 398,120 $ 280,164 12/31/1997 $ 395,704 $ 273,970 1/31/1998 $ 405,100 $ 285,398 2/28/1998 $ 446,979 $ 306,691 3/31/1998 $ 495,301 $ 321,112 4/30/1998 $ 521,878 $ 323,560 5/31/1998 $ 534,764 $ 329,584 6/30/1998 $ 536,107 $ 319,964 7/31/1998 $ 547,289 $ 317,761 8/31/1998 $ 460,817 $ 278,771 9/30/1998 $ 454,523 $ 271,503 10/31/1998 $ 472,584 $ 290,688 11/30/1998 $ 505,474 $ 300,007 12/31/1998 $ 539,504 $ 307,256 1/31/1999 $ 582,111 $ 306,314 2/28/1999 $ 571,044 $ 300,365 3/31/1999 $ 584,324 $ 311,661 4/30/1999 $ 619,184 $ 328,549 5/31/1999 $ 595,114 $ 319,926 6/30/1999 $ 660,961 $ 330,827 7/31/1999 $ 717,955 $ 343,215 8/31/1999 $ 764,712 $ 348,524 9/30/1999 $ 787,399 $ 347,696 10/31/1999 $ 841,073 $ 344,232 11/30/1999 $ 1,033,636 $ 355,980 12/31/1999 $ 1,230,678 $ 379,476 1/31/2000 $ 1,269,363 $ 370,100 2/29/2000 $ 1,604,446 $ 385,595 3/31/2000 $ 1,424,659 $ 387,157 4/30/2000 $ 1,278,826 $ 363,511 5/31/2000 $ 1,196,725 $ 357,222 6/30/2000 $ 1,290,515 $ 380,380 7/31/2000 $ 1,254,056 $ 367,332 8/31/2000 $ 1,315,006 $ 378,629 9/30/2000 $ 1,233,183 $ 360,348 10/31/2000 $ 1,138,002 $ 340,448 11/30/2000 $ 1,028,242 $ 326,440 12/31/2000 $ 1,081,308 $ 340,297 1/31/2001 $ 1,059,500 $ 343,648 2/28/2001 $ 992,259 $ 330,149 3/31/2001 $ 886,127 $ 304,034 4/30/2001 $ 939,920 $ 325,743 5/31/2001 $ 933,378 $ 324,961 6/30/2001 $ 886,854 $ 313,295 7/31/2001 $ 864,683 $ 305,086 8/31/2001 $ 831,244 $ 304,080 9/30/2001 $ 745,830 $ 265,036 10/31/2001 $ 773,453 $ 275,955 11/30/2001 $ 788,355 $ 286,469 12/31/2001 $ 799,259 $ 286,927 1/31/2002 $ 777,815 $ 280,386 2/28/2002 $ 783,630 $ 285,601 3/31/2002 $ 825,792 $ 304,165 4/30/2002 $ 829,790 $ 310,309 5/31/2002 $ 846,146 $ 321,883 6/30/2002 $ 806,528 $ 310,263 7/31/2002 $ 738,560 $ 283,146 8/31/2002 $ 730,564 $ 281,193 9/30/2002 $ 663,323 $ 255,604 10/31/2002 $ 665,504 $ 260,358 11/30/2002 $ 685,131 $ 269,783 12/31/2002 $ 676,044 $ 266,006 1/31/2003 $ 651,692 $ 259,995 2/28/2003 $ 641,152 $ 255,809 3/31/2003 $ 632,065 $ 254,120 4/30/2003 $ 684,404 $ 279,075 5/31/2003 $ 744,376 $ 302,768 6/30/2003 $ 759,641 $ 313,063 7/31/2003 $ 784,720 $ 323,519 8/31/2003 $ 829,427 $ 338,563 9/30/2003 $ 843,965 $ 354,306 10/31/2003 $ 934,468 $ 379,816 11/30/2003 $ 947,189 $ 386,121 12/31/2003 $ 1,002,436 $ 409,481 1/31/2004 $ 1,037,329 $ 423,608 2/29/2004 $ 1,059,500 $ 436,994 3/31/2004 $ 1,069,677 $ 448,006 4/30/2004 $ 1,039,873 $ 435,104 5/31/2004 $ 1,037,329 $ 436,627 6/30/2004 $ 1,078,037 $ 451,908 7/31/2004 $ 1,027,152 $ 434,284 8/30/2004 $ 1,025,698 $ 437,411 9/30/2004 $ 1,066,042 $ 452,239
1 YEAR SINCE INCEPTION 26.47% 10.67%
[CHART]
INTERNATIONAL GROWTH OPPORTUNITIES CITIGROUP WORLD FUND CLASS II SHARES EX-US EMI 6/30/2003 $ 250,000 $ 250,000 7/31/2003 $ 258,254 $ 258,350 8/31/2003 $ 273,086 $ 270,363 9/30/2003 $ 277,871 $ 282,935 10/31/2003 $ 307,775 $ 303,307 11/30/2003 $ 311,962 $ 308,341 12/31/2003 $ 330,263 $ 326,996 1/31/2004 $ 341,746 $ 338,277 2/29/2004 $ 349,163 $ 348,967 3/31/2004 $ 352,512 $ 357,761 4/30/2004 $ 342,584 $ 347,457 5/31/2004 $ 341,866 $ 348,674 6/30/2004 $ 355,383 $ 360,877 7/31/2004 $ 338,636 $ 346,803 8/30/2004 $ 338,756 $ 349,300 9/30/2004 $ 351,435 $ 361,141
The graph above shows the value of a hypothetical $250,000 investment in the Fund's Class I and II shares compared with the Citigroup World ex-US EMI Index for the periods indicated. Class I and II shares have a shareholder services fee of up to .25% of their average daily net assets. Performance is shown for Class I and II shares. 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 Fund's performance includes historical performance of comparable managed institutional separate accounts managed by the Investment Adviser prior to the Nicholas-Applegate Mutual Fund's inception. 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. 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 Citigroup (formerly Salomon Smith Barney) World ex-US Extended Market Index (EMI) is a world market capitalization weighted index measuring capital appreciation excluding the U.S. 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. Company eligibility is determined based upon market capitalization and investability criteria, representing capitalizations equal to or greater than US $100 Million. The index is unmanaged and does not include dividends; however, total rates of return, including all payments to shareholders, are calculated and published each month-end. The EMI defines the small-capitalization stock universe or bottom 20% of the available capital and includes approximately 75% of the Broad Market Index issues. 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 59 SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2004 -- UNAUDITED INTERNATIONAL GROWTH OPPORTUNITIES FUND
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------- COMMON STOCK AND EQUIVILANTS -- 95.1% AUSTRALIA -- 0.7% Bluescope Steel, Ltd. 103,522 $ 652,380 -------------- AUSTRIA -- 2.6% Erste Bank Der Oester Spark AG 24,560 1,021,868 Wienberger AG 33,254 1,247,304 -------------- 2,269,172 -------------- BELGIUM -- 5.1% AGfa Gevaer NV 34,182 991,302 Barco New NV 7,879 677,172 Colruyt Rights 6,300 8,372 Colruyt S.A.## 6,300 884,180 Mobistar S.A.* 16,600 1,185,489 UCB S.A. 15,014 799,414 -------------- 4,545,929 -------------- CANADA -- 4.2% Agf Management, Ltd. Cl. B 31,103 399,371 Cognos, Inc.* 19,400 689,088 IPSO, Inc. 26,700 744,110 Precision Drilling Corp.* 20,900 1,201,750 Rona, Inc.* 26,500 706,499 -------------- 3,740,818 -------------- DENMARK -- 3.3% GN Store Nord AS 102,500 1,034,991 H. Lundbeck A/S 36,000 651,913 ISS A/S 12,000 635,890 Jyske Bank-Reg* 9,450 615,111 -------------- 2,937,905 -------------- FINLAND -- 2.7% Nokian Renkaat OYJ 10,480 1,138,914 Tietoenator OYJ 44,800 1,297,562 -------------- 2,436,476 -------------- FRANCE -- 6.6% Dassault Systems S.A. 15,369 718,102 Elior 126,302 1,118,462 Gemplus International S.A.* 381,139 714,796 Geophysique Cie Generale* 6,968 466,897 Ipsos 2,511 238,266 JC Decaux S.A.* ## 38,356 871,778 Neopost S.A. 19,627 1,260,277 Seb S.A.## 5,241 506,425 -------------- 5,895,003 -------------- GERMANY -- 6.0% Continental AG 10,484 569,023 Freenet.De AG* 29,611 528,484 GPC Biotech AG* 24,157 327,033 Heidelberger Druckmaschin* 37,166 1,107,844 Hypo Real Estate Holding AG* 60,349 $ 2,061,220 Schwarz Pharma AG 21,213 786,444 -------------- 5,380,048 -------------- GREECE -- 0.8% Cosmote Mobile Communications S.A. -- Reg 43,070 709,316 -------------- IRELAND -- 3.8% Anglo Irish Bank Corp. PLC 92,700 1,698,218 Grafton Group PLC* 82,600 768,393 Kerry Group A 43,363 955,959 -------------- 3,422,570 -------------- ITALY -- 2.4% Buzzi Unicem SpA 87,094 1,150,937 Saipem SpA 87,800 986,881 -------------- 2,137,818 -------------- JAPAN -- 20.3% Bank of Fukuoka, Ltd. 233,000 1,111,990 Bank of Yokohama, Ltd. 141,000 757,356 Circle K Sunkus Co. Ltd.* 27,200 658,930 Familymart Co., Ltd. 23,900 640,788 Fuji Fire & Marine Insurance 191,000 604,809 Funai Electric Co., Ltd. 5,400 728,068 Hogy Medical Co., Ltd.## 13,200 541,342 Hokuhoku Financial Group, Inc. 477,000 995,418 Hokuto Corp. 31,500 501,588 Japan General Estate Co., Ltd. 40,000 394,502 JSR Corp. 31,500 508,733 Kinden Corp.## 115,000 718,913 Kobe Steel, Ltd. 560,000 812,957 Komeri Co., Ltd. 30,800 669,292 Leopalace 21 Corp. 35,400 653,622 Marubeni Corp. 425,000 1,125,981 Mitsui Mining & Smelting Co. 196,000 764,687 Nippon Electric Glass Co. 48,000 1,067,005 Sega Corp.* 65,000 878,147 Shima Seiki Manufacturing, Ltd. 9,100 285,678 Sumitomo Bakelite Co. Ltd. 97,000 584,385 Taiyo Yuden Co., Ltd.## 42,000 435,186 Teijin, Ltd. 282,000 1,008,102 Umc Japan* ## 591 297,605 Uni-Charm Corp. 27,900 1,382,153 -------------- 18,127,237 -------------- LUXEMBOURG -- 0.9% SBS Broadcasting S.A.* 23,800 801,108 -------------- NETHERLANDS -- 2.2% Aalberts Industries 20,100 730,203 ASM International NV* 34,534 461,510 Vedior NV 48,518 750,229 -------------- 1,941,942 --------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 60
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------- COMMON STOCK AND EQUIVILANTS (Continued) NORWAY -- 4.6% Frontline, Ltd. 26,450 $ 1,239,690 Golar LNG, Ltd.* 48,100 757,424 Ship Finance International, Ltd. 2,645 53,165 Smedvig ASA## 71,400 933,403 Storebrand ASA 150,800 1,136,909 -------------- 4,120,591 -------------- PANAMA -- 1.0% Banco Latinoamericano de Exportaciones S.A. 57,000 874,950 -------------- REPUBLIC OF CHINA -- 3.7% Dah Sing Financial 96,400 692,276 Hong Kong Exchanges & Clearing 326,000 739,954 Kingboard Chemical Holdings Ltd. 232,000 477,504 New World Development Co., Ltd. 768,000 723,873 Wing Hang Bank, Ltd. 98,000 640,929 -------------- 3,274,536 -------------- SINGAPORE -- 1.9% Hi-P International, Ltd. 834,000 847,078 Keppel Corp., Ltd. 175,000 821,157 -------------- 1,668,235 -------------- SOUTH KOREA -- 1.0% Industrial Bank of Korea 151,020 927,235 -------------- SPAIN -- 4.0% Amadeus Global Travel Distribution S.A. Cl. A 104,935 830,197 Antena 3 De Television S.A.* 8,106 482,442 Cortefiel S.A. 78,200 904,228 Red Electrica De Espana S.A. 71,200 1,295,505 -------------- 3,512,372 -------------- SWEDEN -- 2.5% Eniro AB 137,900 1,193,333 Getinge AB-B Shares 87,200 1,060,026 -------------- 2,253,359 -------------- SWITZERLAND -- 4.2% Actelion, Ltd.* 6,840 701,145 Geberit AG-Reg 1,488 1,155,890 Nobel Biocare Holding AG 6,104 947,105 SGS Societe Generale de Surveillance Holding S.A. 1,700 932,570 -------------- 3,736,710 -------------- THAILAND -- 0.2% Krung Thai Bank, Ltd. 1,040,100 203,375 -------------- UNITED KINGDOM -- 10.4% Acambis PLC* 139,399 $ 769,361 BPB Industries PLC 140,051 1,084,677 Burberry Group PLC 87,449 589,456 Close Brothers Group PLC 56,644 709,814 Cobham PLC 36,000 867,715 De Vere Group PLC 114,062 891,652 Kesa Electricals PLC 213,947 1,095,628 Man Group PLC 37,923 815,934 Punch Taverns PLC 91,372 833,325 Taylor Woodrow 178,026 848,052 United Business Media PLC 84,851 716,658 -------------- 9,222,272 -------------- TOTAL COMMON STOCK AND EQUIVILANTS (Cost: $69,871,174) 84,791,357 -------------- PREFERRED STOCK -- 1.2% GERMANY -- 1.2% ProSiebenSat.1 Media AG (Cost: $625,003) 58,603 1,069,938 -------------- WARRANTS -- 0.0% REPUBLIC OF CHINA -- 0.0% Kingboard Chemical Holdings 25,600 0 -------------- (Cost: $0) 25,600 0 -------------- PRINCIPAL AMOUNT - ---------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS -- 4.6% MONEY MARKET FUNDS -- 4.3% Federated Prime Obligations Fund** $ 3,836,561 3,836,561 -------------- TIME DEPOSITS -- 0.3% Brown Brothers Harriman & Co. 1.300%, 10/01/04 262,464 262,464 -------------- TOTAL SHORT TERM INVESTMENTS (Cost: $4,099,025) 4,099,025 -------------- TOTAL INVESTMENTS -- 100.9% (Cost: $74,595,202) 89,960,320 LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.9%) (836,803) -------------- NET ASSETS -- 100.0% $ 89,123,517 ==============
- ---------- * 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 9/30/04. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 61 SCHEDULE OF INVESTMENTS BY INDUSTRY AS OF SEPTEMBER 30, 2004 -- UNAUDITED INTERNATIONAL GROWTH OPPORTUNITIES FUND
PERCENTAGE OF INDUSTRY NET ASSETS - -------- ------------- Basic Materials 5.2% Communications 9.8 Consumer, Cyclical 15.8 Consumer, Non-cyclical 14.3 Diversified 0.9 Energy 3.9 Financial 19.2 Industrial 19.7% Technology 6.1 Utilities 1.4 Short Term Investments 4.6 Liabilities in excess of other assets (0.9) ----- NET ASSETS 100.0% =====
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 62 EMERGING COUNTRIES FUND MANAGEMENT TEAM: ANDREW BEAL, Lead Portfolio Manager; LINDA BA, Portfolio Manager; JASON CAMPBELL, Portfolio Manager; REBECCA K. HAGSTROM, CFA, Investment Analyst; FLORA KIM, Investment Analyst; ERIC SAGMEISTER, Investment Analyst; SCOTT R. WILLIAMS, Investment Analyst; MICHAEL J. FREDERICKS, Portfolio Specialist CHIEF INVESTMENT OFFICER: HORACIO A. VALEIRAS, CFA GOAL: The Emerging Countries Fund seeks to maximize long-term capital appreciation through investments in companies located in developing countries around the world. MARKET OVERVIEW: From April 1, 2004 through September 30, 2004, stocks in developing countries posted modest declines. Losses were concentrated in the first four months of the period and were largely due to concerns about: - Higher interest rates in the United States, as emerging market equities have historically been very sensitive to rising rates in developed markets - Chinese officials' efforts to curb the country's booming growth and its impact on commodity-oriented companies in developing nations Later in the period, emerging market equities reversed course, posting strong gains in August and September. Investors appeared to have become more comfortable with the outlook for emerging markets, as well as China's ability to engineer a "soft landing" for its economy. PERFORMANCE: The Fund's Class I Shares were down 7.41% during the six months ended September 30, 2004. The MSCI Emerging Markets Index lost 2.10%. PORTFOLIO SPECIFICS: Emerging market growth stocks underperformed their value counterparts this period, which hurt performance versus the benchmark. Consistent with our investment philosophy, the Fund's holdings are concentrated in growth stocks. In contrast, the style-neutral MSCI Emerging Markets Index includes a mix of growth and value names. Stock selection in Russia, Taiwan and the energy sector also negatively impacted the Fund's relative return. On a positive note, issue selection in South Korea and the consumer discretionary sector helped performance versus the index. For example, Edgars Consolidated, a South African department store chain, was one of the Fund's best-performing holdings. Edgars benefited from several positive influences, including market share gains and the continued strength of the South African consumer. MARKET OUTLOOK: Despite near-term losses, our longer-term outlook for emerging market equities is positive given: - Inflation in many emerging markets has been relatively subdued - Economic growth in developing countries has been generally resilient, and expectations have not weakened significantly - Countries and companies have taken advantage of the low interest rates of the past few years to strengthen their balance sheets, leaving them less vulnerable to rising U.S. rates As always, we remain committed to our investment philosophy centered on positive, sustainable change. We are confident our approach will benefit the Fund over the long term. 63 [CHART] COMPARISON OF CHANGE IN VALUE OF A $250,000 INVESTMENT IN EMERGING COUNTRIES FUND CLASS I AND II SHARES WITH THE MSCI EMERGING MARKETS INDEX. ANNUALIZED TOTAL RETURNS As of 9/30/04
SINCE 1 YEAR 5 YEARS INCEPTION 19.52% 0.85% 4.36%
EMERGING COUNTRIES FUND CLASS I SHARES MSCI EM INDEX 11/28/1994 $ 250,000 $ 250,000 11/30/1994 $ 251,800 $ 254,738 12/31/1994 $ 237,014 $ 234,279 1/31/1995 $ 217,797 $ 209,353 2/28/1995 $ 215,595 $ 203,984 3/31/1995 $ 218,398 $ 205,280 4/30/1995 $ 231,009 $ 214,489 5/31/1995 $ 248,825 $ 225,900 6/30/1995 $ 251,427 $ 226,568 7/31/1995 $ 268,243 $ 231,654 8/31/1995 $ 266,841 $ 226,197 9/30/1995 $ 267,042 $ 225,124 10/31/1995 $ 254,230 $ 216,506 11/30/1995 $ 248,625 $ 212,645 12/31/1995 $ 253,511 $ 222,076 1/31/1996 $ 276,630 $ 237,862 2/29/1996 $ 280,651 $ 234,080 3/31/1996 $ 281,857 $ 235,903 4/30/1996 $ 299,951 $ 245,335 5/31/1996 $ 310,204 $ 244,239 6/30/1996 $ 310,807 $ 245,764 7/31/1996 $ 298,946 $ 228,968 8/31/1996 $ 311,812 $ 234,829 9/30/1996 $ 317,441 $ 236,863 10/31/1996 $ 309,199 $ 230,546 11/30/1996 $ 321,453 $ 234,409 12/31/1996 $ 324,696 $ 235,469 1/31/1997 $ 348,815 $ 251,531 2/28/1997 $ 359,557 $ 262,302 3/31/1997 $ 353,679 $ 255,412 4/30/1997 $ 356,720 $ 255,864 5/31/1997 $ 378,001 $ 263,186 6/30/1997 $ 406,782 $ 277,271 7/31/1997 $ 426,442 $ 281,410 8/31/1997 $ 393,810 $ 245,601 9/30/1997 $ 421,983 $ 252,406 10/31/1997 $ 354,693 $ 210,990 11/30/1997 $ 344,552 $ 203,291 12/31/1997 $ 357,563 $ 208,190 1/31/1998 $ 336,925 $ 191,862 2/28/1998 $ 363,844 $ 211,887 3/31/1998 $ 384,705 $ 221,082 4/30/1998 $ 397,043 $ 218,674 5/31/1998 $ 355,768 $ 188,707 6/30/1998 $ 331,318 $ 168,912 7/31/1998 $ 346,571 $ 174,268 8/31/1998 $ 245,169 $ 123,880 9/30/1998 $ 245,394 $ 131,738 10/31/1998 $ 265,900 $ 145,611 11/30/1998 $ 279,646 $ 157,721 12/31/1998 $ 281,674 $ 155,435 1/31/1999 $ 290,237 $ 152,927 2/28/1999 $ 284,378 $ 154,415 3/31/1999 $ 303,081 $ 174,765 4/30/1999 $ 337,558 $ 196,387 5/31/1999 $ 335,755 $ 195,245 6/30/1999 $ 378,795 $ 217,403 7/31/1999 $ 370,457 $ 211,498 8/31/1999 $ 370,232 $ 213,422 9/30/1999 $ 364,824 $ 206,199 10/31/1999 $ 371,133 $ 210,590 11/30/1999 $ 412,596 $ 229,472 12/31/1999 $ 504,083 $ 258,656 1/31/2000 $ 496,647 $ 260,198 2/29/2000 $ 547,574 $ 263,634 3/31/2000 $ 533,828 $ 264,921 4/30/2000 $ 459,241 $ 239,808 5/31/2000 $ 435,130 $ 229,894 6/30/2000 $ 460,367 $ 237,992 7/31/2000 $ 430,623 $ 225,753 8/31/2000 $ 443,016 $ 226,862 9/30/2000 $ 400,878 $ 207,054 10/31/2000 $ 367,302 $ 192,042 11/30/2000 $ 318,515 $ 175,251 12/31/2000 $ 327,651 $ 179,482 1/31/2001 $ 349,224 $ 204,197 2/28/2001 $ 315,469 $ 188,208 3/31/2001 $ 284,252 $ 169,722 4/30/2001 $ 295,927 $ 178,108 5/31/2001 $ 298,211 $ 180,234 6/30/2001 $ 290,597 $ 176,535 7/31/2001 $ 272,070 $ 165,379 8/31/2001 $ 262,426 $ 163,742 9/30/2001 $ 219,534 $ 138,395 10/31/2001 $ 228,163 $ 146,989 11/30/2001 $ 255,827 $ 162,335 12/31/2001 $ 278,922 $ 175,224 1/31/2002 $ 286,282 $ 181,164 2/28/2002 $ 291,866 $ 184,135 3/31/2002 $ 307,855 $ 195,220 4/30/2002 $ 308,870 $ 196,489 5/31/2002 $ 302,779 $ 193,365 6/30/2002 $ 277,146 $ 178,863 7/31/2002 $ 252,274 $ 165,198 8/31/2002 $ 253,797 $ 167,742 9/30/2002 $ 219,280 $ 149,642 10/31/2002 $ 232,478 $ 159,354 11/30/2002 $ 254,558 $ 170,318 12/31/2002 $ 238,569 $ 164,663 1/31/2003 $ 238,061 $ 163,939 2/28/2003 $ 232,985 $ 159,512 3/31/2003 $ 220,803 $ 154,998 4/30/2003 $ 243,645 $ 168,808 5/31/2003 $ 262,172 $ 180,929 6/30/2003 $ 276,131 $ 191,242 7/31/2003 $ 292,374 $ 203,214 8/31/2003 $ 317,246 $ 216,849 9/30/2003 $ 318,515 $ 218,432 10/31/2003 $ 345,925 $ 237,021 11/30/2003 $ 344,909 $ 239,936 12/31/2003 $ 373,081 $ 257,331 1/31/2004 $ 387,801 $ 266,467 2/29/2004 $ 407,090 $ 278,751 3/31/2004 $ 414,704 $ 282,347 4/30/2004 $ 374,604 $ 259,251 5/31/2004 $ 363,437 $ 254,143 6/30/2004 $ 360,137 $ 255,313 7/31/2004 $ 347,701 $ 250,794 8/30/2004 $ 363,944 $ 261,302 9/30/2004 $ 380,695 $ 276,405
SINCE 1 YEAR INCEPTION 19.70% 4.37%
[CHART]
EMERGING COUNTRIES FUND CLASS II SHARES MSCI EM INDEX 6/30/2003 $ 250,000 $ 250,000 7/31/2003 $ 264,706 $ 265,650 8/31/2003 $ 287,224 $ 283,475 9/30/2003 $ 288,143 $ 285,544 10/31/2003 $ 312,960 $ 309,844 11/30/2003 $ 312,270 $ 313,655 12/31/2003 $ 337,546 $ 336,395 1/31/2004 $ 351,103 $ 348,337 2/29/2004 $ 368,336 $ 364,396 3/31/2004 $ 372,013 $ 369,097 4/30/2004 $ 339,154 $ 338,904 5/31/2004 $ 329,044 $ 332,228 6/30/2004 $ 326,057 $ 333,756 7/31/2004 $ 314,798 $ 327,849 8/30/2004 $ 330,193 $ 341,586 9/30/2004 $ 344,899 $ 361,329
The graph above shows the value of a hypothetical $250,000 investment in the Fund's Class I and II shares compared with the Morgan Stanley Capital International Emerging Markets Index ("MSCI EM") for the periods indicated. Class I and II shares have a shareholder services fee of up to .25% of their average daily net assets. Performance is shown for Class I and II shares. The Fund's Class I shares calculate their performance based upon the historical performance of their corresponding series of Nicholas-Applegate Mutual Funds (renamed Pilgrim 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. 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 EM Index 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. 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. Emerging markets involve heightened risks related to the same factors, in addition to those associated with their relatively small size and lesser liquidity. You may have a gain or loss when you sell your shares. 64 SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2004 -- UNAUDITED EMERGING COUNTRIES FUND
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------- COMMON STOCK -- 90.9% BRAZIL -- 8.2% Banco Bradesco S.A. -- ADR 8,500 $ 447,950 Banco Itau S.A. -- ADR 6,000 333,000 Companhia Brasileira de Distribuicao Grupo Pao de Acucar -- ADR 14,800 295,852 Companhia de Bebidas das Americas -- ADR 22,400 501,760 Companhia de Saneamento Basico do Estado de Sal Paulo 3,990,000 187,037 Companhia Vale Do Rio Doce -- ADR 11,400 219,450 Empresa Brasiliera de Aeronautica S.A. -- ADR 7,100 187,440 Petroleo Brasileiro S.A. -- ADR 48,000 1,647,045 Tele Norte Leste Participacoes S.A. -- ADR 30,100 398,223 Telecelular Sul Participacoes S.A. -- ADR 11,722 167,273 Telesp Celular Participacoes S.A. -- ADR* 57,000 352,260 Uniao de Bancos Brasileiros S.A. -- ADR 13,900 336,797 Votorantim Celulose e Papel S.A. -- ADR 10,500 362,775 -------------- 5,436,862 -------------- CHILE -- 0.5% Antofagasta PLC 14,800 302,897 -------------- CZECH REPUBLIC -- 0.6% Komercni Banka A.S. 3,288 367,149 -------------- INDIA -- 1.1% India Tobacco, Ltd. -- GDR 144A# 28,800 712,426 -------------- INDONESIA -- 3.1% Bank Central Asia PT 3,394,200 741,092 Bank Mandiri 3,273,100 518,122 Telekomunikasi TBK PT 1,795,400 813,418 -------------- 2,072,632 -------------- ISRAEL -- 0.8% Teva Pharmaceutical Industries, Ltd. -- ADR 19,200 498,240 -------------- MALAYSIA -- 4.0% AMMB Holdings Berhad* 687,120 596,710 Commerce Asset -- Holding Berhad 532,300 630,355 IOI Corp. Berhad 257,000 632,355 Tenaga Nasional Berhad 266,100 770,289 -------------- 2,629,709 -------------- MEXICO -- 6.8% Cemex S.A de CV -- ADR 13,400 $ 377,076 Corporacion Geo S.A. -- Ser. B* 233,000 336,141 Grupo Elektra S.A. 221,000 1,482,701 Grupo Telavisa S.A. -- ADR 10,500 553,665 Telefonos de Mexico S.A. de CV (Telmex) -- ADR 54,600 1,761,942 -------------- 4,511,525 -------------- PANAMA -- 0.9% Banco Latinoamericano de Exportaciones S.A. 38,900 597,115 -------------- PHILIPPINES -- 1.0% Philippine Long Distance Telephone Co.* 27,400 679,097 -------------- POLAND -- 1.1% Bank Zachodni Wbk S.A. 6,687 157,346 BRE Bank S.A.* 5,788 176,210 Orbis S.A. 23,977 158,271 Softbank S.A.-- GDR* 15,297 109,680 Telekomunikacja Polska S.A. 27,300 118,066 -------------- 719,573 -------------- REPUBLIC OF CHINA -- 7.1% Aluminum Corp. of China, Ltd. 1,988,000 1,287,424 China Mobile Hong Kong, Ltd. 290,300 880,425 China Mobile Hong Kong, Ltd. -- ADR 22,400 342,720 China Petroleum & Chemical Corp. 2,651,600 1,079,607 Denway Motors, Ltd. 1,716,000 572,143 Huaneng Power International, Inc. -- Ser. H 714,400 577,160 -------------- 4,739,479 -------------- RUSSIAN FEDERATION -- 3.3% Irkutskenergo 948,876 184,794 LUKOIL Oil Co. -- ADR 5,500 682,000 North-West Telecom 221,404 112,473 RAO Unified Energy System -- Reg -- GDR 7,264 211,019 Red October 1,582 9,848 Sibirtelecom 2,609,410 129,688 Slavneft-Megionneftgas* 9,100 184,275 Uralelektromed* 1,582 91,756 YUKOS Corp. -- ADR 38,114 613,635 -------------- 2,219,488 -------------- SOUTH AFRICA -- 12.7% African Bank Investment, Ltd. 425,565 853,759 Anglo American PLC 91,427 2,174,480 Edgars Consolidated Stores, Ltd. 26,584 776,006 FirstRand 244,567 457,784 Foshini, Ltd. 38,173 168,315
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 65
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------- COMMON STOCK (Continued) SOUTH AFRICA (CONTINUED) Gold Fields, Ltd. 28,000 $ 378,378 Harmony Gold Mining Co., Ltd. -- ADR 60,226 820,278 Kumba Resources, Ltd. 162,500 985,039 Metropolitan Holdings, Ltd. 149,498 203,179 Old Mutual PLC 101,582 208,341 Reunert, Ltd. 40,769 175,669 Sasol, Ltd. 68,100 1,267,344 -------------- 8,468,572 -------------- SOUTH KOREA -- 19.6% Hynix Semiconductor Inc.* 73,450 669,757 Hyundai Motor Co., Ltd. 22,760 1,049,549 Kookmin Bank* 15,848 501,658 Kookmin Bank -- Spon. ADR* 10,600 337,504 LG Electronics, Inc. 14,220 817,511 LG Home Shopping, Inc. 18,179 701,743 Ncsoft Corp.* 8,958 736,711 NHN Corp. 7,289 609,579 Pohang Iron & Steel Co., Ltd. 5,140 765,532 Samsung Electronics Co., Ltd. 9,217 3,665,989 Samsung Electronics Co., Ltd. 144A -- GDR# 2,000 396,000 Shinhan Financial Group Co., Ltd. 60,120 1,038,982 Shinsegae Co., Ltd. 3,440 915,640 SK Telecom Co., Ltd. 1,830 278,910 SK Telecom Co., Ltd.-- ADR 29,500 573,775 -------------- 13,058,840 -------------- TAIWAN -- 13.3% Asustek Computer, Inc. -- GDR 144A# 502,137 1,084,616 Benq Corp. 251,900 261,021 Cathay Financial Holding Co., Ltd. 545,000 1,026,788 Chinatrust Financial Holding 621,986 670,141 Compeq Manufacturing Co., Ltd.* 1,815,000 593,067 Formosa Plastics Corp. 417,534 651,437 Fubon Financial Holding Corp. 610,000 560,259 Largan Precision Co., Ltd. 33,220 233,723 Nanya Technology Corp.* 19,690 16,288 Optimax Technology Corp. 255,396 575,149 Phoenix Precision Tech Corp. 907,104 416,568 Siliconware Precision Industries Co. 1,093,400 749,962 Taiwan Semiconductor Manufacturing Co., Ltd. 754,888 962,221 Taiwan Styrene Monomer Corp. 567,400 415,904 United Microelectronics Corp.* 1,031,342 622,388 -------------- 8,839,532 -------------- THAILAND -- 2.6% Advanced Info Service PCL 412,800 $ 996,500 Krung Thai Bank, Ltd. 3,655,900 714,853 Quality Houses Public Co., Ltd. 1,261,830 36,248 -------------- 1,747,601 -------------- TURKEY -- 3.0% Aksigorta A.S. 74,091,500 236,227 Arcelik A.S.* 31,008,000 181,249 Haci Omer Sabanci Holding 57,477,800 206,164 Hurriyet Gazetecilik ve Matbaacilik A.S. 213,665,010 386,740 Turk Otomobil Fabrikasi A.S.* 131,445,907 314,318 Turkiye Garanti Bankasi A.S.* 158,977,000 533,267 Yapi ve Kredi Bankasi A.S.* 63,682,800 167,085 -------------- 2,025,050 -------------- UNITED KINGDOM -- 1.2% BHP Billiton, Ltd. 77,800 817,050 -------------- TOTAL COMMON STOCK (Cost: $50,672,782) 60,442,837 -------------- PREFERRED STOCK -- 4.5% BRAZIL -- 3.5% All America Latina Logistica 21,100 438,384 Banco Bradesco S.A. 6,263 330,127 Braskem S.A. Cl. A* 14,570,000 485,157 Caemi Mineracao E Metal* 338,000 212,802 Companhia Energetica de Minas Gerais 8,400,000 176,873 Tele Sudeste Celular Participacoes S.A. 63,800,000 161,341 Usinas Siderurgicas de Minas Gerais -- Ser A 33,700 522,179 -------------- 2,326,863 -------------- RUSSIAN FEDERATION -- 0.5% Transneft 360 321,480 -------------- SOUTH KOREA -- 0.5% Hyundai Motor Co., Ltd. 12,230 316,504 -------------- TOTAL PREFERRED STOCK (Cost: $1,413,279) 2,964,847 -------------- EQUITY-LINKED SECURITIES -- 2.9% INDIA -- 2.1% UBS AG London Bharat Petroleum Corp. 63,934 492,036 UBS AG Satyam Computers Services, Ltd. -- 01/10/05 108,543 890,487 -------------- 1,382,523 --------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 66
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------- EQUITY-LINKED SECURITIES (Continued) TAIWAN -- 0.8% Credit Suisse FB United Microelectronics Corp. -- 01/26/07 872,467 $ 526,097 -------------- TOTAL EQUITY-LINKED SECURITIES (Cost: $1,574,222) 1,908,620 -------------- PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS -- 0.9% TIME DEPOSITS -- 0.9% Brown Brothers Harriman & Co. 1.300%, 10/01/04 (Cost: $636,430) $ 636,431 $ 636,431 -------------- TOTAL INVESTMENTS -- 99.2% (Cost: $54,296,713) 65,952,735 OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.8% 553,882 -------------- NET ASSETS -- 100.0% $ 66,506,617 ==============
- ---------- * Non-income producing securities. # 144A Security. Certain conditions for public sale may exist. Total market value of 144A securities owned at September 30, 2004 was $2,193,042 or 3.30% of net assets. ADR -- American Depository Receipt GDR -- Global Depository Receipt SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 67 SCHEDULE OF INVESTMENTS BY INDUSTRY AS OF SEPTEMBER 30, 2004 -- UNAUDITED EMERGING COUNTRIES FUND
PERCENTAGE OF INDUSTRY NET ASSETS - -------- ------------- Basic Materials 15.7% Communications 15.1 Consumer, Cyclical 10.5 Consumer, Non-cyclical 3.9 Diversified 0.3 Energy 8.9 Financial 19.4 Industrial 7.5% Technology 13.3 Utilities 3.7 Short Term Investments 0.9 Other assets in excess of liabilities 0.8 ----- NET ASSETS 100.0% =====
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 68 EMERGING MARKETS OPPORTUNITIES FUND MANAGEMENT TEAM: ANDREW BEAL, Lead Portfolio Manager; LINDA BA, Portfolio Manager; JASON CAMPBELL, Portfolio Manager; REBECCA K. HAGSTROM, CFA, Investment Analyst; FLORA KIM, Investment Analyst; ERIC SAGMEISTER, Investment Analyst; SCOTT R. WILLIAMS, Investment Analyst; MICHAEL J. FREDERICKS, Portfolio Specialist CHIEF INVESTMENT OFFICER: HORACIO A. VALEIRAS, CFA GOAL: The Emerging Markets Opportunities Fund seeks to maximize long-term capital appreciation through investments in companies located in developing countries around the world, emphasizing companies with market capitalizations that are generally less than that of the top 50 securities in the MSCI Emerging Markets Index. MARKET OVERVIEW: During the six months ended September 30, 2004, investors sent equity prices in emerging countries lower. A robust rally in August and September, when the MSCI Emerging Markets Index rose 10.21%, was unable to erase prior months' losses. This period's decline was largely driven by worries of higher U.S. interest rates, as emerging market equities have historically been sensitive to rising rates in developed markets. Adding to selling pressure were fears the Chinese government's efforts to slow its country's growth would hurt demand for exports from other developing countries. Markets in emerging Asia were especially weak on this concern. While stock prices in developing markets were down overall, Latin American equities posted solid gains. Rising crude prices lent support to markets in oil-producing countries, such as Mexico and Venezuela. Economic indicators showed improvement in Brazil, which reported its strongest consecutive monthly increase in industrial output since 1995. PERFORMANCE: From its May 28, 2004 inception through September 30, 2004, the Fund gained 7.00% and the MSCI Emerging Markets Index rose 8.30%. PORTFOLIO SPECIFICS: The Fund's gain was broad based, with holdings in the majority of countries and sectors registering increases. Compared to the index, the Fund modestly lagged. Stock selection in Taiwan, Malaysia and the industrials sector drove underperformance, as did an underweight and issue selection among energy companies. Another area that hurt relative performance was the Fund's higher-than-benchmark exposure to growth stocks, since growth trailed value in emerging countries. Because our investment philosophy emphasizes companies with growth characteristics, the Fund's holdings are concentrated in growth stocks. However, the MSCI Emerging Markets Index is style neutral, consisting of both growth and value names. On the positive side, stock selection in Mexico, Brazil and among materials companies boosted relative results. An overweight in Brazil, where stocks prices rose sharply, was another plus. Brazil-based Braskem, a chemical firm, and Mexico-based Grupo Mexico, a mining company, were among the best-performing holdings this period. MARKET OUTLOOK: The outlook for emerging market equities remains solid. Inflation in many developing countries has been relatively subdued. Slow, but steady, economic growth throughout much of the world is creating demand for the export goods and services produced in many emerging nations. Low global interest rates help to stimulate corporate investment, which, in turn, stimulates demand for raw materials exported by developing countries. Looking forward, Nicholas-Applegate remains confident in our ability to invest in companies for the Fund that are leveraged to the current economic environment. 69 SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2004 -- UNAUDITED EMERGING MARKETS OPPORTUNITIES FUND
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------- COMMON STOCK -- 78.9% BRAZIL -- 7.1% All America Latina Logistica* 2,700 $ 56,097 Banco Bradesco S.A. -- ADR 1,800 94,860 Banco Itau S.A. -- ADR 400 22,200 Companhia Brasileira de Distribuicao Grupo Pao de Acucar -- ADR 3,200 63,968 Companhia de Bebidas das Americas -- ADR 3,100 69,440 Companhia de Saneamento Basico do Estado de Sal Paulo 530,000 24,845 Natura Cosmeticos S.A. 4,200 84,911 Petroleo Brasileiro S.A. -- ADR 1,500 52,875 Tele Norte Leste Participacoes S.A. -- ADR 2,900 38,367 Telecelular Sul Participacoes S.A. -- ADR 1,574 22,461 Telesp Celular Participacoes S.A. -- ADR* 7,600 46,968 Votorantim Celulose e Papel S.A. -- ADR 1,400 48,370 -------------- 625,362 -------------- CHILE -- 0.4% Antofagasta PLC 1,881 38,497 -------------- INDIA -- 2.5% India Tobacco, Ltd. -- GDR 144A# 3,900 96,474 Satyam Computer Services, Ltd. -- ADR 5,200 120,224 -------------- 216,698 -------------- INDONESIA -- 3.4% Bank Central Asia PT 526,500 114,956 Bank Mandiri 506,000 80,098 Telekomunikasi TBK PT 226,000 102,391 -------------- 297,445 -------------- ISRAEL -- 1.2% Agis Industries (1983), Ltd. 2,573 64,095 Bank Hapoalim, Ltd. 15,045 41,609 -------------- 105,704 -------------- MALAYSIA -- 3.6% AMMB Holdings Berhad* 87,500 75,987 Commerce Asset -- Holding Berhad 72,900 86,329 Glomac Berhad 49,300 22,963 IOI Corp. Berhad 28,000 68,895 MK Land Holdings Berhad 120,900 63,313 -------------- 317,487 -------------- MEXICO -- 7.6% Consorcio ARA S.A. de C.V.* 31,200 88,928 Grupo Elektra S.A. 25,700 172,423 Grupo Financiero Banorte S.A. de C.V. 16,600 $ 78,105 Grupo Financiero Inbursa S.A. de C.V. 31,676 54,032 Grupo Mexico S.A. -- Ser. B* 27,571 111,203 Grupo Telavisa S.A. -- ADR 1,900 100,187 Industrias Penoles S.A. de C.V. 15,400 71,581 -------------- 676,459 -------------- PANAMA -- 0.9% Banco Latinoamericano de Exportaciones S.A. 5,200 79,820 -------------- PHILIPPINES -- 1.0% Philippine Long Distance Telephone Co.* 3,500 86,746 -------------- POLAND -- 1.1% Bank Zachodni Wbk S.A. 897 21,106 BRE Bank S.A.* 678 20,641 Orbis S.A. 3,105 20,496 Softbank S.A. -- GDR* 4,621 33,133 -------------- 95,376 -------------- REPUBLIC OF CHINA -- 6.8% Aluminum Corp. of China, Ltd. 264,000 170,966 China Petroleum & Chemical Corp. 226,000 92,017 Cosco Pacific Ltd. 58,000 96,691 Denway Motors, Ltd. 232,000 77,353 Lee & Man Paper Manufacturing, Ltd. 84,000 63,554 Sinopec Shanghai Petrochem Cl. H 268,000 102,243 -------------- 602,824 -------------- RUSSIAN FEDERATION -- 2.0% LUKOIL Oil Co. -- ADR 800 99,200 RAO Unified Energy System -- Reg -- GDR 1,481 43,023 YUKOS Corp. -- ADR 2,400 38,640 -------------- 180,863 -------------- SINGAPORE -- 1.7% Hi-P International, Ltd. 148,000 150,321 -------------- SOUTH AFRICA -- 14.0% African Bank Investment, Ltd. 57,399 115,153 Edgars Consolidated Stores, Ltd. 3,496 102,051 Ellerine Holdings, Ltd. 9,961 61,858 FirstRand 34,569 64,707 Foshini, Ltd. 8,640 38,096 Gold Fields, Ltd. 1,217 16,446 Harmony Gold Mining Co., Ltd. 1,770 24,083 Harmony Gold Mining Co., Ltd. -- ADR 6,100 83,082
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 70
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------- COMMON STOCK (Continued) SOUTH AFRICA (CONTINUED) Impala Platinum Holdings, Ltd. 1,155 $ 92,578 Kumba Resources, Ltd. 27,103 164,292 Metropolitan Holdings, Ltd. 42,258 57,432 Mvelephanda Resources, Ltd.* 22,445 65,168 Pretoria Portland Cement Co., Ltd. 3,717 103,904 Reunert, Ltd. 14,450 62,263 Sanlam, Ltd. 21,461 36,326 Sasol, Ltd. 8,186 152,342 -------------- 1,239,781 -------------- SOUTH KOREA -- 6.0% Hyundai Motor Co. -- GDR 144A# 6,300 144,396 LG Home Shopping, Inc. 2,340 90,328 POSCO -- ADR 2,700 102,195 Shinhan Financial Group Co. -- ADR* 3,400 117,640 SK Telecom Co., Ltd. -- ADR 4,000 77,800 -------------- 532,359 -------------- TAIWAN -- 14.5% Acer, Inc. 62,000 83,956 Asustek Computer, Inc. -- GDR 144A# 66,164 142,914 Cathay Financial Holding Co., Ltd. 55,000 103,621 Compeq Manufacturing Co., Ltd.* 301,000 98,354 Eva Airways Corp. 316,723 123,072 Fubon Financial Holding Corp. 84,000 77,150 Largan Precision Co., Ltd. 8,700 61,210 Nanya Technology Corp.* 5,000 4,136 Optimax Technology Corp. 40,431 91,050 Phoenix Precision Tech Corp. 199,989 91,841 Powerchip Semiconductor Corp. -- GDR 144A*# 11,600 84,680 Siliconware Precision Industries Co. 190,700 130,801 Taiwan Styrene Monomer Corp. 87,000 63,771 Yuanta Core Pacific Securities Co., Ltd.* 173,000 122,225 -------------- 1,278,781 -------------- THAILAND -- 2.2% Advanced Info Service PCL 43,500 105,009 Krung Thai Bank, Ltd. 461,700 90,278 -------------- 195,287 -------------- TURKEY -- 2.0% Aksigorta A.S. 10,144,000 32,342 Haci Omer Sabanci Holding 7,358,000 26,392 Hurriyet Gazetecilik ve Matbaacilik A.S. 27,353,500 49,511 Turkiye Garanti Bankasi A.S.* 21,367,000 71,673 -------------- 179,918 -------------- UNITED STATES -- 0.9% NII Holdings, Inc. Cl. B* 1,900 $ 78,299 -------------- TOTAL COMMON STOCK (Cost: $6,513,926) 6,978,027 -------------- PREFERRED STOCK -- 4.7% BRAZIL -- 4.7% Braskem S.A. Cl. A* 2,180,000 72,590 Caemi Mineracao E Metal* 210,000 132,214 Companhia Energetica de Minas Gerais 900,000 18,951 Suzano Bahia Sul Papel e Celulose S.A. 11,201 46,426 Tele Sudeste Celular Participacoes S.A. 9,600,000 24,277 Telemar Norte Leste S.A. 1,700 30,028 Ultrapar Participacoes S.A. 1,500,000 24,129 Usinas Siderurgicas de Minas Gerais -- Ser A 4,400 68,178 -------------- 416,793 -------------- TOTAL PREFERRED STOCK (Cost: $275,659) 416,793 -------------- EQUITY-LINKED SECURITIES -- 15.1% INDIA -- 0.7% UBS AG Bharat Petroleum Corp. 8,408 64,708 -------------- SOUTH KOREA -- 14.4% Credit Suisse FB Hyundai Department Store Co., Ltd. -- 01/17/05 3,010 84,954 Credit Suisse FB Kangwon Land, Inc. -- 09/22/06* 7,840 84,429 Credit Suisse FB Kia Motors Corp. -- 09/02/05* 10,420 95,916 Credit Suisse FB LG Electronics, Inc. -- 05/06/05 1,870 107,506 Credit Suisse FB NHN Corp. -- 03/26/07* 910 76,103 Credit Suisse FB Shinsegae Co. -- 07/05/05* 330 87,838 UBS AG -- Top Engineering Co., Ltd 7,225 55,531 UBS AG Daegu Bank 15,640 89,101 UBS AG Halla Climate Control Corp. 11,530 104,139 UBS AG Hynix Semiconductor, Inc. 11,830 107,878 UBS AG Interflex Co., Ltd. -- 05/27/05 3,661 76,621 UBS AG KH Vatec Co., Ltd. 1,897 44,728 UBS AG NCsoft Corp. -- 05/27/05 1,020 83,886
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 71
NUMBER OF SHARES VALUE - ---------------------------------------------------------------------------------------------- EQUITY-LINKED SECURITIES (Continued) SOUTH KOREA (CONTINUED) UBS Samsung Electro-Mechanics Co., Ltd. 6,640 $ 170,110 -------------- 1,268,740 -------------- TOTAL EQUITY-LINKED SECURITIES (Cost: $1,397,781) 1,333,448 -------------- PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS -- 1.2% UNITED STATES -- 1.2% HSBC Bank USA 1.300%, 10/01/04 (Cost: $103,349) $ 103,349 $ 103,349 -------------- TOTAL INVESTMENTS -- 99.9% (Cost: $8,290,715) 8,831,617 OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.1% 10,309 -------------- NET ASSETS -- 100.0% $ 8,841,926 ==============
- ---------- * Non-income producing securities. # 144A Security. Certain conditions for public sale may exist. Total market value of 144A securities owned at September 30, 2004 was $468,464 or 5.30% of net assets. ADR -- American Depository Receipt GDR -- Global Depository Receipt SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 72 SCHEDULE OF INVESTMENTS BY INDUSTRY AS OF SEPTEMBER 30, 2004 -- UNAUDITED EMERGING MARKETS OPPORTUNITIES FUND
PERCENTAGE OF INDUSTRY NET ASSETS - -------- ------------- Basic Materials 17.6% Communications 10.5 Consumer, Cyclical 14.4 Consumer, Non-cyclical 6.2 Diversified 0.3 Energy 5.6 Financial 21.9 Industrial 14.8% Technology 6.4 Utilities 1.0 Short Term Investments 1.2 Other assets in excess of liabilities 0.1 ----- NET ASSETS 100.0% =====
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 73 U.S. HIGH YIELD BOND FUND MANAGEMENT TEAM: DOUGLAS G. FORSYTH, CFA, Lead Portfolio Manager; JUSTIN KASS, CFA, Portfolio Manager; WILLIAM L. STICKNEY, Portfolio Manager; MICHAEL E. YEE, Portfolio Manager; ELIZABETH LEMESEVSKI, Investment 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: Prices of high yield bonds climbed higher during the six months ended September 30, 2004, outperforming key U.S. equity indices, such as the S&P 500 Index and the NASDAQ Composite. After posting modest declines in April and May, the high yield bond market rallied to finish the period with a solid gain. The positive return resulted primarily from a combination of falling interest rates and favorable fundamental statistics throughout the high yield market. For example, activity by the rating agencies was better from a credit perspective. As the economy continued to improve, Moody's and Standard & Poor's surpassed a 1-to-1 upgrade-to-downgrade ratio for high yield issuers in the third quarter. When coupled with the default rate, which dropped below 1%, the credit environment was clearly on stable footing. During the six-month period, issues in the chemicals, steel, energy and consumer products industries were among the best performers. In contrast, air transportation, autos and financials were some of the worst-performing groups. PERFORMANCE: The Fund's Class I Shares gained 3.45% during the six months ended September 30, 2004. The Merrill Lynch High Yield Master Index II advanced 3.79%. PORTFOLIO SPECIFICS: The Fund generated a solid return and performed in line with the benchmark. Relative results were helped by superior credit selection but hindered by a surge in interest-rate-sensitive issues in July. We have always avoided low-coupon, longer-duration issues, both new issues and "fallen angels." Unless there is an imminent move to investment grade, there is no total return advantage in these securities for either the intermediate or longer term. Specific issuers that helped the Fund included Xerox, Nextel and AES, which were all upgraded. Other issues helped through positive price change, such as Lyondell Chemical and energy company Sonat, which benefited from the rebounding economy. Issuers hurting performance included Primus Telecommunications and Amkor Technology. Primus lagged as the company's latest earnings report did not meet expectations. Amkor, a provider of semiconductor packaging and test services, sold off with the semiconductor industry. MARKET OUTLOOK: We believe high yield bonds remain a compelling area of investment given: - The economy is healthier than it has been in years, and corporate profits continue to improve - Companies have strengthened their balance sheets over the past year, and defaults are low and appear stable at this low level - High yield spreads remain attractive at 400 to 450 basis points over the ten-year Treasury Recognizing that the long-term driver of total return in a high yield portfolio is company fundamentals, we remain focused on intensive credit analysis, which is the cornerstone of our approach. 74 [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. ANNUALIZED TOTAL RETURNS As of 9/30/04
SINCE 1 YEAR 5 YEARS INCEPTION 9.22% 6.23% 8.92%
U.S. HIGH YIELD BOND FUND MERRILL LYNCH HIGH YIELD CLASS I SHARES 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
SINCE 1 YEAR INCEPTION 9.18% 8.92%
[CHART]
U.S. HIGH YIELD BOND FUND MERRILL LYNCH HIGH YIELD CLASS II SHARES 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 $ 280,261 $ 288,210
The graph above shows the value of a hypothetical $250,000 investment in the Fund's Class I shares compared with the Merrill Lynch High Yield Master II Index for the periods indicated. Class I and II Shares have a shareholder services fee of up to .25% of their average daily net assets. Performance is shown for Class I and II Shares. 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. 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 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. 75 SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2004 -- UNAUDITED U.S. HIGH YIELD BOND FUND
PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------- CORPORATE BONDS -- 82.2% ADVERTISING SERVICES -- 0.1% R H Donnelley Financial Corp. 10.875%, 12/15/12 $ 135,000 $ 163,687 -------------- AEROSPACE/DEFENSE-EQUIPMENT -- 1.4% BE Aerospace 9.500%, 11/01/08 815,000 843,525 BE Aerospace, Inc. Series B 8.875%, 05/01/11 1,760,000 1,782,000 -------------- 2,625,525 -------------- APPAREL MANUFACTURERS -- 2.9% Oxford Industries, Inc. 8.875%, 06/01/11 2,325,000 2,522,625 Phillips-Van Heusen Corp. 8.125%, 05/01/13 2,620,000 2,803,400 -------------- 5,326,025 -------------- AUTO/TRUCK PARTS & EQUIPMENT-ORIGINAL -- 3.0% Collins & Aikman Corp. 10.750%, 12/31/11 685,000 685,000 Collins & Aikman Products 144A 12.875%, 08/24/12# 3,455,000 3,187,238 HLI Operating Co., Inc. 10.500%, 06/15/10 1,485,000 1,618,650 -------------- 5,490,888 -------------- AUTO/TRUCK PARTS & EQUIPMENT-REPLACEMENT -- 0.7% CSK Auto, Inc. 7.000%, 01/15/14 1,395,000 1,349,662 -------------- BUILDING PRODUCTS-CEMENT/AGGREGATE -- 1.5% U.S. Concrete, Inc. 8.375%, 04/01/14 2,565,000 2,718,899 -------------- BUILDING-MAINTENANCE & SERVICE -- 1.0% Integrated Electrical Services, Inc. Ser. C 9.375%, 02/01/09 1,922,000 1,883,559 -------------- BUILDING-RESIDENTIAL/COMMERCIAL -- 0.7% Standard-Pacific Corp. 9.500%, 09/15/10 1,085,000 1,188,074 -------------- CABLE TV -- 4.5% Cablevision Systems Corp. 144A 8.000%, 04/15/12# 795,000 830,775 Charter Communications Holdings LLC 10.750%, 10/01/09 1,565,000 1,283,300 CSC Holdings, Inc. 7.250%, 07/15/08 1,800,000 1,872,000 Echostar DBS Corp. 9.125%, 01/15/09 1,590,000 1,768,875 LodgeNet Entertainment Corp. 9.500%, 06/15/13 2,320,000 2,528,800 -------------- 8,283,750 -------------- CELLULAR TELECOMMUNICATIONS -- 3.8% Crown International Corp. 9.375%, 08/01/11 $ 1,195,000 $ 1,374,250 Nextel Communications, Inc. 9.375%, 11/15/09 1,440,000 1,524,600 Nextel Communications, Inc. 7.375%, 08/01/15 2,010,000 2,160,750 Nextel Partners, Inc. 8.125%, 07/01/11 1,885,000 1,998,100 -------------- 7,057,700 -------------- CHEMICALS-DIVERSIFIED -- 2.2% Huntsman Co. LLC 144A 11.500%, 07/15/12# 865,000 954,743 Lyondell Chemical Co. 10.875%, 05/01/09 1,410,000 1,494,600 Lyondell Chemical Co. Ser. A 9.625%, 05/01/07 1,405,000 1,529,694 -------------- 3,979,037 -------------- CHEMICALS-PLASTICS -- 1.4% PolyOne Corp. 10.625%, 05/15/10 2,375,000 2,600,624 -------------- CHEMICALS-SPECIALTY -- 1.0% Huntsman Co. LLC 11.625%, 10/15/10 1,520,000 1,759,399 -------------- COMMERCIAL SERVICES -- 1.1% Memberworks, Inc. 144A 9.250%, 04/01/14# 1,970,000 1,955,224 -------------- CONSUMER PRODUCTS-MISCELLANEOUS -- 2.5% Central Garden & Pet Co. 9.125%, 02/01/13 1,905,000 2,090,738 Jarden Corp. 9.750%, 05/01/12 2,335,000 2,580,175 -------------- 4,670,913 -------------- ELECTRIC-GENERATION -- 1.4% AES Corp. 9.500%, 06/01/09 2,255,000 2,519,963 -------------- ELECTRONIC COMPONENTS-MISCELLANEOUS -- 2.6% Sanmina-SCI Corp. 10.375%, 01/15/10 2,165,000 2,476,219 Stoneridge, Inc. 11.500%, 05/01/12 2,065,000 2,338,613 -------------- 4,814,832 -------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS -- 1.1% Fairchild Semiconductor Corp. 10.500%, 02/01/09 1,820,000 1,947,400 -------------- ELECTRONIC MEASURE INSTRUMENTS -- 0.3% Itron, Inc. 144A 7.750%, 05/15/12# 620,000 621,550 --------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 76
PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------- CORPORATE BONDS (Continued) FINANCE-OTHER SERVICES -- 1.2% Alamosa Delaware, Inc. 11.000%, 07/31/10 $ 1,865,000 $ 2,112,113 -------------- HAZARDOUS WASTE DISPOSAL -- 0.9% Stericycle, Inc. Ser. B 12.375%, 11/15/09 1,463,000 1,594,670 -------------- INDEPENDENT POWER PRODUCER -- 2.5% NRG Energy, Inc. 144A 8.000%, 12/15/13# 1,730,000 1,853,263 Reliant Resources, Inc. 9.500%, 07/15/13 2,455,000 2,666,744 -------------- 4,520,007 -------------- INTIMATE APPAREL -- 1.3% Warnaco, Inc. 8.875%, 06/15/13 2,220,000 2,469,750 -------------- MACHINERY-FARM -- 1.6% Case New Holland, Inc. 144A 9.250%, 08/01/11# 2,630,000 2,945,600 -------------- MEDICAL-NURSING HOMES -- 2.9% Beverly Enterprises, Inc. 144A 7.875%, 06/15/14# 2,575,000 2,755,250 Genesis HealthCare Corp. 8.000%, 10/15/13 2,420,000 2,637,800 -------------- 5,393,050 -------------- MEDICAL-OUTPATIENT/HOME MEDICAL CARE -- 1.7% Select Medical Corp. 9.500%, 06/15/09 2,875,000 3,126,563 -------------- NON-HAZARDOUS WASTE DISPOSAL -- 1.1% Allied Waste North America, Inc. 9.250%, 09/01/12 1,805,000 2,008,063 -------------- OFFICE AUTOMATION & EQUIPMENT -- 1.0% Xerox Corp. 9.750%, 01/15/09 1,585,000 1,846,525 -------------- OIL COMPANIES-EXPLORATION & PRODUCTION -- 2.2% Energy Partners, Ltd. 8.750%, 08/01/10 1,410,000 1,529,850 Stone Container Corp. 8.375%, 07/01/12 2,350,000 2,590,875 -------------- 4,120,725 -------------- PAPER & RELATED PRODUCTS -- 1.2% Georgia-Pacific Corp. 9.375%, 02/01/13 1,940,000 2,284,350 -------------- PIPELINES -- 1.5% Sonat, Inc. 7.625%, 07/15/11 2,865,000 2,822,025 -------------- POULTRY -- 1.6% Pilgrims Pride Corp. 9.250%, 11/15/13 $ 1,210,000 $ 1,331,000 Pilgrim's Pride Corp. 9.625%, 09/15/11 1,420,000 1,590,400 -------------- 2,921,400 -------------- RACETRACKS -- 1.5% Penn National Gaming, Inc. Ser. B 11.125%, 03/01/08 1,100,000 1,188,000 Penn National Gaming, Inc. 8.875%, 03/15/10 1,445,000 1,584,081 -------------- 2,772,081 -------------- RADIO -- 1.6% Salem Communications Holding Corp. Ser. B 9.000%, 07/01/11 2,667,000 2,920,365 -------------- RECREATIONAL CENTERS -- 2.2% Bally Total Fitness Holdings Corp. Ser. D 9.875%, 10/15/07 1,630,000 1,320,300 Equinox Holdings, Inc. 9.000%, 12/15/09 2,665,000 2,744,950 -------------- 4,065,250 -------------- REITS-HOTELS -- 2.7% Host Marriott Corp. Ser. B 7.875%, 08/01/08 421,000 433,104 Host Marriott Corp. Ser. I 9.500%, 01/15/07 2,140,000 2,370,050 La Quinta Properties 8.875%, 03/15/11 1,975,000 2,212,000 -------------- 5,015,154 -------------- RENTAL AUTO/EQUIPMENT -- 1.0% United Rentals North America, Inc. 7.000%, 02/15/14 2,000,000 1,775,000 -------------- RETAIL-ARTS & CRAFTS -- 1.6% Michaels Stores, Inc. 9.250%, 07/01/09 2,695,000 2,924,075 -------------- RETAIL-AUTOMOBILE -- 1.4% United Auto Group 9.625%, 03/15/12 2,265,000 2,519,813 -------------- RETAIL-DRUG STORE -- 0.9% Rite Aid Corp. 11.250%, 07/01/08 1,475,000 1,604,063 -------------- RETAIL-RESTAURANTS -- 1.3% Friendly Ice Cream Corp. 8.375%, 06/15/12 2,490,000 2,390,400 -------------- RUBBER-TIRES -- 1.3% Goodyear Tire & Rubber Co. 7.857%, 08/15/11 2,615,000 2,464,638 --------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 77
PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------- CORPORATE BONDS (Continued) SPECIAL PURPOSE ENTITY -- 1.6% Hanger Orthopedic Group, Inc. 11.250%, 06/15/09 $ 910,000 $ 946,400 Medcath Holdings Corp. 144A 9.875%, 07/15/12# 1,820,000 1,901,900 -------------- 2,848,300 -------------- STEEL-PRODUCERS -- 1.5% AK Steel Corp. 7.875%, 02/15/09 2,810,000 2,788,925 -------------- STEEL-SPECIALTY -- 1.4% Allegheny Technologies, Inc. 8.375%, 12/15/11 850,000 905,250 Oregon Steel Mills, Inc. 10.000%, 07/15/09 1,555,000 1,698,838 -------------- 2,604,088 -------------- TELECOMMUNICATIONS SERVICES -- 0.8% Time Warner Telecom, Inc. 10.125%, 02/01/11 1,570,000 1,507,200 -------------- TELEPHONE-INTEGRATED -- 2.9% AT&T Corp. 8.050%, 11/15/11 1,500,000 1,678,125 Primus Telecommunications Group, Inc. 8.000%, 01/15/14 2,925,000 2,164,500 Qwest Capital Funding 7.250%, 02/15/11 1,715,000 1,530,638 -------------- 5,373,263 -------------- VETERINARY DIAGNOSTICS -- 0.9% Vicar Operating, Inc. 9.875%, 12/01/09 1,565,000 1,729,325 -------------- VITAMINS & NUTRITION PRODUCTS -- 1.3% Leiner Health Products 144A 11.000%, 06/01/12# 2,225,000 2,364,063 -------------- WIRELESS EQUIPMENT -- 2.4% Crown Castle International Corp. 10.750%, 08/01/11 2,235,000 2,486,438 SBA Communications Corp. 10.250%, 02/01/09 1,790,000 1,915,300 -------------- 4,401,738 -------------- TOTAL CORPORATE BONDS (Cost: $144,587,618) 151,189,293 -------------- FOREIGN CORPORATE BONDS -- 13.1% CELLULAR TELECOMMUNICATIONS -- 1.6% Millicom International Cellular S.A. 144A 10.000%, 12/01/13# 2,855,000 2,869,275 -------------- CHEMICALS-SPECIALTY -- 1.1% Rhodia S.A. 10.250%, 06/01/10 $ 1,990,000 $ 2,059,650 -------------- CRUISE LINES -- 1.1% Royal Caribbean Cruises, Ltd. 8.750%, 02/02/11 1,815,000 2,119,013 -------------- INDUSTRIAL AUDIO & VIDEO PRODUCTS -- 1.1% Imax Corp. 144A 9.625%, 12/01/10# 1,960,000 1,955,100 -------------- MOTION PICTURES & SERVICES -- 1.2% Alliance Atlantis Communications, Inc. 13.000%, 12/15/09 2,140,000 2,313,875 -------------- OIL COMPANIES-EXPLORATION & PRODUCTION -- 1.3% Paramount Resources, Ltd. 7.875%, 11/01/10 2,195,000 2,337,675 -------------- OIL-FIELD SERVICES -- 0.9% Petroleum Geo Services ASA 10.000%, 11/05/10 1,500,000 1,698,750 -------------- RESORTS/THEME PARKS -- 1.9% Intrawest Corp. 10.500%, 02/01/10 1,780,000 1,922,400 Intrawest Corp. 144A 7.500%, 10/15/13# 1,550,000 1,606,188 -------------- 3,528,588 -------------- RETAIL-DRUG STORE -- 1.4% Jean Coutu Group 144A 8.500%, 08/01/14# 2,595,000 2,575,537 -------------- TELEPHONE-INTEGRATED -- 1.5% NTL Cable PLC 144A 8.750%, 04/15/14# 2,495,000 2,700,837 -------------- TOTAL FOREIGN CORPORATE BONDS (Cost: $23,637,207) 24,158,300 -------------- SHORT TERM INVESTMENTS -- 4.3% TIME DEPOSIT -- 4.3% Wells Fargo Bank Nassau 1.300%, 10/01/04 (Cost: $7,869,664) 7,869,664 7,869,664 -------------- TOTAL INVESTMENTS -- 99.6% (Cost: $176,094,489) 183,217,257 OTHER ASSETS IN EXCESS OF LIABILITIES -- 0.4% 823,335 -------------- NET ASSETS -- 100.0% $ 184,040,592 ==============
- ---------- # 144A Security. Certain conditions for public sale may exist. Total market value of 144A securities owned at September 30, 2004 was $31,076,543 or 16.9% of net assests SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 78 SCHEDULE OF INVESTMENTS BY INDUSTRY AS OF SEPTEMBER 30, 2004 -- UNAUDITED U.S. HIGH YIELD BOND FUND
PERCENTAGE OF INDUSTRY NET ASSETS - -------- ------------- Basic Materials 9.8% Communications 19.2 Consumer, Cyclical 24.4 Consumer, Non-cyclical 14.0 Energy 5.9 Financial 5.5 Industrial 10.5% Technology 2.1 Utilities 3.9 Short Term Investments 4.3 Other assets in excess of liabilities 0.4 ----- NET ASSETS 100.0% =====
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 79 NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS SHAREHOLDER EXPENSE EXAMPLE As a shareholder of a Fund, you incur two types of costs: (1) transaction costs, 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 (April 1, 2004 to September 30, 2004). 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* VALUE VALUE APRIL 1, 2004 TO APRIL 1, 2004 SEPTEMBER 30, 2004 SEPTEMBER 30, 2004 ----------------- ------------------ ------------------ U.S. Mini Cap Growth -- Class I Actual $ 1,000.00 $ 850.20 $ 4.78 Hypothetical (5% return before expenses) $ 1,000.00 $ 1,079.18 $ 5.37 U.S. Emerging Growth -- Class I Actual $ 1,000.00 $ 930.30 $ 5.66 Hypothetical (5% return before expenses) $ 1,000.00 $ 1,076.39 $ 6.09 U.S. Small Cap Value -- Class I Actual $ 1,000.00 $ 1,014.70 $ 6.06 Hypothetical (5% return before expenses) $ 1,000.00 $ 1,075.79 $ 6.24 U.S. Large Cap Value -- Class I Actual $ 1,000.00 $ 1,013.50 $ 3.84 Hypothetical (5% return before expenses) $ 1,000.00 $ 1,084.57 $ 3.97
80
EXPENSES PAID BEGINNING ACCOUNT ENDING ACCOUNT DURING THE PERIOD* VALUE VALUE APRIL 1, 2004 TO APRIL 1, 2004 SEPTEMBER 30, 2004 SEPTEMBER 30, 2004 ----------------- ------------------ ------------------ U.S. Systematic Large Cap Growth -- Class I Actual $ 1,000.00 $ 970.10 $ 4.54 Hypothetical (5% return before expenses) $ 1,000.00 $ 1,081.38 $ 4.80 U.S. Systematic Mid Cap Growth Fund -- Class I Actual $ 1,000.00 $ 971.10 $ 4.79 Hypothetical (5% return before expenses) $ 1,000.00 $ 1,080.38 $ 5.06 U.S. Systematic SMID Growth -- Class I Actual $ 1,000.00 $ 959.60 $ 5.65 Hypothetical (5% return before expenses) $ 1,000.00 $ 1,076.79 $ 5.99 U.S. Convertible -- Class I Actual $ 1,000.00 $ 988.90 $ 4.54 Hypothetical (5% return before expenses) $ 1,000.00 $ 1,081.58 $ 4.75 Global Select -- Class I Actual $ 1,000.00 $ 969.20 $ 4.89 Hypothetical (5% return before expenses) $ 1,000.00 $ 1,079.98 $ 5.16 Global Select -- Class II Actual $ 1,000.00 $ 969.80 $ 4.69 Hypothetical (5% return before expenses) $ 1,000.00 $ 1,080.78 $ 4.96 International Growth -- Class I Actual $ 1,000.00 $ 952.30 $ 5.29 Hypothetical (5% return before expenses) $ 1,000.00 $ 1,078.19 $ 5.63 International Growth -- Class III Actual $ 1,000.00 $ 953.40 $ 4.06 Hypothetical (5% return before expenses) $ 1,000.00 $ 1,083.17 $ 4.33 International Growth -- Class IV Actual $ 1,000.00 $ 954.00 $ 3.33 Hypothetical (5% return before expenses) $ 1,000.00 $ 1,086.16 $ 3.56 International Growth Opportunities -- Class I Actual $ 1,000.00 $ 996.60 $ 6.21 Hypothetical (5% return before expenses) $ 1,000.00 $ 1,074.99 $ 6.45 International Growth Opportunities -- Class II Actual $ 1,000.00 $ 996.90 $ 5.46 Hypothetical (5% return before expenses) $ 1,000.00 $ 1,077.99 $ 5.68
81
EXPENSES PAID BEGINNING ACCOUNT ENDING ACCOUNT DURING THE PERIOD* VALUE VALUE APRIL 1, 2004 TO APRIL 1, 2004 SEPTEMBER 30, 2004 SEPTEMBER 30, 2004 ----------------- ------------------ ------------------ Emerging Countries -- Class I Actual $ 1,000.00 $ 925.90 $ 7.05 Hypothetical (5% return before expenses) $ 1,000.00 $ 1,070.61 $ 7.58 Emerging Countries -- Class II Actual $ 1,000.00 $ 927.10 $ 6.28 Hypothetical (5% return before expenses) $ 1,000.00 $ 1,073.80 $ 6.76 Emerging Markets Opportunities Fund -- Class I Actual $ 1,000.00 $ 1,070.00 $ 8.82 Hypothetical (5% return before expenses) $ 1,000.00 $ 1,065.82 $ 8.80 U.S. High Yield Bond -- Class I Actual $ 1,000.00 $ 1,034.50 $ 3.06 Hypothetical (5% return before expenses) $ 1,000.00 $ 1,087.76 $ 3.14 U.S. High Yield Bond -- Class II Actual $ 1,000.00 $ 1,033.90 $ 2.80 Hypothetical (5% return before expenses) $ 1,000.00 $ 1,088.76 $ 2.88
* Expenses are equal to the Fund's annualized expense ratio (show in the table below); multiplied by the average account value over the period, multiplied by 183/365 ( to reflect the one-half year period).
ANNUALIZED EXPENSE RATIO ------------- U.S. Mini Cap Growth -- Class I 1.03% U.S. Emerging Growth -- Class I 1.17% U.S. Small Cap Value -- Class I 1.20% U.S. Large Cap Value -- Class I 0.76% U.S. Systematic Large Cap Growth -- Class I 0.92% U.S. Systematic Mid Cap Growth -- Class I 0.97% U.S. Systematic SMID Growth -- Class I 1.15% U.S. Convertible -- Class I 0.91% Global Select -- Class I 0.99% Global Select -- Class II 0.95% International Growth -- Class I 1.08% International Growth -- Class III 0.83% International Growth -- Class IV 0.68% International Growth Opportunities -- Class I 1.24% International Growth Opportunities -- Class II 1.09% Emerging Countries -- Class I 1.46% Emerging Countries -- Class II 1.30% Emerging Markets Opportunities -- Class I 1.70% U.S. High Yield Bond -- Class I 0.60% U.S. High Yield Bond -- Class II 0.55%
82 (This page intentionally left blank) NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS FINANCIAL HIGHLIGHTS For a share outstanding during the period indicated
NET ASSET NET NET REALIZED TOTAL FROM VALUE, INVESTMENT AND UNREALIZED INVESTMENT BEGINNING INCOME (LOSS) (2) GAINS (LOSS) OPERATIONS - ------------------------------------------------------------------------------------------------------- U.S. EQUITY FUNDS U.S. MINI CAP GROWTH For the period ended 09/30/04 (1) $ 14.69 $ (0.05) $ (2.15) $ (2.20) 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 For the year ended 03/31/01 42.54 (0.14) (17.58) (17.72) For the year ended 3/31/00 20.24 (0.35) 27.92 27.57 U.S. EMERGING GROWTH For the period ended 09/30/04 (1) $ 9.61 $ (0.03) $ (0.64) $ (0.67) 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 For the year ended 03/31/01 27.03 (0.01) (12.37) (12.38) For the period 5/7/99 through 3/31/00 14.02 (0.12) 13.51 13.39 For the period 4/1/99 through 5/7/99 (1) 13.53 (0.01) 0.50 0.49 U.S. SMALL CAP VALUE For the period ended 09/30/04 (1) $ 17.64 $ -- $ 0.26 $ 0.26 For the year ended 03/31/04 10.23 0.03 7.86 7.89 For the year ended 03/31/03 15.62 0.07 (3.29) (3.22) For the year ended 03/31/02 12.50 0.10 3.06 3.16 U.S. LARGE CAP VALUE For the period ended 09/30/04 (1) $ 24.40 $ 0.14 $ 0.19 $ 0.33 For the year ended 03/31/04 18.20 0.32 6.44 6.76 For the year ended 03/31/03 24.46 0.25 (6.20) (5.95) For the year ended 03/31/02 23.42 0.22 1.24 1.46 For the year ended 03/31/01 21.74 0.24 1.64 1.88 For the period 5/7/99 through 3/31/00 22.99 0.18 (1.30) (1.12) For the period 4/1/99 through 5/7/99 (1) 20.90 (0.01) 2.10 2.09 U.S. SYSTEMATIC LARGE CAP GROWTH For the period ended 09/30/04 (1) $ 15.06 $ 0.02 $ (0.47) $ (0.45) 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) For the year ended 03/31/01 49.86 (0.19) (26.03) (26.22) For the period 5/7/99 through 3/31/00 29.18 (0.14) 20.82 20.68 For the period 4/1/99 through 5/7/99 (1) 26.89 (0.01) 2.30 2.29 DISTRIBUTIONS FROM: -------------------------- NET NET INVESTMENT REALIZED TOTAL INCOME CAPITAL GAINS DISTRIBUTIONS - --------------------------------------------------------------------------------------- U.S. EQUITY FUNDS U.S. MINI CAP GROWTH For the period ended 09/30/04 (1) $ -- $ -- $ -- For the year ended 03/31/04 -- -- -- For the year ended 03/31/03 -- -- -- For the year ended 03/31/02 -- -- -- For the year ended 03/31/01 -- (15.77) (15.77) For the year ended 3/31/00 -- (5.27) (5.27) U.S. EMERGING GROWTH For the period ended 09/30/04 (1) $ -- $ -- $ -- For the year ended 03/31/04 -- -- -- For the year ended 03/31/03 -- -- -- For the year ended 03/31/02 -- -- -- For the year ended 03/31/01 -- (5.08) (5.08) For the period 5/7/99 through 3/31/00 -- (0.38) (0.38) For the period 4/1/99 through 5/7/99 (1) -- -- -- U.S. SMALL CAP VALUE For the period ended 09/30/04 (1) $ -- $ -- $ -- For the year ended 03/31/04 (0.02) (0.46) (0.48) For the year ended 03/31/03 (0.12) (2.05) (2.17) For the year ended 03/31/02 (0.04) -- (0.04) U.S. LARGE CAP VALUE For the period ended 09/30/04 (1) $ -- $ -- $ -- For the year ended 03/31/04 (0.56) -- (0.56) For the year ended 03/31/03 (0.31) -- (0.31) For the year ended 03/31/02 (0.05) (0.37) (0.42) For the year ended 03/31/01 (0.20) -- (0.20) For the period 5/7/99 through 3/31/00 (0.13) -- (0.13) For the period 4/1/99 through 5/7/99 (1) -- -- -- U.S. SYSTEMATIC LARGE CAP GROWTH For the period ended 09/30/04 (1) $ -- $ -- $ -- For the year ended 03/31/04 -- -- -- For the year ended 03/31/03 -- -- -- For the year ended 03/31/02 -- -- -- For the year ended 03/31/01 -- (1.03) (1.03) For the period 5/7/99 through 3/31/00 -- -- -- For the period 4/1/99 through 5/7/99 (1) -- -- --
- ---------- (1) Unaudited. (2) Net investment income per share is calculated by dividing net investment income for the period by the average shares outstanding during the period. (3) Total returns are not annualized for periods less than one year. (4) 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. (5) Net expenses include certain items not subject to expense reimbursement. (6) The Board of Trustees approved the amendments to the Expense Limitation Agreement whereby overall operating expenses (excluding taxes, interest, brokerage and extraordinary expenses and expenses incurred from the creation and operation of the Mauritius entity), of the U.S. Mini Cap Growth, U.S. Large Cap Value, U.S.Systematic Large Cap Growth, Global Select, International Growth, Emerging Countries and U.S. High Yield Bond do not exceed 1.56%, 1.00%, 1.00%, 1.20%, 1.40%, 1.65% and 0.75% for the period 04/01/02 to 06/30/02, 1.56%, 0.85% 0.90%, 1.05%, 1.15%, 1.50% and 0.75% period 07/01/02 to 01/21/03, 1.40%, 1.00%, 1.00%, 1.10%, 1.15%, 1.65%, 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. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 84
NET ASSET VALUE, TOTAL ENDING RETURN (3) --------------------- U.S. EQUITY FUNDS U.S. MINI CAP GROWTH For the period ended 09/30/04 (1) $ 12.49 (14.98%) For the year ended 03/31/04 14.69 97.45% For the year ended 03/31/03 7.44 (31.62%) For the year ended 03/31/02 10.88 20.22% For the year ended 03/31/01 9.05 (48.41%) For the year ended 3/31/00 42.54 151.76% U.S. EMERGING GROWTH For the period ended 09/30/04 (1) $ 8.94 (6.97%) For the year ended 03/31/04 9.61 52.06% For the year ended 03/31/03 6.32 (34.10%) For the year ended 03/31/02 9.59 0.21% For the year ended 03/31/01 9.57 (49.55%) For the period 5/7/99 through 3/31/00 27.03 96.49% For the period 4/1/99 through 5/7/99 (1) 14.02 3.70% U.S. SMALL CAP VALUE For the period ended 09/30/04 (1) $ 17.90 1.47% For the year ended 03/31/04 17.64 77.64% For the year ended 03/31/03 10.23 (21.54%) For the year ended 03/31/02 15.62 25.33% U.S. LARGE CAP VALUE For the period ended 09/30/04 (1) $ 24.73 1.35% For the year ended 03/31/04 24.40 37.44% For the year ended 03/31/03 18.20 (24.41%) For the year ended 03/31/02 24.46 6.35% For the year ended 03/31/01 23.42 8.64% For the period 5/7/99 through 3/31/00 21.74 (4.87%) For the period 4/1/99 through 5/7/99 (1) 22.99 10.00% U.S. SYSTEMATIC LARGE CAP GROWTH For the period ended 09/30/04 (1) $ 14.61 (2.99%) For the year ended 03/31/04 15.06 18.30% For the year ended 03/31/03 12.73 (29.59%) For the year ended 03/31/02 18.08 (20.04%) For the year ended 03/31/01 22.61 (53.26%) For the period 5/7/99 through 3/31/00 49.86 70.86% For the period 4/1/99 through 5/7/99 (1) 29.18 8.52% RATIOS TO AVERAGE NET ASSETS (4) --------------------------------------------------------------------------------- EXPENSES EXPENSES NET OF NET EXPENSES NET OF REIMBURSEMENT/ INVESTMENT TOTAL (REIMBURSEMENTS)/ REIMBURSEMENT/ RECOUPMENT INCOME (LOSS) EXPENSES RECOUPMENT RECOUPMENT OFFSET (5) --------------------------------------------------------------------------------- U.S. EQUITY FUNDS U.S. MINI CAP GROWTH For the period ended 09/30/04 (1) (0.77%) 1.64% (0.08%) 1.56% 1.03% For the year ended 03/31/04 (1.08%) 1.64% (0.07%) 1.57% 1.19%(9) For the year ended 03/31/03 (1.36%) 1.75% (0.16%) 1.59% 1.55%(6) For the year ended 03/31/02 (1.31%) 1.60% (0.03%) 1.57% 1.57% For the year ended 03/31/01 (0.66%) 1.62% (0.04%) 1.58% 1.58% For the year ended 3/31/00 (1.32%) 1.76% (0.19%) 1.57% 1.57% U.S. EMERGING GROWTH For the period ended 09/30/04 (1) (0.74%) 1.61% (0.12%) 1.49% 1.17% For the year ended 03/31/04 (1.04%) 1.48% -- 1.48% 1.26%(9) For the year ended 03/31/03 (0.96%) 1.45% (0.17%) 1.28% 1.26%(6) For the year ended 03/31/02 (0.46%) 1.34% (0.12%) 1.22% 1.22%(7) For the year ended 03/31/01 (0.07%) 1.30% (0.12%) 1.18% 1.18% For the period 5/7/99 through 3/31/00 (0.68%) 1.38% (0.19%) 1.19% 1.19% For the period 4/1/99 through 5/7/99 (1) (0.87%) 1.17% -- 1.17% 1.17% U.S. SMALL CAP VALUE For the period ended 09/30/04 (1) 0.04% 1.32% (0.02%) 1.30% 1.20% For the year ended 03/31/04 0.18% 1.35% (0.01%) 1.34% 1.19%(9) For the year ended 03/31/03 0.47% 1.54% (0.26%) 1.28% 1.25%(6) For the year ended 03/31/02 0.79% 1.44% (0.14%) 1.30% 1.30% U.S. LARGE CAP VALUE For the period ended 09/30/04 (1) 1.18% 1.31% (0.49%) 0.82% 0.76% For the year ended 03/31/04 1.38% 1.27% (0.45%) 0.82% 0.79%(9) For the year ended 03/31/03 1.24% 1.28% (0.34%) 0.94% 0.93%(6) For the year ended 03/31/02 0.89% 1.14% (0.13%) 1.01% 1.01% For the year ended 03/31/01 1.04% 1.21% (0.19%) 1.02% 1.02% For the period 5/7/99 through 3/31/00 0.97% 1.26% (0.24%) 1.02% 1.02% For the period 4/1/99 through 5/7/99 (1) 0.45% 2.48% (1.50%) 0.98% 0.98% U.S. SYSTEMATIC LARGE CAP GROWTH For the period ended 09/30/04 (1) 0.23% 1.65% (0.51%) 1.14% 0.92% For the year ended 03/31/04 (0.16%) 1.33% (0.20%) 1.13% 0.93%(9) For the year ended 03/31/03 (0.34%) 1.27% (0.30%) 0.97% 0.95%(6) For the year ended 03/31/02 (0.54%) 1.09% (0.09%) 1.00% 1.00% For the year ended 03/31/01 (0.51%) 1.09% (0.09%) 1.00% 1.00% For the period 5/7/99 through 3/31/00 (0.44%) 1.20% (0.19%) 1.01% 1.01% For the period 4/1/99 through 5/7/99 (1) (0.40%) 0.98% -- 0.98% 0.98% FUND'S PORTFOLIO NET ASSETS, TURNOVER ENDING RATE (IN 000'S) ----------------------- U.S. EQUITY FUNDS U.S. MINI CAP GROWTH For the period ended 09/30/04 (1) 153% $ 63,784 For the year ended 03/31/04 298% 68,876 For the year ended 03/31/03 164% 35,625 For the year ended 03/31/02 170% 88,311 For the year ended 03/31/01 118% 47,810 For the year ended 3/31/00 141% 92,221 U.S. EMERGING GROWTH For the period ended 09/30/04 (1) 74% $ 19,003 For the year ended 03/31/04 166% 32,095 For the year ended 03/31/03 118% 36,756 For the year ended 03/31/02 138% 173,053 For the year ended 03/31/01 120% 138,022 For the period 5/7/99 through 3/31/00 84% 276,556 For the period 4/1/99 through 5/7/99 (1) 18% 197,120 U.S. SMALL CAP VALUE For the period ended 09/30/04 (1) 49% $ 63,208 For the year ended 03/31/04 101% 65,791 For the year ended 03/31/03 109% 10,980 For the year ended 03/31/02 84% 58,833 U.S. LARGE CAP VALUE For the period ended 09/30/04 (1) 14% $ 14,301 For the year ended 03/31/04 51% 12,644 For the year ended 03/31/03 139% 27,659 For the year ended 03/31/02 99% 39,358 For the year ended 03/31/01 120% 46,672 For the period 5/7/99 through 3/31/00 143% 23,185 For the period 4/1/99 through 5/7/99 (1) 7% 27,818 U.S. SYSTEMATIC LARGE CAP GROWTH For the period ended 09/30/04 (1) 128% $ 3,169 For the year ended 03/31/04 172% 3,518 For the year ended 03/31/03 193% 18,328 For the year ended 03/31/02 224% 57,769 For the year ended 03/31/01 160% 60,882 For the period 5/7/99 through 3/31/00 154% 37,982 For the period 4/1/99 through 5/7/99 (1) 18% 6,043
(7) 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. (8) 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. (9) The Board of Trustees approved the amendments to the Expenses Limitation Agreement where by overall operating expenses (excluding taxes, interest, brokerage, extraordinary expenses and expenses incurred from the creation and operation of the Mauritius entity) of the U.S. Mini Cap Growth, 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%, 1.40% 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 and Emerging Countries do not exceed 1.30% and 1.65% for the period 04/01/03 to 07/28/03, 1.45% and 1.73% for the period 07/29/03 to 02/23/04, 1.30% and 1.65% for the period 02/24/04 to 03/31/04, respectively. U.S. Systematic SMID Growth did not exceed 1.33% for the period 02/24/04 to 03/31/04. (10) Net investment Income ratio includes the proceeds of the class action suit for the amount of $90,091.54 representing a three cent per share impact to the fund. 85 For a share outstanding during the period indicated
NET ASSET NET NET REALIZED TOTAL FROM VALUE, INVESTMENT AND UNREALIZED INVESTMENT BEGINNING INCOME (LOSS) (2) GAINS (LOSS) OPERATIONS - ----------------------------------------------------------------------------------------------------------- U.S. EQUITY FUNDS -- CONTINUED U.S. SYSTEMATIC MID CAP GROWTH For the period ended 09/30/04 (1) $ 10.39 $ 0.10(10) $ (0.40) $ (0.30) For the year ended 03/31/04 7.94 (0.03) 2.48 2.45 For the year ended 03/31/03 11.40 (0.06) (3.40) (3.46) For the year ended 03/31/02 13.60 (0.09) (2.11) (2.20) For the year ended 03/31/01 41.51 (0.20) (19.98) (20.18) For the period 5/7/99 through 3/31/00 19.44 (0.15) 22.22 22.07 For the period 4/1/99 through 5/7/99 (1) 19.17 (0.01) 0.28 0.27 U.S. SYSTEMATIC SMID GROWTH For the period ended 09/30/04 (1) $ 9.89 $ (0.01) $ (0.39) $ (0.40) 2/27/04 (commenced) to 03/31/04 10.00 -- (0.11) (0.11) U.S. CONVERTIBLE For the period ended 09/30/04 (1) $ 23.11 $ 0.19 $ (0.45) $ (0.26) For the year ended 03/31/04 17.72 0.55 5.43 5.98 For the year ended 03/31/03 21.35 0.63 (3.55) (2.92) For the year ended 03/31/02 23.14 0.64 (1.69) (1.05) For the year ended 03/31/01 33.67 0.70 (8.94) (8.24) For the period 5/7/99 through 3/31/00 22.21 0.49 11.44 11.93 For the period 4/1/99 through 5/7/99 (1) 21.53 0.05 0.63 0.68 GLOBAL EQUITY FUNDS GLOBAL SELECT For the period ended 09/30/04 (1) $ 15.58 $ 0.01 $ (0.49) $ (0.48) 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 For the year ended 03/31/01 31.91 (0.06) (10.00) (10.06) For the year ended 3/31/00 20.48 (0.21) 19.90 19.69 INTERNATIONAL GROWTH For the period ended 09/30/04 (1) $ 19.09 $ 0.10 $ (1.01) $ (0.91) For the year ended 03/31/04 12.83 0.30 6.00 6.30 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) For the year ended 03/31/01 31.88 0.04 (11.29) (11.25) For the period 5/7/99 through 3/31/00 20.61 (0.09) 11.38 11.29 For the period 4/1/99 through 5/7/99 (1) 19.73 (0.02) 0.90 0.88 DISTRIBUTIONS FROM: -------------------------- NET NET INVESTMENT REALIZED TOTAL INCOME CAPITAL GAINS DISTRIBUTIONS - --------------------------------------------------------------------------------------- U.S. EQUITY FUNDS -- CONTINUED U.S. SYSTEMATIC MID CAP GROWTH For the period ended 09/30/04 (1) $ -- $ -- $ -- For the year ended 03/31/04 -- -- -- For the year ended 03/31/03 -- -- -- For the year ended 03/31/02 -- -- -- For the year ended 03/31/01 -- (7.73) (7.73) For the period 5/7/99 through 3/31/00 -- -- -- For the period 4/1/99 through 5/7/99 (1) -- -- -- U.S. SYSTEMATIC SMID GROWTH For the period ended 09/30/04 (1) $ -- $ -- $ -- 2/27/04 (commenced) to 03/31/04 -- -- -- U.S. CONVERTIBLE For the period ended 09/30/04 (1) $ (0.22) $ -- $ (0.22) For the year ended 03/31/04 (0.59) -- (0.59) For the year ended 03/31/03 (0.71) -- (0.71) For the year ended 03/31/02 (0.74) -- (0.74) For the year ended 03/31/01 (0.66) (1.63) (2.29) For the period 5/7/99 through 3/31/00 (0.47) -- (0.47) For the period 4/1/99 through 5/7/99 (1) -- -- -- GLOBAL EQUITY FUNDS GLOBAL SELECT For the period ended 09/30/04 (1) $ -- $ -- $ -- For the year ended 03/31/04 -- -- -- For the year ended 03/31/03 -- -- -- For the year ended 03/31/02 -- -- -- For the year ended 03/31/01 -- (8.99) (8.99) For the year ended 3/31/00 -- (8.26) (8.26) INTERNATIONAL GROWTH For the period ended 09/30/04 (1) $ -- $ -- $ -- For the year ended 03/31/04 (0.04) -- (0.04) For the year ended 03/31/03 -- -- -- For the year ended 03/31/02 -- -- -- For the year ended 03/31/01 -- (1.42) (1.42) For the period 5/7/99 through 3/31/00 (0.02) -- (0.02) For the period 4/1/99 through 5/7/99 (1) -- -- --
- ---------- (1) Unaudited. (2) Net investment income per share is calculated by dividing net investment income for the period by the average shares outstanding during the period. (3) Total returns are not annualized for periods less than one year. (4) 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. (5) Net expenses include certain items not subject to expense reimbursement. (6) The Board of Trustees approved the amendments to the Expense Limitation Agreement whereby overall operating expenses (excluding taxes, interest, brokerage and extraordinary expenses and expenses incurred from the creation and operation of the Mauritius entity), of the U.S. Mini Cap Growth, U.S. Large Cap Value, U.S.Systematic Large Cap Growth, Global Select, International Growth, Emerging Countries and U.S. High Yield Bond do not exceed 1.56%, 1.00%, 1.00%, 1.20%, 1.40%, 1.65% and 0.75% for the period 04/01/02 to 06/30/02, 1.56%, 0.85% 0.90%, 1.05%, 1.15%, 1.50% and 0.75% period 07/01/02 to 01/21/03, 1.40%, 1.00%, 1.00%, 1.10%, 1.15%, 1.65%, 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. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 86
NET ASSET VALUE, TOTAL ENDING RETURN (3) - ------------------------------------------------------------------ U.S. EQUITY FUNDS -- CONTINUED U.S. SYSTEMATIC MID CAP GROWTH For the period ended 09/30/04 (1) $ 10.09 (2.89%) For the year ended 03/31/04 10.39 30.86% For the year ended 03/31/03 7.94 (30.35%) For the year ended 03/31/02 11.40 (16.18%) For the year ended 03/31/01 13.60 (53.95%) For the period 5/7/99 through 3/31/00 41.51 113.48% For the period 4/1/99 through 5/7/99 (1) 19.44 1.41% U.S. SYSTEMATIC SMID GROWTH For the period ended 09/30/04 (1) $ 9.49 (4.04%) 2/27/04 (commenced) to 03/31/04 9.89 (1.10%) U.S. CONVERTIBLE For the period ended 09/30/04 (1) $ 22.63 (1.11%) For the year ended 03/31/04 23.11 34.15% For the year ended 03/31/03 17.72 (13.69%) For the year ended 03/31/02 21.35 (4.51%) For the year ended 03/31/01 23.14 (25.12%) For the period 5/7/99 through 3/31/00 33.67 54.31% For the period 4/1/99 through 5/7/99 (1) 22.21 3.16% GLOBAL EQUITY FUNDS GLOBAL SELECT For the period ended 09/30/04 (1) $ 15.10 (3.08%) For the year ended 03/31/04 15.58 51.85% For the year ended 03/31/03 10.26 (24.95%) For the year ended 03/31/02 13.67 6.30% For the year ended 03/31/01 12.86 (36.33%) For the year ended 3/31/00 31.91 110.64% INTERNATIONAL GROWTH For the period ended 09/30/04 (1) $ 18.18 (4.77%) For the year ended 03/31/04 19.09 49.17% For the year ended 03/31/03 12.83 (25.28%) For the year ended 03/31/02 17.17 (10.62%) For the year ended 03/31/01 19.21 (35.99%) For the period 5/7/99 through 3/31/00 31.88 54.78% For the period 4/1/99 through 5/7/99 (1) 20.61 4.46% RATIOS TO AVERAGE NET ASSETS (4) ---------------------------------------------------------------------------------- EXPENSES EXPENSES NET OF NET EXPENSES NET OF REIMBURSEMENT/ INVESTMENT TOTAL (REIMBURSEMENTS)/ REIMBURSEMENT/ RECOUPMENT INCOME (LOSS) EXPENSES RECOUPMENT RECOUPMENT OFFSET (5) - ------------------------------------------------------------------------------------------------------------------------------- U.S. EQUITY FUNDS -- CONTINUED U.S. SYSTEMATIC MID CAP GROWTH For the period ended 09/30/04 (1) 1.89%(10) 1.56% (0.31%) 1.25% 0.97% For the year ended 03/31/04 (0.28%) 1.12% -- 1.12% 0.73%(9) For the year ended 03/31/03 (0.72%) 1.22% (0.20%) 1.02% 1.00%(6) For the year ended 03/31/02 (0.70%) 1.08% (0.07%) 1.01% 1.01% For the year ended 03/31/01 (0.68%) 1.03% (0.03%) 1.00% 1.00% For the period 5/7/99 through 3/31/00 (0.60%) 1.09% (0.08%) 1.01% 1.01% For the period 4/1/99 through 5/7/99 (1) (0.70%) 0.99% -- 0.99% 0.99% U.S. SYSTEMATIC SMID GROWTH For the period ended 09/30/04 (1) (0.23%) 1.87% (0.50%) 1.37% 1.15% 2/27/04 (commenced) to 03/31/04 (0.43%) 4.39% (3.04%) 1.35% 1.35%(9) U.S. CONVERTIBLE For the period ended 09/30/04 (1) 1.62% 1.12% (0.10%) 1.02% 0.91% For the year ended 03/31/04 2.57% 1.10% (0.06%) 1.04% 1.00%(9) For the year ended 03/31/03 3.17% 1.16% (0.15%) 1.01% 1.00%(6) For the year ended 03/31/02 2.87% 1.05% (0.05%) 1.00% 1.00% For the year ended 03/31/01 2.40% 1.04% (0.03%) 1.01% 1.01% For the period 5/7/99 through 3/31/00 2.02% 1.27% (0.24%) 1.03% 1.03% For the period 4/1/99 through 5/7/99 (1) 2.15% 0.99% -- 0.99% 0.99% GLOBAL EQUITY FUNDS GLOBAL SELECT For the period ended 09/30/04 (1) 0.15% 1.16% -- 1.16% 0.99% For the year ended 03/31/04 (0.05%) 1.28% (0.10%) 1.18% 1.01%(9) For the year ended 03/31/03 (0.16%) 1.42% (0.27%) 1.15% 1.13%(6) For the year ended 03/31/02 (0.43%) 1.37% (0.14%) 1.23% 1.23% For the year ended 03/31/01 (0.21%) 1.78% (0.48%) 1.30% 1.30% For the year ended 3/31/00 (0.81%) 1.82% (0.49%) 1.33% 1.33% INTERNATIONAL GROWTH For the period ended 09/30/04 (1) 1.06% 1.48% (0.07%) 1.41% 1.08% For the year ended 03/31/04 1.35% 1.49% (0.04%) 1.45% 1.19%(9) For the year ended 03/31/03 0.76% 1.46% (0.21%) 1.25% 1.23%(6) For the year ended 03/31/02 0.32% 1.36% 0.01% 1.37% 1.37% For the year ended 03/31/01 0.15% 1.32% 0.08% 1.40% 1.40% For the period 5/7/99 through 3/31/00 (0.36%) 1.38% 0.02% 1.40% 1.40% For the period 4/1/99 through 5/7/99 (1) (0.97%) 1.39% -- 1.39% 1.39% FUND'S PORTFOLIO NET ASSETS, TURNOVER ENDING RATE (IN 000'S) - ----------------------------------------------------------------------- U.S. EQUITY FUNDS -- CONTINUED U.S. SYSTEMATIC MID CAP GROWTH For the period ended 09/30/04 (1) 165% $ 11,251 For the year ended 03/31/04 245% 29,747 For the year ended 03/31/03 206% 42,084 For the year ended 03/31/02 154% 110,347 For the year ended 03/31/01 186% 113,952 For the period 5/7/99 through 3/31/00 110% 252,377 For the period 4/1/99 through 5/7/99 (1) 25% 128,710 U.S. SYSTEMATIC SMID GROWTH For the period ended 09/30/04 (1) 61% $ 4,902 2/27/04 (commenced) to 03/31/04 14% 5,347 U.S. CONVERTIBLE For the period ended 09/30/04 (1) 39% $ 39,833 For the year ended 03/31/04 103% 50,103 For the year ended 03/31/03 114% 44,901 For the year ended 03/31/02 181% 120,359 For the year ended 03/31/01 118% 126,826 For the period 5/7/99 through 3/31/00 149% 114,655 For the period 4/1/99 through 5/7/99 (1) 11% 90,843 GLOBAL EQUITY FUNDS GLOBAL SELECT For the period ended 09/30/04 (1) 75% $ 54,809 For the year ended 03/31/04 226% 78,327 For the year ended 03/31/03 230%(8) 69,776 For the year ended 03/31/02 401% 41,219 For the year ended 03/31/01 440% 15,023 For the year ended 3/31/00 348% 24,742 INTERNATIONAL GROWTH For the period ended 09/30/04 (1) 98% $ 43,112 For the year ended 03/31/04 186% 51,450 For the year ended 03/31/03 203% 88,029 For the year ended 03/31/02 232% 214,920 For the year ended 03/31/01 234% 215,602 For the period 5/7/99 through 3/31/00 171% 303,536 For the period 4/1/99 through 5/7/99 (1) 30% 117,365
(7) 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. (8) 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. (9) The Board of Trustees approved the amendments to the Expenses Limitation Agreement where by overall operating expenses (excluding taxes, interest, brokerage, extraordinary expenses and expenses incurred from the creation and operation of the Mauritius entity) of the U.S. Mini Cap Growth, 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%, 1.40% 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 and Emerging Countries do not exceed 1.30% and 1.65% for the period 04/01/03 to 07/28/03, 1.45% and1.73% for the period 07/29/03 to 02/23/04, 1.30% and 1.65% for the period 02/24/04 to 03/31/04, respectively. U.S. Systematic SMID Growth did not exceed 1.33% for the period 02/24/04 to 03/31/04. (10) Net Investment Income ratio includes the proceeds of the class action suit for the amount of $90,091.54 representing a three cent per share impact to the fund. 87 For a share outstanding during the period indicated
NET ASSET NET NET REALIZED TOTAL FROM VALUE, INVESTMENT AND UNREALIZED INVESTMENT BEGINNING INCOME (LOSS) (2) GAINS (LOSS) OPERATIONS - ------------------------------------------------------------------------------------------------------- GLOBAL EQUITY FUNDS -- CONTINUED INTERNATIONAL GROWTH OPPORTUNITIES For the period ended 09/30/04 (1) $ 29.43 $ 0.17 $ (0.27) $ (0.10) 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) For the year ended 03/31/01 51.19 (0.09) (17.92) (18.01) For the period 5/7/99 through 3/31/00 22.38 (0.24) 29.26 29.02 For the period 4/1/99 through 5/7/99 (1) 21.12 (0.01) 1.27 1.26 EMERGING COUNTRIES For the period ended 09/30/04 (1) $ 16.20 $ 0.11 $ (1.31) $ (1.20) For the year ended 03/31/04 8.70 0.20 7.30 7.50 For the year ended 03/31/03 12.13 0.02 (3.45) (3.43) For the year ended 03/31/02 11.20 0.04 0.89 0.93 For the year ended 03/31/01 23.69 (0.02) (10.84) (10.86) For the period 5/7/99 through 3/31/00 15.88 (0.10) 7.91 7.81 For the period 4/1/99 through 5/7/99 (1) 13.44 (0.02) 2.46 2.44 EMERGING MARKETS OPPORTUNITIES FUND 5/28/04 (commenced) to 03/31/04 $ 10.00 $ 0.03 $ 0.67 $ 0.70 FIXED INCOME FUNDS U.S. HIGH YIELD BOND For the period ended 09/30/04 (1) $ 10.34 $ 0.42 $ (0.07) $ 0.35 For the year ended 03/31/04 9.65 0.86 0.63 1.49 For the year ended 03/31/03 9.88 0.83 (0.23) 0.60 For the year ended 03/31/02 10.82 0.93 (0.91) 0.02 For the year ended 03/31/01 11.95 1.31 (1.22) 0.09 For the period 5/7/99 through 3/31/00 12.58 1.05 (0.64) 0.41 For the period 4/1/99 through 5/7/99 (1) 12.37 0.13 0.18 0.31 DISTRIBUTIONS FROM: -------------------------- NET NET INVESTMENT REALIZED TOTAL INCOME CAPITAL GAINS DISTRIBUTIONS - --------------------------------------------------------------------------------------- GLOBAL EQUITY FUNDS -- CONTINUED INTERNATIONAL GROWTH OPPORTUNITIES For the period ended 09/30/04 (1) $ -- $ -- $ -- For the year ended 03/31/04 -- -- -- For the year ended 03/31/03 -- -- -- For the year ended 03/31/02 -- -- -- For the year ended 03/31/01 (0.13) (8.67) (8.80) For the period 5/7/99 through 3/31/00 -- (0.21) (0.21) For the period 4/1/99 through 5/7/99 (1) -- -- -- EMERGING COUNTRIES For the period ended 09/30/04 (1) $ -- $ -- $ -- For the year ended 03/31/04 -- -- -- For the year ended 03/31/03 -- -- -- For the year ended 03/31/02 -- -- -- For the year ended 03/31/01 -- (1.63) (1.63) For the period 5/7/99 through 3/31/00 -- -- -- For the period 4/1/99 through 5/7/99 (1) -- -- -- EMERGING MARKETS OPPORTUNITIES FUND 5/28/04 (commenced) to 03/31/04 $ -- $ -- $ -- FIXED INCOME FUNDS U.S. HIGH YIELD BOND For the period ended 09/30/04 (1) $ (0.43) $ -- $ (0.43) For the year ended 03/31/04 (0.80) -- (0.80) For the year ended 03/31/03 (0.83) -- (0.83) For the year ended 03/31/02 (0.96) -- (0.96) For the year ended 03/31/01 (1.22) -- (1.22) For the period 5/7/99 through 3/31/00 (1.04) -- (1.04) For the period 4/1/99 through 5/7/99 (1) (0.10) -- (0.10)
- ---------- (1) Unaudited. (2) Net investment income per share is calculated by dividing net investment income for the period by the average shares outstanding during the period. (3) Total returns are not annualized for periods less than one year. (4) 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. (5) Net expenses include certain items not subject to expense reimbursement. (6) The Board of Trustees approved the amendments to the Expense Limitation Agreement whereby overall operating expenses (excluding taxes, interest, brokerage and extraordinary expenses and expenses incurred from the creation and operation of the Mauritius entity), of the U.S. Mini Cap Growth, U.S. Large Cap Value, U.S.Systematic Large Cap Growth, Global Select, International Growth, Emerging Countries and U.S. High Yield Bond do not exceed 1.56%, 1.00%, 1.00%, 1.20%, 1.40%, 1.65% and 0.75% for the period 04/01/02 to 06/30/02, 1.56%, 0.85% 0.90%, 1.05%, 1.15%, 1.50% and 0.75% period 07/01/02 to 01/21/03, 1.40%, 1.00%, 1.00%, 1.10%, 1.15%, 1.65%, 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. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 88
NET ASSET VALUE, TOTAL ENDING RETURN (3) - ------------------------------------------------------------------ GLOBAL EQUITY FUNDS -- CONTINUED INTERNATIONAL GROWTH OPPORTUNITIES For the period ended 09/30/04 (1) $ 29.33 (0.34%) For the year ended 03/31/04 29.43 69.24% For the year ended 03/31/03 17.39 (23.46%) For the year ended 03/31/02 22.72 (6.81%) For the year ended 03/31/01 24.38 (37.80%) For the period 5/7/99 through 3/31/00 51.19 130.09% For the period 4/1/99 through 5/7/99 (1) 22.38 5.97% EMERGING COUNTRIES For the period ended 09/30/04 (1) $ 15.00 (7.41%) For the year ended 03/31/04 16.20 86.21% For the year ended 03/31/03 8.70 (28.28%) For the year ended 03/31/02 12.13 8.30% For the year ended 03/31/01 11.20 (46.75%) For the period 5/7/99 through 3/31/00 23.69 49.18% For the period 4/1/99 through 5/7/99 (1) 15.88 18.07% EMERGING MARKETS OPPORTUNITIES FUND 5/28/04 (commenced) to 03/31/04 $ 10.70 7.00% FIXED INCOME FUNDS U.S. HIGH YIELD BOND For the period ended 09/30/04 (1) $ 10.26 3.45% For the year ended 03/31/04 10.34 16.67% For the year ended 03/31/03 9.65 6.61% For the year ended 03/31/02 9.88 0.42% For the year ended 03/31/01 10.82 0.78% For the period 5/7/99 through 3/31/00 11.95 3.39% For the period 4/1/99 through 5/7/99 (1) 12.58 2.52% RATIOS TO AVERAGE NET ASSETS (4) --------------------------------------------------------------------------------- EXPENSES EXPENSES NET OF NET EXPENSES NET OF REIMBURSEMENT/ INVESTMENT TOTAL (REIMBURSEMENTS)/ REIMBURSEMENT/ RECOUPMENT INCOME (LOSS) EXPENSES RECOUPMENT RECOUPMENT OFFSET (5) - ------------------------------------------------------------------------------------------------------------------------------ GLOBAL EQUITY FUNDS -- CONTINUED INTERNATIONAL GROWTH OPPORTUNITIES For the period ended 09/30/04 (1) 1.15% 1.49% -- 1.49% 1.24% For the year ended 03/31/04 0.74% 1.47% -- 1.47% 1.28%(9) For the year ended 03/31/03 0.36% 1.54% (0.10%) 1.44% 1.42%(6) For the year ended 03/31/02 0.40% 1.42% (0.01%) 1.41% 1.41% For the year ended 03/31/01 (0.24%) 1.37% 0.05% 1.42% 1.42% For the period 5/7/99 through 3/31/00 (0.73%) 1.45% (0.04%) 1.41% 1.41% For the period 4/1/99 through 5/7/99 (1) (0.37%) 1.39% -- 1.39% 1.39% EMERGING COUNTRIES For the period ended 09/30/04 (1) 1.52% 1.80% (0.09%) 1.71% 1.46% For the year ended 03/31/04 1.67% 1.89% (0.07%) 1.82% 1.70%(9) For the year ended 03/31/03 0.19% 2.25% (0.42%) 1.83% 1.80%(6) For the year ended 03/31/02 0.35% 1.89% (0.20%) 1.69% 1.69% For the year ended 03/31/01 (0.11%) 1.72% (0.04%) 1.68% 1.68% For the period 5/7/99 through 3/31/00 (0.62%) 1.77% (0.10%) 1.67% 1.67% For the period 4/1/99 through 5/7/99 (1) (1.22%) 1.64% -- 1.64% 1.64% EMERGING MARKETS OPPORTUNITIES FUND 5/28/04 (commenced) to 03/31/04 0.79% 3.26% (1.51%) 1.75% 1.70% FIXED INCOME FUNDS U.S. HIGH YIELD BOND For the period ended 09/30/04 (1) 8.39% 0.82% (0.19%) 0.63% 0.60% For the year ended 03/31/04 8.43% 0.87% (0.23%) 0.64% 0.61%(9) For the year ended 03/31/03 8.78% 1.01% (0.24%) 0.77% 0.77%(6) For the year ended 03/31/02 9.28% 1.03% (0.27%) 0.76% 0.76% For the year ended 03/31/01 10.75% 1.29% (0.53%) 0.76% 0.76% For the period 5/7/99 through 3/31/00 9.97% 1.31% (0.50%) 0.81% 0.81% For the period 4/1/99 through 5/7/99 (1) 10.66% 0.58% (0.02%) 0.56% 0.56% FUND'S PORTFOLIO NET ASSETS, TURNOVER ENDING RATE (IN 000'S) - -------------------------------------------------------------------- GLOBAL EQUITY FUNDS -- CONTINUED INTERNATIONAL GROWTH OPPORTUNITIES For the period ended 09/30/04 (1) 51% $ 43,209 For the year ended 03/31/04 124% 54,015 For the year ended 03/31/03 129% 65,351 For the year ended 03/31/02 168% 144,429 For the year ended 03/31/01 160% 193,934 For the period 5/7/99 through 3/31/00 151% 270,159 For the period 4/1/99 through 5/7/99 (1) 23% 71,738 EMERGING COUNTRIES For the period ended 09/30/04 (1) 29% $ 17,869 For the year ended 03/31/04 100% 19,966 For the year ended 03/31/03 222% 49,526 For the year ended 03/31/02 260% 117,070 For the year ended 03/31/01 244% 140,538 For the period 5/7/99 through 3/31/00 180% 300,085 For the period 4/1/99 through 5/7/99 (1) 34% 178,902 EMERGING MARKETS OPPORTUNITIES FUND 5/28/04 (commenced) to 03/31/04 26% $ 8,842 FIXED INCOME FUNDS U.S. HIGH YIELD BOND For the period ended 09/30/04 (1) 50% $ 158,091 For the year ended 03/31/04 134% 102,110 For the year ended 03/31/03 137% 120,182 For the year ended 03/31/02 113% 71,369 For the year ended 03/31/01 132% 42,622 For the period 5/7/99 through 3/31/00 113% 21,552 For the period 4/1/99 through 5/7/99 (1) 25% 11,412
(7) 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. (8) 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. (9) The Board of Trustees approved the amendments to the Expenses Limitation Agreement where by overall operating expenses (excluding taxes, interest, brokerage, extraordinary expenses and expenses incurred from the creation and operation of the Mauritius entity) of the U.S. Mini Cap Growth, 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%, 1.40% 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 and Emerging Countries do not exceed 1.30% and 1.65% for the period 04/01/03 to 07/28/03, 1.45% and1.73% for the period 07/29/03 to 02/23/04, 1.30% and 1.65% for the period 02/24/04 to 03/31/04, respectively. U.S. Systematic SMID Growth did not exceed 1.33% for the period 02/24/04 to 03/31/04. (10) Net Investment Income ratio includes the proceeds of the class action suit for the amount of $90,091.54 representing a three cent per share impact to the fund. 89 For a class II share outstanding during the period indicated
NET ASSET NET NET REALIZED TOTAL FROM VALUE, INVESTMENT AND UNREALIZED INVESTMENT BEGINNING INCOME (LOSS) (2) GAINS (LOSS) OPERATIONS - ------------------------------------------------------------------------------------------------------- GLOBAL FUNDS GLOBAL SELECT For the period ended 09/30/04 (1) $ 15.58 $ 0.02 $ (0.49) $ (0.47) 6/30/03 (commenced) to 03/31/04 12.12 (0.01) 3.47 3.46 INTERNATIONAL GROWTH OPPORTUNITIES For the period ended 09/30/04 (1) $ 29.47 $ 0.19 $ (0.28) $ (0.09) 6/05/03 (commenced) to 03/31/04 20.85 0.14 8.48 8.62 EMERGING COUNTRIES For the period ended 09/30/04 (1) $ 16.19 $ 0.12 $ (1.30) $ (1.18) 9/08/03 (commenced) to 03/31/04 12.90 0.06 3.23 3.29 FIXED INCOME FUNDS U.S. HIGH YIELD BOND For the period ended 09/30/04 (1) $ 10.33 $ 0.43 $ (0.09) $ 0.34 6/30/03 (commenced) to 03/31/04 10.18 0.66 0.10 0.76 DISTRIBUTIONS FROM: -------------------------- NET NET INVESTMENT REALIZED TOTAL INCOME CAPITAL GAINS DISTRIBUTIONS - --------------------------------------------------------------------------------------- GLOBAL FUNDS GLOBAL SELECT For the period ended 09/30/04 (1) $ -- $ -- $ -- 6/30/03 (commenced) to 03/31/04 -- -- -- INTERNATIONAL GROWTH OPPORTUNITIES For the period ended 09/30/04 (1) $ -- $ -- $ -- 6/05/03 (commenced) to 03/31/04 -- -- -- EMERGING COUNTRIES For the period ended 09/30/04 (1) $ -- $ -- $ -- 9/08/03 (commenced) to 03/31/04 -- -- -- FIXED INCOME FUNDS U.S. HIGH YIELD BOND For the period ended 09/30/04 (1) $ (0.43) $ -- $ (0.43) 6/30/03 (commenced) to 03/31/04 (0.61) -- (0.61)
- ---------- (1) Unaudited. (2) Net investment income per share is calculated by dividing net investment income for the period by the average shares outstanding during the period. (3) Total returns are not annualized for periods less than one year. For a class III share outstanding during the period indicated
NET ASSET NET NET REALIZED TOTAL FROM VALUE, INVESTMENT AND UNREALIZED INVESTMENT BEGINNING INCOME (LOSS) (2) GAINS (LOSS) OPERATIONS - ------------------------------------------------------------------------------------------------------- GLOBAL FUNDS INTERNATIONAL GROWTH For the period ended 09/30/04 (1) $ 19.09 $ 0.12 $ (1.01) $ (0.89) 10/01/03 (commenced) to 03/31/04 16.19 0.04 2.93 2.97 DISTRIBUTIONS FROM: -------------------------- NET NET INVESTMENT REALIZED TOTAL INCOME CAPITAL GAINS DISTRIBUTIONS - --------------------------------------------------------------------------------------- GLOBAL FUNDS INTERNATIONAL GROWTH For the period ended 09/30/04 (1) $ -- $ -- $ -- 10/01/03 (commenced) to 03/31/04 (0.07) -- (0.07)
- ---------- (1) Unaudited. (2) Net investment income per share is calculated by dividing net investment income for the period by the average shares outstanding during the period. (3) Total returns are not annualized for periods less than one year. For a class IV share outstanding during the period indicated
NET ASSET NET NET REALIZED TOTAL FROM VALUE, INVESTMENT AND UNREALIZED INVESTMENT BEGINNING INCOME (LOSS) (2) GAINS (LOSS) OPERATIONS - ------------------------------------------------------------------------------------------------------- GLOBAL FUNDS INTERNATIONAL GROWTH For the period ended 09/30/04 (1) $ 19.11 $ 0.13 $ (1.01) $ (0.88) 10/01/03 (commenced) to 03/31/04 16.19 0.06 2.93 2.99 DISTRIBUTIONS FROM: -------------------------- NET NET INVESTMENT REALIZED TOTAL INCOME CAPITAL GAINS DISTRIBUTIONS - --------------------------------------------------------------------------------------- GLOBAL FUNDS INTERNATIONAL GROWTH For the period ended 09/30/04 (1) $ -- $ -- $ -- 10/01/03 (commenced) to 03/31/04 (0.07) -- (0.07)
- ---------- (1) Unaudited. (2) Net investment income per share is calculated by dividing net investment income for the period by the average shares outstanding during the period. (3) Total returns are not annualized for periods less than one year. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 90
NET ASSET VALUE, TOTAL ENDING RETURN (3) - ------------------------------------------------------------------ GLOBAL FUNDS GLOBAL SELECT For the period ended 09/30/04 (1) $ 15.11 (3.02%) 6/30/03 (commenced) to 03/31/04 15.58 28.55% INTERNATIONAL GROWTH OPPORTUNITIES For the period ended 09/30/04 (1) $ 29.38 (0.31%) 6/05/03 (commenced) to 03/31/04 29.47 41.34% EMERGING COUNTRIES For the period ended 09/30/04 (1) $ 15.01 (7.29%) 9/08/03 (commenced) to 03/31/04 16.19 25.50% FIXED INCOME FUNDS U.S. HIGH YIELD BOND For the period ended 09/30/04 (1) $ 10.24 3.39% 6/30/03 (commenced) to 03/31/04 10.33 8.43% RATIOS TO AVERAGE NET ASSETS (4) --------------------------------------------------------------------------------- EXPENSES EXPENSES NET OF NET EXPENSES NET OF REIMBURSEMENT/ INVESTMENT TOTAL (REIMBURSEMENTS)/ REIMBURSEMENT/ RECOUPMENT INCOME (LOSS) EXPENSES RECOUPMENT RECOUPMENT OFFSET (5) - ------------------------------------------------------------------------------------------------------------------------------ GLOBAL FUNDS GLOBAL SELECT For the period ended 09/30/04 (1) 0.21% 1.11% -- 1.11% 0.95% 6/30/03 (commenced) to 03/31/04 (0.08%) 1.24% (0.12%) 1.12% 0.94% INTERNATIONAL GROWTH OPPORTUNITIES For the period ended 09/30/04 (1) 1.28% 1.33% -- 1.33% 1.09% 6/05/03 (commenced) to 03/31/04 0.66% 1.29% -- 1.29% 1.11% EMERGING COUNTRIES For the period ended 09/30/04 (1) 1.67% 1.65% (0.09%) 1.56% 1.30% 9/08/03 (commenced) to 03/31/04 0.77% 1.56% 0.07% 1.63% 1.52% FIXED INCOME FUNDS U.S. HIGH YIELD BOND For the period ended 09/30/04 (1) 8.36% 0.77% (0.19%) 0.58% 0.55% 6/30/03 (commenced) to 03/31/04 8.68% 0.82% (0.24%) 0.58% 0.57% FUND'S PORTFOLIO NET ASSETS, TURNOVER ENDING RATE (IN 000'S) - -------------------------------------------------------------------- GLOBAL FUNDS GLOBAL SELECT For the period ended 09/30/04 (1) 75% $ 59,742 6/30/03 (commenced) to 03/31/04 226% 35,817 INTERNATIONAL GROWTH OPPORTUNITIES For the period ended 09/30/04 (1) 51% $ 45,914 6/05/03 (commenced) to 03/31/04 124% 60,394 EMERGING COUNTRIES For the period ended 09/30/04 (1) 29% $ 48,638 9/08/03 (commenced) to 03/31/04 123% 52,500 FIXED INCOME FUNDS U.S. HIGH YIELD BOND For the period ended 09/30/04 (1) 50% $ 25,950 6/30/03 (commenced) to 03/31/04 134% 68,952
(4) 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. (5) Net expenses include certain items not subject to expense reimbursement.
NET ASSET VALUE, TOTAL ENDING RETURN (3) - ------------------------------------------------------------------ GLOBAL FUNDS INTERNATIONAL GROWTH For the period ended 09/30/04 (1) $ 18.20 (4.66%) 10/01/03 (commenced) to 03/31/04 19.09 18.37% RATIOS TO AVERAGE NET ASSETS (4) --------------------------------------------------------------------------------- EXPENSES EXPENSES NET OF NET EXPENSES NET OF REIMBURSEMENT/ INVESTMENT TOTAL (REIMBURSEMENTS)/ REIMBURSEMENT/ RECOUPMENT INCOME (LOSS) EXPENSES RECOUPMENT RECOUPMENT OFFSET (5) - ------------------------------------------------------------------------------------------------------------------------------ GLOBAL FUNDS INTERNATIONAL GROWTH For the period ended 09/30/04 (1) 1.28% 1.23% (0.07%) 1.16% 0.83% 10/01/03 (commenced) to 03/31/04 0.40% 1.11% 0.05% 1.16% 0.94% FUND'S PORTFOLIO NET ASSETS, TURNOVER ENDING RATE (IN 000'S) - -------------------------------------------------------------------- GLOBAL FUNDS INTERNATIONAL GROWTH For the period ended 09/30/04 (1) 98% $ 35,100 10/01/03 (commenced) to 03/31/04 186% 36,830
(4) 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. (5) Net expenses include certain items not subject to expense reimbursement.
NET ASSET VALUE, TOTAL ENDING RETURN (3) - ------------------------------------------------------------------ GLOBAL FUNDS INTERNATIONAL GROWTH For the period ended 09/30/04 (1) $ 18.23 (4.60%) 10/01/03 (commenced) to 03/31/04 19.11 18.49% RATIOS TO AVERAGE NET ASSETS (4) --------------------------------------------------------------------------------- EXPENSES EXPENSES NET OF NET EXPENSES NET OF REIMBURSEMENT/ INVESTMENT TOTAL (REIMBURSEMENTS)/ REIMBURSEMENT/ RECOUPMENT INCOME (LOSS) EXPENSES RECOUPMENT RECOUPMENT OFFSET (5) - ------------------------------------------------------------------------------------------------------------------------------ GLOBAL FUNDS INTERNATIONAL GROWTH For the period ended 09/30/04 (1) 1.43% 1.08% (0.07%) 1.01% 0.68% 10/01/03 (commenced) to 03/31/04 0.62% 0.97% 0.03% 1.00% 0.77% FUND'S PORTFOLIO NET ASSETS, TURNOVER ENDING RATE (IN 000'S) - -------------------------------------------------------------------- GLOBAL FUNDS INTERNATIONAL GROWTH For the period ended 09/30/04 (1) 98% $ 22,593 10/01/03 (commenced) to 03/31/04 186% 23,719
(4) 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. (5) Net expenses include certain items not subject to expense reimbursement. 91 NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS STATEMENTS OF ASSETS AND LIABILITIES SEPTEMBER 30, 2004 (UNAUDITED)
U.S. MINI CAP U.S. EMERGING U.S. SMALL CAP GROWTH GROWTH VALUE ASSETS Investments, at value* $ 85,756,343 $ 28,872,269 $ 66,523,255 Foreign currencies, at value** -- -- -- Cash -- -- 192,797 Receivables: Investment securities sold 2,867,726 1,495,915 3,721,404 Capital shares sold 62,259 11,238 45,538 Dividends 9,252 970 97,994 Foreign taxes receivable -- -- -- Interest -- -- -- Expense offset and other 243,081 32,981 23,893 Other assets 6,739 8,152 14,413 ------------- ------------- -------------- Total assets 88,945,400 30,421,525 70,619,294 ------------- ------------- -------------- LIABILITIES Payables: Bank overdraft $ 233,349 $ 1,166,592 $ -- Investments purchased 2,248,096 145,197 210,050 Capital shares redeemed 209,882 -- 3,141,036 Collateral on securities loaned 22,304,175 6,364,875 3,937,825 Distributions fee -- 736 -- To investment advisor 53,801 13,267 45,458 Other Liabilities 111,961 63,650 77,032 ------------- ------------- -------------- Total Liabilities 25,161,264 7,754,317 7,411,401 ------------- ------------- -------------- NET ASSETS 63,784,136 22,667,208 63,207,893 ============= ============= ============== * Investments, at cost 81,112,334 25,751,901 55,008,759 ============= ============= ============== ** Foreign currencies, at cost -- -- -- ============= ============= ============== NET ASSETS CONSIST OF: Paid-in capital $ 63,170,991 $ 52,984,036 $ 43,325,542 Undistributed net investment income (loss) (276,160) (121,719) 70,045 Accumulated net realized gain (loss) on investments and foreign currencies (3,754,704) (33,315,477) 8,297,810 Net unrealized appreciation (depreciation) of investments and of other assets and liabilities denominated in foreign currencies 4,644,009 3,120,368 11,514,496 ------------- ------------- -------------- Net Assets applicable to all shares outstanding $ 63,784,136 $ 22,667,208 $ 63,207,893 ============= ============= ============== Net Assets of Class I shares $ 63,784,136 $ 19,002,852 $ 63,207,893 Net Assets of Class II shares -- -- -- Net Assets of Class III shares -- -- -- Net Assets of Class IV shares -- -- -- Net Assets of Class R shares -- 3,664,356 -- ============= ============= ============== Class I Shares outstanding 5,106,816 2,126,170 3,531,363 Class II Shares outstanding -- -- -- Class III Shares outstanding -- -- -- Class IV Shares outstanding -- -- -- Class R Shares outstanding -- 414,546 -- ============= ============= ============== Net Asset Value -- Class I Share $ 12.49 $ 8.94 $ 17.90 Net Asset Value -- Class II Share $ -- $ -- $ -- Net Asset Value -- Class III Share $ -- $ -- $ -- Net Asset Value -- Class IV Share $ -- $ -- $ -- Net Asset Value -- Class R Share $ -- $ 8.84 $ -- ============= ============= ============== U.S. SYSTEMATIC U.S. SYSTEMATIC U.S. LARGE CAP LARGE CAP MID CAP VALUE GROWTH GROWTH ASSETS Investments, at value* $ 22,671,403 $ 12,681,651 $ 11,956,136 Foreign currencies, at value** -- -- -- Cash -- 15,247 -- Receivables: Investment securities sold -- 284,087 242,494 Capital shares sold 25,033 5,163 4,817 Dividends 24,529 11,572 5,375 Foreign taxes receivable -- -- -- Interest -- -- -- Expense offset and other 6,516 18,411 98,870 Other assets 9,540 8,125 7,905 -------------- --------------- --------------- Total assets 22,737,021 13,024,256 12,315,597 -------------- --------------- --------------- LIABILITIES Payables: Bank overdraft $ 22,871 $ -- $ 68,751 Investments purchased 170,124 334,088 185,614 Capital shares redeemed 7,721 2,619 -- Collateral on securities loaned -- -- 753,475 Distributions fee 1,680 1,961 -- To investment advisor 2,271 1,788 3,277 Other Liabilities 34,293 25,311 53,560 -------------- --------------- --------------- Total Liabilities 238,960 365,767 1,064,677 -------------- --------------- --------------- NET ASSETS 22,498,061 12,658,489 11,250,920 ============== =============== =============== * Investments, at cost 19,208,431 12,498,575 11,636,003 ============== =============== =============== ** Foreign currencies, at cost -- -- -- ============== =============== =============== NET ASSETS CONSIST OF: Paid-in capital $ 25,440,784 $ 118,627,501 $ 24,938,045 Undistributed net investment income (loss) 423,187 2,877 84,055 Accumulated net realized gain (loss) on investments and foreign currencies (6,828,882) (106,154,965) (14,091,313) Net unrealized appreciation (depreciation) of investments and of other assets and liabilities denominated in foreign currencies 3,462,972 183,076 320,133 -------------- --------------- --------------- Net Assets applicable to all shares outstanding $ 22,498,061 $ 12,658,489 $ 11,250,920 ============== =============== =============== Net Assets of Class I shares $ 14,301,368 $ 3,168,825 $ 11,250,920 Net Assets of Class II shares -- -- -- Net Assets of Class III shares -- -- -- Net Assets of Class IV shares -- -- -- Net Assets of Class R shares 8,196,693 9,489,664 -- ============== =============== =============== Class I Shares outstanding 578,273 216,879 1,114,726 Class II Shares outstanding -- -- -- Class III Shares outstanding -- -- -- Class IV Shares outstanding -- -- -- Class R Shares outstanding 332,826 657,478 -- ============== =============== =============== Net Asset Value -- Class I Share $ 24.73 $ 14.61 $ 10.09 Net Asset Value -- Class II Share $ -- $ -- $ -- Net Asset Value -- Class III Share $ -- $ -- $ -- Net Asset Value -- Class IV Share $ -- $ -- $ -- Net Asset Value -- Class R Share $ 24.63 $ 14.43 $ -- ============== =============== ===============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 92
U.S. SYSTEMATIC GLOBAL INTERNATIONAL SMID GROWTH U.S. CONVERTIBLE SELECT GROWTH ASSETS Investments, at value* $ 4,899,144 $ 39,770,243 $ 124,424,812 $ 107,270,894 Foreign currencies, at value** -- -- 857,820 2,000 Cash 23,258 -- -- -- Receivables: Investment securities sold 131,075 101,127 6,125,207 3,026,548 Capital shares sold -- -- 36,881 8,508 Dividends 3,519 16,193 114,548 239,401 Foreign taxes receivable -- -- 2,490 10,742 Interest -- 133,301 -- -- Expense offset and other 4,690 18,500 68,460 147,861 Other assets 1,846 2,311 4,854 9,342 --------------- ---------------- ------------- ------------- Total assets 5,063,532 40,041,675 131,635,072 110,715,296 --------------- ---------------- ------------- ------------- LIABILITIES Payables: Bank overdraft $ -- $ 99,977 $ 595,553 $ 487,754 Investments purchased 147,372 -- 6,820,033 2,026,488 Capital shares redeemed -- -- 31,823 3,442 Collateral on securities loaned -- 26,250 9,419,695 5,449,918 Distributions fee -- -- -- 340 To investment advisor 803 15,767 64,893 50,142 Other Liabilities 13,288 66,553 152,342 238,521 --------------- ---------------- ------------- ------------- Total Liabilities 161,463 208,547 17,084,339 8,256,605 --------------- ---------------- ------------- ------------- NET ASSETS 4,902,069 39,833,128 114,550,733 102,458,691 =============== ================ ============= ============= * Investments, at cost 4,817,579 33,257,635 112,750,254 99,054,642 =============== ================ ============= ============= ** Foreign currencies, at cost -- -- 861,480 1,936 =============== ================ ============= ============= NET ASSETS CONSIST OF: Paid-in capital $ 5,125,120 $ 47,043,824 $ 107,058,628 $ 113,831,116 Undistributed net investment income (loss) (5,691) (57,500) (38,294) 657,836 Accumulated net realized gain (loss) on investments and foreign currencies (298,925) (13,665,804) (4,138,400) (20,250,743) Net unrealized appreciation (depreciation) of investments and of other assets and liabilities denominated in foreign currencies 81,565 6,512,608 11,668,799 8,220,482 --------------- ---------------- ------------- ------------- Net Assets applicable to all shares outstanding $ 4,902,069 $ 39,833,128 $ 114,550,733 $ 102,458,691 =============== ================ ============= ============= Net Assets of Class I shares $ 4,902,069 $ 39,833,128 $ 54,809,135 $ 43,111,735 Net Assets of Class II shares -- -- 59,741,598 -- Net Assets of Class III shares -- -- -- 35,100,431 Net Assets of Class IV shares -- -- -- 22,592,860 Net Assets of Class R shares -- -- -- 1,653,665 =============== ================ ============= ============= Class I Shares outstanding 516,595 1,760,295 3,628,819 2,371,510 Class II Shares outstanding -- -- 3,954,919 -- Class III Shares outstanding -- -- -- 1,928,808 Class IV Shares outstanding -- -- -- 1,239,610 Class R Shares outstanding -- -- -- 92,062 =============== ================ ============= ============= Net Asset Value -- Class I Share $ 9.49 $ 22.63 $ 15.10 $ 18.18 Net Asset Value -- Class II Share $ -- $ -- $ 15.11 $ -- Net Asset Value -- Class III Share $ -- $ -- $ -- $ 18.20 Net Asset Value -- Class IV Share $ -- $ -- $ -- $ 18.23 Net Asset Value -- Class R Share $ -- $ -- $ -- $ 17.96 =============== ================ ============= ============= INTERNATIONAL GROWTH EMERGING EMERGING MARKETS U.S. HIGH YIELD OPPORTUNITIES COUNTRIES OPPORTUNITIES BOND ASSETS Investments, at value* $ 89,960,320 $ 65,952,735 $ 8,831,617 $ 183,217,257 Foreign currencies, at value** 1,042,218 503,133 30,545 -- Cash -- 25,458 9,925 968,069 Receivables: Investment securities sold 3,974,312 -- -- 6,173,402 Capital shares sold 90,160 4,630 -- 5,681 Dividends 225,202 187,798 14,524 -- Foreign taxes receivable 15,101 599 -- -- Interest -- -- -- 4,077,283 Expense offset and other 81,524 52,445 2,581 21,970 Other assets 5,603 4,354 10,019 7,980 ------------- ------------- ---------------- --------------- Total assets 95,394,440 66,731,152 8,899,211 194,471,642 ------------- ------------- ---------------- --------------- LIABILITIES Payables: Bank overdraft $ 7,955 $ -- $ -- $ -- Investments purchased 2,183,307 -- 12,856 9,186,918 Capital shares redeemed 5,244 30,087 -- 1,000,000 Collateral on securities loaned 3,836,561 -- -- -- Distributions fee -- -- -- -- To investment advisor 59,413 51,865 -- 41,046 Other Liabilities 178,443 142,583 44,429 203,086 ------------- ------------- ---------------- --------------- Total Liabilities 6,270,923 224,535 57,285 10,431,050 ------------- ------------- ---------------- --------------- NET ASSETS 89,123,517 66,506,617 8,841,926 184,040,592 ============= ============= ================ =============== * Investments, at cost 74,595,202 54,296,713 8,290,715 176,094,489 ============= ============= ================ =============== ** Foreign currencies, at cost 1,033,914 499,822 29,983 -- ============= ============= ================ =============== NET ASSETS CONSIST OF: Paid-in capital $ 146,888,890 $ 75,738,577 $ 8,301,330 $ 183,182,865 Undistributed net investment income (loss) 868,202 1,151,074 20,831 182,235 Accumulated net realized gain (loss) on investments and foreign currencies (74,011,192) (22,042,953) (21,756) (6,447,276) Net unrealized appreciation (depreciation) of investments and of other assets and liabilities denominated in foreign currencies 15,377,617 11,659,919 541,521 7,122,768 ------------- ------------- ---------------- --------------- Net Assets applicable to all shares outstanding $ 89,123,517 $ 66,506,617 $ 8,841,926 $ 184,040,592 ============= ============= ================ =============== Net Assets of Class I shares $ 43,209,367 $ 17,869,030 $ 8,841,926 $ 158,090,929 Net Assets of Class II shares 45,914,150 48,637,587 -- 25,949,663 Net Assets of Class III shares -- -- -- -- Net Assets of Class IV shares -- -- -- -- Net Assets of Class R shares -- -- -- -- ============= ============= ================ =============== Class I Shares outstanding 1,473,458 1,190,898 826,562 15,414,209 Class II Shares outstanding 1,562,564 3,239,872 -- 2,535,218 Class III Shares outstanding -- -- -- -- Class IV Shares outstanding -- -- -- -- Class R Shares outstanding -- -- -- -- ============= ============= ================ =============== Net Asset Value -- Class I Share $ 29.33 $ 15.00 $ 10.70 $ 10.26 Net Asset Value -- Class II Share $ 29.38 $ 15.01 $ -- $ 10.24 Net Asset Value -- Class III Share $ -- $ -- $ -- $ -- Net Asset Value -- Class IV Share $ -- $ -- $ -- $ -- Net Asset Value -- Class R Share $ -- $ -- $ -- $ -- ============= ============= ================ ===============
93 NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS STATEMENTS OF OPERATIONS PERIOD ENDED SEPTEMBER 30, 2004 (UNAUDITED)
U.S. MINI CAP U.S. EMERGING U.S. SMALL CAP GROWTH GROWTH VALUE INVESTMENT INCOME Dividends, net of foreign taxes* $ 65,537 $ 31,297 $ 420,361 Interest 28,626 29,094 17 ------------- ------------- -------------- Total Income 94,163 60,391 420,378 ------------- ------------- -------------- EXPENSES Advisory fees 360,993 115,996 253,768 Accounting and administration fees 29,208 22,867 30,680 Custodian fees 34,177 24,229 12,195 Transfer agent fees and expenses 15,542 12,590 13,847 Shareholder servicing fees 46,929 24,771 43,986 Administrative services fees 43,319 18,559 40,603 Professional fees 20,718 9,541 17,248 Shareholder reporting 15,984 7,404 12,989 Registration fees 10,226 9,597 9,065 Trustees' fees and expenses 4,480 2,074 3,640 Interest and credit facility fee 668 379 370 Insurance 5,329 2,941 3,617 Miscellaneous 4,370 2,539 3,851 ------------- ------------- -------------- Total Expenses 591,943 253,487 445,859 Expense offset (194,294) (52,118) (34,808) Expenses (reimbursed)/recouped (27,326) (19,259) (5,532) ------------- ------------- -------------- Net Expenses 370,323 182,110 405,519 ------------- ------------- -------------- NET INVESTMENT INCOME (LOSS) (276,160) (121,719) 14,859 ------------- ------------- -------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized gain from: Securities (7,228,884) 610,601 4,369,742 Foreign currency transactions -- -- -- ------------- ------------- -------------- Net realized gain (loss) (7,228,884) 610,601 4,369,742 ------------- ------------- -------------- Change in unrealized appreciation (depreciation) of: Investments (5,078,742) (3,512,420) (3,524,318) Other assets and liabilities denominated in foreign currencies -- -- -- ------------- ------------- -------------- Net unrealized appreciation (depreciation) (5,078,742) (3,512,420) (3,524,318) ------------- ------------- -------------- NET GAIN (LOSS) ON INVESTMENTS (12,307,626) (2,901,819) 845,424 ------------- ------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (12,583,786) $ (3,023,538) $ 860,283 ============= ============= ============== * Foreign taxes withheld $ -- $ -- $ -- ------------- ------------- -------------- U.S. SYSTEMATIC U.S. SYSTEMATIC U.S. LARGE CAP LARGE CAP MID CAP VALUE GROWTH GROWTH INVESTMENT INCOME Dividends, net of foreign taxes* $ 205,470 $ 74,678 $ 80,518 Interest 96 817 92,607 -------------- --------------- --------------- Total Income 205,566 75,495 173,125 -------------- --------------- --------------- EXPENSES Advisory fees 47,666 29,483 55,257 Accounting and administration fees 15,024 13,521 15,731 Custodian fees 12,188 12,693 16,049 Transfer agent fees and expenses 11,729 11,559 12,372 Shareholder servicing fees 23,960 22,104 7,368 Administrative services fees 12,711 9,828 6,447 Professional fees 5,710 4,048 7,929 Shareholder reporting 4,634 3,584 5,953 Registration fees 10,230 8,955 8,648 Trustees' fees and expenses 1,340 867 1,717 Interest and credit facility fee 210 214 397 Insurance 1,444 1,570 3,241 Miscellaneous 1,921 1,524 2,229 -------------- --------------- --------------- Total Expenses 148,767 119,950 143,338 Expense offset (6,047) (13,738) (25,405) Expenses (reimbursed)/recouped (52,055) (33,594) (28,863) -------------- --------------- --------------- Net Expenses 90,665 72,618 89,070 -------------- --------------- --------------- NET INVESTMENT INCOME (LOSS) 114,901 2,877 84,055 -------------- --------------- --------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized gain from: Securities 793,613 1,333,709 4,229,610 Foreign currency transactions -- -- -- -------------- --------------- --------------- Net realized gain (loss) 793,613 1,333,709 4,229,610 -------------- --------------- --------------- Change in unrealized appreciation (depreciation) of: Investments (590,703) (1,741,900) (4,936,803) Other assets and liabilities denominated in foreign currencies -- -- -- -------------- --------------- --------------- Net unrealized appreciation (depreciation) (590,703) (1,741,900) (4,936,803) -------------- --------------- --------------- NET GAIN (LOSS) ON INVESTMENTS 202,910 (408,191) (707,193) -------------- --------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 317,811 $ (405,314) $ (623,138) ============== =============== =============== * Foreign taxes withheld $ -- $ -- $ -- -------------- --------------- ---------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 94
U.S. SYSTEMATIC GLOBAL INTERNATIONAL SMID GROWTH U.S. CONVERTIBLE SELECT GROWTH INVESTMENT INCOME Dividends, net of foreign taxes* $ 23,032 $ 305,366 $ 641,239 $ 1,177,583 Interest 179 273,043 630 5,433 --------------- ---------------- ------------- ------------- Total Income 23,211 578,409 641,869 1,183,016 --------------- ---------------- ------------- ------------- EXPENSES Advisory fees 17,581 126,080 362,367 276,465 Accounting and administration fees 2,124 23,702 46,075 46,118 Custodian fees 6,818 12,807 57,895 104,583 Transfer agent fees and expenses 10,185 13,290 19,732 18,278 Shareholder servicing fees 2,512 22,924 35,979 98,820 Administrative services fees 2,512 22,924 33,277 91,682 Professional fees 973 13,101 30,263 32,461 Shareholder reporting 600 9,800 22,373 25,986 Registration fees 1,962 2,597 6,613 9,920 Trustees' fees and expenses 168 2,716 6,189 7,116 Interest and credit facility fee 26 414 984 1,193 Insurance 477 3,241 6,400 9,599 Miscellaneous 941 3,096 5,988 6,946 --------------- ---------------- ------------- ------------- Total Expenses 46,879 256,692 634,135 729,167 Expense offset (5,328) (26,314) (93,718) (184,545) Expenses (reimbursed)/recouped (12,649) (22,297) (565) (35,863) --------------- ---------------- ------------- ------------- Net Expenses 28,902 208,081 539,852 508,759 --------------- ---------------- ------------- ------------- NET INVESTMENT INCOME (LOSS) (5,691) 370,328 102,017 674,257 --------------- ---------------- ------------- ------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized gain from: Securities (294,700) 592,641 2,042,353 6,856,412 Foreign currency transactions -- -- (99,812) (339,882) --------------- ---------------- ------------- ------------- Net realized gain (loss) (294,700) 592,641 1,942,541 6,516,530 --------------- ---------------- ------------- ------------- Change in unrealized appreciation (depreciation) of: Investments 62,202 (1,788,402) (5,426,987) (13,205,671) Other assets and liabilities denominated in foreign currencies -- -- (3,612) (14,651) --------------- ---------------- ------------- ------------- Net unrealized appreciation (depreciation) 62,202 (1,788,402) (5,430,599) (13,220,322) --------------- ---------------- ------------- ------------- NET GAIN (LOSS) ON INVESTMENTS (232,498) (1,195,761) (3,488,058) (6,703,792) --------------- ---------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (238,189) $ (825,433) $ (3,386,041) $ (6,029,535) =============== ================ ============= ============= * Foreign taxes withheld $ -- $ -- $ 63,596 $ 166,889 --------------- ---------------- ------------- ------------- INTERNATIONAL EMERGING GROWTH EMERGING MARKETS U.S. HIGH YIELD OPPORTUNITIES COUNTRIES OPPORTUNITIES BOND INVESTMENT INCOME Dividends, net of foreign taxes* $ 1,217,536 $ 967,938 $ 65,137 $ -- Interest 445 60 542 7,862,816 ------------- ------------- ---------------- --------------- Total Income 1,217,981 967,998 65,679 7,862,816 ------------- ------------- ---------------- --------------- EXPENSES Advisory fees 358,549 276,898 23,645 350,164 Accounting and administration fees 44,304 33,580 1,904 79,923 Custodian fees 105,448 76,066 33,694 20,617 Transfer agent fees and expenses 16,697 14,494 7,235 20,074 Shareholder servicing fees 57,534 48,710 5,254 66,089 Administrative services fees 54,778 46,361 5,254 58,649 Professional fees 33,556 22,674 1,626 44,436 Shareholder reporting 21,874 13,951 1,253 34,826 Registration fees 5,755 4,906 4,956 7,368 Trustees' fees and expenses 6,202 3,801 459 9,856 Interest and credit facility fee 867 644 136 1,534 Insurance 6,780 3,884 -- 11,492 Miscellaneous 6,177 4,480 386 8,898 ------------- ------------- ---------------- --------------- Total Expenses 718,521 550,449 85,802 713,926 Expense offset (124,299) (83,445) (1,264) (24,218) Expenses (reimbursed)/recouped -- (28,732) (39,690) (168,932) ------------- ------------- ---------------- --------------- Net Expenses 594,222 438,272 44,848 520,776 ------------- ------------- ---------------- --------------- NET INVESTMENT INCOME (LOSS) 623,759 529,726 20,831 7,342,040 ------------- ------------- ---------------- --------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized gain from: Securities 9,646,285 4,066,037 (6,021) (233,429) Foreign currency transactions (212,760) (23,784) (15,735) -- ------------- ------------- ---------------- --------------- Net realized gain (loss) 9,433,525 4,042,253 (21,756) (233,429) ------------- ------------- ---------------- --------------- Change in unrealized appreciation (depreciation) of: Investments (11,308,126) (10,116,334) 540,902 (1,085,520) Other assets and liabilities denominated in foreign currencies (41,029) (16,495) 619 -- ------------- ------------- ---------------- --------------- Net unrealized appreciation (depreciation) (11,349,155) (10,132,829) 541,521 (1,085,520) ------------- ------------- ---------------- --------------- NET GAIN (LOSS) ON INVESTMENTS (1,915,630) (6,090,576) 519,765 (1,318,949) ------------- ------------- ---------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (1,291,871) $ (5,560,850) $ 540,596 $ 6,023,091 ============= ============= ================ =============== * Foreign taxes withheld $ 115,249 $ 116,500 $ 8,701 $ -- ------------- ------------- ---------------- ---------------
95 NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS STATEMENTS OF CHANGES IN NET ASSETS PERIODS ENDED SEPTEMBER 30, 2004 AND MARCH 31, 2004
U.S. MINI CAP GROWTH U.S. EMERGING GROWTH ---------------------------------------------------------------------------- SEPTEMBER 30, SEPTEMBER 30, 2004 MARCH 31, 2004 MARCH 31, (UNAUDITED) 2004 (UNAUDITED) 2004 ---------------- ---------------- ---------------- ---------------- INCREASE (DECREASE) IN NET ASSETS FROM INVESTMENT OPERATIONS: Net investment income (loss) $ (276,160) $ (831,019) $ (121,719) $ (456,250) Net realized gain (loss) (7,228,884) 37,785,454 610,601 10,945,194 Net unrealized appreciation (depreciation) (5,078,742) 7,991,605 (3,512,420) 7,023,694 ---------------- ---------------- ---------------- ---------------- Net increase (decrease) in net assets from investment operations (12,583,786) 44,946,040 (3,023,538) 17,512,638 ---------------- ---------------- ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income -- -- -- -- From net realized gains -- -- -- -- ---------------- ---------------- ---------------- ---------------- Total distributions -- -- -- -- ---------------- ---------------- ---------------- ---------------- FROM CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold Class I 28,859,140 54,475,831 894,498 11,253,913 Class R -- -- 333,585 1,179,622 Distributions reinvested Class I -- -- -- -- Class R -- -- -- -- Cost of shares redeemed Class I (21,367,709) (66,169,978) (11,251,729) (32,008,789) Class R -- -- (328,408) (1,529,721) ---------------- ---------------- ---------------- ---------------- Net increase (decrease) in net assets from share transactions 7,491,431 (11,694,147) (10,352,054) (21,104,975) ---------------- ---------------- ---------------- ---------------- Net Increase (Decrease) in Net Assets (5,092,355) 33,251,893 (13,375,592) (3,592,337) NET ASSETS Beginning 68,876,491 35,624,598 36,042,800 39,635,137 ---------------- ---------------- ---------------- ---------------- Ending $ 63,784,136 $ 68,876,491 $ 22,667,208 $ 36,042,800 ================ ================ ================ ================ Undistributed net investment income (loss), ending $ (276,160) $ -- $ (121,719) $ -- ================ ================ ================ ================ CLASS I -- CAPITAL SHARE ACTIVITY Shares sold 1,997,155 5,105,054 101,075 1,534,091 Distributions reinvested -- -- -- -- Shares redeemed (1,579,295) (5,202,821) (1,314,313) (4,012,939) ---------------- ---------------- ---------------- ---------------- Net Class I Share Activity 417,860 (97,767) (1,213,238) (2,478,848) ================ ================ ================ ================ CLASS R -- CAPITAL SHARE ACTIVITY Shares sold -- -- 36,425 139,728 Distributions reinvested -- -- -- -- Shares redeemed -- -- (36,663) (183,884) ================ ================ ================ ================ Net Class R Share Activity -- -- (238) (44,156) ================ ================ ================ ================ U.S. SMALL CAP VALUE ------------------------------------ SEPTEMBER 30, 2004 MARCH 31, (UNAUDITED) 2004 ---------------- ---------------- INCREASE (DECREASE) IN NET ASSETS FROM INVESTMENT OPERATIONS: Net investment income (loss) $ 14,859 $ 79,718 Net realized gain (loss) 4,369,742 6,083,730 Net unrealized appreciation (depreciation) (3,524,318) 15,123,825 ---------------- ---------------- Net increase (decrease) in net assets from investment operations 860,283 21,287,273 ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income -- (58,291) From net realized gains -- (1,558,819) ---------------- ---------------- Total distributions -- (1,617,110) ---------------- ---------------- FROM CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold Class I 31,818,545 38,131,382 Class R -- -- Distributions reinvested Class I -- 1,473,567 Class R -- -- Cost of shares redeemed Class I (35,262,199) (4,463,749) Class R -- -- ---------------- ---------------- Net increase (decrease) in net assets from share transactions (3,443,654) 35,141,200 ---------------- ---------------- Net Increase (Decrease) in Net Assets (2,583,371) 54,811,363 NET ASSETS Beginning 65,791,264 10,979,901 ---------------- ---------------- Ending $ 63,207,893 $ 65,791,264 ================ ================ Undistributed net investment income (loss), ending $ 70,045 $ 55,186 ================ ================ CLASS I -- CAPITAL SHARE ACTIVITY Shares sold 1,840,362 2,859,617 Distributions reinvested -- 93,264 Shares redeemed (2,039,168) (295,642) ---------------- ---------------- Net Class I Share Activity (198,806) 2,657,239 ================ ================ CLASS R -- CAPITAL SHARE ACTIVITY Shares sold -- -- Distributions reinvested -- -- Shares redeemed -- -- ================ ================ Net Class R Share Activity -- -- ================ ================
(1) Commenced operations on 2/27/04. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 96
U.S. LARGE CAP VALUE U.S. SYSTEMATIC LARGE CAP GROWTH ---------------------------------------------------------------------------- SEPTEMBER 30, SEPTEMBER 30, 2004 MARCH 31, 2004 MARCH 31, (UNAUDITED) 2004 (UNAUDITED) 2004 ---------------- ---------------- ---------------- ---------------- INCREASE (DECREASE) IN NET ASSETS FROM INVESTMENT OPERATIONS: Net investment income (loss) $ 114,901 $ 308,286 $ 2,877 $ (63,463) Net realized gain (loss) 793,613 2,036,857 1,333,709 3,077,381 Net unrealized appreciation (depreciation) (590,703) 6,130,411 (1,741,900) 1,280,165 ---------------- ---------------- ---------------- ---------------- Net increase (decrease) in net assets from investment operations 317,811 8,475,554 (405,314) 4,294,083 ---------------- ---------------- ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income -- (518,008) -- -- From net realized gains -- -- -- -- ---------------- ---------------- ---------------- ---------------- Total distributions -- (518,008) -- -- ---------------- ---------------- ---------------- ---------------- FROM CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold Class I 2,546,228 7,248,568 138,750 1,400,861 Class R 268,520 970,722 384,151 1,503,639 Distributions reinvested Class I -- 336,468 -- -- Class R -- 181,381 -- -- Cost of shares redeemed Class I (1,105,655) (28,279,823) (389,441) (18,861,142) Class R (577,330) (1,774,921) (816,718) (1,969,935) ---------------- ---------------- ---------------- ---------------- Net increase (decrease) in net assets from share transactions 1,131,763 (21,317,605) (683,258) (17,926,577) ---------------- ---------------- ---------------- ---------------- Net Increase (Decrease) in Net Assets 1,449,574 (13,360,059) (1,088,572) (13,632,494) NET ASSETS Beginning 21,048,487 34,408,546 13,747,061 27,379,555 ---------------- ---------------- ---------------- ---------------- Ending $ 22,498,061 $ 21,048,487 $ 12,658,489 $ 13,747,061 ================ ================ ================ ================ Undistributed net investment income (loss), ending $ 423,187 $ 308,286 $ 2,877 $ -- ================ ================ ================ ================ CLASS I -- CAPITAL SHARE ACTIVITY Shares sold 105,640 316,713 9,293 97,300 Distributions reinvested -- 15,061 -- -- Shares redeemed (45,506) (1,333,258) (25,986) (1,304,016) ---------------- ---------------- ---------------- ---------------- Net Class I Share Activity 60,134 (1,001,484) (16,693) (1,206,716) ================ ================ ================ ================ CLASS R -- CAPITAL SHARE ACTIVITY Shares sold 11,098 44,394 26,081 104,959 Distributions reinvested -- 8,137 -- -- Shares redeemed (23,703) (78,872) (55,214) (136,216) ================ ================ ================ ================ Net Class R Share Activity (12,605) (26,341) (29,133) (31,257) ================ ================ ================ ================ U.S. SYSTEMATIC MID CAP GROWTH U.S. SYSTEMATIC SMID GROWTH (1) ---------------------------------------------------------------------------- SEPTEMBER 30, SEPTEMBER 30, 2004 MARCH 31, 2004 MARCH 31, (UNAUDITED) 2004 (UNAUDITED) 2004 ---------------- ---------------- ---------------- ---------------- INCREASE (DECREASE) IN NET ASSETS FROM INVESTMENT OPERATIONS: Net investment income (loss) $ 84,055 $ (125,284) $ (5,691) $ (1,283) Net realized gain (loss) 4,229,610 10,589,305 (294,700) (4,225) Net unrealized appreciation (depreciation) (4,936,803) 1,670,436 62,202 19,363 ---------------- ---------------- ---------------- ---------------- Net increase (decrease) in net assets from investment operations (623,138) 12,134,457 (238,189) 13,855 ---------------- ---------------- ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income -- -- -- -- From net realized gains -- -- -- -- ---------------- ---------------- ---------------- ---------------- Total distributions -- -- -- -- ---------------- ---------------- ---------------- ---------------- FROM CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold Class I 577,011 3,124,845 11,076 5,333,451 Class R -- 41 -- -- Distributions reinvested Class I -- -- -- -- Class R -- -- -- -- Cost of shares redeemed Class I (18,449,524) (27,596,227) (218,124) -- Class R -- (4,185) -- -- ---------------- ---------------- ---------------- ---------------- Net increase (decrease) in net assets from share transactions (17,872,513) (24,475,526) (207,048) 5,333,451 ---------------- ---------------- ---------------- ---------------- Net Increase (Decrease) in Net Assets (18,495,651) (12,341,069) (445,237) 5,347,306 NET ASSETS Beginning 29,746,571 42,087,640 5,347,306 -- ---------------- ---------------- ---------------- ---------------- Ending $ 11,250,920 $ 29,746,571 $ 4,902,069 $ 5,347,306 ================ ================ ================ ================ Undistributed net investment income (loss), ending $ 84,055 $ -- $ (5,691) $ -- ================ ================ ================ ================ CLASS I -- CAPITAL SHARE ACTIVITY Shares sold 58,659 340,353 1,194 540,645 Distributions reinvested -- -- -- -- Shares redeemed (1,806,842) (2,777,862) (25,244) -- ---------------- ---------------- ---------------- ---------------- Net Class I Share Activity (1,748,183) (2,437,509) (24,050) 540,645 ================ ================ ================ ================ CLASS R -- CAPITAL SHARE ACTIVITY Shares sold -- 4 -- -- Distributions reinvested -- -- -- -- Shares redeemed -- (467) -- -- ================ ================ ================ ================ Net Class R Share Activity -- (463) -- -- ================ ================ ================ ================
97
U.S. CONVERTIBLE GLOBAL SELECT ------------------------------------------------------------- SEPTEMBER 30, SEPTEMBER 30, 2004 MARCH 31, 2004 MARCH 31, (UNAUDITED) 2004 (UNAUDITED) 2004 ------------- ------------- ------------- ------------- INCREASE (DECREASE) IN NET ASSETS FROM INVESTMENT OPERATIONS: Net investment income (loss) $ 370,328 $ 1,217,667 $ 102,017 $ (51,745) Net realized gain (loss) 592,641 4,847,891 1,942,541 21,638,336 Net unrealized appreciation (depreciation) (1,788,402) 7,377,158 (5,430,599) 15,004,322 ------------- ------------- ------------- ------------- Net increase (decrease) in net assets from investment operations (825,433) 13,442,716 (3,386,041) 36,590,913 ------------- ------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income (428,168) (1,328,041) -- -- From net realized gains -- -- -- -- ------------- ------------- ------------- ------------- Total distributions (428,168) (1,328,041) -- -- ------------- ------------- ------------- ------------- FROM CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold Class I 103,592 13,773,947 5,702,539 30,115,574 Class II -- -- 25,948,526 29,015,479 Class III -- -- -- -- Class IV -- -- -- -- Class R -- -- -- -- Distributions reinvested Class I 358,464 1,094,960 -- -- Class II -- -- -- -- Class III -- -- -- -- Class IV -- -- -- -- Class R -- -- -- -- Cost of shares redeemed Class I (9,478,133) (21,782,247) (27,845,947) (51,140,124) Class II -- -- (12,232) (213,688) Class III -- -- -- -- Class IV -- -- -- -- Class R -- -- -- -- ------------- ------------- ------------- ------------- Net increase (decrease) in net assets from share transactions (9,016,077) (6,913,340) 3,792,886 7,777,241 ------------- ------------- ------------- ------------- Net Increase (Decrease) in Net Assets (10,269,678) 5,201,335 406,845 44,368,154 NET ASSETS Beginning 50,102,806 44,901,471 114,143,888 69,775,734 ------------- ------------- ------------- ------------- Ending $ 39,833,128 $ 50,102,806 $ 114,550,733 $ 114,143,888 ============= ============= ============= ============= Undistributed net investment income (loss), ending $ (57,500) $ 340 $ (38,294) $ (140,311) ============= ============= ============= ============= INTERNATIONAL GROWTH ----------------------------- SEPTEMBER 30, 2004 MARCH 31, (UNAUDITED) 2004 ------------- ------------- INCREASE (DECREASE) IN NET ASSETS FROM INVESTMENT OPERATIONS: Net investment income (loss) $ 674,257 $ 1,027,876 Net realized gain (loss) 6,516,530 23,403,242 Net unrealized appreciation (depreciation) (13,220,322) 22,572,455 ------------- ------------- Net increase (decrease) in net assets from investment operations (6,029,535) 47,003,573 ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income -- (484,596) From net realized gains -- -- ------------- ------------- Total distributions -- (484,596) ------------- ------------- FROM CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold Class I 1,864,494 25,196,139 Class II -- 34,143,763 Class III -- 36,914,124 Class IV -- 19,914,459 Class R 288,598 1,493,312 Distributions reinvested Class I -- 102,636 Class II -- 145,987 Class III -- 152,119 Class IV -- 81,263 Class R -- 2,197 Cost of shares redeemed Class I (7,794,876) (87,368,940) Class II (15,352,688) (25,552,940) Class III -- (7,096,631) Class IV (30,722) (42,831) Class R (7,479,822) (3,483,853) ------------- ------------- Net increase (decrease) in net assets from share transactions (28,505,016) (5,399,196) ------------- ------------- Net Increase (Decrease) in Net Assets (34,534,551) 41,119,781 NET ASSETS Beginning 136,993,242 95,873,461 ------------- ------------- Ending $ 102,458,691 $ 136,993,242 ============= ============= Undistributed net investment income (loss), ending $ 657,836 $ (16,421) ============= =============
- ---------- (1) Fund commenced operations on 5/28/04. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 98
INTERNATIONAL GROWTH OPPORTUNITIES EMERGING COUNTRIES --------------------------------------------------------------------- SEPTEMBER 30, SEPTEMBER 30, 2004 MARCH 31, 2004 MARCH 31, (UNAUDITED) 2004 (UNAUDITED) 2004 ----------------- ----------------- ------------- ------------- INCREASE (DECREASE) IN NET ASSETS FROM INVESTMENT OPERATIONS: Net investment income (loss) $ 623,759 $ 677,805 $ 529,726 $ 721,176 Net realized gain (loss) 9,433,525 18,676,597 4,042,253 9,755,600 Net unrealized appreciation (depreciation) (11,349,155) 27,083,117 (10,132,829) 22,321,238 ----------------- ----------------- ------------- ------------- Net increase (decrease) in net assets from investment operations (1,291,871) 46,437,519 (5,560,850) 32,798,014 ----------------- ----------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income -- -- -- -- From net realized gains -- -- -- -- ----------------- ----------------- ------------- ------------- Total distributions -- -- -- -- ----------------- ----------------- ------------- ------------- FROM CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold Class I 2,255,481 24,025,571 4,262,756 18,773,501 Class II 23,700 47,089,441 67,003 43,525,917 Class III -- -- -- -- Class IV -- -- -- -- Class R -- -- -- -- Distributions reinvested Class I -- -- -- -- Class II -- -- -- -- Class III -- -- -- -- Class IV -- -- -- -- Class R -- -- -- -- Cost of shares redeemed Class I (12,644,567) (68,433,518) (4,629,377) (71,487,521) Class II (13,628,916) (60,135) (99,287) (669,828) Class III -- -- -- -- Class IV -- -- -- -- Class R -- -- -- -- ----------------- ----------------- ------------- ------------- Net increase (decrease) in net assets from share transactions (23,994,302) 2,621,359 (398,905) (9,857,931) ----------------- ----------------- ------------- ------------- Net Increase (Decrease) in Net Assets (25,286,173) 49,058,878 (5,959,755) 22,940,083 NET ASSETS Beginning 114,409,690 65,350,812 72,466,372 49,526,289 ----------------- ----------------- ------------- ------------- Ending $ 89,123,517 $ 114,409,690 $ 66,506,617 $ 72,466,372 ================= ================= ============= ============= Undistributed net investment income (loss), ending $ 868,202 $ 244,443 $ 1,151,074 $ 621,348 ================= ================= ============= ============= EMERGING MARKETS OPPORTUNITIES (1) U.S. HIGH YIELD BOND --------------------------------------------------------------------- SEPTEMBER 30, SEPTEMBER 30, 2004 MARCH 31, 2004 MARCH 31, (UNAUDITED) 2004 (UNAUDITED) 2004 ----------------- ----------------- ------------- ------------- INCREASE (DECREASE) IN NET ASSETS FROM INVESTMENT OPERATIONS: Net investment income (loss) $ 20,831 $ -- $ 7,342,040 $ 13,227,071 Net realized gain (loss) (21,756) -- (233,429) 5,562,753 Net unrealized appreciation (depreciation) 541,521 -- (1,085,520) 5,159,984 ----------------- ----------------- ------------- ------------- Net increase (decrease) in net assets from investment operations 540,596 -- 6,023,091 23,949,808 ----------------- ----------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income -- -- (7,303,977) (13,664,562) From net realized gains -- -- -- -- ----------------- ----------------- ------------- ------------- Total distributions -- -- (7,303,977) (13,664,562) ----------------- ----------------- ------------- ------------- FROM CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold Class I 8,301,390 -- 60,383,152 30,593,692 Class II -- -- 14,692 70,435,949 Class III -- -- -- -- Class IV -- -- -- -- Class R -- -- -- -- Distributions reinvested Class I -- -- 5,559,567 8,139,916 Class II -- -- -- 2,972,685 Class III -- -- -- -- Class IV -- -- -- -- Class R -- -- -- -- Cost of shares redeemed Class I (60) -- (8,849,225) (65,318,322) Class II -- -- (42,847,995) (6,230,020) Class III -- -- -- -- Class IV -- -- -- -- Class R -- -- -- -- ----------------- ----------------- ------------- ------------- Net increase (decrease) in net assets from share transactions 8,301,330 -- 14,260,191 40,593,900 ----------------- ----------------- ------------- ------------- Net Increase (Decrease) in Net Assets 8,841,926 -- 12,979,305 50,879,146 NET ASSETS Beginning -- -- 171,061,287 120,182,141 ----------------- ----------------- ------------- ------------- Ending $ 8,841,926 $ -- $ 184,040,592 $ 171,061,287 ================= ================= ============= ============= Undistributed net investment income (loss), ending $ 20,831 $ -- $ 182,235 $ 144,172 ================= ================= ============= =============
99
U.S. CONVERTIBLE GLOBAL SELECT ---------------------------------------------------- SEPTEMBER 30, SEPTEMBER 30, 2004 MARCH 31, 2004 MARCH 31, (UNAUDITED) 2004 (UNAUDITED) 2004 ------------- ---------- ------------- ---------- CLASS I -- CAPITAL SHARE ACTIVITY Shares sold 4,537 670,048 388,167 2,241,701 Distributions reinvested 15,761 52,280 -- -- Shares redeemed (427,920) (1,088,105) (1,786,889) (4,015,500) ------------- ---------- ------------- ---------- Net Class I Share Activity (407,622) (365,777) (1,398,722) (1,773,799) ============= ========== ============= ========== CLASS II -- CAPITAL SHARE ACTIVITY Shares sold -- -- 1,656,512 2,314,351 Distributions reinvested -- -- -- -- Shares redeemed -- -- (802) (15,142) ============= ========== ============= ========== Net Class II Share Activity -- -- 1,655,710 2,299,209 ============= ========== ============= ========== 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 -- -- -- -- ============= ========== ============= ========== INTERNATIONAL GROWTH -------------------------- SEPTEMBER 30, 2004 MARCH 31, (UNAUDITED) 2004 ------------- ---------- CLASS I -- CAPITAL SHARE ACTIVITY Shares sold 106,739 1,541,651 Distributions reinvested -- 6,030 Shares redeemed (429,745) (5,715,622) ------------- ---------- Net Class I Share Activity (323,006) (4,167,941) ============= ========== CLASS II -- CAPITAL SHARE ACTIVITY Shares sold -- 2,225,984 Distributions reinvested -- 8,587 Shares redeemed (825,784) (1,408,787) ============= ========== Net Class II Share Activity (825,784) 825,784 ============= ========== CLASS III -- CAPITAL SHARE ACTIVITY Shares sold -- 2,315,001 Distributions reinvested -- 8,943 Shares redeemed -- (395,136) ============= ========== Net Class III Share Activity -- 1,928,808 ============= ========== CLASS IV -- CAPITAL SHARE ACTIVITY Shares sold -- 1,238,937 Distributions reinvested -- 4,777 Shares redeemed (1,589) (2,515) ============= ========== Net Class IV Share Activity (1,589) 1,241,199 ============= ========== CLASS R -- CAPITAL SHARE ACTIVITY Shares sold 15,612 90,775 Distributions reinvested -- 130 Shares redeemed (411,568) (219,722) ============= ========== Net Class R Share Activity (395,956) (128,817) ============= ==========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 100
INTERNATIONAL GROWTH OPPORTUNITIES ---------------------------------- SEPTEMBER 30, 2004 MARCH 31, (UNAUDITED) 2004 ------------- ---------- CLASS I -- CAPITAL SHARE ACTIVITY Shares sold 78,871 1,090,972 Distributions reinvested -- -- Shares redeemed (440,504) (3,013,366) ------------- ---------- Net Class I Share Activity (361,633) (1,922,394) ============= ========== CLASS II -- CAPITAL SHARE ACTIVITY Shares sold 810 2,051,592 Distributions reinvested -- -- Shares redeemed (487,517) (2,321) ============= ========== Net Class II Share Activity (486,707) 2,049,271 ============= ========== 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 -- -- ============= ========== EMERGING COUNTRIES EMERGING MARKETS OPPORTUNITIES U.S. HIGH YIELD BOND ------------------------------------------------------------------------------------ SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 2004 MARCH 31, 2004 MARCH 31, 2004 MARCH 31, (UNAUDITED) 2004 (UNAUDITED) 2004 (UNAUDITED) 2004 ------------- ---------- ------------- ---------- ------------- ---------- CLASS I -- CAPITAL SHARE ACTIVITY Shares sold 284,625 1,452,218 826,567 -- 5,861,643 3,014,621 Distributions reinvested -- -- -- -- 547,712 795,718 Shares redeemed (326,486) (5,914,453) (5) -- (870,427) (6,392,009) ------------- ---------- ------------- ---------- ------------- ---------- Net Class I Share Activity (41,861) (4,462,235) 826,562 -- 5,538,928 (2,581,670) ============= ========== ============= ========== ============= ========== CLASS II -- CAPITAL SHARE ACTIVITY Shares sold 4,528 3,287,650 -- -- 1,437 6,980,951 Distributions reinvested -- -- -- -- -- 288,626 Shares redeemed (6,957) (45,349) -- -- (4,143,907) (591,889) ============= ========== ============= ========== ============= ========== Net Class II Share Activity (2,429) 3,242,301 -- -- (4,142,470) 6,677,688 ============= ========== ============= ========== ============= ========== 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 -- -- -- -- -- -- ============= ========== ============= ========== ============= ==========
101 NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS -- (UNAUDITED) 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"), five 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 four Funds have issued Retirement shares ("Class R"). No shares have a sales charge. Class R shares have a distribution fee. All Funds have a shareholder services fee. The Funds offering Class I, Class II, Class III and Class IV shares are covered in this report. The International Systematic Fund changed its year end to June 30 and is not covered in this report. On April 19, 2004 the names of the following Funds were changed to more accurately reflect their investment policies.
OLD NEW - --- --- U.S. Large Cap Select U.S. Systematic Large Cap Growth Growth U.S. Equity Growth U.S. Systematic Mid Cap 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 bid 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. 102 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 September 30, 2004. 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 September 30, 2004. 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 103 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 September 30, 2004 were:
FUND MARKET VALUE COLLATERAL ---- ------------ ---------- U.S. Mini Cap Growth $ 21,661,415 $ 22,304,175 U.S. Emerging Growth 6,193,629 6,364,875 U.S. Small Cap Value 3,811,980 3,937,825 U.S. Systematic Mid Cap Growth 728,562 753,475 U.S. Convertible 25,650 26,250 Global Select 9,113,496 9,419,695 International Growth 5,207,047 5,449,918 International Growth Opportunities 3,642,835 3,836,561
CREDIT FACILITY The Trust has a $15 million credit facility available to fund temporary or emergency borrowing expiring in January 2005. Each Fund pays its pro-rata share of an annual commitment fee plus interest on its specific borrowings. For the period ended September 30, 2004, 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 result of uninvested cash balances were used to reduce the Funds expenses. During the period, the credits used to reduce the Funds expenses were:
CREDIT DIRECT SECURITY INTEREST BROKERAGE LENDING FUND OFFSET OFFSET OFFSET ---- -------- --------- -------- U.S. Mini Cap Growth $ 3,358 $ 129,800 $ 61,136 U.S. Emerging Growth 1,788 23,885 26,445 U.S. Small Cap Value 7,718 18,320 8,770 U.S. Large Cap Value 2,427 3,620 -- U.S. Systematic Large Cap Growth 304 12,690 744 U.S. Systematic Mid Cap Growth 1,709 16,170 7,526 U.S. Systematic SMID Growth 388 4,940 -- U.S. Convertible 4,440 165 21,709 Global Select 6,930 62,035 24,753 International Growth 8,329 122,525 53,691 International Growth Opportunities 6,818 48,130 69,351 Emerging Countries 3,344 45,740 34,361 Emerging Markets Opportunities 1,264 -- -- U.S. High Yield Bond 24,218 -- --
104 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. NICHOLAS-APPLEGATE SOUTHEAST ASIA FUND, LTD. The International Growth Opportunities Fund and the Emerging Countries Fund may, when appropriate, invest in the Indian stock market through Nicholas-Applegate Southeast Asia Fund Ltd., a company organized under the laws of Mauritius (the "Mauritius Company"). The Investment Adviser has been advised by counsel that the Mauritius Company is entitled to Indian tax benefits afforded by a double taxation treaty between India and Mauritius, and believes the Mauritius Company is the most efficient means to invest in India. Each Fund holds a 100% interest in a separate class of securities issued by the Mauritius Company, represented by a separate, underlying portfolio of securities. The accounts of the Mauritius Company are reflected in the Fund using consolidation accounting principles. As of September 30, 2004 the Funds are no longer investing through the Mauritius Company. 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. NOTE D -- TRANSACTIONS WITH AFFILIATES The Investment Adviser receives the following annual fees payable monthly based on the average daily net assets of each Fund.
FUND ADVISORY FEE ---- ------------ U.S. Mini Cap Growth 1.00% U.S. Emerging Growth 0.75% U.S. Small Cap Value 0.75% U.S. Large Cap Value 0.45% U.S. Systematic Large Cap Growth 0.45% U.S. Systematic Mid Cap Growth 0.60% U.S. Systematic SMID Growth 0.70% U.S. Convertible 0.55% Global Select 0.65% International Growth 0.50% International Growth Opportunities 0.70% Emerging Countries 0.85% Emerging Markets Opportunities 0.90% U.S. High Yield Bond 0.40%
Pursuant to the Administrative Services agreement the Investment Adviser provides operational support services to the Funds and receives the following annual fees payable monthly based on average daily net assets of each Fund.
ADMINISTRATIVE SERVICES FEE ----------------------------------------- FUND CLASS I CLASS II CLASS III CLASS IV ---- ------- -------- --------- -------- U.S. Mini Cap Growth 0.12% U.S. Emerging Growth 0.12% U.S. Small Cap Value 0.12% U.S. Large Cap Value 0.12% U.S. Systematic Large Cap Growth 0.15% U.S. Systematic Mid Cap Growth 0.07% U.S. Systematic SMID Growth 0.10% U.S. Convertible 0.10% Global Select 0.07% 0.05% International Growth 0.25% 0.12% 0.05% International Growth Opportunities 0.15% 0.07% Emerging Countries 0.20% 0.12% Emerging Markets Opportunities 0.20% U.S. High Yield Bond 0.07% 0.05%
105 Pursuant to the Shareholder Services agreement the Investment Adviser provides account servicing to the Funds and receives the following annual fees payable monthly based on the average daily net assets of each Fund.
SHAREHOLDER SERVICES FEE ----------------------------------------- FUND CLASS I CLASS II CLASS III CLASS IV ---- ------- -------- --------- -------- U.S. Mini Cap Growth 0.13% U.S. Emerging Growth 0.13% U.S. Small Cap Value 0.13% U.S. Large Cap Value 0.13% U.S. Systematic Large Cap Growth 0.15% U.S. Systematic Mid Cap Growth 0.08% U.S. Systematic SMID Growth 0.10% U.S. Convertible 0.10% Global Select 0.08% 0.05% International Growth 0.25% 0.13% 0.05% International Growth Opportunities 0.15% 0.08% Emerging Countries 0.20% 0.13% Emerging Markets Opportunities 0.20% U.S. High Yield Bond 0.08% 0.05%
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 September 30, 2004. 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, brokerage and the expenses incurred from the operation of the Mauritius Company ) when they fall below the limit in the year such reimbursement is paid. 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.
CLASS I CLASS II CLASS III CLASS IV ------- -------- --------- -------- 4/1/04 4/1/03 4/1/03 4/1/03 TO TO TO TO FUND 9/30/04 9/30/04 9/30/04 9/30/04 ---- ------- -------- --------- -------- U.S. Mini Cap Growth 1.56% U.S. Emerging Growth 1.48% U.S. Small Cap Value 1.30% U.S. Large Cap Value 0.81% U.S. Systematic Large Cap Growth 1.12% U.S. Systematic Mid Cap Growth 1.23% U.S. Systematic SMID Growth 1.33% U.S. Convertible 1.02% Global Select 1.16% 1.11% International Growth 1.41% 1.16% 1.01% International Growth Opportunities 1.56% 1.41% Emerging Countries 1.65% 1.50% Emerging Market Opportunities 1.75% U.S. High Yield Bond 0.63% 0.58%
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. NOTE E -- INVESTMENT TRANSACTIONS The following table presents purchases and sales of securities, excluding short-term investments, during the period ended September 30, 2004 to indicate the volume of transactions in each Fund. The tax cost of securities held at September 30, 2004, 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. 106
NET GROSS GROSS UNREALIZED UNREALIZED UNREALIZED APPRECIATION PURCHASES SALES TAX COST APPRECIATION DEPRECIATION (DEPRECIATION) FUND (IN 000'S) (IN 000'S) (IN 000'S) (IN 000'S) (IN 000'S) (IN 000'S) ---- ---------- ---------- ---------- ------------ ------------ -------------- U.S. Mini Cap Growth $ 114,475 $ 106,880 $ 81,112 $ 6,453 $ (1,809) $ 4,644 U.S. Emerging Growth 22,435 33,006 25,752 3,731 (611) 3,120 U.S. Small Cap Value 31,656 33,394 55,009 12,685 (1,171) 11,514 U.S. Large Cap Value 3,517 2,822 19,208 3,770 (307) 3,463 U.S. Systematic Large Cap Growth 16,609 17,302 12,499 711 (528) 183 U.S. Systematic Mid Cap Growth 29,976 48,214 11,636 914 (594) 320 U.S. Systematic SMID Growth 3,002 3,277 4,818 454 (372) 82 U.S. Convertible 17,086 27,808 33,258 6,633 (145) 6,488 Global Select 86,358 82,376 112,750 13,403 (1,734) 11,669 International Growth 104,916 132,346 99,055 10,452 (2,232) 8,220 International Growth Opportunities 50,816 74,316 74,595 17,793 (2,415) 15,378 Emerging Countries 20,446 18,544 54,297 14,283 (2,623) 11,660 Emerging Markets Opportunities 10,248 1,896 8,291 930 (388) 542 U.S. High Yield Bond 94,899 83,820 176,094 8,822 (1,444) 7,378
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 Funds did not have any redemptions-in-kind. 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. NOTE G -- PROXY VOTING The Investment Adviser votes proxies on behalf of the Funds pursuant to written policies and procedures adopted by the Funds. To obtain free information on how your Funds' securities were voted, please call the Funds at 1-800-551-8043. You may also view how the Fund's securities were voted by visiting the Securities & Exchange Commission's website at www.sec.gov. NOTE H -- PORTFOLIO HOLDINGS The Funds provide a complete list of their holdings four times in each fiscal year, at each quarter-end. For the second and fourth quarters, the lists appear in the Funds' semiannual and annual reports to shareholders. For the first and third quarters, the Funds' file the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the Funds' Form N-Q on the SEC's website at www.sec.gov. Form N-Q may also be reviewed and copied at the SEC's Public Reference Room in Washington, DC. To find out more about this public service, call the SEC at 1-202-942-8090. 107 NOTE I -- CORPORATE GOVERNANCE (UNAUDITED)
NUMBER OF TERM OF PORTFOLIOS IN POSITION(S) OFFICE AND FUND COMPLEX NAME, ADDRESS (1) HELD WITH LENGTH OF TIME PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS AND AGE FUND SERVED (2) DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE - ------------------------ ----------- -------------- -------------------------------- ------------- ---------------------------- DISINTERESTED TRUSTEES: GEORGE F. KEANE (75) Chairman & Since August Investment Consultant and 14 Director, Bramwell Funds Trustee 2004 Director, (since 1994); (since 1994); Director, President Emeritus and founding Longview Oil & Gas (since Chief Executive Officer, The 2000); Director, Security Common Fund (1971-1993); and Capital U.S. Real Estate Endowment Advisors (1987-1999) (since 1997); Director, The (organizations that provide Universal Bond Fund (since investment management programs 1997); Director, Universal for colleges and universities) ; Stainless & Alloy Products Member, Investment Advisory Inc. (since 1994); Director, Committee, New York State Common United Water Services and Retirement Fund (since 1985). affiliated companies (1996-2000); Director, and former Chairman of the Board, Trigen Energy Corporation (1994-2000); Trustee, Nicholas-Applegate Mutual Funds (1994-1999). WALTER E. AUCH (83) Trustee Since May 1999 Retired; prior thereto, Chairman 14 Trustee, LLBS Funds (since and CEO of Chicago Board of 1994 and Brinson Options Exchange (1979-1986); Supplementary Trust (since Senior Executive Vice President 1997); Director, Thompson PaineWebber, Inc. 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).
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NUMBER OF TERM OF PORTFOLIOS IN POSITION(S) OFFICE AND FUND COMPLEX NAME, ADDRESS (1) HELD WITH LENGTH OF TIME PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS AND AGE FUND SERVED (2) DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE - ------------------------ ----------- -------------- -------------------------------- ------------- ---------------------------- DARLENE DEREMER (48) Trustee Since May 1999 Managing Director, Putnam Lovell 14 Founding Member and NBF Private Equity (Since 2004); Director, National Defined Managing Director, NewRiver Contribution Council (since E-Business Advisory Services 1997); Trustee, Boston Division (2000-2003); Prior to, Alzheimer's Association President and Founder, DeRemer (since 1998); Director, Associates, a strategic and King's Wood Montessori marketing consulting firm for School (since 1995); the financial services industry Editorial Board, National (1987-2003); Vice President and Association of Variable Director, Asset Management Annuities (since 1997); Division, State Street Bank and Director, Nicholas-Applegate Trust Company, now referred to Strategic Opportunities, as State Street Global Advisers, Ltd. (1994-1997); Trustee, (1982-1987); Vice President, T. Nicholas-Applegate Mutual Rowe Price & Associates Funds (1994-1999); Director, (1979-1982); Member, Boston Club Jurika & Voyles Fund Group (since 1998); Member, Financial (since 1994-2000); Director, Women's Association Advisory Nicholas-Applegate Southeast Board (since 1995); Founder, Asia Fund, Ltd. (since Mutual Fund Cafe Website. 2004). INTERESTED TRUSTEES: HORACIO A. VALEIRAS (45) President & Since August Managing Director (Since 2004) 14 Trustee, The Bishops School Trustee 2004 and Chief Investment Officer. (Since 2002); Trustee, San Nicholas-Applegate Capital Diego Rowing Club (Since Management, Nicholas-Applegate 2002). Securities (since 2002); Managing Director of Morgan Stanley Investment Management, London (1997-2002); Head of International Equity and Asset Allocation, Miller Anderson & Sherred; Director and Chief of International Strategies, Credit Suisse First Boston. OFFICERS: CHARLES H. FIELD, JR. Secretary Since May 2002 General Counsel, 14 NA (49) Nicholas-Applegate Capital Management, LLC (since 2004); Deputy General Counsel (1996-2004).
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NUMBER OF TERM OF PORTFOLIOS IN POSITION(S) OFFICE AND FUND COMPLEX NAME, ADDRESS (1) HELD WITH LENGTH OF TIME PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS AND AGE FUND SERVED (2) DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE - ------------------------ ----------- -------------- -------------------------------- ------------- ---------------------------- C. WILLIAM MAHER (43) Treasurer Since May 1999 Managing Director (since 2004) 14 NA and Chief Financial Officer, Nicholas-Applegate Capital Management, Nicholas-Applegate Securities, (Since 1998); Co-Managing Chief Financial Officer Nicholas-Applegate Holdings LLC (Since 2001). Formerly Chief Financial Officer, Mitchell Hutchins Asset Management, Inc. (1990-1998).
(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. 110 (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 Horacio A. Valeiras OFFICERS Horacio A. Valeiras, PRESIDENT Charles H. Field, Jr., SECRETARY C. William Maher, 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) LOGO] INSTITUTIONAL FUNDS 600 West Broadway San Diego, California 92101 800 - 551 - 8643 Nicholas-Applegate Securities, Distributor SEMIANN904INST [NICHOLAS APPLEGATE(R) INSTITUTIONAL FUNDS LOGO] SEMI-ANNUAL REPORT (UNAUDITED) CLASS R SHARES SEPTEMBER 30, 2004 LETTER TO SHAREHOLDERS DEAR FELLOW SHAREHOLDER, Following the impressive gains we reported to you for the twelve months ended March 31, 2004, equity markets worldwide paused between April 1 and September 30, 2004. Headwinds such as rising interest rates, high oil prices and geopolitical concerns eclipsed a generally favorable economic and corporate earnings environment. In this semi-annual report, we review the performance of the financial markets and our mutual funds over the past six months. We also share our perspective on the dynamics shaping the investment landscape and our outlook for the months ahead. In the United States, broad equity indices posted flat returns, including the S&P 500 Index, which rose 0.18%. Amid reasonable job growth and a mild pickup in inflation, the Federal Reserve began raising interest rates from 40-year lows, boosting the target funds rate by 0.25% on June 30. The U.S. economy hit a "soft patch" over the summer, given uncertainties surrounding the Fed's actions, the upcoming U.S. presidential election and tensions in Iraq. The central bank subsequently raised rates another 0.50%, however, and stated the economy appeared to have regained its footing. In developed markets overseas, the MSCI EAFE Index registered a 0.21% increase. Continental European economies have grown by only about 2% in the past year, reflected in lackluster equity performance in France, Germany and Switzerland. U.K. stocks fared better, where second-quarter GDP growth of 3.7% and double-digit house-price inflation have led the Bank of England to raise interest rates five times since November 2003. In Japan, equities traded lower as the country's economy hit a soft patch of its own, with a downward revision to second-quarter GDP that left growth at a tepid 0.3%. We believe Japan's recovery remains on track, however, as the Tankan survey of business confidence hit a 13-year high in September. After falling sharply in April and May, equities in developing countries staged a comeback that left them only modestly down for the six-month period. The MSCI Emerging Markets Index lost 2.10%, led by weakness in Asia where fears of a slowdown in the booming Chinese economy affected the entire region. In contrast, the MSCI EM Latin America Index rose 5.88%, as a surge in commodity prices benefited raw-materials producers, such as Brazil and Venezuela. After taking a breather in the second quarter of 2004, commodity prices resumed their rapid ascent of the past twelve months. The Commodity Research Bureau (CRB) Index rose 8% in the third quarter driven by a spike in oil prices, which touched $50 a barrel. Value stocks outperformed their growth counterparts around the world. As expected, value stocks have had a good run through this stage of the global economic recovery due to robust demand for basic materials and commodities, coupled with historically low interest rates. Recent signs point to weakening in traditional value sectors, however. For example, earnings growth of consumer staples companies is being challenged by their inability to pass higher input costs onto consumers. Of course, we believe current equity valuations make the strongest case for a return to growth: the difference between P/E ratios for growth stocks and value stocks is the narrowest it's been in a decade. In August, Nicholas-Applegate proudly celebrated our twentieth year in business and two decades of success in our U.S. Emerging Growth strategy, our flagship small-cap growth approach. Twenty years marks a coming of age in many societies, and we believe this holds true for our firm. We have experienced the highs and lows of the securities markets, yet maintain our tradition of innovation and creativity. Like Nicholas-Applegate, the asset management business has matured over the past few years, amid new mutual fund laws and other regulations governing our industry. Throughout, we have steadily invested in talent, systems and risk tools to enable us to do our best as stewards of your assets. We welcomed several highly qualified professionals to our U.S. and international investment teams during this six-month period. We also made a number of enhancements to our technology platform. For example, we implemented a new system designed to help ensure our continued compliance with applicable regulatory requirements. Looking forward, we are positive in our outlook for equity markets worldwide. Leading indicators in both the United States and Japan continue to point to healthy economic growth. Continental European economies remain sluggish, but we expect the European Central Bank to maintain rates at their present low level for some time. And while the pace of earnings growth has moderated, corporate profits are expected to increase at a robust clip over the coming quarters. We believe this type of environment is ideal for bottom-up security selection -- particularly for investing in companies where positive change is leading to increasing earnings estimates. We continue to search out those companies in all of our funds. On behalf of everyone at Nicholas-Applegate, thank you for your participation in the Nicholas-Applegate Institutional Funds. We appreciate the trust you have placed in us. Best Regards, /s/ Horacio A. Valeiras Horacio A. Valeiras, CFA President and Chief Investment Officer September 30, 2004 TABLE OF CONTENTS
PAGE The Funds' Review and Outlook, Performance and Schedule of Investments U.S. Emerging Growth 1 U.S. Large Cap Value 8 U.S. Systematic Large Cap Growth 13 International Growth 18 The Funds': Shareholder Expense Example 23 Financial Highlights 24 Statements of Assets and Liabilities 26 Statements of Operations 27 Statements of Changes in Net Assets 28 Notes to Financial Statements 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. (This page intentionally left blank) U.S. EMERGING GROWTH FUND MANAGEMENT TEAM: JOHN C. MCCRAW, Lead Portfolio Manager; TRAVIS T. PRENTICE, Portfolio Manager; K. MATHEW AXLINE, Investment Analyst; MICHAEL P. GIGGIE, Investment Analyst; MONTIE L. WEISENBERGER, Investment 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: Key barometers of the U.S. stock market posted disappointing results from April 1, 2004 through September 30, 2004. During the period, the S&P 500 Index slipped 0.18% and the tech-laden NASDAQ Composite lost 4.87%. Headwinds that had been in place most of the year dampened investor enthusiasm, such as: - Ongoing conflict in Iraq and concerns about terrorism - Higher interest rates, as the Federal Reserve raised the funds target by 75 basis points to 1.75% during the period - Price of oil rocketing toward $50 a barrel Signs that economic growth might be moderating also weighed on the market. For example, retail sales were weaker than expected during the back-to-school season, and gains in the job market continued but not at the robust pace seen in the spring. These influences tended to obscure favorable corporate fundamentals. Second quarter 2004 earnings for small-cap companies grew at approximately 40%, year-over-year, and expectations were for healthy growth in the third and fourth quarters. PERFORMANCE: From April 1, 2004 through September 30, 2004, the Fund's Class R shares posted a 7.14% decline. During the same period, the Russell 2000 Growth Index fell 5.93%. PORTFOLIO SPECIFICS: Holdings in the energy, industrials and materials sectors generated strong gains for the Fund. However, strength in these groups was unable to offset losses in the information technology and consumer discretionary sectors, which detracted from both absolute and relative returns. Versus the benchmark, performance was helped by stock selection in the consumer staples and health care sectors. An overweight in energy stocks was also beneficial. On the negative side, issue selection was unfavorable in the information technology sector, particularly in the Internet software and services industry. Issue selection was also weak among hotel, restaurant and leisure companies. Turning to individual stocks, top-performing holdings included Ceradyne, a maker of advanced technical ceramic products; Lone Star Technologies, a manufacturer of pipes for the oil and gas industry; and Coldwater Creek, a retailer of women's apparel. AtheroGenics, a biotechnology firm, was also a top performer. The company's stock price jumped after it reported positive test results for a drug designed to reverse hardening of the arteries. MARKET OUTLOOK: Recent developments, such as rising oil prices and weaker-than-expected economic data, have caused many companies to become more rationally valued in the marketplace. In addition, interest rates remain at 40-year lows, and expectations are that companies will continue to deliver double-digit earnings growth. These factors should lend support to stock prices over the months ahead, particularly after the U.S. presidential election is decided in November. As always, we remain focused on finding and investing in small, rapidly growing companies with the strongest fundamentals for the Fund. 1 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. ANNUALIZED TOTAL RETURNS As of 9/30/04
1 YEAR 5 YEARS 10 YEARS 6.25% - 4.12% 6.93%
[CHART]
U.S. EMERGING GROWTH FUND RUSSELL 2000 GROWTH CLASS R SHARES INDEX 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 $ 468,959 $ 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 $ 567,342 $ 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 $ 636,288 $ 459,096 11/30/1999 $ 719,417 $ 507,641 12/31/1999 $ 881,445 $ 597,113 1/31/2000 $ 860,164 $ 591,554 2/29/2000 $ 1,157,339 $ 729,185 3/31/2000 $ 1,009,872 $ 652,533 4/30/2000 $ 866,884 $ 586,647 5/31/2000 $ 761,231 $ 535,280 6/30/2000 $ 917,285 $ 604,427 7/31/2000 $ 820,964 $ 552,628 8/31/2000 $ 940,805 $ 610,759 9/30/2000 $ 885,178 $ 580,416 10/31/2000 $ 791,097 $ 533,304 11/30/2000 $ 609,448 $ 436,472 12/31/2000 $ 663,207 $ 463,180 1/31/2001 $ 674,385 $ 500,669 2/28/2001 $ 562,076 $ 432,038 3/31/2001 $ 508,317 $ 392,757 4/30/2001 $ 568,996 $ 440,842 5/31/2001 $ 571,125 $ 451,052 6/30/2001 $ 581,238 $ 463,352 7/31/2001 $ 543,979 $ 423,824 8/31/2001 $ 507,252 $ 397,335 9/30/2001 $ 421,557 $ 333,205 10/31/2001 $ 456,687 $ 365,259 11/30/2001 $ 492,881 $ 395,758 12/31/2001 $ 515,236 $ 420,414 1/31/2002 $ 500,865 $ 405,447 2/28/2002 $ 469,461 $ 379,215 3/31/2002 $ 507,785 $ 412,169 4/30/2002 $ 499,801 $ 403,266 5/31/2002 $ 473,187 $ 379,675 6/30/2002 $ 439,654 $ 347,478 7/31/2002 $ 377,379 $ 294,071 8/31/2002 $ 376,314 $ 293,924 9/30/2002 $ 355,556 $ 272,703 10/31/2002 $ 361,943 $ 286,501 11/30/2002 $ 379,508 $ 314,894 12/31/2002 $ 353,959 $ 293,166 1/31/2003 $ 343,846 $ 285,192 2/28/2003 $ 333,200 $ 277,577 3/31/2003 $ 333,733 $ 281,769 4/30/2003 $ 365,137 $ 308,424 5/31/2003 $ 397,605 $ 343,183 6/30/2003 $ 407,186 $ 349,807 7/31/2003 $ 438,057 $ 376,252 8/31/2003 $ 465,203 $ 396,457 9/30/2003 $ 442,848 $ 386,426 10/31/2003 $ 483,833 $ 419,814 11/30/2003 $ 496,075 $ 433,500 12/31/2003 $ 487,026 $ 435,450 1/31/2004 $ 515,769 $ 458,312 2/29/2004 $ 506,720 $ 457,624 3/31/2004 $ 506,720 $ 459,775 4/30/2004 $ 475,849 $ 436,694 5/31/2004 $ 480,639 $ 445,384 6/30/2004 $ 501,397 $ 460,171 7/31/2004 $ 457,751 $ 418,894 8/30/2004 $ 439,654 $ 409,888 9/30/2004 $ 470,526 $ 432,554
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 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 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. 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 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 SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2004 -- UNAUDITED U.S. EMERGING GROWTH FUND
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- COMMON STOCK -- 98.2% ADVANCED MATERIALS/PRODUCTS -- 0.5% Ceradyne, Inc.* ## 2,600 $ 114,166 ------------- ADVERTISING SERVICES -- 0.4% Greenfield Online, Inc.* ## 4,700 95,457 ------------- AEROSPACE/DEFENSE -- 0.6% Esterline Technologies Corp.* 4,400 134,596 ------------- AEROSPACE/DEFENSE-EQUIPMENT -- 0.4% BE Aerospace* ## 10,200 92,820 ------------- APPAREL MANUFACTURERS -- 2.2% Carter's, Inc.* 4,900 135,681 Guess?, Inc.* 6,500 115,765 Oxford Industries, Inc.## 3,200 119,200 Quiksilver, Inc.* 5,400 137,268 ------------- 507,914 ------------- APPLICATIONS SOFTWARE -- 1.0% PalmSource, Inc.* 5,500 114,070 Serena Software, Inc.* ## 6,900 115,437 ------------- 229,507 ------------- AUDIO/VIDEO PRODUCTS -- 0.0% Vialta, Inc.* 193 46 ------------- AUTO/TRUCK PARTS & EQUIPMENT-ORIGINAL -- 0.4% Tenneco Automotive, Inc.* ## 6,600 86,460 ------------- BUILDING & CONSTRUCTION PRODUCTS-MISCELLANEOUS -- 1.5% NCI Building Systems, Inc.* 5,400 172,260 Simpson Manufacturing Co., Inc.## 2,700 170,640 ------------- 342,900 ------------- BUILDING PRODUCTS-CEMENT/AGGREGATE -- 0.6% Texas Industries, Inc. 2,600 133,744 ------------- BUILDING-MOBIL HOME/MANUFACTURED HOUSING -- 0.6% Champion Enterprises, Inc.* ## 13,600 139,944 ------------- CASINO HOTELS -- 0.7% Boyd Gaming Corp.## 5,200 146,380 ------------- CASINO SERVICES -- 0.7% Shuffle Master, Inc.* ## 4,400 164,824 ------------- CELLULAR TELECOMMUNICATIONS -- 0.8% Alamosa Holdings, Inc.* ## 22,900 174,956 JAMDAT Mobile, Inc.* 700 16,149 ------------- 191,105 ------------- CHEMICALS-SPECIALTY -- 0.7% Cabot Microelectronics Corp.* ## 4,100 148,625 ------------- COAL -- 0.4% Massey Energy Co.## 3,300 95,469 ------------- COMMERCIAL BANKS-WESTERN US -- 0.6% Silicon Valley Bancshares* 3,400 $ 126,378 ------------- COMPUTER AIDED DESIGN -- 0.4% ANSYS, Inc.* ## 2,000 99,460 ------------- COMPUTERS -- 0.5% Mentor Corp.## 2,800 94,304 PalmOne, Inc.* ## 300 9,132 ------------- 103,436 ------------- COMPUTERS-INTEGRATED SYSTEMS -- 1.0% Intergraph Corp.* ## 5,400 146,718 Radisys Corp.* ## 5,600 78,120 ------------- 224,838 ------------- CONSULTING SERVICES -- 0.7% Charles River Associates, Inc.* ## 2,200 84,238 Navigant Consulting, Inc.* ## 3,700 81,252 ------------- 165,490 ------------- CONSUMER PRODUCTS-MISCELLANEOUS -- 2.0% American Greetings Corp. Cl. A* 4,400 110,528 Fossil, Inc.* ## 3,350 103,649 Jarden Corp.* ## 6,300 229,887 ------------- 444,064 ------------- COSMETICS & TOILETRIES -- 1.3% Chattem, Inc.* 5,000 161,250 Elizabeth Arden, Inc.* ## 6,500 136,890 ------------- 298,140 ------------- DATA PROCESSING/MANAGEMENT -- 0.7% CSG Systems International, Inc.* ## 6,700 103,247 eFunds Corp.* 3,500 65,065 ------------- 168,312 ------------- DIAGNOSTIC EQUIPMENT -- 2.5% Cytyc Corp.* 6,600 159,390 Gen-Probe, Inc.* 4,100 163,467 Immucor, Inc.* ## 10,150 251,212 ------------- 574,069 ------------- DISTRIBUTION/WHOLESALE -- 0.1% LKQ Corp.* ## 1,700 31,059 ------------- DIVERSIFIED MANUFACTURING OPERATIONS -- 1.3% Esco Technologies, Inc.* 2,600 176,176 Jacuzzi Brands, Inc.* 12,000 111,600 ------------- 287,776 ------------- DRUG DELIVERY SYSTEMS -- 0.5% Noven Pharmaceuticals, Inc.* ## 5,900 122,956 ------------- E-COMMERCE/PRODUCTS -- 0.8% Stamps.Com, Inc.* 13,100 174,230 -------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 3
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- COMMON STOCK (Continued) ELECTRONIC COMPONENTS-MISCELLANEOUS -- 0.4% DSP Group, Inc.* 1,700 $ 35,785 NVE Corp.* ## 1,500 49,575 ------------- 85,360 ------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS -- 1.1% Microsemi Corp.* 5,300 74,730 Silicon Image, Inc.* 14,300 180,752 ------------- 255,482 ------------- ELECTRONIC DESIGN AUTOMATION -- 0.5% Magma Design Automation* ## 7,800 117,624 ------------- ELECTRONIC MEASURE INSTRUMENTS -- 1.6% Measurement Specialties, Inc.* 5,500 136,675 Molecular Devices Corp.* ## 700 16,499 Trimble Navigation, Ltd.* 6,400 202,240 ------------- 355,414 ------------- ELECTRONICS-MILITARY -- 0.6% EDO Corp.## 5,100 141,525 ------------- ENERGY-ALTERNATE SOURCES -- 0.9% Headwaters, Inc.* ## 6,200 191,332 ------------- ENTERPRISE SOFTWARE/SERVICES -- 0.5% Microstrategy, Inc.* 3,000 123,270 ------------- ENTERTAINMENT SOFTWARE -- 0.6% Take -- Two Interactive Software, Inc.* 4,400 144,540 ------------- ENVIRON MONITORING & DET -- 0.5% Mine Safety Appliances Co.## 2,600 105,872 ------------- FILTRATION/SEPARATE PRODUCTS -- 0.7% Cuno, Inc.* 2,700 155,925 ------------- FINANCE-AUTO LOANS -- 0.5% Westcorp## 2,900 123,308 ------------- FINANCE-CREDIT CARD -- 0.8% Metris Companies, Inc.* 17,800 174,084 ------------- FINANCE-INVESTMENT BANKERS/BROKERS -- 0.5% Raymond James Financial, Inc. 4,750 114,570 ------------- FOOD-WHOLESALE/DISTRIBUTION -- 1.1% United Natural Foods, Inc.* 9,300 247,380 ------------- FOOTWEAR & RELATED APPAREL -- 0.7% Skechers USA, Inc. Cl. A* 11,600 168,432 ------------- HUMAN RESOURCES -- 2.8% Heidrick & Struggles Intl* 6,300 181,566 Hudson Highland Group, Inc.* ## 5,900 172,221 Korn/Ferry International* 8,900 162,247 Resources Connection, Inc.* ## 3,000 113,340 ------------- 629,374 ------------- IDENTIFICATION SYSTEMS/DEVICES -- 0.3% Cogent, Inc.* ## 3,200 $ 58,304 ------------- INDUSTRIAL AUTOMATION/ROBOTICS -- 0.6% Unova, Inc.* ## 9,000 126,450 ------------- INSTRUMENTS-SCIENTIFIC -- 0.8% Varian, Inc.* 4,500 170,415 ------------- INTERNET CONNECTIVITY SERVICES -- 0.5% Redback Networks, Inc.* ## 23,100 120,582 ------------- INTERNET CONTENT-INFO/NEWS -- 1.5% Cnet Networks Inc.* 18,800 172,020 InfoSpace, Inc.* ## 3,700 175,343 ------------- 347,363 ------------- INTERNET INFRASTRUCTURE SOFTWARE -- 0.6% RADWARE, Ltd.* 6,600 145,200 ------------- INTERNET SECURITY -- 0.2% WatchGuard Technologies, Inc.* ## 11,600 54,288 ------------- LASERS-SYSTEMS/COMPONENTS -- 0.8% Cymer, Inc.* 6,300 180,558 ------------- LEISURE & RECREATIONAL PRODUCTS -- 0.6% K2, Inc.* ## 9,300 133,083 ------------- MACHINERY-CONSTRUCTION & MINING -- 0.8% Bucyrus International, Inc. Cl. A* 400 13,440 Terex Corp.* 3,600 156,240 ------------- 169,680 ------------- MACHINERY-GENERAL INDUSTRY -- 0.4% Gardner Denver, Inc.* ## 3,500 96,495 ------------- MACHINERY-PUMPS -- 1.0% Graco, Inc. ## 6,600 221,100 ------------- MEDICAL INFORMATION SYSTEMS -- 1.3% Allscripts Healthcare Solutions, Inc.* 14,800 133,200 IDX Systems Corp.* 4,800 155,760 ------------- 288,960 ------------- MEDICAL INSTRUMENTS -- 1.2% Intuitive Surgical, Inc.* ## 5,400 133,650 Ventana Medical Systems, Inc.* 2,600 131,144 ------------- 264,794 ------------- MEDICAL PRODUCTS -- 0.4% EPIX Medical, Inc.* ## 4,400 84,964 ------------- MEDICAL-BIOMEDICAL/GENETICS -- 2.0% Northfield Laboratories, Inc.* ## 5,500 73,535 Serologicals Corp.* ## 7,900 184,307 Telik, Inc.* ## 9,000 200,700 ------------- 458,542 -------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 4
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- COMMON STOCK (Continued) MEDICAL-DRUGS -- 1.4% Pharmion Corp.* ## 600 $ 31,018 Salix Pharmaceuticals, Ltd.* ## 8,050 173,236 Vaxgen, Inc.* ## 8,800 117,480 ------------- 321,734 ------------- MEDICAL-HMO -- 0.6% AMERIGROUP Corp.* 2,300 129,375 ------------- MEDICAL-NURSING HOMES -- 0.6% Kindred Healthcare, Inc.* 5,900 143,960 ------------- MEDICAL-OUTPATIENT/HOME MEDICAL CARE -- 0.6% Amedisys, Inc.* ## 4,500 134,775 ------------- MULTILEVEL DIRECT SELLING -- 0.6% Nu Skin Enterprises, Inc. Cl. A## 5,400 126,954 ------------- NETWORKING PRODUCTS -- 1.0% Aeroflex, Inc.* 11,000 116,270 Ixia* ## 10,200 99,144 ------------- 215,414 ------------- NON-HAZARDOUS WASTE DISPOSAL -- 0.6% Waste Connections, Inc.* ## 4,200 133,056 ------------- OIL & GAS DRILLING -- 0.8% Grey Wolf, Inc.* 28,400 138,876 Todco Cl. A* 2,600 45,110 ------------- 183,986 ------------- OIL COMPANIES-EXPLORATION & PRODUCTION -- 2.6% Cheniere Energy, Inc.* ## 6,600 130,416 Southwestern Energy Co.* ## 3,100 130,169 Swift Energy Co.* 7,400 177,304 Unit Corp.* 4,400 154,352 ------------- 592,241 ------------- OIL FIELD MACHINERY & EQUIPMENT -- 1.1% Carbo Ceramics, Inc.## 1,500 108,210 Lone Star Technologies Inc.* 3,800 143,640 ------------- 251,850 ------------- OIL-FIELD SERVICES -- 2.5% Cal Dive International, Inc.* 5,800 206,596 Tetra Technologies, Inc.* 5,600 173,880 Varco International, Inc.* 6,600 177,012 ------------- 557,488 ------------- OPTICAL SUPPLIES -- 0.8% Advanced Medical Optics, Inc.* ## 4,400 174,108 ------------- PHARMACY SERVICES -- 0.5% Healthextras, Inc.* 7,900 110,126 ------------- PHYSICAL PRACTICE MANAGEMENT -- 1.0% American Healthways, Inc.* ## 7,900 $ 229,969 ------------- RACETRACKS -- 0.3% Penn National Gaming, Inc.* 1,900 76,760 ------------- REAL ESTATE MANAGEMENT/SERVICES -- 0.9% Jones Lang LaSalle, Inc.* ## 6,000 198,060 ------------- REAL ESTATE OPERATION/DEVELOPMENT -- 0.3% Corrections Corp. of America* 1,900 67,184 ------------- RECREATIONAL CENTERS -- 0.2% Life Times Fitness, Inc.* ## 1,700 43,622 ------------- RESEARCH & DEVELOPMENT -- 0.5% SFBC International, Inc.* 4,100 107,871 ------------- RESPIRATORY PRODUCTS -- 0.6% Respironics, Inc.* 2,700 144,288 ------------- RETAIL-APPAREL/SHOE -- 2.0% Aeropostale, Inc.* 2,000 52,400 Children's Place Retail Stores, Inc.* 5,900 141,069 Jos A Bank Clothiers, Inc.* ## 5,825 161,236 Stein Mart, Inc.* 6,400 97,408 ------------- 452,113 ------------- RETAIL-CATALOG SHOPPING -- 0.4% Coldwater Creek, Inc.* 4,400 91,828 ------------- RETAIL-HOME FURNISHINGS -- 0.2% Design Within Reach, Inc.* 2,500 42,975 ------------- RETAIL-LEISURE PRODUCTS -- 0.6% MarineMax, Inc.* 5,700 128,364 ------------- RETAIL-PAWN SHOPS -- 0.8% Cash America International, Inc. 7,700 188,342 ------------- RETAIL-RESTAURANTS -- 1.5% Buffalo Wild Wings, Inc.* 6,400 179,456 CKE Restaurants, Inc.* 5,400 59,670 McCormick & Schmick's Seafood Restaurants, Inc.* ## 8,000 95,920 ------------- 335,046 ------------- RETAIL-SPORTING GOODS -- 0.9% Dick's Sporting Goods, Inc.* 3,800 135,356 Gander Mountain Co.* ## 3,500 70,052 ------------- 205,408 ------------- SCHOOLS -- 0.7% Laureate Education, Inc.* 4,500 167,490 ------------- SEISMIC DATA COLLECTION -- 1.1% Input/Output, Inc.* ## 12,700 130,937 Veritas DGC, Inc.* 5,300 120,734 ------------- 251,671 -------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 5
NUMBER OF SHARES VALUE - -------------------------------------------------------------------------------- COMMON STOCK (Continued) SEMICONDUCTOR COMPONENTS-INTEGRATED CIRCUITS -- 1.1% Genesis Microchip, Inc.* 9,400 $ 126,900 Sigmatel Inc.* 5,500 116,655 ------------- 243,555 ------------- SEMICONDUCTOR EQUIPMENT -- 3.8% ASE Test, Ltd.* 20,300 106,575 Brooks Automation, Inc.* 10,200 144,330 Credence Systems Corp.* ## 21,900 157,680 DuPont Photomasks, Inc.* ## 6,700 114,168 Entegris, Inc.* 13,500 112,590 Rudolph Technologies, Inc.* 6,800 113,832 Varian Semiconductor Equipment Associates, Inc.* ## 3,700 114,330 ------------- 863,505 ------------- STEEL PIPE & TUBE -- 0.8% Maverick Tube Corp.* 5,800 178,698 ------------- STEEL-PRODUCERS -- 1.8% AK Steel Holding Corp.* 24,100 196,656 Carpenter Technology Corp.## 4,500 214,830 ------------- 411,486 ------------- SUPERCONDUCTOR PRODUCTS & SYSTEMS -- 0.9% Intermagnetics General Corp.* 9,050 209,508 ------------- TELECOMMUNICATIONS EQUIPMENT -- 1.0% Ditech Communications Corp.* 5,138 115,040 Tekelec* 6,200 103,416 ------------- 218,456 ------------- TELECOMMUNICATIONS SERVICES -- 0.5% PTEK Holdings, Inc.* 11,800 101,126 ------------- TEXTILE-APPAREL -- 0.9% DHB Industries, Inc.* ## 14,200 201,640 ------------- THERAPEUTICS -- 5.6% Atherogenics, Inc.* ## 4,400 144,980 Bioenvision, Inc.* ## 15,300 122,247 Bone Care International, Inc.* ## 6,400 155,520 Dendreon Corp.* ## 10,300 86,623 Eyetech Pharmaceuticals, Inc.* ## 4,100 139,359 Nabi Biopharmaceuticals* ## 12,400 165,912 NitroMed, Inc.* ## 6,700 159,728 Onyx Pharmaceuticals, Inc.* ## 4,400 189,244 Tanox, Inc.* ## 6,300 106,281 ------------- 1,269,894 ------------- TRANSACTIONAL SOFTWARE -- 0.8% Open Solutions, Inc.* 1,400 $ 34,958 Transaction Systems Architects, Inc. Cl. A* 8,300 154,256 ------------- 189,214 ------------- TRANSPORT-AIR FREIGHT -- 0.7% EGL, Inc.* 5,500 166,430 ------------- TRANSPORT-TRUCK -- 1.6% Arkansas Best Corp. 4,400 161,128 Overnite Corp. 6,600 207,438 ------------- 368,566 ------------- WIRE & CABLE PRODUCTS -- 0.5% General Cable Corp.* 10,400 110,656 ------------- WIRELESS EQUIPMENT -- 1.8% Audiovox Corp. Cl. A* ## 9,500 159,980 Novatel Wireless, Inc.* 5,900 138,650 RF Micro Devices, Inc.* ## 18,200 115,388 ------------- 414,018 ------------- TOTAL COMMON STOCK (Cost: $19,130,877) 22,251,245 ------------- PRINCIPAL AMOUNT - -------------------------------------------------------------------------------- SHORT TERM INVESTMENTS -- 29.2% MONEY MARKET FUNDS -- 28.1% Federated Prime Obligations Fund** $ 6,364,875 6,364,875 ------------- TIME DEPOSIT -- 1.1% HSBC Bank USA 1.300%, 10/01/04 256,149 256,149 ------------- TOTAL SHORT TERM INVESTMENTS (Cost: $6,621,024) 6,621,024 ------------- TOTAL INVESTMENTS -- 127.4% (Cost: $25,751,901) 28,872,269 LIABILITIES IN EXCESS OF OTHER ASSETS -- (27.4%) (6,205,061) ------------- NET ASSETS -- 100.0% $ 22,667,208 =============
- ---------- * 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 9/30/04. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 6
PERCENTAGE OF INDUSTRY NET ASSETS - ------------------------------------------------------------------- Basic Materials 2.5% Communications 9.1 Consumer, Cyclical 20.0 Consumer, Non-cyclical 21.8 Energy 9.4 Financial 3.6 Industrial 18.5% Technology 13.3 Short Terms Investments 29.2 Liabilities in excess of other assets (27.4) ------------ NET ASSETS 100.0% ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 7 U.S. LARGE CAP VALUE FUND MANAGEMENT TEAM: STEPHEN SEXAUER, Lead Portfolio Manager; MARK W. STUCKELMAN, Portfolio Manager; CHARLES HOEVELER, Investment Analyst; JOHN MAZUR, Investment Analyst; NELSON W. SHING, Investment Analyst; AERUS TRAN, Investment Analyst; MARK P. ROEMER, Portfolio Specialist 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: The broad U.S. equity market treaded water during the six months ended September 30, 2004. Stock prices changed direction from month to month but finished in approximately the same place they began. For the full period, the S&P 500 Index dipped 0.18%. Equity prices fell in April on rising interest rate concerns, only to rebound in May and June. A stronger-than-anticipated jobs report, followed by other strong economic data, led the Federal Reserve to begin raising short-term interest rates for the first time in four years on June 30. All together, the Fed raised the target funds rate three times during the six-month period for a total increase of 0.75%. Investors sent equity prices lower in July as second-quarter profit reports were followed by weaker-than-expected earnings guidance. While stocks rallied toward the end of the period, gains were unable to fully offset prior months' losses. Large-cap stocks beat small caps this period, and value continued to outpace growth. Stocks in many value-oriented sectors, such as materials and industrials, have benefited from the recovery in the economy and historically low interest rates. PERFORMANCE: During the six months ended September 30, 2004, the Fund's Class R shares rose 1.23% and the Russell 1000 Value Index gained 2.44%. PORTFOLIO SPECIFICS: In absolute terms, sector returns in the Fund were mixed. For example, holdings in the energy and materials sectors posted double-digit gains, while positions in the consumer discretionary and health care sectors declined. Versus the index, the Fund's performance was hurt by stock selection in the consumer discretionary sector, most notably in the retail area. An overweight was also unfavorable, as consumer discretionary stocks lagged the broad large-cap value market. An overweight and issue selection in financials, particularly among commercial banks, was another source of relative weakness. In contrast, stock selection was positive in the information technology sector, although this was partially offset by an overweight in the group. Issue selection was also favorable among consumer staples and telecommunication services firms. Amid surging oil prices, the best-performing stocks included ConocoPhillips and Exxon Mobil. Microsoft and Verizon were also top performers, as both companies reported better-than-expected operating results. Not owning Merck was a plus, as the stock fell sharply after the company announced it would pull its Vioxx arthritis drug off the market. MARKET OUTLOOK: The outlook for U.S. equities remains favorable. While rising energy and commodity prices remain a source of concern, earnings and profit margins have remained relatively resilient. In addition, the economy is expected to expand at a moderate pace with employment and corporate investment showing improvement in the months ahead. Regardless of how macro events unfold, our focus on valuation, financial strength and positive change should enable us to deliver consistent, long-term performance in the Fund relative to the benchmark. 8 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. ANNUALIZED TOTAL RETURNS As of 9/30/04
SINCE 1 YEAR 5 YEARS INCEPTION 17.87% 4.89% 12.13%
[CHART]
U.S. LARGE CAP VALUE FUND RUSSELL 1000 VALUE CLASS R SHARES 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 $ 554,721 $ 491,569 6/30/1999 $ 570,214 $ 505,825 7/31/1999 $ 558,719 $ 491,004 8/31/1999 $ 538,729 $ 472,788 9/30/1999 $ 516,741 $ 456,240 10/31/1999 $ 546,226 $ 482,520 11/30/1999 $ 530,983 $ 478,756 12/31/1999 $ 570,488 $ 481,054 1/31/2000 $ 534,848 $ 465,372 2/29/2000 $ 491,679 $ 430,795 3/31/2000 $ 545,641 $ 483,352 4/30/2000 $ 545,641 $ 477,745 5/31/2000 $ 544,637 $ 482,761 6/30/2000 $ 520,291 $ 460,699 7/31/2000 $ 538,362 $ 466,458 8/31/2000 $ 568,229 $ 492,393 9/30/2000 $ 576,512 $ 496,923 10/31/2000 $ 605,626 $ 509,147 11/30/2000 $ 581,409 $ 490,258 12/31/2000 $ 613,498 $ 514,819 1/31/2001 $ 622,847 $ 516,827 2/28/2001 $ 609,456 $ 502,459 3/31/2001 $ 591,010 $ 484,723 4/30/2001 $ 624,616 $ 508,474 5/31/2001 $ 644,830 $ 519,915 6/30/2001 $ 634,471 $ 508,373 7/31/2001 $ 634,471 $ 507,305 8/31/2001 $ 604,149 $ 486,962 9/30/2001 $ 556,141 $ 452,680 10/31/2001 $ 553,361 $ 448,787 11/30/2001 $ 593,537 $ 474,861 12/31/2001 $ 605,624 $ 486,068 1/31/2002 $ 593,023 $ 482,325 2/28/2002 $ 597,394 $ 483,097 3/31/2002 $ 627,226 $ 505,948 4/30/2002 $ 602,538 $ 488,594 5/31/2002 $ 609,224 $ 491,037 6/30/2002 $ 563,963 $ 462,851 7/31/2002 $ 508,672 $ 419,806 8/31/2002 $ 506,101 $ 422,954 9/30/2002 $ 443,095 $ 375,922 10/31/2002 $ 485,270 $ 403,778 11/30/2002 $ 516,011 $ 429,216 12/31/2002 $ 494,131 $ 410,588 1/31/2003 $ 486,577 $ 400,652 2/28/2003 $ 473,813 $ 389,954 3/31/2003 $ 473,032 $ 390,617 4/30/2003 $ 510,801 $ 424,991 5/31/2003 $ 543,101 $ 452,446 6/30/2003 $ 549,092 $ 458,101 7/31/2003 $ 557,167 $ 464,927 8/31/2003 $ 560,293 $ 472,180 9/30/2003 $ 556,646 $ 467,553 10/31/2003 $ 591,290 $ 496,167 11/30/2003 $ 592,708 $ 502,915 12/31/2003 $ 628,404 $ 533,894 1/31/2004 $ 641,191 $ 543,291 2/29/2004 $ 654,510 $ 554,917 3/31/2004 $ 648,383 $ 550,034 4/30/2004 $ 637,728 $ 536,613 5/31/2004 $ 645,187 $ 542,087 6/30/2004 $ 654,510 $ 554,880 7/31/2004 $ 641,723 $ 547,056 8/30/2004 $ 641,457 $ 554,824 9/30/2004 $ 656,108 $ 563,424
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 SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2004 -- UNAUDITED U.S. LARGE CAP VALUE FUND
NUMBER OF SHARES VALUE - --------------------------------------------------------------------------------------- COMMON STOCK -- 96.4% AEROSPACE/DEFENSE -- 1.0% Raytheon Co. 6,000 $ 227,880 --------------- APPLICATIONS SOFTWARE -- 3.5% Microsoft Corp. 28,900 799,085 --------------- BEVERAGES-NON-ALCOHOLIC -- 1.2% PepsiCo, Inc. 5,400 262,710 --------------- COMMERCIAL BANKS-EASTERN US -- 2.3% North Fork Bancorp. 11,500 511,175 --------------- COMPUTERS -- 1.6% Hewlett-Packard Co. 19,400 363,750 --------------- CONSUMER PRODUCTS-MISCELLANEOUS -- 1.6% Fortune Brands, Inc. 5,000 370,450 --------------- COSMETICS & TOILETRIES -- 2.9% Kimberly-Clark Corp. 5,200 335,868 Procter & Gamble Co. 5,700 308,484 --------------- 644,352 --------------- DIVERSIFIED MANUFACTURING OPERATIONS -- 7.2% ITT Industries, Inc. 9,700 775,903 Textron, Inc. 7,300 469,171 Tyco International, Ltd. 12,300 377,118 --------------- 1,622,192 --------------- ELECTRIC-INTEGRATED -- 1.1% Public Services Enterprise Group 5,800 247,080 --------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS -- 2.7% PPL Corp. 5,200 245,336 Texas Instuments, Inc. 16,800 357,504 --------------- 602,840 --------------- FIDUCIARY BANKS -- 2.4% Bank of New York Co., Inc. 18,700 545,479 --------------- FINANCE-INVESTMENT BANKERS/BROKERS -- 7.2% J.P. Morgan Chase & Co. 19,500 774,735 Morgan Stanley Dean Witter & Co. 17,000 838,100 --------------- 1,612,835 --------------- FINANCIAL GUARANTEE INSURANCE -- 1.8% Ambac Financial Group, Inc. 5,200 415,740 --------------- INDUSTRIAL GASES -- 2.6% Praxair, Inc. 13,700 585,538 --------------- MEDICAL-DRUGS -- 4.1% Abbott Laboratories 9,000 381,240 Pfizer, Inc. 17,700 541,620 --------------- 922,860 --------------- MEDICAL-HMO -- 1.3% Wellpoint Health Networks, Inc.* 2,800 $ 294,252 --------------- MULTI-LINE INSURANCE -- 5.9% Allstate Corp. 8,500 407,915 American International Group, Inc. 13,600 924,664 --------------- 1,332,579 --------------- MULTIMEDIA -- 5.1% Time Warner, Inc.* 37,900 611,706 Viacom, Inc. Cl. B 8,700 291,972 Walt Disney Co. 10,700 241,285 --------------- 1,144,963 --------------- OIL COMPANIES-EXPLORATION & PRODUCTION -- 2.1% Apache Corp. 9,350 468,528 --------------- OIL COMPANIES-INTEGRATED -- 11.3% Chevrontexaco Corp. 7,400 396,936 ConocoPhillips 12,810 1,061,309 Exxon Mobil Corp. 22,400 1,082,592 --------------- 2,540,837 --------------- PROPERTY/CASUALTY INSURANCE -- 0.7% St Paul Travelers Cos Inc. 4,688 154,985 --------------- RETAIL-DISCOUNT -- 1.4% TJX Cos., Inc. 14,800 326,192 --------------- RETAIL-REGIONAL DEPARTMENT STORES -- 2.0% Federated Department Stores, Inc. 10,000 454,300 --------------- RETAIL-RESTAURANTS -- 0.6% McDonalds Corp. 4,500 126,135 --------------- SAVINGS & LOANS/THRIFTS-WESTERN US -- 3.9% Washington Mutual, Inc. 22,500 879,300 --------------- STEEL-PRODUCERS -- 0.8% United States Steel Corp. 4,500 169,290 --------------- SUPER-REGIONAL BANKS-US -- 9.6% Bank of America Corp. 22,012 953,780 US Bancorp. 11,100 320,790 Wells Fargo & Co. 14,700 876,561 --------------- 2,151,131 --------------- TELECOMMUNICATIONS EQUIPMENT -- 0.9% ADC Telecommunication, Inc.* 109,700 198,557 --------------- TELEPHONE-INTEGRATED -- 3.8% Verizon Communications, Inc. 21,600 850,608 --------------- WIRELESS EQUIPMENT -- 3.8% Motorola, Inc. 47,200 851,488 --------------- TOTAL COMMON STOCK (Cost: $18,214,139) 21,677,111 ---------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 10
PRINCIPAL AMOUNT VALUE - --------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS -- 4.4% TIME DEPOSIT -- 4.4% HSBC Bank USA 1.300%, 10/01/04 (Cost: $994,292) $ 994,292 $ 994,292 --------------- TOTAL INVESTMENTS -- 100.8% (Cost: $19,208,431) 22,671,403 LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.8%) (173,342) --------------- NET ASSETS -- 100.0% $ 22,498,061 ===============
- ---------- * Non-income producing securities. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 11 SCHEDULE OF INVESTMENTS BY INDUSTRY AS OF SEPTEMBER 30, 2004 -- UNAUDITED U.S. LARGE CAP VALUE FUND
PERCENTAGE OF INDUSTRY NET ASSETS - -------- ------------- Basic Materials 0.8% Communications 13.6 Consumer, Cyclical 4.0 Consumer, Non-cyclical 11.1 Energy 13.4 Financial 33.8 Industrial 13.5% Technology 5.1 Utilities 1.1 Short Terms Investments 4.4 Liabilities in excess of other assets (0.8) ------------- NET ASSETS 100.0% =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 12 U.S. SYSTEMATIC LARGE CAP GROWTH FUND MANAGEMENT TEAM: DAVID J. PAVAN, CFA, Portfolio Manager; STACEY R. NUTT, PH.D., Portfolio Manager; ZHUANXIN DING, PH.D., Investment Analyst; JANE EDMONSON, Investment Analyst; FRANK FENG, PH.D., Investment Analyst; JAMES LI, PH.D., CFA, Investment Analyst; AERUS TRAN, Investment Analyst; MARK P. ROEMER, Portfolio Specialist 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: Key U.S. equity indices were flat to down during the six months ended September 30, 2004 as a rally late in the period was unable to erase the summer's losses. A better-than-expected employment report in April, followed by other strong economic data, led the Federal Reserve to begin raising short-term interest rates in June. As the period progressed, however, reports pointed to more subdued economic growth. For example, consumer confidence slipped in August, and retail sales during the back-to-school period were weaker than anticipated. The rapid rise in oil prices also weighed on market sentiment. Healthy corporate profits, tame inflation and the lowest unemployment rate since September 2001 were unable to spark investor enthusiasm. Within the large-cap market, sector returns were mixed. Energy stocks were the leaders, posting double-digit increases amid rising oil prices. Utilities, telecommunication services, materials and industrial companies also generated solid gains. Information technology stocks fared the worst, down sharply on reports of rising inventories at tech bellwethers such as Intel and Texas Instruments. PERFORMANCE: The Fund's Class R shares registered a 3.15% decline during the six-month period from April 1, 2004 to September 30, 2004. During the same time, the Russell 1000 Growth Index lost 3.38%. PORTFOLIO SPECIFICS: The Fund modestly outperformed its benchmark, with holdings in the majority of sectors benefiting relative results. Positive stock selection and an overweight in materials stocks, which led the broader large-cap growth market, had the largest favorable effect on results versus the index. For example, the stock price of Phelps Dodge, one of the world's largest copper producers, surged as copper prices continued to rise. Dow Chemical and forest products company Weyerhaeuser also did especially well. Stock selection was also favorable among industrial and consumer discretionary names, where Norfolk Southern and Harman International were top performers. Shares of rail operator Norfolk Southern rose on better-than-expected earnings and record freight volumes. Harman International, a maker of audio and video products, reported fiscal year fourth-quarter earnings that beat analysts' expectations by increasing more than 40%, year over year. On the negative side, stock selection in information technology made this group the Fund's weakest sector in terms of relative performance. In particular, returns among semiconductor and semiconductor equipment stocks were unfavorable. 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. Through consistent application of this approach, we believe we will continue to identify companies with excellent growth potential for the Fund. 13 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. ANNUALIZED TOTAL RETURNS As of 9/30/04
SINCE 1 YEAR 5 YEARS INCEPTION 1.05% - 12.88% 5.75%
[CHART]
U.S. SYSTEMATIC LARGE CAP GROWTH FUND RUSSELL 1000 GROWTH CLASS R SHARES INDEX 12/27/1996 $ 250,000 $ 250,000 12/31/1996 $ 247,420 $ 246,185 1/31/1997 $ 272,446 $ 263,452 2/28/1997 $ 267,802 $ 261,669 3/31/1997 $ 260,062 $ 247,507 4/30/1997 $ 269,866 $ 263,941 5/31/1997 $ 300,052 $ 282,990 6/30/1997 $ 311,146 $ 294,315 7/31/1997 $ 349,845 $ 320,345 8/31/1997 $ 341,847 $ 301,595 9/30/1997 $ 359,133 $ 316,436 10/31/1997 $ 358,617 $ 304,741 11/30/1997 $ 354,231 $ 317,683 12/31/1997 $ 360,423 $ 321,241 1/31/1998 $ 365,583 $ 330,846 2/28/1998 $ 399,123 $ 355,733 3/31/1998 $ 423,633 $ 369,912 4/30/1998 $ 437,049 $ 375,032 5/31/1998 $ 425,955 $ 364,388 6/30/1998 $ 456,656 $ 386,707 7/31/1998 $ 446,852 $ 384,147 8/31/1998 $ 372,291 $ 326,494 9/30/1998 $ 418,473 $ 351,576 10/31/1998 $ 449,690 $ 379,832 11/30/1998 $ 492,518 $ 408,726 12/31/1998 $ 577,915 $ 445,580 1/31/1999 $ 642,931 $ 471,745 2/28/1999 $ 629,257 $ 450,195 3/31/1999 $ 694,014 $ 473,907 4/30/1999 $ 730,134 $ 474,514 5/31/1999 $ 735,294 $ 459,932 6/30/1999 $ 766,254 $ 492,146 7/31/1999 $ 755,934 $ 476,505 8/31/1999 $ 751,290 $ 484,291 9/30/1999 $ 765,480 $ 474,116 10/31/1999 $ 820,691 $ 509,922 11/30/1999 $ 915,119 $ 537,432 12/31/1999 $ 1,131,321 $ 593,330 1/31/2000 $ 1,082,301 $ 565,509 2/29/2000 $ 1,240,196 $ 593,157 3/31/2000 $ 1,283,282 $ 635,615 4/30/2000 $ 1,184,727 $ 605,372 5/31/2000 $ 1,109,133 $ 574,886 6/30/2000 $ 1,226,006 $ 618,456 7/31/2000 $ 1,171,569 $ 592,673 8/31/2000 $ 1,324,045 $ 646,334 9/30/2000 $ 1,208,978 $ 585,197 10/31/2000 $ 1,085,139 $ 557,505 11/30/2000 $ 876,102 $ 475,324 12/31/2000 $ 858,016 $ 460,284 1/31/2001 $ 836,207 $ 492,085 2/28/2001 $ 692,052 $ 408,544 3/31/2001 $ 598,962 $ 364,086 4/30/2001 $ 676,625 $ 410,132 5/31/2001 $ 646,305 $ 404,095 6/30/2001 $ 613,857 $ 394,736 7/31/2001 $ 578,483 $ 384,872 8/31/2001 $ 513,054 $ 353,389 9/30/2001 $ 429,540 $ 318,121 10/31/2001 $ 453,309 $ 334,822 11/30/2001 $ 508,669 $ 366,999 12/31/2001 $ 505,727 $ 366,302 1/31/2002 $ 486,204 $ 359,818 2/28/2002 $ 454,913 $ 344,886 3/31/2002 $ 480,320 $ 356,819 4/30/2002 $ 452,239 $ 327,702 5/31/2002 $ 438,867 $ 319,772 6/30/2002 $ 390,728 $ 290,193 7/31/2002 $ 359,973 $ 274,232 8/31/2002 $ 361,577 $ 275,055 9/30/2002 $ 338,310 $ 246,532 10/31/2002 $ 356,496 $ 269,139 11/30/2002 $ 369,868 $ 283,753 12/31/2002 $ 334,031 $ 264,146 1/31/2003 $ 327,345 $ 257,727 2/28/2003 $ 326,008 $ 256,541 3/31/2003 $ 337,240 $ 261,313 4/30/2003 $ 358,635 $ 280,650 5/31/2003 $ 368,798 $ 294,655 6/30/2003 $ 372,810 $ 298,721 7/31/2003 $ 383,507 $ 306,159 8/31/2003 $ 392,600 $ 313,782 9/30/2003 $ 381,903 $ 310,425 10/31/2003 $ 399,821 $ 327,871 11/30/2003 $ 404,368 $ 331,281 12/31/2003 $ 403,565 $ 342,743 1/31/2004 $ 414,263 $ 349,735 2/29/2004 $ 411,053 $ 351,973 3/31/2004 $ 398,484 $ 345,427 4/30/2004 $ 389,391 $ 341,420 5/31/2004 $ 399,286 $ 347,770 6/30/2004 $ 408,112 $ 352,152 7/31/2004 $ 386,182 $ 332,255 8/30/2004 $ 381,100 $ 330,627 9/30/2004 $ 385,914 $ 333,768
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. 14 SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2004 -- UNAUDITED U.S. SYSTEMATIC LARGE CAP GROWTH FUND
NUMBER OF SHARES VALUE - --------------------------------------------------------------------------------------- COMMON STOCK -- 99.6% APPLICATIONS SOFTWARE -- 2.3% Microsoft Corp. 10,500 $ 290,325 --------------- AUDIO/VIDEO PRODUCTS -- 1.8% Harman International Industries, Inc. 2,100 226,275 --------------- AUTO/TRUCK PARTS & EQUIPMENT-ORIGINAL -- 0.4% Advanced Auto Parts, Inc.* 1,400 48,160 --------------- BUILDING & CONSTRUCTION PRODUCTS-MISCELLANEOUS -- 1.3% Masco Corp. 4,600 158,838 --------------- CABLE TV -- 1.3% Comcast Corp. Cl. A* 5,800 163,792 --------------- CELLULAR TELECOMMUNICATIONS -- 1.0% Western Wireless Corp. Cl. A* 5,100 131,121 --------------- CHEMICALS-DIVERSIFIED -- 2.7% Dow Chemical Co. 4,300 194,274 Du Pont (Ei) De Nemours 3,500 149,800 --------------- 344,074 --------------- COMPUTER AIDED DESIGN -- 0.8% Autodesk, Inc. 2,000 97,260 --------------- COMPUTERS -- 4.5% Dell, Inc.* 1,900 67,640 Hewlett-Packard Co. 4,100 76,875 International Business Machines Corp. 4,900 420,126 --------------- 564,641 --------------- COSMETICS & TOILETRIES -- 5.1% Procter & Gamble Co. 7,200 389,664 The Gillette Co. 6,100 254,614 --------------- 644,278 --------------- DISTRIBUTION/WHOLESALE -- 1.4% WW Grainger, Inc. 3,000 172,950 --------------- DIVERSIFIED FINANCIAL SERVICES -- 1.3% CIT Group, Inc. 4,400 164,516 --------------- DIVERSIFIED MANUFACTURING OPERATIONS -- 2.8% 3M Co. 2,300 183,931 Textron, Inc. 2,600 167,102 --------------- 351,033 --------------- ELECTRIC PRODUCTS-MISCELLANEOUS -- 1.4% Emerson Electric Co. 2,900 179,481 --------------- ELECTRONIC COMPONENTS-SEMICONDUCTORS -- 1.0% Intel Corp. 6,400 128,384 --------------- ELECTRONIC MEASURE INSTRUMENTS -- 1.2% Agilent Technologies, Inc.* 7,100 $ 153,147 --------------- ENTERPRISE SOFTWARE/SERVICES -- 1.2% BMC Software, Inc.* 9,800 154,938 --------------- FINANCE-INVESTMENT BANKERS/BROKERS -- 2.8% Citigroup, Inc. 3,900 172,068 Morgan Stanley Dean Witter & Co. 3,600 177,480 --------------- 349,548 --------------- FOOD-MISCELLANEOUS/DIVERSIFIED -- 1.2% Kraft Foods, Inc. Cl. A 4,800 152,256 --------------- FORESTRY -- 1.5% Weyerhaeuser Co. 2,800 186,144 --------------- INSTRUMENTS-CONTROLS -- 1.3% Parker-Hannifin Corp. 2,800 164,808 --------------- INSTRUMENTS-SCIENTIFIC -- 1.2% PerkinElmer, Inc. 8,600 148,092 --------------- INTERNET SECURITY -- 0.6% CheckFree Corp.* 2,700 74,709 --------------- LEISURE & RECREATIONAL PRODUCTS -- 1.3% Brunswick Corp. 3,500 160,160 --------------- LIFE/HEALTH INSURANCE -- 1.6% AFLAC, Inc. 5,300 207,813 --------------- MEDICAL INFORMATION SYSTEMS -- 1.5% IMS Health, Inc. 7,700 184,184 --------------- MEDICAL PRODUCTS -- 3.0% Becton Dickinson & Co. 3,200 165,440 Johnson & Johnson 3,900 219,687 --------------- 385,127 --------------- MEDICAL-BIOMEDICAL/GENETICS -- 0.6% Genentech, Inc.* 1,500 78,630 --------------- MEDICAL-DRUGS -- 10.2% Bristol-Myers Squibb Co. 8,200 194,094 Celgene Corp.* 1,100 64,053 Endo Pharmaceuticals Holdings, Inc.* 4,600 84,456 Merck & Co., Inc. 5,900 194,700 Pfizer, Inc. 24,700 755,820 --------------- 1,293,123 --------------- MEDICAL-HMO -- 5.0% Aetna, Inc. 2,200 219,846 Coventry Health Care, Inc.* 3,900 208,143 UnitedHealth Group, Inc. 2,700 199,098 --------------- 627,087 ---------------
15
NUMBER OF SHARES VALUE - --------------------------------------------------------------------------------------- COMMON STOCK (Continued) MEDICAL-HOSPITALS -- 0.8% Community Health Systems, Inc.* 3,800 $ 101,384 --------------- METAL-COPPER -- 1.0% Phelps Dodge Corp. 1,400 128,842 --------------- MULTI-LINE INSURANCE -- 1.4% American International Group, Inc. 2,600 176,774 --------------- MULTIMEDIA -- 4.3% Gemstar -- TV Guide International, Inc.* 22,200 125,430 McGraw-Hill Co., Inc. 3,000 239,070 Time Warner, Inc.* 11,400 183,996 --------------- 548,496 --------------- NETWORKING PRODUCTS -- 3.3% Cisco Systems, Inc.* 22,900 414,490 --------------- OIL FIELD MACHINERY & EQUIPMENT -- 1.3% Grant Prideco, Inc.* 7,900 161,871 --------------- OPTICAL SUPPLIES -- 1.1% Bausch & Lomb, Inc. 2,100 139,545 --------------- PROPERTY/CASUALTY INSURANCE -- 2.5% Ace Ltd. 3,900 156,234 Chubb Corp. 2,300 161,644 --------------- 317,878 --------------- RETAIL-APPAREL/SHOE -- 2.6% Gap, Inc. 9,400 175,780 Nordstrom, Inc. 4,100 156,784 --------------- 332,564 --------------- RETAIL-DISCOUNT -- 1.0% Wal-Mart Stores, Inc. 2,400 127,680 --------------- RETAIL-MAJOR DEPARTMENT STORES -- 2.4% JC Penney Co., Inc. 4,500 158,760 May Deptartment Stores Co. 5,700 146,091 --------------- 304,851 --------------- RETAIL-OFFICE SUPPLIES -- 1.8% Staples, Inc. 7,700 229,614 --------------- SEMICONDUCTOR COMPONENTS-INTEGRATED CIRCUITS -- 1.2% Maxim Integrated Products, Inc. 3,600 152,244 --------------- STEEL-PRODUCERS -- 1.2% United States Steel Corp. 4,200 $ 158,004 --------------- TELECOMMUNICATIONS EQUIPMENT -- 3.8% Avaya, Inc.* 10,500 146,370 QUALCOMM, Inc. 8,600 335,744 --------------- 482,114 --------------- TELECOMMUNICATIONS EQUIPMENT FIBER OPTICS -- 0.5% Corning, Inc.* 5,600 62,048 --------------- TELEPHONE-INTEGRATED -- 1.3% Verizon Communications, Inc. 4,300 169,334 --------------- TRANSPORT-AIR FREIGHT -- 1.3% CNF, Inc. 4,100 168,059 --------------- TRANSPORT-RAIL -- 1.2% Norfolk Southern Corp. 5,300 157,622 --------------- WIRELESS EQUIPMENT -- 2.3% Motorola, Inc. 16,000 288,640 --------------- TOTAL COMMON STOCK (Cost: $12,423,872) 12,606,948 --------------- PRINCIPAL AMOUNT - --------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS -- 0.6% TIME DEPOSIT -- 0.6% Brown Brothers Harriman & Co. 1.300%, 10/01/04 (Cost: $74,703) $ 74,703 74,703 --------------- TOTAL INVESTMENTS -- 100.2% (Cost: $12,498,575) 12,681,651 LIABILITIES IN EXCESS OF OTHER ASSETS -- (0.2%) (23,162) --------------- NET ASSETS -- 100.0% $ 12,658,489 ===============
- ---------- * Non-income producing securities. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 16 SCHEDULE OF INVESTMENTS BY INDUSTRY AS OF SEPTEMBER 30, 2004 -- UNAUDITED U.S. SYSTEMATIC LARGE CAP GROWTH FUND
PERCENTAGE OF INDUSTRY NET ASSETS - -------- ------------- Basic Materials 6.4% Communications 18.4 Consumer, Cyclical 12.7 Consumer, Non-cyclical 27.0 Energy 1.3 Financial 9.6 Industrial 12.7% Technology 11.5 Short Terms Investments 0.6 Liabilities in excess of other assets (0.2) ------------- NET ASSETS 100.0% =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 17 INTERNATIONAL GROWTH FUND MANAGEMENT TEAM: HORACIO A. VALEIRAS, CFA, Lead Portfolio Manager and Chief Investment Officer; LINDA BA, Portfolio Manager; JASON CAMPBELL, Portfolio Manager; REBECCA K. HAGSTROM, CFA, Investment Analyst; FLORA KIM, Investment Analyst; KARL RICHTENBURG, Investment Analyst; ERIC SAGMEISTER, Investment Analyst; SCOTT R. WILLIAMS, Investment Analyst; MICHAEL J. FREDERICKS, Portfolio Specialist 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: In non-U.S. developed countries, equity returns were mixed during the six months ended September 30, 2004. While the MSCI EAFE Index eked out a slight increase, performance across countries and sectors was varied. Stocks in Japan, a major component of the index, fell during the period. The Japanese economy continued to recover, but the pace of progress appeared to be less than investors had hoped for. In Continental Europe, sluggish economic growth was reflected in equity results that were flat to up slightly in major markets, such as France, Germany and Switzerland. U.K. equities fared better against a backdrop of low unemployment, rising income and robust consumer spending. Returns were strong in several smaller European markets, such as Austria and Belgium, where equities rose more than 10%. Rising commodity prices had a big effect on sector returns, with energy and materials stocks posting solid gains. Information technology was the weakest sector by far. Tech stocks tumbled on evidence of softening demand and building inventories. PERFORMANCE: During the six months ended September 30, 2004, the Fund's Class R shares lost 5.12%. The MSCI EAFE Index posted a modest gain of 0.21%. PORTFOLIO SPECIFICS: The Fund emphasizes investment in companies with above-average earnings growth prospects. However, its style-neutral benchmark includes both growth and value names. This style difference hurt the Fund's relative performance this period, as international value stocks outperformed their growth counterparts. Issue selection in the United Kingdom, Taiwan and the financials sector also detracted from relative results, as did an overweight in information technology. On the plus side, stock selection in Canada, Hong Kong and the consumer discretionary sector helped performance versus the index. For example, among the Fund's best-performing stocks were Canada-based Precision Drilling, a contract driller, and Hong Kong-based Esprit Holdings, a specialty retailer. Hong Kong-based Sino Land and Australia-based WMC Resources were also top performers. Sino Land, a property development, trading and investment firm, benefited from a decline in financing costs. WMC, the fourth-largest global producer of mined nickel, saw its stock price rise sharply in response to high nickel prices. MARKET OUTLOOK: We continue to find exciting investment opportunities in developed markets overseas. While the pace of economic activity has moderated in many countries, corporate earnings continue to grow. We are particularly optimistic in our outlook for international growth stocks. Recent analysis we've done suggests that, if history is a guide, value stocks' leadership of the past several years is unlikely to continue much longer. Regardless of what the future holds, we remain committed to our bottom-up, stock selection process. By consistently applying our approach, we are confident we will identify companies with superior return potential for the FUND. 18 COMPARISON OF CHANGE IN VALUE OF A $250,000 INVESTMENT IN INTERNATIONAL GROWTH FUND CLASS R SHARES WITH THE MSCI EAFE INDEX. ANNUALIZED TOTAL RETURNS As of 9/30/04
SINCE 1 YEAR 5 YEARS INCEPTION 14.21% - 3.29% 6.19%
[CHART]
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
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. 19 SCHEDULE OF INVESTMENTS AS OF SEPTEMBER 30, 2004 -- UNAUDITED INTERNATIONAL GROWTH FUND
NUMBER OF SHARES VALUE - --------------------------------------------------------------------------------------- COMMON STOCK -- 94.9% AUSTRALIA -- 2.5% WMC Resources, Ltd. 424,306 $ 1,647,375 Woodside Petroleum Ltd. 66,219 935,332 --------------- 2,582,707 --------------- BELGIUM -- 1.0% Interbrew 31,460 1,048,728 --------------- BRAZIL -- 0.9% Empresa Brasiliera de Aeronautica S.A.-- ADR 34,800 918,720 --------------- CANADA -- 2.9% ATI Technologies, Inc.* 48,900 749,637 Petro-Canada 12,100 628,544 Precision Drilling Corp.* 27,000 1,552,500 --------------- 2,930,681 --------------- FINLAND -- 1.0% Stora Enso OYJ R Shares 72,800 983,743 --------------- FRANCE -- 8.8% BNP Paribas S.A. 16,225 1,047,875 Dassault Systems S.A. 34,337 1,604,363 Metropole Television M6 40,143 1,073,933 Renault S.A. 13,437 1,098,954 Sanofi -- Synthelabo S.A.## 29,825 2,163,291 TotalFinaElf S.A.## 10,021 2,041,157 --------------- 9,029,573 --------------- GERMANY -- 5.9% Adidas Salomon AG 7,534 1,049,881 Bayer AG 40,513 1,106,977 Bayer Vereinsbank* 55,029 1,051,162 Deutsche Telekom AG* 99,665 1,844,381 Merck KGaA 17,956 1,014,712 --------------- 6,067,113 --------------- GREECE -- 1.0% Greek Organization of Football Prognostics S.A. 53,260 1,022,662 --------------- INDONESIA -- 1.2% PT Indosat -- ADR## 50,300 1,207,200 --------------- ITALY -- 3.3% ENI SpA 42,600 954,482 Mediaset SpA 48,369 549,079 Saipem SpA 81,000 910,448 Telecom Italia Mobile SpA 184,200 992,890 --------------- 3,406,899 --------------- JAPAN -- 18.4% Asahi Glass Co., Ltd. 112,300 1,021,974 Canon, Inc. 22,400 1,052,779 Fuji Photo Film Co., Ltd. 44,000 1,445,175 Matsushita Electric Industries 75,000 1,000,998 Mitsubishi Estate## 106,000 1,106,020 Mitsubishi Tokyo Financial Group, Inc. 92 $ 767,119 Mitsui O.S.K Lines, Ltd. 134,000 803,647 Mizuho Financial Group, Inc. 441 1,656,526 Shin-Etsu Chemical Co., Ltd. 33,800 1,214,426 Sumitomo Corp. 150,000 1,116,001 Sumitomo Mitsui Financial Group 286 1,634,805 T and D Holdings, Inc.* 23,550 1,029,905 Tokyo Gas Co., Ltd. 276,000 979,141 Toppan Printing Co., Ltd. 94,000 921,962 Toyota Motor Corp. 33,200 1,271,188 UFJ Holdings, Inc.* 190 832,645 Yamanouchi Pharmaceutical Co., Ltd 31,300 1,011,006 --------------- 18,865,317 --------------- MALAYSIA -- 1.0% Telekom Malaysia Berhad 348,600 1,027,453 --------------- MEXICO -- 2.2% America Movil S.A. de CV -- Ser L -- ADR 57,100 2,228,613 --------------- NETHERLANDS -- 3.7% ASM International NV* 52,133 696,701 ING Groep NV 57,006 1,438,685 Vedior NV 107,999 1,669,978 --------------- 3,805,364 --------------- NORWAY -- 0.5% Telenor ASA 70,813 539,132 --------------- PHILIPPINES -- 0.8% Philippine Long Distance Telephone Co.-- ADR* 32,200 806,288 --------------- REPUBLIC OF CHINA -- 3.4% Esprit Holdings Ltd. 167,500 857,041 Hutchison Whampoa, Ltd. 135,000 1,056,033 PetroChina Co., Ltd. -- Ser H 1,036,000 554,664 Sino Land Company, Ltd. 1,326,000 986,247 --------------- 3,453,985 --------------- SOUTH KOREA -- 3.3% Hyundai Motor Co. -- GDR 144A# 18,100 414,852 Hyundai Motor Co., Ltd. 8,970 413,640 LG Electronics, Inc. 33,180 1,907,526 NHN Corp. 8,072 675,062 --------------- 3,411,080 --------------- SPAIN -- 1.5% Banco Bilbao Vizcaya Argentaria S.A. 70,613 971,731 Grupo Ferrovial 13,535 604,336 --------------- 1,576,067 ---------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 20
NUMBER OF SHARES VALUE - --------------------------------------------------------------------------------------- COMMON STOCK (Continued) SWEDEN -- 2.0% Telefonaktiebolaget LM Ericsson -- ADR* 66,600 $ 2,080,584 --------------- SWITZERLAND -- 6.0% Actelion, Ltd.* 8,135 833,891 Holcim Ltd.-Reg 18,771 989,886 Roche Holding AG-Genusschein 27,182 2,808,103 UBS AG 21,744 1,530,630 --------------- 6,162,510 --------------- TAIWAN -- 2.6% Asustek Computer, Inc.-- GDR 144A# 498,410 1,076,566 Cathay Financial Holding, Co.* 812,000 1,526,560 --------------- 2,603,126 --------------- THAILAND -- 1.1% Shin Corp. PCL 662,700 598,310 TelecomAsia Corp. Public Co., Ltd.* 4,128,600 528,222 --------------- 1,126,532 --------------- UNITED KINGDOM -- 18.9% Aegis Group PLC 759,361 1,329,443 AstraZeneca PLC 34,500 1,414,028 BPB Industries PLC 194,974 1,510,049 Carnival PLC 39,438 1,938,988 George Wimpey PLC 133,710 972,659 HSBC Holdings PLC 123,160 1,954,519 Man Group PLC 60,600 1,303,842 Morrison Supermarkets 565,062 1,968,328 Next PLC 45,568 1,346,532 Reckitt Benckiser PLC 24,721 605,697 Royal Bank of Scotland Group PLC 61,512 1,776,492 United Business Media PLC 196,793 1,662,128 Vodafone Group PLC 654,996 1,567,490 --------------- 19,350,195 --------------- UNITED STATES -- 1.0% Synthes, Inc.* 9,539 1,038,924 --------------- TOTAL COMMON STOCK (Cost: $88,786,376) 97,273,196 --------------- PREFERRED STOCK -- 1.6% GERMANY -- 1.6% ProSiebenSat.1 Media AG (Cost: $1,591,454) 90,040 1,643,896 --------------- COMMON STOCK AND EQUIVILANTS -- 0.0% HONG KONG -- 0.0% Hutchison Whampoa, Ltd. 1,800 $ 0 --------------- (Cost: $0) 1,800 0 --------------- EQUITY-LINKED SECURITIES -- 0.8% TAIWAN -- 0.8% Credit Suisse FB United Microelectronics Corp. -- 01/26/07 7,866 4,743 Credit Suisse FB Yageo Corp. 9/15/04* 2,079,000 779,625 --------------- 784,368 --------------- TOTAL EQUITY-LINKED SECURITIES (Cost: $1,107,378) 784,368 --------------- PRINCIPAL AMOUNT - --------------------------------------------------------------------------------------- SHORT TERM INVESTMENTS -- 7.4% MONEY MARKET FUNDS -- 5.3% Federated Prime Obligations Fund** $ 5,449,918 5,449,918 --------------- TIME DEPOSITS -- 2.1% Brown Brothers Harriman & Co. 1.300%, 10/01/04 2,119,516 2,119,516 --------------- TOTAL SHORT TERM INVESTMENTS (Cost: $7,569,434) 7,569,434 --------------- TOTAL INVESTMENTS -- 104.7% (Cost: $99,054,642) 107,270,894 LIABILITIES IN EXCESS OF OTHER ASSETS -- (4.7%) (4,812,203) --------------- NET ASSETS -- 100.0% $ 102,458,691 ===============
- ---------- * Non-income producing securities. ** All of the security is purchased with cash collateral proceeds from securities loans. # 144A Security. Certain conditions for public sale may exist. Total market value of 144A securities owned at September 30, 2004 was $1,491,418 or 1.46% of net assets. ## All or a portion of the Fund's holdings in this security was on loan as of 9/30/04. ADR -- American Depository Receipt GDR -- Global Depository Receipt SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 21 SCHEDULE OF INVESTMENTS BY INDUSTRY AS OF SEPTEMBER 30, 2004 -- UNAUDITED INTERNATIONAL GROWTH FUND
PERCENTAGE OF INDUSTRY NET ASSETS - -------- ------------- Basic Materials 4.9% Communications 19.9 Consumer, Cyclical 12.1 Consumer, Non-cyclical 16.0 Diversified 1.0 Energy 7.4 Financial 20.2 Industrial 10.8% Technology 4.0 Utilities 1.0 Short Term Investments 7.4 Liabilities in excess of other assets (4.7) ------------- NET ASSETS 100.0% =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 22 NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS SHAREHOLDER EXPENSE EXAMPLE As a shareholder of a Fund, you incur two types of costs: (1) transaction costs, 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 (April 1, 2004 to September 30, 2004). 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* VALUE VALUE APRIL 1, 2004 TO APRIL 1, 2004 SEPTEMBER 30, 2004 SEPTEMBER 30, 2004 ----------------- ------------------ ------------------ U.S. Emerging Growth -- Class R Actual $ 1,000.00 $ 928.60 $ 6.67 Hypothetical (5% return before expenses) $ 1,000.00 $ 1,072.20 $ 7.17 U.S. Large Cap Value -- Class R Actual $ 1,000.00 $ 1,012.30 $ 5.09 Hypothetical (5% return before expenses) $ 1,000.00 $ 1,079.58 $ 5.27 U.S. Systematic Large Cap Growth -- Class R Actual $ 1,000.00 $ 968.50 $ 5.77 Hypothetical (5% return before expenses) $ 1,000.00 $ 1,076.39 $ 6.09 International Growth -- Class R Actual $ 1,000.00 $ 948.80 $ 6.25 Hypothetical (5% return before expenses) $ 1,000.00 $ 1,074.20 $ 6.66
* Expenses are equal to the Fund's annualized expense ratio (show in the table below); multiplied by the average account value over the period, multiplied by 183/365 (to reflect the one-half year period).
ANNUALIZED EXPENSE RATIO ------------- U.S. Emerging Growth -- Class R 1.38% U.S. Large Cap Value -- Class R 1.01% U.S. Systematic Large Cap Growth -- Class R 1.17% International Growth -- Class R 1.28%
23 NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS FINANCIAL HIGHLIGHTS For a share outstanding during the period indicated
NET NET ASSET INVESTMENT NET REALIZED TOTAL FROM VALUE, INCOME AND UNREALIZED INVESTMENT BEGINNING (LOSS) (2) GAINS (LOSS) OPERATIONS - ---------------------------------------------------------------------------------------------- U.S. EQUITY FUNDS U.S. EMERGING GROWTH For the period ended 09/30/04 (1) $ 9.52 $ (0.05) $ (0.63) $ (0.68) 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) For the year ended 03/31/01 27.05 (0.06) (12.36) (12.42) 06/1/99 (commenced) to 03/31/00 13.86 (0.15) 13.69 13.54 U.S. LARGE CAP VALUE For the period ended 09/30/04 (1) $ 24.33 $ 0.11 $ 0.19 $ 0.30 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 For the year ended 03/31/01 21.74 0.18 1.63 1.81 06/1/99 (commenced) to 3/31/00 22.33 0.12 (0.71) (0.59) U.S. SYSTEMATIC LARGE CAP GROWTH For the period ended 09/30/04 (1) $ 14.90 $ (0.00) $ (0.47) $ (0.47) 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) For the year ended 03/31/01 49.77 (0.32) (25.90) (26.22) 06/1/99 (commenced) to 03/31/00 28.61 (0.21) 21.37 21.16 GLOBAL EQUITY FUNDS INTERNATIONAL GROWTH For the period ended 09/30/04 (1) $ 18.93 $ 0.13 $ (1.10) $ (0.97) 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) For the year ended 03/31/01 31.84 (0.03) (11.26) (11.29) 06/1/99 (commenced) to 3/31/00 20.01 (0.20) 12.03 11.83 DISTRIBUTION FROM: --------------------------- NET NET INVESTMENT REALIZED TOTAL INCOME CAPITAL GAINS DISTRIBUTIONS - ----------------------------------------------------------------------------------- U.S. EQUITY FUNDS U.S. EMERGING GROWTH For the period ended 09/30/04 (1) $ -- $ -- $ -- For the year ended 03/31/04 -- -- -- For the year ended 03/31/03 -- -- -- For the year ended 03/31/02 -- -- -- For the year ended 03/31/01 -- (5.08) (5.08) 06/1/99 (commenced) to 03/31/00 -- (0.35) (0.35) U.S. LARGE CAP VALUE For the period ended 09/30/04 (1) $ -- $ -- $ -- For the year ended 03/31/04 (0.51) -- (0.51) For the year ended 03/31/03 (0.25) -- (0.25) For the year ended 03/31/02 (0.04) (0.37) (0.41) For the year ended 03/31/01 (0.16) -- (0.16) 06/1/99 (commenced) to 3/31/00 -- -- -- U.S. SYSTEMATIC LARGE CAP GROWTH For the period ended 09/30/04 (1) $ -- $ -- $ -- For the year ended 03/31/04 -- -- -- For the year ended 03/31/03 -- -- -- For the year ended 03/31/02 -- -- -- For the year ended 03/31/01 -- (1.03) (1.03) 06/1/99 (commenced) to 03/31/00 -- -- -- GLOBAL EQUITY FUNDS INTERNATIONAL GROWTH For the period ended 09/30/04 (1) $ -- $ -- $ -- For the year ended 03/31/04 (0.01) -- (0.01) For the year ended 03/31/03 -- -- -- For the year ended 03/31/02 -- -- -- For the year ended 03/31/01 -- (1.42) (1.42) 06/1/99 (commenced) to 3/31/00 -- -- --
- ---------- (1) Unaudited. (2) Net investment income per share is calculated by dividing net investment income for the period by the average shares outstanding during the period. (3) Total returns are not annualized for periods less than one year. (4) The Board of Trustees approved an amendment to the Expense Limitation Agreement whereby overall operating expenses (excluding taxes, interest, brokerage, extraordinary expense and expenses incurred from the creation and operation of the Mauritius entity) 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%. (5) 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. (6) 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. (7) This calculation includes expenses not part of the expense reimbursement calculation. (8) The Board of Trustees approved the amendments to the Expense Limitation Agreement whereby overall operating expenses (excluding taxes, interest, brokerage, extraordinary expenses and expenses incurred from the creation and operation of the Mauritius entity) of the U.S. Emerging Growth, U.S. Large Cap Value, U.S. Systematic Large Cap Growth and International Growth do not exceed 1.50%, 1.25%, 1.25% and 1.40%, for the period 4/1/03 to 7/28/03, 1.73%, 1.06%, 1.37% and 1.66% for the period 7/29/03 to 3/31/04, respectively. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 24
NET ASSET VALUE, TOTAL ENDING RETURN (3) - ------------------------------------------------------------- U.S. EQUITY FUNDS U.S. EMERGING GROWTH For the period ended 09/30/04 (1) $ 8.84 (7.14%) For the year ended 03/31/04 9.52 51.83% For the year ended 03/31/03 6.27 (34.28%) For the year ended 03/31/02 9.54 (0.10%) For the year ended 03/31/01 9.55 (49.67%) 06/1/99 (commenced) to 03/31/00 27.05 98.68% U.S. LARGE CAP VALUE For the period ended 09/30/04 (1) $ 24.63 1.23% For the year ended 03/31/04 24.33 37.09% For the year ended 03/31/03 18.15 (24.58%) For the year ended 03/31/02 24.39 6.13% For the year ended 03/31/01 23.39 8.31% 06/1/99 (commenced) to 3/31/00 21.74 (2.21%) U.S. SYSTEMATIC LARGE CAP GROWTH For the period ended 09/30/04 (1) $ 14.43 (3.15%) For the year ended 03/31/04 14.90 18.16% For the year ended 03/31/03 12.61 (29.79%) For the year ended 03/31/02 17.96 (20.25%) For the year ended 03/31/01 22.52 (53.35%) 06/1/99 (commenced) to 03/31/00 49.77 73.98% GLOBAL EQUITY FUNDS INTERNATIONAL GROWTH For the period ended 09/30/04 (1) $ 17.96 (5.12%) For the year ended 03/31/04 18.93 48.86% For the year ended 03/31/03 12.72 (25.48%) For the year ended 03/31/02 17.07 (10.77%) For the year ended 03/31/01 19.13 (36.17%) 06/1/99 (commenced) to 3/31/00 31.84 59.14% RATIOS TO AVERAGE NET ASSETS (6) ----------------------------------------------------------------------------------------- EXPENSES EXPENSES NET OF NET EXPENSE NET OF REIMBURSEMENT/ INVESTMENT TOTAL (REIMBURSEMENTS)/ REIMBURSEMENT/ RECOUPMENT INCOME (LOSS) EXPENSES RECOUPMENT RECOUPMENT OFFSET (7) - -------------------------------------------------------------------------------------------------------------------------------- U.S. EQUITY FUNDS U.S. EMERGING GROWTH For the period ended 09/30/04 (1) (1.12%) 1.87% (0.13%) 1.74% 1.38% For the year ended 03/31/04 (1.28%) 1.73% -- 1.73% 1.51%(8) For the year ended 03/31/03 (1.20%) 1.74% (0.20%) 1.54% 1.50%(4) For the year ended 03/31/02 (0.73%) 1.59% (0.11%) 1.48% 1.48%(5) For the year ended 03/31/01 (0.32%) 1.55% (0.12%) 1.43% 1.43% 06/1/99 (commenced) to 03/31/00 (0.91%) 1.62% (0.20%) 1.42% 1.42% U.S. LARGE CAP VALUE For the period ended 09/30/04 (1) 0.94% 1.56% (0.49%) 1.07% 1.01% For the year ended 03/31/04 1.10% 1.52% (0.45%) 1.07% 1.04%(8) For the year ended 03/31/03 1.03% 1.54% (0.34%) 1.20% 1.19%(4) For the year ended 03/31/02 0.63% 1.39% (0.13%) 1.26% 1.26% For the year ended 03/31/01 0.78% 1.47% (0.20%) 1.27% 1.27% 06/1/99 (commenced) to 3/31/00 0.70% 1.52% (0.26%) 1.26% 1.26% U.S. SYSTEMATIC LARGE CAP GROWTH For the period ended 09/30/04 (1) (0.02%) 1.89% (0.51%) 1.38% 1.17% For the year ended 03/31/04 (0.41%) 1.58% (0.20%) 1.38% 1.18%(8) For the year ended 03/31/03 (0.59%) 1.51% (0.30%) 1.21% 1.20%(4) For the year ended 03/31/02 (0.79%) 1.35% (0.10%) 1.25% 1.25% For the year ended 03/31/01 (0.80%) 1.32% (0.07%) 1.25% 1.25% 06/1/99 (commenced) to 03/31/00 (0.69%) 1.42% (0.15%) 1.27% 1.27% GLOBAL EQUITY FUNDS INTERNATIONAL GROWTH For the period ended 09/30/04 (1) 1.38% 1.71% (0.05%) 1.66% 1.28% For the year ended 03/31/04 0.71% 1.74% (0.04%) 1.70% 1.44%(8) For the year ended 03/31/03 0.65% 1.72% (0.21%) 1.51% 1.48%(4) For the year ended 03/31/02 (0.09%) 1.61% 0.01% 1.62% 1.62% For the year ended 03/31/01 (0.13%) 1.58% 0.08% 1.66% 1.66% 06/1/99 (commenced) to 3/31/00 (0.82%) 1.61% 0.04% 1.65% 1.65% FUND'S PORTFOLIO NET ASSETS, TURNOVER ENDING RATE (IN 000'S) - --------------------------------------------------------------- U.S. EQUITY FUNDS U.S. EMERGING GROWTH For the period ended 09/30/04 (1) 74% $ 3,664 For the year ended 03/31/04 166% 3,948 For the year ended 03/31/03 118% 2,879 For the year ended 03/31/02 138% 4,597 For the year ended 03/31/01 120% 3,577 06/1/99 (commenced) to 03/31/00 88% 5,861 U.S. LARGE CAP VALUE For the period ended 09/30/04 (1) 14% $ 8,197 For the year ended 03/31/04 51% 8,405 For the year ended 03/31/03 139% 6,749 For the year ended 03/31/02 99% 11,423 For the year ended 03/31/01 120% 9,838 06/1/99 (commenced) to 3/31/00 140% 7,700 U.S. SYSTEMATIC LARGE CAP GROWTH For the period ended 09/30/04 (1) 128% $ 9,490 For the year ended 03/31/04 172% 10,229 For the year ended 03/31/03 193% 9,052 For the year ended 03/31/02 224% 38,386 For the year ended 03/31/01 160% 41,730 06/1/99 (commenced) to 03/31/00 154% 83,785 GLOBAL EQUITY FUNDS INTERNATIONAL GROWTH For the period ended 09/30/04 (1) 98% $ 1,654 For the year ended 03/31/04 186% 9,236 For the year ended 03/31/03 203% 7,845 For the year ended 03/31/02 232% 11,199 For the year ended 03/31/01 234% 11,216 06/1/99 (commenced) to 3/31/00 158% 15,571
25 NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS STATEMENTS OF ASSETS AND LIABILITIES SEPTEMBER 30, 2004 (UNAUDITED)
U.S. SYSTEMATIC U.S. EMERGING U.S. LARGE CAP LARGE CAP INTERNATIONAL GROWTH VALUE GROWTH GROWTH ASSETS Investments, at value* $ 28,872,269 $ 22,671,403 $ 12,681,651 $ 107,270,894 Foreign currencies, at value** -- -- -- 2,000 Cash -- -- 15,247 -- Receivables: Investment securities sold 1,495,915 -- 284,087 3,026,548 Capital shares sold 11,238 25,033 5,163 8,508 Dividends 970 24,529 11,572 239,401 Foreign taxes receivable -- -- -- 10,742 Interest -- -- -- -- Expense offset and other 32,981 6,516 18,411 147,861 Other assets 8,152 9,540 8,125 9,342 ------------- -------------- --------------- ------------- Total assets 30,421,525 22,737,021 13,024,256 110,715,296 ------------- -------------- --------------- ------------- LIABILITIES Payables: Bank overdraft $ 1,166,592 $ 22,871 $ -- $ 487,754 Investments purchased 145,197 170,124 334,088 2,026,488 Capital shares redeemed -- 7,721 2,619 3,442 Collateral on securities loaned 6,364,875 -- -- 5,449,918 Distributions fee 736 1,680 1,961 340 To investment advisor 13,267 2,271 1,788 50,142 Other Liabilities 63,650 34,293 25,311 238,521 ------------- -------------- --------------- ------------- Total Liabilities 7,754,317 238,960 365,767 8,256,605 ------------- -------------- --------------- ------------- NET ASSETS 22,667,208 22,498,061 12,658,489 102,458,691 ============= ============== =============== ============= * Investments, at cost 25,751,901 19,208,431 12,498,575 99,054,642 ============= ============== =============== ============= ** Foreign currencies, at cost -- -- -- 1,936 ============= ============== =============== ============= NET ASSETS CONSIST OF: Paid-in capital $ 52,984,036 $ 25,440,784 $ 118,627,501 $ 113,831,116 Undistributed net investment income (loss) (121,719) 423,187 2,877 657,836 Accumulated net realized gain (loss) on investments and foreign currencies (33,315,477) (6,828,882) (106,154,965) (20,250,743) Net unrealized appreciation (depreciation) of investments and of other assets and liabilities denominated in foreign currencies 3,120,368 3,462,972 183,076 8,220,482 ------------- -------------- --------------- ------------- Net Assets applicable to all shares outstanding $ 22,667,208 $ 22,498,061 $ 12,658,489 $ 102,458,691 ============= ============== =============== ============= Net Assets of Class R shares $ 3,664,356 $ 8,196,693 $ 9,489,664 $ 1,653,665 Net Assets of Class I shares 19,002,852 14,301,368 3,168,825 43,111,735 Net Assets of Class II shares -- -- -- -- Net Assets of Class III shares -- -- -- 35,100,431 Net Assets of Class IV shares -- -- -- 22,592,860 ============= ============== =============== ============= Class R Shares outstanding 414,546 332,826 657,478 92,062 Class I Shares outstanding 2,126,170 578,273 216,879 2,371,510 Class II Shares outstanding -- -- -- -- Class III Shares outstanding -- -- -- 1,928,808 Class IV Shares outstanding -- -- -- 1,239,610 ============= ============== =============== ============= Net Asset Value -- Class R Share $ 8.84 $ 24.63 $ 14.43 $ 17.96 Net Asset Value -- Class I Share $ 8.94 $ 24.73 $ 14.61 $ 18.18 Net Asset Value -- Class II Share $ -- $ -- $ -- $ -- Net Asset Value -- Class III Share $ -- $ -- $ -- $ 18.20 Net Asset Value -- Class IV Share $ -- $ -- $ -- $ 18.23 ============= ============== =============== =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 26 NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS STATEMENTS OF OPERATIONS PERIOD ENDED SEPTEMBER 30, 2004 (UNAUDITED)
U.S. SYSTEMATIC U.S. EMERGING U.S. LARGE CAP LARGE CAP INTERNATIONAL GROWTH VALUE GROWTH GROWTH INVESTMENT INCOME Dividends, net of foreign taxes* $ 31,297 $ 205,470 $ 74,678 $ 1,177,583 Interest 29,094 96 817 5,433 ------------- -------------- --------------- ------------- Total Income 60,391 205,566 75,495 1,183,016 ------------- -------------- --------------- ------------- EXPENSES Advisory fees 115,996 47,666 29,483 276,465 Accounting and administration fees 22,867 15,024 13,521 46,118 Custodian fees 24,229 12,188 12,693 104,583 Transfer agent fees and expenses 12,590 11,729 11,559 18,278 Shareholder servicing fees 24,771 23,960 22,104 98,820 Administrative services fees 18,559 12,711 9,828 91,682 Professional fees 9,541 5,710 4,048 32,461 Shareholder reporting 7,404 4,634 3,584 25,986 Registration fees 9,597 10,230 8,955 9,920 Trustees' fees and expenses 2,074 1,340 867 7,116 Interest and credit facility fee 379 210 214 1,193 Insurance 2,941 1,444 1,570 9,599 Miscellaneous 2,539 1,921 1,524 6,946 ------------- -------------- --------------- ------------- Total Expenses 253,487 148,767 119,950 729,167 Expense offset (52,118) (6,047) (13,738) (184,545) Expenses (reimbursed)/recouped (19,259) (52,055) (33,594) (35,863) ------------- -------------- --------------- ------------- Net Expenses 182,110 90,665 72,618 508,759 ------------- -------------- --------------- ------------- NET INVESTMENT INCOME (LOSS) (121,719) 114,901 2,877 674,257 ------------- -------------- --------------- ------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Realized gain from: Securities 610,601 793,613 1,333,709 6,856,412 Foreign currency transactions -- -- -- (339,882) ------------- -------------- --------------- ------------- Net realized gain (loss) 610,601 793,613 1,333,709 6,516,530 ------------- -------------- --------------- ------------- Change in unrealized appreciation (depreciation) of: Investments (3,512,420) (590,703) (1,741,900) (13,205,671) Other assets and liabilities denominated in foreign currencies -- -- -- (14,651) ------------- -------------- --------------- ------------- Net unrealized appreciation (depreciation) (3,512,420) (590,703) (1,741,900) (13,220,322) ------------- -------------- --------------- ------------- NET GAIN (LOSS) ON INVESTMENTS (2,901,819) 202,910 (408,191) (6,703,792) ------------- -------------- --------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ (3,023,538) $ 317,811 $ (405,314) $ (6,029,535) ============= ============== =============== ============= * Foreign taxes withheld $ -- $ -- $ -- $ 166,889 ============= ============== =============== =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 27 NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS STATEMENTS OF CHANGES IN NET ASSETS PERIODS ENDED SEPTEMBER 30, 2004 AND MARCH 31, 2004
U.S. EMERGING GROWTH U.S. LARGE CAP VALUE ------------------------------------------------------------------ SEPTEMBER 30, SEPTEMBER 30, 2004 MARCH 31, 2004 MARCH 31, (UNAUDITED) 2004 (UNAUDITED) 2004 ------------- -------------- --------------- ------------- INCREASE (DECREASE) IN NET ASSETS FROM INVESTMENT OPERATIONS: Net investment income (loss) $ (121,719) $ (456,250) $ 114,901 $ 308,286 Net realized gain (loss) 610,601 10,945,194 793,613 2,036,857 Net unrealized appreciation (depreciation) (3,512,420) 7,023,694 (590,703) 6,130,411 ------------- -------------- --------------- ------------- Net increase (decrease) in net assets from investment operations (3,023,538) 17,512,638 317,811 8,475,554 ------------- -------------- --------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income -- -- -- (518,008) From net realized gains -- -- -- -- ------------- -------------- --------------- ------------- Total distributions -- -- -- (518,008) ------------- -------------- --------------- ------------- FROM CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold Class R 333,585 1,179,622 268,520 970,722 Class I 894,498 11,253,913 2,546,228 7,248,568 Distributions reinvested Class R -- -- -- 181,381 Class I -- -- -- 336,468 Cost of shares redeemed Class R (328,408) (1,529,721) (577,330) (1,774,921) Class I (11,251,729) (32,008,789) (1,105,655) (28,279,823) ------------- -------------- --------------- ------------- Net increase (decrease) in net assets from share transactions (10,352,054) (21,104,975) 1,131,763 (21,317,605) ------------- -------------- --------------- ------------- Net Increase (Decrease) in Net Assets (13,375,592) (3,592,337) 1,449,574 (13,360,059) NET ASSETS Beginning 36,042,800 39,635,137 21,048,487 34,408,546 ------------- -------------- --------------- ------------- Ending $ 22,667,208 $ 36,042,800 $ 22,498,061 $ 21,048,487 ============= ============== =============== ============= Undistributed net investment income (loss), ending $ (121,719) $ -- $ 423,187 $ 308,286 ============= ============== =============== ============= CLASS R -- CAPITAL SHARE ACTIVITY Shares sold 36,425 139,728 11,098 44,394 Distributions reinvested -- -- -- 8,137 Shares redeemed (36,663) (183,884) (23,703) (78,872) ------------- -------------- --------------- ------------- Net Class R Share Activity (238) (44,156) (12,605) (26,341) ============= ============== =============== ============= CLASS I -- CAPITAL SHARE ACTIVITY Shares sold 101,075 1,534,091 105,640 316,713 Distributions reinvested -- -- -- 15,061 Shares redeemed (1,314,313) (4,012,939) (45,506) (1,333,258) ------------- -------------- --------------- ------------- Net Class I Share Activity (1,213,238) (2,478,848) 60,134 (1,001,484) ============= ============== =============== ============= U.S. SYSTEMATIC LARGE CAP GROWTH ----------------------------- SEPTEMBER 30, 2004 MARCH 31, (UNAUDITED) 2004 ------------- ------------- INCREASE (DECREASE) IN NET ASSETS FROM INVESTMENT OPERATIONS: Net investment income (loss) $ 2,877 $ (63,463) Net realized gain (loss) 1,333,709 3,077,381 Net unrealized appreciation (depreciation) (1,741,900) 1,280,165 ------------- --------------- Net increase (decrease) in net assets from investment operations (405,314) 4,294,083 ------------- --------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income -- -- From net realized gains -- -- ------------- --------------- Total distributions -- -- ------------- --------------- FROM CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold Class R 384,151 1,503,639 Class I 138,750 1,400,861 Distributions reinvested Class R -- -- Class I -- -- Cost of shares redeemed Class R (816,718) (1,969,935) Class I (389,441) (18,861,142) ------------- --------------- Net increase (decrease) in net assets from share transactions (683,258) (17,926,577) ------------- --------------- Net Increase (Decrease) in Net Assets (1,088,572) (13,632,494) NET ASSETS Beginning 13,747,061 27,379,555 ------------- --------------- Ending $ 12,658,489 $ 13,747,061 ============= =============== Undistributed net investment income (loss), ending $ 2,877 $ -- ============= =============== CLASS R -- CAPITAL SHARE ACTIVITY Shares sold 26,081 104,959 Distributions reinvested -- -- Shares redeemed (55,214) (136,216) ------------- --------------- Net Class R Share Activity (29,133) (31,257) ============= =============== CLASS I -- CAPITAL SHARE ACTIVITY Shares sold 9,293 97,300 Distributions reinvested -- -- Shares redeemed (25,986) (1,304,016) ------------- --------------- Net Class I Share Activity (16,693) (1,206,716) ============= ===============
- ---------- (1) Commenced operations on 2/27/04. SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 28
INTERNATIONAL GROWTH ----------------------------- SEPTEMBER 30, 2004 MARCH 31, (UNAUDITED) 2004 ------------- ------------- INCREASE (DECREASE) IN NET ASSETS FROM INVESTMENT OPERATIONS: Net investment income (loss) $ 674,257 $ 1,027,876 Net realized gain (loss) 6,516,530 23,403,242 Net unrealized appreciation (depreciation) (13,220,322) 22,572,455 ------------- ------------- Net increase (decrease) in net assets from investment operations (6,029,535) 47,003,573 ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS: From net investment income -- (484,596) From net realized gains -- -- ------------- ------------- Total distributions -- (484,596) ------------- ------------- FROM CAPITAL SHARE TRANSACTIONS: Proceeds from shares sold Class R 288,598 1,493,312 Class I 1,864,494 25,196,139 Class II -- 34,143,763 Class III -- 36,914,124 Class IV -- 19,914,459 Distributions reinvested Class R -- 2,197 Class I -- 102,636 Class II -- 145,987 Class III -- 152,119 Class IV -- 81,263 Cost of shares redeemed Class R (7,479,822) (3,483,853) Class I (7,794,876) (87,368,940) Class II (15,352,688) (25,552,940) Class III -- (7,096,631) Class IV (30,722) (42,831) ------------- ------------- Net increase (decrease) in net assets from share transactions (28,505,016) (5,399,196) ------------- ------------- Net Increase (Decrease) in Net Assets (34,534,551) 41,119,781 NET ASSETS Beginning 136,993,242 95,873,461 ------------- ------------- Ending $ 102,458,691 $ 136,993,242 ============= ============= Undistributed net investment income (loss), ending $ 657,836 $ (16,421) ============= =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 29
INTERNATIONAL GROWTH ----------------------------- SEPTEMBER 30, 2004 MARCH 31, (UNAUDITED) 2004 ------------- ------------- CLASS R -- CAPITAL SHARE ACTIVITY Shares sold 15,612 90,775 Distributions reinvested -- 130 Shares redeemed (411,568) (219,722) ============= ============= Net Class R Share Activity (395,956) (128,817) ============= ============= CLASS I -- CAPITAL SHARE ACTIVITY Shares sold 106,739 1,541,651 Distributions reinvested -- 6,030 Shares redeemed (429,745) (5,715,622) ------------- ------------- Net Class I Share Activity (323,006) (4,167,941) ============= ============= CLASS II -- CAPITAL SHARE ACTIVITY Shares sold -- 2,225,984 Distributions reinvested -- 8,587 Shares redeemed (825,784) (1,408,787) ============= ============= Net Class II Share Activity (825,784) 825,784 ============= ============= CLASS III -- CAPITAL SHARE ACTIVITY Shares sold -- 2,315,001 Distributions reinvested -- 8,943 Shares redeemed -- (395,136) ============= ============= Net Class III Share Activity -- 1,928,808 ============= ============= CLASS IV -- CAPITAL SHARE ACTIVITY Shares sold -- 1,238,937 Distributions reinvested -- 4,777 Shares redeemed (1,589) (2,515) ============= ============= Net Class IV Share Activity (1,589) 1,241,199 ============= =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 30 NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS NOTES TO FINANCIAL STATEMENTS -- (UNAUDITED) 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"), five 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 four Funds have issued Retirement shares ("Class R"). No shares have a sales charge. Class R shares have a distribution fee. All Funds have a shareholder services fee. The Funds offering Class R shares are covered in this report. On April 19, 2004 the name of the following Fund was changed to more accurately reflect its investment policy.
OLD NEW U.S. Large Cap Select U.S. Systematic Large Cap Growth 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 overthe-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 bid 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. 31 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 September 30, 2004. 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 September 30, 2004. 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 32 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 September 30, 2004 were:
FUND MARKET VALUE COLLATERAL ---- ------------ ---------- U.S. Emerging Growth 6,193,629 6,364,875 International Growth 5,207,047 5,449,918
CREDIT FACILITY The Trust has a $15 million credit facility available to fund temporary or emergency borrowing expiring in January 2005. Each Fund pays its pro-rata share of an annual commitment fee plus interest on its specific borrowings. For the period ended September 30, 2004, 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 result of uninvested cash balances were used to reduce the Funds expenses. During the period, the credits used to reduce the Funds expenses were:
CREDIT DIRECT SECURITY INTEREST BROKERAGE LENDING FUND OFFSET OFFSET OFFSET ---- -------- ---------- --------- U.S. Emerging Growth $ 1,788 $ 23,885 $ 26,445 U.S. Large Cap Value 2,427 3,620 -- U.S. Systematic Large Cap Growth 304 12,690 744 International Growth 8,329 122,525 53,691
33 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. NOTE D -- TRANSACTIONS WITH AFFILIATES The Investment Adviser receives the following annual fees payable monthly based on the average daily net assets of each Fund.
FUND ADVISORY FEE ---- ------------ U.S. Emerging Growth 0.75% U.S. Large Cap Value 0.45% U.S. Systematic Large Cap Growth 0.45% International Growth 0.50%
Pursuant to the Administrative Services agreement the Investment Adviser provides operational support services to the Funds and receives the following annual fees payable monthly based on average daily net assets of each Fund.
ADMINISTRATIVE FUND SERVICES FEE ---- -------------- U.S. Emerging Growth 0.12% U.S. Large Cap Value 0.12% U.S. Systematic Large Cap Growth 0.15% International Growth 0.25%
Pursuant to the Shareholder Services agreement the Investment Adviser provides account servicing to the Funds and receives the following annual fees payable monthly based on the average daily net assets of each Fund.
SHAREHOLDER FUND SERVICES FEE ---- ------------ U.S. Emerging Growth 0.13% U.S. Large Cap Value 0.13% U.S. Systematic Large Cap Growth 0.15% International Growth 0.25%
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 September 30, 2004. 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, brokerage and the expenses incurred from the operation of the Mauritius Company) when they fall below the limit in the year such reimbursement is paid. 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.
CLASS R FUND 4/1/04 TO 9/30/04 ---- ----------------- U.S. Emerging Growth 1.73% U.S. Large Cap Value 1.06% U.S. Systematic Large Cap Growth 1.37% International Growth 1.66%
34 Each of the Funds has entered into a Shareholder Services Agreement with the Distributor under which each Fund will pay the distributor up to 0.25% of the average daily assets of each of the Funds to pay financial institutions, including the Investment Adviser, for certain personal services for shareholders and for the maintenance of shareholder accounts. Each Fund has adopted a distribution plan in accordance with Rule 12b-1 under the Investment Company Act. Class R shares may pay a fee to the Distributor in an amount computed at an annual rate of up to 0.25% of the average daily net assets to finance any activity which is principally intended to result in the sale of shares. The schedule of such fees and the basis upon which such fees will be determined from time to time by the Distributor. Over time, these fees will increase the cost of your shares and may cost you more than paying other types of sales charges. 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. NOTE E -- INVESTMENT TRANSACTIONS The following table presents purchases and sales of securities, excluding short-term investments, during the period ended September 30, 2004 to indicate the volume of transactions in each Fund. The tax cost of securities held at September 30, 2004, 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.
NET GROSS GROSS UNREALIZED UNREALIZED UNREALIZED APPRECIATION PURCHASES SALES TAX COST APPRECIATION DEPRECIATION (DEPRECIATION) FUND (IN 000'S) (IN 000'S) (IN 000'S) (IN 000'S) (IN 000'S) (IN 000'S) ---- ------------ ------------ ------------ ------------ ------------ -------------- U.S. Emerging Growth $ 22,435 $ 33,006 $ 25,752 $ 3,731 $ (611) $ 3,120 U.S. Large Cap Value 3,517 2,822 19,208 3,770 (307) 3,463 U.S. Systematic Large Cap Growth 16,609 17,302 12,499 711 (528) 183 International Growth 104,916 132,346 99,055 10,452 (2,232) 8,220
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 Funds did not have any redemptions-in-kind. 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. NOTE G -- PROXY VOTING The Investment Adviser votes proxies on behalf of the Funds pursuant to written policies and procedures adopted by the Funds. To obtain free information on how your Funds' securities were voted, please call the Funds at 1-800-551-8043. You may also view how the Fund's securities were voted by visiting the Securities & Exchange Commission's website at www.sec.gov. NOTE H -- PORTFOLIO HOLDINGS The Funds provide a complete list of their holdings four times in each fiscal year, at each quarter-end. For the second and fourth quarters, the lists appear in the Funds' semiannual and annual reports to shareholders. For the first and third quarters, the Funds' file the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the Funds' Form N-Q on the SEC's website at www.sec.gov. Form N-Q may also be reviewed and copied at the SEC's Public Reference Room in Washington, DC. To find out more about this public service, call the SEC at 1-202-942-8090. 35 NOTE I -- CORPORATE GOVERNANCE (UNAUDITED)
NUMBER OF TERM OF PORTFOLIOS IN POSITION(S) OFFICE AND FUND COMPLEX NAME, ADDRESS (1) HELD WITH LENGTH OF TIME PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS AND AGE FUND SERVED (2) DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE - ---------------------------- ----------- -------------- ------------------------------ ------------- ------------------------- DISINTERESTED TRUSTEES: GEORGE F. KEANE (75) Chairman & Since Investment Consultant and 14 Director, Bramwell Funds Trustee August 2004 Director, (since 1994); (since 1994); Director, President Emeritus and Longview Oil & Gas (since founding Chief Executive 2000); Director, Security Officer, The Common Fund Capital U.S. Real Estate (1971-1993); and Endowment (since 1997); Director, Advisors (1987-1999) The Universal Bond Fund (organizations that provide (since 1997); Director, investment management programs Universal Stainless & for colleges and Alloy Products Inc. universities); Member, (since 1994); Director, Investment Advisory Committee, United Water Services and New York State Common affiliated companies Retirement Fund (since 1985). (1996-2000); Director, and former Chairman of the Board, Trigen Energy Corporation (1994-2000); Trustee, Nicholas-Applegate Mutual Funds (1994-1999). WALTER E. AUCH (83) Trustee Since May 1999 Retired; prior thereto, 14 Trustee, LLBS Funds Chairman and CEO of Chicago (since 1994 and Brinson Board of Options Exchange Supplementary Trust (1979-1986); Senior Executive (since 1997); Director, Vice President PaineWebber, Thompson Asset Management Inc. 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).
36
NUMBER OF TERM OF PORTFOLIOS IN POSITION(S) OFFICE AND FUND COMPLEX NAME, ADDRESS (1) HELD WITH LENGTH OF TIME PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS AND AGE FUND SERVED (2) DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE - ---------------------------- ----------- -------------- ------------------------------ ------------- ------------------------- DARLENE DeREMER (48) Trustee Since May 1999 Managing Director, Putnam 14 Founding Member and Lovell NBF Private Equity Director, National (Since 2004); Managing Defined Contribution Director, NewRiver E-Business Council (since 1997); Advisory Services Division Trustee, Boston (2000-2003); Prior to, Alzheimer's Association President and Founder, DeRemer (since 1998); Director, Associates, a strategic and King's Wood Montessori marketing consulting firm for School (since 1995); the financial services Editorial Board, National industry (1987-2003); Vice Association of Variable President and Director, Asset Annuities (since 1997); Management Division, State Director, Street Bank and Trust Company, Nicholas-Applegate now referred to as State Strategic Opportunities, Street Global Advisers, Ltd. (1994-1997); (1982-1987); Vice President, Trustee, Nicholas- T. Rowe Price & Associates Applegate Mutual Funds (1979-1982); Member, Boston (1994-1999); Director, Club (since 1998); Member, Jurika & Voyles Fund Financial Women's Association Group (since 1994-2000); Advisory Board (since 1995); Director, Nicholas- Founder, Mutual Fund Cafe Applegate Southeast Asia Website. Fund, Ltd. (since 2004). INTERESTED TRUSTEES: HORACIO A. VALEIRAS (45) President & Since Managing Director (Since 2004) 14 Trustee, The Bishops Trustee August 2004 and Chief Investment Officer, School (Since 2002); Nicholas-Applegate Capital Trustee, San Diego Rowing Management, Nicholas- Club (Since 2002). Applegate Securities (since 2002); Managing Director of Morgan Stanley Investment Management, London (1997-2002); Head of International Equity and Asset Allocation, Miller Anderson & Sherred; Director and Chief of International Strategies, Credit Suisse First Boston.
37
NUMBER OF TERM OF PORTFOLIOS IN POSITION(S) OFFICE AND FUND COMPLEX NAME, ADDRESS (1) HELD WITH LENGTH OF TIME PRINCIPAL OCCUPATION(S) OVERSEEN BY OTHER DIRECTORSHIPS AND AGE FUND SERVED (2) DURING PAST 5 YEARS TRUSTEE HELD BY TRUSTEE - ---------------------------- ----------- -------------- ------------------------------ ------------- ------------------------- OFFICERS: CHARLES H. FIELD, JR. (49) Secretary Since May 2002 General Counsel, Nicholas- 14 NA Applegate Capital Management, LLC (since 2004); Deputy General Counsel (1996-2004). C. WILLIAM MAHER (43) Treasurer Since May 1999 Managing Director (since 2004) 14 NA and Chief Financial Officer, Nicholas-Applegate Capital Management, Nicholas- Applegate Securities, (Since 1998); Co-Managing Chief Financial Officer Nicholas- Applegate Holdings LLC (Since 2001). Formerly Chief Financial Officer, Mitchell Hutchins Asset Management, Inc. (1990-1998).
(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. 38 (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 Horacio A. Valeiras OFFICERS Horacio A. Valeiras, PRESIDENT Charles H. Field, Jr., SECRETARY C. William Maher, 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] 600 West Broadway San Diego, California 92101 800 - 551 - 8643 Nicholas-Applegate Securities, Distributor SEMIANN904RET ITEM 2. CODE OF ETHICS. (a) Not applicable (b) No answer required. (c) Not applicable. (d) Not applicable. (e) Not applicable. (f) (1) Not applicable (2) Not applicable. (3) Not applicable. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. (a) (1) Not applicable. (2) Not applicable. (3) Not applicable. (b) Not applicable. (c) Not applicable. (d) Not applicable. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a) Not applicable. (b) Not applicable. (c) Not applicable. (d) Not applicable. (e) (1) Not applicable. (2) Not applicable. (f) Not applicable. (g) Not applicable. (h) Not applicable. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. (a) Not applicable. (b) 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. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. ITEM 10. CONTROLS AND PROCEDURES. Item 10(a) The principal executive and financial officers have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Act) are effective based on their evaluation of the disclosure controls and procedures as of a date within 90 days of the date of this report. Item 10(b) There was no change in the registrant's internal controls over financial reporting (as defined in Rule 30a-3(d) under the 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 11. EXHIBITS. (a)(1) Not applicable. (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 11(a) (2). (a)(3) Not applicable (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 11(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 and Principal Executive Officer Date: November 29, 2004 By (Signature and Title) /s/ C. William Maher - ----------------------- C. William Maher Title: Treasurer and Principal Executive Officer Date: November 29, 2004 * Print name and title of each signing officer under his or her signature. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated (REGISTRANT) NICHOLAS-APPLEGATE INSTITUTIONAL FUNDS By (Signature and Title) /s/ Horacio A. Valeiras - -------------------------- Horacio A. Valeiras Title: President and Principal Executive Officer Date: November 29, 2004 ---------------------- By (Signature and Title) /s/ C. William Maher - ------------------------ C. William Maher Title: Treasurer and Principal Executive Officer Date: November 29, 2004 ---------------------- * Print name and title of each signing officer under his or her signature. EX-99.CERT 2 a2145251zex-99_cert.txt EXHIBIT 99.CERT Exhibit 99.Cert EXHIBIT 11(a)(2) SECTION 302 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICERS. I, Horacio A. Valeiras, certify that: 1. I have reviewed this report on Form N-CSR of Nicholas-Applegate Institutional Funds ("registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and c. disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 29, 2004 /s/ Horacio A. Valeiras - ----------------------- Horacio A. Valeiras Title: President and Principal Executive Officer I, C. William Maher, certify that: 1. I have reviewed this report on Form N-CSR of Nicholas-Applegate Institutional Funds ("registrant"); 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and c. disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 29, 2004 /s/ C. William Maher - -------------------- C. William Maher Treasurer and Principal Executive Officer EX-99.906CERT 3 a2145251zex-99_906cert.txt EXHIBIT 99.906CERT Exhibit 99.906Cert EXHIBIT 11(b) SECTION 906 CERTIFICATIONS Pursuant to 18 U.S.C.ss. 1350, the undersigned officers of Nicholas-Applegate Institutional Funds("registrant"), hereby certify, to the best of our knowledge, that the Registrant's Report on Form N-CSR for the period ended 9/30/04 (the "Report") fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities and Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Date: November 29, 2004 /s/ Horacio A. Valeiras - ----------------------- Horacio A. Valeiras Title: President and Principal Executive Officer Dated: November 29, 2004 /s/ C. William Maher - -------------------- C. William Maher Title: Treasurer and Principal Executive Officer This certification is being furnished solely pursuant to 18 U.S.C.ss. 1350 and is not being filed as part of the Report or as a separate disclosure document. -----END PRIVACY-ENHANCED MESSAGE-----