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Pacific Capital Funds – ‘485A24E’ on 9/30/97

As of:  Tuesday, 9/30/97   ·   Accession #:  950152-97-6939   ·   File #s:  33-57684, 811-07454

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 9/30/97  Pacific Capital Funds             485A24E               24:1.1M                                   Bowne BCL/FA

Post-Effective Amendment
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 485A24E     Pacific Capital Funds 485A24E                        303   1.56M 
 2: EX-5.C      Opinion re: Legality                                   7     30K 
 3: EX-6.D      Opinion re: Discount on Capital Shares                16     53K 
 4: EX-10       Material Contract                                      2     14K 
 5: EX-11       Statement re: Computation of Earnings Per Share        1      9K 
 6: EX-15.A     Letter re: Unaudited Interim Financial Information     3     16K 
 7: EX-15.C     Letter re: Unaudited Interim Financial Information     3     16K 
 8: EX-18       Letter re: Change in Accounting Principles             3     12K 
13: EX-27.01    Financial Data Schedule (Pre-XBRL)                     2±    12K 
14: EX-27.02    Financial Data Schedule (Pre-XBRL)                     2±    12K 
23: EX-27.03    Financial Data Schedule (Pre-XBRL)                     2±    12K 
24: EX-27.04    Financial Data Schedule (Pre-XBRL)                     2±    12K 
17: EX-27.05    Financial Data Schedule (Pre-XBRL)                     2±    12K 
18: EX-27.06    Financial Data Schedule (Pre-XBRL)                     2±    12K 
19: EX-27.07    Financial Data Schedule (Pre-XBRL)                     2±    12K 
20: EX-27.08    Financial Data Schedule (Pre-XBRL)                     2±    12K 
21: EX-27.09    Financial Data Schedule (Pre-XBRL)                     2±    12K 
22: EX-27.10    Financial Data Schedule (Pre-XBRL)                     2±    12K 
 9: EX-27.11    Financial Data Schedule (Pre-XBRL)                     2±    12K 
10: EX-27.12    Financial Data Schedule (Pre-XBRL)                     2±    12K 
11: EX-27.13    Financial Data Schedule (Pre-XBRL)                     2±    12K 
12: EX-27.14    Financial Data Schedule (Pre-XBRL)                     2±    12K 
15: EX-27.15    Financial Data Schedule (Pre-XBRL)                     2±    12K 
16: EX-27.16    Financial Data Schedule (Pre-XBRL)                     2±    12K 


485A24E   —   Pacific Capital Funds 485A24E
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
4Table of Contents
5Highlights
"Certain Risks
7Fund Expenses
8Explanation of Table
9Financial Highlights
10Investment Objectives and Policies of the Funds
11Additional Discussion Regarding Permitted Investment Activities
"U.S. Government Obligations
12Commercial Paper
13Futures Contracts and Related Options
15Repurchase Agreements
"Other Investment Companies
18Additional Risk Disclosure
"Investment Policies
"Additional Investment Restrictions
19Management, Advisory and Other Service Arrangements
20The Adviser
"The Sponsor, Administrator and Distributor
22Valuation of Class A and Class B Shares
"How to Purchase Class A and Class B Shares
"Purchase of Shares
27Conversion of Class B shares to Class A shares
29How to Redeem Class A and Class B Shares
31Dividend and Tax Information
"Tax Information
33General Information
"Description of the Trust and its Shares
40Investment Adviser
"Independent Auditors
"Transfer Agent
52Municipal Obligations
89Determination of Net Asset Value
93Investment Objective and Policies of the Fund
94Debt Securities
97Hedging Strategies
104Risk Factors and Special Considerations of Investing Primarily in Developing Asian Countries
107Risks of Hedging Strategies
"Risk Factors Associated with Investment in Certain Debt Securities
108Sovereign Debt
110The Sub-Adviser
138Annual Fund Operating Expenses
167Valuation of Class Y Shares
"How to Purchase Class Y Shares
169Exchange Privileges and Conversion Feature
"How to Redeem Class Y Shares
176Class Y
179Investment Restrictions
183Additional Information on Fund Investments
186TANs
"BANs
187RANs
197Management
205Distribution and Shareholder Service Plans
218Redemption of Shares
"Portfolio Transactions
222Federal and Hawaiian Tax Information
226Capital Stock
231Custodian
232Financial Information
279Appendix A
"Moody's
"A-1
280S&P
281D&P
282Fitch
283Ibca
288Appendix B
289Other Information
"Item 24. Financial Statements and Exhibits
295Item 25. Persons Controlled by or under Common Control with Registrant
"Item 26. Number of Holders of Securities
296Item 27. Indemnification
297Item 28. Business and Other Connections of Investment Adviser and Sub-Adviser
298Item 29. Principal Underwriter
299Item 30. Location of Accounts and Records
300Item 31. Management Services
"Item 32. Undertakings
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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 30, 1997 REGISTRATION NO. 33-57684; 811-7454 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 POST-EFFECTIVE AMENDMENT NO. 10 X AND --- REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 AMENDMENT NO. 12 X (CHECK APPROPRIATE BOX OR BOXES) --- --------------------- PACIFIC CAPITAL FUNDS (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) 3435 STELZER ROAD COLUMBUS, OHIO 43219-3035 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE) --------------------- REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (800) 554-3862 IRIMGA MCKAY 1230 COLUMBIA STREET SAN DIEGO, CALIFORNIA 92101 (NAME AND ADDRESS OF AGENT FOR SERVICE) WITH A COPY TO: JOEL H. GOLDBERG, ESQ. SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP 919 THIRD AVENUE NEW YORK, NEW YORK 10022 IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE (CHECK APPROPRIATE BOX): _ IMMEDIATELY UPON FILING PURSUANT TO PARAGRAPH (b) _ ON (DATE) PURSUANT TO PARAGRAPH (b) X 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)(i) _ ON (DATE) PURSUANT TO PARAGRAPH (a)(i) _ 75 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)(ii) _ ON (DATE) PURSUANT TO PARAGRAPH (a) (ii) OF RULE 485 IF APPROPRIATE, CHECK THE FOLLOWING BOX: _ THIS POST-EFFECTIVE AMENDMENT DESIGNATES A NEW EFFECTIVE DATE FOR A PREVIOUSLY FILED POST-EFFECTIVE AMENDMENT _ 60 DAYS AFTER FILING PURSUANT TO PARAGRAPH (a)(i) _ ON (DATE) PURSUANT TO PARAGRAPH (a)(i) CALCULATION OF REGISTRATION FEE [Enlarge/Download Table] Title of Securities Being Amount Being Proposed Maximum Proposed Maximum Amount of Registration Registered Registered Offering Price Per Aggregate Offering Price Fee Share* ---------------------------------------------------------------------------------------------------------------------------------- Shares of beneficial interest, no par value 4,296,001 $11.94 N/A $0 ---------------------------------------------------------------------------------------------------------------------------------- * THE TOTAL NUMBER OF SHARES REDEEMED DURING THE FISCAL YEAR ENDED JULY 31, 1997 AMOUNTED TO 21,348,987 SHARES. OF THIS NUMBER, NO SHARES HAVE BEEN USED FOR REDUCTION PURSUANT TO PARAGRAPH (A) OF RULE 24E-2 IN ALL PREVIOUS FILINGS OF POST-EFFECTIVE AMENDMENTS DURING THE CURRENT YEAR AND 17,052,985 SHARES HAVE BEEN USED FOR REDUCTION PURSUANT TO PARAGRAPH (C) OF RULE 24F-2 IN ALL PREVIOUS FILINGS DURING THE CURRENT YEAR. 4,296,001 ($51,304,267) OF THE REDEEMED SHARES FOR THE FISCAL YEAR ENDED JULY 31, 1997 ARE BEING USED FOR THE REDUCTIONS IN THE POST-EFFECTIVE AMENDMENT BEING FILED HEREIN. PURSUANT TO RULE 24F-2 UNDER THE INVESTMENT COMPANY ACT OF 1940, REGISTRANT PREVIOUSLY ELECTED TO REGISTER AN INDEFINITE NUMBER OF SHARES OF BENEFICIAL INTEREST, NO PAR VALUE. A RULE 24F-2 NOTICE WAS LAST FILED ON SEPTEMBER 29, 1997.
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PACIFIC CAPITAL FUNDS Cross Reference Sheet ================================================================================ Part A Prospectus Captions 1 Cover Page 2 Fund Expenses; Highlights 3 (a) & (b) Financial Highlights 4 Investment Objectives and Policies of the Funds; General Information 5 Highlights; Management, Advisory, and Other Service Arrangements; General Information; Additional Discussion Regarding Permitted Investment Activities; Additional Risk Disclosure 5A Not Applicable 6 General Information; Dividend and Tax Information 7 How to Purchase Class A and Class B Shares; How to Purchase Class Y Shares; Management, Advisory and Other Service Arrangements; Valuation of Class A and Class B Shares; Valuation of Class Y Shares 8 How to Redeem Class A and Class B Shares; How to Redeem Class Y Shares 9 Not Applicable -------------------------------------------------------------------------------- Part B Statement of Additional Information Captions -------------------------------------------------------------------------------- 10 Cover 11 Cover 12 Not Applicable 13 Investment Restrictions; Additional Information on Fund Investments 14 Management 15 Management 16 Management; Distribution and Shareholder Service Plan; Custodian; Independent Auditors 17 Portfolio Transactions 18 Capital Stock 19 Determination of Net Asset Value 20 Tax Information 21 Distribution and Shareholder Service Plan 22 Calculation of Yield and Total Return 23 Financial Statements -------------------------------------------------------------------------------- Part C Other Information -------------------------------------------------------------------------------- 24-32 Information required to be included in Part C is set forth under the appropriate item, so numbered, in Part C of this document.
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PACIFIC CAPITAL FUNDS GROWTH AND INCOME FUND GROWTH STOCK FUND BALANCED FUND 3435 Stelzer Road Columbus, Ohio 43219-3035 Pacific Capital Funds (the "Trust") is a professionally managed, open-end, management investment company with multiple funds available for investment. This Prospectus contains information about three of the funds of the Trust--the Growth and Income Fund, the Growth Stock Fund and the Balanced Fund (each a "Fund" and collectively, the "Funds"). The Funds are advised by Pacific Century Trust ("Pacific Century"), a division of Bank of Hawaii and sponsored, administered and distributed by BISYS Fund Services ("BISYS" or the "Distributor"). The Balanced Fund has not yet commenced operations. This Prospectus relates to the Class A and Class B shares of each Fund; certain investors may qualify to invest in a Fund's Class Y shares, which are not offered hereby. See "General Information--Description of the Trust and its Shares." This Prospectus sets forth concisely the information a prospective investor should know before investing in any of the Funds. Investors should read this Prospectus carefully and retain it for future reference. A Statement of Additional Information ("SAI") dated November 29, 1997 containing additional information about the Funds has been filed with the Securities and Exchange Commission (the "Commission") and is hereby incorporated by reference into this Prospectus. The SAI is available without charge and can be obtained by writing to the Funds at the address printed above or by calling 800-258-9232. FOR PURCHASE, REDEMPTION, ACCOUNT OR GENERAL INQUIRIES, CONTACT THE TRUST'S TRANSFER AGENT: ADMINISTRATIVE DATA MANAGEMENT CORPORATION, 581 MAIN STREET, WOODBRIDGE, NEW JERSEY 07095 800-258-9232 THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE ------------------------ SHARES OF PACIFIC CAPITAL FUNDS ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY, BANK OF HAWAII OR ANY OF ITS AFFILIATES. SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER AGENCY. AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ PROSPECTUS DATED NOVEMBER 29, 1997
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TABLE OF CONTENTS [Enlarge/Download Table] PAGE ---- Highlights............................................................................ 1 Fund Expenses......................................................................... 3 Financial Highlights.................................................................. 5 Investment Objectives and Policies of the Funds....................................... 6 Additional Discussion Regarding Permitted Investment Activities....................... 7 Additional Investment Restrictions.................................................... 14 Management, Advisory and Other Service Arrangements................................... 15 Valuation of Class A and Class B Shares............................................... 18 How to Purchase Class A and Class B Shares............................................ 18 How to Redeem Class A and Class B Shares.............................................. 25 Dividend and Tax Information.......................................................... 27 General Information................................................................... 29
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HIGHLIGHTS This Prospectus describes the Funds, each of which has its own distinct investment objectives and policies, which are described and summarized here. GROWTH AND INCOME FUND--The primary investment objective of the Growth and Income Fund, a diversified portfolio, is to seek current income. A secondary objective of the Growth and Income Fund is long-term capital appreciation. Growth and Income Fund pursues these objectives by investing primarily in a diversified portfolio of high quality, dividend paying common stocks and securities that are convertible into common stocks. GROWTH STOCK FUND--The primary investment objective of the Growth Stock Fund, a diversified portfolio, is to provide investors with long-term capital appreciation. Income generation is a secondary objective of the Growth Stock Fund. Growth Stock Fund pursues these objectives by investing primarily in common stocks and securities that are convertible into common stocks of both domestic and foreign companies. The Growth Stock Fund may invest in securities issued by large, well-established companies, as well as those issued by smaller companies, subject to a minimum market capitalization of $50 million. There may be some additional risks associated with investments in smaller companies. See "Additional Discussion Regarding Permitted Investment Activities--Additional Risk Disclosure." BALANCED FUND--The primary investment objective of the Balanced Fund, a diversified portfolio, is to seek current income. A secondary objective of the Balanced Fund is long-term capital appreciation. The Balanced Fund pursues these objectives by investing in a diversified portfolio of common stocks, preferred stocks, bonds and securities that are convertible into common stocks. Common stocks will be selected on the basis of strong earnings growth trends, above-average prospects for future earnings growth, and diversification among industries and companies. Preferred stocks, bonds and convertible securities will be selected on the basis of strong earnings and credit record, the ability to provide current income, and the other characteristics described above with respect to common stocks. CERTAIN RISKS Stocks held in the Funds' portfolios are subject to market risk (i.e., the possibility that common stock prices will decline over short or even extended periods). The U.S. stock market experiences periods when stock prices rise and periods when stock prices decline. The Growth Stock Fund may invest a significant portion of its assets in the securities of smaller and newer issuers. Investments in such companies may present greater opportunities for capital appreciation because of high potential earnings growth, but they may also involve greater risk. Such companies, relative to larger concerns, may have limited product lines, markets or financial resources, or may depend on a small group of key managers. Their securities may trade less frequently or in limited volume, or only in the over-the-counter market or on a regional securities exchange. As a result, these securities may fluctuate in value more than those of larger, more established companies and, as a group, may suffer more severe price declines during periods of generally declining equity prices. There can, of course, be no assurance that any mutual fund will achieve its investment objective. In addition, unlike insured bank deposits, an investment in the Funds is not insured against loss of principal. Equity securities such as those in which the Funds may invest are more volatile and carry more risk than some other forms of investment, such as short-term high-grade fixed income securities. Depending upon the performance of a Fund's investments, the net asset value per share of that Fund may decrease instead of increase. PROSPECTUS 1
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For additional information concerning the investment policies and practices of the Funds, see "Investment Objectives and Policies of the Funds," "Additional Discussion Regarding Permitted Investment Activities" and "Additional Investment Restrictions" in this Prospectus. Further information also is provided in the SAI. PURCHASE OF CLASS A AND CLASS B SHARES Class A and Class B shares of each Fund are sold on a continuous basis and may be purchased by mail or by electronic transfer. See "How to Purchase Class A and Class B Shares." Initial purchases may be made with a minimum investment of $1,000 (the $1,000 minimum may be waived or reduced for certain accounts; the minimum initial purchase is $250 for Individual Retirement Accounts ("IRAs") and $100 for Auto Invest Plan participants). Subsequent investments may be made with as little as $50. For more information about purchasing Fund shares call ADM at 1-800-258-9232 or contact your Participating Organization (defined below). Class A shares of the Funds are offered at net asset value plus a sales load at the time of purchase. Class B shares of the Funds are offered at net asset value without the imposition of a sales charge at the time of purchase, but are charged a deferred sales charge if shares are redeemed within six years of purchase. See "Valuation of Class A and Class B Shares." Only institutions (including Bank of Hawaii and its affiliated and correspondent banks) ("Institutions") acting on behalf of customers having a qualified trust account, employee benefit account or other qualifying relationship at such Institution are eligible to invest in the Class Y shares of each Fund, which are not offered hereby. See "General Information." DIVIDENDS AND DISTRIBUTIONS The Funds will declare and pay dividends of substantially all of their net income monthly. Any net capital gains of a Fund will be distributed at least annually. At an investor's choice, dividends are paid by mail, directly deposited into a financial institution account, or automatically reinvested, without sales charges, in additional shares at the then-current net asset value. If no election is made, dividends will be automatically reinvested. See "Dividend and Tax Information." PACIFIC CENTURY AND BISYS For its services as investment adviser to the Funds, Pacific Century receives a fee from each Fund at annual rates that are based on the Fund's average daily net assets. See "Fund Expenses" and "Management, Advisory and Other Service Arrangements." A division of Bank of Hawaii, Pacific Century was founded in 1898 and is the oldest and largest trust company in Hawaii. It has investment management authority over approximately $7.5 billion in client financial assets. Pacific Century is not authorized to and does not carry on a banking business. BISYS provides certain administrative services to the Funds, for which each Fund pays it a fee at an annual rate based on the Fund's average daily net assets. BISYS also distributes the Funds' shares, for which it may receive certain additional fees. See "Management, Advisory and Other Service Arrangements." REDEMPTION OF CLASS A AND CLASS B SHARES Class A and Class B shares may ordinarily be redeemed by mail or by telephone. However, all or part of a customer's shares may be subject to redemption in accordance with instructions and limitations pertaining to his or her account held by a Participating Organization. See "How to Redeem Class A and Class B Shares." PROSPECTUS 2
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FUND EXPENSES The following Table of Expenses lists the costs and expenses that a shareholder can expect to incur as an investor in Class A and Class B shares of a Fund. Certain investors may qualify to invest in a Fund's Class Y shares, which are not offered hereby. Long-term Class A and Class B shareholders could pay more in distribution related charges than the economic equivalent of the maximum front-end sales charges applicable to mutual funds sold by members of the National Association of Securities Dealers, Inc. ("NASD"). TABLE OF EXPENSES(a) [Enlarge/Download Table] GROWTH AND GROWTH BALANCED INCOME FUND STOCK FUND FUND ---------------------- ---------------------- ---------------------- CLASS A CLASS B(b) CLASS A CLASS B(b) CLASS A CLASS B(b) ------- ---------- ------- ---------- ------- ---------- SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchases (as a percentage of offering price)....................... 4.00% None 4.00% None 4.00% None Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)......................... None None None None None None Deferred Sales Load (as a percentage of original purchase price or redemption proceeds, as applicable)................. None 5.00% None 5.00% None 5.00% Redemption Fee(c)................. None None None None None None Exchange Fee...................... None None None None None None ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets) Management Fees................... 0.80% 0.80% 0.80% 0.80% 0.80% 0.80% 12b-1 Fees (after waivers)........ 0.25% 1.00% 0.25% 1.00% 0.25% 1.00% Other Expenses (after waivers and reimbursements)................ .27% .27% .27% .27% .27% .27% Total Fund Operating Expenses (after waivers)................ 1.32% 2.07% 1.32% 2.07% 1.32% 2.07% EXAMPLE A shareholder would pay the following expenses on a $1,000 investment assuming (1) 5% annual return(d) and (2) redemption at the end of each time period. [Enlarge/Download Table] GROWTH AND GROWTH BALANCED INCOME FUND STOCK FUND FUND ---------------------- ---------------------- ---------------------- CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B ------- ---------- ------- ---------- ------- ---------- Time Period 1 year........................ $53 $71 $53 $71 $53 $71 3 years....................... $80 $95 $80 $95 $80 $95 5 years....................... $109 $131 $109 $131 $109 $131 10 years...................... $193 $221 $193 $221 $193 $221 A shareholder would pay the following expenses on the same $1,000 investment, assuming no redemption. [Download Table] 1 year........................ -- $21 -- $21 -- $21 3 years....................... -- $65 -- $95 -- $95 5 years....................... -- $111 -- $111 -- $111 10 years...................... -- $221 -- $221 -- $221 PROSPECTUS 3
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------------ (a) Investors who purchase shares through a Participating Organization, including an affiliate of Pacific Century or an Institution (as defined above), may be charged account-level fees for additional services provided to them by such Participating Organization in connection with investment in a Fund. (b) Class B shares automatically convert to Class A shares approximately eight years after initial purchase. See "Conversion of Class B shares to Class A shares." (c) The Transfer Agent will reduce the amount of a wire redemption payment by its then current wire redemption charge. As of the date of this Prospectus, there is no charge for wire redemptions. While this policy is subject to change at any time, it is not anticipated that such charge would exceed $7 per wire redemption. (d) The assumed 5% annual return is hypothetical and should not be considered a representation of past or future annual return. The actual rate of return may be greater or lesser than the assumed rate. The Example should not be considered a representation of past or future expenses, and actual expenses may be greater or lesser than those shown. EXPLANATION OF TABLE The purpose of the foregoing table is to assist shareholders in understanding the various costs and expenses that an investor in the Class A and Class B shares of the Funds will bear directly or indirectly. With respect to the Class A shares of Growth Stock Fund and Growth and Income Fund, the amounts set forth under "Annual Fund Operating Expenses," as well as expense amounts used in the Example, are based on actual amounts incurred during the most recent fiscal year. With respect to the Class B shares of Growth Stock Fund and Growth and Income Fund (which have not been publicly offered as of the date of this Prospectus) all such amounts are based on estimated amounts for the current fiscal year. With respect to the Class A and Class B shares of Balanced Fund (which has not yet commenced operations as of this date of this Prospectus) all such amounts are based on estimated amounts for the current fiscal year. See "Management, Advisory and Other Service Arrangements--The Sponsor, Administrator and Distributor." In addition, with respect to the Class A shares of the Funds, "Rule 12b-1 Fees" have been adjusted to reflect the current fee payable (after voluntary waiver) as of the date of this Prospectus. The Example set forth above assumes reinvestment of all dividends and distributions and utilizes a 5% annual rate of return as mandated by Securities and Exchange Commission regulations. Pacific Century and BISYS each may elect, in its sole discretion, to otherwise waive or reimburse its respective fees. Any such waivers or reimbursements will reduce the total expenses of the Fund to which they apply, thereby increasing yield or total return. As described above, with respect to the Class A shares, the percentages shown above under "12b-1 Fees," "Other Expenses" and "Total Fund Operating Expenses" for the Funds reflect voluntary fee waivers and reimbursements. Absent such waivers and reimbursements, these percentages would be (i) 0.75%, 0.31%, and 1.86% for the Class A shares of Growth Stock Fund; (ii) 0.75%, 0.31% and 1.86% for the Class A shares of Growth and Income Fund; and (iii) 0.75%, 0.31% and 1.86% for the Class A shares of Balanced Fund. With respect to the Class B shares, the percentages shown above under "Other Expenses" and "Total Fund Operating Expenses" for the Funds reflect voluntary fee waivers and reimbursements. Absent such waivers and reimbursements, these percentages would be (i) 0.31% and 2.11% for the Class B shares of Growth Stock Fund; (ii) 0.31% and 2.11% for the Class B shares of Growth and Income Fund; and, (iii) 0.31% and 2.11% for the Class B shares of Balanced Fund. There can be no assurance that the foregoing waivers and expense reimbursements will continue to apply. PROSPECTUS 4
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FINANCIAL HIGHLIGHTS The Financial Highlights in the table below set forth certain financial data and investment results of the Growth Stock Fund and Growth and Income Fund since the commencement of operations of the Class A shares of these Funds, and are expressed in one share outstanding throughout the relevant period. The Financial Highlights are derived from the financial statements of Pacific Capital Funds which have been audited by Ernst & Young LLP, independent auditors. The Financial Highlights should be read in conjunction with the financial statements, related notes, and other financial information included in the Statement of Additional Information. The Trust's annual report contains additional performance information relating to the Funds and is available upon request, without charge. Financial information is not presented for Class B shares, since Class B shares were not publicly issued as of the date of this Prospectus. [Enlarge/Download Table] GROWTH AND INCOME FUND GROWTH STOCK FUND CLASS A CLASS A ----------------------------------- ------------------------------------------------ YEAR YEAR OCT. 14, YEAR YEAR YEAR NOV. 1, ENDED ENDED 1994 TO ENDED ENDED ENDED 1993 TO JULY 31, JULY 31, JULY 31, JULY 31, JULY 31, JULY 31 JULY 31, 1997 1996 1995(A) 1997 1996 1995(F) 1994(A) -------- -------- -------- -------- -------- -------- -------- NET ASSET VALUE, BEGINNING OF PERIOD.......................... $ 12.32 $ 11.44 $ 10.00 $ 11.89 $ 11.71 $ 9.83 $ 10.00 ------- ------- ------ ------- ------- ------ ------- Investment Activities Net investment income.......... 0.08 0.16 0.17 0.03 0.07 0.12 0.07 ------- ------- ------ ------- ------- ------ ------- Net realized and unrealized gain (loss) on investments.... 5.57 1.19 1.44 5.55 0.89 1.87 (0.18) ------- ------- ------ ------- ------- ------ ------- Total from Investment Activities.................. 5.65 1.35 1.61 5.58 0.96 1.99 (0.11) ------- ------- ------ ------- ------- ------ ------- Distributions Net investment income.......... (0.08) (0.15) (0.17) (0.03) (0.07) (0.11) (0.06) ------- ------- ------ ------- ------- ------ ------- In excess of net investment income........................ (0.01) (0.01) -- (0.01) -- -- -- ------- ------- ------ ------- ------- ------ ------- Net realized gains............. (0.63) (0.31) -- -- (0.22) -- -- ------- ------- ------ ------- ------- ------ ------- In excess of net realized gains......................... -- -- -- -- (0.49) -- -- ------- ------- ------ ------- ------- ------ ------- Total Distributions.......... (0.72) (0.47) (0.17) (0.04) (0.78) (0.11) (0.06) ------- ------- ------ ------- ------- ------ ------- NET ASSET VALUE, END OF PERIOD... $ 17.25 $ 12.32 $ 11.44 $ 17.43 $ 11.89 $ 11.71 $ 9.83 ======= ======= ====== ======= ======= ====== ======= Total Return (excludes sales charges)........................ 47.59% 11.96% 16.35%(b) 47.02% 8.25% 20.43% (1.05%)(b) RATIOS/SUPPLEMENTARY DATA: Net assets at end of period (000)......................... $ 3,726 $ 1,160 $ 328 $ 9,742 $ 5,261 $ 3,905 $ 56,121 Ratio of expenses to average net assets.................... 1.32% 1.37% 1.40%(c) 1.32% 1.34% 1.36% 1.41%(c) Ratio of net investment income to average net assets......... 0.48% 1.03% 2.08%(c) 0.16% 0.60% 1.12% 0.98%(c) Ratio of expenses to average net assets*................... 1.86% 1.91% 1.99%(c) 1.86% 1.88% 1.98% 2.31%(c) Ratio of net investment income to average net assets*........ (0.06%) 0.49% 1.49% (0.38%) 0.06% 0.50% 0.07%(c) Portfolio Turnover (d)........... 74.83% 80.83% 12.78% 32.20% 61.30% 32.40% 25.89% Average Commission Rate paid (e)............................. $ 0.0874 $ 0.0921 -- $ 0.0893 $ 0.0895 -- -- ------------ * During the period, certain fees were voluntarily reduced. In addition, with respect to the Growth Stock Fund, the investment adviser reimbursed expenses. If such voluntary fee reductions and expense reimbursements had not occurred, the ratios would have been as indicated. (a) Period from commencement of operations. (b) Not annualized. (c) Annualized. (d) Portfolio turnover is calculated on the basis of the Fund, as a whole, without distinguishing between the classes of shares issued. (e) Represents the total dollar amount of commissions paid on portfolio transactions divided by total number of portfolio shares purchased and sold for which commissions were charged. (f) The Financial Highlights presented for the Class A shares reflects operations and distributions for the Fund, as a whole, for the period from August 1, 1994 through October 13, 1994 combined with the operations and distributions of the Class A shares only for the period from October 14, 1994 through July 31, 1995. Balanced Fund has not yet commenced operations and, therefore, no information is provided for the Fund. PROSPECTUS 5
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INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS Each Fund has its own investment objectives, as described earlier in this Prospectus. Each Fund also follows its own investment policies and practices, subject to certain investment restrictions, all described further below and in "Additional Discussion Regarding Permitted Investment Activities." The SAI also contains more specific descriptions of investment restrictions which govern the investments of each of the Funds. GROWTH AND INCOME FUND The Growth and Income Fund invests primarily in a diversified portfolio of high quality, dividend-paying common stocks and securities convertible into common stocks. The Growth and Income Fund anticipates investing in securities that currently have in the aggregate an above average dividend yield, with the anticipation that the dividend will remain constant or be increased in the future. These securities generally represent the core holdings of the Growth and Income Fund. However, these holdings may be balanced with lower yielding but higher growth-oriented securities to achieve more growth potential. Under normal market conditions, the Growth and Income Fund will invest at least 65% of the value of its total assets in income producing common stocks and securities convertible into common stocks. GROWTH STOCK FUND The Growth Stock Fund invests primarily in common stocks and securities that are convertible into common stocks of both domestic and foreign companies. Under normal market conditions, the Growth Stock Fund will invest at least 65% of its total assets in common stocks or securities convertible into common stocks. BALANCED FUND The Balanced Fund will invest primarily in common stocks, preferred stocks, bonds, and securities that are convertible into common stocks. Under normal market conditions, the Balanced Fund will invest in common stocks, fixed income securities and securities convertible into common stocks (i.e., warrants, convertible preferred stock, fixed rate preferred stock, convertible fixed-income securities, options and rights). At least 25% of the value of the Balanced Fund's assets will be invested in senior fixed-income securities. The Balanced Fund will invest in common stocks of issuers that exhibit strong earnings growth trends and that are believed by the Fund to have above-average prospects for future earnings growth. The Balanced Fund will maintain a portfolio of common stocks diversified among industries and companies. The Balanced Fund may invest in common stocks of large companies (i.e., those companies with more than $750 million in capitalization) which the Fund believes offer the potential for long-term earnings growth and/or above-average dividend yield. Some investments may also be made in common stocks of medium and smaller sized companies (i.e., those companies with at least $250 million, but less than $750 million in capitalization) which have the potential to generate high levels of future revenue and earnings growth and where the investment opportunity may not be fully reflected in the price of the securities but which may involve greater volatility than investments in larger companies. The Balanced Fund intends to invest less than 50% of its total assets in the securities of medium and smaller sized companies and the remainder in securities of larger sized companies. However, the actual percentage may vary according to changes in market conditions and the judgment of Pacific Century of how best to achieve the Balanced Fund's investment objective. For risk disclosure regarding investments in medium and smaller sized companies, see "Highlights--Certain Risks." ------------------------ Debt obligations acquired by the Funds will, at the time of purchase, be rated investment grade or better, that is, obligations rated in one of the top PROSPECTUS 6
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four rating categories assigned by a nationally recognized statistical rating organization (an "NRSRO"), or unrated obligations determined by Pacific Century to be of comparable quality. See SAI, "Appendix A." ADDITIONAL DISCUSSION REGARDING PERMITTED INVESTMENT ACTIVITIES CONVERTIBLE SECURITIES To the extent described above, the Funds may invest in convertible securities that provide current income and are issued by companies with the characteristics described above. The Funds may purchase convertible securities that are fixed-income debt securities or preferred stocks, and which may be converted at a stated price within a specified period of time into a certain quantity of the common stock of the same or other issuers. Convertible securities, while usually subordinated to nonconvertible debt securities of the same issuer, are senior to common stocks in an issuer's capital structure. Convertible securities may offer more flexibility by providing the investor with a steady income stream (generally yielding a lower amount than nonconvertible securities of the same issuer and a higher amount than common stocks) as well as the opportunity to take advantage of increases in the price of the issuer's common stock through the conversion feature. Convertible securities prices tend to be influenced by changes in the market value of the common stock as well as changes in interest rates. Convertible securities in which the Funds invest are subject to the same rating criteria as the Funds' investments in debt obligations. See "Investment Objectives and Polices of the Funds," above. U.S. GOVERNMENT OBLIGATIONS Each of the Funds may invest in U.S. Government Obligations which include, in addition to U.S. Treasury Securities, the obligations of Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Government National Mortgage Association ("GNMA"), Student Loan Marketing Association ("SLMA"), Federal National Mortgage Association ("FNMA"), Resolution Trust Corporation and Federal Home Loan Mortgage Corporation ("FHLMC"). U.S. Treasury Securities and certain other obligations of certain agencies and instrumentalities of the U.S. Government, such as those of the GNMA, are supported by the full faith and credit of the U.S. Treasury; others, such as those of the Export-Import Bank of the United States, are supported by the right of the issuer to borrow from the U.S. Treasury; others, such as those of FNMA, are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; still others, such as those of the SLMA, are supported only by the credit of the instrumentality. No assurance can be given that the U.S. Government would provide financial support to U.S. Government sponsored instrumentalities if it is not obligated to do so by law. Some of these instruments may be variable or floating rate instruments. The Funds will invest in the obligations of such instrumentalities only when Pacific Century believes that the credit risk with respect to the instrumentality is minimal. BANK AND SAVINGS AND LOAN OBLIGATIONS Each of the Funds may invest in Bank and Savings and Loan obligations. These obligations include negotiable certificates of deposit, fixed-time deposits, bankers' acceptances, and interest bearing demand accounts. The Funds limit their bank investments to dollar-denominated obligations of U.S., Canadian, Asian or European banks which have more than $500 million in total assets at the time of investment or of United States savings and loan associations which have more than $1 billion in total assets at the time of investment and, in the case of U.S. banks, are members of the Federal Reserve System or are examined by the Comptroller of the Currency or whose deposits are insured by the Federal Deposit Insurance Corporation. PROSPECTUS 7
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COMMERCIAL PAPER Each of the Funds may invest in commercial paper that is rated at the time of purchase in the highest short-term rating category by an NRSRO or unrated if considered by Pacific Century to be of comparable quality. Commercial paper includes short-term unsecured promissory notes, and variable floating rate demand notes issued by domestic and foreign bank holding companies, corporations and financial institutions as well as similar taxable and tax-exempt instruments issued by government agencies and instrumentalities. CORPORATE SECURITIES Each of the Funds may invest in debt securities issued by domestic corporations, U.S. dollar-denominated debt securities issued by Canadian corporations, Yankee bonds and supra-national obligations. Yankee bonds are U.S. dollar-denominated obligations issued by foreign governments or companies. Supra-national obligations are U.S. dollar-denominated obligations issued by international entities such as the World Bank and the Inter-American Development Bank. PREFERRED STOCK Each of the Funds may invest in preferred stock which is a class of capital stock that pays dividends at a specified rate and that has preference over common stock in the payment of dividends and the liquidation of assets. Preferred stock does not ordinarily carry voting rights. ILLIQUID SECURITIES Each of the Funds may invest in illiquid securities. The Funds will not knowingly invest more than 15% of the value of their respective net assets in securities that are illiquid. Repurchase agreements with a duration of more than seven days, time deposits that do not provide for payment to a Fund within seven days after notice, Guaranteed Investment Contracts ("GICs") and most commercial paper issued in reliance upon the exemption in Section 4(2) of the Securities Act of 1933 (the "1933 Act") (other than variable amount master demand notes with maturities of nine months or less) are subject to this 15% limit. If otherwise consistent with its investment objectives and policies, any of the Funds may purchase securities which are not registered under the 1933 Act but which can be sold to "qualified institutional buyers" in accordance with Rule 144A under the 1933 Act. Any such security will not be considered illiquid so long as it is determined by Pacific Century, acting under guidelines and procedures that are developed, established and monitored by the Board of Trustees, that an adequate trading market exists for that security. This investment practice could have the effect of increasing the level of illiquidity in the Funds during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The ability to sell to qualified institutional buyers under Rule 144A is a recent development, and it is not possible to predict how this market will develop. BORROWINGS Each Fund may borrow from banks up to 20% of the current value of its net assets for temporary purposes in order to meet redemptions. Each Fund may borrow funds for temporary purposes by entering into reverse repurchase agreements which are considered to be borrowings under the Investment Company Act of 1940 (the "1940 Act"). At the time a Fund enters into a reverse repurchase agreement (an agreement under which the Fund sells portfolio securities and agrees to repurchase them at an agreed upon date and price), it will place in a segregated custodial account cash or other liquid assets having a value equal to or greater than the repurchase price (including accrued interest) and will subsequently monitor the account so that such value is maintained. Reverse repurchase agreements involve the risk that the market value of the securities sold by a Fund may decline below the price of the securities it is obligated to repurchase. The Funds would pay interest on amounts obtained pursuant to a reverse repurchase agreement. PROSPECTUS 8
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LOANS OF PORTFOLIO SECURITIES Each of the Funds may lend securities from its portfolio to brokers, dealers and financial institutions (but not individuals) if liquid assets equal to the current market value of the securities loaned (including accrued interest thereon) plus the interest payable to the Fund with respect to the loan is maintained with the Fund. In determining whether to lend a security to a particular broker, dealer or financial institution, Pacific Century will consider all relevant facts and circumstances, including the creditworthiness of the broker, dealer or financial institution. Any loans of portfolio securities will be fully collateralized based on values that are marked to market daily by Pacific Century. No Fund will enter into any portfolio security lending arrangement having a duration of longer than one year. Any securities that a Fund may receive as collateral will not become part of such Fund's portfolio at the time of the loan and, in the event of a default by the borrower, the Fund will, if permitted by law, dispose of such collateral except for such part thereof that is a security in which such Fund may invest. During the time securities are on loan, the borrower will pay the Fund any accrued income on those securities, and the Fund may invest the cash collateral and earn additional income or receive an agreed-upon fee from a borrower that had delivered cash-equivalent collateral. No Fund will lend securities having a value that exceeds 30% of the current value of its total assets. Loans of securities by a Fund will be subject to termination at the Fund's or the borrower's option. The Funds may pay reasonable administrative and custodial fees in connection with a securities loan and may pay a negotiated portion of the interest or fee earned with respect to the collateral to the borrower or the placing broker. Borrowers and placing brokers may not be affiliated, directly or indirectly, with the Trust, Pacific Century, or BISYS. FUTURES CONTRACTS AND RELATED OPTIONS Each of the Funds may enter into contracts for the future delivery of securities and futures contracts based on a specific security, class of securities, or an index, purchase or sell options on any such futures contracts and engage in related closing transactions. A futures contract on a securities index is an agreement obligating either party to pay, and entitling the other party to receive, while the contract is outstanding, cash payments based on the level of a specified securities index. The Funds may engage in such futures contracts in an effort to hedge against market risks and/or manage cash flow into the Funds. For example, when interest rates are expected to rise or market values of portfolio securities are expected to fall, the Funds can seek through the sale of futures contracts to offset a decline in the value of its portfolio securities. When interest rates are expected to fall or market values are expected to rise, the Funds, through the purchase of such contracts, can attempt to secure better rates or prices for the Funds than might later be available in the market when it effects anticipated purchases. Alternatively, futures may be used to manage cash flows into and out of the Funds. For example, the investment manager may wish to be fully invested in a particular asset class. Through the use of futures, the manager can achieve this objective immediately while temporarily deferring industry and security selection, in the interest of timeliness. The acquisition of put and call options on futures contracts will, respectively, give the Funds the right (but not the obligation), for a specified price, to sell or to purchase the underlying futures contract, upon exercise of the option, at any time during the option period. Aggregate initial margin deposits for futures contracts, and premiums paid for related options, may not exceed five percent of each Fund's total assets, and the value of securities that are the subject of such futures and options (both for receipt and delivery) may not exceed one-third of the market value of each Fund's total assets. Futures transactions will be limited to the extent necessary to maintain each Fund's qualification as a regulated investment company. PROSPECTUS 9
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Futures transactions involve brokerage costs and require the Funds to segregate assets to cover its obligations under futures, or to cover its obligations by owning the assets underlying open futures contracts. The Funds may lose the expected benefit of futures transactions if interest rates, exchange rates or securities prices move in an unanticipated manner. Such losses are potentially significant and unanticipated changes may also result in poorer overall performance than if the Funds had not entered into any futures transactions. In addition, the value of each Fund's futures positions may not prove to be perfectly or even highly correlated with the value of its portfolio securities, limiting each Fund's ability to hedge effectively against interest rate, exchange rate and/or market risk and giving rise to additional risks. There is no assurance of liquidity in the secondary market for purposes of closing out futures positions. Where a liquid secondary market does not exist, a Fund is unlikely to be able to control losses by closing out futures positions. Finally, gains and losses on investments in options and futures depend on Pacific Century's ability to predict correctly the direction of stock prices, interest rates and other economic factors. ASSET BACKED SECURITIES Each of the Funds may invest in Asset Backed Securities. Asset Backed Securities arise through the grouping by governmental, government-related, and private organizations of loans, receivables, and other assets originated by various lenders. Asset Backed Securities acquired by a Fund consist of both mortgage and non-mortgage backed securities. Interest in pools of these assets differ from other forms of debt securities, which normally provide for periodic payment of interest in fixed amounts with principal paid at maturity or specified call dates. Instead, Asset Backed Securities provide periodic payments which generally consist of both interest and principal payments. The life of an Asset Backed Security varies with the prepayment experience with respect to the underlying debt instruments. The rate of such prepayments, and hence the life of an Asset Backed Security, will be primarily a function of current market interest rates, although other economic and demographic factors may be involved. For example, falling interest rates generally result in an increase in the rate of prepayments of mortgage loans while rising interest rates generally decrease the rate of prepayments. An acceleration in prepayments in response to sharply falling interest rates will shorten the security's average maturity and limit the potential appreciation in the security's value relative to a conventional debt security. Consequently, Asset Backed Securities are not as effective in locking in high, long-term yields. Conversely, in periods of sharply rising rates, prepayments are generally slow, increasing the security's average life and its potential for price depreciation. Mortgage backed securities represent an ownership interest in a pool of residential mortgage loans, the interest in which is in most cases issued and guaranteed by an agency or instrumentality of the U.S. Government, though not necessarily by the U.S. Government itself. One such type of mortgage backed security is a GNMA Certificate. GNMA Certificates are backed as to the timely payment of principal and interest by the full faith and credit of the U.S. Government. Another type is a FNMA Certificate; the principal and interest of which are guaranteed only by FNMA itself, not by the full faith and credit of the U.S. Government. Another type is a FHLMC Participation Certificate. This type of obligation is guaranteed by FHLMC as to timely payment of principal and interest. However, like a FNMA security, it is not guaranteed by the full faith and credit of the U.S. Government. Mortgage backed securities issued by private issuers, whether or not such obligations are subject to guarantees by the private issuer, may entail greater risk than obligations directly or indirectly guaranteed by the U.S. Government. Such securities will be purchased for the Funds only when Pacific Century determines that they are readily marketable at the time of purchase. PROSPECTUS 10
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The average life of mortgage backed securities varies with the maturities of the underlying mortgage instruments, which have maximum maturities of 40 years. The average life is likely to be substantially less than the original maturity of the mortgage pools underlying the securities as the result of mortgage prepayments, mortgage refinancings, or foreclosures. The rate of mortgage prepayments, and hence the average life of the certificates, will be a function of the level of interest rates, general economic conditions, the location and age of the mortgage and other social and demographic conditions. Such prepayments are passed through to the registered holder with the regular monthly payments of principal and interest and have the effect of reducing future payments. Estimated average life will be determined by Pacific Century and used for the purpose of determining, respectively, the average weighted maturity of the Funds. Various independent mortgage backed securities dealers publish average remaining life data using proprietary models and, in making such determinations for the Funds, Pacific Century might deem such data unreasonable if such data appeared to present a significantly different average remaining expected life for a security when compared to data relating to the average remaining life of comparable securities as provided by other independent mortgage backed securities dealers. The Funds also may invest in non-mortgage backed securities including interests in pools of receivables, such as motor vehicle installment purchase obligations and credit card receivables. Such securities are generally issued as pass-through certificates, which represent undivided fractional ownership interests in the underlying pool of assets. Such securities also may be debt instruments, which also are known as collateralized obligations and are generally issued as the debt of a special purpose entity organized solely for the purpose of owning such assets and issuing such debt. Non-mortgage backed securities are not issued or guaranteed by the U.S. Government or its agencies or instrumentalities; however, the payment of principal and interest on such obligations may be guaranteed up to certain amounts and for a certain time period by a letter of credit issued by a financial institution (such as a bank or insurance company) unaffiliated with the issuers of such securities. Non-mortgage backed securities will be purchased by the Funds only when such securities are readily marketable and rated in one of the two highest rating categories by an NRSRO or if unrated, deemed to be of comparable quality at the time of purchase. In addition, such securities generally will have remaining estimated lives at the time of purchase of five years or less. See the SAI, "Additional Information on Fund Investments." REPURCHASE AGREEMENTS The Funds may enter into repurchase agreements wherein the seller of a security to the Fund agrees to repurchase that security from the Fund at a mutually agreed-upon time and price. The period of maturity is usually quite short, often overnight or a few days, although it may extend over a number of months. A Fund may enter into repurchase agreements only with respect to obligations that could otherwise be purchased by the Fund. All repurchase agreements will be fully collateralized based on values that are marked to market daily by Pacific Century. If the seller defaults and the value of the underlying securities has declined, the Fund may incur a loss. In addition, if bankruptcy proceedings are commenced with respect to the seller of the security, the Fund's disposition of the security may be delayed or limited. OTHER INVESTMENT COMPANIES In connection with the management of its daily cash position, each of the Funds may invest in securities issued by other investment companies, including (to the extent permitted by the 1940 Act) other investment companies managed by Pacific Century. Securities of other investment companies will be acquired by a Fund within the limits prescribed by the 1940 Act. Each of the Funds intends to limit its investments so that as determined immediately after a securities purchase is made: (a) not more than 5% of the value of its total assets will be PROSPECTUS 11
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invested in the securities of any one investment company; (b) not more than 10% of the value of its total assets will be invested in the aggregate in securities of investment companies as a group; (c) not more than 3% of the outstanding voting stock of any one investment company will be owned by the Fund; and (d) the Fund, together with other investment companies having the same investment adviser and companies controlled by such companies, owns not more than 10% of the total stock of any one closed-end company. As a shareholder of another investment company, a Fund would bear, along with other shareholders, its pro rata portion of the other investment company's expenses, including advisory fees. These expenses would be in addition to the advisory and other expenses that a Fund bears directly in connection with its own operations. However, Pacific Century has undertaken to waive or reimburse the Funds its advisory fees with respect to Fund assets so invested (except when such purchase is part of a plan of merger, consolidation, reorganization or acquisition). REAL ESTATE MORTGAGE INVESTMENT CONDUITS Each of the Funds may invest in Real Estate Mortgage Investment Conduits ("REMICs"). REMICs are a pass-through vehicle created to issue multiclass mortgage-backed securities. REMICs may be organized as corporations, partnerships, or trusts and those meeting certain qualifications are not subject to double taxation. Interests in REMICs may be senior or junior, regular (debt instruments) or residual (equity interests). FLOATING AND VARIABLE RATE DEBT INSTRUMENTS Each of the Funds may invest in floating and variable rate debt instruments. Floating and variable rate debt instruments bear interest at rates that are not fixed, but vary with changes in specified market rates or indices or at specified intervals. Certain of these instruments may carry a demand feature that would permit the holder to tender them back to the issuer at a par value prior to maturity. The floating and variable rate instruments that the Funds may purchase include certificates of participation in such obligations purchased from banks. Pacific Century will monitor on an ongoing basis the ability of an issuer of a demand instrument to make payment when due, which could be affected by events occurring between the date the Funds elect to demand payment and the date payment is due, except when such demand instruments permit same-day settlement. In this regard, Pacific Century, pursuant to direction of the Board of Trustees, will determine the liquidity of those instruments with demand features that cannot be exercised within seven days. WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS Each of the Funds may purchase securities on a "when-issued" basis and may also purchase or sell securities on a "forward commitment" basis. These transactions, which involve a commitment by a Fund to purchase or sell particular securities with payment and delivery taking place at a future date (perhaps one or two months later), permit a Fund to lock-in a price or yield on a security it owns or intends to purchase, regardless of future changes in interest rates. When-issued and forward commitment transactions involve the risk, however, that the yield obtained in a transaction may be less favorable than the yield available in the market when the securities delivery takes place. The Funds do not intend to engage in when-issued purchases and forward commitments for speculative purposes but only in furtherance of their investment objectives. The forward commitments and when-issued purchases are not expected to exceed 25% of the value of any of the Funds' total assets absent unusual market conditions. The Funds will not start earning interest or dividends on when-issued securities until they are received. The value of the securities underlying a when-issued purchase or a forward commitment to purchase securities, and any subsequent fluctuations in their value, is taken into account when determining the net asset value of a Fund starting on the date such Fund agrees to purchase the securities. Each Fund will establish a segregated account in which it will maintain liquid assets in an amount at least equal in value to such Fund's commitment to PROSPECTUS 12
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purchase securities on a when-issued or forward commitment basis. If the value of these assets declines, the Fund will replace additional liquid assets in the account on a daily basis so that the value of the assets in the account is equal to the amount of such commitments. LETTERS OF CREDIT AND LIQUIDITY AGREEMENTS Each of the Funds may purchase debt obligations that are backed by an irrevocable letter of credit or liquidity agreement of a bank, savings and loan association or insurance company which assumes the obligation for payment of principal and interest in the event of default by the issuer. Only banks, savings and loan associations and insurance companies which, in the opinion of Pacific Century, are of investment quality comparable to other permitted investments of such Fund, may be used for letter of credit and liquidity agreement backed investments. FOREIGN SECURITIES Each of the Funds may invest in securities of foreign governmental and private issuers that are denominated in and pay interest in U.S. dollars. Investments in foreign securities involve certain considerations that are not typically associated with investing in domestic securities. There may be less publicly available information about a foreign issuer than about a domestic issuer. Foreign issuers also are not generally subject to the same accounting, auditing and financial reporting standards or governmental supervision as domestic issuers. In addition, with respect to certain foreign countries, tax on interest, gains and/or dividends may be withheld at the source under foreign income tax laws, and there is a possibility of expropriation or confiscatory taxation, political or social instability or diplomatic developments that could adversely affect investments in, the liquidity of, and the ability to enforce contractual obligations with respect to, securities of issuers located in those countries. WARRANTS Each of the Funds may invest in warrants. A warrant gives the holder thereof the right to subscribe by a specified date to a stated number of shares of stock of the issuer at a fixed price. Warrants tend to be more volatile than the underlying stock, and if at a warrant's expiration date the stock is trading at a price below the price set in the warrant, the warrant will expire worthless. Conversely, if at the expiration date the stock is trading at a price higher than the price set in the warrant, the Fund can acquire the stock at a price below its market value. No Fund may invest more than 10% of its net assets in warrants. OPTIONS Each of the Funds may purchase put and call options and write covered put and call options on securities in which such Fund may invest directly and that are traded on registered domestic securities exchanges or that result from separate, privately negotiated transactions with primary U.S. Government securities dealers recognized by the Board of Governors of the Federal Reserve System in an amount not exceeding 5% of the Fund's net assets. Options may be entered into in an attempt to hedge a Fund's portfolio against market risk or to enhance income (e.g., to attempt to realize through the receipt of premiums a greater current return than would be realized on the underlying securities alone). See the SAI, "Additional Information on Fund Investments." INTEREST ONLY OR PRINCIPAL ONLY OBLIGATIONS Each of the Funds may make limited investments (not exceeding 5% of the relevant Fund's net assets) in separately traded principal and interest components of securities issued by the United States Treasury. The principal and interest components of selected securities are traded independently under the Separate Trading of Registered Interest and Principal of Securities program ("STRIPs"). Under the STRIPs program, the principal and interest components are individually numbered and sep- PROSPECTUS 13
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arately issued by the U.S. Treasury at the request of depository financial institutions, which then trade the component parts independently. GUARANTEED INVESTMENT CONTRACTS Each of the Funds may invest up to 5% of its net assets in Guaranteed Investment Contracts ("GICs") issued by highly rated U.S. insurance companies. GICs are considered to be illiquid, and accordingly, are subject to each Fund's 15% limitation on investment in illiquid securities. See the SAI, "Additional Information on Fund Investments." ADDITIONAL RISK DISCLOSURE Obligations rated in the lowest of the top four rating categories by an NRSRO have speculative characteristics, and changes in economic conditions or other circumstances are more likely to lead to a weakened capacity to make principal and interest payments than is the case with higher grade bonds. Subsequent to its purchase by a Fund, an issue of securities may cease to be rated or its rating category may be reduced below the minimum rating required for purchase by the respective Fund. Pacific Century will consider such an event in determining whether the relevant Fund should continue to hold the obligation. PORTFOLIO TURNOVER Generally, the Funds will purchase portfolio securities for capital appreciation or investment income, or both, and not for short-term trading profits. However, a Fund may sell a portfolio investment soon after its acquisition if Pacific Century believes that such a disposition is consistent with attaining the investment objective of the particular Fund. Portfolio investments may be sold for a variety of reasons, such as a more favorable investment opportunity or other circumstances bearing on the desirability of continuing to hold such investments. The annual portfolio turnover rate is not expected to exceed 100% for any Fund. For the fiscal years ended July 31, 1997 and July 31, 1996, the portfolio turnover rate for Growth Stock Fund was 32.20% and 61.30%, respectively. For the fiscal years ended July 31, 1997 and July 31, 1996, the portfolio turnover rate for Growth and Income Fund was 74.83% and 80.83%, respectively. See "Portfolio Transactions" in the SAI for additional information relating to portfolio turnover. INVESTMENT POLICIES Each Fund's investment objectives, as set forth in the first paragraph of the description of each Fund in the "Highlights" section, are fundamental; that is, they may not be changed without approval by vote of the holders of a majority of the relevant Fund's outstanding voting securities, as described under "Capital Stock" in the SAI. If the Trust's Board of Trustees determines, however, that a Fund's investment objective can best be achieved by a substantive change in a non-fundamental investment policy or strategy, the Trust's Board may make such change without shareholder approval and will disclose any such material changes in the then current prospectus. Any policy that is not specified in a Fund's Prospectus, or in the SAI, as being fundamental, is nonfundamental. ADDITIONAL INVESTMENT RESTRICTIONS AS MATTERS OF FUNDAMENTAL POLICY, EACH OF THE FUNDS MAY NOT: 1. Purchase securities of any one issuer (other than securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities) if, immediately after such purchase, more than 5% of the value of the Fund's total assets would be invested in the securities of such issuer, or more than 10% of the issuer's outstanding voting securities would be owned by the Fund except that up to 25% of the value of the Fund's total assets may be invested without regard to these limitations. 2. Purchase any securities which would cause 25% or more of the value of the Fund's total assets PROSPECTUS 14
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at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that (a) there is no limitation with respect to U.S. Government Obligations and repurchase agreements secured by such obligations; (b) wholly owned finance companies will be considered to be in the industries of their parents if their activities are primarily related to financing the activities of the parents; and (c) utilities will be divided according to their services, for example, gas, gas transmission, electric and gas, electric and telephone will each be considered a separate industry. 3. Make loans, borrow money or issue senior securities, except under certain circumstances, and subject to certain percentage limitations, specified above and in the SAI. If a percentage limitation is satisfied at the time of investment, a later increase or decrease in such percentage resulting from a change in the value of a Fund's portfolio securities will not constitute a violation of such limitation. MANAGEMENT, ADVISORY AND OTHER SERVICE ARRANGEMENTS THE BOARD OF TRUSTEES The business and affairs of the Trust are managed under the direction and control of its Board of Trustees. The names and principal occupations of the Trustees of the Trust are listed below. Trustees deemed to be "interested persons" of the Trust for purposes of the 1940 Act are indicated by an asterisk. [Enlarge/Download Table] POSITION(S) HELD NAME AND ADDRESS WITH THE TRUST PRINCIPAL ORGANIZATION ----------------------- ------------------------ -------------------------------------------------------- Deborah G. Patterson* Trustee and Chairperson Senior Vice President of Bank of Hawaii--Asset Management and Private Client Group (1994-present); Director of KPMG Peat Marwick (1993-1994); Senior Vice President and Manager of Wells Fargo Bank (1987-1992) Irimga McKay* Trustee and President Senior Vice President of BISYS Fund Services (1994-present); Senior Vice President of Concord Financial Group (1986-1994) Douglas Philpotts* Trustee Chairman of the Board of Directors (1992-1994), President (1986-1992), and Director (1984-present) of Pacific Century Richard W. Gushman, II Trustee President and Chief Executive Officer of OKOA, Inc. (1985-present); Adviser to RAMPAC, Inc. Stanley W. Hong Trustee President and Chief Executive Officer of the Chamber of Commerce of Hawaii (1996-present); Business Consultant (1994-present) Russell K. Okata Trustee Executive Director of Hawaii Government Employees Association (1981-present) Oswald K. Stender Trustee Trustee of Bernice Pauahi Bishop Estate (1990-present); Director of Hawaiian Electric Industries, Inc. (1993-present) PROSPECTUS 15
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Trustees of the Trust who are not officers or employees of the Trust, BISYS or Pacific Century are entitled to receive from the Trust a quarterly retainer and a fee for each Board of Trustees meeting attended. All Trustees are reimbursed for all reasonable out-of-pocket expenses relating to attendance at meetings. THE ADVISER Pursuant to an Advisory Agreement, the Funds are advised by Pacific Century, whose address is Financial Plaza of the Pacific, 111 S. King Street, Honolulu, Hawaii 96813. Pacific Century is a Hawaii corporation organized in 1898 and is the largest trust company in the State of Hawaii, both in terms of assets under administration and assets under management. As of July 31, 1997, Pacific Century had approximately $7.5 billion of client financial assets under management. Pacific Century is a division of Bank of Hawaii, the largest banking organization headquartered in the State of Hawaii, with approximately $12.6 billion of assets as of July 31, 1997 and branches and offices throughout the Pacific Basin, including Guam, Singapore, Tokyo, Seoul and Taiwan. All shares of Bank of Hawaii are owned by Pacific Century Financial Corporation (formerly Bancorp Hawaii, Inc., "Pacific Century Financial") and Bank of Hawaii's Directors (each of whom owns qualifying shares as required by Hawaii law). Pacific Century Financial is a bank holding company, registered under the Bank Holding Company Act of 1956, as amended, and its common stock is listed and traded on the New York Stock Exchange (the "Exchange"). Pacific Century Financial files annual and periodic reports with the Commission and the Exchange, which are available for public inspection. Pacific Century is not authorized to and does not carry on a banking business. The actual management of the portfolios of the Trust is coordinated by Pacific Century's investment unit, which is staffed with more than 40 people, including 5 Chartered Financial Analysts and 9 M.B.A.'s. All investment decisions of the Funds are made by a committee, and no person is primarily responsible for making recommendations to the committee. Pacific Century has served as investment adviser to other investment companies since 1984. These include the Hawaiian Tax-Free Trust, with assets exceeding $660 million as of July 31, 1997, and the Cash Assets Trust, with assets of approximately $736 million as of July 31, 1997. Subject to the supervision of the Board of Trustees, Pacific Century will provide a continuous investment program for the Funds, including investment research and management with respect to all securities and investments and cash equivalents in the Funds. Pacific Century will determine from time to time what securities and other investments will be purchased, retained or sold by the Trust with respect to the Funds. Pacific Century will provide the services under the Advisory Agreement in accordance with each of the Fund's investment objectives, policies, and restrictions. For its services under the Advisory Agreement, Pacific Century is entitled to monthly advisory fees at the annual rate of 0.80% of each Fund's average daily net assets. For the fiscal year ended July 31, 1997, the advisory fees paid by the Funds to Pacific Century under the Advisory Agreement, as a percentage of average daily net assets, were: Growth Stock Fund--0.80% and Growth and Income Fund--0.80%. Balanced Fund has not commenced operations as of the date of this Prospectus. THE SPONSOR, ADMINISTRATOR AND DISTRIBUTOR BISYS is the administrator for each Fund, and also acts as the Trust's principal underwriter and distributor. BISYS generally assists in all aspects of the administration and operation of the Funds. For expenses assumed and services provided as administrator pursuant to its Administration Agreement with the Trust, BISYS is entitled to receive a fee from the Funds, computed daily and paid monthly, at an annual rate equal to 0.20% of the average daily net assets of each Fund. For the fiscal year ended July 31, 1997, the ratio of total expenses to average net assets for the Class A shares of Growth Stock Fund was 1.86% PROSPECTUS 16
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(excluding waivers). For the fiscal year ended July 31, 1997, the ratio of total expenses to average net assets for the Class A shares of Growth and Income Fund was 1.86% (excluding waivers). In addition, BISYS, as the principal underwriter of the Funds within the meaning of the 1940 Act has entered into a Distribution Agreement with the Trust pursuant to which BISYS has the responsibility for distributing shares of the Funds. The Distribution Agreement provides that BISYS shall act as agent for the Funds for the sale of their shares and may enter into selling agreements with banks, broker/dealers or other financial institutions to market and make available shares to their respective customers. For its services, BISYS is entitled to a fee, as set forth in the separate Distribution and Shareholder Servicing Plans for each of the Class A and Class B shares (each a "Distribution Plan"). The Distribution Plan for the Class A shares provides that BISYS is entitled to receive from each Fund a fee in an amount not to exceed on an annual basis 0.75% of the average daily net asset value of each Fund's Class A shares. The Distribution Plan for the Class B shares provides that BISYS is entitled to receive from each Fund a fee in an amount not to exceed on an annual basis 1.00% of the average daily net asset value of each Fund's Class B shares. The Funds had not begun to offer Class B shares publicly at the date of this Prospectus. Accordingly, no payments had yet been made pursuant to the Class B Distribution Plan. Fees under each of the Distribution Plans compensate BISYS for the following: (a) payments BISYS makes to banks and other institutions and industry professionals, broker/dealers, including Pacific Century, BISYS and their affiliates or subsidiaries, pursuant to an agreement in connection with providing administrative support services to the holders of a Fund's Class A or Class B shares; or (b) payments to financial institutions and industry professionals (such as insurance companies, investment counselors, and BISYS' affiliates and subsidiaries) in consideration for the sales support services provided and expenses assumed in connection with distribution assistance, including but not limited to, printing and distributing Prospectuses to persons other than current Class A or Class B shareholders of a Fund, printing and distributing advertising and sales literature and reports to prospective Class A or Class B investors in connection with the sale of a Fund's shares, and providing personnel and communication equipment used in servicing shareholder accounts and responding to prospective Class A or Class B shareholder inquiries. BISYS may enter into selling agreements with one or more selling agents under which such agents may receive compensation from BISYS for sales support services, including, but not limited to, commissions or other payments to such agents based on the average daily net assets of the Class A or Class B shares of each Fund. The distribution fee shall be paid to BISYS only to compensate or to reimburse it for actual payments or expenses incurred as described above. The actual distribution fee payable to BISYS is determined, within such limit, from time to time by mutual agreement between the Trust and BISYS, and may not exceed the maximum fee payable under the Conduct Rules of the NASD. Until further notice, BISYS voluntarily intends to waive a portion of its distribution fee for the current fiscal year such that the distribution fee payable by each Fund will not exceed 0.25% of the average daily net asset value attributable to the Fund's Class A shares on an annual basis. No Fund's Class A or Class B shares will be liable for distribution expenditures made by BISYS in any given year in excess of the maximum amount payable under the Distribution Plan for that Fund in that year. BISYS is a broker-dealer registered with the Commission, and is a member of the NASD. As noted above, each Fund also offers Class Y shares, which are made available only to certain investors. The Class Y shares are not subject to any distribution fees or entitled to benefits under either Distribution Plan. PROSPECTUS 17
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OTHER SERVICE ARRANGEMENTS Administrative Data Management Corporation ("ADM" or the "Transfer Agent"), 581 Main Street, Woodbridge, New Jersey 07095, serves as the Trust's transfer agent and dividend disbursing agent. Ernst & Young LLP, One Columbus, Suite 2300, 10 West Broad Street, Columbus, Ohio 43215, serves as independent auditors for the Trust. VALUATION OF CLASS A AND CLASS B SHARES The net asset value of the Class A and Class B shares for each Fund is determined and their shares are priced as of the close of the New York Stock Exchange (the "Exchange") (currently 4:00 p.m., Eastern Time) (the "Valuation Time") each Business Day. As used herein, a "Business Day" is a day on which the Exchange is open for trading and any other day (other than a day on which no shares of that Fund are tendered for redemption and no order to purchase shares received) during which there is sufficient trading in the Fund's portfolio securities that the Fund's net asset value per share might be materially affected. The Exchange will not be open in observance of the following holidays: New Year's Day, Martin Luther King Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset value per share for Class A and Class B is calculated by determining the value of such Class's proportional interest in the securities and other assets of each Fund, less (i) such class's proportional share of general liabilities and (ii) liabilities allocable only to such class, and dividing such amount by the number of shares of the Class outstanding. The net asset value per share for each Fund will fluctuate as the value of its investment portfolio changes. The per share net asset value of Class A shares generally will be higher than the per share net asset value of Class B shares reflecting the daily expense accruals of the distribution fees applicable to the Class B shares. Except for debt obligations with remaining maturities of 60 days or less, which are valued at amortized cost, assets are valued at current market prices, or if such prices are not readily available, at fair value as determined in good faith by the Board of Trustees. Prices used for such valuations may be provided by independent pricing services. For further information about valuation of investments in the Funds, see the SAI. HOW TO PURCHASE CLASS A AND CLASS B SHARES PURCHASE OF SHARES Class A and Class B shares of each Fund are sold on a continuous basis. Investors may purchase Class A and Class B shares of a Fund by completing and signing an account registration form ("Account Registration Form") and mailing it, together with a check (or other negotiable bank draft or money order) payable to the Trust, in at least the minimum initial purchase amount, to your Participating Organization or to the Trust's Transfer Agent, Administrative Data Management Corporation, 581 Main Street, Woodbridge, NJ 07095. Subsequent purchases of shares of a Fund may be made at any time by mailing a check (or other negotiable bank draft or money order) payable to the Trust, to ADM at the above address or to your Participating Organization. Class A and Class B shares of the Funds may also be purchased through banks, institutions or industry professionals, such as broker/dealers, who have entered into an agreement with BISYS ("Participating Organizations") under each of the Distribution Plans. See "Management, Advisory and Other Service Arrangements." BISYS' principal office is located at 3435 Stelzer Road, Columbus, Ohio 43219-3035. PROSPECTUS 18
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Class A and Class B shares of a Fund sold to Participating Organizations acting in a fiduciary, advisory, custodial or other similar capacity on behalf of a customer will normally be held of record by the Participating Organization. With respect to shares so sold, it is the responsibility of the Participating Organization to transmit purchase or redemption orders to ADM and to deliver federal funds for purchase on a timely basis. Beneficial ownership of shares of a Fund will be recorded by the Participating Organization and reflected in the account statements provided by the Participating Organization to the customer. If an Account Registration Form has been previously received by ADM, investors may also purchase Class A and Class B Shares by telephoning ADM at 800-258-9232. Payment for Class A and Class B Shares ordered by telephone may be made by check or by electronic transfer and must be received by the Trust's Custodian within seven days of the telephone order. If payment is not received within seven days or a check timely received does not clear, the purchase may be canceled and the investor could be liable for any losses or fees incurred. In the case of purchases of Class A and Class B shares effected by wiring funds to the Trust's Custodian, investors must call ADM at 800-258-9232 to obtain instructions regarding the bank account number into which the funds should be wired and other pertinent information. If you have opened an account through a Participating Organization, you should telephone the Participating Organization to make further investments. Class A and Class B shares of each Fund are purchased at the public offering price per share, which is the net asset value per share (see "Valuation of Class A and Class B Shares") next determined after receipt by the Transfer Agent of an order to purchase shares in good form plus the applicable sales charge as described below. The Participating Organizations are responsible for the prompt transmission of purchase orders to the Transfer Agent. Purchases of Class A and Class B shares of a Fund will be effected only on a Business Day of such Fund. An order received by the Transfer Agent prior to the Valuation Time on any Business Day will be executed based on the net asset value determined as of the Valuation Time on the date of receipt. An order received by the Transfer Agent after the Valuation Time on any Business Day will be executed based on the net asset value determined as of the next Business Day. The minimum investment for an investor's initial purchase of Class A and Class B shares of a Fund is $1,000. The minimum investment for subsequent purchases of Class A and Class B shares is $50. The minimum initial investment amount for IRAs is $250. As discussed below, the minimum initial investment amount for Auto Invest Plan participants is $100; the minimum investment for subsequent purchases is $50. Depending upon the terms of a particular customer account, a Participating Organization may charge a customer's account fees for automatic investment and other cash management services provided in connection with investment in the Funds. Information concerning these services and any charges will be provided by the relevant Participating Organization. This Prospectus should be read in conjunction with any such information received from the Participating Organization. The Trust reserves the right to reject any order for the purchase of its Class A or Class B shares in whole or in part. Every shareholder will receive a confirmation of each new transaction in the shareholder's account. In the case of shares held of record by a Participating Organization but beneficially owned by a customer, confirmations of purchases, exchanges and redemptions of shares by a Participating Organization will be sent to the customer by the Participating Organization. Certificates representing shares will not be issued. SALES CHARGES CLASS A SHARES The public offering price of a Class A share of a Fund equals its net asset value plus a sales charge. PROSPECTUS 19
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BISYS receives this sales charge as principal underwriter and will reallow a portion of it to broker/dealers or other financial institutions as dealer discounts and brokerage commissions. From time to time dealers who receive dealer discounts and broker commissions from BISYS may reallow a portion of such dealer discounts and broker commissions to other dealers or brokers. BISYS may elect to reallow a higher percentage of the sales charge stated below to selected brokers and dealers for all sales with respect to which orders are placed with BISYS during a particular period. At BISYS' discretion, the entire sales charge may at times be re-allowed as dealer discounts and brokerage commissions. If the entire sales charge is reallowed to a broker/dealer or financial institution, it may be deemed an "underwriter" under the Securities Act of 1933, as amended. [Enlarge/Download Table] DEALER SALES CHARGE AS ALLOWANCE SALES CHARGE AS A PERCENTAGE OF AS A PERCENTAGE A PERCENTAGE OF NET AMOUNT OF OFFERING AMOUNT OF PURCHASE OFFERING PRICE INVESTED PRICE ------------------------------------------------ --------------- --------------- --------------- Less than $25,000............................... 4.00% 4.17% 3.60% $25,000 or more but less than $50,000........... 3.75% 3.90% 3.38% $50,000 or more but less than $100,000.......... 3.50% 3.63% 3.15% $100,000 or more but less than $250,000......... 3.25% 3.36% 2.93% $250,000 or more but less than $500,000......... 3.00% 3.09% 2.70% $500,000 or more but less than $1,000,000....... 2.50% 2.56% 2.25% $1,000,000 or more.............................. 0.00% 0.00% 0.00% While there are no sales charges on single transactions of $1 million or more, BISYS will make payments to securities dealers, from its own resources, related to these transactions as shown in the table below. The first payment will be applied to the total purchase price and made payable upon settlement of the purchase. Subsequent payments will be made at the end of each full calendar quarter following the original purchase. The amount of each subsequent payment will be based on the number of shares originally purchased and remaining in the account at the time of the payment multiplied by the net asset value per share at the purchase date. The payment schedule will be as follows: [Enlarge/Download Table] NUMBER OF AMOUNT OF TOTAL OF ALL AMOUNT OF PURCHASE PAYMENTS EACH PAYMENT PAYMENTS -------------------------------------------------------- --------- ------------ ------------ 1,000,000 or more but less than $2,000,000.............. 6 0.083% 0.50% 2,000,000 or more but less than $4,000,000.............. 5 0.070% 0.35% 4,000,000 or more....................................... 4 0.063% 0.25% The sales charges set forth in the tables above are applicable to purchases made at one time by any purchaser (a "Purchaser"), which term shall mean: (i) an individual, his or her spouse and children under the age of 21, if any; (ii) a trustee or other fiduciary of a single trust estate or single fiduciary account; or (iii) any other organized group of persons, whether incorporated or not, provided that such organization has been in existence for at least six months and has some bona fide business purpose other than the purchase of redeemable securities of a registered investment company. In order to qualify for a reduced sales charge, all orders from a Purchaser will have to be placed through a single investment dealer and identified at the time of purchase as originating from the same Purchaser, although such orders may be placed into more than one discrete account which identifies the Purchasers. BISYS, at its expense, will also provide additional compensation to dealers in connection with sales of shares of the Trust. Such compensation will PROSPECTUS 20
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include financial assistance to dealers in connection with conferences, sales or training programs for their employees, seminars for the public advertising campaigns regarding one or more Funds, and/or other dealer-sponsored special events. In some instances, this compensation will be made available only to certain dealers whose representatives have sold a significant amount of such shares. Compensation will include payment for travel expenses, including lodging, incurred in connection with trips taken by invited registered representatives and members of their families to locations within or outside of the United States for meetings or seminars of a business nature. Compensation will also include the following types of non-cash compensation offered through sales contests: (1) vacation trips, including the provision of travel arrangements and lodging, (2) tickets for entertainment events (such as concerts, cruises and sporting events), and (3) merchandise (such as clothing, trophies, clocks and pens). Dealers may not use sales of the Trust's Shares to qualify for this compensation to the extent such may be prohibited by the laws of any state or any self-regulatory agency, such as the NASD. None of the aforementioned compensation is paid for by the Funds or their shareholders. REDUCED SALES CHARGES CLASS A SHARES SALES CHARGE WAIVERS--The following classes of investors may purchase Class A shares of a Fund with no sales charge in the manner described below (any of which may be changed or eliminated at any time by BISYS): (1) Existing shareholders of a Fund, upon the reinvestment of dividend and capital gain distributions; (2) Officers, trustees, directors, employees and retired employees of the Trust, Pacific Century Financial and its affiliates, and of BISYS and its affiliates (and spouses and children of each of the foregoing); (3) With the exception of investors for whom Pacific Century Investment Services provides custodial services, investors for whom Pacific Century Financial or one of its affiliates acts in a fiduciary, advisory, custodial, agency or similar capacity; (4) Investors who purchase shares of a Fund through a retirement related payroll deduction plan, a 401(k) plan, a 403(b) plan, or a similar plan which by its terms permits purchases of shares; and (5) Orders placed on behalf of other investment companies distributed by the Distributor. The Trust permits the sale of its Class A shares at prices that reflect the reduction or elimination of the sales charge to investors who are members of certain qualified groups meeting the following requirements. A qualified group (i) is a group or association, or a category of purchasers who are represented by a fiduciary, professional or other representative (other than a registered broker-dealer); (ii) satisfies uniform criteria which enable the Distributor to realize economies of scale in its costs of distributing shares; (iii) if it is a group or association, gives its endorsement or authorization to an investment program to facilitate solicitation of its membership by a broker or dealer, and (iv) complies with the conditions of purchase that are set forth in any agreement entered into between the Trust and the group, representative or broker or dealer. At the time of purchase the investor, either directly or through a broker or dealer, must furnish the Transfer Agent with information sufficient to permit verification that the purchase qualifies for a reduced sales charge. The Distributor may waive the sales charge for an investor who purchases a Fund's Class A shares with the proceeds from the recent redemption of shares of any non-money market front-end or back-end load mutual fund. To the extent the sales load of the Fund in which such investor seeks to invest is higher than that of the fund with respect to which the redemption proceeds relate, the Distributor will waive only that portion of the Fund's sales load which equals the prior sales load paid. Any portion of the sales load which is not waived in accordance PROSPECTUS 21
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with the foregoing must be paid by the investor at the time of purchase. Purchases of Fund shares using redemption proceeds as described above must be made within 60 days of redemption from funds which are not a series of Pacific Capital Funds and within 120 days of redemption from funds which are series of Pacific Capital Funds. The Transfer Agent must be notified in writing by the investor, or by his or her financial institution, at the time the purchase is made. A copy of the investor's account statement showing such redemption must accompany such notice. BISYS also, from time to time, may waive the sales charge for all investors with respect to any Fund. LETTERS OF INTENT--Any Purchaser may obtain a reduced sales charge by means of a written Letter of Intent which expresses the intention of such Purchaser to purchase a certain amount of a Fund's Class A shares within a period of 13 months. Each purchase of shares under a Letter of Intent will be made at the public offering price plus the sales charge applicable at the time of such purchase to a single transaction of the total dollar amount indicated in the Letter of Intent. A Letter of Intent may include purchases of shares made not more than 90 days prior to the date such Purchaser signs a Letter of Intent; however, the 13-month period during which the Letter of Intent is in effect will begin on the date of the earlier purchase to be included. The terms of the Letter of Intent and the escrow account associated therewith are described in the Account Registration Form. For further information, interested investors should contact ADM or their Participating Organization. Letter of Intent privileges may be amended or terminated without notice at any time by the Trust. CONCURRENT PURCHASES AND RIGHT OF ACCUMULATION--A Purchaser may qualify for a reduced sales charge by (i) combining concurrent purchases of shares of a Fund with purchases of one or more of the other Funds sold with a sales charge or (ii) combining a current purchase of shares of a Fund with prior purchases of shares of any of the other Funds sold subject to a sales charge. The applicable sales charge is based on the sum of (a) the Purchaser's current purchase of shares of any Fund sold with a sales charge plus (b) the then-current net asset value of all shares held by the Purchaser in any Fund sold with a sales charge. To receive the applicable public offering price pursuant to the right of accumulation, shareholders must at the time of purchase provide ADM or the Participating Organization with sufficient information to permit confirmation of qualification. Accumulation privileges may be amended or terminated without notice at any time by the Trust. Shares of other series of the Trust sold subject to a sales charge which are not offered through this Prospectus may be counted for purposes of the accumulation privileges. CLASS B SHARES The public offering price of a Class B share of a Fund equals its net asset value without the imposition of a sales charge at the time of purchase. However, Class B shares are subject to a contingent deferred sales charge ("CDSC") if the shares are redeemed within six years of purchase, at rates set forth below. After approximately eight years, Class B shares will automatically convert to Class A shares. See "Conversion of Class B shares to Class A shares" below, for more detail. At the time of redemption, the CDSC will be based on the initial purchase price or the current market value of the shares being redeemed, whichever is less. A CDSC will not be imposed on amounts representing increases in net asset value above the net asset value at the time of purchase. There is no CDSC on shares acquired through reinvestment of dividends. Imposition of the CDSC and the distribution fee on Class B shares is limited by the NASD asset-based sales charge rule. PROSPECTUS 22
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The following table sets forth the rates of the Class B CDSC: [Download Table] CDSC AS A PERCENTAGE OF YEARS AFTER DOLLAR AMOUNT SUBJECT TO PURCHASE CHARGE ------------------ ------------------------- 1st year.......... 5% 2nd year.......... 4% 3rd year.......... 3% 4th year.......... 3% 5th year.......... 2% 6th year.......... 1% Solely for purposes of determining the number of years which have elapsed from the time of purchase of any Class B shares, all purchases during a month will be aggregated and deemed to have been made on the last day of the month. In determining whether a CDSC is applicable to a redemption, the calculation will be made in the manner that results in the lowest possible charge being assessed. In this regard, it will be assumed that the redemption is first of shares held for more than six years or shares acquired pursuant to reinvestment of dividends or distributions both of which do not carry any CDSCs. It will then be assumed that the redemption is of shares held longest during the six year period, which will have the lowest CDSC. For example assume an investor purchased 100 Class B shares with a net asset value of $10 per share (i.e., at an aggregate net asset value of $1,000) and in the eleventh month after purchase, the net asset value per share is $12 and, during such time, the investor has acquired five additional Class B shares through dividend reinvestment. If at such time the investor makes his first redemption of 50 Class B shares (producing proceeds of $600), five of such shares will not be subject to the charge because of dividend reinvestment. With respect to the remaining 45 Class B shares being redeemed, the charge will be applied only to the original cost of $10 per share and not to the increase in net asset value of $2 per share. Therefore, only $450 of the $600 redemption proceeds will be subject to the charge of 5.00%, totaling $22.50. The contingent deferred sales charge is waived on redemptions of Class B shares (i) following the death or disability (as defined in the Internal Revenue Code (the "Code")) of a shareholder (or both shareholders in the case of joint accounts), (ii) to the extent that the redemption represents a minimum required distribution from an IRA or a Custodial Account under Code Section 403 (b) (7) to a shareholder who has reached age 70 1/2, and (iii) to the extent the redemption represents the minimum distribution from retirement plans under Code Section 401 (a) where such redemptions are necessary to make distributions to plan participants. CONVERSION OF CLASS B SHARES TO CLASS A SHARES. After approximately eight years, Class B shares will automatically convert to Class A shares and will be subject to the lower Distribution and Shareholder Service fees charged to Class A shares. For purposes of conversion of Class A shares, shares received as dividends and other distributions paid on Class B shares in a shareholder's Fund account will be considered to be held in a separate sub-account. Each time any Class B shares in a shareholder's Fund account (other than those in the sub-account) convert to Class A shares, a pro-rata portion of the Class B shares in the sub-account will also convert to Class A shares. If a shareholder effects one or more exchanges among Class B shares of the Funds of the Trust during the six-year period, the Trust will aggregate the holding periods for the shares of each Fund of the Trust for purposes of calculating that six-year period. Because the per share net asset value of the Class A shares may be higher than that of the Class B shares at the time of conversion, a shareholder may receive fewer Class A shares than the number of Class B shares converted, although the dollar value will be the same. The conversion will be on the basis of the relative net asset value of the shares of the two classes, without the imposition of any sales load, fee or other charge. Conversion of Class B shares to Class A shares will not be deemed a purchase or sale of the shares for federal income tax purposes. PROSPECTUS 23
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Shares purchased through reinvestment of dividends in Class B shares will also convert automatically to Class A shares after approximately eight years. AUTO INVEST PLAN--The Auto Invest Plan enables Class A or Class B shareholders of any of the Funds to make regular monthly or quarterly purchases of Class A or Class B shares through automatic deductions from their bank accounts. With shareholder authorization, the Transfer Agent will deduct the amount specified from the shareholder's bank account which will automatically be invested in shares at the public offering price on the dates of the deduction. The required minimum initial investment when opening an account using the Auto Invest Plan is $100; the minimum amount for subsequent investments is $50. To participate in the Auto Invest Plan, shareholders should complete the appropriate section of the Account Registration Form which can be obtained by calling ADM at 800-258-9232. For a shareholder to change the Auto Invest Plan instructions, the request must be made in writing to ADM or your Participating Organization. Depending upon the terms of a particular customer account, a Participating Organization may charge a customer's account fees for services provided in connection with investment in a Fund. Information concerning these services and any charges will be provided by the Participating Organizations. This Prospectus should be read in conjunction with any such information received from the Participating Organizations. EXCHANGE PRIVILEGES Except as described below, Class A and Class B shareholders may exchange shares of any Fund on the basis of the relative net asset value of the shares exchanged, without payment of a sales charge, for the same class of any other Fund, the same class of any other series of the Trust or for service class shares of the Cash Assets Trust, the Tax-Free Cash Assets Trust, or the U.S. Treasuries Cash Assets Trust. The exchange privilege may be exercised by shareholders so long as they maintain the respective minimum account balance in each Fund in which they own shares. To the extent that a holder of Class A shares exchanges into a Fund having a higher initial sales charge than that of the Fund from which the shareholder is exchanging, the shareholder will pay the sales charge differential at the time of the exchange. Class B shares of a Fund which are subject to a CDSC will be exchangeable on the basis of relative net asset value per share without the payment of any CDSC that might otherwise have been due upon redemption of the shares of the Fund. For purposes of computing the CDSC upon redemption of shares received in the exchange, the holding period will be measured from the date of purchase of the original shares and will retain the same CDSC rate as they had before the exchange, except that the rate will change to the new Fund's rate if that rate is higher. A CDSC rate that has increased will drop again with a future exchange into a Fund with a lower rate. For federal income tax purposes, an exchange of shares is deemed a sale on which a shareholder may realize capital gain or loss. Before an exchange can be effected, a shareholder must receive a prospectus of the fund into which the subject shares are to be exchanged. If you have previously elected the telephone exchange option on your Account Registration Form, an exchange can be made by calling ADM at 800-258-9232 or telephoning your Participating Organization. Otherwise, exchanges may be made by forwarding a written request for exchange to ADM or your Participating Organization. Exchange privileges may be exercised only in those states where shares of such other Fund or series may be legally sold, and may be amended or terminated at any time upon 60 days' notice. PROSPECTUS 24
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HOW TO REDEEM CLASS A AND CLASS B SHARES Shareholders may redeem their Class A and Class B shares without charge on any day that net asset value is calculated (see "Valuation of Class A and Class B Shares") and the shares may ordinarily be redeemed by mail or by telephone. However, if you purchase shares through a Participating Organization which serves as the shareholder of record, you must redeem through such institution. In all other cases, a completed Account Registration Form must have been received by the Transfer Agent before redemption requests may be honored. All or part of a customer's shares may be subject to redemption in accordance with instructions and limitations pertaining to his or her account held by a Participating Organization. For example, if a customer has agreed to maintain a minimum balance in his or her account, and the balance in that account falls below that minimum due to redemptions, the customer may be obliged to redeem, or the Participating Organization may be authorized to redeem the customer's shares for and on behalf of the customer. REDEMPTION BY MAIL A written request for redemption must be received by ADM or your Participating Organization in order to constitute a valid tender for redemption. Participating Organizations are responsible for the prompt transmission of redemption requests to the Transfer Agent. The Transfer Agent will require a signature guarantee by an eligible guarantor institution if (a) the redemption check is to be payable to anyone other than the Class A or Class B shareholder(s) of record or (b) a redemption check is to be mailed or proceeds are to be wired to the Class A or Class B shareholder(s) at an address other than the address of record or other than a commercial bank account designated on the Account Registration Form of such Class A or Class B shareholder(s) or (c) the redemption proceeds exceed $50,000. For purposes of this policy, the term "eligible guarantor institution" shall mean members of the STAMP (Securities Transfer Agents Medallion Program), MSP (New York Stock Exchange Medallion Signature Program) or SEMP (Stock Exchanges Medallion Program). Participants of STAMP, MSP, and SEMP are subject to dollar value limitations which must be considered when requesting their authorization. The Transfer Agent reserves the right to reject any signature guarantee if it has reason to believe that the transaction would otherwise be improper. REDEMPTION BY TELEPHONE A shareholder may have the proceeds of redemption requests electronically transferred or mailed directly to a domestic commercial bank account previously designated by the shareholder on the Account Registration Form. Under most circumstances, such proceeds will be transmitted on the next Business Day following receipt of a valid request for redemption. If you authorize the telephone redemption option in your Account Registration Form such electronic redemption request may be made by the shareholder by telephone to ADM or your Participating Organization. The Transfer Agent will reduce the amount of a wire redemption payment by its then-current wire redemption charge. As of the date of this Prospectus, there is no charge for wire redemptions. While this policy is subject to change at any time, it is not anticipated that such charge would exceed $7 per wire redemption. There is no charge for having proceeds of redemption requests mailed to a designated bank account. The Trust will not permit shareholders to change their accounts by telephone. For telephone redemptions through ADM, call ADM at 800-258-9232. Neither the Distributor, the Transfer Agent, Pacific Century nor the Trust will be liable for any losses, damages, expenses or cost arising out of any telephone transaction (including exchanges and redemptions) effected in accordance with the Funds' telephone transaction procedures, upon instructions reasonably believed to be genuine. The Trust will employ procedures designed to provide reasonable assurance that instructions by telephone are genuine. A description of the procedures employed by the Trust to confirm instructions communicated by telephone is contained in the Statement of Additional Information. This policy places the entire risk of loss for unauthorized or fraudulent transactions on the shareholder, except that if the Distributor, PROSPECTUS 25
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the Transfer Agent, Pacific Century, the Trust or their affiliates do not follow reasonable procedures, some or all of them may be liable for any such losses. During times of drastic economic or market changes, telephone exchanges or redemptions may be difficult to implement. If you experience difficulty in making a telephone exchange or redemption, your exchange or redemption request may be made by regular or express mail, and it will be implemented at the next determined net asset value following receipt by the Transfer Agent. PAYMENTS TO CLASS A AND CLASS B SHAREHOLDERS Redemption orders are effected at the net asset value per share next determined after Class A and Class B shares are properly tendered for redemption, as described above. The proceeds paid upon redemption of shares in a Fund may be more or less than the amount invested. Payment to shareholders for shares redeemed will be made within seven days after receipt by the Transfer Agent of the request for redemption. However, to the greatest extent possible, the Trust will attempt to honor requests from shareholders for next Business Day payments upon redemption of shares if the request for redemption is received by the Transfer Agent before 4:00 p.m., Eastern Time, on a Business Day or, if the request for redemption is received after 4:00 p.m., Eastern Time, to honor requests for payment within two Business Days, unless it would be disadvantageous to the Trust or the shareholders of the particular Fund to sell or liquidate portfolio securities in an amount sufficient to satisfy requests for payments in such manner. If the Trust is requested to redeem shares for which it has not yet received good payment, it may delay the forwarding of proceeds only until payment has been collected for the purchase of such shares. Such collection may take up to 15 days or more. To avoid delay in payment upon redemption shortly after purchasing shares, investors should purchase shares by certified or bank check or by wire transfer. The Trust intends to pay cash for all shares redeemed, but under abnormal conditions which make payment in cash inadvisable, the Trust may make payment wholly or partly in portfolio securities at their then-current market value equal to the redemption price, net of any CDSC. In such cases, an investor may incur brokerage costs in converting such securities to cash. Due to the relatively high cost of handling small accounts, the Trust reserves the right to redeem, at net asset value, the shares of any shareholder if, because of redemptions of shares by or on behalf of the shareholder, the account of such shareholder in any Fund has a value of less than $250. Accordingly, an investor purchasing shares of a Fund in only the minimum investment amount may be subject to such involuntary redemption if he or she thereafter redeems some of his or her shares. Before the Trust exercises its right to redeem such shares and to send the proceeds to the shareholder, the shareholder will be given notice that the value of the shares of a Fund in his or her account is less than the minimum amount and will be allowed 60 days to make an additional investment in an amount which will increase the value of the account to at least $1,000. AUTO WITHDRAWAL PLAN The Auto Withdrawal Plan enables Class A shareholders of any of the Funds to make regular monthly or quarterly redemptions of Class A shares. With shareholder authorization, the Transfer Agent will automatically redeem Class A shares at the net asset value on the dates of the withdrawal and have a check in the amount specified mailed to the shareholder. The required minimum withdrawal is $100. To participate in the Auto Withdrawal Plan, shareholders should call ADM for more information. Purchases of additional shares concurrent with withdrawals may be disadvantageous to certain shareholders because of tax liabilities and sales charges. To change the Auto Withdrawal Instructions or to discontinue the feature, a shareholder must submit a written request to ADM or their Participating Organization. PROSPECTUS 26
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DIVIDEND AND TAX INFORMATION DIVIDENDS AND DISTRIBUTIONS The Funds will declare and pay dividends of substantially all of their net income monthly. Distributable net realized capital gains are distributed at least annually to shareholders of record. A shareholder will automatically receive all income dividends and capital gains distributions in additional full and fractional shares of the same Class of shares held unless the shareholder elects to receive such dividends or distributions in cash. Dividends elected to be received in cash may be deposited directly into a shareholder's financial institution account, provided the shareholder has completed the appropriate section of the Account Registration Form. Dividends and distributions are reinvested without a sales charge as of the ex-dividend date using the net asset value determined on that date and are credited to a shareholder's account on the payment date. Reinvested dividends and distributions receive the same tax treatment as dividends and distributions paid in cash. Dividends are generally taxable when received. However, dividends declared in October, November or December to shareholders of record during those months and paid during the following January are treated for tax purposes as if they were received by each shareholder on December 31 of the prior year. Elections to receive dividends or distributions in cash, or any revocation thereof, must be made in writing to ADM at 581 Main Street, Woodbridge, New Jersey 07095 or to your Participating Organization and will become effective with respect to dividends and distributions having record dates after its receipt by the Transfer Agent. TAX INFORMATION Each Fund intends to continue to qualify as a "regulated investment company" under the Internal Revenue Code of 1986, as amended (the "Code"). If a Fund does so qualify, it will not be liable for federal income taxes to the extent it distributes its income to shareholders as dividends and capital gain distributions. However, the Code contains a number of complex tests relating to such qualification and it is possible, although not likely, that a Fund might not meet one or more of these tests in any particular year. If it does not so qualify, it would be treated for tax purposes as an ordinary corporation, would receive no tax deduction for distributions made to shareholders and would be unable to pay dividends or distributions which would qualify as "capital gains dividends," as discussed below. Corporate shareholders may be entitled to a dividends received deduction with respect to dividends paid by a Fund to the extent that they relate to dividends received from domestic corporations. Capital gains dividends (net gains from the sale of capital assets held for more than 12 months over net short-term losses which a Fund distributes) are reportable by shareholders as long-term capital gains. This is the case whether the shareholder takes his distribution in cash or elects to have the distribution reinvested in Fund shares and regardless of the length of time the shareholder has held his or her shares. The maximum capital gains rate for individuals is 28% with respect to assets held for more than 12 months, but not more than 18 months ("mid-term gains"), and 20% with respect to assets held for more than 18 months ("long-term gains"). The maximum capital gains rate for corporate shareholders currently is the same as the maximum tax rate for ordinary income. Short-term gains, when distributed, are taxed to shareholders as ordinary income. Capital losses of a Fund are not claimed by shareholders but carried forward by the Fund to offset gains in later years and thereby lessen the later-year capital gains distributions and amounts taxed to shareholders. A Fund's gains or losses on sales of securities will be long-term, mid-term or short-term depending upon the length of time the Fund has held such securities. Capital gains and losses of the Fund will also include gains and losses on futures and options, if any, including gains and losses actually realized on sales and exchanges and gains and losses deemed PROSPECTUS 27
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to be realized. Those deemed to be realized are on futures and options held by a Fund at year-end, which are "marked to the market," that is, deemed sold for fair market value. Net gains or losses realized and deemed realized on Section 1256 futures and options contracts will be reportable by the Fund as long-term to the extent of 60% of the gains or losses and short-term to the extent of 40% regardless of the actual holding period of such investments. The Trust will be required to withhold, subject to certain exemptions, at a rate of 31% on dividends paid and redemption proceeds (including proceeds from exchanges) paid or credited to non-exempt shareholders of the Funds if a correct Taxpayer Identification Number, certified when required, is not on file with the Trust or the Transfer Agent. Under the Code, dividends (but not capital gain distributions) paid to a non-resident alien or other foreign shareholder may be subject to U.S. withholding tax at the rate of 30% (or a lower treaty rate). Information as to the federal tax status of the Trust's dividends and distributions will be mailed to shareholders annually. TAX EFFECTS OF REDEMPTIONS A shareholder who redeems his or her shares or exchanges his or her shares for shares of another Fund generally will have a capital gain or loss (depending on whether the proceeds of the redemption are more or less than their tax basis, which is usually cost). In the case of an individual, any such capital gain will be treated as short-term capital gain if the shares were held for not more than 12 months, mid-term gain, taxable at the maximum rate of 28%, if such shares were held for more than 12, but not more than 18 months, and long-term capital gain, taxable at the maximum rate of 20%, if such shares were held for more than 18 months. In the case of a corporation, any such capital gain will be treated as long-term capital gain, taxable at the same rates as ordinary income, if such shares were held for more than 12 months. Any such capital loss will be treated as long-term capital loss if such shares were held for more than 12 months, and otherwise will be treated as short term capital loss. However, if the shares redeemed or sold were held for six months or less, any capital loss is treated as long-term to the extent of capital gains distributions received on such shares. HAWAIIAN TAX INFORMATION The Funds, and dividends and distributions made by the Funds to Hawaii residents, will generally be treated for Hawaii income tax purposes in the same manner as they are treated under the Code for federal income tax purposes. Persons or entities who are not Hawaii residents should not be subject to Hawaii income taxation on dividends and distributions made by the Trust but will be subject to other state and local taxes. For further information regarding taxation, see "Tax Information" in the SAI. The foregoing is a general and abbreviated summary of the applicable provisions of the Code and Treasury regulations presently in effect, and state taxation. Shareholders are urged to consult their own tax advisers regarding specific questions as to federal, local or foreign taxes. Foreign investors should consider applicable foreign taxes in their evaluation of an investment in a Fund. PROSPECTUS 28
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GENERAL INFORMATION PERFORMANCE From time to time performance for the Class A and Class B shares of the Funds showing each Fund's average annual total return, aggregate total return and yield may be presented in advertisements, sales literature and in reports to Class A and Class B shareholders. Such performance figures are based on historical earnings and are not intended to indicate future performance. Average annual total return will be calculated for the period since the establishment of the Funds, and will, unless otherwise noted, reflect the imposition of the maximum sales charge. Average annual total return is measured by comparing the value of an investment in Class A shares of a Fund at the beginning of the relevant period to the redemption value of the investment, after reflecting the reinvestment of any dividends or capital gains distributions and annualizing the difference. Aggregate total return is calculated similarly to average annual total return except that the return figure is aggregated over the relevant period instead of annualized. Yield will be computed by dividing such Fund's net investment income per Class A or Class B share earned during a recent 30-day period by such Fund's per Class A or Class B share maximum offering price (reduced by any undeclared earned income expected to be paid shortly as a dividend) on the last day of the period and annualizing the result. From time to time, average annual total return, aggregate total return and yield for the Class A shares of the Funds may also be calculated and advertised on the basis of an investment in a Fund at the net asset value per share or at net asset value per share plus a reduced sales charge, rather than the public offering price per share. In this case, the figure would not reflect the effect of a maximum sales charge that a Class A shareholder may have paid. Shareholders may also be provided with information comparing the performance of the Class A and Class B shares of the Funds to the performance of other mutual funds or mutual fund portfolios with comparable investment objectives and policies. This information may be based on data relating to various mutual fund or market indices such as those prepared by Dow Jones & Co., Inc. and Standard & Poor's Corporation or data prepared by Lipper Analytical Services, Inc. Comparisons may also be made to indices or data published in Money Magazine, Forbes, Barron's, The Wall Street Journal, The New York Times, Business Week, American Banker, Institutional Investor, Pensions and Investments, USA Today, Fortune, CDA/Wiesenberger, Ibbotson Associates, Inc., Morningstar and regional periodicals and newspapers. In addition to yield information, general information about the Funds that appears in a publication such as those mentioned above may also be quoted or reproduced in advertisements or in reports to shareholders. Reports to shareholders may contain performance information on any Fund. Yield and total return are functions of the type and quality of instruments held in the portfolio, operating expenses, and market conditions. Consequently, current yields and total return will fluctuate and are not necessarily representative of future results. Any fees charged by an affiliate of Pacific Century or a Participating Organization with respect to customer accounts for investing in shares of the Funds will not be included in performance calculations; such fees, if charged, would reduce the actual yield and total return from that quoted. Because of differences in the fees and/or expenses borne by the classes of shares of the Funds, the average annual total return, aggregate total return, and yield of the Class B shares can be expected, at any given time, to be lower than the average annual total return, aggregate total return, and yield of Class A shares. Standardized yield and total return quotations will be computed separately for Class A and Class B shares. DESCRIPTION OF THE TRUST AND ITS SHARES CAPITALIZATION--The Trust was organized as a Massachusetts business trust on October 30, 1992, and currently consists of nine separately managed series. PROSPECTUS 29
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The Board of Trustees may establish additional series in the future. The series of the Trust are: the Balanced Fund, Diversified Fixed Income Fund, Growth and Income Fund, Growth Stock Fund, New Asia Growth Fund, Short Intermediate U.S. Treasury Securities Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities Fund and the U.S. Treasury Securities Fund, each with unlimited transferable shares of beneficial interest, no par value. When issued in accordance with the terms and procedures described in their respective Prospectuses, shares of the Funds are fully paid, non-assessable and freely transferable. Each series is comprised of three classes of shares--Class A, Class B and Class Y shares. The classes have identical rights with respect to the series of which they are a part, provided that there are certain matters which affect one class but not another. Currently, the only such matters are the existence of the Distribution Plans with respect to each of Class A and Class B shares, but not any Class Y shares, the absence of any sales load with regard to the purchase or redemption of the Class Y shares, and the fact that a sales person or other person entitled to receive compensation for selling or servicing Class A, Class B or Class Y shares may receive different compensation with respect to one such Class over the other Class in the same Fund. On all such matters, shareholders vote as a class, and not by series. Class Y shares have different expenses, and are subject to no sales charge, which may affect performance. A separate Prospectus applies to the Class Y shares of each series. Prospectuses relating to the Class Y shares of each series may be obtained by calling the telephone number listed on the first page of this Prospectus. VOTING--Shareholders have the right to vote on the election of Trustees and on any and all matters as to which, by law or the provisions of the Declaration of Trust of the Trust, they may be entitled to vote. All shares of the Trust have equal voting rights and will be voted in the aggregate, and not by class or series, except where voting by class or series is required by law or where the matter involved affects only one class or series. The Trust is not required to hold annual meetings of the Funds' shareholders, and does not intend to do so, in any fiscal year in which it is not required by law to elect Trustees. The Trustees are required to call a meeting for the purpose of considering the removal of persons serving as Trustee, if requested in writing to do so by the holders of not less than 10% of the outstanding shares of the Trust. SHAREHOLDER LIABILITY--Under Massachusetts law, shareholders of the Funds could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Trust's Declaration of Trust disclaims shareholder liability for acts or obligations of the Trust. The Declaration of Trust provides for indemnification out of a Fund's property for all loss and expense of any shareholder of such Fund held liable on account of being or having been a shareholder. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which a Fund would be unable to meet its obligations. SHAREHOLDER INQUIRIES Shareholder inquiries may be addressed to a Fund at the address or telephone number set forth on the cover page of this Prospectus. PROSPECTUS 30
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APPLICATION FOR PACIFIC CAPITAL FUNDS PLEASE COMPLETE STEPS 1 THROUGH 4 AND MAIL TO: ADM, ATTN: OUTSIDE FUNDS TRANSFER AGENT OPERATIONS 581 MAIN STREET, WOODBRIDGE, NJ 07095-1198 1-800-258-9232 [PACIFIC CAPITAL FUNDS LOGO] -------------------------------------------------------------------------------- STEP 1 ACCOUNT REGISTRATION PLEASE TYPE OR PRINT NAME EXACTLY AS ACCOUNT IS TO BE REGISTERED A. REGISTRATION [Enlarge/Download Table] [ ] Individual 1. ---------------------------------------------------------------------------------------------- First Name Middle Initial Last Name Social Security Number [ ] Joint Account* 2. ---------------------------------------------------------------------------------------------- (Use lines 1 First Name Middle Initial Last Name Social Security Number and 2) *JOINT ACCOUNTS WILL BE TENANTS WITH RIGHTS OF SURVIVORSHIP UNLESS OTHERWISE SPECIFIED. [ ] For a Minor 3. --------------------------------- Under the ------------ Uniform Gifts/Transfers to Minors Act (Only one Custodian's First Name Middle Initial Last Name State custodian Custodian For and one minor are ---------------------------------------------------------------------------------------------- permitted.) Minor's First Name Middle Initial Last Name Minor's Social Security No. [ ] For Trust, 4. ---------------------------------------------------------------------------------------------- Corporation, (Name of Corporation or Partnership; PLEASE INDICATE TYPE OF ORGANIZATION. If a Trust, include Partnership or the name and date of the Trust Instrument. The name(s) of the Trustees in which account will be other Entity registered should be listed below. Account for a Pension or Profit Sharing Plan or Trust may be registered in the name of the Plan or Trust itself.) ---------------------------------------------------------------------------------------------- Tax I.D. Number Trustee(s) or Authorized Title Individual -------------------------------------------------------------------------------- B. MAILING ADDRESS AND TELEPHONE NUMBER -------------------------------------------------------------------------------- Street or P.O. Box City State Zip Code ( ) -------------------------------------------------------------------------------- Area Code Occupation Employer's Name Daytime Telephone Number Employer's Address City State Citizen or resident of: U.S. [ ] Other [ ] ___ Check here [ ] if you are a non U.S. Citizen or resident and not subject to back-up withholding. See certification in Step 4. -------------------------------------------------------------------------------- C. INVESTMENT DEALER OR BROKER: (Important -- to be completed by Dealer or Broker) -------------------------------------------------------------------------------- Dealer Name Branch Office Address Branch Office City/State Branch # ( ) -------------------------------------------------------------------------------- Representative's Name Rep # Area Code Telephone # [Agent User Dealer # / Branch #] -------------------------------------------------------------------------------- STEP 2 PURCHASE OF SHARES A. INITIAL INVESTMENT Make check payable to: Pacific Capital Funds Minimum Initial Investment in any Fund is $1,000. Subsequent Investments, $50. [Enlarge/Download Table] U.S. Treasury Securities Fund $ --------- Tax-Free Short Intermediate Securities $ --------- Fund Short Intermediate U.S. Treasury Securities Fund $ --------- Growth Stock Fund $ --------- Diversified Fixed Income Fund $ --------- Balanced Fund $ --------- Tax-Free Securities Fund $ --------- Growth and Income Fund $ --------- New Asia Growth Fund $ --------- Total Investment $ --------- -------------------------------------------------------------------------------- B. DISTRIBUTIONS: All income dividends and capital gains distributions will be REINVESTED in additional shares at net asset value unless otherwise indicated below. Dividends are to be: [ ] Reinvested [ ] Paid in cash* Capital Gains are to be: [ ] Reinvested [ ] Paid in cash* *FOR CASH DIVIDENDS, PLEASE CHOOSE ONE OF THE FOLLOWING OPTIONS: [ ] Wire directly into my financial institutional account. ATTACHED IS A VOIDED CHECK showing the account information where I would like the dividend deposited. [ ] Mail check to my address listed in Step 1B. [ ] Mail check as requested in Step 3F.
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-------------------------------------------------------------------------------- [Enlarge/Download Table] C. LETTER OF INTENT (See Terms of Escrow I/we intend to invest in shares of one or more of the Pacific for Letter Capital Funds during the 13-month period from the date of my of Intent at the end of first purchase pursuant to this Letter (which purchase cannot this be more than 90 days prior to the date of this Letter), an application). aggregate amount (excluding any reinvestment of dividends or distributions) of at least $25,000 which, together with my ----------------------- present holdings of Pacific Capital Fund shares (at public Check appropriate box offering price on date of this Letter), will equal or exceed [ ] YES [ ] NO the minimum amount checked below:* [ ] $25,000 [ ] $50,000 [ ] $100,000 [ ] $250,000 [ ] $500,000 [ ] $1,000,000 *Accumulated investments must aggregate at least $100,000 for reduced sales charges to apply to purchases of shares of the Short-Intermediate U.S. Treasury Securities Fund or the Tax-Free Short Intermediate Securities Fund. -------------------------------------------------------------------------------- [Enlarge/Download Table] STEP 3 SPECIAL FEATURES This option provides you with a convenient way to have A. AUTOMATIC INVEST PROGRAM amounts automatically drawn on your financial institution --------------------------- account and invested in your Pacific Capital Fund account. To Check appropriate box establish this program, please complete Step 4, Sections A & [ ] YES [ ] NO B of this Application. I wish to make regular monthly investments. The minimum initial purchase is reduced to $100 per Fund when you use this service. Subsequent minimum purchase is $50 for each Fund. YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK. [Enlarge/Download Table] Amount Please select how often you would like to have the ----------- Fund $ --------- amount(s) shown above withdrawn from your checking ----------- Fund $ --------- account and invested into the above selected Fund(s). ----------- Fund $ --------- [ ] Once each month -- [ ] Twice each month on the on the 1st 1st and the 16th Total $ --------- [ ] Once each month -- [ ] Once each quarter on the 1st beginning in the month of -----------------. -------------------------------------------------------------------------------- [Enlarge/Download Table] B. TELEPHONE INVESTMENT This option provides you with a convenient way to add to your ----------------------- account at any time you wish by simply calling Administrative Data Management Corp. toll-free at 1-800-258-9232. To Check appropriate box establish this program, please complete Step 4, Sections A & [ ] YES [ ] NO B of this Application. YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK. -------------------------------------------------------------------------------- [Enlarge/Download Table] C. AUTOMATIC WITHDRAWAL PLAN Please establish an Automatic Withdrawal Plan for this Application must be account, subject to the terms of the Automatic Withdrawal received in good order Plan Provisions set forth below. To realize the amount stated at least two weeks below, Administrative Data Management Corp. (the "Agent") is prior to 1st actual authorized to redeem sufficient shares from this account at liquidation date. the then current Net Asset Value, in accordance with the terms below: The minimum Automatic Withdrawal amount is $100 per Fund. ----------------------- Check appropriate box [Download Table] [ ] YES [ ] NO $ --------------------------- ------------------------- Fund $ --------------------------- ------------------------- Fund Total $ --------------------------- Please select how often you would like to have payments made from your account under the Automatic Withdrawal Plan. [Download Table] [ ] Once each month -- on the [ ] Twice each month on the 1st and 16th 1st [ ] Once each month -- on the [ ] Once each quarter on the 1st beginning in 16th the month of -------------------- . Please choose one of the following options: [ ] Mail check to my address listed in Step 1a. [ ] Mail check as requested in Step 3f.
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-------------------------------------------------------------------------------- [Enlarge/Download Table] D. 1. TELEPHONE EXCHANGE The Agent is authorized to accept and act upon my/our or any This option allows you other person's telephone instructions to execute to effect exchanges the exchange of shares of one Pacific Capital among accounts in your Fund for one of the funds into which exchange is name within the Pacific permitted, as designated in the Prospectus, with Capital group of Funds, identical shareholder registration. The exchange as described in the will be executed at the relative net asset Prospectus, by values of the two funds as next determined telephone. following receipt of such instructions. Except for gross negligence in acting upon such telephone instructions to execute an exchange and subject to the conditions set forth herein, I (we) understand and agree to hold harmless the Agent, each of the Pacific Capital Funds, and their respective officers, directors, trustees, employees, agents and affiliates against any liability, damage, expense, claim or loss, including reasonable costs and attorney's fees resulting from acceptance of or acting or failure to act upon this Authorization. ----------------------- Check appropriate box [ ] YES [ ] NO TO MAKE A TELEPHONE EXCHANGE, CALL THE AGENT AT 1-800-258-9232. [Enlarge/Download Table] 2. TELEPHONE REDEMPTION The Agent is authorized to accept and act upon my/our or any This option allows you other person's telephone instructions to execute to effect telephone a redemption of shares of one or more Pacific redemptions, as Capital Funds. The redemption will be executed described in the at net asset value next determined following Prospectus. receipt of such instructions. Except for gross negligence in acting upon such telephone instructions to execute a redemption and subject to the conditions set forth herein, I (we) understand and agree to hold harmless the Agent, each of the Pacific Capital Funds, and their respective officers, directors, trustees, employees, agents and affiliates against any liability, damage, expense, claim or loss, including reasonable costs and attorney's fees resulting from acceptance of or acting or failure to act upon this Authorization. ----------------------- Check appropriate box [ ] YES [ ] NO TO MAKE A TELEPHONE REDEMPTION, CALL THE AGENT AT 1-800-258-9232. -------------------------------------------------------------------------------- [Download Table] E. EXPEDITED REDEMPTION Cash proceeds in any amount from the redemption of shares The proceeds will be will be mailed or wired, whenever possible, upon deposited to your request, if in an amount of $1,000 or more to my financial institution (our) account at a financial institution. The account listed. financial institution account must be in the same name(s) as this Pacific Capital Fund account is registered. YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK. ----------------------- Check appropriate box [ ] YES [ ] NO TO MAKE AN EXPEDITED REDEMPTION, CALL THE AGENT AT 1-800-258-9232. [Enlarge/Download Table] -------------------------------------------- --------------------------------------- Financial Institution Account Registration Financial Institution Account Number -------------------------------------------- --------------------------------------- Name of Financial Institution Financial Institution Transit/Routing Number -------------------------------------------- --------------------------------------- Street City State Zip Code -------------------------------------------------------------------------------- [Download Table] F. SECONDARY ADDRESS Checks should be made payable as indicated below. If check is payable to a financial institution, i.e., a commercial bank, savings bank or credit union, for your account, indicate financial institution name, address and your account number. ----------------------- Check appropriate box [ ] YES [ ] NO [Enlarge/Download Table] -------------------------------------------- --------------------------------------- First Name Middle Initial Last Name Name of Financial Institution -------------------------------------------- --------------------------------------- First Name Middle Initial Last Name Street -------------------------------------------- --------------------------------------- Street City State Zip Code -------------------------------------------- --------------------------------------- City State Zip Code Financial Institution Account Number
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-------------------------------------------------------------------------------- STEP 4 DEPOSITORS AUTHORIZATION TO HONOR DEBITS SECTION A IF YOU SELECTED AUTOMATIC INVESTMENT OR TELEPHONE INVESTMENT YOU MUST ALSO COMPLETE STEP 4, SECTIONS A & B. I/We authorize the Financial Institution listed below to charge my/our account for any drafts or debits drawn on my/our account initiated by the Agent, Administrative Data Management Corp., and to pay such sums in accordance therewith, provided my/our account has sufficient funds to cover such drafts or debits. I/We further agree that your treatment of such orders will be the same as if I/we personally signed or initiated the drafts or debits. I/We understand that this authority will remain in effect until you receive my/our written instructions to cancel this service. I/We also agree that if any such drafts or debits are dishonored, for any reason, you shall have no liabilities. FINANCIAL INSTITUTION ACCOUNT NUMBER [Enlarge/Download Table] NAME AND ADDRESS ------------------------------------------------------------------------ WHERE MY/OUR NAME OF FINANCIAL INSTITUTION ACCOUNT IS ------------------------------------------------------------------------ MAINTAINED STREET ADDRESS ------------------------------------------------------------------------ CITY STATE ZIP CODE NAME(S) AND ---------------------------------------------------- ------------------ SIGNATURE(S) OF PLEASE PRINT DATE DEPOSITOR(S) AS ---------------------------------------------------- THEY APPEAR WHERE SIGNATURE ACCOUNT IS ---------------------------------------------------- REGISTERED PLEASE PRINT ---------------------------------------------------- ------------------ SIGNATURE DATE -------------------------------------------------------------------------------- SECTION B SHAREHOLDER AUTHORIZATION / SIGNATURE(S) REQUIRED - I/We authorize the Pacific Capital Funds and its agents to act upon these Instructions for the features that have been checked. - I/We acknowledge that in connection with an Automatic Investment or Telephone Investment, if my/our account at the Financial Institution has insufficient funds, Pacific Capital Funds and its agents may cancel the purchase transaction and are authorized to liquidate other shares or fractions thereof held in my/our Pacific Capital Fund account to make up any deficiency resulting from any decline in the net asset value of shares so purchased and any dividends paid on those shares. I/We understand that in the event of such deficiency, Pacific Capital Funds and its agents will first liquidate shares of the Pacific Capital Fund to which the purchase transaction relates, and then, in the discretion of Pacific Capital Funds and its agents, shares of any other Pacific Capital Fund in my/our account at the Financial Institution. I/We authorize Pacific Capital Funds and its agents to correct any transfer error by a debit or credit to my/our financial Institution account and/or Fund account and to charge the account for any related charges. - I/We acknowledge that shares purchased either through Automatic Investment or Telephone Investment are subject to applicable sales charges. - The undersigned warrants that he/she has full authority and is of legal age to purchase shares of the Pacific Capital Fund(s) designated above and has received and read a current Prospectus of such Fund(s) and agrees to its terms. Pacific Capital Funds, Agent and the Distributor and their Trustees, directors, employees and agents will not be liable for acting upon instructions believed to be genuine, and will not be responsible for any losses resulting from unauthorized telephone transactions if the Agent follows reasonable procedures designed to verify the identity of the caller. The Agent will request some or all of the following information: account name and number, name(s) and social security number registered to the account and personal identification; the Agent may also record calls. Shareholders should verify the accuracy of confirmation statements immediately upon receipt. Under penalties of perjury, the undersigned whose Social Security (Tax I.D.) Number is shown above certifies(I) that Number is my correct taxpayer identification number and (II) currently I am not under IRS notification that I am subject to backup withholding (line out (II) if under notification). If no such Number is shown, the undersigned further certifies, under penalties of perjury, that either (a) no such Number has been issued, and a Number has been or will soon be applied for. If a Number is not provided to you within sixty days, the undersigned understands that all payments (including liquidations) are subject to 31% withholding under federal tax law, until a Number is provided and the undersigned may be subject to a $50 I.R.S. penalty; or (b) that the undersigned is not a citizen resident of the U.S.; and either does not expect to be in the U.S. for more than 182 days during each calendar year and does not conduct a business in the U.S. which would receive any gain from the Fund, or is exempt under an income tax treaty. NOTE: ALL REGISTERED OWNERS OF THE ACCOUNT MUST SIGN BELOW. FOR A TRUST, ALL TRUSTEES MUST SIGN* [Enlarge/Download Table] ------------------------------------------ ------------------------------------------ ------------------ INDIVIDUAL (OR CUSTODIAN) JOINT REGISTRANT, IF ANY DATE ------------------------------------------ CORPORATE OFFICER, PARTNER, TRUSTEE(S), ------------------------------------------ ------------------ ETC. TITLE DATE *FOR A TRUST, CORPORATION OR ASSOCIATION, THIS FORM MUST BE ACCOMPANIED BY PROOF OF AUTHORITY TO SIGN, SUCH AS A CERTIFIED COPY OF THE CORPORATE RESOLUTION OR A CERTIFICATE OF INCUMBENCY UNDER THE TRUST INSTRUMENT.
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SPECIAL INFORMATION - Certain features (Automatic Investment, Telephone Investment, Expedited Redemption and Direct Deposit of Dividends) are effective 15 days after this form is received in good order by the Fund's Agent. - You may cancel any feature at any time, effective 3 days after the Agent receives notice from you. - Either the Fund or the Agent may cancel any feature, without prior notice, if in its judgment your use of any feature involves unusual effort or difficulty in the administration of your account. - The Fund reserves the right to alter, amend or terminate any or all features or to charge a service fee upon 30 days' written notice to shareholders except if additional notice is specifically required by the terms of the Prospectus. BANKING INFORMATION - If your Financial Institution account changes, you must complete a Ready Access Features form which may be obtained from the Agent at 1-800-258-9232 and send it to the Agent together with a "voided" check or pre-printed deposit slip from the new account. The new Financial Institution change is effective in 15 days after this form is received in good order by the Fund's Agent. TERMS OF LETTER OF INTENT AND ESCROW By checking Box 2c and signing the Application, the investor is entitled to make each purchase at the public offering price applicable to a single transaction of the dollar amount checked above, and agrees to be bound by the terms and conditions applicable to Letters of Intent appearing below. The investor is making no commitment to purchase shares, but if the investor's purchases within thirteen months from the date of the investor's first purchase do not aggregate $25,000, or, if such purchases added to the investor's present holdings do not aggregate the minimum amount specified above, the investor will pay the increased amount of sales charge prescribed in the terms of escrow below. The commission to the dealer or broker, if any, named herein shall be at the rate applicable to the minimum amount of the investor's specified intended purchases checked above. If the investor's actual purchases do not reach this minimum amount, the commissions previously paid to the dealer will be adjusted to the rate applicable to the investor's total purchases. If the investor's purchases exceed the dollar amount of the investor's intended purchases and pass the next commission break-point, the investor shall receive the lower sales charge, provided that the dealer returns to the Distributor the excess of commissions previously allowed or paid to him over that which would be applicable to the amount of the investor's total purchases. The investor's dealer or broker shall refer to this Letter of Intent in placing any future purchase orders for the investor while this Letter is in effect. The escrow shall operate as follows: 1. Out of the initial purchase (or subsequent purchases if necessary), 3% of the dollar amount specified in the Letter of Intent shall be held in escrow in shares of the Fund by the Agent. All dividends and any capital distributions on the escrowed shares will be credited to the investor's account. 2. If the total minimum investment specified under the Letter is completed within a thirteen-month period, the escrowed shares will be promptly released to the investor. However, shares disposed of prior to completion of the purchase requirement under the Letter will be deducted from the amount required to complete the investment commitment. 3. If the total purchases pursuant to the Letter are less than the amount specified in the Letter as the intended aggregate purchase, the investor must remit to the Agent an amount equal to the difference between the dollar amount of sales charges actually paid and the amount of sales charges which would have been paid if the total amount purchased had been made at a single time. If such difference in sales charges is not paid within twenty days after receipt of a request from the Agent or the dealer, the Agent will, within sixty days after the expiration of the Letter, redeem the number of escrowed shares necessary to realize such difference in sales charges. Any shares remaining after such redemption will be released to the investor. The escrow of shares will not be released until any additional sales charge due has been paid as stated in this section. 4. By checking Box 2c and signing the Application, the investor irrevocably constitutes and appoints the Agent or the Distributor as his attorney to surrender for redemption any or all escrowed shares on the books of the Fund. AUTOMATIC WITHDRAWAL PLAN PROVISIONS By requesting an Automatic Withdrawal Plan, the applicant agrees to the terms and conditions applicable to such plans, as stated below. 1. The Agent will administer the Automatic Withdrawal Plan (the "Plan") as agent for the person (the "Planholder") who executed the Plan authorization. 2. Certificates will not be issued for shares of the Fund purchased for and held under the Plan, but the Agent will credit all such shares to the Planholder on the records of the Fund. Any share certificates now held by the Planholder may be surrendered unendorsed to the Agent with the application so that the shares represented by the certificate may be held under the Plan. 3. Dividends and distributions will be reinvested in shares of the Fund at the Net Asset Value. 4. Redemptions of shares in connection with disbursement payments will be made at the Net Asset Value per share in effect at the close of business on the first business day of the month or quarter. 5. The amount and the interval of disbursement payments and the address to which checks are to be mailed may be changed, at any time, by the Planholder on written notification to the Agent. The Planholder should allow at least two weeks' time in mailing such notification before the requested change can be put in effect. 6. The Planholder may, at any time, instruct the Agent by written notice (in proper form in accordance with the requirements of the then current prospectus of the Fund) to redeem all, or any part of, the shares held under the Plan. In such case the Agent will redeem the number of shares requested at the Net Asset Value per share in effect in accordance with the Fund's usual redemption procedures and will mail a check for the proceeds of such redemption to the Planholder. 7. The Plan may, at any time, be terminated by the Planholder on written notice to the Agent, or by the Agent upon receiving directions to that effect from the Fund. The Agent will also terminate the Plan upon receipt of evidence satisfactory to it of the death or legal incapacity of the Planholder. Upon termination of the Plan by the Agent or the Fund, shares remaining unredeemed will be held in an uncertificated account in the name of the Planholder, and the account will continue as a dividend-reinvestment, uncertificated account unless and until proper instructions are received from the Planholder, his executor or guardian, or as otherwise appropriate. 8. The Agent shall incur no liability to the Planholder for any action taken or omitted by the Agent in good faith. 9. In the event that the Agent shall cease to act as transfer agent for the Fund, the Planholder will be deemed to have appointed any successor transfer agent to act as his Agent in administering the Plan. 10. Purchases of additional shares concurrently with withdrawals are undesirable because of sales charges when purchases are made. Accordingly, a Planholder may not maintain this Plan while simultaneously making regular purchases. While an occasional lump sum investment may be made, such investment should normally be an amount equivalent to three times the annual withdrawal or $5,000, whichever is less.
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INVESTMENT ADVISER Pacific Century Trust 111 S. King Street Honolulu, Hawaii 96813 ADMINISTRATOR AND DISTRIBUTOR BISYS Fund Services 3435 Stelzer Road Columbus, Ohio 43219-3035 LEGAL COUNSEL Shereff, Friedman, Hoffman & Goodman, LLP 919 Third Avenue New York, New York 10022 INDEPENDENT AUDITORS Ernst & Young LLP One Columbus, Suite 2300 10 West Broad Street Columbus, Ohio 43215 TRANSFER AGENT Administrative Data Management Corp. 581 Main Street Woodbridge, New Jersey 07095 [PACIFIC CAPITAL FUNDS LOGO] PACIFIC CAPITAL FUNDS ------------------- GROWTH AND INCOME FUND GROWTH STOCK FUND ------------------- CLASS A AND CLASS B
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PACIFIC CAPITAL FUNDS U.S. TREASURY SECURITIES FUND SHORT INTERMEDIATE U.S. TREASURY SECURITIES FUND DIVERSIFIED FIXED INCOME FUND TAX-FREE SECURITIES FUND TAX-FREE SHORT INTERMEDIATE SECURITIES FUND 3435 Stelzer Road Columbus, Ohio 43219-3035 Pacific Capital Funds (the "Trust") is a professionally managed, open-end, management investment company with multiple funds available for investment. This Prospectus contains information about five of the funds of the Trust--the Diversified Fixed Income Fund, the Short Intermediate U.S. Treasury Securities Fund, the Tax-Free Securities Fund, the Tax-Free Short Intermediate Securities Fund and the U.S. Treasury Securities Fund (each a "Fund" and collectively, the "Funds"). The Funds are advised by Pacific Century Trust ("Pacific Century"), a division of Bank of Hawaii and sponsored, administered and distributed by BISYS Fund Services ("BISYS" or the "Distributor"). This Prospectus relates only to the Class A and Class B shares of each Fund; certain investors may qualify to invest in a Fund's Class Y shares, which are not offered hereby. See "General Information--Description of the Trust and its Shares." This Prospectus sets forth concisely the information a prospective investor should know before investing in any of the Funds. Investors should read this Prospectus carefully and retain it for future reference. A Statement of Additional Information ("SAI") dated November 29, 1997 containing additional and more detailed information about the Funds has been filed with the Securities and Exchange Commission (the "Commission") and is hereby incorporated by reference into this Prospectus. The SAI is available without charge and can be obtained by writing to the Funds at the address printed above or by calling 800-258-9232. FOR PURCHASE, REDEMPTION, ACCOUNT OR GENERAL INQUIRIES CONTACT THE TRUST'S TRANSFER AGENT: ADMINISTRATIVE DATA MANAGEMENT CORPORATION, 581 MAIN STREET, WOODBRIDGE, NEW JERSEY 07095 800-258-9232 THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE ------------------------ SHARES OF PACIFIC CAPITAL FUNDS ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY, BANK OF HAWAII OR ANY OF ITS AFFILIATES. SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER AGENCY. AN INVESTMENT IN THE FUND INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ PROSPECTUS DATED NOVEMBER 29, 1997.
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TABLE OF CONTENTS [Enlarge/Download Table] PAGE ----- Highlights......................................................................... 1 Fund Expenses...................................................................... 4 Financial Highlights............................................................... 7 Investment Objectives and Policies of the Funds.................................... 9 Additional Discussion Regarding Permitted Investment Activities.................... 10 Additional Investment Restrictions................................................. 19 Management, Advisory and Other Service Arrangements................................ 20 Valuation of Class A and Class B shares............................................ 23 How to Purchase Class A and Class B shares......................................... 23 How to Redeem Class A and Class B shares........................................... 30 Dividend and Tax Information....................................................... 32 General Information................................................................ 35
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HIGHLIGHTS This Prospectus describes the Funds, each of which has its own distinct investment objectives and policies, which are described and summarized here. U.S. TREASURY SECURITIES FUND--The primary investment objective of the U.S. Treasury Securities Fund, a diversified portfolio, is to provide investors with a high level of current income consistent with prudent risk of capital. Capital appreciation is a secondary investment objective of the U.S. Treasury Securities Fund. The U.S. Treasury Securities Fund seeks to achieve these objectives by (i) investing primarily in U.S. Treasury bonds, notes, bills ("U.S. Treasury Securities") and repurchase agreements that are collateralized by U.S. Treasury Securities; and (ii) varying the dollar-weighted average remaining maturity of its portfolio to take advantage of changes in interest rates. SHORT INTERMEDIATE U.S. TREASURY SECURITIES FUND--The primary investment objective of the Short Intermediate U.S. Treasury Securities Fund, a diversified portfolio, is to provide investors with a high level of current income consistent with prudent risk of capital. Capital appreciation is a secondary objective of the Short Intermediate U.S. Treasury Securities Fund. The Short Intermediate U.S. Treasury Securities Fund seeks to achieve these objectives by investing primarily in U.S. Treasury Securities and repurchase agreements that are collateralized by U.S. Treasury Securities. Under normal market conditions, the dollar-weighted average remaining maturity of the Short Intermediate U.S. Treasury Securities Fund's portfolio will be from two to five years. DIVERSIFIED FIXED INCOME FUND--The investment objective of the Diversified Fixed Income Fund, a diversified portfolio, is to seek a high level of current income. The Diversified Fixed Income Fund seeks to achieve this objective by investing primarily in obligations issued or guaranteed by the U.S. Government, its agencies, or instrumentalities ("U.S. Government Obligations") and in investment grade debt securities. Pacific Century will monitor the Diversified Fixed Income Fund's portfolio performance on an ongoing basis and reallocate assets in response to actual and anticipated market and economic changes. This approach may result in significant variations in the dollar-weighted average remaining maturity of the Diversified Fixed Income Fund's portfolio. TAX-FREE SECURITIES FUND--The investment objective of the Tax-Free Securities Fund, a non-diversified portfolio, is to provide investors with a high level of current income exempt from federal income tax and Hawaii income tax. The Tax-Free Securities Fund pursues this objective by investing, under normal market conditions, at least 80% of the Fund's net assets in debt obligations of issuers that pay interest that, in the opinion of counsel to the issuer, is exempt from federal income tax and is not subject to the federal alternative minimum tax ("Municipal Obligations"). In addition, the Tax-Free Securities Fund intends to invest at least 50%, and no more than 60%, of the market value of its securities in debt obligations issued by or on behalf of the State of Hawaii and its political subdivisions, agencies and instrumentalities and other issuers which pay interest that is exempt from Hawaii personal income tax and exempt from federal income tax, but which, subject to the guidelines discussed above, may be subject to the federal alternative minimum tax ("Hawaiian Municipal Obligations"). Pacific Century will monitor the Tax-Free Securities Fund's portfolio performance on an ongoing basis and will reallocate assets in response to actual and anticipated market and economic changes. This approach may result in significant variations in the dollar-weighted average remaining maturity of the Tax-Free Securities Fund's portfolio. TAX-FREE SHORT INTERMEDIATE SECURITIES FUND--The investment objectives of the Tax-Free Short Intermediate Securities Fund, a non-diversified portfolio, are to provide investors with a high level of current income, exempt from federal income tax and Hawaii income tax, and to provide greater price stability than a PROSPECTUS 1
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long-term bond fund. The Tax-Free Short Intermediate Securities Fund pursues these objectives by investing, under normal market conditions, at least 80% of its net assets in Municipal Obligations. In addition, the Tax-Free Short Intermediate Securities Fund intends to invest at least 50%, and no more than 60%, of the market value of its securities in Hawaiian Municipal Obligations. Under normal market conditions, the dollar-weighted average remaining maturity of the Tax-Free Short Intermediate Securities Fund's portfolio will be from two to five years. CERTAIN RISKS Investments in all of the Funds are subject to default risk (i.e., the risk that the issuers of securities in which a Fund invests may default in the payment of principal and/or interest), although the U.S. Treasury Securities held by the U.S. Treasury Securities Fund and the Short Intermediate U.S. Treasury Fund are direct obligations of the U.S. Government. The Funds are also subject to interest rate risk (i.e., the risk that increases in market interest rates may adversely affect the value of the debt securities in which a Fund invests and hence the value of an investment in such Fund). There can, of course, be no assurance that any mutual fund will achieve its investment objective. In addition, unlike insured bank deposits, no investment in any Fund is insured against loss of principal. See "Additional Discussion Regarding Permitted Investment Activities--Additional Risk Disclosure." For additional information concerning the investment policies and practices of the Funds, see "Investment Objectives and Policies of the Funds," "Additional Discussion Regarding Permitted Investment Activities" and "Additional Investment Restrictions" in this Prospectus. Further information also is provided in the SAI. PURCHASE OF CLASS A AND CLASS B SHARES Class A and Class B shares of each Fund are sold on a continuous basis and may be purchased by mail or by electronic transfer. See "How to Purchase Class A and Class B Shares." Initial purchases may only be made with a minimum investment of $1,000 (the $1,000 minimum may be waived or reduced for certain accounts; the minimum initial purchase is $250 for Individual Retirement Accounts ("IRAs") and $100 for Auto Invest Plan participants). Subsequent investments may be made with as little as $50. For more information about purchasing Fund shares call ADM at 1-800-258-9232 or contact your Participating Organization (defined below). Class A shares of the Funds are offered at net asset value plus a sales load at the time of purchase. Class B shares of the Funds are offered at net asset value without the imposition of a sales charge at the time of purchase, but are charged a deferred sales charge if shares are redeemed within six years of purchase. See "Valuation of Class A and Class B Shares." Only institutions (including Bank of Hawaii and its affiliated and correspondents banks) ("Institutions") acting on behalf of customers having a qualified trust account, employee benefit account or other qualifying relationship at such Institution are eligible to invest in the Class Y shares of each Fund, which are not offered hereby. See "General Information." DIVIDENDS AND DISTRIBUTIONS The Funds will declare dividends of substantially all of their net income daily and will pay such dividends monthly. Any net capital gains of a Fund will be distributed at least annually. At an investor's choice, dividends are paid by mail, directly deposited into a financial institution account, or automatically reinvested, PROSPECTUS 2
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without sales charges, in additional shares at the then-current net asset value. If no election is made, dividends will be automatically reinvested. See "Dividend and Tax Information." PACIFIC CENTURY AND BISYS For its services as investment adviser to the Funds, Pacific Century receives a fee from each Fund at annual rates that are based on the Fund's average daily net assets. See "Fund Expenses" and "Management, Advisory and Other Service Arrangements." A division of Bank of Hawaii, Pacific Century was founded in 1898 and is the oldest and largest trust company in Hawaii. It has investment authority over approximately $7.5 billion in client financial assets, including having investment authority over approximately $1.5 billion in municipal obligations. Pacific Century is not authorized to and does not carry on a banking business. BISYS provides certain administrative services to the Funds, for which each Fund pays it a fee at an annual rate based on the Fund's average daily net assets. BISYS also distributes the Funds' shares, for which it may receive certain additional fees. See "Management, Advisory and Other Service Arrangements." REDEMPTION OF CLASS A AND CLASS B SHARES Class A and Class B shares may ordinarily be redeemed by mail or by telephone. However, all or part of a customer's shares may be subject to redemption in accordance with instructions and limitations pertaining to his or her account held by a Participating Organization. See "How to Redeem Class A and Class B Shares." PROSPECTUS 3
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FUND EXPENSES The following Table of Expenses lists the costs and expenses that a shareholder can expect to incur as an investor in Class A and Class B shares of a Fund. Certain investors may qualify to invest in a Fund's Class Y shares, which are not offered hereby. Long-term Class A and Class B shareholders could pay more in distribution related charges than the economic equivalent of the maximum front-end sales charges applicable to mutual funds sold by members of the National Association of Securities Dealers, Inc. ("NASD"). TABLE OF EXPENSES(a) [Enlarge/Download Table] SHORT INTERMEDIATE TAX-FREE SHORT U.S. TREASURY U.S. TREASURY DIVERSIFIED FIXED INTERMEDIATE TAX-FREE SECURITIES SECURITIES FUND SECURITIES FUND INCOME FUND SECURITIES FUND FUND -------------------- -------------------- -------------------- -------------------- -------------------- CLASS A CLASS B(b) CLASS A CLASS B(b) CLASS A CLASS B(b) CLASS A CLASS B(b) CLASS A CLASS B(b) ------- ---------- ------- ---------- ------- ---------- ------- ---------- ------- ---------- SHAREHOLDER TRANSACTION EXPENSES MAXIMUM SALES LOAD IMPOSED ON PURCHASES (AS A PERCENTAGE OF OFFERING PRICE)........ 4.00% None 2.25% None 4.00% None 2.25% None 4.00% None Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price).... None None None None None None None None None None Deferred Sales Load (as a percentage of original purchase price or redemption proceeds, as applicable)... None 5.00% None 5.00% None 5.00% None 5.00% None 5.00% Redemption Fee (c)... None None None None None None None None None None Exchange Fee....... None None None None None None None None None None ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS) MANAGEMENT FEES.......... 0.60% 0.60% 0.30%+ 0.30%+ 0.60% 0.60% 0.50% 0.50% 0.60% 0.60% 12b-1 Fees (after waivers).. 0.25% 1.00% 0.25% 1.00% 0.25% 1.00% 0.25% 1.00% 0.25% 1.00% Other Expenses (after waivers and reimbursements)... 0.31% 0.31% 0.32% 0.32% 0.30% 0.30% 0.34% 0.34% 0.27% 0.27% Total Fund Operating Expenses... 1.16% 1.91% 0.87% 1.62% 1.15% 1.90% 1.09% 1.84% 1.12% 1.87% (after waivers and reimbursements) ------------ + Reflects waiver. See "Explanation of Table" below. PROSPECTUS 4
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EXAMPLE A shareholder would pay the following expenses on a $1,000 investment assuming (1) 5% annual return (d) and (2) redemption at the end of each time period. [Enlarge/Download Table] SHORT INTERMEDIATE TAX-FREE SHORT TAX-FREE U.S. TREASURY U.S. TREASURY DIVERSIFIED FIXED INTERMEDIATE SECURITIES SECURITIES FUND SECURITIES FUND INCOME FUND SECURITIES FUND FUND ----------------- ----------------- ----------------- ----------------- ----------------- CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- TIME PERIOD 1 year........... $ 51 $ 69 $ 31 $ 66 $ 51 $ 69 $ 33 $ 69 $ 51 $ 69 3 years.......... $ 75 $ 90 $ 50 $ 81 $ 75 $ 90 $ 56 $ 88 $ 74 $ 89 5 years.......... $ 101 $ 123 $ 70 $ 108 $ 101 $ 123 $ 81 $ 120 $ 99 $ 121 10 years......... $ 175 $ 204 $ 127 $ 172 $ 174 $ 202 $ 152 $ 196 $ 171 $ 199 A shareholder would pay the following expenses on the same $1,000 investment, assuming no redemption. [Download Table] 1 year........... -- $ 19 -- $ 16 -- $ 19 -- $ 19 -- $ 19 3 years.......... -- $ 60 -- $ 51 -- $ 60 -- $ 58 -- $ 59 5 years.......... -- $ 103 -- $ 88 -- $ 103 -- $ 100 -- $ 101 10 years......... -- $ 204 -- $ 172 -- $ 202 -- $ 196 -- $ 199 ------------ (a) Investors who purchase shares through a Participating Organization, including an affiliate of Pacific Century or an Institution (as defined above), may be charged account-level fees for additional services provided to them by such Participating Organization in connection with investment in a Fund. (b) Class B shares automatically convert to Class A shares approximately eight years after initial purchase. See "Conversion of Class B Shares to Class A Shares." (c) The Transfer Agent will reduce the amount of a wire redemption payment by its then current wire redemption charge. As of the date of this Prospectus, there is no charge for wire redemptions. While this policy is subject to change at any time, it is not anticipated that such charge would exceed $7 per wire redemption. (d) The assumed 5% annual return is hypothetical and should not be considered a representation of past or future annual return. The actual rate of return may be greater or lesser than the assumed rate. The Example should not be considered a representation of past or future expenses, and actual expenses may be greater or lesser than those shown. EXPLANATION OF TABLE The purpose of the foregoing table is to assist shareholders in understanding the various costs and expenses that an investor in the Class A and Class B shares of the Funds will bear directly or indirectly. With respect to the Class A shares of the Funds, the amounts set forth under "Annual Fund Operating Expenses," as well as expense amounts used in the Example, are based on actual amounts incurred during the most recent fiscal year. With respect to the Class B shares of the Funds (which have not been publicly offered as of the date of this Prospectus) all such amounts are based on estimated amounts for the current fiscal year. In addition, with respect to the Class A shares of the Funds, "Rule 12b-1 Fees" have been adjusted to reflect the current fee payable (after voluntary waiver) as of the date of this Prospectus. See "Management, Advisory and Other Service Arrangements -- The Sponsor, Administrator and Distributor." The Example set forth PROSPECTUS 5
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above assumes reinvestment of dividends and distributions and utilizes a 5% annual rate of return as mandated by the Securities and Exchange Commission. Pacific Century and BISYS each may elect, in its sole discretion, to otherwise waive or reimburse its respective fees. Any such waivers or reimbursements will reduce the total expenses of the Fund to which they apply, thereby increasing yield or total return. As described above, with respect to the Class A shares, the percentages shown above under "12b-1 Fees," "Other Expenses" and "Total Fund Operating Expenses" reflect voluntary fee waivers and reimbursements. Absent such waivers and reimbursements, these percentages would be (i) 0.75%, 0.35% and 1.70% for the Class A shares of the U.S. Treasury Securities Fund; (ii) 0.75%, 0.37%, and 1.62% for the Class A shares of the Short Intermediate U.S. Treasury Securities Fund; (iii) 0.75%, 0.34%, and 1.69% for the Class A shares of Diversified Fixed Income Fund; (iv) 0.75%, 0.39% and 1.64% for the Class A shares of the Tax-Free Short Intermediate Securities Fund; and (v) 0.75%, 0.31% and 1.66% for the Class A shares of the Tax-Free Securities Fund. With respect to the Class B shares, the percentages shown above under "Other Expenses" and "Total Fund Operating Expenses" reflect voluntary fee waivers and reimbursements. Absent such waivers and reimbursements, these percentages would be (i) 0.35% and 1.95% for the Class B shares of the U.S. Treasury Securities Fund; (ii) 0.37 and 1.87% for the Class B shares of the Short Intermediate U.S. Treasury Securities Fund; (iii) 0.34% and 1.94% for the Class B shares of the Diversified Fixed Income Fund; (iv) 0.39% and 1.89% for the Class B shares of the Tax-Free Short Intermediate Securities Fund; and (v) 0.31% and 1.91% for the Class B shares of the Tax-Free Securities Fund. In addition, the percentage shown above under "Management Fees" for Class A and Class B shares of Short Intermediate U.S. Treasury Securities Fund reflects a voluntary fee waiver. Absent such waiver, this percentage would be 0.50%. There can be no assurance that the foregoing waivers and expense reimbursements will continue to apply. PROSPECTUS 6
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FINANCIAL HIGHLIGHTS The Financial Highlights in the table below set forth certain financial data and investment results of the Class A shares of the Funds since their inception, expressed in one share outstanding throughout the relevant period. The Financial Highlights are derived from the financial statements of Pacific Capital Funds which have been audited by Ernst& Young LLP, independent auditors. The Financial Highlights should be read in conjunction with the financial statements, related notes, and other financial information included in the Statement of Additional Information. The Trust's annual report contains additional performance information relating to the Funds and is available upon request, without charge. Financial information is not presented for the Class B shares, since Class B shares were not publicly issued as of the date of this Prospectus. [Enlarge/Download Table] U.S. TREASURY SECURITIES FUND SHORT INTERMEDIATE U.S. TREASURY SECURITIES FUND CLASS A CLASS A -------------------------------------------------- --------------------------------------------------- NOVEMBER 1 DECEMBER 13, YEAR ENDED YEAR ENDED YEAR ENDED 1993 TO YEAR ENDED YEAR ENDED YEAR ENDED 1993 TO JULY 31, JULY 31, JULY 31, JULY 31, JULY 31, JULY 31, JULY 31, JULY 31, 1997 1996 1995(D) 1994(A) 1997 1996(D) 1995(D) 1994(A) ---------- ---------- ---------- ----------- ---------- ---------- ---------- ------------ NET ASSET VALUE, BEGINNING OF PERIOD Investment Activities........... 9$.13..... $ 9.42 $ 9.04 $ 10.00 $ 9.41 $ 9.60 $ 9.52 $ 10.00 Net investment income........... 0.52 0.53 0.50 0.31 0.49 0.48 0.52 0.24 Net realized and unrealized gain (loss) on investments...... 0.25..... (0.20) 0.38 (1.00) 0.14 (0.11) 0.05 (0.52) ------- ------- ------- ------- ------- ------- ------- ------- Total from Investment Activities... 0.77 0.33 0.88 (0.69) 0.63 0.37 0.57 (0.28) ------- ------- ------- ------- ------- ------- ------- ------- Distributions Net investment income........... (0.46).... (0.53) (0.50) (0.27) (0.49) (0.50) (0.49) (0.20) In excess of net investment income........... (0.07) (0.09) -- -- -- (0.04) -- -- In excess of net realized gains... -- -- -- -- -- (0.02) -- -- ------- ------- ------- ------- ------- ------- ------- ------- Total Distributions... (0.53) (0.62) (0.50) (0.27) (0.49) (0.56) (0.49) (0.20) ------- ------- ------- ------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD............... $ 9.37 $ 9.13 $ 9.42 $ 9.04 $ 9.55 $ 9.41 $ 9.60 $ 9.52 ======= ======= ======= ======= ======= ======= ======= ======= Total Return (excludes sales charges)....... 8.68% 3.43% 10.18% (6.95%)(c) 6.92% 3.90% 6.28% (2.76%)(c) RATIOS/SUPPLEMENTARY DATA: Net assets at end of period (000)............ $ 1,087 $ 979 $ 1,035 $60,125 $ 618 $ 1,156 $ 489 $ 3,419 Ratio of expenses to average net assets........... 1.16% 1.20% 1.19% 1.15%(b) 0.87% 0.92% 0.99% 1.00%(b) Ratio of net investment income to average net assets........... 5.60% 5.55% 5.57% 4.62%(b) 5.22% 5.14% 5.51% 3.96%(b) Ratio of expenses to average net assets*.......... 1.70% 1.74% 1.81% 2.09%(b) 1.62% 1.67% 1.78% 5.39%(b) Ratio of net investment income to average net assets*.......... 5.06% 5.01% 4.96% 3.68%(b) 4.47% 4.39% 4.72% (0.43%)(b) Portfolio Turnover(e).......... 44.90% 15.75% 80.98% 11.36% 51.56% 47.17% 62.73% 0.00% ------------ * During the period, certain fees were voluntarily reduced. In addition, the investment adviser reimbursed expenses. If such voluntary fee reductions and expense reimbursements had not occurred, the ratios would have been as indicated. (a) Period from commencement of operations. (b) Annualized. (c) Not annualized. (d) The Financial Highlights presented for the Class A shares reflects operations and distributions for the Fund, as a whole, for the period from August 1, 1994 through October 13, 1994 combined with the operations and distributions of the Class A shares only for the period from October 14, 1994 through July 31, 1995. (e) Portfolio turnover is calculated on the basis of the Fund, as a whole, without distinguishing between the classes of shares issued. PROSPECTUS 7
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FINANCIAL HIGHLIGHTS (CONTINUED) [Enlarge/Download Table] Diversified Tax-Free Short Intermediate Tax-Free Fixed Income Fund Securities Fund Securities Fund Class A Class A Class A ----------------------------------- ----------------------------------- ----------------------------------- OCTOBER 14, October 14, October 14, YEAR ENDED YEAR ENDED 1994 TO Year ended Year ended 1994 to Year ended Year ended 1994 to JULY 31, JULY 31, JULY 31, July 31, July 31, July 31, July 31, July 31, July 31, 1997 1996 1995(a) 1997 1996 1995(a) 1997 1996 1995(a) ---------- ---------- ----------- ---------- ---------- ----------- ---------- ---------- ----------- NET ASSET VALUE, BEGINNING OF PERIOD........... $10.45 $10.75 $ 10.0 $10.05 $10.11 $ 10.00 $10.44 $10.53 $ 10.00 ------ ------ ------ ------ ------ ------ ------ ------ ------ Investment Activities Net investment income....... 0.57 0.59 0.49 0.37 0.37 0.30 0.49 0.50 0.39 Net realized and unrealized gain (loss) on investment... 0.35 (0.19) 0.74 0.13 (0.03) 0.08 0.46 0.07 0.50 ------ ------ ------ ------ ------ ------ ------ ------ ------ Total from Investment Activities... 0.92 0.40 1.23 0.50 0.34 0.38 0.95 0.57 0.89 ------ ------ ------ ------ ------ ------ ------ ------ ------ Distributions Net investment income (0.57) (0.58) (0.48) (0.37) (0.37) (0.27) (0.49) (0.49) (0.36) In excess of net investment income....... -- (0.02) -- -- (0.03) -- -- (0.04) -- In excess of net realized gains........ (0.09) (0.10) -- -- -- -- -- (0.04) -- Net realized gains........ -- -- -- (0.01) -- -- (0.06) (0.09) -- ------ ------ ------ ------ ------ ------ ------ ------ ------ Total Distributions... (0.66) (0.70) (0.48) (0.38) (0.40) (0.27) (0.55) (0.66) (0.36) ------ ------ ------ ------ ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD.... $10.71 $10.45 $ 10.75 $10.17 $10.05 $ 10.11 $10.84 $10.44 $ 10.53 ====== ====== ====== ====== ====== ====== ====== ====== ====== Total Return (excludes sales charges)......... 9.20% 3.69% 12.66%(b) 5.06% 3.41% 3.90%(b) 9.35% 5.54% 9.06%(b) RATIOS/SUPPLEMENTARY DATA: Net assets at end of period (000)........ $1,103 $1,093 $ 27 $ 724 $ 451 $ 308 $2,545 $ 569 $ 563 Ratio of expenses to average net assets....... 1.15% 1.15% 1.18%(c) 1.09% 1.08% 1.05%(c) 1.12% 1.14% 1.15%(c) Ratio of net investment income to average net assets....... 5.44% 5.31% 6.25%(c) 3.57% 3.64% 3.82%(c) 4.60% 4.66% 4.93%(c) Ratio of expenses to average net assets....... 1.69% 1.69% 1.77%(c) 1.64% 1.63% 1.64%(c) 1.66% 1.68% 1.74%(c) Ratio of net investment income to average net assets*...... 4.90% 4.77% 5.66%(c) 3.02% 3.09% 3.23%(c) 4.06% 4.12% 4.34%(c) Portfolio Turnover(d)...... 80.98% 58.86% 60.47% 29.46% 54.70% 89.98% 11.07% 24.78% 49.17% ------------ * During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. (a) Period from commencement of operations. (b) Not annualized. (c) Annualized. (d) Portfolio turnover is calculated on the basis of the Fund, as a whole, without distinguishing between the classes of shares issued. PROSPECTUS 8
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INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS Each Fund has its own investment objectives, as described earlier in this Prospectus. Each Fund also follows its own investment policies and practices, subject to certain investment restrictions, all described further below and in "Additional Discussion Regarding Permitted Investment Activities." The SAI also contains more specific descriptions of investment restrictions which govern the investments of each of the Funds. U.S. TREASURY SECURITIES FUND The U.S. Treasury Securities Fund invests primarily in U.S. Treasury Securities and in repurchase agreements collateralized by U.S. Treasury Securities. The U.S. Treasury Securities Fund seeks to enhance its total return by shortening the average maturity of portfolio securities when interest rates are anticipated to increase and lengthening the maturity of such portfolio securities to take advantage of anticipated interest rate declines. Under normal market conditions, at least 65% of the value of the total assets of the U.S. Treasury Securities Fund will be invested in U.S. Treasury Securities. SHORT INTERMEDIATE U.S. TREASURY SECURITIES FUND The Short Intermediate U.S. Treasury Securities Fund invests primarily in U.S. Treasury Securities and in repurchase agreements collateralized by U.S. Treasury Securities. The Short Intermediate U.S. Treasury Securities Fund seeks to enhance its total return by shortening the average maturity of portfolio securities when interest rates are anticipated to increase and lengthening the maturity of such portfolio securities to take advantage of anticipated interest rate declines. Due to the dollar-weighted average maturity of the Short Intermediate U.S. Treasury Securities Fund, it is expected to be less volatile than the U.S. Treasury Securities Fund. Under normal market conditions, at least 65% of the value of the total assets of the Short Intermediate U.S. Treasury Securities Fund will be invested in U.S. Treasury Securities. DIVERSIFIED FIXED INCOME FUND The Diversified Fixed Income Fund invests in U.S. Government Obligations and in investment grade debt obligations. Most obligations acquired by the Diversified Fixed Income Fund will be issued by companies or governmental entities located within the United States. Up to 25% of the total assets of the Diversified Fixed Income Fund may, however, be invested in dollar-denominated debt obligations of foreign issuers. Under normal market conditions, at least 65% of the value of the total assets of the Diversified Fixed Income Fund will be invested in fixed income securities. TAX-FREE SECURITIES FUND The Tax-Free Securities Fund purchases primarily Hawaiian Municipal Obligations and Municipal Obligations. As a matter of fundamental policy, the Tax-Free Securities Fund will have, under normal market conditions, at least 80% of its net assets invested in Municipal Obligations. As a matter of operating policy, under normal market conditions, at least 50%, and no more than 60%, of the market value of the Tax-Free Securities Fund's securities will be invested in Hawaiian Municipal Obligations. For temporary defensive purposes, Pacific Century may invest more than 20% of the Tax-Free Securities Fund's net assets in securities that are subject to federal income tax or the federal alternative minimum tax. TAX-FREE SHORT INTERMEDIATE SECURITIES FUND The Tax-Free Short Intermediate Securities Fund purchases primarily Hawaiian Municipal Obligations and Municipal Obligations. As a matter of fundamental policy, the Tax-Free Short Intermediate Securities Fund will have, under normal market conditions, at least 80% of its net assets invested in Municipal Obligations. As a matter of operating policy, under normal market conditions at least 50%, and no more than 60%, of the market value of the Tax-Free Short Intermediate Securities Fund's PROSPECTUS 9
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securities will be invested in Hawaiian Municipal Obligations. For temporary defensive purposes, Pacific Century may invest more than 20% of the Tax-Free Short Intermediate Securities Fund's net assets in securities that are subject to federal income tax or the federal alternative minimum tax. ------------------------ Debt obligations acquired by the Funds will, at the time of purchase, be rated investment grade or better-that is, obligations rated in one of the top four rating categories assigned by a nationally recognized statistical rating organization (an "NRSRO") or unrated obligations determined by Pacific Century to be of comparable quality. See the SAI, "Appendix A." ADDITIONAL DISCUSSION REGARDING PERMITTED INVESTMENT ACTIVITIES MUNICIPAL OBLIGATIONS MUNICIPAL BONDS--Municipal bonds generally have a maturity at the time of issuance of up to thirty years. They are principally classified either as "general obligation" bonds, which are secured by the pledge of the municipality's faith, credit and taxing power for the payment of principal and interest, or as "revenue" bonds, which are payable only from the revenues derived from a particular project or facility and generally are dependent solely on a specific revenue source. The Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities Fund may invest in municipal bonds which are covered by insurance guaranteeing the scheduled payment of principal and interest until their maturity ("Insured Municipal Bonds"). The insurance can be purchased either by the issuing government entity or by the Fund purchasing the bond. This insurance is primarily written by two organizations: Ambac Indemnity Corporation (formerly called American Municipal Bond Assurance Corporation), a unit of Citicorp, and Municipal Bond Insurance Association, a pool of private insurers, but may be written by certain other large insurance companies. This insurance feature minimizes the risks to the Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities Fund and its shareholders associated with payment delays or defaults in these portfolio securities, but does not guarantee the market value of these portfolio securities or the value of the shares of the Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities Fund. An issuer would likely purchase insurance in order to obtain a higher rating by an NRSRO than it would receive without the insurance thereby reducing the issuer's borrowing costs. The price paid or received for an Insured Municipal Bond may be higher than the price that would otherwise be paid or received for the municipal bond absent the insurance. The Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities Fund may invest in moral obligation bonds ("Moral Obligation Bonds") which are tax-exempt bonds issued by a municipality or a state financial intermediary and backed by the moral obligation pledge of a state government. Under a moral obligation pledge, a state government indicates its intent to appropriate funds in the future if the primary obligor, the municipality or intermediary, defaults. The state's obligation to honor the pledge is moral rather than legal because future legislatures cannot be legally obligated to appropriate the funds required. MUNICIPAL NOTES--Municipal notes generally have maturities at the time of issuance of three years or less. Subject to its respective investment objective and policies, the Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities Fund may invest in municipal notes that are rated at the date of purchase in the two highest rating categories assigned by an NRSRO, or not rated but considered by Pacific Century to be of comparable quality. Municipal notes generally are issued in anticipation of the receipt of tax funds, of the PROSPECTUS 10
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proceeds of bond placements or of other revenues. The ability of an issuer to make payments is, therefore, dependent on such tax receipts, proceeds from bond sales or other revenues, as the case may be. The Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities Fund also may invest in certain "private activity" bonds or notes. Such Funds may not be an appropriate investment for entities which are "substantial users," or certain "related persons" of substantial users, of facilities financed by private activity bonds. "Substantial users" are defined under U.S. Treasury Regulations to include a non-exempt person who regularly uses a part of such facilities in his trade or business and whose gross revenues derived with respect to the facilities financed by the issuance of bonds are more than 5% of the total revenues derived by all users of such facilities, or who occupies more than 5% of the usable area of such facilities or for whom such facilities, or a part thereof, were specifically constructed, reconstructed or acquired. "Related persons" include certain related natural persons, affiliated corporations, partnerships and their partners and S corporations and their shareholders. MUNICIPAL COMMERCIAL PAPER--Municipal commercial paper is a debt obligation with a stated maturity of 270 days or less that is issued to finance seasonal working capital needs or as short-term financing in anticipation of longer-term debt. Subject to its respective investment objective and policies, the Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities Fund may invest in municipal commercial paper that is rated at the date of purchase in one of the two highest rating categories by an NRSRO or not rated but is considered by Pacific Century to be of comparable quality. U.S. GOVERNMENT OBLIGATIONS Each of the Funds may invest in U.S. Government Obligations which include, in addition to U.S. Treasury Securities, the obligations of Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Government National Mortgage Association ("GNMA"), Federal National Mortgage Association ("FNMA"), Student Loan Marketing Association ("SLMA"), Resolution Trust Corporation and Federal Home Loan Mortgage Corporation ("FHLMC"). U.S. Treasury Securities and certain other obligations of certain agencies and instrumentalities of the U.S. Government, such as those of the GNMA, are supported by the full faith and credit of the U.S. Treasury; others, such as those of the Export-Import Bank of the United States, are supported by the right of the issuer to borrow from the U.S. Treasury; others, such as those of FNMA, are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; still others, such as those of the SLMA, are supported only by the credit of the instrumentality. No assurance can be given that the U.S. Government would provide financial support to U.S. Government sponsored instrumentalities if it is not obligated to do so by law. Some of these instruments may be variable or floating rate instruments. The Funds will invest in the obligations of such instrumentalities only when Pacific Century believes that the credit risk with respect to the instrumentality is minimal. BANK AND SAVINGS AND LOAN OBLIGATIONS Each of the Funds may invest in Bank and Savings and Loan obligations. These obligations include negotiable certificates of deposit, fixed time deposits, bankers' acceptances, and interest bearing demand accounts. The Funds limit their bank investments to dollar-denominated obligations of U.S., Canadian, Asian, Australian or European banks which have more than $500 million in total assets at the time of investment or of United States savings and loan associations which have more than $1 billion in total assets at the time of investment and, in the case of U.S. banks, are members of the Federal Reserve System or are examined by the Comptroller of the Currency or whose deposits are insured by the Federal Deposit Insurance Corporation. PROSPECTUS 11
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COMMERCIAL PAPER Each of the Funds may invest in commercial paper that is rated at the time of purchase in the highest short-term rating category by an NRSRO or unrated if considered by Pacific Century to be of comparable quality. Commercial paper includes short-term unsecured promissory notes, and variable floating rate demand notes issued by domestic and foreign bank holding companies, corporations and financial institutions as well as similar taxable and tax-exempt instruments issued by government agencies and instrumentalities. CORPORATE SECURITIES Each of the Funds may invest in debt securities issued by domestic corporations, U.S. dollar-denominated debt securities issued by Canadian corporations, Yankee bonds and supra-national obligations. Yankee bonds are U.S. dollar-denominated obligations issued by foreign governments or companies. Supra-national obligations are U.S. dollar-denominated obligations issued by international entities such as the World Bank and the Inter-American Development Bank. PREFERRED STOCK Each of the Funds may invest in preferred stock which is a class of capital stock that pays dividends at a specified rate and that has preference over common stock in the payment of dividends and the liquidation of assets. Preferred stock does not ordinarily carry voting rights. ILLIQUID SECURITIES Each of the Funds may invest in illiquid securities. The Funds will not knowingly invest more than 15% of the value of their respective net assets in securities that are illiquid. Repurchase agreements with a duration of more than seven days, time deposits that do not provide for payment to a Fund within seven days after notice, Guaranteed Investment Contracts ("GICs") and most commercial paper issued in reliance upon the exemption in Section 4(2) of the Securities Act of 1933 (the "1933 Act") (other than variable amount master demand notes with maturities of nine months or less) are subject to this 15% limit. If otherwise consistent with its investment objective and policies, any of the Funds may purchase securities which are not registered under the 1933 Act but which can be sold to "qualified institutional buyers" in accordance with Rule 144A under the 1933 Act. Any such security will not be considered illiquid so long as it is determined by Pacific Century, acting under guidelines and procedures that are developed, established and monitored by the Board of Trustees, that an adequate trading market exists for that security. This investment practice could have the effect of increasing the level of illiquidity in a Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The ability to sell to qualified institutional buyers under Rule 144A is a recent development, and it is not possible to predict how this market will develop. BORROWINGS Each Fund may borrow from banks up to 20% of the current value of its net assets for temporary purposes in order to meet redemptions. Each Fund may borrow funds for temporary purposes by entering into reverse repurchase agreements which are considered to be borrowings under the Investment Company Act of 1940 (the "1940 Act"). At the time a Fund enters into a reverse repurchase agreement (an agreement under which the Fund sells portfolio securities and agrees to repurchase them at an agreed-upon date and price), it will place in a segregated custodial account cash or other liquid assets having a value equal to or greater than the repurchase price (including accrued interest) and will subsequently monitor the account so that such value is maintained. Reverse repurchase agreements involve the risk that the market value of the securities sold by a Fund may decline below the price of the securities it is obligated to repurchase. The Funds would pay interest on amounts obtained pursuant to a reverse repurchase agreement. PROSPECTUS 12
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LOANS OF PORTFOLIO SECURITIES Each of the Funds may lend securities from its portfolio to brokers, dealers and financial institutions (but not individuals) if liquid assets equal to the current market value of the securities loaned (including accrued interest thereon) plus the interest payable to the Fund with respect to the loan is maintained with the Fund. In determining whether to lend a security to a particular broker, dealer or financial institution, Pacific Century will consider all relevant facts and circumstances, including the creditworthiness of the broker, dealer or financial institution. Any loans of portfolio securities will be fully collateralized based on values that are marked to market daily by Pacific Century. No Fund will enter into any portfolio security lending arrangement having a duration of longer than one year. Any securities that a Fund may receive as collateral will not become part of such Fund's portfolio at the time of the loan and, in the event of a default by the borrower, the Fund will, if permitted by law, dispose of such collateral except for such part thereof that is a security in which such Fund may invest. During the time securities are on loan, the borrower will pay the Fund any accrued income on those securities, and the Fund may invest the cash collateral and earn additional income or receive an agreed-upon fee from a borrower that had delivered cash-equivalent collateral. No Fund will lend securities having a value that exceeds 30% of the current value of its total assets. Loans of securities by a Fund will be subject to termination at the Fund's or the borrower's option. The Funds may pay reasonable administrative and custodial fees in connection with a securities loan and may pay a negotiated portion of the interest or fee earned with respect to the collateral to the borrower or the placing broker. Borrowers and placing brokers may not be affiliated, directly or indirectly, with the Trust, Pacific Century, or BISYS. FUTURES CONTRACTS AND RELATED OPTIONS Each of the Funds may enter into contracts for the future delivery of securities and futures contracts based on a specific security, class of securities, or an index, purchase or sell options on any such futures contracts and engage in related closing transactions. A futures contract on a securities index is an agreement obligating either party to pay, and entitling the other party to receive, while the contract is outstanding, cash payments based on the level of a specified securities index. The Funds may engage in such futures contracts in an effort to hedge against market risks and/or manage cash flow into the Funds. For example, when interest rates are expected to rise or market values of portfolio securities are expected to fall, the Funds can seek through the sale of futures contracts to offset a decline in the value of its portfolio securities. When interest rates are expected to fall or market values are expected to rise, the Funds, through the purchase of such contracts, can attempt to secure better rates or prices for the Funds than might later be available in the market when it effects anticipated purchases. Alternatively, futures may be used to manage cash flows into and out of the Funds. For example, the investment manager may wish to be fully invested in a particular asset class. Through the use of futures, the manager can achieve this objective immediately while temporarily deferring industry and security selection, in the interest of timeliness. The acquisition of put and call options on futures contracts will, respectively, give the Funds the right (but not the obligation), for a specified price, to sell or to purchase the underlying futures contract, upon exercise of the option, at any time during the option period. Aggregate initial margin deposits for futures contracts, and premiums paid for related options, may not exceed five percent of each Fund's total assets, and the value of securities that are the subject of such futures and options (both for receipt and delivery) may not exceed one-third of the market value of each Fund's total assets. Futures transactions will be limited to the extent necessary to maintain each Fund's qualification as a regulated investment company. PROSPECTUS 13
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Futures transactions involve brokerage costs and require the Funds to segregate assets to cover its obligations under futures, or to cover its obligations by owning the assets underlying open futures contracts. The Funds may lose the expected benefit of futures transactions if interest rates, exchange rates or securities prices move in an unanticipated manner. Such losses are potentially significant and unanticipated changes may result in poorer overall performance than if the Funds had not entered into any futures transactions. In addition, the value of each Fund's futures positions may not prove to be perfectly or even highly correlated with the value of its portfolio securities, limiting each Fund's ability to hedge effectively against interest rate, exchange rate and/or market risk and giving rise to additional risks. There is no assurance of liquidity in the secondary market for purposes of closing out futures positions. Where a liquid secondary market does not exist, a Fund is unlikely to be able to control losses by closing out futures positions. Finally, gains and losses on investments in options and futures depend on Pacific Century's ability to predict correctly the direction of interest rates and other economic factors. ASSET BACKED SECURITIES Each of the Funds may invest in Asset Backed Securities. Asset Backed Securities arise through the grouping by governmental, government-related, and private organizations of loans, receivables, and other assets originated by various lenders. Asset Backed Securities acquired by a Fund consist of both mortgage and non-mortgage backed securities. Interest in pools of these assets differ from other forms of debt securities, which normally provide for periodic payment of interest in fixed amounts with principal paid at maturity or specified call dates. Instead, Asset Backed Securities provide periodic payments which generally consist of both interest and principal payments. The life of an Asset Backed Security varies with the prepayment experience with respect to the underlying debt instruments. The rate of such prepayments, and hence the life of an Asset Backed Security, will be primarily a function of current market interest rates, although other economic and demographic factors may be involved. For example, falling interest rates generally result in an increase in the rate of prepayments of mortgage loans while rising interest rates generally decrease the rate of prepayments. An acceleration in prepayments in response to sharply falling interest rates will shorten the security's average maturity and limit the potential appreciation in the security's value relative to a conventional debt security. Consequently, Asset Backed Securities are not as effective in locking in high, long-term yields. Conversely, in periods of sharply rising rates, prepayments are generally slow, increasing the security's average life and its potential for price depreciation. Mortgage backed securities represent an ownership interest in a pool of residential mortgage loans, the interest in which is in most cases issued and guaranteed by an agency or instrumentality of the U.S. Government, though not necessarily by the U.S. Government itself. One such type of mortgage-backed security is a GNMA Certificate. GNMA Certificates are backed as to the timely payment of principal and interest by the full faith and credit of the U.S. Government. Another type is a FNMA Certificate, the principal and interest of which are guaranteed only by FNMA itself, not by the full faith and credit of the U.S. Government. Another type is a FHLMC Participation Certificate. This type of obligation is guaranteed by FHLMC as to timely payment of principal and interest. However, like a FNMA security, it is not guaranteed by the full faith and credit of the U.S. Government. Mortgage-backed securities issued by private issuers, whether or not such obligations are subject to guarantees by the private issuer, may entail greater risk than obligations directly or indirectly guaranteed by the U.S. Government. Such securities will be purchased for the Funds only when Pacific Century determines that they are readily marketable at the time of purchase. PROSPECTUS 14
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The average life of mortgage-backed securities varies with the maturities of the underlying mortgage instruments, which have maximum maturities of 40 years. The average life is likely to be substantially less than the original maturity of the mortgage pools underlying the securities as the result of mortgage prepayments, mortgage refinancings, or foreclosures. The rate of mortgage prepayments, and hence the average life of the certificates, will be a function of the level of interest rates, general economic conditions, the location and age of the mortgage and other social and demographic conditions. Such prepayments are passed through to the registered holder with the regular monthly payments of principal and interest and have the effect of reducing future payments. Estimated average life will be determined by Pacific Century and used for the purpose of determining, respectively, the average weighted maturity of the Funds. Various independent mortgage-backed securities dealers publish average remaining life data using proprietary models and, in making such determinations for the Funds, Pacific Century might deem such data unreasonable if such data appeared to present a significantly different average remaining expected life for a security when compared to data relating to the average remaining life of comparable securities as provided by other independent mortgage-backed securities dealers. The Funds also may invest in non-mortgage backed securities including interests in pools of receivables, such as motor vehicle installment purchase obligations and credit card receivables. Such securities are generally issued as pass-through certificates, which represent undivided fractional ownership interests in the underlying pool of assets. Such securities also may be debt instruments, which also are known as collateralized obligations and are generally issued as the debt of a special purpose entity organized solely for the purpose of owning such assets and issuing such debt. Non-mortgage-backed securities are not issued or guaranteed by the U.S. Government or its agencies or instrumentalities; however, the payment of principal and interest on such obligations may be guaranteed up to certain amounts and for a certain time period by a letter of credit issued by a financial institution (such as a bank or insurance company) unaffiliated with the issuers of such securities. Non-mortgage-backed securities will be purchased by the Funds only when such securities are readily marketable and rated at the time of purchase in one of the two highest rating categories assigned by an NRSRO or, if unrated, considered by Pacific Century to be of comparable quality. In addition, such securities generally will have remaining estimated lives at the time of purchase of five years or less. See the SAI, "Additional Information of Fund Investments." REAL ESTATE MORTGAGE INVESTMENT CONDUITS Each of the Funds may invest in Real Estate Mortgage Investment Conduits ("REMICs"). REMICs are a pass-through vehicle created to issue multiclass mortgage-backed securities. REMICs may be organized as corporations, partnerships, or trusts and those meeting certain qualifications are not subject to double taxation. Interests in REMICs may be senior or junior, regular (debt instruments) or residual (equity interests). FLOATING AND VARIABLE RATE DEBT INSTRUMENTS Each of the Funds may invest in floating and variable rate debt instruments. Floating and variable rate debt instruments bear interest at rates that are not fixed, but vary with changes in specified market rates or indices or at specified intervals. Certain of these instruments may carry a demand feature that would permit the holder to tender them back to the issuer at a par value prior to maturity. The floating and variable rate instruments that the Funds may purchase include certificates of participation in such obligations purchased from banks. Pacific Century will monitor on an ongoing basis the ability of an issuer of a demand instrument to make payment when due, which could be affected by events occurring between the date the Funds elect to demand payment and the date payment is due, except when such demand instruments permit same-day settlement. In this regard, Pacific Century, pursuant to PROSPECTUS 15
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direction of the Board of Trustees, will determine the liquidity of those instruments with demand features that cannot be exercised within seven days. WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS Each of the Funds may purchase securities on a "when-issued" basis and may also purchase or sell securities on a "forward commitment" basis. These transactions, which involve a commitment by a Fund to purchase or sell particular securities with payment and delivery taking place at a future date (perhaps one or two months later), permit a Fund to lock-in a price or yield on a security it owns or intends to purchase, regardless of future changes in interest rates. When-issued and forward commitment transactions involve the risk, however, that the yield obtained in a transaction may be less favorable than the yield available in the market when the securities delivery takes place. The Funds do not intend to engage in when-issued purchases and forward commitments for speculative purposes but only in furtherance of their investment objectives. The forward commitments and when-issued purchases are not expected to exceed 25% of the value of any of the Funds' total assets absent unusual market conditions. The Funds will not start earning interest or dividends on when-issued securities until they are received. The value of the securities underlying a when-issued purchase or a forward commitment to purchase securities, and any subsequent fluctuations in their value, is taken into account when determining the net asset value of a Fund starting on the date such Fund agrees to purchase the securities. Each Fund will establish a segregated account in which it will maintain liquid assets in an amount at least equal in value to such Fund's commitment to purchase securities on a when-issued or forward commitment basis. If the value of these assets declines, the Fund will replace additional liquid assets in the account on a daily basis so that the value of the assets in the account is equal to the amount of such commitments. LETTERS OF CREDIT AND LIQUIDITY AGREEMENTS Each of the Funds may purchase debt obligations that are backed by an irrevocable letter of credit or liquidity agreement of a bank, savings and loan association or insurance company which assumes the obligation for payment of principal and interest in the event of default by the issuer. Only banks, savings and loan associations and insurance companies which, in the opinion of Pacific Century, are of investment quality comparable to other permitted investments of such Fund, may be used for letter of credit and liquidity agreement backed investments. REPURCHASE AGREEMENTS Each of the Funds may enter into repurchase agreements wherein the seller of a security to the Fund agrees to repurchase that security from the Fund at a mutually agreed-upon time and price. The period of maturity is usually quite short, often overnight or a few days, although it may extend over a number of months. A Fund may enter into repurchase agreements only with respect to obligations that could otherwise be purchased by the Fund. All repurchase agreements will be fully collateralized based on values that are marked to market daily by Pacific Century. If the seller defaults and the value of the underlying securities has declined, the Fund may incur a loss. In addition, if bankruptcy proceedings are commenced with respect to the seller of the security, the Fund's disposition of the security may be delayed or limited. OTHER INVESTMENT COMPANIES In connection with the management of its daily cash position, each of the Funds may invest in securities issued by other investment companies, including (to the extent permitted by the 1940 Act) other investment companies managed by Pacific Century. Securities of other investment companies will be acquired by a Fund within the limits prescribed by the 1940 Act. Each of the Funds intends to limit its investments so that, as determined immediately after a securities purchase is made: PROSPECTUS 16
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(a) not more than 5% of the value of its total assets will be invested in the securities of any one investment company; (b) not more than 10% of the value of its total assets will be invested in the aggregate in securities of investment companies as a group; (c) not more than 3% of the outstanding voting stock of any one investment company will be owned by the Fund; and (d) the Fund, together with other investment companies having the same investment adviser and companies controlled by such companies, owns not more than 10% of the total stock of any one closed-end company. As a shareholder of another investment company, a Fund would bear, along with other shareholders, its pro rata portion of the other investment company's expenses, including advisory fees. These expenses would be in addition to the advisory and other expenses that a Fund bears directly in connection with its own operations; however, Pacific Century has undertaken to waive or reimburse the Funds its advisory fees with respect to Fund assets so invested (except when such purchase is part of a plan of merger, consolidation, reorganization or acquisition). FOREIGN SECURITIES Each of the Funds may invest in securities of foreign governmental and private issuers that are denominated in and pay interest in U.S. dollars. Investments in foreign securities involve certain considerations that are not typically associated with investing in domestic securities. There may be less publicly available information about a foreign issuer than about a domestic issuer. Foreign issuers also are not generally subject to the same accounting, auditing and financial reporting standards or governmental supervision as domestic issuers. In addition, with respect to certain foreign countries, tax on interest, gains and/or dividends may be withheld at the source under foreign income tax laws, and there is a possibility of expropriation or confiscatory taxation, political or social instability or diplomatic developments that could adversely affect investments in, the liquidity of, and the ability to enforce contractual obligations with respect to, securities of issuers located in those countries. OPTIONS Each of the Funds may purchase put and call options and write covered put and call options on securities in which such Fund may invest directly and that are traded on registered domestic securities exchanges or that result from separate, privately negotiated transactions with primary U.S. Government securities dealers recognized by the Board of Governors of the Federal Reserve System in an amount not exceeding 5% of the Fund's net assets. Options may be entered into in an attempt to hedge a Fund's portfolio against market risk or to enhance income (e.g., to attempt to realize through the receipt of premiums a greater current return than would be realized on the underlying securities alone). See SAI, "Additional Information on Fund Investments." INTEREST ONLY OR PRINCIPAL ONLY OBLIGATIONS Each of the Funds may make limited investments (not exceeding 5% of the relevant Fund's net assets) in separately traded principal and interest components of securities issued by the United States Treasury. The principal and interest components of selected securities are traded independently under the Separate Trading of Registered Interest and Principal of Securities program ("STRIPs"). Under the STRIPs program, the principal and interest components are individually numbered and separately issued by the U.S. Treasury at the request of depository financial institutions, which then trade the component parts independently. GUARANTEED INVESTMENT CONTRACTS Each of the Funds may invest up to 5% of its net assets in Guaranteed Investment Contracts ("GICs") issued by highly rated U.S. insurance companies. GICs are considered to be illiquid, and accordingly, are subject to each Fund's 15% limitation on investment in illiquid securities. See SAI, "Additional Information on Fund Investments." PROSPECTUS 17
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ADDITIONAL RISK DISCLOSURE Obligations rated in the lowest of the top four rating categories by an NRSRO have speculative characteristics, and changes in economic conditions or other circumstances are more likely to lead to a weakened capacity to make principal and interest payments than is the case with higher grade bonds. Subsequent to its purchase by a Fund, an issue of securities may cease to be rated or its rating category may be reduced below the minimum rating required for purchase by the respective Fund. Pacific Century will consider such an event in determining whether the relevant Fund should continue to hold the obligation. The Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities Fund are nondiversified, which means that their assets may be invested among fewer issuers and therefore the value of their assets may be subject to greater impact by events affecting one of their investments. Since the Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities Fund invest significantly in obligations of issuers located in Hawaii, the marketability and market value of these obligations may be affected by certain Hawaiian constitutional provisions, legislative measures, executive orders, administrative regulations and vote initiatives. The Hawaiian economy is concentrated in tourism, agriculture and military operations. Tourism is the strongest factor with tourists from a variety of nations cushioning any adverse economic situations in a single country. Hawaiian agriculture is diversifying into an expanded range of agricultural products, away from the dominant pineapple and sugar production that has been subject to increased foreign competition. Governmental activities, including activities usually administered on a municipal or county level such as public education, are the responsibility of the state. This concentration aggravates an otherwise high level of state debt obligations. The state General Fund has operated either within planned deficits or with ending fund balances since December 1962. Revenue is derived primarily from general excise taxes and individual and corporate income tax. There can, of course, be no assurance that any mutual fund will achieve its investment objective. In addition, unlike insured bank deposits, an investment in the Funds is not insured against loss of principal. PORTFOLIO TURNOVER Generally, the Funds will purchase portfolio securities for capital appreciation or investment income, or both, and not for short-term trading profits. However, a Fund may sell a portfolio investment soon after its acquisition if Pacific Century believes that such a disposition is consistent with attaining the investment objective of the particular Fund. Portfolio investments may be sold for a variety of reasons, such as a more favorable investment opportunity or other circumstances bearing on the desirability of continuing to hold such investments. The annual portfolio turnover rate is not expected to exceed 100% for any Fund. For the fiscal years ended July 31, 1997 and July 31, 1996, the portfolio turnover rate for the Funds were as follows: PROSPECTUS 18
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PORTFOLIO TURNOVER RATE FOR FISCAL YEARS ENDED JULY 31, 1997 AND JULY 31, 1996 [Download Table] FUND 1997 1996 ----------------------------------------------------------------- ----- ----- Diversified Fixed Income Fund.................................... 80.98% 58.86% Short Intermediate U.S. Treasury Securities Fund................. 51.56% 47.17% Tax-Free Securities Fund......................................... 11.07% 24.78% Tax-Free Short Intermediate Securities Fund...................... 29.46% 54.70% U.S. Treasury Securities Fund.................................... 44.90% 15.75% See "Portfolio Transactions" in the SAI for additional information relating to portfolio turnover. INVESTMENT POLICIES Each Fund's investment objectives, as set forth in the first paragraph of the description of each Fund in the "Highlights" section are fundamental; that is, they may not be changed without approval by vote of the holders of a majority of the relevant Fund's outstanding voting securities, as described under "Capital Stock" in the SAI. If the Trust's Board of Trustees determines, however, that a Fund's investment objective can best be achieved by a substantive change in a non-fundamental investment policy or strategy, the Trust's Board may make such change without shareholder approval and will disclose any such material changes in the then current prospectus. Any policy that is not specified in a Fund's Prospectus, or in the SAI, as being fundamental, is non-fundamental. ADDITIONAL INVESTMENT RESTRICTIONS As matters of fundamental policy, each of the Funds may not: 1. Purchase securities of any one issuer (other than securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities) if, immediately after such purchase, more than 5% of the value of the Fund's total assets would be invested in the securities of such issuer, or more than 10% of the issuer's outstanding voting securities would be owned by the Fund, except that up to 25% of the value of the Fund's total assets may be invested without regard to these limitations, and except that this restriction does not apply to the Tax-Free Securities Fund or the Tax-Free Short Intermediate Securities Fund, which are non-diversified funds. 2. Purchase any securities which would cause 25% or more of the value of the Fund's total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that (a) there is no limitation with respect to U.S. Government Obligations and repurchase agreements secured by such obligations; (b) with respect to the Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities Fund, there is no limitation with respect to Municipal Obligations (for purposes of this limitation, private activity bonds that are backed only by the assets and revenues of a non-governmental user shall not be deemed to be Municipal Obligations); (c) wholly owned finance companies will be considered to be in the industries of their parents if their activities are primarily related to financing the activities of the parents; and (d) utilities will be divided according to their services, for example, gas, gas transmission, electric and gas, electric and telephone will each be considered a separate industry. 3. Make loans, borrow money or issue senior securities, except under certain circumstances, and PROSPECTUS 19
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subject to certain percentage limitations, specified above and in the SAI. If a percentage limitation is satisfied at the time of investment, a later increase or decrease in such percentage resulting from a change in the value of a Fund's portfolio securities will not constitute a violation of such limitation. MANAGEMENT, ADVISORY AND OTHER SERVICE ARRANGEMENTS THE BOARD OF TRUSTEES The business and affairs of the Trust are managed under the direction and control of its Board of Trustees. The names and principal occupations of the Trustees of the Trust are listed below. Trustees deemed to be "interested persons" of the Trust for purposes of the 1940 Act are indicated by an asterisk. [Enlarge/Download Table] POSITION(S) HELD NAME AND ADDRESS WITH THE TRUST PRINCIPAL ORGANIZATION ------------------------- ---------------------- --------------------------------------------- Deborah G. Patterson* Trustee and Senior Vice President of Bank of Chairperson Hawaii--Asset Management and Private Client Group (1994-present); Director of KPMG Peat Marwick (1993-1994); Senior Vice President and Manager of Wells Fargo Bank (1987-1992) Irimga McKay* Trustee and President Senior Vice President of BISYS Fund Services (1994-present); Senior Vice President of Concord Financial Group (1986-1994) Douglas Philpotts* Trustee Chairman of the Board of Directors (1992-1994), President (1986-1992), and Director (1984-present) of Pacific Century Richard W. Gushman, II Trustee President and Chief Executive Officer of OKOA, Inc. (1985-present); Adviser to RAMPAC, Inc. Stanley W. Hong Trustee President and Chief Executive Officer of the Chamber of Commerce of Hawaii (1996-present); Business Consultant (1994-present) Russell K. Okata Trustee Executive Director of Hawaii Government Employees Association (1981-present) Oswald K. Stender Trustee Trustee of Bernice Pauahi Bishop Estate (1990-present); Director of Hawaiian Electric Industries, Inc. (1993-present) Trustees of the Trust who are not officers or employees of the Trust, BISYS or Pacific Century are entitled to receive from the Trust a quarterly retainer and a fee for each Board of Trustees meeting attended. All Trustees are reimbursed for all reasonable out-of-pocket expenses relating to attendance at meetings. PROSPECTUS 20
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THE ADVISER Pursuant to an Advisory Agreement, the Funds are advised by Pacific Century, whose address is Financial Plaza of the Pacific, 111 S. King Street, Honolulu, Hawaii 96813. Pacific Century is a Hawaii corporation organized in 1898 and is the largest trust company in the State of Hawaii, both in terms of assets under administration and assets under management. As of July 31, 1997, Pacific Century had approximately $7.5 billion of client financial assets under management. Pacific Century is a division of Bank of Hawaii, the largest banking organization headquartered in the State of Hawaii, with approximately $12.6 billion of assets as of July 31, 1997, and branches and offices throughout the Pacific Basin, including Guam, Singapore, Tokyo, Seoul and Taiwan. All shares of Bank of Hawaii are owned by Pacific Century Financial Corporation (formerly Bancorp Hawaii, Inc. "Pacific Century Financial") and Bank of Hawaii's Directors (each of whom owns qualifying shares as required by Hawaii law). Pacific Century Financial is a bank holding company, registered under the Bank Holding Company Act of 1956, as amended, and its common stock is listed and traded on the New York Stock Exchange (the "Exchange"). Pacific Century Financial files annual and periodic reports with the Commission and the Exchange, which are available for public inspection. Pacific Century is not authorized to and does not carry on a banking business. The actual management of the portfolios of the Trust is coordinated by Pacific Century's investment unit, which is staffed with more than 40 people, including 5 Chartered Financial Analysts and 9 M.B.A.'s. All investment decisions of the Funds are made by a committee, and no person is primarily responsible for making recommendations to the committee. Pacific Century has served as investment adviser to other investment companies since 1984. These include the Hawaiian Tax-Free Trust, with assets exceeding $61.0 million as of July 31, 1997, and the Cash Assets Trust, with assets of approximately $736 million as of July 31, 1997. Subject to the supervision of the Board of Trustees, Pacific Century will provide a continuous investment program for the Funds, including investment research and management with respect to all securities and investments and cash equivalents in the Funds. Pacific Century will determine from time to time what securities and other investments will be purchased, retained or sold by the Trust with respect to the Funds. Pacific Century will provide the services under the Advisory Agreement in accordance with each of the Fund's investment objectives, policies, and restrictions. For its services under the Advisory Agreement, Pacific Century is entitled to monthly advisory fees at the annual rates of each Fund's average daily net asset value equal to 0.50% for the Short Intermediate U.S. Treasury Securities Fund and the Tax-Free Short Intermediate Securities Fund, and 0.60% for the Diversified Fixed Income Fund, the U.S. Treasury Securities Fund and the Tax-Free Securities Fund. For the fiscal year ended July 31, 1997, the fees paid by the Funds to Pacific Century under the Advisory Agreement, as a percentage of average daily net assets, were as follows: Diversified Fixed Income Fund--0.60%; Short-Intermediate U.S. Treasury Securities Fund--0.30% (after advisory fee waiver); Tax-Free Securities Fund--0.60%; Tax-Free Short Intermediate Securities Fund--0.50%; and U.S. Treasury Securities Fund--0.60%. THE SPONSOR, ADMINISTRATOR AND DISTRIBUTOR BISYS is the administrator for each Fund, and also acts as the Trust's principal underwriter and distributor. BISYS generally assists in all aspects of the administration and operation of the Funds. For expenses assumed and services provided as administrator pursuant to its Administration Agreement with the Trust, BISYS is entitled to receive a fee from the Funds, computed daily and paid monthly, at an annual rate equal to 0.20% of the average daily net assets of each Fund. For the fiscal year ended July 31, 1997, the ratios of total expenses to average net assets (ex- PROSPECTUS 21
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cluding waivers) for the Class A shares of the Funds were as follows: Diversified Fixed Income Fund -- 1.69%; Short Intermediate U.S. Treasury Securities Fund -- 1.62%; Tax-Free Securities Fund -- 1.66%; Tax-Free Short Intermediate Securities Fund 1.64%; and U.S. Treasury Securities Fund -- 1.70%. In addition, BISYS, as the principal underwriter of the Funds within the meaning of the 1940 Act, has entered into a Distribution Agreement with the Trust pursuant to which BISYS has the responsibility for distributing shares of the Funds. The Distribution Agreement provides that BISYS shall act as agent for the Funds for the sale of their shares and may enter into selling agreements with banks, broker/dealers or other financial institutions to market and make available shares to their respective customers. For its services, BISYS is entitled to a Distribution Fee as set forth in the separate Distribution and Shareholder Servicing Plans for each of the Class A and Class B shares (each a "Distribution Plan"). The Distribution Plan for the Class A shares provides that BISYS is entitled to receive from each Fund a fee in an amount not to exceed on an annual basis 0.75% of the average daily net asset value of each Fund's Class A shares. The Distribution Plan for the Class B shares provides that BISYS is entitled to receive from each Fund a fee in an amount not to exceed on an annual basis 1.00% of the average daily net asset value of each Fund's Class B shares. The Funds had not begun to offer Class B shares publicly at the date of this Prospectus. Accordingly, no payments had yet been made pursuant to the Class B distribution Plan. Fees under each of the Distribution Plans compensate BISYS for the following: (a) payments BISYS makes to banks and other institutions and industry professionals, broker/dealers, including Pacific Century, BISYS and their affiliates or subsidiaries, pursuant to an agreement in connection with providing administrative support services to the holders of a Fund's Class A or Class B shares; or (b) payments to financial institutions and industry professionals (such as insurance companies, investment counselors, and BISYS' affiliates and subsidiaries) in consideration for the sales support services provided and expenses assumed in connection with distribution assistance, including but not limited to, printing and distributing Prospectuses to persons other than current Class A or Class B shareholders of a Fund, printing and distributing advertising and sales literature and reports to prospective Class or Class B investors in connection with the sale of a Fund's shares, and providing personnel and communication equipment used in servicing shareholder accounts and responding to prospective Class A or B shareholder inquiries. BISYS may enter into selling agreements with one or more selling agents under which such agents may receive compensation form BISYS for sales support services, including, but not limited to, commissions or other payments to such agents based on the average daily net assets of the Class A or Class B shares of each Fund. The distribution fee shall be paid to BISYS only to compensate or to reimburse it for actual payments or expenses incurred as described above. The actual distribution fee payable to BISYS is determined, within such limit, from time to time by mutual agreement between the Trust and BISYS, and may not exceed the maximum fee payable under the Conduct Rules of the NASD. Until further notice, BISYS voluntarily intends to waive a portion of its distribution fee for the current fiscal year such that the distribution fee payable by each Fund will not exceed 0.25% of the average daily net asset value attributable to the Fund's Class A shares on an annual basis. No Fund's Class A or Class B shares will be liable for distribution expenditures made by BISYS in any given year in excess of the maximum amount payable under the Distribution Plan for that Fund in that year. BISYS is a broker/dealer registered with the Commission, and is a member of the NASD. As noted above, each Fund also offers Class Y shares, which are made available only to certain investors. The Class Y shares are not subject to any distribution fees or entitled to benefits under the Distribution Plan. PROSPECTUS 22
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OTHER SERVICE ARRANGEMENTS Administrative Data Management Corporation ("ADM" or the "Transfer Agent"), 581 Main Street, Woodbridge, New Jersey 07095, serves as the Trust's transfer agent and dividend disbursing agent. Ernst& Young LLP, One Columbus, Suite 2300, 10 West Broad Street, Columbus, Ohio 43215, serves as independent auditors for the Trust. VALUATION OF CLASS A AND B SHARES The net asset value of the Class A and Class B shares for each Fund is determined and their shares are priced as of the close of the New York Stock Exchange (the "Exchange") (currently 4:00 p.m., Eastern Time) (the "Valuation Time") each Business Day. As used herein, a "Business Day" is a day on which the Exchange is open for trading and any other day (other than a day on which no shares of that Fund are tendered for redemption and no order to purchase shares is received) during which there is sufficient trading in the Fund's portfolio securities that the Fund's net asset value per share might be materially affected. The Exchange will not be open in observance of the following holidays: New Year's Day, President's Day, Martin Luther King Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset value per share for Class A and Class B is calculated by determining the value of such Class's proportional interest in the securities and other assets of each Fund, less (i) such class's proportional share of general liabilities and (ii) liabilities allocable only to such class, and dividing such amount by the number of shares of the class outstanding. The net asset value per share for each Fund will fluctuate as the value of its investment portfolio changes. The per share net asset value of Class A shares generally will be higher than the per share net asset value of Class B shares reflecting the daily expense accruals of the distribution fees applicable to the Class B shares. Except for debt obligations with remaining maturities of 60 days or less, which are valued at amortized cost, assets are valued at current market prices, or if such prices are not readily available, at fair value as determined in good faith by the Board of Trustees. Prices used for such valuations may be provided by independent pricing services. For further information about valuation of investments in the Funds, see the SAI. HOW TO PURCHASE CLASS A AND B SHARES PURCHASE OF SHARES Class A and Class B shares of each Fund are sold on a continuous basis. Investors may purchase Class A and Class B shares of a Fund by completing and signing an account registration form ("Account Registration Form") and mailing it, together with a check (or other negotiable bank draft or money order) payable to the Trust, in at least the minimum initial purchase amount, to your Participating Organization or to the Trust's Transfer Agent, Administrative Data Management Corporation, 581 Main Street, Woodbridge, New Jersey 07095. Subsequent purchases of shares of a Fund may be made at any time by mailing a check (or other negotiable bank draft or money order) payable to the Trust, to ADM at the above address or to your Participating Organization. Class A and Class B shares of the Funds may also be purchased through procedures established by BISYS in connection with requirements of qualified accounts maintained by or on behalf of certain persons ("Customers") by banks, institutions or industry professionals, such as broker/dealers, who have entered into an agreement with BISYS ("Participating Organizations") under each of the Distribution Plans. See "Management, Advisory and PROSPECTUS 23
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Other Service Arrangements." BISYS' principal office is located at 3435 Stelzer Road, Columbus, Ohio 43219-3035. Class A and Class B shares of a Fund sold to Participating Organizations acting in a fiduciary, advisory, custodial or other similar capacity on behalf of a customer will normally be held of record by the Participating Organizations. With respect to shares so sold, it is the responsibility of the Participating Organizations to transmit purchase or redemption orders to ADM and to deliver federal funds for purchase on a timely basis. Beneficial ownership of shares of a Fund will be recorded by the Participating Organizations and reflected in the account statements provided by the Participating Organization to the customer. If an Account Registration Form has been previously received by ADM, investors may also purchase Class A and Class B shares by telephoning ADM at 800-258-9232. Payment for Class A and Class B shares ordered by telephone may be made by check or by electronic transfer and must be received by the Trust's Custodian within seven days of the telephone order. If payment is not received within seven days or a check timely received does not clear, the purchase may be cancelled and the investor could be liable for any losses or fees incurred. In the case of purchases of Class A and Class B shares effected by wiring funds to the Trust's Custodian, investors must call ADM at 800-258-9232 to obtain instructions regarding the bank account number into which the funds should be wired and other pertinent information. If you have opened an account through a Participating Organization, you should telephone the Participating Organization to make further investments. Class A and Class B shares of each Fund are purchased at the public offering price per share, which is the net asset value per share (see "Valuation of Class A and Class B shares") next determined after receipt by the Transfer Agent of an order to purchase shares in good form plus the applicable sales charge as described below. The Participating Organizations are responsible for the prompt transmission of purchase orders to the Transfer Agent. Purchases of Class A and Class B shares of a Fund will be effected only on a Business Day of such Fund. An order received by the Transfer Agent prior to the Valuation Time on any Business Day will be executed based on the net asset value determined as of the Valuation Time on the date of receipt. An order received by the Transfer Agent after the Valuation Time on any Business Day will be executed based on the net asset value determined as of the next Business Day. The minimum investment for an investor's initial purchase of Class A and Class B shares of a Fund is $1,000. The minimum investment for subsequent purchases of Class A and Class B shares is $50. The minimum initial investment amount for IRAs is $250. As discussed below, the minimum initial investment amount for Auto Invest Plan participants is $100. Depending upon the terms of a particular customer account, a Participating Organization may charge a customer's account fees for automatic investment and other cash management services provided in connection with investment in the Funds. Information concerning these services and any charges will be provided by the relevant Participating Organization. This Prospectus should be read in conjunction with any such information received from the Participating Organization. The Trust reserves the right to reject any order for the purchase of its Class A or Class B shares in whole or in part. Every shareholder will receive a confirmation of each new transaction in the shareholder's account. In the case of shares held of record by a Participating Organization but beneficially owned by a customer, confirmations of purchases, exchanges and redemptions of shares by a Participating Organization will be sent to the customer by the Participating Organization. Certificates representing shares will not be issued. PROSPECTUS 24
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SALES CHARGES CLASS A SHARES The public offering price of a Class A share of a Fund equals its net asset value plus a sales charge. BISYS receives this sales charge as principal underwriter and will reallow a portion of it to broker/dealers or other financial institutions as dealer discounts and brokerage commissions. From time to time dealers who receive dealer discounts and broker commissions from BISYS may reallow a portion of such dealer discounts and broker commissions to other dealers or brokers. BISYS may elect to reallow a higher percentage of the sales charge stated below to selected brokers and dealers for all sales with respect to which orders are placed with BISYS during a particular period. At BISYS' discretion, the entire sales charge may at times be reallowed as dealer discounts and brokerage commissions. If the entire sales charge is reallowed to a broker/dealer or financial institution, it may be deemed an "underwriter" under the Securities Act of 1933, as amended. The following sales charge schedule applies to all Funds except the Short Intermediate U.S. Treasury Securities Fund and the Tax-Free Short Intermediate Securities Fund: [Enlarge/Download Table] DEALER SALES CHARGE AS ALLOWANCE SALES CHARGE AS A PERCENTAGE OF AS A PERCENTAGE A PERCENTAGE OF NET AMOUNT OF OFFERING AMOUNT OF PURCHASE OFFERING PRICE INVESTED PRICE ----------------------------------------------- --------------- --------------- --------------- Less than $25,000.............................. 4.00% 4.17% 3.60% $25,000 or more but less than $50,000.......... 3.75% 3.90% 3.38% $50,000 or more but less than $100,000......... 3.50% 3.63% 3.15% $100,000 or more but less than $250,000........ 3.25% 3.36% 2.93% $250,000 or more but less than $500,000........ 3.00% 3.09% 2.70% $500,000 or more but less than $1,000,000...... 2.50% 2.56% 2.25% $1,000,000 or more............................. 0.00% 0.00% 0.00% The following sales charge schedule applies to the Short Intermediate U.S. Treasury Securities Fund and Tax-Free Short Intermediate Securities Fund: [Enlarge/Download Table] DEALER SALES CHARGE AS ALLOWANCE SALES CHARGE AS A PERCENTAGE OF AS A PERCENTAGE A PERCENTAGE OF NET AMOUNT OF OFFERING AMOUNT OF PURCHASE OFFERING PRICE INVESTED PRICE ----------------------------------------------- --------------- --------------- --------------- Less than $100,000............................. 2.25% 2.30% 2.03% $100,000 or more but less than $250,000........ 1.75% 1.78% 1.58% $250,000 or more but less than $500,000........ 1.25% 1.27% 1.13% $500,000 or more but less than $1,000,000...... 1.00% 1.01% 0.90% $1,000,000 or more............................. 0.00% 0.00% 0.00% While there are no sales charges on single transactions of $1 million or more, BISYS will make payments to securities dealers, from its own resources, related to these transactions as shown in the table below. The first payment will be applied to the total purchase price and made payable upon settlement of the purchase. Subsequent payments will be made at the end of each full calendar quarter following the original purchase. The amount of each subsequent payment will be based on the number of shares originally purchased and remaining in the account at the time of the payment multiplied by the net asset value per share at the purchase date. The payment schedule will be as follows: PROSPECTUS 25
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[Enlarge/Download Table] NUMBER OF AMOUNT OF TOTAL OF AMOUNT OF PURCHASE PAYMENTS EACH PAYMENT ALL PAYMENTS ------------------------------------------------------- --------- ------------ ------------ $1,000,000 or more but less than $2,000,000............ 6 0.083% 0.50% $2,000,000 or more but less than $4,000,000............ 5 0.070% 0.35% $4,000,000 or more..................................... 4 0.063% 0.25% The sales charges set forth in the tables above are applicable to purchases made at one time by any purchaser (a "Purchaser"), which term shall mean: (i) an individual, his or her spouse and children under the age of 21, if any; (ii) a trustee or other fiduciary of a single trust estate or single fiduciary account; or (iii) any other organized group of persons, whether incorporated or not, provided that such organization has been in existence for at least six months and has some bona fide business purpose other than the purchase of redeemable securities of a registered investment company. In order to qualify for a reduced sales charge, all orders from a Purchaser will have to be placed through a single investment dealer and identified at the time of purchase as originating from the same Purchaser, although such orders may be placed into more than one discrete account which identifies the Purchasers. BISYS, at its expense, will also provide additional compensation to dealers in connection with sales of shares of the Trust. Such compensation will include financial assistance to dealers in connection with conferences, sales or training programs for their employees, seminars for the public advertising campaigns regarding one or more Funds, and/or other dealer-sponsored special events. In some instances, this compensation will be made available only to certain dealers whose representatives have sold a significant amount of such shares. Compensation will include payment for travel expenses, including lodging, incurred in connection with trips taken by invited registered representatives and members of their families to locations within or outside of the United States for meetings or seminars of a business nature. Compensation will also include the following types of non-cash compensation offered through sales contests: (1) vacation trips, including the provision of travel arrangements and lodging, (2) tickets for entertainment events (such as concerts, cruises and sporting events), and (3) merchandise (such as clothing, trophies, clocks and pens). Dealers may not use sales of the Trust's Shares to qualify for this compensation to the extent such may be prohibited by the laws of any state or any self-regulatory agency, such as the NASD. None of the aforementioned compensation is paid for by the Funds or their shareholders. REDUCED SALES CHARGES CLASS A SHARES SALES CHARGE WAIVERS--The following classes of investors may purchase Class A shares of a Fund with no sales charge in the manner described below (any of which may be changed or eliminated at any time by BISYS): (1) Existing shareholders of a Fund, upon the reinvestment of dividend and capital gain distributions; (2) Officers, trustees, directors, employees and retired employees of the Trust, Pacific Century Financial and its affiliates, and of BISYS and its affiliates (and spouses and children of each of the foregoing); (3) With the exception of investors for whom Pacific Century Investment Services provides custodial services, investors for whom Pacific Century Financial or one of its affiliates acts in a fiduciary, advisory, custodial, agency or similar capacity; (4) Investors who purchase shares of a Fund through a retirement related payroll deduction plan, a 401(k) plan, a 403(b) plan, or a similar plan which by its terms permits purchases of shares; and (5) Orders placed on behalf of other investment companies distributed by the Distributor. PROSPECTUS 26
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The Trust permits the sale of its Class A shares at prices that reflect the reduction or elimination of the sales charge to investors who are members of certain qualified groups meeting the following requirements. A qualified group (i) is a group or association, or a category of purchasers who are represented by a fiduciary, professional or other representative (other than a registered broker-dealer); (ii) satisfies uniform criteria which enable the Distributor to realize economies of scale in its costs of distributing shares; (iii) if it is a group or association, gives its endorsement or authorization to an investment program to facilitate solicitation of its membership by a broker or dealer, and (iv) complies with the conditions of purchase that are set forth in any agreement entered into between the Trust and the group, representative or broker or dealer. At the time of purchase the investor, either directly or through a broker or dealer, must furnish the Transfer Agent with information sufficient to permit verification that the purchase qualifies for a reduced sales charge. The Distributor may waive the sales charge for an investor who purchases a Fund's Class A shares with the proceeds from the recent redemption of shares of any non-money market front-end or back-end load mutual fund. To the extent the sales load of the Fund in which such investor seeks to invest is higher than that of the fund with respect to which the redemption proceeds relate, the Distributor will waive only that portion of the Fund's sales load which equals the prior sales load paid. Any portion of the sales load which is not waived in accordance with the foregoing must be paid by the investor at the time of purchase. Purchases of Fund shares using redemption proceeds as described above must be made within 60 days of redemption from funds which are not a series of Pacific Capital Funds and within 120 days of redemption from funds which are series of Pacific Capital Funds. The Transfer Agent must be notified in writing by the investor, or by his or her financial institution, at the time the purchase is made. A copy of the investor's account statement showing such redemption must accompany such notice. BISYS also, from time to time, may waive the sales charge for all investors with respect to any Fund. LETTERS OF INTENT--Any Purchaser may obtain a reduced sales charge by means of a written Letter of Intent which expresses the intention of such Purchaser to purchase a certain amount of a Fund's Class A shares within a period of 13 months. Each purchase of shares under a Letter of Intent will be made at the public offering price plus the sales charge applicable at the time of such purchase to a single transaction of the total dollar amount indicated in the Letter of Intent. A Letter of Intent may include purchases of shares made not more than 90 days prior to the date such Purchaser signs a Letter of Intent; however, the 13-month period during which the Letter of Intent is in effect will begin on the date of the earlier purchase to be included. The terms of the Letter of Intent and the escrow account associated therewith are described in the Account Registration Form. For further information, interested investors should contact ADM or their Participating Organization. Letter of Intent privileges may be amended or terminated without notice at any time by the Trust. CONCURRENT PURCHASES AND RIGHT OF ACCUMULATION--A Purchaser may qualify for a reduced sales charge by (i) combining concurrent purchases of shares of a Fund with purchases of one or more of the other Funds sold with a sales charge or (ii) combining a current purchase of shares of a Fund with prior purchases of shares of any of the other Funds sold subject to a sales charge. The applicable sales charge is based on the sum of (a) the Purchaser's current purchase of shares of any Fund sold with a sales charge plus (b) the then-current net asset value of all shares held by the Purchaser in any Fund sold with a sales charge. To receive the applicable public offering price pursuant to the right of accumulation, shareholders must at the time of purchase provide ADM or their Participating Organization with sufficient information to permit confirmation of qualification. Accumulation privileges may be amended or terminated without notice at any time by the Trust. Shares of other PROSPECTUS 27
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series of the Trust sold subject to a sales charge which are not offered through this Prospectus may be counted for purposes of the accumulation privileges. CLASS B SHARES The public offering price of a Class B share of a Fund equals its net asset value without the imposition of a sales charge at the time of purchase. However, Class B shares are subject to a contingent deferred sales charge ("CDSC") if the shares are redeemed within six years of purchase, at rates set forth below. After approximately eight years, Class B shares will automatically convert to Class A shares. See "Conversion of Class B shares to Class A shares" below, for more detail. At the time of redemption, the CDSC will be based on the initial purchase price or the current market value of the shares being redeemed, whichever is less. A CDSC will not be imposed on amounts representing increases in net asset value above the net asset value at the time of purchase. There is no CDSC on shares acquired through reinvestment of dividends. Imposition of the CDSC and the distribution fee on Class B shares is limited by the NASD asset-based sales charge rule. The following table sets forth the rates of the Class B CDSC: [Download Table] CDSC AS A PERCENTAGE OF DOLLAR AMOUNT YEARS AFTER PURCHASE SUBJECT TO CHANGE --------------------- ----------------- 1st Year............. 5% 2nd Year............. 4% 3rd Year............. 3% 4th Year............. 3% 5th Year............. 2% 6th Year............. 1% Solely for purposes of determining the number of years which have elapsed from the time of purchase of any Class B shares, all purchases during a month will be aggregated and deemed to have been made on the last day of the month. In determining whether a CDSC is applicable to a redemption, the calculation will be made in the manner that results in the lowest possible charge being assessed. In this regard, it will be assumed that the redemption is first of shares held for more than six years or shares acquired pursuant to reinvestment of dividends or distributions both of which do not carry any CDSCs. It will then be assumed that the redemption is of shares held longest during the six year period, which will have the lowest CDSC. For example, assume an investor purchased 100 Class B shares with a net asset value of $10 per share (i.e., at an aggregate net asset value of $1,000) and in the eleventh month after purchase, the net asset value per share is $12 and, during such time, the investor has acquired five additional Class B shares through dividend reinvestment. If at such time the investor makes his first redemption of 50 Class B shares (producing proceeds of $600), five of such shares will not be subject to the charge because of dividend reinvestment. With respect to the remaining 45 Class B shares being redeemed, the charge will be applied only to the original cost of $10 per share and not to the increase in net asset value of $2 per share. Therefore, only $450 of the $600 redemption proceeds will be subject to the charge of 5.00%, totaling $22.50. The contingent deferred sales charge is waived on redemptions of Class B shares (i) following the death or disability (as defined in the Internal Revenue Code (the "Code")) of a shareholder (or both shareholders in the case of joint accounts), (ii) to the extent that the redemption represents a minimum required distribution from an IRA or a Custodial Account under Code Section 403(b)(7) to a shareholder who has reached age 70 1/2, and (iii) to the extent the redemption represents the minimum distribution from retirement plans under Code Section 401(a) where such redemptions are necessary to make distributions to plan participants. CONVERSION OF CLASS B SHARES TO CLASS A SHARES After approximately eight years Class B shares will automatically convert to Class A shares and will PROSPECTUS 28
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be subject to the lower Distribution and Shareholder Service fees charged to Class A shares. For purposes of conversion of Class A shares, shares received as dividends and other distributions paid on Class B shares in a shareholder's Fund account will be considered to be held in a separate sub-account. Each time any Class B shares in a shareholder's Fund account (other than those in the sub-account) convert to Class A shares, a pro-rata portion of the Class B shares in the sub-account will also convert to Class A shares. If a shareholder effects one or more exchanges among Class B shares of the Funds of the Trust during the six-year period, the Trust will aggregate the holding periods for the shares of each Fund of the Trust for purposes of calculating that six-year period. Because the per share net asset value of the Class A shares may be higher than that of the Class B shares at the time of conversion, a shareholder may receive fewer Class A shares than the number of Class B shares converted, although the dollar value will be the same. The conversion will be on the basis of the relative net asset value of the shares of the two classes, without the imposition of any sales load, fee or other charge. Conversion of Class B shares to Class A shares will not be deemed a purchase or sale of the shares for federal income tax purposes. Shares purchased through reinvestment of dividends in Class B shares will also convert automatically to Class A shares after approximately eight years. AUTO INVEST PLAN--The Auto Invest Plan enables Class A or Class B shareholders of any of the Funds to make regular monthly or quarterly purchases of Class A or Class B shares through automatic deductions from their bank accounts. With shareholder authorization, the Transfer Agent will deduct the amount specified from the shareholder's bank account which will automatically be invested in shares at the public offering price on the dates of the deduction. The required minimum initial investment when opening an account using the Auto Invest Plan is $100; the minimum amount for subsequent investments is $50. To participate in the Auto Invest Plan, shareholders should complete the appropriate section of the Account Registration Form which can be obtained by calling ADM at 800-258-9232. For a shareholder to change the Auto Invest Plan instructions, the request must be made in writing to ADM or your Participating Organization. Depending upon the terms of a particular customer account, a Participating Organization may charge a customer's account fees for services provided in connection with investment in the Funds. Information concerning these services and any charges will be provided by the Participating Organizations. This Prospectus should be read in conjunction with any such information received from the Participating Organizations. EXCHANGE PRIVILEGES Except as described below, Class A and Class B shareholders may exchange shares of any Fund on the basis of the relative net asset value of the shares exchanged, without payment of a sales charge, for the same class of any other Fund, the same class of any other series of the Trust or for service class shares of the Cash Assets Trust, the Tax-Free Cash Assets Trust or the U.S. Treasuries Cash Assets Trust. The exchange privilege may be exercised by shareholders so long as they maintain the respective minimum account balance in each Fund in which they own shares. To the extent that a holder of Class A shares exchanges into a Fund having a higher initial sales charge than that of the Fund from which the shareholder is exchanging, the shareholder will pay the sales charge differential at the time of the exchange. Class B shares of a Fund which are subject to a CDSC will be exchangeable on the basis of relative net asset value per share without the payment of any CDSC that might otherwise have been due upon redemption of the shares of the Fund. For purposes of computing the CDSC upon redemption of shares received in the exchange, the holding period will be measured from the date of purchase of the original shares and will retain the same CDSC rate as they PROSPECTUS 29
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had before the exchange, except that the rate will change to the new Fund's rate if that rate is higher. A CDSC rate that has increased will drop again with a future exchange into a Fund with a lower rate. For federal income tax purposes, an exchange of shares is deemed a sale on which a shareholder may realize capital gain or loss. Before an exchange can be effected, a shareholder must receive a prospectus of the fund into which the subject shares are to be exchanged. If you have previously elected the telephone exchange option on your Account Registration Form, an exchange can be made by calling ADM at 800-258-9232 or your Participating Organization. Otherwise, exchanges may be made by forwarding a written request for exchange to ADM or your Participating Organization. Exchange privileges may be exercised only in those states where shares of such other Fund or series may be legally sold, and may be amended or terminated at any time upon 60 days' notice. HOW TO REDEEM CLASS A AND CLASS B SHARES Shareholders may redeem their Class A and Class B shares without charge on any day that net asset value is calculated (see "Valuation of Class A and Class B Shares") and the shares may ordinarily be redeemed by mail or by telephone. However, if you purchase shares through a Participating Organization which serves as the shareholder of record, you must redeem through such institution. In all other cases, a completed Account Registration Form must have been received by the Transfer Agent before redemption requests may be honored. All or part of a customer's shares may be subject to redemption in accordance with instructions and limitations pertaining to his or her account held by a Participating Organization. For example, if a customer has agreed to maintain a minimum balance in his or her account, and the balance in that account falls below that minimum due to redemptions, the customer may be obliged to redeem, or the Participating Organization may be authorized to redeem the customer's shares for and on behalf of the customer. REDEMPTION BY MAIL A written request for redemption must be received by ADM or your Participating Organization in order to constitute a valid tender for redemption. The Participating Organizations are responsible for the prompt transmission of redemption requests to the Transfer Agent. The Transfer Agent will require a signature guarantee by an eligible guarantor institution if (a) the redemption check is to be payable to anyone other than the Class A or Class B shareholder(s) of record or (b) a redemption check is to be mailed or proceeds are to be wired to the Class A or Class B shareholder(s) at an address other than the address of record or other than a commercial bank account designated on the Account Registration Form of such Class A and Class B shareholder(s) or (c) the redemption proceeds exceed $50,000. For purposes of this policy, the term "eligible guarantor institution" shall mean members of the STAMP (Securities Transfer Agents Medallion Program), MSP (New York Stock Exchange Medallion Signature Program) or SEMP (Stock Exchanges Medallion Program). Participants of STAMP, MSP, and SEMP are subject to dollar value limitations which must be considered when requesting their authorization. The Transfer Agent reserves the right to reject any signature guarantee if it has reason to believe that the transaction would otherwise be improper. REDEMPTION BY TELEPHONE A shareholder may have the proceeds of redemption requests electronically transferred or mailed directly to a domestic commercial bank account previously designated by the shareholder on the Account Registration Form. Under most circumstances, such proceeds will be transmitted on the next Business Day following receipt of a valid request for redemption. If you authorize the tele- PROSPECTUS 30
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phone redemption option in your Account Registration Form, such electronic redemption request may be made by the shareholder by telephone to ADM or your Participating Organization. The Transfer Agent will reduce the amount of a wire redemption payment by its then-current wire redemption charge. As of the date of this Prospectus, there is no charge for wire redemptions. While this policy is subject to change at any time, it is not anticipated that such charge would exceed $7 per wire redemption. There is no charge for having proceeds of redemption requests mailed to a designated bank account. The Trust will not permit shareholders to change their accounts by telephone. For telephone redemptions, call ADM at 800-258-9232. Neither the Distributor, the Transfer Agent, Pacific Century nor the Trust will be liable for any losses, damages, expense or cost arising out of any telephone transaction (including exchanges and redemptions) effected in accordance with the Fund's telephone transaction procedures, upon instructions reasonably believed to be genuine. The Trust will employ procedures designed to provide reasonable assurance that instructions by telephone are genuine. A description of the procedures employed by the Trust to confirm instructions communicated by telephone is contained in the Statement of Additional Information. This policy places the entire risk of loss for unauthorized or fraudulent transactions on the Shareholder, except that if the Distributor, the Transfer Agent, Pacific Century, the Trust or their affiliates do not follow reasonable procedures, some or all of them may be liable for any such losses. During times of drastic economic or market changes, telephone exchanges or redemptions may be difficult to implement. If you experience difficulty in making a telephone exchange or redemption, your exchange or redemption request may be made by regular or express mail, and it will be implemented at the next determined net asset value following receipt by the Transfer Agent. PAYMENTS TO CLASS A AND CLASS B SHAREHOLDERS Redemption orders are effected at the net asset value per share next determined after the Class A and Class B shares are properly tendered for redemption, as described above. The proceeds paid upon redemption of shares in a Fund may be more or less than the amount invested. Payment to shareholders for shares redeemed will be made within seven days after receipt by the Transfer Agent of the request for redemption. However, to the greatest extent possible, the Trust will attempt to honor requests from shareholders for next Business Day payments upon redemption of shares if the request for redemption is received by the Transfer Agent before 4:00 p.m., Eastern Time, on a Business Day or, if the request for redemption is received after 4:00 p.m., Eastern Time, to honor requests for payment within two Business Days, unless it would be disadvantageous to the Trust or the shareholders of the particular Fund to sell or liquidate portfolio securities in an amount sufficient to satisfy requests for payments in such manner. If the Trust is requested to redeem shares for which it has not yet received good payment, it may delay the forwarding of proceeds only until payment has been collected for the purchase of such shares. Such collection may take up to 15 days or more. To avoid delay in payment upon redemption shortly after purchasing shares, investors should purchase shares by certified or bank check or by wire transfer. The Trust intends to pay cash for all shares redeemed, but under abnormal conditions which make payment in cash inadvisable, the Trust may make payment wholly or partly in portfolio securities at their then-current market value equal to the redemption price, net of any CDSC. In such cases, an investor may incur brokerage costs in converting such securities to cash. Due to the relatively high cost of handling small accounts, the Trust reserves the right to redeem, at net asset value, the shares of any shareholder if, because of redemptions of shares by or on behalf of the shareholder, the account of such shareholder in any Fund has a value of less than $250 due to redemptions. Accordingly, an investor purchasing shares of a Fund in only the minimum investment amount may be subject to such involuntary redemption if he or she thereafter redeems PROSPECTUS 31
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some of his or her shares. Before the Trust exercises its right to redeem such shares and to send the proceeds to the shareholder, the shareholder will be given notice that the value of the shares of a Fund in his or her account is less than the minimum amount and will be allowed 60 days to make an additional investment in an amount which will increase the value of the account to at least $1,000. AUTO WITHDRAWAL PLAN The Auto Withdrawal Plan enables Class A shareholders of any of the Funds to make regular monthly or quarterly redemptions of Class A shares. With shareholder authorization, the Transfer Agent will automatically redeem Class A shares at the net asset value on the dates of the withdrawal and have a check in the amount specified mailed to the shareholder. The required minimum withdrawal is $100. To participate in the Auto Withdrawal Plan, shareholders should call ADM for more information. Purchases of additional shares concurrent with withdrawals may be disadvantageous to certain shareholders because of tax liabilities and sales charges. To change the Auto Withdrawal Instructions, or to discontinue the feature, a shareholder must submit a written request to ADM or their Participating Organization. DIVIDEND AND TAX INFORMATION DIVIDENDS AND DISTRIBUTIONS The Funds will declare dividends of substantially all of their net income daily and will pay such dividends monthly. Distributable net realized capital gains are distributed at least annually to shareholders of record. A shareholder will automatically receive all income dividends and capital gains distributions in additional full and fractional shares of the same Class of shares held unless the shareholder elects to receive such dividends or distributions in cash. Dividends elected to be received in cash may be deposited directly into a shareholder's financial institution account, provided the shareholder has completed the appropriate section of the Account Registration Form. Dividends and distributions are reinvested without a sales charge as of the ex-dividend date using the net asset value determined on that date and are credited to a shareholder's account on the payment date. Reinvested dividends and distributions receive the same tax treatment as dividends and distributions paid in cash. Dividends are generally taxable when received. However, dividends declared in October, November or December to shareholders of record during those months and paid during the following January are treated for tax purposes as if they were received by each shareholder on December 31 of the prior year. Elections to receive dividends or distributions in cash, or any revocation thereof, must be made in writing to ADM at 581 Main Street, Woodbridge, New Jersey 07095 or to your Participating Organization, and will become effective with respect to dividends and distributions having record dates after its receipt by the Transfer Agent. TAX INFORMATION Each Fund intends to continue to qualify as a "regulated investment company" under the Internal Revenue Code of 1986, as amended (the "Code"). If a Fund does so qualify, it will not be liable for federal income taxes on amounts paid by it as dividends and capital gain distributions. However, the Code contains a number of complex tests relating to such qualification and it is possible, although not likely, that a Fund might not meet one or more of these tests in any particular year. If it does not so qualify, it would be treated for tax purposes as an ordinary corporation, would receive no tax deduction for distributions made to shareholders and would be unable to pay dividends or distributions which would qualify as "exempt-interest dividends" or "capital gains dividends," as discussed below. The Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities Fund each in- PROSPECTUS 32
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tends to qualify during each fiscal year under the Code to pay exempt-interest dividends to shareholders. Exempt-interest dividends which are derived from net interest income earned by a Fund on tax-exempt securities will be excludable from gross income of the shareholders of the Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities Fund for regular federal income tax purposes. Distributions of capital gains, and accrued market discount on taxable securities or municipal securities are taxable and are not included in exempt-interest dividends. Dividends from interest on taxable short-term obligations, and income from repurchase agreements and securities loans, are reportable by shareholders of the Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities Fund as ordinary income. Although tax-exempt dividends are not taxed, each taxpayer must report the total amount of tax-exempt interest (including exempt-interest dividends from a Fund) received or acquired during the year. Capital gains dividends (net gains from the sale of capital assets held for more than 12 months over net short-term losses which a Fund distributes) are reportable by shareholders as long-term capital gains. This is the case whether the shareholder takes his or her distribution in cash or elects to have the distribution reinvested in Fund shares and regardless of the length of time the shareholder has held his or her shares. The maximum capital gains rate for individuals is 28% with respect to assets held for more than 12 months, but not more than 18 months ("mid-term gains"), and 20% with respect to assets held for more than 18 months ("long-term gains"). The maximum capital gains rate for corporate shareholders currently is the same as the maximum tax rate for ordinary income. Short-term gains, when distributed, are taxed to shareholders as ordinary income. Capital losses of the Funds are not claimed by shareholders but carried forward by the Fund to offset gains in later years and thereby lessen the later-year capital gains distributions and amounts taxed to shareholders. A Fund's gains or losses on sales of securities will be long-term, mid-term or short-term depending upon the length of time the Fund has held such securities. Capital gains and losses of the Fund will also include gains and losses on futures and options, if any, including gains and losses actually realized on sales and exchanges and gains and losses deemed to be realized. Those deemed to be realized are on futures and options held by a Fund at year-end, which are "marked to the market," that is, deemed sold for fair market value. Net gains or losses realized and deemed realized on Section 1256 futures and options contracts will be reportable by the Fund as long-term to the extent of 60% of the gains or losses and short-term to the extent of 40% regardless of the actual holding period of such investments. Corporate shareholders are not expected to be entitled to any dividends received deduction with respect to dividends paid by the Funds. Information as to the tax status of a Fund's dividends and distributions will be mailed to shareholders annually. Under the Code, interest on loans incurred by shareholders to enable them to purchase shares of the Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities Fund may not be deducted for federal or Hawaii tax purposes to the extent the shareholders receive tax-exempt dividends from such Fund. In addition, under rules used by the Internal Revenue Service for determining when borrowed funds are deemed used for the purpose of purchasing or carrying particular assets, the purchase of shares of such a Fund may be considered to have been made with borrowed funds even though the borrowed funds are not directly traceable to the purchase of shares. The receipt of exempt-interest dividends from a Fund by an individual shareholder may result in some portion of any social security payments or railroad retirement benefits received by the shareholder or the shareholder's spouse being included in taxable income. PROSPECTUS 33
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Persons who are "substantial users" (or persons related thereto) of facilities financed by industrial development bonds or private activity bonds should consult their own tax advisers before purchasing shares of either the Tax-Free Securities Fund or the Tax-Free Short Intermediate Securities Fund. While interest from Municipal Obligations held by the Tax-Free Securities Fund and the Tax Free Short Intermediate Securities Fund is tax-exempt for purposes of computing the shareholder's regular tax, interest from so-called private activity bonds issued after August 7, 1986 constitutes a tax preference for both individuals and corporations and thus will enter into a computation of the alternative minimum tax, and all tax-exempt interest will be a component of the corporate alternative minimum tax. Whether or not that computation will result in a tax will depend on many factors, and shareholders should consult their tax advisers as to the possible alternative minimum tax, if any, they may incur. The Trust will be required to withhold, subject to certain exemptions, at a rate of 31% on dividends paid and redemption proceeds (including proceeds from exchanges) paid or credited to non-exempt shareholders of the Funds if a correct Taxpayer Identification Number, certified when required, is not on file with the Trust or the Transfer Agent. Under the Code, dividends (but not capital gain distributions) paid to a non-resident alien or other foreign shareholder may be subject to U.S. withholding tax at the rate of 30% (or a lower treaty rate). TAX EFFECTS OF REDEMPTIONS A shareholder who redeems his or her shares or exchanges his or her shares for shares of another Fund generally will have a capital gain or loss (depending on whether the proceeds of the redemption are more or less than their tax basis, which is usually cost). In the case of an individual, any such capital gain will be treated as short-term capital gain if the shares were held for not more than 12 months, mid-term gain, taxable at the maximum rate of 28%, if such shares were held for more than 12, but not more than 18 months, and long-term capital gain, taxable at the maximum rate of 20%, if such shares were held for more than 18 months. In the case of a corporation, any such capital gain will be treated as long-term capital gain, taxable at the same rates as ordinary income, if such shares were held for more than 12 months. Any such capital loss will be treated as long-term capital loss if such shares were held for more than 12 months, and otherwise will be treated as short term capital loss. However, if the shares redeemed or sold were held for six months or less, any capital loss is disallowed to the extent of any exempt interest dividends on these shares and is otherwise treated as long-term to the extent of capital gains distributions received on such shares. HAWAIIAN TAX INFORMATION If at the close of each quarter of the Tax-Free Short Intermediate Securities Fund's and the Tax-Free Securities Fund's taxable year at least 50% of the value of its total assets consists of obligations the interest on which, if such obligations were held by an individual, would be exempt from Hawaii personal income tax (under either the laws of Hawaii or of the United States), the Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities Fund will be entitled to pay dividends to its shareholders which will be exempt from Hawaii personal income tax to the extent derived from such obligations. Similar exemptions may be available in other states with regard to the portion of tax-exempt dividends attributable to interest exempt from state taxation under federal law. Dividends and distributions made by the Tax-Free Securities Fund or the Tax-Free Short Intermediate Securities Fund to Hawaii residents, to the extent attributable to Hawaiian Municipal Obligations, will generally be treated for Hawaii personal income tax purposes in the same manner as they are treated under the Code for federal income tax purposes. Under Hawaii law, interest derived from obligations of states (and their political subdivi- PROSPECTUS 34
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sions) other than Hawaii will not be exempt from Hawaii income taxation. Persons or entities who are not Hawaii residents should not be subject to Hawaii income taxation on dividends and distributions made by the Trust but will be subject to other state and local taxes. For further information regarding taxation, see "Tax Information" in the SAI. The foregoing is a general and abbreviated summary of the applicable provisions of the Code and Treasury regulations presently in effect, and state taxation. Shareholders are urged to consult their own tax advisers regarding specific questions as to federal, local or foreign taxes. Foreign investors should consider applicable foreign taxes in their evaluation of an investment in a Fund. GENERAL INFORMATION PERFORMANCE From time to time, performance for the Class A and Class B shares of the Funds showing each Fund's average annual total return, aggregate total return, yield, and tax-equivalent yield where appropriate may be presented in advertisements, sales literature and in reports to Class A and Class B shareholders. Such performance figures are based on historical earnings and are not intended to indicate future performance. Average annual total return will be calculated for the period since the establishment of the Funds, and will, unless otherwise noted, reflect the imposition of the maximum sales charge. Average annual return is measured by comparing the value of an investment in Class A shares of a Fund at the beginning of the relevant period to the redemption value of the investment, after reflecting the reinvestment of any dividends or capital gains distributions and annualizing the difference. Aggregate total return is calculated similarly to average annual total return except that the return figure is aggregated over the relevant period instead of annualized. Yield will be computed by dividing such Fund's net investment income per Class A or Class B share earned during a recent 30-day period by such Fund's per Class A or Class B share maximum offering price (reduced by any undeclared earned income expected to be paid shortly as a dividend) on the last day of the period and annualizing the result. From time to time, average annual total return, aggregate total return and yield for the Class A shares of the Funds may also be calculated and advertised on the basis of an investment in a Fund at the net asset value per share or at net asset value per share plus a reduced sales charge, rather than the public offering price per share. In this case, the figure would not reflect the effect of a maximum sales charge that a Class A shareholder may have paid. Tax-equivalent yield for the Tax-Free Securities Fund and the Short Intermediate Tax-Free Securities Fund will be computed assuming a stated income tax rate has been applied to non-exempt income to derive the tax-exempt portion of the Funds' yield. Shareholders may also be provided with information comparing the performance of the Class A and Class B shares of the Funds to the performance of other mutual funds with comparable investment objectives and policies. This information may be based on data relating to various mutual fund or market indices such as those prepared by Dow Jones& Co., Inc. and Standard& Poor's Corporation or data prepared by Lipper Analytical Services, Inc. Comparisons may also be made to indices or data published in Money Magazine, Forbes, Barron's, The Wall Street Journal, The New York Times, Business Week, American Banker, Institutional Investor, Pensions and Investments, USA Today, Fortune, CDA/Wiesenberger, Ibbotson Associates, Inc., Morningstar and regional periodicals and newspapers. In addition to yield information, general information about the Funds that appears in a publication such as those mentioned above may also be quoted or reproduced in advertisements or in PROSPECTUS 35
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reports to shareholders. Reports to shareholders may contain performance information on any Fund. Yield and total return are functions of the type and quality of instruments held in the portfolio, operating expenses, and market conditions. Consequently, current yields and total return will fluctuate and are not necessarily representative of future results. Any fees charged by an affiliate of Pacific Century or an Institution with respect to customer accounts for investing in shares of the Funds will not be included in performance calculations; such fees, if charged, would reduce the actual yield and total return from that quoted. Because of differences in the fees and/or expenses borne by the classes of shares of the Funds, the average annual total return, aggregate total return, yield, and tax-equivalent yield of the Class B shares, as the case may be, can be expected, at any given time, to be lower than the average annual total return, aggregate total return, yield, and tax-equivalent yield, of Class A shares. Standardized yield and total return quotations will be computed separately for Class A and Class B. DESCRIPTION OF THE TRUST AND ITS SHARES CAPITALIZATION--The Trust was organized as a Massachusetts business trust on October 30, 1992, and currently consists of nine separately managed series. The Board of Trustees may establish additional series in the future. The series of the Trust are: the Balanced Fund, Diversified Fixed Income Fund, Growth and Income Fund, Growth Stock Fund, New Asia Growth Fund, Short Intermediate U.S. Treasury Securities Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate U.S. Treasury Securities Fund and the U.S. Treasury Securities Fund, each with unlimited transferable shares of beneficial interest, no par value. When issued in accordance with the terms and procedures described in their respective Prospectuses, shares of the Funds are fully paid, non-assessable and freely transferable. Each series is comprised of three classes of shares--Class A, Class B, and Class Y shares. The classes have identical rights with respect to the series of which they are a part, provided that there are certain matters which affect one class but not another. Currently, the only such matters are the existence of the Distribution Plans with respect to each of Class A and Class B shares but not any Class Y shares, the absence of any sales load with regard to the purchase or redemption of the Class Y shares, and the fact that a salesperson or other person entitled to receive compensation for selling or servicing Class A, Class B or Class Y shares may receive different compensation with respect to one such class over the other Class in the same Fund. On all such matters, shareholders vote as a class, and not by series. Class Y shares have different expenses, and are subject to no sales charge, which may affect performance. A separate Prospectus applies to the Class Y shares of each series. Prospectuses relating to the Class Y shares of each series may be obtained by calling the telephone number listed on the first page of this Prospectus. VOTING--Shareholders have the right to vote on the election of Trustees and on any and all matters as to which, by law or the provisions of the Declaration of Trust of the Trust, they may be entitled to vote. All shares of the Trust have equal voting rights and will be voted in the aggregate, and not by class or series, except where voting by class or series is required by law or where the matter involved affects only one class or series. The Trust is not required to hold annual meetings of the Funds' shareholders, and does not intend to do so, in any fiscal year in which it is not required by law to elect Trustees. The Trustees are required to call a meeting for the purpose of considering the removal of persons serving as Trustee, if requested in writing to do so by the holders of not less than 10% of the outstanding shares of the Trust. SHAREHOLDER LIABILITY--Under Massachusetts law, shareholders of the Funds could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Trust's Declaration of Trust disclaims shareholder liability for acts or obligations of the Trust. The Declaration of PROSPECTUS 36
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Trust provides for indemnification out of a Fund's property for any losses and expenses of any shareholder of such Fund held liable on account of being or having been a shareholder. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which a Fund would be unable to meet its obligations. SHAREHOLDER INQUIRIES Shareholder inquiries may be addressed to a Fund at the address or telephone number set forth on the cover page of this Prospectus. PROSPECTUS 37
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APPLICATION FOR PACIFIC CAPITAL FUNDS PLEASE COMPLETE STEPS 1 THROUGH 4 AND MAIL TO: ADM, ATTN: OUTSIDE FUNDS TRANSFER AGENT OPERATIONS 581 MAIN STREET, WOODBRIDGE, NJ 07095-1198 1-800-258-9232 LOGO -------------------------------------------------------------------------------- STEP 1 ACCOUNT REGISTRATION PLEASE TYPE OR PRINT NAME EXACTLY AS ACCOUNT IS TO BE REGISTERED A. REGISTRATION [Enlarge/Download Table] [ ] Individual 1. ---------------------------------------------------------------------------------------------- First Name Middle Initial Last Name Social Security Number [ ] Joint Account* 2. ---------------------------------------------------------------------------------------------- (Use lines 1 First Name Middle Initial Last Name Social Security Number and 2) *JOINT ACCOUNTS WILL BE TENANTS WITH RIGHTS OF SURVIVORSHIP UNLESS OTHERWISE SPECIFIED. [ ] For a Minor 3. ----------------------------------------------------------------------------------- Custodian's First Name Middle Initial Last Name (Only one Under the ------------ Uniform Gifts/Transfers to Minors Act custodian State and one minor are Custodian For ---------------------------------------------------------------------- permitted.) Minor's First Name Middle Initial Last Name Minor's Social Security No. [ ] For Trust, 4. ---------------------------------------------------------------------------------------------- Corporation, (Name of Corporation or Partnership; PLEASE INDICATE TYPE OF ORGANIZATION. If a Trust, include Partnership or the name and date of the Trust Instrument. The name(s) of the Trustees in which account will be other Entity registered should be listed below. Account for a Pension or Profit Sharing Plan or Trust may be registered in the name of the Plan or Trust itself.) ---------------------------------------------------------------------------------------------- Tax I.D. Number Trustee(s) or Authorized Individual Title -------------------------------------------------------------------------------- B. MAILING ADDRESS AND TELEPHONE NUMBER -------------------------------------------------------------------------------- Street or P.O. Box City State Zip Code ( ) -------------------------------------------------------------------------------- Area Code Daytime Telephone Number Occupation Employer's Name/Employer's Address City State Citizen or resident of: U.S. [ ] Other [ ] ___ Check here [ ] if you are a non U.S. Citizen or resident and not subject to back-up withholding. See certification in Step 4. -------------------------------------------------------------------------------- C. INVESTMENT DEALER OR BROKER: (Important -- to be completed by Dealer or Broker) -------------------------------------------------------------------------------- Dealer Name Branch Office Address Branch Office City/State Branch # ( ) -------------------------------------------------------------------------------- Representative's Name Rep # Area Code Telephone # [Agent User Dealer # / Branch #] -------------------------------------------------------------------------------- STEP 2 PURCHASE OF SHARES A. INITIAL INVESTMENT Make check payable to: Pacific Capital Funds Minimum Initial Investment in any Fund is $1,000. Subsequent Investments, $50. [Enlarge/Download Table] U.S. Treasury Securities Fund $ --------- Tax-Free Short Intermediate Securities $ --------- Fund Short Intermediate U.S. Treasury Securities Fund $ --------- Growth Stock Fund $ --------- Diversified Fixed Income Fund $ --------- Balanced Fund $ --------- Tax-Free Securities Fund $ --------- Growth and Income Fund $ --------- New Asia Growth Fund $ --------- Total Investment $ --------- -------------------------------------------------------------------------------- B. DISTRIBUTIONS: All income dividends and capital gains distributions will be REINVESTED in additional shares at net asset value unless otherwise indicated below. Dividends are to be: [ ] Reinvested [ ] Paid in cash* Capital Gains are to be: [ ] Reinvested [ ] Paid in cash* *FOR CASH DIVIDENDS, PLEASE CHOOSE ONE OF THE FOLLOWING OPTIONS: [ ] Wire directly into my financial institutional account. ATTACHED IS A VOIDED CHECK showing the account information where I would like the dividend deposited. [ ] Mail check to my address listed in Step 1B. [ ] Mail check as requested in Step 3F.
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-------------------------------------------------------------------------------- C. LETTER OF INTENT I/we intend to invest in shares of one or more of the (See Terms of Escrow Pacific Capital Funds during the 13-month period from for Letter the date of my first purchase pursuant to this Letter of Intent at the end (which purchase cannot be more than 90 days prior to of this application. the date of this Letter), an aggregate amount --------------------- (excluding any reinvestment of dividends or Check appropriate box distributions) of at least $25,000 which, together with [ ] YES [ ] NO my present holdings of Pacific Capital Fund shares (at public offering price on date of this Letter), will equal or exceed the minimum amount checked below:* [ ] $ 25,000 [ ] $ 50,000 [ ] $ 100,000 [ ] $250,000 [ ] $500,000 [ ] $1,000,000 *Accumulated investments must aggregate at least $100,000 for reduced sales charges to apply to purchases of shares of the Short-Intermediate U.S. Treasury Securities Fund or the Tax-Free Short Intermediate Securities Fund. -------------------------------------------------------------------------------- STEP 3 SPECIAL FEATURES A. AUTOMATIC INVEST PROGRAM ----------------------- Check appropriate box This option provided you with a convenient way to have [ ] YES [ ] NO amounts automatically drown on your financial institution account and invested in your Pacific Capital Fund account. To establish this program, please complete Step 4, Sections A & B of this Application. I wish to make regular monthly investments. The minimum initial purchase is reduced to $100 per Fund when you use this service. Subsequent minimum purchase is $50 for each Fund. YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK. [Download Table] Amount Please select how often you would like to have the ----------- Fund $ --------- amount(s) shown above withdrawn from your checking ----------- Fund $ --------- account and invested into the above selected Fund(s). ----------- Fund $ --------- [ ] Once each month -- on the 1st Total $ --------- [ ] Once each month -- on the 16th ----------- Fund ----------- Fund ----------- Fund [ ] Twice each month on the 1st and the 16th Total [ ] Once each quarter on the 1st beginning in the month of -----------------. -------------------------------------------------------------------------------- B. TELEPHONE INVESTMENT ----------------------- Check appropriate box This option provides you with a convenient way to add [ ] YES [ ] NO to your account at any time you wish by simply calling Administrative Data Management Corp. toll-free at 1-800-258-9232. To establish this program, please complete Step 4, Sections A & B of this Application. YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK. -------------------------------------------------------------------------------- C. AUTOMATIC WITHDRAWAL PLAN Application must be Please establish an Automatic Withdrawal Plan for this received in good order account, subject to the terms of the Automatic at least two weeks Withdrawal Plan Provisions set forth below. to realize prior to 1st actual the amount stated below, Administrative Data Management liquidation date. Corp. (the "Agent") is authorized to redeem sufficient shares from this account at the then current Net Asset --------------------- Value, in accordance with the terms below: The minimum automatic Withdrawal amount is $100 per Check appropriate box Fund. [Download Table] [ ] YES [ ] NO $ --------------------------- ------------------------- Fund $ --------------------------- ------------------------- Fund Total $ --------------------------- Please select how often you would like to have payments made from your account under the Automatic Withdrawal Plan. [Download Table] [ ] Once each month -- on the [ ] Twice each month on the 1st and 16th 1st [ ] Once each month -- on the [ ] Once each quarter on the 1st beginning in 16th the month of -------------------- . Please choose one of the following options: [ ] Mail check to my address listed in Step 1a. [ ] Mail check as requested in Step 3f.
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-------------------------------------------------------------------------------- D. 1. TELEPHONE EXCHANGE This option The Agent is authorized to accept and act upon my/our or any allows you to other person's telephone instructions to execute the exchange effect exchanges of shares of one Pacific Capital Fund for one of the funds among accounts into which exchange is permitted, as designated in the in your name Prospectus, with identical shareholder registration. The within the exchange will be executed at the relative net asset values of Pacific Capital the two funds as next determined following receipt of such group of Funds, instructions. as described in Except for gross negligence in acting upon such telephone the Prospectus, instructions to execute an exchange and subject to the by telephone. conditions set forth herein, I (we) understand and agree to ---------------- hold harmless the Agent, each of the Pacific Capital Funds, Check and their respective officers, directors, trustees, appropriate box employees, agents and affiliates against any liability, [ ] YES [ ] No damage, expense, claim or loss, including reasonable costs and attorney's fees resulting from acceptance of or acting or failure to act upon this Authorization. TO MAKE A TELEPHONE EXCHANGE, CALL THE AGENT AT 1-800-258-9232. 2. TELEPHONE REDEMPTION This option The Agent is authorized to accept and act upon my/our or any allows you to other person's telephone instructions to execute a redemption effect telephone of shares of one or more Pacific Capital Funds. The redemptions, as redemption will be executed at net asset value next described in the determined following receipt of such instructions. Prospectus. ---------------- Except for gross negligence in acting upon such telephone Check instructions to execute a redemption and subject to the appropriate box conditions set forth herein, I (we) understand and agree to [ ] YES [ ] No hold harmless the Agent, each of the Pacific Capital Funds, and their respective officers, directors, trustees, employees, agents and affiliates against any liability, damage, expense, claim or loss, including reasonable costs and attorney's fees resulting from acceptance of or acting or failure to act upon this Authorization. TO MAKE A TELEPHONE REDEMPTION, CALL THE AGENT AT 1-800-258-9232. -------------------------------------------------------------------------------- E. EXPEDITED REDEMPTION The proceeds will Cash proceeds in any amount from the redemption of shares be deposited to will be mailed or wired, whenever possible, upon request, if your financial in an amount of $1,000 or more to my (our) account at a institution financial institution. The financial institution account must account listed. be in the same name(s) as this Pacific Capital Fund account ---------------- is registered. YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR Check VOIDED CHECK. appropriate box TO MAKE AN EXPEDITED REDEMPTION, CALL THE AGENT AT 1-800-258-9232. [Enlarge/Download Table] -------------------------------------------- --------------------------------------- Financial Institution Account Registration Financial Institution Account Number -------------------------------------------- --------------------------------------- Name of Financial Institution Financial Institution Transit/Routing Number -------------------------------------------- --------------------------------------- Street City State Zip Code -------------------------------------------------------------------------------- F. SECONDARY ADDRESS ---------------- Checks should be made payable as indicated below. If check is Check payable to a financial institution, i.e., a commercial bank, appropriate box savings bank or credit union, for your account, indicate [ ] YES [ ] No financial institution name, address and your account number. [Enlarge/Download Table] -------------------------------------------- --------------------------------------- First Name Middle Initial Last Name Name of Financial Institution -------------------------------------------- --------------------------------------- First Name Middle Initial Last Name Street -------------------------------------------- --------------------------------------- Street City State Zip Code -------------------------------------------- --------------------------------------- City State Zip Code Financial Institution Account Number
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-------------------------------------------------------------------------------- STEP 4 DEPOSITORS AUTHORIZATION TO HONOR DEBITS SECTION A IF YOU SELECTED AUTOMATIC INVESTMENT OR TELEPHONE INVESTMENT YOU MUST ALSO COMPLETE STEP 4, SECTIONS A & B. I/We authorize the Financial Institution listed below to charge my/our account for any drafts or debits drawn on my/our account initiated by the Agent, Administrative Data Management Corp., and to pay such sums in accordance therewith, provided my/our account has sufficient funds to cover such drafts or debits. I/We further agree that your treatment of such orders will be the same as if I/we personally signed or initiated the drafts or debits. I/We understand that this authority will remain in effect until you receive my/our written instructions to cancel this service. I/We also agree that if any such drafts or debits are dishonored, for any reason, you shall have no liabilities. FINANCIAL INSTITUTION ACCOUNT NUMBER [Enlarge/Download Table] NAME AND ADDRESS ------------------------------------------------------------------------ WHERE MY/OUR NAME OF FINANCIAL INSTITUTION ACCOUNT IS ------------------------------------------------------------------------ MAINTAINED STREET ADDRESS ------------------------------------------------------------------------ CITY STATE ZIP CODE NAME(S) AND ---------------------------------------------------- ------------------ SIGNATURE(S) OF PLEASE PRINT DATE DEPOSITOR(S) AS ---------------------------------------------------- ------------------ THEY APPEAR WHERE SIGNATURE DATE ACCOUNT IS ---------------------------------------------------- REGISTERED PLEASE PRINT ---------------------------------------------------- SIGNATURE -------------------------------------------------------------------------------- SECTION B SHAREHOLDER AUTHORIZATION / SIGNATURE(S) REQUIRED - I/We authorize the Pacific Capital Funds and its agents to act upon these Instructions for the features that have been checked. - I/We acknowledge that in connection with an Automatic Investment or Telephone Investment, if my/our account at the Financial Institution has insufficient funds, Pacific Capital Funds and its agents may cancel the purchase transaction and are authorized to liquidate other shares or fractions thereof held in my/our Pacific Capital Fund account to make up any deficiency resulting from any decline in the net asset value of shares so purchased and any dividends paid on those shares. I/We understand that in the event of such deficiency, Pacific Capital Funds and its agents will first liquidate shares of the Pacific Capital Fund to which the purchase transaction relates, and then, in the discretion of Pacific Capital Funds and its agents, shares of any other Pacific Capital Fund in my/our account at the Financial Institution. I/We authorize Pacific Capital Funds and its agents to correct any transfer error by a debit or credit to my/our financial Institution account and/or Fund account and to charge the account for any related charges. - I/We acknowledge that shares purchased either through Automatic Investment or Telephone Investment are subject to applicable sales charges. - The undersigned warrants that he/she has full authority and is of legal age to purchase shares of the Pacific Capital Fund(s) designated above and has received and read a current Prospectus of such Fund(s) and agrees to its terms. Pacific Capital Funds, Agent and the Distributor and their Trustees, directors, employees and agents will not be liable for acting upon instructions believed to be genuine, and will not be responsible for any losses resulting from unauthorized telephone transactions if the Agent follows reasonable procedures designed to verify the identity of the caller. The Agent will request some or all of the following information: account name and number, name(s) and social security number registered to the account and personal identification; the Agent may also record calls. Shareholders should verify the accuracy of confirmation statements immediately upon receipt. Under penalties of perjury, the undersigned whose Social Security (Tax I.D.) Number is shown above certifies(I) that Number is my correct taxpayer identification number and (II) currently I am not under IRS notification that I am subject to backup withholding (line out (II) if under notification). If no such Number is shown, the undersigned further certifies, under penalties of perjury, that either (a) no such Number has been issued, and a Number has been or will soon be applied for. If a Number is not provided to you within sixty days, the undersigned understands that all payments (including liquidations) are subject to 31% withholding under federal tax law, until a Number is provided and the undersigned may be subject to a $50 I.R.S. penalty; or (b) that the undersigned is not a citizen resident of the U.S.; and either does not expect to be in the U.S. for more than 182 days during each calendar year and does not conduct a business in the U.S. which would receive any gain from the Fund, or is exempt under an income tax treaty. NOTE: ALL REGISTERED OWNERS OF THE ACCOUNT MUST SIGN BELOW. FOR A TRUST, ALL TRUSTEES MUST SIGN* [Enlarge/Download Table] ------------------------------------------ ------------------------------------------ ------------------ INDIVIDUAL (OR CUSTODIAN) JOINT REGISTRANT, IF ANY DATE ------------------------------------------ CORPORATE OFFICER, PARTNER, TRUSTEE(S), ------------------------------------------ ------------------ ETC. TITLE DATE *FOR A TRUST, CORPORATION OR ASSOCIATION, THIS FORM MUST BE ACCOMPANIED BY PROOF OF AUTHORITY TO SIGN, SUCH AS A CERTIFIED COPY OF THE CORPORATE RESOLUTION OR A CERTIFICATE OF INCUMBENCY UNDER THE TRUST INSTRUMENT.
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SPECIAL INFORMATION - Certain features (Automatic Investment, Telephone Investment, Expedited Redemption and Direct Deposit of Dividends) are effective 15 days after this form is received in good order by the Fund's Agent. - You may cancel any feature at any time, effective 3 days after the Agent receives notice from you. - Either the Fund or the Agent may cancel any feature, without prior notice, if in its judgment your use of any feature involves unusual effort or difficulty in the administration of your account. - The Fund reserves the right to alter, amend or terminate any or all features or to charge a service fee upon 30 days' written notice to shareholders except if additional notice is specifically required by the terms of the Prospectus. BANKING INFORMATION - If your Financial Institution account changes, you must complete a Ready Access Features form which may be obtained from the Agent at 1-800-258-9232 and send it to the Agent together with a "voided" check or pre-printed deposit slip from the new account. The new Financial Institution change is effective in 15 days after this form is received in good order by the Fund's Agent. TERMS OF LETTER OF INTENT AND ESCROW By checking Box 2c and signing the Application, the investor is entitled to make each purchase at the public offering price applicable to a single transaction of the dollar amount checked above, and agrees to be bound by the terms and conditions applicable to Letters of Intent appearing below. The investor is making no commitment to purchase shares, but if the investor's purchases within thirteen months from the date of the investor's first purchase do not aggregate $25,000, or, if such purchases added to the investor's present holdings do not aggregate the minimum amount specified above, the investor will pay the increased amount of sales charge prescribed in the terms of escrow below. The commission to the dealer or broker, if any, named herein shall be at the rate applicable to the minimum amount of the investor's specified intended purchases checked above. If the investor's actual purchases do not reach this minimum amount, the commissions previously paid to the dealer will be adjusted to the rate applicable to the investor's total purchases. If the investor's purchases exceed the dollar amount of the investor's intended purchases and pass the next commission break-point, the investor shall receive the lower sales charge, provided that the dealer returns to the Distributor the excess of commissions previously allowed or paid to him over that which would be applicable to the amount of the investor's total purchases. The investor's dealer or broker shall refer to this Letter of Intent in placing any future purchase orders for the investor while this Letter is in effect. The escrow shall operate as follows: 1. Out of the initial purchase (or subsequent purchases if necessary), 3% of the dollar amount specified in the Letter of Intent shall be held in escrow in shares of the Fund by the Agent. All dividends and any capital distributions on the escrowed shares will be credited to the investor's account. 2. If the total minimum investment specified under the Letter is completed within a thirteen-month period, the escrowed shares will be promptly released to the investor. However, shares disposed of prior to completion of the purchase requirement under the Letter will be deducted from the amount required to complete the investment commitment. 3. If the total purchases pursuant to the Letter are less than the amount specified in the Letter as the intended aggregate purchase, the investor must remit to the Agent an amount equal to the difference between the dollar amount of sales charges actually paid and the amount of sales charges which would have been paid if the total amount purchased had been made at a single time. If such difference in sales charges is not paid within twenty days after receipt of a request from the Agent or the dealer, the Agent will, within sixty days after the expiration of the Letter, redeem the number of escrowed shares necessary to realize such difference in sales charges. Any shares remaining after such redemption will be released to the investor. The escrow of shares will not be released until any additional sales charge due has been paid as stated in this section. 4. By checking Box 2c and signing the Application, the investor irrevocably constitutes and appoints the Agent or the Distributor as his attorney to surrender for redemption any or all escrowed shares on the books of the Fund. AUTOMATIC WITHDRAWAL PLAN PROVISIONS By requesting an Automatic Withdrawal Plan, the applicant agrees to the terms and conditions applicable to such plans, as stated below. 1. The Agent will administer the Automatic Withdrawal Plan (the "Plan") as agent for the person (the "Planholder") who executed the Plan authorization. 2. Certificates will not be issued for shares of the Fund purchased for and held under the Plan, but the Agent will credit all such shares to the Planholder on the records of the Fund. Any share certificates now held by the Planholder may be surrendered unendorsed to the Agent with the application so that the shares represented by the certificate may be held under the Plan. 3. Dividends and distributions will be reinvested in shares of the Fund at the Net Asset Value. 4. Redemptions of shares in connection with disbursement payments will be made at the Net Asset Value per share in effect at the close of business on the first business day of the month or quarter. 5. The amount and the interval of disbursement payments and the address to which checks are to be mailed may be changed, at any time, by the Planholder on written notification to the Agent. The Planholder should allow at least two weeks' time in mailing such notification before the requested change can be put in effect. 6. The Planholder may, at any time, instruct the Agent by written notice (in proper form in accordance with the requirements of the then current prospectus of the Fund) to redeem all, or any part of, the shares held under the Plan. In such case the Agent will redeem the number of shares requested at the Net Asset Value per share in effect in accordance with the Fund's usual redemption procedures and will mail a check for the proceeds of such redemption to the Planholder. 7. The Plan may, at any time, be terminated by the Planholder on written notice to the Agent, or by the Agent upon receiving directions to that effect from the Fund. The Agent will also terminate the Plan upon receipt of evidence satisfactory to it of the death or legal incapacity of the Planholder. Upon termination of the Plan by the Agent or the Fund, shares remaining unredeemed will be held in an uncertificated account in the name of the Planholder, and the account will continue as a dividend-reinvestment, uncertificated account unless and until proper instructions are received from the Planholder, his executor or guardian, or as otherwise appropriate. 8. The Agent shall incur no liability to the Planholder for any action taken or omitted by the Agent in good faith. 9. In the event that the Agent shall cease to act as transfer agent for the Fund, the Planholder will be deemed to have appointed any successor transfer agent to act as his Agent in administering the Plan. 10. Purchases of additional shares concurrently with withdrawals are undesirable because of sales charges when purchases are made. Accordingly, a Planholder may not maintain this Plan while simultaneously making regular purchases. While an occasional lump sum investment may be made, such investment should normally be an amount equivalent to three times the annual withdrawal or $5,000, whichever is less.
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INVESTMENT ADVISER Pacific Century Trust 111 S. King Street Honolulu, Hawaii 96813 ADMINISTRATOR AND DISTRIBUTOR BISYS Fund Services 3435 Stelzer Road Columbus, Ohio 43219-3035 LEGAL COUNSEL Shereff, Friedman, Hoffman & Goodman, LLP 919 Third Avenue New York, New York 10022 INDEPENDENT AUDITORS Ernst & Young LLP One Columbus, Suite 2300 10 West Broad Street Columbus, Ohio 43215 TRANSFER AGENT Administrative Data Management Corp. 581 Main Street Woodbridge, New Jersey 07095 [PACIFIC CAPITAL FUNDS LOGO] PACIFIC CAPITAL FUNDS ------------------- U.S. TREASURY SECURITIES FUND SHORT INTERMEDIATE U.S. TREASURY SECURITIES FUND DIVERSIFIED FIXED INCOME FUND TAX-FREE SECURITIES FUND TAX-FREE SHORT INTERMEDIATE SECURITIES FUND ------------------- CLASS A AND CLASS B
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PACIFIC CAPITAL FUNDS NEW ASIA GROWTH FUND 3435 Stelzer Road Columbus, Ohio 43219-3035 New Asia Growth Fund (the "Fund") is one series of Pacific Capital Funds (the "Trust"), a professionally managed, open-end, management investment company with multiple portfolios or series available for investment. The Fund seeks to achieve long-term growth of capital, primarily through direct or indirect investments in equity securities of companies located in the developing countries of Asia. For purposes of its investment objective, the Fund considers such developing countries to be all countries in Asia other than Japan. The Fund is advised by Pacific Century Trust ("Pacific Century"), a division of Bank of Hawaii and sponsored, administered and distributed by BISYS Fund Services ("BISYS" or the "Distributor"). Nicholas-Applegate Capital Management (Hong Kong) LLC ("Nicholas-Applegate") serves as sub-adviser (the "Sub-Adviser") to the Fund. (Pacific Century and the Sub-Adviser may hereafter be referred to collectively as the "investment adviser.") This Prospectus relates only to the Class A and Class B shares of the Fund; certain investors may qualify to invest in the Fund's Class Y Shares, which are not offered hereby. Class A , Class B and Class Y shares of the other eight series of the Trust--the U.S. Treasury Securities Fund, the Short Intermediate U.S. Treasury Securities Fund, the Diversified Fixed Income Fund, the Tax-Free Short Intermediate Securities Fund, the Tax-Free Securities Fund, the Growth Stock Fund, the Balanced Fund and the Growth and Income Fund--each of which has its own investment objectives and policies, are offered by separate Prospectuses, which can be obtained from the Trust at the above address and telephone number. See, "General Information--Description of the Trust and its Shares." This Prospectus sets forth concisely the information a prospective investor should know before investing in the Fund. Investors should read this Prospectus carefully and retain it for future reference. A Statement of Additional Information ("SAI") dated November 29, 1997 containing additional and more detailed information about the Fund has been filed with the Securities and Exchange Commission (the "Commission") and is hereby incorporated by reference into this Prospectus. The SAI is available without charge and can be obtained by writing to the Fund at the address printed above or by calling 800-258-9232. FOR PURCHASE, REDEMPTION, ACCOUNT OR GENERAL INQUIRIES CONTACT THE TRUST'S TRANSFER AGENT: ADMINISTRATIVE DATA MANAGEMENT CORPORATION, 581 MAIN STREET, WOODBRIDGE, NEW JERSEY 07095 800-258-9232 THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE ------------------------ SHARES OF PACIFIC CAPITAL FUNDS ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY, BANK OF HAWAII OR ANY OF ITS AFFILIATES. SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER AGENCY. AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ PROSPECTUS DATED NOVEMBER 29, 1997
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TABLE OF CONTENTS [Enlarge/Download Table] PAGE ---- Highlights............................................................................ 1 Fund Expenses......................................................................... 3 Financial Highlights.................................................................. 5 Investment Objective and Policies of the Fund......................................... 6 Additional Discussion Regarding Permitted Investment Activities....................... 7 Additional Risk Disclosure............................................................ 17 Additional Investment Restrictions.................................................... 21 Management, Advisory and Other Service Arrangements................................... 22 Valuation of Class A and Class B Shares............................................... 25 How to Purchase Class A and Class B Shares............................................ 25 How to Redeem Class A and Class B Shares.............................................. 32 Dividend and Tax Information.......................................................... 34 General Information................................................................... 36
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HIGHLIGHTS INVESTMENT OBJECTIVE AND POLICIES The Fund's investment objective is long-term growth of capital. The Fund seeks to achieve this objective primarily through direct or indirect investments in equity securities of companies located in the developing countries of Asia. Indirect investments mean purchasing interests in other foreign investment companies or trusts which themselves invest in the developing countries of Asia. The Fund may invest to a lesser degree in debt securities and other instruments (i.e., warrants and securities convertible into equity or debt securities) if the investment adviser believes that such investments would help achieve the Fund's investment objective. Current income from dividends and interest will not be an important consideration in selecting portfolio securities. Because of its emphasis on the economies of the developing countries of Asia, the Funds should be considered a vehicle for diversification of an individual's portfolio and not a balanced investment program. For additional information concerning the investment policies and practices of the Fund, see "Investment Objective and Policies of the Fund," "Additional Discussion Regarding Permitted Investment Activities" and "Additional Investment Restrictions" in this Prospectus. Further information also is provided in the SAI. CERTAIN RISKS Investments in securities of companies located in the developing countries of Asia involve special considerations and risks not typically associated with investments in securities of United States issuers, including: the risks associated with international investing generally, such as currency fluctuations; the risks of investing in countries with smaller capital markets, such as limited liquidity, price volatility and restrictions on foreign investment; and the risks associated with the undeveloped economies of the developing countries of Asia, including significant political and social uncertainties, government involvement in the economies, overburdened infrastructures, archaic legal systems, environmental problems, and obsolete financial systems. Equity securities held in the Fund's portfolio are subject to market risk (i.e., the possibility that common stock prices will decline over short or even extended periods of time). Debt securities held in the Fund's portfolio are subject to default risk (i.e., the risk that the issuers of securities in which the Fund invests may default in the payment of principal and interest). The operating expense ratio of the Fund can be expected to be higher than that of an investment company investing exclusively in United States securities because the expenses of the Fund, such as custodial and brokerage costs, are higher. Investors are reminded that in certain circumstances, their right to redeem shares in the Fund may be suspended. There can be no assurance that the Fund will achieve its investment objective. In addition, unlike insured bank deposits, an investment in the Fund is not insured against loss of principal. Therefore, investors should be prepared to accept some risk with money invested in the Fund. The Fund may also engage in various hedging strategies and invest in derivative securities. For additional discussion of certain risks involved in investing in the Fund, see "Additional Risk Disclosure" below. PURCHASE OF CLASS A AND CLASS B SHARES Class A and Class B shares of each Fund are sold on a continuous basis and may be purchased by mail or by electronic transfer. See "How to Purchase Class A and Class B Shares." Initial purchases may be made with a minimum investment of $1,000 (the $1,000 minimum may be waived or reduced for certain accounts; PROSPECTUS 1
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the minimum initial purchase is $250 for Individual Retirement Accounts ("IRAs") and $100 for Auto Invest Plan participants). Subsequent investments may be made with as little as $50. For more information about purchasing Fund shares call 1-800-258-9232 or contact your Participating Organization (defined below). Class A shares of the Fund are offered at net asset value plus a sales load at the time of purchase. Class B shares of the Funds are offered at net asset value without the imposition of a sales charge at the time of purchase, but are charged a deferred sales charge if shares are redeemed within six years of purchase. See "Valuation of Class A and Class B Shares." Only institutions (including Bank of Hawaii and its affiliated and correspondent banks) ("Institutions") acting on behalf of customers having a qualified trust account, employee benefit account or other qualifying relationship at such Institution are eligible to invest in the Class Y shares of the Fund, which are not offered hereby. See "General Information." DETERMINATION OF NET ASSET VALUE The net asset value of the Class A and Class B shares for the Fund is determined and its shares are priced as of the close of the New York Stock Exchange (the "Exchange"), currently 4:00 p.m. Eastern Time (the "Valuation Time"), each Business Day (defined below). See "Valuation of Class A and Class B Shares." DIVIDENDS AND DISTRIBUTIONS The Fund will declare and pay dividends of substantially all of its net income quarterly. Any net capital gains of the Fund will be distributed at least annually. At an investor's choice, dividends are paid by mail, directly deposited into a financial institution account, or automatically reinvested, without sales charges in additional shares at the then-current net asset value. If no election is made, dividends will be automatically reinvested. See "Dividend and Tax Information." PACIFIC CENTURY, THE SUB-ADVISER AND BISYS For its services as investment adviser to the Fund, Pacific Century receives a fee from the Fund at an annual rate based on the Fund's average daily net assets. A division of Bank of Hawaii, Pacific Century was founded in 1898 and is the oldest and largest trust company in Hawaii. It has investment management authority over approximately $7.5 billion in client financial assets. Pacific Century is not authorized to and does not carry on a banking business. Pacific Century has retained the Sub-Adviser to provide investment advisory services with respect to management of the foreign component of the Fund's portfolio. For its services, Pacific Century pays the Sub-Adviser a fee at an annual rate based on the Fund's average daily net assets. BISYS provides certain administrative services to the Fund, for which the Fund pays it a fee at an annual rate based on the Fund's average daily net assets. BISYS also distributes the Fund's shares. For additional information concerning these arrangements, see "Fund Expenses" and "Management, Advisory and Other Service Arrangements." REDEMPTION OF CLASS A AND CLASS B SHARES Class A and Class B shares may ordinarily be redeemed by mail or by telephone. However, all or part of a customer's shares may be subject to redemption in accordance with instructions and limitations pertaining to his or her account held by a Participating Organization (defined below). See "How to Redeem Class A and Class B Shares." PROSPECTUS 2
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FUND EXPENSES The following Table of Expenses lists the costs and expenses that a shareholder can expect to incur as an investor in Class A and Class B shares of the Fund. Certain investors may qualify to invest in the Fund's Class Y Shares, which are not offered hereby. Long-term Class A and Class B shareholders could pay more in distribution-related charges than the economic equivalent of the maximum front-end sales charges applicable to mutual funds sold by members of the National Association of Securities Dealers, Inc. ("NASD"). TABLE OF EXPENSES (A) [Download Table] SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B (B) ------- ----------- Maximum Sales Load Imposed on Purchases (as a percentage of offering price)..................................... 5.25% None Maximum Sales Load Imposed on Reinvested Dividends....... None None Deferred Sales Load...................................... None 5.00% Redemption Fees (as a percentage of amount redeemed, if applicable) (c)........................................ None None Exchange Fee............................................. None None ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets) Management Fee........................................... 0.90%+ 0.90% 12b-1 Fee (after waivers)................................ 0.25% 1.00% Other Expenses (after waivers and reimbursements)........ 0.83% 0.83% Total Fund Operating Expenses (after waivers and reimbursements)........................................ 1.98% 2.73% ------------ + RESTATED TO REFLECT THE ELIMINATION OF A VOLUNTARY WAIVER BY THE ADVISER OF A PORTION OF ITS MANAGEMENT FEE. EXAMPLE A shareholder would pay the following expenses on a $1,000 investment in Class A and Class B shares assuming (1) 5% annual return (d) and (2) redemption at the end of each time period. [Download Table] Time Period CLASS A CLASS B ------- ------- 1 year....................................................... $ 72 $ 78 3 years...................................................... $ 111 $ 115 5 years...................................................... $ 154 $ 164 10 years...................................................... $ 271 $ 288 PROSPECTUS 3
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A shareholder would pay the following expenses on the same $1,000 investment, assuming no redemption. [Download Table] Time Period CLASS A CLASS B ------- ------- 1 year....................................................... -- $ 28 3 years...................................................... -- $ 85 5 years...................................................... -- $ 144 10 years...................................................... -- $ 288 ------------ (a) Investors who purchase shares through a Participating Organization (as defined below), including an affiliate of Pacific Century or an Institution (as defined above), may be charged account-level fees for additional services provided to them by such Participating Organization in connection with investment in the Fund. (b) Class B shares automatically convert to Class A shares approximately eight years after initial purchase. See "Conversion of Class B shares to Class A shares." (c) The Transfer Agent will reduce the amount of a wire redemption payment by its then current wire redemption charge. As of the date of this Prospectus, there is no charge for wire redemptions. While this policy is subject to change at any time, it is not anticipated that such charge would exceed $7 per wire redemption. (d) The assumed 5% annual return is hypothetical and should not be considered a representation of past or future annual return; the actual rate of return may be greater or lesser than the assumed rate. The example should not be considered a representation of past or future expenses, and actual expenses may be greater or lesser than those shown. EXPLANATION OF TABLE The purpose of the foregoing table is to assist shareholders in understanding the various costs and expenses that an investor in the Class A and Class B shares of the Fund will bear directly or indirectly. With respect to the Class A shares of the Fund, the amounts set forth under "Annual Fund Operating Expenses -- Other Expenses," as well as the expense amounts used in the example, are based on actual amounts for the most recent fiscal year. With respect to the Class B shares of the Fund (which have not been publicly offered as of the date of this Prospectus) all such amounts are based on estimated amounts for the current fiscal year. In addition, with respect to the Class A shares of the Fund, "Rule 12b-1 Fees" have been adjusted to reflect the current fee payable (after voluntary waiver) as of the date of this Prospectus. The example set forth above assumes reinvestment of all dividends and distributions and utilizes a 5% annual rate of return as mandated by Commission regulations. Pacific Century, the Sub-Adviser and BISYS each may elect, in its sole discretion, to otherwise waive or reimburse its respective fees. Any such waivers or reimbursements will reduce the total expenses of the Fund, thereby increasing total return. As described above, with respect to the Class A shares, the percentages shown above under "12b-1 Fees", "Other Expenses" and "Total Fund Operating Expenses" reflect voluntary fee waivers and reimbursements. Absent such waivers and reimbursements, these percentages would be 0.75%, 0.93%, and 2.58% for the Class A shares. With respect to the Class B shares, the percentages shown above under "Other Expenses" and "Total Fund Operating Expenses" reflect voluntary fee waivers and reimbursements. Absent such waivers and reimbursements, these percentages would be 0.93% and 2.83% for the Class B shares. There can be no assurance that the foregoing waivers and expense reimbursements will continue to apply. PROSPECTUS 4
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FINANCIAL HIGHLIGHTS The Financial Highlights in the table below set forth certain financial data and investment results of the Class A shares of the Fund since its inception, expressed in one share outstanding throughout the period. The Financial Highlights are derived from the financial statements of Pacific Capital Funds which have been audited by Ernst & Young LLP, independent auditors. The Financial Highlights should be read in conjunction with the financial statements, related notes, and other financial information included in the Statement of Additional Information. The Trust's annual report contains additional performance information relating to the Fund and is available upon request, without charge. Financial information is not presented for Class B shares, since Class B shares were not publicly issued as of the date of this Prospectus. [Enlarge/Download Table] YEAR YEAR FEBRUARY 15, ENDED ENDED 1995 TO JULY 31, 1997 JULY 31, 1996 JULY 31, 1995(A) ------------- ------------- ---------------- NET ASSET VALUE, BEGINNING OF PERIOD.................... $ 11.11 $ 11.21 $10.00 Investment Activities Net investment income (loss)....................... 0.03 (0.02) .02 Net realized and unrealized gain on investments.... 2.88 0.20 1.19 ------- ------- ------ Total from Investment Activities.............. 2.91 0.18 1.21 ------- ------- ------ Distributions Net investment income.............................. (0.01) In excess of net investment income................. -- (0.02) -- Net realized gains................................. (0.12) (0.26) -- ------- ------- ------ Total Distributions........................... (0.13) (0.28) -- ------- ------- ------ NET ASSET VALUE, END OF PERIOD.......................... $ 13.89 $ 11.11 $11.21 ======= ======= ====== Total Return (excludes sales charges)................... 26.31% 1.71% 12.10%(b) RATIOS/SUPPLEMENTARY DATA: Net assets at end of period (000).................. $ 3,459 $ 1,990 $ 330 Ratio of expenses to average net assets............ 1.98% 2.22% 2.24%(c) Ratio of net investment income (loss) to average net assets....................................... 0.20% (0.28%) .80%(c) Ratio of expenses to average net assets*........... 2.58% 3.58% 3.51%(c) Ratio of net investment income (loss) to average net assets*...................................... (0.40%) (1.64%) (0.47%)(c) Portfolio Turnover(d).............................. 134.89% 86.53% 55.62% Average Commission Rate paid(e).................... $0.0059 $0.0069 -- ------------ * During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. (a) Period from commencement of operations. (b) Not annualized. (c) Annualized. (d) Portfolio turnover is calculated on the basis of the Fund, as a whole, without distinguishing between the classes of shares issued. (e) Represents the total dollar amount of commissions paid on portfolio transactions divided by total number of portfolio shares purchased and sold for which commissions were charged. PROSPECTUS 5
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INVESTMENT OBJECTIVE AND POLICIES OF THE FUND The Fund is designed for U.S. investors seeking diversification of their respective investment portfolios by participating in the economies of developing Asian countries. The Fund's investment objective is to seek long-term growth of capital. The Fund seeks to achieve this objective primarily through direct or indirect investments in equity securities of companies located in the developing countries of Asia. The Fund invests indirectly in the equity securities of companies located in developing Asian countries by purchasing interests in other foreign investment companies or trusts which themselves invest in the developing countries of Asia. For purposes of its investment objective, the Fund considers such developing countries to be all countries in Asia other than Japan. The Fund may invest to a lesser degree in debt securities and other instruments (i.e., warrants and securities convertible into equity or debt securities) if the investment adviser believes they would help achieve the Fund's objective. Current income from dividends and interest will not be an important consideration in selecting portfolio securities. It is anticipated that under normal market conditions the Fund will invest at least 70% of its total assets directly or indirectly in common stock, common stock equivalents (such as preferred or debt securities convertible into common stocks) and preferred stocks of companies located in the developing countries of Asia which the investment adviser believes have potential for capital appreciation. The Fund will consider an issuer of securities to be located in a developing country of Asia if it is organized under the laws of a developing Asian country, if it derives 50% or more of its total revenues from business in a developing Asian country, or if its equity securities are traded principally on a securities exchange in a developing Asian country. Developing countries in which the Fund may invest include, but are not limited to: Hong Kong, China, India, Indonesia, South Korea, Malaysia, the Philippines, Singapore, Taiwan, Pakistan, Bangladesh, Sri Lanka and Thailand. The criteria which the investment adviser uses to select and maintain a portfolio of investments in any country depends on its view as to the upside potential of the stock markets in such country and, more specifically, the investment instruments therein. In determining the upside potential for each market, the investment adviser will consider the economic, political and social factors affecting each country and the prospects for improvements in these factors in the short, medium and long term. The Fund will not limit its investments to any particular type of company. The Fund may invest in companies, large or small, whose earnings are believed to be in a relatively strong growth trend, or in companies in which significant further growth is not anticipated but whose market value per share is thought to be undervalued. The Fund may invest in small and relatively less well-known companies. Investing in small and relatively less well-known companies generally involves greater risks than investing in larger, more established issuers. For example, such companies may have limited product lines, markets or financial resources and may lack management depth. In addition, the securities of such companies may have limited marketability and may be subject to more abrupt or erratic market movements than securities of larger, more established companies. Subject to the Fund's investment objective, up to 35% of the Fund's total assets may be invested in any combination of equity, debt and convertible securities of issuers located outside Asia, including money market instruments of the United States, should opportunities in these markets occur. In addition, this portion of the Fund's portfolio will consist of various other financial instruments such as forward foreign exchange contracts, futures contracts and options. See "Additional Discussion Regarding Permitted Investment Activities." PROSPECTUS 6
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ADDITIONAL DISCUSSION REGARDING PERMITTED INVESTMENT ACTIVITIES FOREIGN SECURITIES AND DEPOSITARY RECEIPTS As described above, the Fund will invest substantially all of its assets in the securities of foreign issuers. The Fund may invest in the securities of foreign issuers directly or in the form of American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs") or other Depositary Receipts (which, together with ADRs, GDRs and EDRs, are hereinafter collectively referred to as "Depositary Receipts") to the extent such Depositary Receipts become available. ADRs (which include American Depositary Shares and New York Shares) are publicly traded on exchanges or over-the-counter ("OTC") in the United States. GDRs, EDRs and other types of Depositary Receipts are typically issued by foreign depositaries, although they may also be issued by U.S. depositaries, and evidence ownership interests in a security or pool of securities issued by either a U.S. or foreign corporation. Depositary Receipts may be "sponsored" or "unsponsored." In a sponsored arrangement, the foreign issuer assumes the obligation to pay some or all of the depositary's transaction fees, whereas in an unsponsored arrangement, the foreign issuer assumes no obligation and the depositary's transaction fees are paid by the holders of the Depositary Receipts. Foreign issuers in respect of whose securities unsponsored Depositary Receipts have been issued are not necessarily obligated to disclose material information in the markets in which the unsponsored Depositary Receipts are traded, and therefore, there may not be correlation between such information and the market value of such securities. The Fund may hold foreign currency in connection with the purchase and sale of foreign securities. To the extent the foreign currency is so held, there may be a risk due to foreign currency exchange rate fluctuations. Such foreign currency will be held with the Fund's custodian bank or by an approved foreign subcustodian. Investing in the securities of foreign issuers involves special risks and considerations not typically associated with investing in the United States. See "Additional Risk Disclosure--Risk Factors and Special Considerations of Investing Primarily in Developing Asian Countries" below. For additional discussion concerning investment in foreign debt securities, see "Debt Securities" below. CONVERTIBLE SECURITIES The Fund may invest in convertible securities that provide current income and are issued by companies with the characteristics described above. The Fund may purchase convertible securities that are fixed-income debt securities or preferred stocks, and which may be converted at a stated price within a specified period of time into a certain quantity of the common stock of the same or other issuers. Convertible securities, while usually subordinated to nonconvertible debt securities of the same issuer, are senior to common stocks in an issuer's capital structure. Convertible securities may offer more flexibility by providing the investor with a steady income stream (generally yielding a lower amount than nonconvertible securities of the same issuer and a higher amount than common stocks) as well as the opportunity to take advantage of increases in the price of the issuer's common stock through the conversion feature. Convertible security prices tend to be influenced by changes in the market value of the common stock as well as changes in interest rates. Convertible securities in which the Fund may invest are subject to the rating criteria and limitations discussed below under "Debt Securities." DEBT SECURITIES The Fund may invest in debt securities issued by foreign and domestic corporations or financial institutions, and Yankee bonds. Foreign debt securities in which the Fund may invest include, but are not limited to, fixed income securities of developing Asian countries and global fixed income securities. Developing Asian fixed income securities are debt PROSPECTUS 7
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securities or obligations issued or guaranteed by governments in such countries (including their agencies, instrumentalities or political subdivisions) ("sovereign debt"), debt securities or obligations of entities organized to restructure outstanding debt of such issuers, and debt securities of issuers located in such developing countries. Global fixed-income securities include government obligations issued or guaranteed by U.S. and foreign governments and their political subdivisions, authorities, agencies or instrumentalities and by supranational entities (such as the World Bank, The European Economic Community, the Asian Development Bank and the European Coal and Steel Community), Eurobonds and corporate bonds with varying maturities denominated in various currencies. Yankee bonds are U.S. dollar-denominated obligations issued by foreign governments or companies. The debt securities in which the Fund will invest (including convertible securities) will be of investment grade (i.e., rated in the top four rating categories by a nationally recognized statistical rating organization (an "NRSRO") or, if unrated, determined to be of comparable quality by the Fund's investment adviser); provided, that up to 10% of the Fund's net assets may be invested in securities rated below investment grade by an NRSRO or determined to be of comparable quality by the investment adviser. Debt securities rated below investment grade or of comparable quality are commonly referred to as "junk bonds." For a description of the risks associated with investment in debt securities, including lower-rated debt securities and sovereign debt, see "Additional Risk Disclosure-- Risk Factors Associated with Investment in Certain Debt Securities." PREFERRED STOCK The Fund may invest in preferred stock which is a class of capital stock that pays dividends at a specified rate and that has preference over common stock in the payment of dividends and the liquidation of assets. Preferred stock does not ordinarily carry voting rights. ILLIQUID SECURITIES The Fund may invest in illiquid securities. The Fund will not knowingly invest more than 15% of the value of its respective net assets in securities that are illiquid. Repurchase agreements with a duration of more than seven days, time deposits that do not provide for payment to the Fund within seven days after notice, Guaranteed Investment Contracts ("GICs"), most commercial paper issued in reliance upon the exemption in Section 4(2) of the Securities Act of 1933, as amended (the "1933 Act") (other than variable amount master demand notes with maturities of nine months or less), and foreign assets subject to material legal restrictions on repatriation are subject to this 15% limit. If otherwise consistent with its investment objectives and policies, the Fund may purchase securities which are not registered under the 1933 Act but which can be sold to "qualified institutional buyers" in accordance with Rule 144A under the 1933 Act. Any such security will not be considered illiquid so long as it is determined by the investment adviser, acting under guidelines and procedures that are developed, established and monitored by the Board of Trustees, that an adequate trading market exists for that security either within or outside the United States. This investment practice could have the effect of increasing the level of illiquidity in the Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The ability to sell to qualified institutional buyers under Rule 144A is a recent development, and it is not possible to predict how this market will develop. The staff of the Commission has taken the position that OTC options that are purchased and the assets used as cover for written OTC options should generally be treated as illiquid securities. However, if a dealer recognized by the Federal Reserve Bank as a primary dealer in U.S. Government securities is the other party to an option contract written by the Fund and the Fund has the absolute right to repurchase the option from the dealer at a formula price established in a con- PROSPECTUS 8
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tract with the dealer, the Commission staff has agreed that the Fund needs to treat as illiquid only that amount of the cover assets equal to the formula price less the amount by which the market value of the security subject to the option exceeds the exercise price of the option (the amounts by which the option is in-the-money). Although the investment adviser does not believe that OTC options are generally illiquid, pending resolution of this issue, the Fund will conduct their operations in conformity with the views of the Commission staff. BORROWINGS The Fund may borrow an amount equal to no more than 33 1/3% of the value of its total assets (calculated at the time of the borrowing) from banks for temporary, extraordinary or emergency purposes, for the clearance of transactions, to hedge against currency movements or for investment purposes. The Fund may pledge up to 33 1/3% of its total assets to secure these borrowings. If the Fund's asset coverage for borrowings falls below 300%, the Fund will take prompt action to reduce its borrowings. If the 300% asset coverage should decline as a result of market fluctuations or other reasons, the Fund may be required to sell portfolio securities to reduce the debt and restore the 300% asset coverage, even though it may be disadvantageous from an investment standpoint to sell securities at that time. Borrowing for investment purposes is generally known as "leveraging." Leveraging may exaggerate the effect on net asset value of any increase or decrease in the market value of the Fund's portfolio. Money borrowed for leveraging will be subject to interest costs which may or may not be recovered by appreciation of the securities purchased. In addition, the Fund may be required to maintain minimum average balances in connection with such borrowing or pay a commitment fee to maintain a line of credit, which would increase the cost of borrowing over the stated interest rate. The Fund may borrow funds for temporary purposes by entering into reverse repurchase agreements which are considered to be borrowings under the Investment Company Act of 1940, as amended (the "1940 Act"). At the time the Fund enters into a reverse repurchase agreement (an agreement under which the Fund sells portfolio securities and agrees to repurchase them at an agreed upon date and price), it will place in a segregated custodial account cash or other liquid assets having a value equal to or greater than the repurchase price (including accrued interest) and will subsequently monitor the account so that such value is maintained. Reverse repurchase agreements involve the risk that the market value of the securities sold by the Fund may decline below the price of the securities it is obligated to repurchase. The Fund would pay interest on amounts obtained pursuant to a reverse repurchase agreement. LOANS OF PORTFOLIO SECURITIES The Fund may lend securities from its portfolio to brokers, dealers and financial institutions (but not individuals) if liquid assets equal to the current market value of the securities loaned (including accrued interest thereon) plus the interest payable to the Fund with respect to the loan is maintained with the Fund. In determining whether to lend a security to a particular broker, dealer or financial institution, the investment adviser will consider all relevant facts and circumstances, including the creditworthiness of the broker, dealer or financial institution. Any loans of portfolio securities will be fully collateralized based on values that are marked to market daily by the investment adviser. The Fund will not enter into any portfolio security lending arrangement having a duration of longer than one year. Any securities that the Fund may receive as collateral will not become part of the Fund's portfolio at the time of the loan and, in the event of a default by the borrower, the Fund will, if permitted by law, dispose of such collateral except for such part thereof that is a security in which the Fund may invest. During the time securities are on loan, the borrower will pay the Fund any accrued income on those securities, and the Fund may invest the cash collateral and earn additional income or receive an agreed-upon fee from a borrower that had PROSPECTUS 9
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delivered cash-equivalent collateral. The Fund will not lend securities having a value that exceeds 33 1/3% of the current value of its total assets. Loans of securities by the Fund will be subject to termination at the Fund's or the borrower's option. The Fund may pay reasonable administrative and custodial fees in connection with a securities loan and may pay a negotiated portion of the interest or fee earned with respect to the collateral to the borrower or the placing broker. Borrowers and placing brokers may not be affiliated, directly or indirectly, with the Trust, Pacific Century, the Sub-Adviser or BISYS. HEDGING STRATEGIES The Fund may engage in various portfolio strategies including derivative transactions to reduce certain risks of its investments. These strategies currently include the use of options, forward currency exchange contracts and futures contracts and options thereon. The Fund's ability to use these strategies may be limited by market conditions, regulatory limits and tax considerations and there can be no assurance that any of these strategies will succeed. See "Additional Information on Fund Investments" and "Tax Information" in the SAI. New financial products and risk management techniques continue to be developed and the Fund may use these new investments and techniques to the extent consistent with its investment objective and policies. Options. The Fund may purchase put and call options and write (i.e., sell) covered put and call options on securities, securities indexes (e.g., S&P 500) and currencies that are traded on U.S. or foreign securities exchanges or in the OTC market to hedge the Fund's portfolio. In addition, the Fund may purchase put and call options and write covered put and call options on securities that result from separate, privately negotiated transactions with primary U.S. Government securities dealers recognized by the Board of Governors of the Federal Reserve System. The Fund may purchase put options in an effort to protect the value of securities (or currencies) that it owns against a decline in market value and purchase call options in an effort to protect against an increase in the price of securities (or currencies) it intends to purchase. The Fund may also purchase put and call options to offset previously written put and call options of the same series. See SAI, "Additional Information on Fund Investments." A call option gives the purchaser, in exchange for a premium paid, the right for a specified period of time to purchase securities or currency subject to the option at a specified price (the exercise price or strike price). A put option gives the purchaser in return for a premium, the right for a specified time, to sell the securities or currency subject to the option of the writer of the put at the exercise price. The aggregate value of the exercise price or strike price of call options written by the Fund may not exceed 25% of the Fund's net asset value. Forward Currency Exchange Contracts. The Fund may enter into forward foreign currency exchange contracts to protect the value of its assets against future changes in the level of currency exchange rates. The Fund may enter into such contracts on a spot, i.e., cash, basis at the rate then prevailing in the currency exchange market or on a forward basis, by entering into a forward contract to purchase or sell currency. A forward contract on foreign currency is an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days agreed upon by the parties from the date of the contract at a price set on the date of the contract. The Fund's dealings in forward contracts will be limited to hedging involving either specific transactions or portfolio positions. Transaction hedging is the purchase or sale of a forward contract with respect to specific receivables or payables of the Fund generally arising in connection with the purchase or sale of its portfolio securities, accruals of interest or dividends receivable and Fund expenses. Position hedging is the sale of a foreign currency with respect to portfolio security positions denominated or quoted in that currency or in a different currency (cross hedge). Although there are no limits on the number of forward contracts which the Fund may enter into, the Fund may not PROSPECTUS 10
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position hedge (including cross hedges) with respect to a particular currency for an amount greater than the aggregate market value (determined at the time of making any sale of forward currency) of the securities being hedged. See SAI, "Additional Information on Fund Investments." Futures Contracts and Related Options. The Fund may enter into contracts for the future delivery of specific securities, classes of securities, financial indices or currencies, may purchase or sell exchange-listed or OTC options on any such futures contracts and may engage in related closing transactions. A financial futures contract is an agreement to purchase or sell an agreed amount of securities or currency at a set price for delivery in the future. A futures contract on a securities index is an agreement obligating either party to pay, and entitling the other party to receive, while the contract is outstanding, cash payments based on the level of a specified securities index. The acquisition of put and call options on futures contracts will, respectively, give the Fund the right (but not the obligation), for a specified price, to sell or to purchase the underlying futures contract, upon exercise of the option, at any time during the option period. The Fund may engage in futures contracts and related options in an effort to hedge against market or currency risks. For example, with respect to market risk, when interest rates are expected to rise or market values of portfolio securities are expected to fall, the Fund can seek through the sale of futures contracts to offset a decline in the value of its portfolio securities. When interest rates are expected to fall or market values are expected to rise, the Fund, through the purchase of such contracts, can attempt to secure better rates or prices for the Fund than might later be available in the market when it effects anticipated purchases. With respect to currency risk, by entering into currency futures and options thereon on U.S. and foreign exchanges, the Fund can seek to establish the rate at which it will be entitled to exchange U.S. dollars for another currency at a future time. By selling currency futures, the Fund can seek to establish the number of dollars it will receive at delivery for a certain amount of a foreign currency. In this way, whenever the Fund anticipates a decline in the value of a foreign currency against the U.S. dollar, the Fund can attempt to "lock in" the U.S. dollar value of some or all of the securities held in its portfolio that are denominated in that currency. By purchasing currency futures, the Fund can establish the number of dollars it will be required to pay for a specified amount of a foreign currency in a future month. Thus if the Fund intends to buy securities in the future and expects the U.S. dollar to decline against the relevant foreign currency during the period before the purchase is effected, the Fund can attempt to "lock in" the price in U.S. dollars of the securities it intends to acquire. The Fund may not purchase and sell futures contracts and related options for other than bona fide hedging purposes (as defined in Commodity Futures Trading Commission ("CFTC") regulations) if, immediately thereafter, aggregate initial margin deposits for futures contracts, and premiums paid for related options, would exceed five percent (5%) of the liquidation value of the Fund's total assets. The Fund may purchase and sell futures contracts and related options, without limitation, for bona fide hedging purposes. Futures transactions will be limited to the extent necessary to maintain the Fund's qualification as a regulated investment company. Futures transactions involve brokerage costs and require the Fund to segregate assets to cover its obligations under futures, or to cover its obligations by owning the assets underlying open futures contracts. The Fund may lose the expected benefit of futures transactions if interest rates, exchange rates or securities prices move in an unanticipated manner. Such losses are potentially significant and unanticipated changes may result in poorer overall performance than if the Fund had not entered into any futures transactions. In addition, the value of the Fund's futures positions may not prove to be perfectly or even highly correlated with the value of its portfolio securities, limiting the Fund's ability to hedge effectively against interest rate, exchange rate and/or market risk and giving rise to additional PROSPECTUS 11
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risks. There is no assurance of liquidity in the secondary market for purposes of closing out future positions. Where a liquid secondary market does not exist, the Fund is unlikely to be able to control losses by closing out futures positions. Gains and losses on investments in options and futures depend on the investment adviser's ability to predict correctly the direction of stock prices, interest rates and other economic factors. Certain futures exchanges or boards of trade have established daily limits on the amount that the price of futures contracts or related options may vary, either up or down, from the previous day's settlement price. These daily limits may restrict the Fund's ability to purchase or sell certain futures contracts or related options on any particular day. For additional discussion of certain risks associated with the use of futures contracts and options thereon, see "Additional Risk Disclosure--Risks of Hedging Strategies." REPURCHASE AGREEMENTS The Fund may enter into repurchase agreements wherein the seller of a security to the Fund agrees to repurchase that security from the Fund at a mutually agreed-upon time and price. The period of maturity is usually quite short, often overnight or a few days, although it may extend over a number of months. The Fund may enter into repurchase agreements only with respect to obligations that could otherwise be purchased by the Fund. All repurchase agreements will be fully collateralized based on values that are marked to market daily by the investment adviser. If the seller defaults and the value of the underlying securities has declined, the Fund may incur a loss. In addition, if bankruptcy proceedings are commenced with respect to the seller of the security, the Fund's disposition of the security may be delayed or limited. OTHER INVESTMENT COMPANIES The Fund may invest in securities issued by other investment companies, including (to the extent permitted by the 1940 Act) other investment companies managed by Pacific Century. In this regard, the Fund may purchase the securities of certain foreign investment funds or trusts called passive foreign investment companies, which have been the only or primary way to invest in certain developing countries of Asia. Securities of other investment companies will be acquired by the Fund within the limits prescribed by the 1940 Act. The Fund intends to limit its investments so that as determined immediately after a securities purchase is made: (a) not more than 5% of the value of its total assets will be invested in the securities of any one investment company; (b) not more than 10% of the value of its total assets will be invested in the aggregate in securities of investment companies as a group; (c) not more than 3% of the outstanding voting stock of any one investment company will be owned by the Fund; and (d) the Fund, together with other investment companies having the same investment adviser and companies controlled by such companies, owns not more than 10% of the total stock of any one closed-end company. As a shareholder of another investment company, the Fund would bear, along with other shareholders, its pro rata portion of the other investment company's expenses. Accordingly, in addition to bearing their proportionate share of the Fund's expenses (i.e., management fees and operating expenses) shareholders will also indirectly bear similar expenses of such other investment companies or trusts. However, Pacific Century has undertaken to waive or reimburse the Fund its advisory fees with respect to assets invested in other investment companies or trusts (except when such purchase is part of a plan of merger, consolidation, reorganization or acquisition). Investments by the Fund in wholly-owned investment entities created under the laws of certain countries will not be deemed the making of an investment in other investment companies. WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS The Fund may purchase securities on a "when-issued" basis and may also purchase or sell securities on a "forward commitment" basis. These trans- PROSPECTUS 12
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actions, which involve a commitment by the Fund to purchase or sell particular securities with payment and delivery taking place at a future date (perhaps one or two months later), permit the Fund to lock-in a price or yield on a security it owns or intends to purchase, regardless of future changes in interest rates. When-issued and forward commitment transactions involve the risk, however, that the yield obtained in a transaction may be less favorable than the yield available in the market when the securities delivery takes place. The Fund does not intend to engage in when-issued purchases and forward commitments for speculative purposes but only in furtherance of its investment objective. The forward commitments and when-issued purchases are not expected to exceed 25% of the value of the Fund's total assets absent unusual market conditions. The Fund will not start earning interest or dividends on when-issued securities until they are received. The value of the securities underlying a when-issued purchase or a forward commitment to purchase securities, and any subsequent fluctuations in their value, is taken into account when determining the net asset value of the Fund starting on the date the Fund agrees to purchase the securities. The Fund will establish a segregated account in which it will maintain liquid high-grade debt securities in an amount at least equal in value to the Fund's commitment to purchase securities on a when-issued or forward commitment basis. If the value of these assets declines, the Fund will replace additional liquid assets in the account on a daily basis so that the value of the assets in the account is equal to the amount of such commitments. WARRANTS The Fund may invest in warrants. A warrant gives the holder thereof the right to subscribe by a specified date to a stated number of shares of stock of the issuer at a fixed price. Warrants tend to be more volatile than the underlying stock, and if at a warrant's expiration date the stock is trading at a price below the price set in the warrant, the warrant will expire worthless. Conversely, if at the expiration date the stock is trading at a price higher than the price set in the warrant, the Fund can acquire the stock at a price below its market value. The Fund may not invest more than 10% of its net assets in warrants. DEFENSIVE STRATEGY At times the investment adviser may judge that conditions in the securities markets make pursuing the Fund's basic investment strategy inconsistent with the best interests of its shareholders. At such times, the investment adviser may temporarily use alternative strategies, primarily designed to reduce fluctuations in the value of the Fund's assets. In implementing these "defensive" strategies, the Fund may invest without limit in cash (foreign currency or U.S. dollars) and in domestic, Eurodollar and foreign short-term money market instruments. It is impossible to predict when, or for how long, the Fund will use such alternative strategies. U.S. GOVERNMENT OBLIGATIONS The Fund may invest in U.S. Government Obligations which include, in addition to U.S. Treasury Securities, the obligations of Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Government National Mortgage Association ("GNMA"), Federal National Mortgage Association ("FNMA"), Student Loan Marketing Association ("SLMA"), Resolution Trust Corporation and Federal Home Loan Mortgage Corporation ("FHLMC"). U.S. Treasury Securities and certain other obligations of certain agencies and instrumentalities of the U.S. Government, such as those of the GNMA, are supported by the full faith and credit of the U.S. Treasury; others, such as those of the Export-Import Bank of the United States, are supported by the right of the issuer to borrow from the U.S. Treasury; others, such as those of FNMA, are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; still others, such as those of the SLMA, are supported only by the credit of the instrumentality. No PROSPECTUS 13
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assurance can be given that the U.S. Government would provide financial support to sponsored instrumentalities if it is not obligated to do so by law. Some of these instruments may be variable or floating rate instruments. The Fund will invest in the obligations of such instrumentalities only when the investment adviser believes that the credit risk with respect to the instrumentality is minimal. COMMERCIAL PAPER The Fund may invest in commercial paper that is rated at the time of purchase in the two highest short-term rating categories by an NRSRO or unrated if considered by the investment adviser to be of comparable quality. Commercial paper includes short-term unsecured promissory notes, and variable floating rate demand notes issued by domestic and foreign bank holding companies, corporations and financial institutions as well as similar taxable and tax-exempt instruments issued by government agencies and instrumentalities. BANK AND SAVINGS AND LOAN OBLIGATIONS The Fund may invest in Bank and Savings and Loan Obligations. These obligations include negotiable certificates of deposit, fixed time deposits, bankers' acceptances, and interest bearing demand accounts. The Fund limits its bank investments to dollar-denominated obligations of U.S., Canadian, Asian or European banks which have more than $500 million in total assets at the time of investment or of United States savings and loan associations which have more than $1 billion in total assets at the time of investment and, in the case of U.S. banks, are members of the Federal Reserve System or are examined by the Comptroller of the Currency or whose deposits are insured by the Federal Deposit Insurance Corporation. ASSET BACKED SECURITIES The Fund may invest in Asset Backed Securities. Asset Backed Securities arise through the grouping by governmental, government-related, and private organizations of loans and receivables originated by various lenders. Asset Backed Securities acquired by the Fund consist of both mortgage and non-mortgage backed securities. Interest in pools of these assets differ from other forms of debt securities, which normally provide for periodic payment of interest in fixed amounts with principal paid at maturity or specified call dates. Instead, Asset Backed Securities provide periodic payments which generally consist of both interest and principal payments. The life of an Asset Backed Security varies with the prepayment experience of the underlying debt instruments. The rate of such prepayments, and hence the life of an Asset Backed Security, will be primarily a function of current market interest rates, although other economic and demographic factors may be involved. For example, falling interest rates generally result in an increase in the rate of prepayments of mortgage loans while rising interest rates generally decrease the rate of prepayments. An acceleration in prepayments in response to sharply falling interest rates will shorten the security's average maturity and limit the potential appreciation in the security's value relative to a conventional debt security. Consequently, Asset Backed Securities are not as effective in locking in high, long-term yields. Conversely, in periods of sharply rising rates, prepayments are generally slow, increasing the security's average life and its potential for price depreciation. Mortgage backed securities represent an ownership interest in a pool of residential mortgage loans, the interest in which is in most cases issued and guaranteed by an agency or instrumentality of the U.S. Government, though not necessarily by the U.S. Government itself. One such type of mortgage backed security is a GNMA Certificate. GNMA Certificates are backed as to the timely payment of principal and interest by the full faith and credit of the U.S. Government. Another type is a FNMA Certificate, the principal and interest of which are guaranteed only by FNMA itself, not by the full faith and credit of the U.S. Government. Another type is a FHLMC Par- PROSPECTUS 14
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ticipation Certificate. This type of obligation is guaranteed by FHLMC as to timely payment of principal and interest. However, like a FNMA security, it is not guaranteed by the full faith and credit of the U.S. Government. Mortgage backed securities issued by private issuers, whether or not such obligations are subject to guarantees by the private issuer, may entail greater risk than obligations directly or indirectly guaranteed by the U.S. Government. Such securities will be purchased for the Fund only when the investment adviser determines that they are readily marketable at the time of purchase. The average life of mortgage backed securities varies with the maturities of the underlying mortgage instruments, which have maximum maturities of up to 40 years. The average life is likely to be substantially less than the original maturity of the mortgage pools underlying the securities as the result of mortgage prepayments, mortgage refinancings, or foreclosures. The rate of mortgage prepayments, and hence the average life of the certificates, will be a function of the level of interest rates, general economic conditions, the location and age of the mortgage and other social and demographic conditions. Such prepayments are passed through to the registered holder with the regular monthly payments of principal and interest and have the effect of reducing future payments. As a result of the pass-through of prepayments of principal on the underlying securities, mortgage backed securities are often subject to more rapid prepayments of principal than their stated maturity would indicate. Because the prepayment characteristics of the underlying mortgages vary, it is not possible to predict accurately the realized yield or the average life of a particular issue of pass-through certificates. As a result of these principal payment features, mortgage backed securities are generally more volatile than other U.S. Government securities. Estimated average life of the mortgage backed security will be determined by the investment adviser and used for the purpose of determining the average weighted maturity of the Fund. Various independent mortgage backed securities dealers publish average remaining life data using proprietary models and, in making such determinations for the Fund, the investment adviser might deem such data unreasonable if such data appeared to present a significantly different average remaining expected life for a security when compared to data relating to the average remaining life of comparable securities as provided by other independent mortgage backed securities dealers. The Fund also may invest in non-mortgage backed securities including interests in pools of receivables, such as motor vehicle installment purchase obligations and credit card receivables. Such securities are generally issued as pass-through certificates, which represent undivided fractional ownership interests in the underlying pool of assets. Such securities also may be debt instruments, which also are known as collateralized obligations and are generally issued as the debt of a special purpose entity organized solely for the purpose of owning such assets and issuing such debt. Non-mortgage backed securities are not issued or guaranteed by the U.S. Government or its agencies or instrumentalities; however, the payment of principal and interest on such obligations may be guaranteed up to certain amounts and for a certain time period by a letter of credit issued by a financial institution (such as a bank or insurance company) unaffiliated with the issuers of such securities. Non-mortgage backed securities will be purchased by the Fund only when such securities are readily marketable and rated at the time of purchase in one of the two highest rating categories by an NRSRO or, if unrated, considered by the investment adviser to be of comparable quality. In addition, such securities generally will have remaining estimated lives at the time of purchase of five years or less. See the SAI, "Additional Information on Fund Investments." REAL ESTATE MORTGAGE INVESTMENT CONDUITS The Fund may invest in Real Estate Mortgage Investment Conduits ("REMICs"). REMICs are a pass-through vehicle created to issue multiclass mortgage-backed securities. REMICs may be or- PROSPECTUS 15
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ganized as corporations, partnerships, or trusts and those meeting certain qualifications are not subject to double taxation. Interests in REMICs may be senior or junior, regular (debt instruments) or residual (equity interests). FLOATING AND VARIABLE RATE DEBT INSTRUMENTS The Fund may invest in floating and variable rate debt instruments. Floating and variable rate debt instruments bear interest at rates that are not fixed, but vary with changes in specified market rates or indices or at specified intervals. Certain of these instruments may carry a demand feature that would permit the holder to tender them back to the issuer at a par value prior to maturity. The floating and variable rate instruments that the Fund may purchase include certificates of participation in such obligations purchased from banks. The investment adviser will monitor on an ongoing basis the ability of an issuer of a demand instrument to make payment when due, which could be affected by events occurring between the date the Fund elects to demand payment and the date payment is due, except when such demand instruments permit same-day settlement. In this regard, the investment adviser, pursuant to direction of the Board of Trustees, will determine the liquidity of those instruments with demand features that cannot be exercised within seven days. LETTERS OF CREDIT AND LIQUIDITY AGREEMENTS The Fund may purchase debt obligations that are backed by an irrevocable letter of credit or liquidity agreement of a bank, savings and loan association or insurance company which assumes the obligation for payment of principal and interest in the event of default by the issuer. Only banks, savings and loan associations and insurance companies which, in the opinion of the investment adviser, are of investment quality comparable to other permitted investments of the Fund, may be used for letter of credit and liquidity agreement backed investments. INTEREST ONLY OR PRINCIPAL ONLY OBLIGATIONS The Fund may make limited investments (not exceeding 5% of the Fund's net assets) in separately traded principal and interest components of securities issued by the United States Treasury. The principal and interest components of selected securities are traded independently under the Separate Trading of Registered Interest and Principal of Securities program ("STRIPs"). Under the STRIPs program, the principal and interest components are individually numbered and separately issued by the U.S. Treasury at the request of depository financial institutions, which then trade the component parts independently. GUARANTEED INVESTMENT CONTRACTS The Fund may invest up to 5% of its net assets in Guaranteed Investment Contracts ("GICs") issued by highly rated U.S. insurance companies. GICs are considered to be illiquid, and accordingly, are subject to the Fund's 15% limitation on investment in illiquid securities. See SAI, "Additional Information on Fund Investments." PORTFOLIO TURNOVER Generally, the Fund will purchase portfolio securities for capital appreciation and not for short-term trading profits. However, the Fund may sell a portfolio investment soon after its acquisition if the investment adviser believes that such a disposition is consistent with attaining the investment objective of the Fund. Portfolio investments may be sold for a variety of reasons, such as a more favorable investment opportunity or other circumstances bearing on the desirability of continuing to hold such investments. As a result, the Fund may engage in a substantial number of portfolio transactions. Accordingly, while the Fund anticipates that its annual portfolio turnover rate should not exceed 100% under normal conditions, it is impossible to predict portfolio turnover rates. For the fiscal year ended July 31, 1997 and July 31, 1996, the Fund's portfolio turnover rate was 134.89% and 86.53%, respec- PROSPECTUS 16
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tively. See "Portfolio Transactions" in the SAI for additional information relating to portfolio turnover. INVESTMENT POLICIES The Fund's investment objective, as set forth in the first paragraph of the description of the Fund in the "Highlights" section is fundamental; that is, it may not be changed without approval by vote of the holders of a majority of the Fund's outstanding voting securities, as described under "Capital Stock" in the SAI. If the Trust's Board of Trustees determines, however, that the Fund's investment objective can best be achieved by a substantive change in a nonfundamental investment policy or strategy, the Trust's Board may make such change without shareholder approval and will disclose any such material changes in the then current prospectus. Any policy that is not specified in the Fund's Prospectus, or in the SAI, as being fundamental is nonfundamental. ADDITIONAL RISK DISCLOSURE RISK FACTORS AND SPECIAL CONSIDERATIONS OF INVESTING PRIMARILY IN DEVELOPING ASIAN COUNTRIES General. Because the Fund intends to invest primarily in securities of companies located in developing Asian countries, an investor in the Fund should be aware of certain risk factors and special considerations relating to investing in these developing economies. More generally, the investor should also be aware of risks and considerations related to international investing and investing in smaller capital markets, each of which may involve risks which are not typically associated with investments in securities of U.S. issuers. Consequently, the Fund should be considered as a means of diversifying an investment portfolio and not in itself a balanced investment program. Investing on an International Basis and in Countries with Smaller Capital Markets. Investing on an international basis and in countries with smaller capital markets involves certain risks not involved in domestic investments, including fluctuations in foreign exchange rates, future political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws or restrictions. Since the Fund will invest heavily in securities denominated or quoted in currencies other than the U.S. dollar, changes in foreign currency exchange rates will affect the value of securities in the portfolio and the unrealized appreciation or depreciation of investments insofar as U.S. investors are concerned. In addition, with respect to certain foreign countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could affect investments in those countries. Moreover, individual foreign economies may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross national product, rates of inflation, capital reinvestment, resources, self-sufficiency and balance of payments position. Certain foreign investments may also be subject to foreign withholding taxes. These risks are often heightened for investments in smaller capital markets and developing countries of Asia. Most of the securities held by the Fund will not be registered with the Commission, nor will the issuers thereof be subject to the reporting requirements of such agency. Accordingly, there may be less publicly available information about a foreign company than about a U.S. company, and such foreign companies may not be subject to accounting, auditing and financial reporting standards and requirements comparable to those to which U.S. companies are subject. As a result, traditional investment measurements, such as price/earnings ratios, as used in the United States, may not be applicable to certain smaller capital markets. Foreign companies, and companies in smaller capital markets in particular, are not generally subject to uniform accounting, auditing and financial reporting standards or to practices and requirements comparable to those applicable to domestic companies. PROSPECTUS 17
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Foreign markets also have different clearance and settlement procedures, and in certain markets there have been times when settlements have failed to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. Brokerage commissions and other transaction costs on foreign securities exchanges are generally higher than in the United States. There is generally less government supervision and regulation of exchanges, brokers and issuers in foreign countries than there is in the United States. The operating expense ratio of the Fund can be expected to be higher than that of an investment company investing exclusively in U.S. securities since the expenses of the Fund, such as management and advisory fees and custodial costs, are higher. Investing in Developing Asian Securities Markets and Economies. The securities markets of developing Asian countries are not as large as the U.S. securities markets and have substantially less trading volume, resulting in a lack of liquidity and high price volatility. Certain markets, such as those of China, are in only the earliest stages of development. There is also a high concentration of market capitalization and trading volume in a small number of issuers representing a limited number of industries, as well as a high concentration of investors and financial intermediaries. Many of such markets also may be affected by developments with respect to more established markets in the region, such as in Japan. Developing Asian brokers typically are fewer in number and less capitalized than brokers in the United States. These factors, combined with the U.S. regulatory requirements for open-end investment companies and the restrictions on foreign investments discussed below, result in potentially fewer investment opportunities for the Fund and may have an adverse impact on the investment performance of the Fund. The investment objective of the Fund reflects the belief that the economies of the developing Asian countries will continue to grow in such a fashion as to provide attractive investment opportunities. At the same time, emerging economies present certain risks that do not exist in more established economies. Especially significant is that political and social uncertainties exist for some of these developing Asian countries. In addition, the governments of many of such countries have a heavy role in regulating and supervising the economy. Another risk common to most such countries is that the economy is heavily export oriented and, accordingly, is dependent upon international trade. The existence of overburdened infrastructure and obsolete financial systems also presents risks in certain countries, as do environmental problems. Certain economies also depend to a significant degree upon exports of primary commodities and, therefore, are vulnerable to changes in commodity prices which, in turn, may be affected by a variety of factors. Archaic legal systems in certain developing Asian countries also may have an adverse impact on the Fund. For example, while the potential liability of a shareholder in a U.S. corporation with respect to the acts of the corporation is generally limited to the amount of the shareholder's investment, the notion of limited liability is less clear in certain developing Asian countries. Similarly, the rights of investors in developing Asian companies may be more limited than those of shareholders of U.S. corporations. Certain of the risks associated with international investments and investing in smaller capital markets are heightened for investments in developing Asian countries. For example, some of the currencies of developing Asian countries have experienced devaluations relative to the U.S. dollar, and major adjustments have been made periodically in certain of such currencies. Certain countries, such as India, face serious exchange constraints. Inflation accounting rules in some developing Asian countries require, for companies that keep accounting records in the local currency, for both tax and accounting purposes, that certain assets and liabilities be restated on the company's balance sheet in order to express items in terms of currency PROSPECTUS 18
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of constant purchasing power. Inflation accounting may indirectly generate losses or profits for certain developing Asian companies. Satisfactory custodial services for investment securities may not be available in some developing Asian countries, which may result in the Fund incurring additional costs and delays in providing transportation and custody services for such securities outside such countries. Certain developing Asian countries, such as the Philippines and India, are especially large debtors to commercial banks and foreign governments. In addition, trading in sovereign debt issued or guaranteed by governmental entities in developing Asian countries involves a high degree of risk. These risks are discussed below in "Risk Factors Associated with Investment in Certain Debt Securities." Restrictions on Foreign Investments. Some developing Asian countries prohibit or impose substantial restrictions on investments in their capital markets, particularly their equity markets, by foreign entities such as the Fund. As illustrations, certain countries may require governmental approval prior to investments by foreign persons or limit the amount of investment by foreign persons in a particular company or limit the investment by foreign persons to only a specific class of securities of a company which may have less advantageous terms (including price) than securities of the company available for purchase by nationals. Certain countries may restrict investment opportunities in issuers or industries deemed important to national interests. The manner in which foreign investors may invest in companies in certain developing Asian countries, as well as limitations on such investments, also may have an adverse impact on the operations of the Fund. For example, the Fund may be required in certain of such countries to invest initially through a local broker or other entity and then have the shares that were purchased re-registered in the name of the Fund. Re-registration may in some instances not be able to occur on a timely basis, resulting in a delay during which the Fund may be denied certain of its rights as an investor, including rights as to dividends or to be made aware of certain corporate actions. There also may be instances where the Fund places a purchase order but is subsequently informed, at the time of re-registration, that the permissible allocation of the investment to foreign investors has been filled, depriving the Fund of the ability to make its desired investment at that time. Substantial limitations may exist in certain countries with respect to the Fund's ability to repatriate investment income, capital or the proceeds of sales of securities by foreign investors. The Fund could be adversely affected by delays in, or a refusal to grant, any required governmental approval for repatriation of capital, as well as by the application to the Fund of any restrictions on investments. In addition, even where there is no outright restriction on repatriation of capital, the mechanics of repatriation may affect certain aspects of the operations of the Fund. For example, funds may be withdrawn from China only in U.S. or Hong Kong dollars and only at an exchange rate established by the government once each week. A number of publicly traded closed-end investment companies have been organized to facilitate indirect foreign investment in developing Asian countries, and certain of such countries, such as Thailand and South Korea, have specifically authorized such funds. There also are investment opportunities in certain of such countries in pooled vehicles that resemble open-end investment companies. As discussed above, the Fund's investment in these companies will be subject to certain percentage limitations of the 1940 Act. See "Additional Discussion Regarding Permitted Investment Activities--Other Investment Companies." This restriction on investments in securities of investment companies may limit opportunities for the Fund to invest indirectly in certain developing Asian countries. Shares of certain investment companies may at times be acquired only at market prices representing premiums to their net asset values. PROSPECTUS 19
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In certain countries, banks or other financial institutions may be among the leading companies or have actively traded securities. The 1940 Act restricts the Fund's investments in any equity securities of an issuer which, in its most recent fiscal year, derived more than 15% of its revenues from "securities related activities," as defined by the rules thereunder. These provisions may restrict the Fund's investments in certain foreign banks and other financial institutions. Limitations on Share Transactions. To permit the Fund to invest the net proceeds from the sale of its shares in an orderly manner, the Fund may, from time to time, suspend the sale of its shares, except for dividend reinvestment. The Fund also reserves the right to limit the number of its shares that may be purchased by a person during a specified period of time or in the aggregate. RISKS OF HEDGING STRATEGIES Participation in the options or futures markets and in currency exchange transactions involves investment risks and transaction costs to which the Fund would not be subject absent the use of these strategies. If the investment adviser's predictions of movements in the direction of the securities, foreign currency and interest rate markets are inaccurate, the adverse consequences to the Fund may leave the Fund in a worse position than if such strategies were not used. Risks inherent in the use of options, foreign currency and futures contracts and options on futures contracts include (1) dependence on the investment adviser's ability to predict correctly movements in the direction of interest rates, securities prices and currency markets; (2) imperfect correlation between the price of options and futures contracts and options thereon and movements in the prices of the securities or currencies being hedged; (3) the fact that skills needed to use these strategies are different from those needed to select portfolio securities; (4) the possible absence of a liquid secondary market for any particular instrument at any time; (5) the possible need to defer closing out certain hedged positions to avoid adverse tax consequences; and (6) the possible inability of the Fund to purchase or sell a portfolio security at a time that otherwise would be favorable for it to do so, or the possible need for the Fund to sell a portfolio security at a disadvantageous time, due to the need for the Fund to maintain "cover" or to segregate securities in connection with hedging transactions. See "Additional Information on Fund Investments" and "Tax Information" in the SAI. The Fund will generally purchase options and futures on an exchange only if there appears to be a liquid secondary market for such options or futures; the Fund will generally purchase over-the-counter options only if management believes that the other party to the options will continue to make a market for such options. However, there can be no assurance that a liquid secondary market will continue to exist or that the other party will continue to make a market. Thus, it may not be possible to close an options or futures transaction. The inability to close options and futures positions also could have an adverse impact on the Fund's ability to effectively hedge its portfolio. There is also the risk of loss by the Fund of margin deposits or collateral in the event of bankruptcy of a broker with whom the Fund has an open position in an option, a futures contract or related option. RISK FACTORS ASSOCIATED WITH INVESTMENT IN CERTAIN DEBT SECURITIES Lower Rated Debt Securities. Securities rated in the medium to low rating categories of NRSROs such as Standard & Poor's Corporation ("S&P") and Moody's Investors Service, Inc. ("Moody's") and unrated securities of comparable quality (referred to herein as "high yield/high risk securities") are predominantly speculative with respect to the capacity to pay interest and repay principal in accordance with the terms of the security, generally involve a greater volatility of price than securities in higher rating categories, may have call or redemption features which would permit the issuer to repurchase securities from the Fund, are less liquid than higher rated securities, and may have their value and liquidity negatively impacted by adverse publicity and investor perceptions. See "Appendix" PROSPECTUS 20
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in the SAI. These securities are commonly referred to as "junk bonds". In purchasing such securities, the Fund will rely on the investment adviser's judgment, analysis and experience in evaluating the creditworthiness of an issuer of such securities. The investment adviser will take into consideration, among other things, the issuer's financial resources, its sensitivity to economic conditions and trends, its operating history, the quality of the issuer's management and regulatory matters. The Fund is not authorized to purchase debt securities that are in default, except that the Fund may invest in sovereign debt which is in default, provided that not more than 5% of its total assets is invested in sovereign debt (including sovereign debt which is in default). For a further discussion of the risks associated with investment in high yield/high risk securities, see "Additional Information Fund Investments" in the SAI. Sovereign Debt. The sovereign debt instruments in which the Fund may invest involve great risk and are deemed to be the equivalent in terms of quality to high yield-high risk securities. The Fund may have difficulty disposing of certain sovereign debt obligations because there may be no liquid secondary trading market for such securities. The Fund may invest up to 5% of its total assets in sovereign debt, including sovereign debt which is in default. ADDITIONAL INVESTMENT RESTRICTIONS As matters of fundamental policy, the Fund may not: 1. Purchase securities of any one issuer (other than securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities) if, immediately after such purchase, more than 5% of the value of the Fund's total assets would be invested in the securities of such issuer, or more than 10% of the issuer's outstanding voting securities would be owned by the Fund, except that up to 25% of the value of the Fund's total assets may be invested without regard to these limitations. 2. Purchase any securities which would cause 25% or more of the value of the Fund's total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that (a) there is no limitation with respect to U.S. Government Obligations and repurchase agreements secured by such obligations; (b) wholly owned finance companies will be considered to be in the industries of their parents if their activities are primarily related to financing the activities of the parents; and (c) utilities will be divided according to their services, for example, gas, gas transmission, electric and gas, electric and telephone will each be considered a separate industry. 3. Make loans, borrow money or issue senior securities, except under certain circumstances, and subject to certain percentage limitations, specified above and in the SAI. If a percentage limitation is satisfied at the time of investment, a later increase or decrease in such percentage resulting from a change in the value of the Fund's portfolio securities will not constitute a violation of such limitation. PROSPECTUS 21
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MANAGEMENT, ADVISORY AND OTHER SERVICE ARRANGEMENTS THE BOARD OF TRUSTEES The business and affairs of the Trust are managed under the direction and control of its Board of Trustees. The names and principal occupations of the Trustees of the Trust are listed below. Trustees deemed to be "interested persons" of the Trust for purposes of the 1940 Act are indicated by an asterisk. [Enlarge/Download Table] POSITION(S) HELD NAME AND ADDRESS WITH THE TRUST PRINCIPAL ORGANIZATION ----------------------- ---------------------- ----------------------------------------------- Deborah G. Patterson* Trustee and Senior Vice President of Bank of Hawaii--Asset Chairperson Management and Private client group (1994-Present): Director of KPMG Peat Marwick (1993-1994); Senior Vice President and Manager of Wells Fargo Bank (1987-1992) Irimga McKay* Trustee and President Senior Vice President of BISYS Fund Services (1994-present); Senior Vice President of Concord Financial Group (1986-1994) Douglas Philpotts* Trustee Chairman of the Board of Directors (1992-1994), President (1986-1992), and Director (1984-present) of Pacific Century Richard W. Gushman, II Trustee President and Chief Executive Officer of OKOA, Inc. (1985-present); Adviser to RAMPAC, Inc. Stanley W. Hong Trustee President and Chief Executive Officer of the Chamber of Commerce of Hawaii (1996-present); Business Consultant (1994-present) Russell K. Okata Trustee Executive Director of Hawaii Government Employees Association (1981-present) Oswald K. Stender Trustee Trustee of Bernice Pauahi Bishop Estate (1990-present); Director of Hawaiian Electric Industries, Inc. (1993-present) Trustees of the Trust who are not officers or employees of the Trust, BISYS, or Pacific Century are entitled to receive from the Trust a quarterly retainer and a fee for each Board of Trustees meeting attended. All Trustees are reimbursed for all reasonable out-of-pocket expenses relating to attendance at meetings. THE ADVISER Pursuant to an Advisory Agreement, the Fund is advised by Pacific Century, whose address is Financial Plaza of the Pacific, 111 S. King Street, Honolulu, Hawaii 96813. Pacific Century is a Hawaii corporation organized in 1898 and is the largest trust company in the State of Hawaii, both in terms of assets under administration and assets under management. As of July 31, 1997, Pacific Century had approximately $7.5 billion of client financial assets under management. Pacific Century is a division of Bank of Hawaii, the largest banking organization headquartered in the State of Hawaii, with approximately $12.6 billion of assets as of July 31, 1997, and branches and offices throughout the Pacific Basin, including Guam, Singapore, Tokyo, Seoul and Taiwan. All shares of Bank of Hawaii are owned by Pacific Century Financial Corporation (formerly Bancorp Hawaii, Inc. "Pacific Century Financial") and Bank of Hawaii's Directors (each PROSPECTUS 22
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of whom owns qualifying shares as required by Hawaii law). Pacific Century Financial is a bank holding company, registered under the Bank Holding Company Act of 1956, as amended, and its common stock is listed and traded on the New York Stock Exchange (the "Exchange"). Pacific Century Financial files annual and periodic reports with the Commission and the Exchange, which are available for public inspection. Pacific Century is not authorized to and does not carry on a banking business. The actual management of each series of the Trust, including the Fund, is coordinated by Pacific Century's investment unit, which is staffed with more than 40 people, including 5 Chartered Financial Analysts and 9 M.B.A.'s. All investment decisions of Pacific Century with respect to the Fund's portfolio are made by a committee, and no person is primarily responsible for making recommendations to the committee. Pacific Century has served as investment adviser to other investment companies since 1984. These include the Hawaiian Tax-Free Trust, with assets exceeding $660 million as of July 31, 1997, and the Cash Assets Trust, with assets of approximately $736 million as of July 31, 1997. Subject to the supervision of the Board of Trustees, Pacific Century will provide a continuous investment program for the domestic portion of the Fund's portfolio, including investment research and management with respect to all domestic securities and investments and cash equivalents in the Fund. Pacific Century will determine from time to time what domestic securities and other investments will be purchased, retained or sold by the Trust with respect to the Fund. Pacific Century will provide the services under the Advisory Agreement in accordance with each of the Fund's investment objectives, policies, and restrictions. In addition, Pacific Century will provide oversight of the Fund's Sub-Adviser. For its services, Pacific Century is entitled to monthly advisory fees at the annual rate of 0.90% of the Fund's average daily net asset value. The Fund's advisory fee is higher than that paid by most other investment companies; however, it is comparable if not lower than that paid by many other funds that invest primarily in the Asian markets. For the fiscal year ended July 31, 1997, the advisory fee paid by the Fund to Pacific Century as a percentage of average daily net assets for services provided under the Advisory Agreement was 0.90%. THE SUB-ADVISER Nicholas-Applegate Capital Management (Hong Kong) LLC has been retained as Sub-Adviser to the Fund. Pursuant to a separate sub-advisory agreement with Pacific Century (the "Sub-Advisory Agreement"), the Sub-Adviser provides investment advisory services with respect to management of the foreign component of the Fund's portfolio, including investment research with respect to all foreign securities, currencies and cash equivalents in the Fund. The Sub-Adviser is a California limited liability company located at Room 604-6, Three Exchange Square, 8 Connaught Place, Central, Hong Kong, and is part of an investment management organization which together manage approximately $31 billion as of July 31, 1997 through a variety of investment products and services. The Sub-Adviser is registered as an investment adviser with the Commission under the Investment Advisers Act of 1940. The Sub-Adviser specializes in the management of equities in Asia. For its services under the Sub-Advisory Agreement, Pacific Century pays the Sub-Adviser a fee equal to 0.50% of the Fund's average daily net assets, computed daily and payable quarterly. The fee paid by Pacific Century to the Sub-Adviser represents a portion of the 0.90% investment advisory fee paid to Pacific Century. The Fund does not pay any incremental fee for the services of the Sub-Adviser. All investment decisions of the Sub-Adviser with respect to the Fund are made by a committee, and no person is primarily responsible for making recommendations to the committee. PROSPECTUS 23
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THE SPONSOR, ADMINISTRATOR AND DISTRIBUTOR BISYS is the administrator for the Fund, and also acts as the Trust's principal underwriter and distributor. BISYS generally assists in all aspects of the administration and operation of the Fund. For expenses assumed and services provided as administrator pursuant to its Administration Agreement with the Trust, BISYS is entitled to receive a fee from the Fund, computed daily and paid monthly, at an annual rate equal to 0.20% of the average daily net assets of the Fund. For the fiscal year ended July 31, 1997, the ratio of total expenses for the Class A shares of the Fund to average net assets was 2.58% (excluding waivers). In addition, BISYS, as the principal underwriter of the Fund within the meaning of the 1940 Act, has entered into a Distribution Agreement with the Trust pursuant to which BISYS has the responsibility for distributing shares of the Fund. The Distribution Agreement provides that BISYS shall act as agent for the Fund for the sale of its shares and may enter into selling agreements with banks, broker/dealers or other financial institutions to market and make available shares to their respective customers. For its services, BISYS is entitled to a fee, as set forth in the separate Distribution and Shareholder Servicing Plans for each of the Class A and Class B shares (each a "Distribution Plan") between BISYS and the Trust on behalf of the Fund. The Distribution Plan for the Class A shares provides that, with respect to the Class A and Class B shares, BISYS is entitled to receive from the Fund a fee in an amount not to exceed on an annual basis 0.75% of the average daily net asset value of each Fund's Class A shares. The Distribution Plan for the Class B shares provides that BISYS is entitled to receive from each Fund a fee in an amount not to exceed on an annual basis 1.00% of the average daily net asset value of each Fund's Class B shares. The Funds had not yet begun to offer Class B share publicly at the date of this prospectus. Accordingly, no payments had yet been made pursuant to the Class B Distribution Plan. Fees under each of the Distribution Plans compensate BISYS for the following: (a) payments BISYS makes to banks and other prospectus institutions and industry professionals, broker/dealers, including Pacific Century, BISYS and their affiliates or subsidiaries, pursuant to an agreement in connection with providing administrative support services to the holders of the Fund's Class A or Class B shares; or (b) payments to financial institutions and industry professionals (such as insurance companies, investment counselors, and BISYS' affiliates and subsidiaries) in consideration for the sales support services provided and expenses assumed in connection with distribution assistance, including but not limited to printing and distributing Prospectuses to persons other than current Class A or Class B shareholders of the Fund, printing and distributing advertising and sales literature and reports to prospective Class A or Class B investors in connection with the sale of the Fund's Shares, and providing personnel and communication equipment used in servicing shareholder accounts and responding to prospective Class A or Class B shareholder inquiries. BISYS may enter into selling agreements with one or more selling agents under which such agents may receive compensation from BISYS for sales support services, including, but not limited to, commissions or other payments to such agents based on the average daily net assets of the Class A or Class B shares of each Fund. The distribution fee shall be paid to BISYS only to compensate or to reimburse it for actual payments or expenses incurred as described above. The actual distribution fee payable to BISYS is determined, within such limit, from time to time by mutual agreement between the Trust and BISYS, and may not exceed the maximum fee payable under the Conduct Rules of the NASD. Until further notice, BISYS voluntarily intends to waive a portion of the distribution fee for the current fiscal year such that the distribution fee payable by the Fund will not exceed 0.25% of the average daily net asset value attributable to the Fund's Class A shares on an annual basis. No Fund's Class A or Class B shares will be liable for distribution expenditures PROSPECTUS 24
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made by BISYS in any given year in excess of the maximum amount payable under the Distribution Plan for the Fund in that year. BISYS is a broker-dealer registered with the Commission, and is a member of the NASD. As noted above, the Fund also offers Class Y Shares, which are made available only to certain investors. The Class Y shares are not subject to any distribution fees or entitled to benefits under the Distribution Plan. OTHER SERVICE ARRANGEMENTS Administrative Data Management Corporation ("ADM" or the "Transfer Agent"), 581 Main Street, Woodbridge, New Jersey 07095, serves as the Trust's transfer agent and dividend disbursing agent. Ernst & Young LLP, One Columbus, Suite 2300, 10 West Broad Street, Columbus, Ohio 43215, serves as independent auditors for the Trust. VALUATION OF CLASS A AND CLASS B SHARES The net asset value of the Class A and Class B shares of the Fund is determined and their shares are priced as of the close of the Exchange (currently 4:00 p.m., Eastern Time) (the "Valuation Time") each Business Day. As used herein, a "Business Day" is a day on which the Exchange is open for trading and any other day (other than a day on which no shares of the Fund are tendered for redemption and no order to purchase shares is received) during which there is sufficient trading in the Fund's portfolio securities that the Fund's net asset value per share might be materially affected. The Exchange will not be open in observance of the following holidays: New Year's Day, Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Net asset value per share for Class A and Class B shares is calculated by determining the value of such class's proportional interest in the securities and other assets of the Fund, less (i) such class's proportional share of general liabilities and (ii) liabilities allocable only to such class, and dividing such amount by the number of shares of the class outstanding. The net asset value per share of the Fund will fluctuate as the value of its investment portfolio changes. The per share net asset value of Class A shares generally will be higher than the per share net asset value of Class B shares reflecting the daily expense accruals of the distribution fees applicable to the Class B shares. Except for debt obligations with remaining maturities of 60 days or less, which are valued at amortized cost, assets are valued at current market prices, or if such prices are not readily available, at fair value as determined in good faith by the investment adviser in accordance with the procedures adopted by the Trustees. If the adviser is unable to make such determination in accordance with the procedures, the securities and assets will be valued at fair value as determined by the Board of Trustees. Prices used for such valuations may be provided by independent pricing services. For further information about valuation of investments in the Fund, see the SAI. HOW TO PURCHASE CLASS A AND CLASS B SHARES PURCHASE OF SHARES Class A and Class B shares of the Fund are sold on a continuous basis. Investors may purchase Class A and Class B shares of the Fund by completing and signing an account registration form ("Account Registration Form") and mailing it, together with a check (or other negotiable bank draft or money order) payable to the Trust, in at least the minimum initial purchase amount, to your Participating Organization or to the Trust's Transfer Agent, Administrative Data Management Corporation, 581 Main Street, Woodbridge, NJ 07095. PROSPECTUS 25
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Subsequent purchases of shares of the Fund may be made at any time by mailing a check (or other negotiable bank draft or money order) payable to the Trust, to ADM at the above address or to your Participating Organization. Class A and Class B shares of the Fund may also be purchased through procedures established by BISYS in connection with requirements of qualified accounts maintained by or on behalf of certain persons ("Customers") by banks, institutions or industry professionals, such as broker/dealers, who have entered into an agreement with BISYS ("Participating Organizations") under each of the Distribution Plans. See, "Management, Advisory and Other Service Arrangements." BISYS' principal office is located at 3435 Stelzer Road, Columbus, Ohio 43219-3035. Class A and Class B shares of the Fund sold to Participating Organizations acting in a fiduciary, advisory, custodial or other similar capacity on behalf of a customer will normally be held of record by the Participating Organization. With respect to shares so sold, it is the responsibility of the Participating Organization to transmit purchase or redemption orders to ADM and to deliver federal funds for purchase on a timely basis. Beneficial ownership of shares of the Fund will be recorded by the Participating Organization and reflected in the account statements provided by the Participating Organization to the customer. If an Account Registration Form has been previously received by ADM, investors may also purchase Class A and Class B shares by telephoning ADM at 800-258-9232. Payment for Class A and Class B shares ordered by telephone may be made by check or by electronic transfer and must be received by the Trust's Custodian within seven days of the telephone order. If payment is not received within seven days or a check timely received does not clear, the purchase may be canceled and the investor could be liable for any losses or fees incurred. In the case of purchases of Class A and Class B shares effected by wiring funds to the Trust's Custodian, investors must call ADM at 800-258-9232 to obtain instructions regarding the bank account number into which the funds should be wired and other pertinent information. If you have opened an account through a Participating Organization, you should telephone the Participating Organization to make further investments. Class A and Class B shares of the Fund are purchased at the public offering price per share, which is the net asset value per share (see, "Valuation of Class A and Class B shares") next determined after receipt by the Transfer Agent of an order to purchase shares in good form plus the applicable sales charge as described below. The Participating Organizations are responsible for the prompt transmission of purchase orders to the Transfer Agent. Purchases of Class A and Class B shares of the Fund will be effected only on a Business Day of the Fund. An order received by the Transfer Agent prior to the Valuation Time on any Business Day will be executed based on the net asset value determined as of the Valuation Time on the date of receipt. An order received by the Transfer Agent after the Valuation Time on any Business Day will be executed based on the net asset value determined as of the next Business Day. The minimum investment for an investor's initial purchase of Class A and Class B shares of the Fund is $1,000. The minimum investment for subsequent purchases of Class A and Class B shares is $50. The minimum initial investment amount for IRAs is $250. As discussed below, the minimum initial investment amount for Auto Invest Plan participants is $100. Depending upon the terms of a particular customer account, a Participating Organization may charge a customer's account fees for automatic investment and other cash management services provided in connection with investment in the Fund. Information concerning these services and any charges will be provided by the relevant Participating Organization. This Prospectus should be read in conjunction with any such information received from the Participating Organization. PROSPECTUS 26
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The Trust reserves the right to reject any order for the purchase of its Class A or Class B shares in whole or in part. Every shareholder will receive a confirmation of each new transaction in the shareholder's account. In the case shares held of record by a Participating Organization but beneficially owned by a customer, confirmations of purchases, exchanges and redemptions of shares by a Participating Organization will be sent to the customer by the Participating Organization. Certificates representing shares will not be issued. SALES CHARGES CLASS A SHARES The public offering price of a Class A Share of the Fund equals its net asset value plus a sales charge. BISYS receives this sales charge as principal underwriter and will reallow a portion of it to broker/dealers or other financial institutions as dealer discounts and brokerage commissions. From time to time dealers who receive dealer discounts and broker commissions from BISYS may reallow a portion of such dealer discounts and broker commissions to other dealers or brokers. BISYS may elect to reallow a higher percentage of the sales charge stated below to selected brokers and dealers for all sales with respect to which orders are placed with BISYS during a particular period. At BISYS' discretion, the entire sales charge may at times be re-allowed as dealer discounts and brokerage commissions. If the entire sales charge is reallowed to a broker/dealer or financial institution, it may be deemed an "underwriter" under the Securities Act of 1933, as amended. [Enlarge/Download Table] DEALER SALES CHARGE AS ALLOWANCE SALES CHARGE AS A PERCENTAGE OF AS A PERCENTAGE A PERCENTAGE OF NET AMOUNT OF OFFERING AMOUNT OF PURCHASE OFFERING PRICE INVESTED PRICE ------------------------------------------------ --------------- --------------- --------------- Less than $25,000............................... 5.25% 5.54% 4.73% $25,000 or more but less than $50,000........... 4.75% 4.99% 4.28% $50,000 or more but less than $100,000.......... 4.25% 4.44% 3.83% $100,000 or more but less than $250,000......... 3.75% 3.90% 3.38% $250,000 or more but less than $500,000......... 3.25% 3.36% 2.93% $500,000 or more but less than $1,000,000....... 2.75% 2.83% 2.48% $1,000,000 or more.............................. 0.00% 0.00% 0.00% While there are no sales charges on single transactions of $1 million or more, BISYS will make payments to securities dealers, from its own resources, related to these transactions as shown in the table below. The first payment will be applied to the total purchase price and made payable upon settlement of the purchase. Subsequent payments will be made at the end of each full calendar quarter following the original purchase. The amount of each subsequent payment will be based on the number of shares originally purchased and remaining in the account at the time of the payment multiplied by the net asset value per share at the purchase date. The payment schedule will be as follows: [Enlarge/Download Table] NUMBER OF AMOUNT OF TOTAL OF ALL AMOUNT OF PURCHASE PAYMENTS EACH PAYMENT PAYMENTS ----------------------------------------------------------- --------- ------------ ------------ $1,000,000 or more but less than $2,000,000................ 6 0.083% 0.50% $2,000,000 or more but less than $4,000,000................ 5 0.070% 0.35% $4,000,000 or more ........................................ 4 0.063% 0.25% PROSPECTUS 27
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The sales charges set forth in the tables above are applicable to purchases made at one time by any purchaser (a "Purchaser"), which term shall mean: (i) an individual, his or her spouse and children under the age of 21, if any; (ii) a trustee or other fiduciary of a single trust estate or single fiduciary account; or (iii) any other organized group of persons, whether incorporated or not, provided that such organization has been in existence for at least six months and has some bona fide business purpose other than the purchase of redeemable securities of a registered investment company. In order to qualify for a reduced sales charge, all orders from a Purchaser will have to be placed through a single investment dealer and identified at the time of purchase as originating from the same Purchaser, although such orders may be placed into more than one discrete account which identifies the Purchasers. BISYS, at its expense, will also provide additional compensation to dealers in connection with sales of shares of the Trust. Such compensation will include financial assistance to dealers in connection with conferences, sales or training programs for their employees, seminars for the public advertising campaigns regarding one or more Funds, and/or other dealer-sponsored special events. In some instances, this compensation will be made available only to certain dealers whose representatives have sold a significant amount of such shares. Compensation will include payment for travel expenses, including lodging, incurred in connection with trips taken by invited registered representatives and members of their families to locations within or outside of the United States for meetings or seminars of a business nature. Compensation will also include the following types of non-cash compensation offered through sales contests: (1) vacation trips, including the provision of travel arrangements and lodging, (2) tickets for entertainment events (such as concerts, cruises and sporting events), and (3) merchandise (such as clothing, trophies, clocks and pens). Dealers may not use sales of the Trust's Shares to qualify for this compensation to the extent such may be prohibited by the laws of any state or any self-regulatory agency, such as the NASD. None of the aforementioned compensation is paid for by the Funds or their shareholders. REDUCED SALES CHARGES CLASS A SHARES SALES CHARGE WAIVERS--The following classes of investors may purchase Class A shares of the Fund with no sales charge in the manner described below (any of which may be changed or eliminated at any time by BISYS): (1) Existing shareholders of the Fund, upon the reinvestment of dividend and capital gain distributions; (2) Officers, trustees, directors, employees and retired employees of the Trust, Pacific Century Financial and its affiliates, and of BISYS and its affiliates (and spouses and children of each of the foregoing); (3) With the exception of investors for whom Pacific Century Investment Services provides custodial services, investors for whom Pacific Century Financial or one of its affiliates acts in a fiduciary, advisory, custodial, agency or similar capacity; (4) Investors who purchase shares of the Fund through a retirement related payroll deduction plan, a 401(k) plan, a 403(b) plan, or a similar plan which by its terms permits purchases of shares; and (5) Orders placed on behalf of other investment companies distributed by the Distributor. The Trust permits the sale of its Class A shares at prices that reflect the reduction or elimination of the sales charge to investors who are members of certain qualified groups meeting the following requirements. A qualified group (i) is a group or association, or a category of purchasers who are represented by a fiduciary, professional or other representative (other than a registered broker-dealer); (ii) satisfies uniform criteria which enable the Distributor to realize economies of scale in its costs of distributing shares; (iii) if it is a group or association, gives its endorsement or authorization PROSPECTUS 28
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to an investment program to facilitate solicitation of its membership by a broker or dealer, and (iv) complies with the conditions of purchase that are set forth in any agreement entered into between the Trust and the group, representative or broker or dealer. At the time of purchase the investor, either directly or through a broker or dealer, must furnish the Transfer Agent with information sufficient to permit verification that the purchase qualifies for a reduced sales charge. The Distributor may waive the sales charge for an investor who purchases a Fund's Class A shares with the proceeds from the recent redemption of shares of any non-money market front-end or back-end load mutual fund. To the extent the sales load of the Fund in which such investor seeks to invest is higher than that of the fund with respect to which the redemption proceeds relate, the Distributor will waive only that portion of the Fund's sales load which equals the prior sales load paid. Any portion of the sales load which is not waived in accordance with the foregoing must be paid by the investor at the time of purchase. Purchases of Fund shares using redemption proceeds as described above must be made within 60 days of redemption from funds which are not a series of Pacific Capital Funds and within 120 days of redemption from funds which are series of Pacific Capital Funds. The Transfer Agent must be notified in writing by the investor, or by his or her financial institution, at the time the purchase is made. A copy of the investor's account statement showing such redemption must accompany such notice. BISYS also, from time to time, may waive the sales charge for all investors with respect to any Fund. The Transfer Agent must be notified in writing by the investor, or by his or her financial institution, at the time the purchase is made. A copy of the investor's account statement showing such redemption must accompany such notice. BISYS also, from time to time, may waive the sales charge for all investors with respect to the Fund. LETTERS OF INTENT--Any Purchaser may obtain a reduced sales charge by means of a written Letter of Intent which expresses the intention of such Purchaser to purchase a certain amount of the Fund's Class A shares within a period of 13 months. Each purchase of shares under a Letter of Intent will be made at the public offering price plus the sales charge applicable at the time of such purchase to a single transaction of the total dollar amount indicated in the Letter of Intent. A Letter of Intent may include purchases of shares made not more than 90 days prior to the date such Purchaser signs a Letter of Intent; however, the 13-month period during which the Letter of Intent is in effect will begin on the date of the earlier purchase to be included. The terms of the Letter of Intent and the escrow account associated therewith are described in the Account Registration Form. For further information, interested investors should contact ADM or their Participating Organization. Letter of Intent privileges may be amended or terminated without notice at any time by the Trust. CONCURRENT PURCHASES AND RIGHT OF ACCUMULATION--A Purchaser may qualify for a reduced sales charge by (i) combining concurrent purchases of shares of the Fund with purchases of one or more of the other series of the Trust sold with a sales charge or (ii) combining a current purchase of shares of the Fund with prior purchases of shares of any of the other series of the Trust sold subject to a sales charge. The applicable sales charge is based on the sum of (a) the Purchaser's current purchase of shares of the Fund sold with a sales charge plus (b) the then-current net asset value of all shares held by the Purchaser in any series of the Trust sold with a sales charge. To receive the applicable public offering price pursuant to the right of accumulation, shareholders must at the time of purchase provide ADM or the Participating Organization with sufficient information to permit confirmation of qualification. Accumulation privileges may be amended or terminated without notice at any time by the Trust. CLASS B SHARES The public offering price of a Class B share of a Fund equals its net asset value without the imposition of a sales charge at the time of purchase. However, Class B shares are subject to a contingent deferred sales charge ("CDSC") if the shares are PROSPECTUS 29
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redeemed within six years of purchase, at rates set forth below. After approximately eight years, Class B shares will automatically convert to Class A shares. See "Conversion of Class B shares to Class A shares" below, for more details. At the time of redemption, the CDSC will be based on the initial purchase price or the current market value of the shares being redeemed, whichever is less. A CDSC will not be imposed on amounts representing increases in net asset value above the net asset value at the time of purchase. There is no CDSC on shares acquired through investment of dividends. Imposition of the CDSC and the distribution fee on Class B shares is limited by the NASD asset-based sales charge rule. The following table sets forth the rates of the Class B CDSC: [Enlarge/Download Table] CDSC AS A PERCENTAGE OF DOLLAR AMOUNT YEARS AFTER PURCHASE SUBJECT TO CHARGE ------------------------------------------------------------------------- -------------------- 1st year................................................................. 5% 2nd year................................................................. 4% 3rd year................................................................. 3% 4th year................................................................. 3% 5th year................................................................. 2% 6th year................................................................. 1% Solely for purposes of determining the number of years which have elapsed from the time of purchase of any Class B Shares, all purchases during a month will be aggregated and deemed to have been made on the last day of the month. In determining whether a CDSC is applicable to a redemption, the calculation will be made in the manner that results in the lowest possible charge being assessed. In this regard, it will be assumed that the redemption is first of shares held for more than six years or shares acquired pursuant to reinvestment of dividends or distributions both of which do not carry any CDSCs. It will then be assumed that the redemption is of shares held longest during the six year period, which will have the lowest CDSC. For example, assume an investor purchased 100 Class B shares with a net asset value of $10 per share (i.e., at an aggregate net asset value of $1,000) and in the eleventh month after purchase, the net asset value per share is $12 and, during such time, the investor has acquired five additional Class B shares through dividend reinvestment. If at such time the investor makes his first redemption of 50 Class B shares (producing proceeds of $600), five of such shares will not be subject to the charge because of dividend reinvestment. With respect to the remaining 45 Class B shares being redeemed, the charge will be applied only to the original cost of $10 per share and not to the increase in net asset value of $2 per share. Therefore, only $450 of the $600 redemption proceeds will be subject to the charge of 5.00%, totaling $22.50. The CDSC is waived on redemptions of Class B shares (i) following the death or disability (as defined in the Internal Revenue Code (the "Code")) of a shareholder (or both shareholders in the case of joint accounts), (ii) to the extent that the redemption represents a minimum required distribution from an IRA or a Custodial Account under Code Section 403 (b) (7) to a shareholder who has reached age 70 1/2, and (iii) to the extent the redemption represents the minimum distribution from retirement plans under Code Section 401 (a) where such redemptions are necessary to make distributions to plan participants. CONVERSION OF CLASS B SHARES TO CLASS A SHARES After approximately eight years, Class B shares will automatically convert to Class A shares and will be subject to the lower Distribution and Shareholder Services fees charged to Class A shares. PROSPECTUS 30
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For purposes of conversion of Class A shares, shares received as dividends and other distributions paid on Class B shares in a shareholder's Fund account will be considered to be held in a separate sub-account. Each time any Class B shares in a shareholder's Fund account (other than those in the sub-account) convert to Class A shares, a pro-rata portion of the Class B shares in the sub-account will also convert to Class A shares. If a shareholder effects one or more exchanges among Class B shares of the Funds of the Trust during the six-year period, the Trust will aggregate the holding periods for the shares of each Fund of the Trust for purposes of calculating that six-year period. Because the per share net asset value of the Class A shares may be higher than that of the Class B shares at the time of conversion, a shareholder may receive fewer Class A shares than the number of Class B shares converted, although the dollar value will be the same. The conversion will be on the basis of the relative net asset value of the shares of the two classes, without the imposition of any sales load, fee or other charge. Conversion of Class B shares to Class A shares will not be deemed a purchase or sale of the shares for federal income tax purposes. Shares purchased through reinvestment of dividends in Class B shares will also convert automatically to Class A shares after approximately eight years. AUTO INVEST PLAN--The Auto Invest Plan enables Class A or Class B shareholders of the Fund to make regular monthly or quarterly purchases of Class A or Class B shares through automatic deductions from their bank accounts. With shareholder authorization, the Transfer Agent will deduct the amount specified from the shareholder's bank account which will automatically be invested in shares at the public offering price on the dates of the deduction. The required minimum initial investment when opening an account using the Auto Invest Plan is $100; the minimum amount for subsequent investments is $50. To participate in the Auto Invest Plan, shareholders should complete the appropriate section of the Account Registration Form which can be obtained by calling ADM at 800-258-9232. For a shareholder to change the Auto Invest Plan instructions the request must be made in writing to ADM or your Participating Organization. Depending upon the terms of a particular customer account, a Participating Organization may charge a customer's account fees for services provided in connection with investment in the Fund. Information concerning these services and any charges will be provided by the Participating Organizations. This Prospectus should be read in conjunction with any such information received from the Participating Organizations. The Trust reserves the right to reject any order for the purchase of its Class A and Class B shares in whole or in part. EXCHANGE PRIVILEGES Except as described below, Class A and Class B shareholders may exchange shares of the Fund on the basis of the relative net asset value of the shares exchanged, for the same class of any other series of the Trust or for service class shares of the Cash Assets Trust, the Tax-Free Cash Assets Trust, or the U.S. Treasuries Cash Assets Trust. The exchange privilege may be exercised by shareholders so long as they maintain the respective minimum account balance in the Fund. To the extent that a holder of Class A shares exchanges into a Fund having a higher initial sales charge than that of the Fund from which the shareholder is exchanging, the shareholder will pay the sales charge differential at the time of the exchange. Class B shares of a Fund which are subject to a CDSC will be exchangeable on the basis of relative net asset value per share without the payment of any CDSC that might otherwise have been due upon redemption of the shares of the Fund. For purposes of computing the CDSC upon redemption of shares received in the exchange, the holding period will be measured from the date of purchase of the original shares and will retain the same CDSC rate as they had before the exchange, except that the rate will PROSPECTUS 31
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change to the new Fund's rate if that rate is higher. A CDSC rate that has increased will drop again with a future exchange into a Fund with a lower rate. For federal income tax purposes, an exchange of shares is deemed a sale on which a shareholder may realize capital gain or loss. Before an exchange can be effected, a shareholder must receive a prospectus of the series or fund into which the subject shares are to be exchanged. If you have previously elected the telephone exchange option on your Account Application, an exchange can be made by calling ADM at 800-258-9232 or your Participating Organization. Otherwise, exchanges may be made by forwarding a written request for exchange to ADM or your Participating Organization. Exchange privileges may be exercised only in those states where shares of such series or fund may be legally sold, and may be amended or terminated at any time upon 60 days' notice. HOW TO REDEEM CLASS A AND CLASS B SHARES Shareholders may redeem their Class A and Class B shares without charge on any day that net asset value is calculated (see, "Valuation of Class A and Class B Shares") and the shares may ordinarily be redeemed by mail or by telephone. However, if you purchase shares through a Participating Organization which serves as the shareholder of record, you must redeem through such institution. In all other cases, a completed Account Registration Form must have been received by the Transfer Agent before redemption requests may be honored. All or part of a customer's Class A and Class B shares may be subject to redemption in accordance with instructions and limitations pertaining to his or her account held by a Participating Organization. For example, if a customer has agreed to maintain a minimum balance in his or her account, and the balance in that account falls below that minimum due to redemptions, the customer may be obliged to redeem, or the Participating Organization may be authorized to redeem the customer's shares for and on behalf of the customer. REDEMPTION BY MAIL A written request for redemption must be received by ADM or your Participating Organization in order to constitute a valid tender for redemption. ADM and the Participating Organizations are responsible for the prompt transmission of redemption requests to the Transfer Agent. The Transfer Agent will require a signature guarantee by an eligible guarantor institution if (a) the redemption check is to be payable to anyone other than the Class A or Class B shareholder(s) of record or (b) a redemption check is to be mailed or proceeds are to be wired to the Class A or Class B shareholder(s) at an address other than the address of record or other than a commercial bank account designated on the Account Registration Form of such Class A or Class B shareholder(s) or (c) the redemption proceeds exceed $50,000. For purposes of this policy, the term "eligible guarantor institution" shall mean members of the STAMP (Securities Transfer Agents Medallion Program), MSP (New York Stock Exchange Medallion Signature Program) or SEMP (Stock Exchanges Medallion Program). Participants of STAMP, MSP, and SEMP are subject to dollar value limitations which must be considered when requesting their authorization. The Transfer Agent reserves the right to reject any signature guarantee if it has reason to believe that the transaction would otherwise be improper. REDEMPTION BY TELEPHONE A shareholder may have the proceeds of redemption requests electronically transferred or mailed directly to a domestic commercial bank account previously designated by the shareholder on the Account Registration Form. Under most circumstances, such proceeds will be transmitted on the next Business Day following receipt of a valid request for redemption. If you authorize the telephone redemption option in your Account Registration Form such electronic redemption request may PROSPECTUS 32
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be made by the shareholder by telephone to ADM or your Participating Organization. The Transfer Agent will reduce the amount of a wire redemption payment by its then-current wire redemption charge. As of the date of this Prospectus, there is no charge for wire redemptions. While this policy is subject to change at any time, it is not anticipated that such charge would exceed $7 per wire redemption. There is no charge for having proceeds of redemption requests mailed to a designated bank account. The Trust will not permit shareholders to change their accounts by telephone. For telephone redemptions, call ADM at 800-258-9232. Neither the Trust, the Fund, Pacific Century, the Distributor nor the Transfer Agent are liable for damages resulting from following instructions communicated by telephone that any of them reasonably believed to be genuine. The Trust will employ reasonable procedures to confirm that instructions communicated by telephone are genuine. A description of the procedures employed by the Trust to confirm instructions communicated by telephone is contained in the Statement of Additional Information. This policy places the entire risk of loss for unauthorized or fraudulent transactions on the shareholder, except that if the Trust and BISYS do not follow reasonable procedures, some or all of them may be liable for any such losses. During times of drastic economic or market changes, telephone exchanges or redemptions may be difficult to implement. If you experience difficulty in making a telephone exchange or redemption, your exchange or redemption request may be made by regular or express mail, and it will be implemented at the next determined net asset value following receipt by the Transfer Agent. PAYMENTS TO CLASS A AND CLASS B SHAREHOLDERS Redemption orders are effected at the net asset value per share next determined after the Class A and Class B shares are properly tendered for redemption, as described above. The proceeds paid upon redemption of shares in the Fund may be more or less than the amount invested. Payment to shareholders for shares redeemed will be made within seven days after receipt by the Transfer Agent of the request for redemption. However, to the greatest extent possible, the Trust will attempt to honor requests from shareholders for next Business Day payments upon redemption of shares if the request for redemption is received by the Transfer Agent before 4:00 p.m., Eastern Time, on a Business Day or, if the request for redemption is received after 4:00 p.m., Eastern Time, to honor requests for payment within two Business Days, unless it would be disadvantageous to the Trust or the shareholders of the Fund to sell or liquidate portfolio securities in an amount sufficient to satisfy requests for payments in such manner. If the Trust is requested to redeem shares for which it has not yet received good payment, it may delay the forwarding of proceeds only until payment has been collected for the purchase of such shares. Such collection may take up to 15 days. To avoid delay in payment upon redemption shortly after purchasing shares, investors should purchase shares by certified or bank check or by wire transfer. The Trust intends to pay cash for all shares redeemed, but under abnormal conditions which make payment in cash inadvisable, the Trust may make payment wholly or partly in portfolio securities at their then-current market value equal to the redemption price, net of any CDSC. In such cases, an investor may incur brokerage costs in converting such securities to cash. Due to the relatively high cost of handling small accounts, the Trust reserves the right to redeem, at net asset value, the shares of any shareholder if, because of redemptions of shares by or on behalf of the shareholder, the account of such shareholder in the Fund has a value of less than $250 due to redemptions. Accordingly, an investor purchasing shares of the Fund in only the minimum investment amount may be subject to such involuntary redemption if he or she thereafter redeems some of his or her shares. Before the Trust exercises its right to redeem such shares and to send the proceeds to the shareholder, the shareholder will be given notice that the value of the shares of the Fund PROSPECTUS 33
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in his or her account is less than the minimum amount and will be allowed 60 days to make an additional investment in an amount which will increase the value of the account to at least $1,000. AUTO WITHDRAWAL PLAN The Auto Withdrawal Plan enables Class A shareholders of the Fund to make regular monthly or quarterly redemptions of Class A shares. With shareholder authorization, the Transfer Agent will automatically redeem Class A shares at the net asset value on the dates of the withdrawal and have a check in the amount specified mailed to the shareholder. The required minimum withdrawal is $100. To participate in the Auto Withdrawal Plan, shareholders should call ADM for more information. Purchases of additional shares concurrent with withdrawals may be disadvantageous to certain shareholders because of tax liabilities and sales charges. To change the Auto Withdrawal Instructions or to discontinue the feature, a shareholder must submit a written request to ADM or their Participating Organization. DIVIDEND AND TAX INFORMATION DIVIDENDS AND DISTRIBUTIONS The Fund will declare and pay dividends of substantially all of its net income quarterly. Distributable net realized capital gains are distributed at least annually to shareholders of record. A shareholder will automatically receive all income dividends and capital gains distributions in additional full and fractional shares of the same Class of shares held unless the shareholder elects to receive such dividends or distributions in cash. Dividends elected to be received in cash may be deposited directly into a shareholder's financial institution account, provided the shareholder has completed the appropriate section of the Account Registration Form. Dividends and distributions are reinvested without a sales charge as of the ex-dividend date using the net asset value determined on that date and are credited to a shareholder's account on the payment date. Reinvested dividends and distributions receive the same tax treatment as dividends and distributions paid in cash. Dividends are generally taxable when received. However, dividends declared in October, November or December to shareholders of record during those months and paid during the following January are treated for tax purposes as if they were received by each shareholder on December 31 of the prior year. Elections to receive dividends or distributions in cash, or any revocation thereof, must be made in writing to ADM at 581 Main Street, Woodbridge, New Jersey 07095, or to your Participating Organization and will become effective with respect to dividends and distributions having record dates after its receipt by the Transfer Agent. TAX INFORMATION The Fund intends to continue to qualify as a "regulated investment company" under the Internal Revenue Code of 1986, as amended (the "Code"). If it does so qualify, it will not be liable for federal income taxes to the extent it distributes its income in the form of dividends and capital gains distributions. However, the Code contains a number of complex tests relating to such qualification and it is possible, although not likely, that the Fund might not meet one or more of these tests in any particular year. If it does not so qualify, it would be treated for tax purposes as an ordinary corporation, would receive no tax deduction for payments made to shareholders and would be unable to pass through foreign tax credits or pay dividends or distributions which would qualify as "capital gains dividends," as discussed below. Corporate shareholders are not expected to be entitled to the dividends received deduction with respect to dividends paid by the Fund. PROSPECTUS 34
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Capital gains dividends (net gains from the sale of capital assets held for more than 12 months over net short-term losses which a Fund distributes) are reportable by shareholders as capital gains. This is the case whether the shareholder takes his distribution in cash or elects to have the distribution reinvested in Fund shares and regardless of the length of time the shareholder has held his or her shares. The maximum capital gains rate for individuals is 28% with respect to assets held for more than 12 months, but not more than 18 months ("mid-term gains"), and 20% with respect to assets held for more than 18 months ("long-term gains"). The maximum capital gains rate for corporate shareholders currently is the same as the maximum tax rate for ordinary income. Short-term gains, when distributed, are taxed to shareholders as ordinary income. Capital losses of the Fund are not claimed by shareholders but carried forward by the Fund to offset gains in later years and thereby reduce the later-year capital gains distributions and amounts taxed to shareholders. The Fund's gains or losses on sales of securities will be long-term, mid-term or short-term depending upon the length of time the Fund has held such securities. Capital gains and losses of the Fund will also include gains and losses on futures and options, if any, including gains and losses actually realized on sales and exchanges and gains and losses deemed to be realized. Those deemed to be realized are on futures and options held by the Fund at year-end, which are "marked to the market," that is, deemed sold for the fair market value. Net gains or losses realized and deemed realized on Section 1256 futures and options contracts will be reportable by the Fund as long-term to the extent of 60% of the gains or losses and short-term to the extent of 40% regardless of the actual holding period of such investments. The Fund may, from time to time, invest in passive foreign investment companies ("PFICs"). PFICs are foreign corporations which derive a majority of their income from passive sources. For tax purposes, the Fund's investments in PFICs are subject to special tax provisions that may result in the taxation of certain gains realized by the Fund as ordinary income, plus an interest liability on such gains or on distributions from the PFIC. See "Tax Information" in the SAI. Gains or losses on disposition of debt securities denominated in a foreign currency attributable to fluctuations in the value of foreign currency between the date of acquisition of the security and the date of disposition are treated as ordinary gain or loss. These gains or losses increase or decrease the amount of the Fund's investment company taxable income available to be distributed to shareholders as ordinary income, rather than increasing or decreasing the amount of the Fund's net capital gain. If currency fluctuation losses exceed other investment company taxable income during a taxable year, distributions made by the Fund during the year would be characterized as a return of capital to shareholders, reducing the shareholder's basis in his or her Fund shares. The Fund may incur foreign income taxes in connection with some of its foreign investments. Certain of these taxes may be credited to shareholders. See "Tax Information" in the SAI. The Trust will be required to withhold, subject to certain exemptions, at a rate of 31% on dividends paid and redemption proceeds (including proceeds from exchanges) paid or credited to non-exempt shareholders of the Fund, if a correct Taxpayer Identification Number, certified when required, is not on file with the Trust or the Transfer Agent. Under the Code, dividends (but not net capital gain distribution) paid to a non-resident alien or other foreign shareholder may be subject to U.S. withholding tax at the rate of 30% (or a lower treaty rate). Information as to the federal tax status of the Trust's dividends and distributions will be mailed to shareholders annually. PROSPECTUS 35
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TAX EFFECTS OF REDEMPTIONS A shareholder who redeems his or her shares or exchanges his or her shares for shares of another Fund generally will have a capital gain or loss (depending on whether the proceeds of the redemption are more or less than their tax basis, which is usually cost). In the case of an individual, any such capital gain will be treated as short-term capital gain if the shares were held for not more than 12 months, mid-term gain, taxable at the maximum rate of 28%, if such shares were held for more than 12, but not more than 18 months, and long-term capital gain, taxable at the maximum rate of 20%, if such shares were held for more than 18 months. In the case of a corporation, any such capital gain will be treated as long-term capital gain, taxable at the same rates as ordinary income, if such shares were held for more than 12 months. Any such capital loss will be treated as long-term capital loss if such shares were held for more than 12 months, and otherwise will be treated as short term capital loss. However, if the shares redeemed or sold were held for six months or less, any capital loss is treated as long-term to the extent of capital gains distributions received on such shares. HAWAIIAN TAX INFORMATION The Fund, and dividends and distributions made by the Fund to Hawaii residents, will generally be treated for Hawaii income tax purposes in the same manner as they are treated under the Code for federal income tax purposes. Persons or entities who are not Hawaii residents should not be subject to Hawaii income taxation on dividends and distributions made by the Trust but may be subject to other state and local taxes. ------------------------ For further information regarding taxation, see "Tax Information" in the SAI. The foregoing is a general and abbreviated summary of the applicable provisions of the Code and Treasury regulations presently in effect, and state taxation. Shareholders are urged to consult their own tax advisers regarding specific questions as to federal, state, local or foreign taxes. Foreign investors should consider applicable foreign taxes in their evaluation of an investment in the Fund. GENERAL INFORMATION PERFORMANCE From time to time performance for the Class A and Class B shares of the Fund showing the Fund's average annual total return and aggregate total return may be presented in advertisements, sales literature and in reports to Class A and Class B shareholders. Such performance figures are based on historical earnings and are not intended to indicate future performance. Average annual total return will be calculated for the period since the establishment of the Fund, and will, unless otherwise noted, reflect the imposition of maximum sales charge. Average annual total return is measured by comparing the value of an investment in the Class A shares of the Fund at the beginning of the relevant period to the redemption value of the investment, after reflecting the reinvestment of any dividends or capital gains distributions, and annualizing the difference. Aggregate total return is calculated similarly to average annual total return except that the return figure is aggregated over the relevant period instead of annualized. From time to time, average annual total return and aggregate total return for the Class A shares of the Funds may also be calculated and advertised on the basis of an investment in a Fund at the net asset value per share or at net asset value per share plus a reduced sales charge, rather than the public offering price per share. In this case, the figure would not reflect the effect of a maximum sales charge that a Class A shareholder may have paid. PROSPECTUS 36
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Shareholders may also be provided with information comparing the performance of the Class A and Class B shares of the Fund to the performance of other mutual funds or mutual fund portfolios with comparable investment objectives and policies. This information may be based on data relating to various mutual fund or market indices such as those prepared by Dow Jones & Co., Inc. and Standard & Poor's Corporation or data prepared by Lipper Analytical Services, Inc. Comparisons may also be made to indices or data published in Money Magazine, Forbes, Barron's, The Wall Street Journal, The New York Times, Business Week, American Banker, Institutional Investor, Pensions and Investments, USA Today, Fortune, CDA/Weisenberger, Ibbotson Associates, Inc., Morningstar and regional periodicals and newspapers. General information about the Fund that appears in a publication such as those mentioned above may also be quoted or reproduced in advertisements or in reports to shareholders. Reports to shareholders may contain performance information on other series of the Trust. Total return is a function of the type and quality of instruments held in the portfolio, operating expenses, and market conditions. Consequently, current total return will fluctuate and is not necessarily representative of future results. Any fees charged by an affiliate of Pacific Century or a Participating Organization with respect to customer accounts for investing in shares of the Fund will not be included in performance calculations; such fees, if charged, would reduce the actual total return from that quoted. Because of differences in the fees and/or expenses borne by the classes of shares of the Fund, the average annual total return and aggregate total return of the Class B shares can be expected, at any given time, to be lower than the average annual total return and aggregate total return of Class A shares. Standardized total return quotations will be computed separately for Class A and Class B shares. DESCRIPTION OF THE TRUST AND ITS SHARES CAPITALIZATION--The Trust was organized as a Massachusetts business trust on October 30, 1992, and currently consists of nine separately managed series. The Board of Trustees may establish additional series in the future. The series of the Trust are: the Balanced Fund, Diversified Fixed Income Fund, Growth and Income Fund, Growth Stock Fund, New Asia Growth Fund, Short-Intermediate U.S. Treasury Securities Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities Fund and the U.S. Treasury Securities Fund, each with unlimited transferable shares of beneficial interest, no par value. When issued in accordance with the terms and procedures described in their respective Prospectuses, shares of each separately managed series are fully paid, non-assessable and freely transferable. Each series is comprised of three classes of shares--Class A, Class B and Class Y shares. The classes have identical rights with respect to the series of which they are a part, provided that there are certain matters which affect one class but not another. Currently, the only such matters are the existence of the Distribution Plans with respect to each of Class A and Class B shares but not any Class Y shares, the absence of any sales load with regard to the purchase or redemption of the Class Y shares, and the fact that a salesperson or other person entitled to receive compensation for selling or servicing Class A, Class B or Class Y shares may receive different compensation with respect to one such Class over the other Class in the same Fund. On all such matters, shareholders vote as a class, and not by series. Class Y shares have different expenses, and are subject to no sales charge, which may effect performance. A separate Prospectus applies to the Class Y shares of each series. Prospectuses relating to the Class Y shares of each series may be obtained by calling the telephone number listed on the first page of this Prospectus. VOTING--Shareholders have the right to vote on the election of Trustees and on any and all matters as to which, by law or the provisions of the Declara- PROSPECTUS 37
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tion of Trust of the Trust, they may be entitled to vote. All shares of the Trust have equal voting rights and will be voted in the aggregate, and not by class or series, except where voting by class or series is required by law or where the matter involved affects only one class or series. The Trust is not required to hold annual meetings of the Fund's shareholders, and does not intend to do so, in any fiscal year in which it is not required by law to elect Trustees. The Trustees are required to call a meeting for the purpose of considering the removal of persons serving as Trustee, if requested in writing to do so by the holders of not less than 10% of the outstanding shares of the Trust. SHAREHOLDER LIABILITY--Under Massachusetts law, shareholders of the Fund could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Trust's Declaration of Trust disclaims shareholder liability for acts or obligations of the Trust. The Declaration of Trust provides for indemnification out of the Fund's property for all loss and expense of any shareholder of the Fund held liable on account of being or having been a shareholder. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which the Fund would be unable to meet its obligations. SHAREHOLDER INQUIRIES Shareholder inquiries may be addressed to the Fund at the address or telephone number set forth on the cover page of this Prospectus. PROSPECTUS 38
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APPLICATION FOR PACIFIC CAPITAL FUNDS PLEASE COMPLETE STEPS 1 THROUGH 4 AND MAIL TO: ADM, ATTN: OUTSIDE FUNDS TRANSFER AGENT OPERATIONS 581 MAIN STREET, WOODBRIDGE, NJ 07095-1198 1-800-258-9232 [PACIFIC LOGO] -------------------------------------------------------------------------------- STEP 1 ACCOUNT REGISTRATION PLEASE TYPE OR PRINT NAME EXACTLY AS ACCOUNT IS TO BE REGISTERED A. REGISTRATION [Enlarge/Download Table] [ ] Individual 1. ---------------------------------------------------------------------------------------------- First Name Middle Initial Last Name Social Security Number [ ] Joint Account* 2. ---------------------------------------------------------------------------------------------- (Use lines 1 First Name Middle Initial Last Name Social Security Number and 2) *JOINT ACCOUNTS WILL BE TENANTS WITH RIGHTS OF SURVIVORSHIP UNLESS OTHERWISE SPECIFIED. [ ] For a Minor 3. ----------------------------------------------------------------------------------------------- (Only one Custodian's First Name Middle Initial Last Name custodian Under the Uniform Gifts/Transfers to Minors Act and one minor ----------------------------------------------------------------------------------------------- are State permitted.) Custodian For ----------------------------------------------------------------------------------------------- Minor's First Name Middle Initial Last Name Minor's Social Security No. [ ] For Trust, 4. ----------------------------------------------------------------------------------------------- Corporation, (Name of Corporation or Partnership; PLEASE INDICATE TYPE OF ORGANIZATION. If a Trust, include Partnership or the name and date of the Trust Instrument. The name(s) of the Trustees in which account will be other Entity registered should be listed below. Account for a Pension or Profit Sharing Plan or Trust may be registered in the name of the Plan or Trust itself.) ----------------------------------------------------------------------------------------------- Tax I.D. Number Trustee(s) or Authorized Individual Title -------------------------------------------------------------------------------- B. MAILING ADDRESS AND TELEPHONE NUMBER -------------------------------------------------------------------------------- Street or P.O. Box City State Zip Code ( ) -------------------------------------------------------------------------------- Area Code Daytime Telephone Number Occupation -------------------------------------------------------------------------------- Employer's Name/Employer's Address City State Citizen or resident of: U.S. [ ] Other [ ] ___ Check here [ ] if you are a non U.S. Citizen or resident and not subject to back-up withholding. See certification in Step 4. -------------------------------------------------------------------------------- C. INVESTMENT DEALER OR BROKER: (Important -- to be competed by Dealer or Broker) -------------------------------------------------------------------------------- Dealer Name Branch Office Address Branch Office City/State Branch # ( ) -------------------------------------------------------------------------------- Representative's Name Rep # Area Code Telephone # [Agent User Dealer # / Branch #] -------------------------------------------------------------------------------- STEP 2 PURCHASE OF SHARES A. INITIAL INVESTMENT Make check payable to: Pacific Capital Funds Minimum Initial Investment in any Fund is $1,000. Subsequent Investments, $50. [Enlarge/Download Table] U.S. Treasury Securities Fund $ --------- Tax-Free Short Intermediate Securities $ --------- Fund Short Intermediate U.S. Treasury Securities Fund $ --------- Growth Stock Fund $ --------- Diversified Fixed Income Fund $ --------- Balanced Fund $ --------- Tax-Free Securities Fund $ --------- Growth and Income Fund $ --------- New Asia Growth Fund $ --------- Total Investment $ --------- -------------------------------------------------------------------------------- B. DISTRIBUTIONS: All income dividends and capital gains distributions will be REINVESTED in additional shares at net asset value unless otherwise indicated below. Dividends are to be: [ ] Reinvested [ ] Paid in cash* Capital Gains are to be: [ ] Reinvested [ ] Paid in cash* *FOR CASH DIVIDENDS, PLEASE CHOOSE ONE OF THE FOLLOWING OPTIONS: [ ] Wire directly into my financial institutional account. ATTACHED IS A VOIDED CHECK showing the account information where I would like the dividend deposited. [ ] Mail check to my address listed in Step 1B. [ ] Mail check as requested in Step 3F.
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-------------------------------------------------------------------------------- C. LETTER OF INTENT (See Terms of Escrow for Letter of Intent at the end of this application). ----------------------- Check appropriate box [ ] YES [ ] NO I/we intend to invest in shares of one or more of the Pacific Capital Funds during the 13-month period from the date of my first purchase pursuant to this Letter (which purchase cannot be more than 90 days prior to the date of this Letter), an aggregate amount (excluding any reinvestment of dividends or distributions) of at least $25,000 which, together with my present holdings of Pacific Capital Fund shares (at public offering price on date of this Letter), will equal or exceed the minimum amount checked below:* [ ] $ 25,000 [ ] $ 50,000 [ ] $ 100,000 [ ] $250,000 [ ] $500,000 [ ] $1,000,000 *Accumulated investments must aggregate at least $100,000 for reduced sales charges to apply to purchases of shares of the Short-Intermediate U.S. Treasury Securities Fund or the Tax-Free Short Intermediate Securities Fund. -------------------------------------------------------------------------------- STEP 3 SPECIAL FEATURES A. AUTOMATIC INVEST PROGRAM ----------------------- Check appropriate box [ ] YES [ ] NO This option provides you with a convenient way to have amounts automatically drawn on your financial institution account and invested in your Pacific Capital Fund account. To establish this program, please complete Step 4, Sections A & B of this Application. I wish to make regular monthly investments. The minimum initial purchase is reduced to $100 per Fund when you use this service. Subsequent minimum purchase is $50 for each Fund. YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK. [Download Table] Amount Please select how often you would like to have the ----------- Fund $ --------- amount(s) shown above withdrawn from your checking ----------- Fund $ --------- account and invested into the above selected Fund(s). ----------- Fund $ --------- [ ] Once each month -- on the 1st Total $ --------- [ ] Once each month -- on the 16th ----------- Fund ----------- Fund ----------- Fund [ ] Twice each month on the 1st and the 16th Total [ ] Once each quarter on the 1st beginning in the month of -----------------. -------------------------------------------------------------------------------- B. TELEPHONE INVESTMENT ----------------------- Check appropriate box [ ] YES [ ] NO This option provides you with a convenient way to add to your account at any time you wish by simply calling Administrative Data Management Corp. toll-free at 1-800-258-9232. To establish this program, please complete Step 4, Sections A & B of this Application. YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK. -------------------------------------------------------------------------------- C. AUTOMATIC WITHDRAWAL PLAN Application must be received in good order at least two weeks prior to 1st actual liquidation date. ----------------------- Check appropriate box [ ] YES [ ] NO [Download Table] $ --------------------------- ------------------------- Fund $ --------------------------- ------------------------- Fund Total $ --------------------------- Please establish an Automatic Withdrawal Plan for this account, subject to the terms of the Automatic Withdrawal Plan Provisions set forth below. To realize the amount stated below, Administrative Data Management Corp. (the "Agent") is authorized to redeem sufficient shares from this account at the then current Net Asset Value, in accordance with the terms below: The minimum Automatic Withdrawal amount is $100 per Fund. Please select how often you would like to have payments made from your account under the Automatic Withdrawal Plan. [Download Table] [ ] Once each month -- on the [ ] Twice each month on the 1st and 16th 1st [ ] Once each month -- on the [ ] Once each quarter on the 1st beginning in 16th the month of -------------------- . Please choose one of the following options: [ ] Mail check to my address listed in Step 1a. [ ] Mail check as requested in Step 3f.
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-------------------------------------------------------------------------------- D. 1. TELEPHONE EXCHANGE This option allows you to effect exchanges among accounts in your name within the Pacific Capital group of Funds, as described in the Prospectus, by telephone. ----------------------- Check appropriate box [ ] YES [ ] NO The Agent is authorized to accept and act upon my/our or any other person's telephone instructions to execute the exchange of shares of one Pacific Capital Fund for one of the funds into which exchange is permitted, as designated in the Prospectus, with identical shareholder registration. The exchange will be executed at the relative net asset values of the two funds as next determined following receipt of such instructions. Except for gross negligence in acting upon such telephone instructions to execute an exchange and subject to the conditions set forth herein, I (we) understand and agree to hold harmless the Agent, each of the Pacific Capital Funds, and their respective officers, directors, trustees, employees, agents and affiliates against any liability, damage, expense, claim or loss, including reasonable costs and attorney's fees resulting from acceptance of or acting or failure to act upon this Authorization. TO MAKE A TELEPHONE EXCHANGE, CALL THE AGENT AT 1-800-258-9232. 2. TELEPHONE REDEMPTION This option allows you to effect telephone redemptions, as described in the Prospectus. ----------------------- Check appropriate box [ ] YES [ ] NO The Agent is authorized to accept and act upon my/our or any other person's telephone instructions to execute a redemption of shares of one or more Pacific Capital Funds. The redemption will be executed at net asset value next determined following receipt of such instructions. Except for gross negligence in acting upon such telephone instructions to execute a redemption and subject to the conditions set forth herein, I (we) understand and agree to hold harmless the Agent, each of the Pacific Capital Funds, and their respective officers, directors, trustees, employees, agents and affiliates against any liability, damage, expense, claim or loss, including reasonable costs and attorney's fees resulting from acceptance of or acting or failure to act upon this Authorization. TO MAKE A TELEPHONE REDEMPTION, CALL THE AGENT AT 1-800-258-9232. -------------------------------------------------------------------------------- E. EXPEDITED REDEMPTION The proceeds will be deposited to your financial institution account listed. ----------------------- Check appropriate box [ ] YES [ ] NO TO MAKE AN EXPEDITED REDEMPTION, CALL THE AGENT AT 1-800-258-9232. Cash proceeds in any amount from the redemption of shares will be mailed or wired, whenever possible, upon request, if in an amount of $1,000 or more to my (our) account at a financial institution. The financial institution account must be in the same name(s) as this Pacific Capital Fund account is registered. YOU MUST ATTACH A PRE-PRINTED DEPOSIT SLIP OR VOIDED CHECK. [Enlarge/Download Table] -------------------------------------------- --------------------------------------- Financial Institution Account Registration Financial Institution Account Number -------------------------------------------- --------------------------------------- Name of Financial Institution Financial Institution Transit/Routing Number -------------------------------------------- --------------------------------------- Street City State Zip Code -------------------------------------------------------------------------------- F. SECONDARY ADDRESS ----------------------- Check appropriate box [ ] YES [ ] NO Checks should be made payable as indicated below. If check is payable to a financial institution, i.e., a commercial bank, savings bank or credit union, for your account, indicate financial institution name, address and your account number. [Enlarge/Download Table] -------------------------------------------- --------------------------------------- First Name Middle Initial Last Name Name of Financial Institution -------------------------------------------- --------------------------------------- First Name Middle Initial Last Name Street -------------------------------------------- --------------------------------------- Street City State Zip Code -------------------------------------------- --------------------------------------- City State Zip Code Financial Institution Account Number
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-------------------------------------------------------------------------------- STEP 4 DEPOSITORS AUTHORIZATION TO HONOR DEBITS SECTION A IF YOU SELECTED AUTOMATIC INVESTMENT OR TELEPHONE INVESTMENT YOU MUST ALSO COMPLETE STEP 4, SECTIONS A & B. I/We authorize the Financial Institution listed below to charge my/our account for any drafts or debits drawn on my/our account initiated by the Agent, Administrative Data Management Corp., and to pay such sums in accordance therewith, provided my/our account has sufficient funds to cover such drafts or debits. I/We further agree that your treatment of such orders will be the same as if I/we personally signed or initiated the drafts or debits. I/We understand that this authority will remain in effect until you receive my/our written instructions to cancel this service. I/We also agree that if any such drafts or debits are dishonored, for any reason, you shall have no liabilities. FINANCIAL INSTITUTION ACCOUNT NUMBER [Enlarge/Download Table] NAME AND ADDRESS ------------------------------------------------------------------------ WHERE MY/OUR NAME OF FINANCIAL INSTITUTION ACCOUNT IS ------------------------------------------------------------------------ MAINTAINED STREET ADDRESS ------------------------------------------------------------------------ CITY STATE ZIP CODE NAME(S) AND ---------------------------------------------------- ------------------ SIGNATURE(S) OF PLEASE PRINT DATE DEPOSITOR(S) AS ---------------------------------------------------- ------------------ THEY APPEAR WHERE SIGNATURE DATE ACCOUNT IS ---------------------------------------------------- REGISTERED PLEASE PRINT ---------------------------------------------------- SIGNATURE -------------------------------------------------------------------------------- SECTION B SHAREHOLDER AUTHORIZATION / SIGNATURE(S) REQUIRED - I/We authorize the Pacific Capital Funds and its agents to act upon these Instructions for the features that have been checked. - I/We acknowledge that in connection with an Automatic Investment or Telephone Investment, if my/our account at the Financial Institution has insufficient funds, Pacific Capital Funds and its agents may cancel the purchase transaction and are authorized to liquidate other shares or fractions thereof held in my/our Pacific Capital Fund account to make up any deficiency resulting from any decline in the net asset value of shares so purchased and any dividends paid on those shares. I/We understand that in the event of such deficiency, Pacific Capital Funds and its agents will first liquidate shares of the Pacific Capital Fund to which the purchase transaction relates, and then, in the discretion of Pacific Capital Funds and its agents, shares of any other Pacific Capital Fund in my/our account at the Financial Institution. I/We authorize Pacific Capital Funds and its agents to correct any transfer error by a debit or credit to my/our financial Institution account and/or Fund account and to charge the account for any related charges. - I/We acknowledge that shares purchased either through Automatic Investment or Telephone Investment are subject to applicable sales charges. - The undersigned warrants that he/she has full authority and is of legal age to purchase shares of the Pacific Capital Fund(s) designated above and has received and read a current Prospectus of such Fund(s) and agrees to its terms. Pacific Capital Funds, Agent and the Distributor and their Trustees, directors, employees and agents will not be liable for acting upon instructions believed to be genuine, and will not be responsible for any losses resulting from unauthorized telephone transactions if the Agent follows reasonable procedures designed to verify the identity of the caller. The Agent will request some or all of the following information: account name and number, name(s) and social security number registered to the account and personal identification; the Agent may also record calls. Shareholders should verify the accuracy of confirmation statements immediately upon receipt. Under penalties of perjury, the undersigned whose Social Security (Tax I.D.) Number is shown above certifies(I) that Number is my correct taxpayer identification number and (II) currently I am not under IRS notification that I am subject to backup withholding (line out (II) if under notification). If no such Number is shown, the undersigned further certifies, under penalties of perjury, that either (a) no such Number has been issued, and a Number has been or will soon be applied for. If a Number is not provided to you within sixty days, the undersigned understands that all payments (including liquidations) are subject to 31% withholding under federal tax law, until a Number is provided and the undersigned may be subject to a $50 I.R.S. penalty; or (b) that the undersigned is not a citizen resident of the U.S.; and either does not expect to be in the U.S. for more than 182 days during each calendar year and does not conduct a business in the U.S. which would receive any gain from the Fund, or is exempt under an income tax treaty. NOTE: ALL REGISTERED OWNERS OF THE ACCOUNT MUST SIGN BELOW. FOR A TRUST, ALL TRUSTEES MUST SIGN* [Enlarge/Download Table] ------------------------------------------ ------------------------------------------ ------------------ INDIVIDUAL (OR CUSTODIAN) JOINT REGISTRANT, IF ANY DATE ------------------------------------------ CORPORATE OFFICER, PARTNER, TRUSTEE(S), ------------------------------------------ ------------------ ETC. TITLE DATE *FOR A TRUST, CORPORATION OR ASSOCIATION, THIS FORM MUST BE ACCOMPANIED BY PROOF OF AUTHORITY TO SIGN, SUCH AS A CERTIFIED COPY OF THE CORPORATE RESOLUTION OR A CERTIFICATE OF INCUMBENCY UNDER THE TRUST INSTRUMENT.
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SPECIAL INFORMATION - Certain features (Automatic Investment, Telephone Investment, Expedited Redemption and Direct Deposit of Dividends) are effective 15 days after this form is received in good order by the Fund's Agent. - You may cancel any feature at any time, effective 3 days after the Agent receives notice from you. - Either the Fund or the Agent may cancel any feature, without prior notice, if in its judgment your use of any feature involves unusual effort or difficulty in the administration of your account. - The Fund reserves the right to alter, amend or terminate any or all features or to charge a service fee upon 30 days' written notice to shareholders except if additional notice is specifically required by the terms of the Prospectus. BANKING INFORMATION - If your Financial Institution account changes, you must complete a Ready Access Features form which may be obtained from the Agent at 1-800-258-9232 and send it to the Agent together with a "voided" check or pre-printed deposit slip from the new account. The new Financial Institution change is effective in 15 days after this form is received in good order by the Fund's Agent. TERMS OF LETTER OF INTENT AND ESCROW By checking Box 2c and signing the Application, the investor is entitled to make each purchase at the public offering price applicable to a single transaction of the dollar amount checked above, and agrees to be bound by the terms and conditions applicable to Letters of Intent appearing below. The investor is making no commitment to purchase shares, but if the investor's purchases within thirteen months from the date of the investor's first purchase do not aggregate $25,000, or, if such purchases added to the investor's present holdings do not aggregate the minimum amount specified above, the investor will pay the increased amount of sales charge prescribed in the terms of escrow below. The commission to the dealer or broker, if any, named herein shall be at the rate applicable to the minimum amount of the investor's specified intended purchases checked above. If the investor's actual purchases do not reach this minimum amount, the commissions previously paid to the dealer will be adjusted to the rate applicable to the investor's total purchases. If the investor's purchases exceed the dollar amount of the investor's intended purchases and pass the next commission break-point, the investor shall receive the lower sales charge, provided that the dealer returns to the Distributor the excess of commissions previously allowed or paid to him over that which would be applicable to the amount of the investor's total purchases. The investor's dealer or broker shall refer to this Letter of Intent in placing any future purchase orders for the investor while this Letter is in effect. The escrow shall operate as follows: 1. Out of the initial purchase (or subsequent purchases if necessary), 3% of the dollar amount specified in the Letter of Intent shall be held in escrow in shares of the Fund by the Agent. All dividends and any capital distributions on the escrowed shares will be credited to the investor's account. 2. If the total minimum investment specified under the Letter is completed within a thirteen-month period, the escrowed shares will be promptly released to the investor. However, shares disposed of prior to completion of the purchase requirement under the Letter will be deducted from the amount required to complete the investment commitment. 3. If the total purchases pursuant to the Letter are less than the amount specified in the Letter as the intended aggregate purchase, the investor must remit to the Agent an amount equal to the difference between the dollar amount of sales charges actually paid and the amount of sales charges which would have been paid if the total amount purchased had been made at a single time. If such difference in sales charges is not paid within twenty days after receipt of a request from the Agent or the dealer, the Agent will, within sixty days after the expiration of the Letter, redeem the number of escrowed shares necessary to realize such difference in sales charges. Any shares remaining after such redemption will be released to the investor. The escrow of shares will not be released until any additional sales charge due has been paid as stated in this section. 4. By checking Box 2c and signing the Application, the investor irrevocably constitutes and appoints the Agent or the Distributor as his attorney to surrender for redemption any or all escrowed shares on the books of the Fund. AUTOMATIC WITHDRAWAL PLAN PROVISIONS By requesting an Automatic Withdrawal Plan, the applicant agrees to the terms and conditions applicable to such plans, as stated below. 1. The Agent will administer the Automatic Withdrawal Plan (the "Plan") as agent for the person (the "Planholder") who executed the Plan authorization. 2. Certificates will not be issued for shares of the Fund purchased for and held under the Plan, but the Agent will credit all such shares to the Planholder on the records of the Fund. Any share certificates now held by the Planholder may be surrendered unendorsed to the Agent with the application so that the shares represented by the certificate may be held under the Plan. 3. Dividends and distributions will be reinvested in shares of the Fund at the Net Asset Value. 4. Redemptions of shares in connection with disbursement payments will be made at the Net Asset Value per share in effect at the close of business on the first business day of the month or quarter. 5. The amount and the interval of disbursement payments and the address to which checks are to be mailed may be changed, at any time, by the Planholder on written notification to the Agent. The Planholder should allow at least two weeks' time in mailing such notification before the requested change can be put in effect. 6. The Planholder may, at any time, instruct the Agent by written notice (in proper form in accordance with the requirements of the then current prospectus of the Fund) to redeem all, or any part of, the shares held under the Plan. In such case the Agent will redeem the number of shares requested at the Net Asset Value per share in effect in accordance with the Fund's usual redemption procedures and will mail a check for the proceeds of such redemption to the Planholder. 7. The Plan may, at any time, be terminated by the Planholder on written notice to the Agent, or by the Agent upon receiving directions to that effect from the Fund. The Agent will also terminate the Plan upon receipt of evidence satisfactory to it of the death or legal incapacity of the Planholder. Upon termination of the Plan by the Agent or the Fund, shares remaining unredeemed will be held in an uncertificated account in the name of the Planholder, and the account will continue as a dividend-reinvestment, uncertificated account unless and until proper instructions are received from the Planholder, his executor or guardian, or as otherwise appropriate. 8. The Agent shall incur no liability to the Planholder for any action taken or omitted by the Agent in good faith. 9. In the event that the Agent shall cease to act as transfer agent for the Fund, the Planholder will be deemed to have appointed any successor transfer agent to act as his Agent in administering the Plan. 10. Purchases of additional shares concurrently with withdrawals are undesirable because of sales charges when purchases are made. Accordingly, a Planholder may not maintain this Plan while simultaneously making regular purchases. While an occasional lump sum investment may be made, such investment should normally be an amount equivalent to three times the annual withdrawal or $5,000, whichever is less.
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[PACIFIC CAPITAL FUNDS LOGO] NEW ASIA GROWTH FUND CLASS A AND CLASS B INVESTMENT ADVISER Pacific Century Trust 111 S. King Street Honolulu, Hawaii 96813 SUB-ADVISOR Nicholas - Applegate Capital Management (Hong Kong) LLC 8 Connaught Place Hong Kong ADMINISTRATOR AND DISTRIBUTOR BISYS Fund Services 3435 Stelzer Road Columbus, Ohio 43219-3035 LEGAL COUNSEL Shereff, Friedman, Hoffman & Goodman, LLP 919 Third Avenue New York, New York 10022 AUDITORS Ernst & Young LLP One Columbus, Suite 2300 10 West Broad Street Columbus, Ohio 43215 TRANSFER AGENT Administrative Data Management Corp. 581 Main Street Woodbridge, New Jersey 07095
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PACIFIC CAPITAL FUNDS 3435 Stelzer Road Columbus, Ohio 43219-3035 Pacific Capital Funds (the "Trust") is a professionally managed, open-end, management investment company with multiple funds available for investment. This Prospectus contains information about each of the nine funds comprising the Trust (each a "Fund" and collectively, the "Funds"): [Download Table] Short Intermediate U.S. Treasury Balanced Fund Securities Fund Diversified Fixed Income Fund Tax-Free Securities Fund Growth and Income Fund Tax-Free Short Intermediate Securities Growth Stock Fund Fund New Asia Growth Fund U.S.Treasury Securities Fund The Funds are advised by Pacific Century Trust ("Pacific Century"), a division of Bank of Hawaii and sponsored, administered and distributed by BISYS Fund Services ("BISYS" or the "Distributor"). Nicholas-Applegate Capital Management (Hong Kong) LLC ("Nicholas-Applegate") serves as sub-adviser (the "Sub-Adviser") to the New Asia Growth Fund. Pacific Century and the Sub-Adviser may each be referred to herein as the "Investment Adviser.") The Balanced Fund has not yet commenced operations. This Prospectus relates only to the "Class Y" shares of each Fund; certain investors may not qualify to invest in a Fund's Class Y shares, but may invest in a Fund's Class A and Class B shares which is not offered hereby. See, "General Information--Description of the Trust and its Shares." This Prospectus sets forth concisely the information a prospective investor should know before investing in any of the Funds. Investors should read this Prospectus carefully and retain it for future reference. A Statement of Additional Information ("SAI") dated November 29, 1997, containing additional and more detailed information about the Funds has been filed with the Securities and Exchange Commission (the "Commission") and is hereby incorporated by reference into this Prospectus. The SAI is available without charge and can be obtained by writing to the Funds at the address printed above or calling 800-258-9232. FOR PURCHASE, REDEMPTION, ACCOUNT OR GENERAL INQUIRIES, CONTACT THE TRUST'S TRANSFER AGENT: ADMINISTRATIVE DATA MANAGEMENT CORPORATION, 581 MAIN STREET, WOODBRIDGE, NEW JERSEY 07095 800-258-9232 THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE ------------------------ SHARES OF PACIFIC CAPITAL FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED BY, BANK OF HAWAII OR ANY OF ITS AFFILIATES. SUCH SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER AGENCY. AN INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------ PROSPECTUS DATED NOVEMBER 29, 1997
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TABLE OF CONTENTS [Enlarge/Download Table] PAGE ---- Highlights............................................................................ 1 Fund Expenses......................................................................... 5 Financial Highlights.................................................................. 7 Investment Objectives and Policies of the Funds....................................... 10 Additional Discussion Regarding Permitted Investment Activities....................... 13 Additional Risk Disclosure............................................................ 26 Additional Investment Restrictions.................................................... 30 Management, Advisory and Other Service Arrangements................................... 31 Valuation of Class Y Shares........................................................... 34 How to Purchase Class Y Shares........................................................ 34 How to Redeem Class Y Shares.......................................................... 36 Dividend and Tax Information.......................................................... 37 General Information................................................................... 40
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HIGHLIGHTS This Prospectus describes the Funds, each of which has its own distinct investment objectives and policies, which are described and summarized here. BALANCED FUND--The primary investment objective of Balanced Fund, a diversified portfolio, is to seek current income. A secondary objective of Balanced Fund is long-term capital appreciation. Balanced Fund pursues these objectives by investing in a diversified portfolio of common stocks, preferred stocks, bonds and securities that are convertible into common stocks. Common stocks will be selected on the basis of strong earnings, growth trends, above-average prospects for future earnings growth, and diversification among industries and companies. Preferred stocks, bonds and convertible securities will be selected on the basis of strong earnings and credit record, the ability to provide current income, and the other characteristics described above with respect to common stocks. DIVERSIFIED FIXED INCOME FUND--The investment objective of Diversified Fixed Income Fund, a diversified portfolio, is to seek a high level of current income. Diversified Fixed Income Fund seeks to achieve this objective by investing primarily in obligations issued or guaranteed by the U.S. Government, its agencies, or instrumentalities ("U.S. Government Obligations") and in investment grade debt securities. Pacific Century will monitor Diversified Fixed Income Fund's portfolio performance on an ongoing basis and reallocate assets in response to actual and anticipated market and economic changes. This approach may result in significant variations in the dollar-weighted average remaining maturity of Diversified Fixed Income Fund's portfolio. GROWTH AND INCOME FUND--The primary investment objective of Growth and Income Fund, a diversified portfolio, is to seek current income. A secondary objective of Growth and Income Fund is long-term capital appreciation. Growth and Income Fund pursues these objectives by investing primarily in a diversified portfolio of high quality, dividend paying common stocks and securities that are convertible into common stocks. GROWTH STOCK FUND--The primary investment objective of Growth Stock Fund, a diversified portfolio, is to provide investors with long-term capital appreciation. Income generation is a secondary objective of Growth Stock Fund. Growth Stock Fund pursues these objectives by investing primarily in common stocks and securities that are convertible into common stocks of both domestic and foreign companies. Growth Stock Fund may invest in securities issued by large, well-established companies, as well as those issued by smaller companies, subject to a minimum market capitalization of $50 million. There may be some additional risks associated with investments in smaller companies. See "Certain Risks" below. NEW ASIA GROWTH FUND--New Asia Growth Fund's investment objective is long-term growth of capital. New Asia Growth Fund seeks to achieve this objective primarily through direct or indirect investments in equity securities of companies located in the developing countries of Asia. New Asia Growth Fund invests indirectly in the equity securities of companies located in developing Asian countries by purchasing interests in other foreign investment companies or trusts which themselves invest in the developing countries of Asia. New Asia Growth Fund may invest to a lesser degree in debt securities and other instruments (i.e., warrants and securities convertible into equity or debt securities) if the investment adviser believes that such investments would help achieve New Asia Growth Fund's investment objective. Current income from dividends and interest will not be an important consideration in selecting portfolio securities. Because of its emphasis on the economies of the developing countries of Asia, New Asia Growth Fund should be considered a vehicle for diversification of an individual's portfolio and not a balanced investment program. PROSPECTUS 1
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SHORT INTERMEDIATE U.S.TREASURY SECURITIES FUND--The primary investment objective of Short Intermediate U.S.Treasury Securities Fund, a diversified portfolio, is to provide investors with a high level of current income consistent with prudent risk of capital. Capital appreciation is a secondary objective of Short Intermediate U.S. Treasury Securities Fund. Short Intermediate U.S. Treasury Securities Fund seeks to achieve these objectives by investing primarily in U.S. Treasury bonds, notes and bills ("U.S. Treasury Securities") and repurchase agreements that are collateralized by U.S. Treasury Securities. Under normal market conditions, the dollar-weighted average remaining maturity of Short Intermediate U.S. Treasury Securities Fund's portfolio will be from two to five years. TAX-FREE SECURITIES FUND--The investment objective of Tax-Free Securities Fund, a non-diversified portfolio, is to provide investors with a high level of current income exempt from federal income tax and Hawaii income Tax. Tax-Free Securities Fund pursues this objective by investing, under normal market conditions, at least 80% of the Fund's net assets in debt obligations of issuers that pay interest that, in the opinion of counsel to the issuer, is exempt from federal income tax and is not subject to the federal alternative minimum tax ("Municipal Obligations"). In addition, Tax-Free Securities Fund intends to invest at least 50%, and no more than 60%, of the market value of its securities in debt obligations issued by or on behalf of the State of Hawaii and its political subdivisions, agencies and instrumentalities and other issuers which pay interest that is exempt from Hawaii personal income tax and exempt from federal income tax, but which, subject to the guidelines discussed above, may be subject to the federal alternative minimum tax ("Hawaiian Municipal Obligations"). Pacific Century will monitor Tax-Free Securities Fund's portfolio performance on an ongoing basis and will reallocate assets in response to actual and anticipated market and economic changes. This approach may result in significant variations in the dollar-weighted average remaining maturity of Tax- Free Securities Fund's portfolio. TAX-FREE SHORT INTERMEDIATE SECURITIES FUND--The investment objectives of Tax-Free Short Intermediate Securities Fund, a non-diversified portfolio, are to provide investors with a high level of current income, exempt from federal income tax and Hawaii income tax, and to provide greater price stability than a long-term bond fund. Tax-Free Short Intermediate Securities Fund pursues these objectives by investing, under normal market conditions, at least 80% of its net assets in Municipal Obligations. In addition, Tax-Free Short Intermediate Securities Fund intends to invest at least 50%, and no more than 60%, of the market value of its securities in Hawaiian Municipal Obligations. Under normal market conditions, the dollar-weighted average remaining maturity of Tax-Free Short Intermediate Securities Fund's portfolio will be from two to five years. U.S. TREASURY SECURITIES FUND--The primary investment objective of U.S. Treasury Securities Fund, a diversified portfolio, is to provide investors with a high level of current income consistent with prudent risk of capital. Capital appreciation is a secondary investment objective of U.S. Treasury Securities Fund. U.S. Treasury Securities Fund seeks to achieve these objectives by (i) investing primarily in U.S. Treasury Securities and repurchase agreements that are collateralized by U.S. Treasury Securities; and (ii) varying the dollar-weighted average remaining maturity of its portfolio to take advantage of changes in interest rates. CERTAIN RISKS To the extent a Fund invests in fixed income securities, the Fund is subject to default risk (i.e., the risk that the issuers of securities in which the Fund invests may default in the payment of principal and/or interest). A fund investing in fixed income securities is also subject to interest rate risk (i.e., the risk that increases in market interest rates may adversely affect the value of the debt securities in which a Fund invests and hence the value of an investment in such Fund). PROSPECTUS 2
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To the extent a Fund invests in equity securities, its portfolio is subject to market risk (i.e., the possibility that common stock prices will decline over short or even extended periods). Equity securities are more volatile and carry more risk than some other forms of investment, such as short-term high-grade fixed income securities. Investments in the securities of smaller and newer companies may present greater opportunities for capital appreciation because of high potential earnings growth, but they may also involve greater risk. Such companies, relative to larger concerns, may have limited product lines, markets or financial resources, or may depend on a small group of key managers. Their securities may trade less frequently or in limited volume, or only in the over-the-counter market or on a regional securities exchange. As a result, these securities may fluctuate in value more than those of larger, more established companies and, as a group, may suffer more severe price declines during periods of generally declining equity prices. New Asia Growth Fund invests primarily in equity securities located in developing countries of Asia. Investments in securities of companies located in the developing countries of Asia involve special considerations and risks not typically associated with investments in securities of United States issuers, including: the risks associated with international investing generally, such as currency fluctuations; the risks of investing in countries with smaller capital markets, such as limited liquidity, price volatility and restrictions on foreign investment; and the risks associated with the undeveloped economies of the developing countries of Asia, including significant political and social uncertainties, government involvement in the economies, overburdened infrastructures, archaic legal systems, environmental problems, and obsolete financial systems. The operating expense ratio of New Asia Growth Fund can be expected to be higher than that of an investment company investing exclusively in United States securities because the expenses of the Fund, such as custodial and brokerage costs, are higher. Investors are reminded that in certain circumstances, their right to redeem shares in New Asia Growth Fund may be suspended. There can, of course, be no assurance that any Fund will achieve its investment objective. In addition, unlike insured bank deposits, no investment in a Fund is insured against loss of principal. Furthermore, depending upon the performance of a Fund's investments, the net asset value per share of that Fund may decrease instead of increase. ------------------------ For additional information concerning the investment policies and practices of the Funds, see "Investment Objectives and Policies of the Funds," "Additional Discussion Regarding Permitted Investment Activities," "Additional Risk Disclosure" and "Additional Investment Restrictions" in this Prospectus. Further information also is provided in the SAI. PURCHASE OF SHARES Class Y shares of the Funds are offered at net asset value. See "Valuation of Class Y Shares" and "How to Purchase Class Y Shares." Only institutions (including Bank of Hawaii and its affiliated and correspondent banks) ("Institutions") acting on behalf of customers having a qualified trust account, employee benefit account or other qualifying account at such Institution are eligible to invest in the Class Y shares of each Fund's shares. Direct purchases of Fund shares by individual investors, including purchases through SIPC insured brokerage accounts, are not permitted. Investors not eligible to invest in a Fund's Class Y shares may invest in such Fund's Class A and Class B shares, which shares are not offered hereby. See "General Information." Class Y shares of each Fund are sold on a continuous basis and purchases may be made by mail or by wire. PROSPECTUS 3
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DIVIDENDS AND DISTRIBUTIONS Diversified Fixed Income Fund, Short Intermediate U.S. Treasury Securities Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities Fund and U.S. Treasury Securities Fund will declare dividends of substantially all of their net income daily and will pay such dividends monthly. Balanced Fund, Growth and Income Fund and Growth Stock Fund will declare and pay dividends of substantially all of their net income monthly. New Asia Growth Fund will declare and pay dividends of substantially all of its net income quarterly. Any net capital gains of a Fund will be distributed at least annually. At an investor's choice, dividends are paid by mail, directly deposited into a bank account, or automatically reinvested in additional shares at the then-current net asset value. If no election is made, dividends will be automatically reinvested. See "Dividend and Tax Information." PACIFIC CENTURY, THE SUB-ADVISER AND BISYS For its services as investment adviser to the Funds, Pacific Century receives a fee from each Fund at annual rates that are based on the Fund's average daily net assets. See, "Fund Expenses" and "Management, Advisory and Other Service Arrangements." A division of Bank of Hawaii, Pacific Century was founded in 1898 and is the oldest and largest trust company in Hawaii. It has investment authority over approximately $7.5 billion in client financial assets, including having investment authority over approximately $1.5 billion in municipal obligations. Pacific Century is not authorized to and does not carry on a banking business. Pacific Century has retained the Sub-Adviser to provide investment advisory services with respect to management of the foreign component of New Asia Growth Fund's portfolio. For its services, Pacific Century pays the Sub-Adviser a fee at an annual rate based on New Asia Growth Fund's average daily net assets. BISYS provides certain administrative services to the Funds, for which each Fund pays it a fee at an annual rate based on the Fund's average daily net assets. BISYS also distributes the Funds' shares. See "Management, Advisory and Other Service Arrangements." REDEMPTION OF CLASS Y SHARES An Institution may redeem Class Y shares on behalf of its customers without charge on any day that the net asset value of the relevant Fund is calculated (see, "Valuation of Class Y Shares") and Class Y shares may ordinarily be redeemed by mail or by telephone. PROSPECTUS 4
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FUND EXPENSES The following Table of Expenses lists the costs and expenses that a shareholder can expect to incur as an investor in the Class Y shares of a Fund. Certain investors may not qualify to invest in a Fund's Class Y shares, but may invest in a Fund's Class A and Class B shares, which are not offered hereby. TABLE OF EXPENSES* [Enlarge/Download Table] SHORT INTERMEDIATE DIVERSIFIED GROWTH NEW U.S. FIXED AND GROWTH ASIA TREASURY TAX-FREE BALANCED INCOME INCOME STOCK GROWTH SECURITIES SECURITIES FUND FUND FUND FUND FUND FUND FUND -------- ----------- ------ ------ ------ ------------ ---------- ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets) Management Fees........................ 0.80% 0.60% 0.80% 0.80% 0.90% 0.30%+ 0.60% Other Expenses (after waivers and reimbursements)...................... 0.27% 0.30% 0.27% 0.27% 0.82% 0.32% 0.27% Total Fund Operating Expenses (after waivers and reimbursements).......... 1.07% 0.90% 1.07% 1.07% 1.72% 0.62% 0.87% TAX-FREE SHORT U.S. INTERMEDIATE TREASURY SECURITIES SECURITIES FUND FUND ------------ ---------- ANNUAL FUND OPERATING EXPENSES (as a percentage of average net assets) Management Fees........................ 0.50% 0.60% Other Expenses (after waivers and reimbursements)...................... 0.34% 0.31% Total Fund Operating Expenses (after waivers and reimbursements).......... 0.84% 0.91% --------------- +REFLECTS WAIVER. SEE "EXPLANATION OF TABLE" BELOW. EXAMPLE A shareholder would pay the following expenses on a $1,000 investment in Class Y shares assuming (1) 5% annual return** and (2) redemption at the end of each time period: [Enlarge/Download Table] SHORT INTERMEDIATE DIVERSIFIED GROWTH NEW U.S. FIXED AND GROWTH ASIA TREASURY TAX-FREE BALANCED INCOME INCOME STOCK GROWTH SECURITIES SECURITIES FUND FUND FUND FUND FUND FUND FUND -------- ----------- ------ ------ ------ ------------ ---------- Time Period ----------------------------------------- 1 year.............................. $ 11 $ 9 $ 11 $ 11 $ 17 $ 6 $ 9 3 years............................. $ 34 $ 29 $ 34 $ 34 $ 54 $ 20 $ 28 5 years............................. $ 59 $ 50 $ 59 $ 59 $ 93 $ 35 $ 48 10 years............................. $131 $ 111 $131 $131 $203 $ 77 $107 TAX-FREE SHORT U.S. INTERMEDIATE TREASURY SECURITIES SECURITIES FUND FUND ------------ ---------- Time Period ----------------------------------------- 1 year.............................. $ 9 $ 9 3 years............................. $ 27 $ 29 5 years............................. $ 47 $ 50 10 years............................. $104 $112 ------------ * Investors who purchase shares through an Institution (as defined above) may be charged account-level fees for additional services provided to them by such Institution in connection with an investment in a Fund. ** The assumed 5% annual return is hypothetical and should not be considered a representation of past or future annual return. The actual rate of return may be greater or less than the assumed rate. The Example should not be considered a representation of past or future expenses, and actual expenses may be greater or lesser than those shown. PROSPECTUS 5
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EXPLANATION OF TABLE The purpose of the foregoing table is to assist shareholders in understanding the various costs and expenses that an investor in the Class Y shares of a Fund will bear directly or indirectly. The amounts set forth under "Annual Fund Operating Expenses--Other Expenses," as well as the expense amounts used in the Example, are based on actual amounts for the most recent fiscal year. The Example set forth above assumes reinvestment of all dividends and distributions and utilizes a 5% annual rate of return as mandated by Securities and Exchange Commission regulations. Pacific Century, the Sub-Adviser and BISYS each may elect, in its sole discretion, to otherwise waive or reimburse its respective fees. Any such waivers or reimbursements will reduce the total expenses of the Fund to which they apply, thereby increasing yield or total return. As described above, the percentages shown above under "Management Fees" (Short Intermediate U.S. Treasury Securities Fund only), "Other Expenses" and "Total Fund Operating Expenses" for the Funds reflect certain estimated voluntary fee waivers and expense reimbursements. Absent such waivers and reimbursements, the percentages under "Other Expenses" and "Total Fund Operating Expenses" would be (i) 0.34% and 0.94% for Diversified Fixed Income Fund; (ii) 0.31% and 1.11% for Growth and Income Fund; (iii) 0.31% and 1.11% for Growth Stock Fund; and (iv) 0.92% and 1.82% for New Asia Growth Fund; (v) 0.37% and 0.87% for Short Intermediate U.S. Treasury Securities Fund; (vi) 0.39% and 0.89% for Tax-Free Short Intermediate Securities Fund; (vii) 0.31% and 0.91% for Tax-Free Securities Fund; (viii) 0.35% and 0.95% for U.S. Treasury Securities Fund; and (ix) 0.31% and 1.11% for Balanced Fund. With respect to Short Intermediate U.S. Treasury Fund, absent waivers and reimbursements, the percentage under "Management Fees" would be 0.50%. There can be no assurance that the foregoing waivers and expense reimbursements will continue to apply. PROSPECTUS 6
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FINANCIAL HIGHLIGHTS The Financial Highlights in the table below set forth certain financial data and investment results of the Class Y shares of the Funds since inception, expressed in one share outstanding throughout the period. The Financial Highlights are derived from the financial statements of Pacific Capital Funds which have been audited by Ernst & Young LLP, independent auditors. The Financial Highlights should be read in conjunction with the financial statements, related notes, and other financial information included in the Statement of Additional Information. Further information about the performance of the Funds is contained in the Funds' most recent report to shareholders which may be obtained without charge by calling or writing the Funds at the telephone number or address on the front cover of this Prospectus. [Enlarge/Download Table] Growth and Income Fund Diversified Fixed ----------------------------- Income Fund Oct. --------------------------------------- Year 14, OCT. 14, Ended 1994 to YEAR ENDED YEAR ENDED 1994 TO Year Ended July July JULY 31, JULY 31, JULY 31, July 31, 31, 31, 1997 1996 1995(a) 1997 1996 1995(a) ---------- ---------- --------- ---------- ------- ------- NET ASSET VALUE, BEGINNING OF PERIOD........ $10.53 $10.84 $10.00 $12.32 $11.43 $10.00 -------- -------- ------- -------- ------- ------- Investment Activities Net investment income (loss)............. 0.60 0.58 0.55 0.11 0.17 0.20 Net realized and unrealized gain (loss) on investments......................... 0.34 (0.16) 0.78 5.58 1.21 1.42 -------- -------- ------- -------- ------- ------- Total from Investment Activities..... 0.94 0.42 1.33 5.69 1.38 1.62 -------- -------- ------- -------- ------- ------- Distributions Net investment income.................... (0.60) (0.61) (0.49) (0.11) (0.17) (0.19) In excess of net investment income....... -- (0.02) -- -- (0.01) -- In excess of net realized gains.......... (0.09) (0.10) -- -- -- -- Net realized gains....................... -- -- -- (0.63) (0.31) -- -------- -------- ------- -------- ------- ------- Total Distributions.................. (0.69) (0.73) (0.49) (0.74) (0.49) (0.19) -------- -------- ------- -------- ------- ------- NET ASSET VALUE, END OF PERIOD.............. $10.78 $10.53 $10.84 $17.27 $12.32 $11.43 ======== ======== ======= ======== ======= ======= TOTAL RETURN (EXCLUDES SALES CHARGE)........ 9.30% 3.85% 13.70%(b) 47.96% 12.29% 16.41%(b) RATIOS/SUPPLEMENTARY DATA: Net assets at end of period (000)........ $132,583 $161,742 $54,827 $123,821 $74,427 $41,771 Ratio of expenses to average net assets................................. 0.90% 0.88% 0.93%(c) 1.07% 1.11% 1.14%(c) Ratio of net investment income (loss) to average net assets..................... 5.67% 5.56% 6.71%(c) 0.79% 1.43% 2.47%(c) Ratio of expenses to average net assets*................................ 0.94% 0.92% 1.01%(c) 1.12% 1.15% 1.22%(c) Ratio of net investment income (loss) to average net assets*.................... 5.63% 5.52% 6.63%(c) 0.75% 1.39% 2.39%(c) Portfolio Turnover(d)....................... 80.98% 58.86% 60.47% 74.83% 80.83% 12.78% Average Commission Rate paid(e)............. -- -- -- $0.0874 $0.0921 -- Growth Stock Fund --------------------------------------- Oct. 14, Year Ended Year Ended 1994 to July 31, July 31, July 31, 1997 1996 1995(a) ---------- ---------- --------- NET ASSET VALUE, BEGINNING OF PERIOD........ $11.89 $11.71 $ 9.89 -------- -------- -------- Investment Activities Net investment income (loss)............. 0.07 0.10 0.11 Net realized and unrealized gain (loss) on investments......................... 5.55 0.89 1.83 -------- -------- -------- Total from Investment Activities..... 5.62 0.99 1.94 -------- -------- -------- Distributions Net investment income.................... (0.07) (0.10) (0.12) In excess of net investment income....... -- -- -- In excess of net realized gains.......... -- (0.49) -- Net realized gains....................... -- (0.22) -- -------- -------- -------- Total Distributions.................. (0.07) (0.81) (0.12) -------- -------- -------- NET ASSET VALUE, END OF PERIOD.............. $17.44 $11.89 $11.71 ======== ======== ======== TOTAL RETURN (EXCLUDES SALES CHARGE)........ 47.39% 8.53% 20.64%(g) RATIOS/SUPPLEMENTARY DATA: Net assets at end of period (000)........ $198,407 $172,565 $136,837 Ratio of expenses to average net assets................................. 1.07% 1.09% 1.13%(c) Ratio of net investment income (loss) to average net assets..................... 0.45% 0.86% 1.30%(c) Ratio of expenses to average net assets*................................ 1.11% 1.13% 1.21%(c) Ratio of net investment income (loss) to average net assets*.................... 0.41% 0.82% 1.23%(c) Portfolio Turnover(d)....................... 32.20% 61.30% 32.40% Average Commission Rate paid(e)............. $0.0893 $0.0895 -- ------------ See footnotes on next page. PROSPECTUS 7
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FINANCIAL HIGHLIGHTS (CONTINUED) [Enlarge/Download Table] Short Intermediate U.S. Treasury Securities Fund New Asia ----------------------------- Growth Fund Oct. --------------------------------------- Year 14, FEB. 15, Ended 1994 to YEAR ENDED YEAR ENDED 1995 TO Year Ended July July JULY 31, JULY 31, JULY 31, July 31, 31, 31, 1997 1996 1995(a) 1997 1996 1995(f) ---------- ---------- --------- ---------- ------- ------- NET ASSET VALUE, BEGINNING OF PERIOD........ $11.14 $11.22 $10.00 $ 9.42 $ 9.61 $ 9.30 -------- ------- ------- ------- ------- ------- Investment Activities Net investment income (loss)............. 0.06 (0.01) 0.04 0.52 0.53 0.44 Net realized and unrealized gain (loss) on investments......................... 2.87 0.22 1.18 0.14 (0.13) 0.31 -------- ------- ------- ------- ------- ------- Total from Investment Activities..... 2.93 0.21 1.22 0.66 0.40 0.75 -------- ------- ------- ------- ------- ------- Distributions Net investment income.................... (0.01) -- -- (0.52) (0.53) (0.44) In excess of net investment income....... -- (0.03) -- -- (0.04) -- In excess of net realized gains.......... -- -- -- -- (0.02) -- Net realized gains....................... (0.12) (0.26) -- -- -- -- -------- ------- ------- ------- ------- ------- Total Distributions.................. (0.13) (0.29) -- (0.52) (0.59) (0.44) -------- ------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD.............. $13.94 $11.14 $11.22 $9.56 $9.42 $9.61 ======== ======= ======= ======= ======= ======= TOTAL RETURN (EXCLUDES SALES CHARGE)........ 26.50% 1.99% 12.20%(b) 7.19% 4.18% 6.57%(g) RATIOS/SUPPLEMENTARY DATA: Net assets at end of period (000)........ $18,376 $8,469 $2,861 $26,722 $23,545 $16,214 Ratio of expenses to average net assets................................. 1.72% 1.98% 1.97%(c) 0.62% 0.67% 0.75%(c) Ratio of net investment income (loss) to average net assets..................... 0.46% (0.02%) 1.18%(c) 5.47% 5.40% 5.84%(c) Ratio of expenses to average net assets*................................ 1.82% 2.84% 2.74%(c) 0.87% 0.92% 0.99%(c) Ratio of net investment income (loss) to average net assets..................... 0.36% (0.88%) 0.42%(c) 5.22% 5.15% 5.61%(c) Portfolio Turnover(d)....................... 134.89% 86.53% 55.62% 51.56% 47.17% 62.73% Average Commission Rate paid(e)............. $0.0059 $0.0069 -- -- -- -- Tax-Free Securities Fund --------------------------------------- Oct. 14, Year Ended Year Ended 1994 to July 31, July 31, July 31, 1997 1996 1995(a) ---------- ---------- --------- NET ASSET VALUE, BEGINNING OF PERIOD........ $10.46 $10.56 $10.00 -------- -------- -------- Investment Activities Net investment income (loss)............. 0.51 0.52 0.42 Net realized and unrealized gain (loss) on investments......................... 0.46 0.07 0.51 -------- -------- -------- Total from Investment Activities..... 0.97 0.59 0.93 -------- -------- -------- Distributions Net investment income.................... (0.51) (0.52) (0.37) In excess of net investment income....... -- (0.04) -- In excess of net realized gains.......... -- (0.04) -- Net realized gains....................... (0.06) (0.09) -- -------- -------- -------- Total Distributions.................. (0.57) (0.69) (0.37) -------- -------- -------- NET ASSET VALUE, END OF PERIOD.............. $10.86 $10.46 $10.56 ======== ======== ======== TOTAL RETURN (EXCLUDES SALES CHARGE)........ 9.58% 5.73% 9.54%(b) RATIOS/SUPPLEMENTARY DATA: Net assets at end of period (000)........ $296,764 $288,934 $281,646 Ratio of expenses to average net assets................................. 0.87% 0.89% 0.89%(c) Ratio of net investment income (loss) to average net assets..................... 4.86% 4.92% 5.16%(c) Ratio of expenses to average net assets*................................ 0.91% 0.93% 0.98%(c) Ratio of net investment income (loss) to average net assets..................... 4.82% 4.88% 5.07%(c) Portfolio Turnover(d)....................... 11.07% 24.78% 49.17% Average Commission Rate paid(e)............. -- -- -- ------------ See footnotes on next page. PROSPECTUS 8
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FINANCIAL HIGHLIGHTS (CONTINUED) [Enlarge/Download Table] Tax-Free Short Intermediate Securities Fund --------------------------------------- OCT. 14 YEAR ENDED YEAR ENDED 1994 TO JULY 31, JULY 31, JULY 31, 1997 1996 1995(a) ---------- ---------- --------- NET ASSET VALUE, BEGINNING OF PERIOD.................................................. $10.08 $10.14 $10.00 ------- ------- ------- Investment Activities Net investment income (loss)....................................................... 0.39 0.40 0.32 Net realized and unrealized gain (loss) on investments............................. 0.14 (0.03) 0.11 ------- ------- ------- Total from Investment Activities............................................... 0.53 0.37 0.43 ------- ------- ------- Distributions Net investment income.............................................................. (0.39) (0.40) (0.29) In excess of net investment income................................................. -- (0.03) -- In excess of net realized gains.................................................... -- -- -- Net realized gains................................................................. (0.01) -- -- ------- ------- ------- Total Distributions............................................................ (0.40) (0.43) (0.29) ------- ------- ------- NET ASSET VALUE, END OF PERIOD........................................................ $10.21 $10.08 $10.14 ======= ======= ======= TOTAL RETURN (EXCLUDES SALES CHARGE).................................................. 5.36% 3.67% 4.36%(b) RATIOS/SUPPLEMENTARY DATA: Net assets at end of period (000).................................................. $37,410 $39,472 $39,993 Ratio of expenses to average net assets............................................ 0.84% 0.83% 0.85%(c) Ratio of net investment income (loss) to average net assets........................ 3.82% 3.90% 4.03%(c) Ratio of expenses to average net assets*........................................... 0.89% 0.88% 0.94%(c) Ratio of net investment income (loss) to average net assets*....................... 3.77% 3.85% 3.94%(c) Portfolio Turnover(d)................................................................. 29.46% 54.70% 89.98% Average Commission Rate paid(e)....................................................... -- -- -- U.S. Treasury Securities Fund --------------------------------------- Oct. 14 Year Ended Year Ended 1994 to July 31, July 31, July 31, 1997 1996 1995(f) ---------- ---------- --------- NET ASSET VALUE, BEGINNING OF PERIOD.................................................. $ 9.14 $ 9.43 $ 8.66 ------- ------- ------- Investment Activities Net investment income (loss)....................................................... 0.53 0.59 0.44 Net realized and unrealized gain (loss) on investments............................. 0.26 (0.24) 0.76 ------- ------- ------- Total from Investment Activities............................................... 0.79 0.35 1.20 ------- ------- ------- Distributions Net investment income.............................................................. (0.54) (0.55) (0.43) In excess of net investment income................................................. (0.01) (0.09) -- In excess of net realized gains.................................................... -- -- -- Net realized gains................................................................. -- -- -- ------- ------- ------- Total Distributions............................................................ (0.55) (0.64) (0.43) ------- ------- ------- NET ASSET VALUE, END OF PERIOD........................................................ $9.38 $9.14 $9.43 ======= ======= ======= TOTAL RETURN (EXCLUDES SALES CHARGE).................................................. 8.92% 3.71% 10.49%(g) RATIOS/SUPPLEMENTARY DATA: Net assets at end of period (000).................................................. $23,832 $23,248 $51,264 Ratio of expenses to average net assets............................................ 0.91% 0.95% 1.02%(c) Ratio of net investment income (loss) to average net assets........................ 5.85% 5.81% 5.78%(c) Ratio of expenses to average net assets*........................................... 0.95% 0.99% 1.09%(c) Ratio of net investment income (loss) to average net assets*....................... 5.81% 5.77% 5.71%(c) Portfolio Turnover(d)................................................................. 44.90% 15.75% 80.98% Average Commission Rate paid(e)....................................................... -- -- -- ------------ * During the period, certain fees were voluntarily reduced. In addition, with respect to Growth Stock Fund, Short Intermediate U.S. Treasury Securities Fund and U.S. Treasury Securities Fund, the investment adviser reimbursed expenses. If such voluntary fee reductions and expense reimbursements had not occurred, the ratios would have been as indicated. (a) Period from commencement of operations. (b) Not Annualized. (c) Annualized. (d) Portfolio turnover is calculated on the basis of the Fund, as a whole, without distinguishing between the classes of shares issued. (e) Represents the total dollar amount of commissions paid on portfolio transactions divided by total number of portfolio shares purchased and sold for which commissions were charged. (f) On October 13, 1994, the Trust identified those Institutional shareholders that were part of the Class A and transferred these shareholders into Class Y at the prevailing net asset value effective October 14, 1994. The Financial Highlights presented for Class Y reflects operations and distributions for the period from October 14, 1994 through July 31, 1995. (g) Represents total return for the Fund, as a whole, for the period from August 1, 1994 through October 13, 1994 plus total return for the Class Y shares for the period from October 14, 1994 through July 31, 1995. PROSPECTUS 9
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INVESTMENT OBJECTIVES AND POLICIES OF THE FUNDS Each Fund has its own investment objectives, as described earlier in this Prospectus. Each Fund also follows its own investment policies and practices, subject to certain investment restrictions, all described further below and in "Additional Discussion Regarding Permitted Investment Activities." The SAI also contains more specific descriptions of investment restrictions which govern the investments of each of the Funds. BALANCED FUND Balanced Fund will invest primarily in common stocks, preferred stocks, bonds, and securities that are convertible into common stocks. Under normal market conditions, Balanced Fund will invest in common stocks and securities convertible into common stocks, fixed income securities (i.e., warrants, convertible preferred stock, fixed rate preferred stock, convertible fixed-income securities, options and rights). At least 25% of the value of Balanced Fund's assets will be invested in senior fixed income securities. Balanced Fund will invest in common stocks of issuers that exhibit strong earnings growth trends and that are believed by the Fund to have above-average prospects for future earnings growth. Balanced Fund will maintain a portfolio of common stocks diversified among industries and companies. Balanced Fund may invest in common stocks of large companies (i.e., those companies with more than $750 million in capitalization) which the Fund believes offer the potential for long-term earnings growth and/or above-average dividend yield. Some investments may also be made in common stocks of medium and smaller sized companies (i.e., those companies with at least $250 million, but less than $750 million in capitalization) which have the potential to generate high levels of future revenue and earnings growth and where the investment opportunity may not be fully reflected in the price of the securities but which may involve greater volatility than investments in larger companies. Balanced Fund intends to invest less than 50% of its total assets in the securities of medium and smaller sized companies and the remainder in securities of larger sized companies. However, the actual percentage may vary according to changes in market conditions and the judgment of Pacific Century of how best to achieve Balanced Fund's investment objective. For risk disclosure regarding investments in medium and smaller-sized companies see, "Highlights--Certain Risks." DIVERSIFIED FIXED INCOME FUND Diversified Fixed Income Fund invests in U.S. Government Obligations and in investment grade debt obligations. Most obligations acquired by Diversified Fixed Income Fund will be issued by companies or governmental entities located within the United States. Up to 25% of the total assets of Diversified Fixed Income Fund may, however, be invested in dollar-denominated debt obligations of foreign issuers. Under normal market conditions, at least 65% of the value of the total assets of Diversified Fixed Income Fund will be invested in fixed income securities. GROWTH AND INCOME FUND Growth and Income Fund invests primarily in a diversified portfolio of high quality, dividend-paying common stocks and securities convertible into common stocks. Growth and Income Fund anticipates investing in securities that currently have in the aggregate an above average dividend yield, with the anticipation that the dividend will remain constant or be increased in the future. These securities generally represent the core holdings of Growth and Income Fund. However, these holdings may be balanced with lower yielding but higher growth-oriented securities to achieve more growth potential. Under normal market conditions, Growth and Income Fund will invest at least 65% of the value of its total assets in income producing common stocks and securities convertible into common stocks. PROSPECTUS 10
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GROWTH STOCK FUND Growth Stock Fund invests primarily in common stocks and securities that are convertible into common stocks of both domestic and foreign companies. Under normal market conditions, Growth Stock Fund will invest at least 65% of its total assets in common stocks or securities convertible into common stocks. NEW ASIA GROWTH FUND New Asia Growth Fund is designed for U.S. investors seeking diversification of their respective investment portfolios by participating in the economies of developing Asian countries. New Asia Growth Fund's investment objective is to seek long-term growth of capital. New Asia Growth Fund seeks to achieve this objective primarily through direct or indirect investments in equity securities of companies located in the developing countries of Asia. New Asia Growth Fund invests indirectly in the equity securities of companies located in developing Asian countries by purchasing interests in other foreign investment companies or trusts which themselves invest in the developing countries of Asia. For purposes of its investment objective, New Asia Growth Fund considers such developing countries to be all countries in Asia other than Japan. New Asia Growth Fund may invest to a lesser degree in debt securities and other instruments (i.e., warrants and securities convertible into equity or debt securities) if the investment adviser believes they would help achieve the Fund's objective. Current income from dividends and interest will not be an important consideration in selecting portfolio securities. It is anticipated that under normal market conditions New Asia Growth Fund will invest at least 70% of its total assets directly or indirectly in common stock, common stock equivalents (such as preferred or debt securities convertible into common stocks) and preferred stocks of companies located in the developing countries of Asia which the investment adviser believes have potential for capital appreciation. New Asia Growth Fund will consider an issuer of securities to be located in a developing country of Asia if it is organized under the laws of a developing Asian country, if it derives 50% or more of its total revenues from business in a developing Asian country, or if its equity securities are traded principally on a securities exchange in a developing Asian country. Developing countries in which New Asia Growth Fund may invest include, but are not limited to: Hong Kong, China, India, Indonesia, South Korea, Malaysia, the Philippines, Singapore, Taiwan, Pakistan, Bangladesh, Sri Lanka and Thailand. The criteria which the investment adviser uses to select and maintain a portfolio of investments in any country depends on its view as to the upside potential of the stock markets in such country and, more specifically, the investment instruments therein. In determining the upside potential for each market, the investment adviser will consider the economic, political and social factors affecting each country and the prospects for improvements in these factors in the short, medium and long term. New Asia Growth Fund will not limit its investments to any particular type of company. New Asia Growth Fund may invest in companies, large or small, whose earnings are believed to be in a relatively strong growth trend, or in companies in which significant further growth is not anticipated but whose market value per share is thought to be undervalued. New Asia Growth Fund may invest in small and relatively less well-known companies. Investing in small and relatively less well-known companies involves certain risks. See, "Highlights--Certain Risks." Subject to New Asia Growth Fund's investment objective, up to 35% of the Fund's total assets may be invested in any combination of equity, debt and convertible securities of issuers located outside Asia, including money market instruments of the United States, should opportunities in these markets occur. In addition, this portion of New Asia Growth Fund's portfolio will consist of various other financial instruments such as forward foreign exchange contracts, futures contracts and options. At PROSPECTUS 11
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times the investment adviser may judge that conditions in the securities markets make pursuing New Asia Growth Fund's basic investment strategy inconsistent with the best interests of its shareholders. At such times, the investment adviser may temporarily use alternative strategies, primarily designed to reduce fluctuations in the value of the Fund's assets. In implementing these "defensive" strategies, New Asia Growth Fund may invest without limit in cash (foreign currency or U.S. dollars) and in domestic, Eurodollar and foreign short-term money market instruments. It is impossible to predict when, or for how long, New Asia Growth Fund will use such alternative strategies. SHORT INTERMEDIATE U.S. TREASURY SECURITIES FUND Short Intermediate U.S. Treasury Securities Fund invests primarily in U.S. Treasury Securities and in repurchase agreements collateralized by U.S. Treasury Securities. Short Intermediate U.S. Treasury Securities Fund seeks to enhance its total return by shortening the average maturity of portfolio securities when interest rates are anticipated to increase and lengthening the maturity of such portfolio securities to take advantage of anticipated interest rate declines. Due to the dollar-weighted average maturity of Short Intermediate U.S. Treasury Securities Fund, it is expected to be less volatile than U.S. Treasury Securities Fund. Under normal market conditions, at least 65% of the value of the total assets of Short Intermediate U.S. Treasury Securities Fund will be invested in U.S. Treasury Securities. TAX-FREE SECURITIES FUND Tax-Free Securities Fund purchases primarily Hawaiian Municipal Obligations and Municipal Obligations. As a matter of fundamental policy, Tax-Free Securities Fund will have, under normal market conditions, at least 80% of its net assets invested in Municipal Obligations. As a matter of operating policy, under normal market conditions, at least 50%, and no more than 60%, of the market value of Tax-Free Securities Fund's securities will be invested in Hawaiian Municipal Obligations. For temporary defensive purposes, Pacific Century may invest more than 20% of Tax-Free Securities Fund's net assets in securities that are subject to federal income tax or the federal alternative minimum tax. TAX-FREE SHORT INTERMEDIATE SECURITIES FUND Tax-Free Short Intermediate Securities Fund purchases primarily Hawaiian Municipal Obligations and Municipal Obligations. As a matter of fundamental policy, Tax-Free Short Intermediate Securities Fund will have, under normal market conditions, at least 80% of its net assets invested in Municipal Obligations. As a matter of operating policy, under normal market conditions at least 50%, and no more than 60%, of the market value of Tax-Free Short Intermediate Securities Fund's securities will be invested in Hawaiian Municipal Obligations. For temporary defensive purposes, Pacific Century may invest more than 20% of Tax-Free Short Intermediate Securities Fund's net assets in securities that are subject to federal income tax or the federal alternative minimum tax. U.S. TREASURY SECURITIES FUND U.S. Treasury Securities Fund invests primarily in U.S. Treasury Securities and in repurchase agreements collateralized by U.S. Treasury Securities. U.S. Treasury Securities Fund seeks to enhance its total return by shortening the average maturity of portfolio securities when interest rates are anticipated to increase and lengthening the maturity of such portfolio securities to take advantage of anticipated interest rate declines. Under normal market conditions, at least 65% of the value of the total assets of U.S. Treasury Securities Fund will be invested in U.S. Treasury Securities. PROSPECTUS 12
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ADDITIONAL DISCUSSION REGARDING PERMITTED INVESTMENT ACTIVITIES MUNICIPAL OBLIGATIONS The Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities Fund invest primarily in Municipal Obligations, which includes Municipal Bonds, Municipal Notes and Municipal Commercial Paper. MUNICIPAL BONDS--Municipal bonds generally have a maturity at the time of issuance of up to thirty years. They are principally classified either as "general obligation" bonds, which are secured by the pledge of the municipality's faith, credit and taxing power for the payment of principal and interest, or as "revenue" bonds, which are payable only from the revenues derived from a particular project or facility and generally are dependent solely on a specific revenue source. The Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities Fund may invest in municipal bonds which are covered by insurance guaranteeing the scheduled payment of principal and interest until their maturity ("Insured Municipal Bonds"). The insurance can be purchased either by the issuing government entity or by the Fund purchasing the bond. This insurance is primarily written by two organizations: Ambac Indemnity Corporation (formerly called American Municipal Bond Assurance Corporation), a unit of Citicorp, and Municipal Bond Insurance Association, a pool of private insurers, but may be written by certain other large insurance companies. This insurance feature minimizes the risks to the Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities Fund and its shareholders associated with payment delays or defaults in these portfolio securities, but does not guarantee the market value of these portfolio securities or the value of the shares of the Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities Fund. An issuer would likely purchase insurance in order to obtain a higher rating by an NRSRO (defined below) than it would receive without the insurance thereby reducing the issuer's borrowing costs. The price paid or received for an Insured Municipal Bond may be higher than the price that would otherwise be paid or received for the municipal bond absent the insurance. The Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities Fund may invest in moral obligation bonds ("Moral Obligation Bonds") which are tax-exempt bonds issued by a municipality or a state financial intermediary and backed by the moral obligation pledge of a state government. Under a moral obligation pledge, a state government indicates its intent to appropriate funds in the future if the primary obligor, the municipality or intermediary, defaults. The state's obligation to honor the pledge is moral rather than legal because future legislatures cannot be legally obligated to appropriate the funds required. MUNICIPAL NOTES--Municipal notes generally have maturities at the time of issuance of three years or less. Subject to its respective investment objective and policies, the Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities Fund may invest in municipal notes that are rated at the date of purchase in one of the two highest rating categories assigned by an NRSRO, or not rated but are considered by Pacific Century to be of comparable quality. Municipal notes generally are issued in anticipation of the receipt of tax funds, of the proceeds of bond placements or of other revenues. The ability of an issuer to make payments is, therefore, dependent on such tax receipts, proceeds from bond sales or other revenues, as the case may be. The Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities Fund also may invest in certain "private activity" bonds or notes. Such Funds may not be an appropriate investment for entities which are "substantial users," or certain "related persons" of substantial users, of facilities financed by private activity bonds. "Substantial users" are defined under U.S. Treasury Regulations PROSPECTUS 13
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to include a non-exempt person who regularly uses a part of such facilities in his trade or business and whose gross revenues derived with respect to the facilities financed by the issuance of bonds are more than 5% of the total revenues derived by all users of such facilities, or who occupies more than 5% of the usable area of such facilities or for whom such facilities, or a part thereof, were specifically constructed, reconstructed or acquired. "Related persons" include certain related natural persons, affiliated corporations, partnerships and their partners and S corporations and their shareholders. MUNICIPAL COMMERCIAL PAPER--Municipal commercial paper is a debt obligation with a stated maturity of 270 days or less that is issued to finance seasonal working capital needs or as short-term financing in anticipation of longer-term debt. Subject to its respective investment objective and policies, the Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities Fund may invest in municipal commercial paper that is rated at the date of purchase in one of the two highest rating categories by an NRSRO or not rated but is considered by Pacific Century to be of comparable quality. U.S. GOVERNMENT OBLIGATIONS Each of the Funds may invest in U.S. Government Obligations which include, in addition to U.S. Treasury Securities, the obligations of the Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Government National Mortgage Association ("GNMA"), Student Loan Marketing Association ("SLMA"), Federal National Mortgage Association ("FNMA"), Resolution Trust Corporation and Federal Home Loan Mortgage Corporation ("FHLMC"). U.S. Treasury Securities and certain other obligations of certain agencies and instrumentalities of the U.S. Government, such as those of the GNMA, are supported by the full faith and credit of the U.S. Treasury; others, such as those of the Export-Import Bank of the United States, are supported by the right of the issuer to borrow from the U.S. Treasury; others, such as those of FNMA, are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; still others, such as those of the SLMA, are supported only by the credit of the instrumentality. No assurance can be given that the U.S. Government would provide financial support to U.S. Government sponsored instrumentalities if it is not obligated to do so by law. Some of these instruments may be variable or floating rate instruments. The Funds will invest in the obligations of such instrumentalities only when Pacific Century believes that the credit risk with respect to the instrumentality is minimal. BANK AND SAVINGS AND LOAN OBLIGATIONS Each of the Funds may invest in Bank and Savings and Loan obligations. These obligations include negotiable certificates of deposit, fixed time deposits, bankers' acceptances, and interest bearing demand accounts. The Funds limit their bank investments to dollar-denominated obligations of U.S., Canadian, Asian, Australian or European banks which have more than $500 million in total assets at the time of investment or of United States savings and loan associations which have more than $1 billion in total assets at the time of investment and, in the case of U.S. banks, are members of the Federal Reserve System or are examined by the Comptroller of the Currency or whose deposits are insured by the Federal Deposit Insurance Corporation. COMMERCIAL PAPER Balanced Fund, Diversified Fixed Income Fund, Growth and Income Fund, Growth Stock Fund, Short Intermediate U.S. Treasury Securities Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities Fund and U.S. Treasury Securities Fund may invest in commercial paper that is rated at the date of purchase in the highest rating category assigned by a nationally recognized statistical rating organization (an "NRSRO") or unrated if considered by Pacific Century to be of comparable quality. New Asia Growth Fund may invest in commercial paper that is rated at the time PROSPECTUS 14
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of purchase in the two highest short-term rating categories by an NRSRO or unrated if considered by the investment adviser to be of comparable quality. Commercial paper includes short-term unsecured promissory notes, and variable floating rate demand notes issued by domestic and foreign bank holding companies, corporations and financial institutions as well as similar taxable and tax-exempt instruments issued by government agencies and instrumentalities. DEBT SECURITIES Each of the Funds may invest in debt securities issued by foreign and domestic corporations or financial institutions, and Yankee bonds. Foreign debt securities in which the Funds may invest include global fixed income securities, described below. Balanced Fund, Diversified Fixed Income Fund, Growth and Income Fund, Growth Stock Fund, Short Intermediate U.S. Treasury Securities Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities Fund and U.S. Treasury Securities Fund may only invest in U.S. dollar-denominated foreign debt securities. Global fixed-income securities include government obligations issued or guaranteed by U.S. and foreign governments and their political subdivisions, authorities, agencies or instrumentalities and by supranational entities (such as the World Bank, The European Economic Community, the Asian Development Bank and the European Coal and Steel Community), Eurobonds and corporate bonds with varying maturities denominated in various currencies. Yankee bonds are U.S. dollar-denominated obligations issued by foreign governments or companies. New Asia Growth Fund may invest in the fixed income securities of developing Asian countries. Developing Asian fixed-income securities are debt securities or obligations issued or guaranteed by governments in such countries (including their agencies, instrumentalities or political subdivisions) ("sovereign debt"), debt securities or obligations of entities organized to restructure outstanding debt of such issuers, and debt securities of issuers located in such developing countries. The debt securities in which the Funds will invest (including convertible securities, as applicable) will be of investment grade (i.e., rated in the top four rating categories by an NRSRO, or, if unrated, determined to be of comparable quality by the investment adviser). See SAI, "Appendix." Notwithstanding the foregoing, up to 10% of the New Asia Growth Fund's net assets may be invested in securities rated below investment grade by an NRSRO or determined to be of comparable quality by the investment adviser. Debt securities rated below investment grade or of comparable quality are commonly referred to as "junk bonds." For a description of the risks associated with investment in debt securities, including lower-rated debt securities and sovereign debt, see "Additional Risk Disclosure--Risk Factors Associated with Investment in Certain Debt Securities." PREFERRED STOCK Each of the Funds may invest in preferred stock which is a class of capital stock that pays dividends at a specified rate and that has preference over common stock in the payment of dividends and the liquidation of assets. Preferred stock does not ordinarily carry voting rights. ILLIQUID SECURITIES Each of the Funds may invest in illiquid securities. The Funds will not knowingly invest more than 15% of the value of their respective net assets in securities that are illiquid. Repurchase agreements with a duration of seven days or more, time deposits that do not provide for payment to a Fund within seven days after notice and Guaranteed Investment Contracts ("GICs") and most commercial paper issued in reliance upon the exemption in Section 4(2) of the Securities Act of 1933 (the "1933 Act") (other than variable amount master demand notes with maturities of nine months or less) are subject to this 15% limit. If otherwise consistent with its investment objective and policies, any of the Funds may purchase securities which are not registered under the 1933 PROSPECTUS 15
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Act but which can be sold to "qualified institutional buyers" in accordance with Rule 144A under the 1933 Act. Any such security will not be considered illiquid so long as it is determined by Pacific Century, acting under guidelines and procedures that are developed, established and monitored by the Board of Trustees, that an adequate trading market exists for that security. This investment practice could have the effect of increasing the level of illiquidity in a Fund during any period that qualified institutional buyers become uninterested in purchasing these restricted securities. The ability to sell to qualified institutional buyers under Rule 144A is a recent development, and it is not possible to predict how this market will develop. The staff of the Commission has taken the position that OTC options that are purchased and the assets used as cover for written OTC options should generally be treated as illiquid securities. However, if a dealer recognized by the Federal Reserve Bank as a primary dealer in U.S. Government securities is the other party to an option contract written by a Fund and the Fund has the absolute right to repurchase the option from the dealer at a formula price established in a contract with the dealer, the Commission staff has agreed that the Fund needs to treat as illiquid only that amount of the cover assets equal to the formula price less the amount by which the market value of the security subject to the option exceeds the exercise price of the option (the amounts by which the option is in-the-money). Although Pacific Century does not believe that OTC options are generally illiquid, pending resolution of this issue, each Fund will conduct their operations in conformity with the views of the Commission staff. BORROWINGS Each of Balanced Fund, Diversified Fixed Income Fund, Growth and Income Fund, Growth Stock Fund, New Asia Fund, Short Intermediate U.S. Treasury Securities Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities Fund, and U.S. Treasury Securities Fund may borrow from banks up to 20% of the current value of its net assets for temporary purposes only in order to meet redemptions, and these borrowings may be secured by the pledge of up to 20% of the current value of its net assets (but investments may not be purchased while such outstanding borrowings in excess of 5% of its net assets exists). New Asia Growth Fund may borrow an amount equal to no more than 33% of the value of its total assets (calculated at the time of the borrowing) from banks for temporary, extraordinary or emergency purposes, for the clearance of transactions, to hedge against currency movements or for investment purposes. New Asia Growth Fund may pledge up to 33% of its total assets to secure these borrowings. If New Asia Growth Fund's asset coverage for borrowings falls below 300%, the Fund will take prompt action to reduce its borrowings. If the 300% asset coverage should decline as a result of market fluctuations or other reasons, New Asia Growth Fund may be required to sell portfolio securities to reduce the debt and restore the 300% asset coverage, even though it may be disadvantageous from an investment standpoint to sell securities at that time. Borrowing for investment purposes is generally known as "leveraging." Leveraging may exaggerate the effect on net asset value of any increase or decrease in the market value of the Fund's portfolio. Money borrowed for leveraging will be subject to interest costs which may or may not be recovered by appreciation of the securities purchased. In addition, New Asia Growth Fund may be required to maintain minimum average balances in connection with such borrowing or pay a commitment fee to maintain a line of credit, which would increase the cost of borrowing over the stated interest rate. Each Fund may borrow funds for temporary purposes by entering into reverse repurchase agreements which are considered to be borrowings under the Investment Company Act of 1940 (the "1940 Act"). At the time a Fund enters into a reverse repurchase agreement (an agreement under which the Fund sells portfolio securities and agrees to repurchase them at an agreed-upon date and price), PROSPECTUS 16
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it will place in a segregated custodial account cash or liquid assets having a value equal to or greater than the repurchase price (including accrued interest) and will subsequently monitor the account so that such value is maintained. Reverse repurchase agreements involve the risk that the market value of the securities sold by a Fund may decline below the price of the securities it is obligated to repurchase. The Funds would pay interest on amounts obtained pursuant to a reverse repurchase agreement. LOANS OF PORTFOLIO SECURITIES Each of the Funds may lend securities from its portfolio to brokers, dealers and financial institutions (but not individuals) if liquid assets equal to the current market value of the securities loaned (including accrued interest thereon) plus the interest payable to the Fund with respect to the loan is maintained with the Fund. In determining whether to lend a security to a particular broker, dealer or financial institution, Pacific Century will consider all relevant facts and circumstances, including the creditworthiness of the broker, dealer or financial institution. Any loans of portfolio securities will be fully collateralized based on values that are marked to market daily by Pacific Century. No Fund will enter into any portfolio security lending arrangement having a duration of longer than one year. Any securities that a Fund may receive as collateral will not become part of such Fund's portfolio at the time of the loan and, in the event of a default by the borrower, the Fund will, if permitted by law, dispose of such collateral except for such part thereof that is a security in which such Fund may invest. During the time securities are on loan, the borrower will pay the Fund any accrued income on those securities, and the Fund may invest the cash collateral and earn additional income or receive an agreed-upon fee from a borrower that had delivered cash-equivalent collateral. No Fund will lend securities having a value that exceeds 30% (33% with respect to New Asia Growth Fund) of the current value of its total assets. Loans of securities by a Fund will be subject to termination at the Fund's or the borrower's option. The Funds may pay reasonable administrative and custodial fees in connection with a securities loan and may pay a negotiated portion of the interest or fee earned with respect to the collateral to the borrower or the placing broker. Borrowers and placing brokers may not be affiliated, directly or indirectly, with the Trust, Pacific Century, BISYS, or, with respect to New Asia Growth Fund, the Sub-Adviser. HEDGING STRATEGIES Each Fund may engage in various portfolio strategies including derivative transactions to reduce certain risks of its investments. These strategies currently include the use of options and futures contracts and options thereon and, with respect to New Asia Growth Fund, the use of foreign currency exchange contracts. Balanced Fund, Diversified Fixed Income Fund, Growth and Income Fund, Growth Stock Fund, Short Intermediate U.S. Treasury Securities Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities Fund, and U.S. Treasury Securities Fund may also use futures and options thereon to manage cash flow into the Funds, and may use options to enhance income. A Fund's ability to use these strategies may be limited by market conditions, regulatory limits and tax considerations and there can be no assurance that any of these strategies will succeed. See "Additional Information on Fund Investments" and "Tax Information" in the SAI. New financial products and risk management techniques continue to be developed and the Fund may use these new investments and techniques to the extent consistent with its investment objective and policies. Options. Each of Balanced Fund, Diversified Fixed Income Fund, Growth and Income Fund, Growth Stock Fund, Short Intermediate U.S. Treasury Securities Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities Fund, and U.S. Treasury Securities Fund may purchase put and call options and write covered put and call options on securities in which such Fund may invest, provided such options do not exceed 5% of the Fund's net assets in the aggregate and (1) are traded on registered domestic securities exchanges PROSPECTUS 17
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or (2) result from separate privately negotiated transactions in the OTC market with primary U.S. government securities dealers recognized by the Board of Governors of the Federal Reserve System. These options may be employed to hedge a Fund's portfolio against market risk or to enhance income (e.g., to attempt to realize through the receipt of premiums a greater current return than would be realized on the underlying securities alone). New Asia Growth Fund may purchase put and call options and write covered put and call options on securities, securities indexes and on currencies that are traded on U.S. or foreign securities exchanges or in the OTC market. Options which New Asia Growth Fund may purchase and/or write in the OTC market include privately negotiated transactions with primary U.S. Government securities dealers to hedge the Fund's portfolio. New Asia Growth Fund may purchase put options in an effort to protect the value of securities (or currencies) that it owns against a decline in market value and purchase call options in an effort to protect against an increase in the price of securities (or currencies) it intends to purchase. New Asia Growth Fund may also purchase put and call options to offset previously written put and call options of the same series. See SAI, "Additional Information on Fund Investments." A call option gives the purchaser, in exchange for a premium paid, the right for a specified period of time to purchase securities or currency subject to the option at a specified price (the exercise price or strike price). A put option gives the purchaser in return for a premium, the right for a specified time, to sell the securities or currency subject to the option of the writer of the put at the exercise price. The aggregate value of the exercise price or strike price of call options written by New Asia Growth Fund may not exceed 25% of the Fund's net asset value. Forward Currency Exchange Contracts. New Asia Growth Fund may enter into forward foreign currency exchange contracts to protect the value of its assets against future changes in the level of currency exchange rates. New Asia Growth Fund may enter into such contracts on a spot, i.e., cash, basis at the rate then prevailing in the currency exchange market or on a forward basis, by entering into a forward contract to purchase or sell currency. A forward contract on foreign currency is an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days agreed upon by the parties from the date of the contract at a price set on the date of the contract. New Asia Growth Fund's dealings in forward contracts will be limited to hedging involving either specific transactions or portfolio positions. Transaction hedging is the purchase or sale of a forward contract with respect to specific receivables or payables of the New Asia Growth Fund generally arising in connection with the purchase or sale of its portfolio securities, accruals of interest or dividends receivable and Fund expenses. Position hedging is the sale of a foreign currency with respect to portfolio security positions denominated or quoted in that currency or in a different currency (cross hedge). Although there are no limits on the number of forward contracts which the Fund may enter into, the Fund may not position hedge (including cross hedges) with respect to a particular currency for an amount greater than the aggregate market value (determined at the time of making any sale of forward currency) of the securities being hedged. See SAI, "Additional Information on Fund Investments." Futures Contracts and Related Options. Each of the Funds may enter into contracts for the future delivery of specific securities, classes of securities and financial indices, may purchase or sell exchange-listed or OTC options on any such futures contracts and may engage in related closing transactions. In addition, New Asia Growth Fund may engage in currency futures contracts and related options. A financial futures contract is an agreement to purchase or sell an agreed amount of securities or currency at a set price for delivery in the future. A futures contract on a securities index is an agreement obligating either party to pay, and entitling the PROSPECTUS 18
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other party to receive, while the contract is outstanding, cash payments based on the level of a specified securities index. The acquisition of put and call options on futures contracts will, respectively, give the Fund the right (but not the obligation), for a specified price, to sell or to purchase the underlying futures contract, upon exercise of the option, at any time during the option period. Each Fund may engage in futures contracts and related options in an effort to hedge against market (or, with respect to New Asia, currency) risks. For example, with respect to market risk, when interest rates are expected to rise or market values of portfolio securities are expected to fall, a Fund can seek through the sale of futures contracts to offset a decline in the value of its portfolio securities. When interest rates are expected to fall or market values are expected to rise, a Fund, through the purchase of such contracts, can attempt to secure better rates or prices for the Fund than might later be available in the market when it effects anticipated purchases. With respect to currency risk, by entering into currency futures and options thereon on U.S. and foreign exchanges, New Asia Growth Fund can seek to establish the rate at which it will be entitled to exchange U.S. dollars for another currency at a future time. By selling currency futures, New Asia Growth Fund can seek to establish the number of dollars it will receive at delivery for a certain amount of a foreign currency. In this way, whenever New Asia Growth Fund anticipates a decline in the value of a foreign currency against the U.S. dollar, the Fund can attempt to "lock in" the U.S. dollar value of some or all of the securities held in its portfolio that are denominated in that currency. By purchasing currency futures, New Asia Growth Fund can establish the number of dollars it will be required to pay for a specified amount of a foreign currency in a future month. Thus if New Asia Growth Fund intends to buy securities in the future and expects the U.S. dollar to decline against the relevant foreign currency during the period before the purchase is effected, the Fund can attempt to "lock in" the price in U.S. dollars of the securities it intends to acquire. Futures may also be used to manage cash flows into and out of Balanced Fund, Diversified Fixed Income Fund, Growth and Income Fund, Growth Stock Fund, Short Intermediate U.S. Treasury Securities Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities Fund and U.S. Treasury Securities Fund. For example, the investment manager may wish to be fully invested in a particular asset class. Through the use of futures, the manager can achieve this objective immediately while temporarily deferring industry and security selection, in the interest of timeliness. Each Fund is subject to the limitations set forth in the Commodity Futures Trading Commission ("CFTC") regulations with respect to the futures contracts and related options in which it may invest. Accordingly, each Fund may not purchase and sell futures contracts and related options for other than bona fide hedging purposes (as defined in CFTC regulations) if, immediately thereafter, aggregate initial margin deposits for futures contracts, and premiums paid for related options, would exceed five percent (5%) of the liquidation value of the Fund's total assets. Each Fund may purchase and sell futures contracts and related options, without limitation, for bona fide hedging purposes. As a matter of operating policy, however, aggregate initial margin deposits for futures contracts, and premiums paid for related options, may not exceed five percent (5%) of the total assets of Balanced Fund, Diversified Fixed Income Fund, Growth and Income Fund, Growth Stock Fund, Short Intermediate U.S. Treasury Securities Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities Fund and U.S. Treasury Securities Fund, and the value of securities that are the subject of such futures and options (both for receipt and delivery) may not exceed one-third of the market value of each Fund's total assets. Futures transactions will be limited to the extent necessary to maintain a Fund's qualification as a regulated investment company. PROSPECTUS 19
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Futures transactions involve brokerage costs and require a Fund to segregate assets to cover its obligations under futures, or to cover its obligations by owning the assets underlying open futures contracts. A Fund may lose the expected benefit of futures transactions if interest rates, exchange rates or securities prices move in an unanticipated manner. Such losses are potentially significant and unanticipated changes may result in poorer overall performance than if the Fund had not entered into any futures transactions. In addition, the value of a Fund's futures positions may not prove to be perfectly or even highly correlated with the value of its portfolio securities, limiting the Fund's ability to hedge effectively against interest rate, exchange rate and/or market risk and giving rise to additional risks. There is no assurance of liquidity in the secondary market for purposes of closing out future positions. Where a liquid secondary market does not exist, a Fund is unlikely to be able to control losses by closing out futures positions. Gains and losses on investments in options and futures depend on Pacific Century's ability to predict correctly the direction of stock prices, interest rates and other economic factors. Certain futures exchanges or boards of trade have established daily limits on the amount that the price of futures contracts or related options may vary, either up or down, from the previous day's settlement price. These daily limits may restrict a Fund's ability to purchase or sell certain futures contracts or related options on any particular day. For additional discussion of certain risks associated with the use of futures contracts and options thereon, see "Additional Risk Disclosure-- Risks of Hedging Strategies." ASSET BACKED SECURITIES Each of the Funds may invest in Asset Backed Securities. Asset Backed Securities arise through the grouping by governmental, government-related, and private organizations of loans, receivables, and other assets originated by various lenders. Asset Backed Securities acquired by a Fund consist of both mortgage and non-mortgage backed securities. Interest in pools of these assets differ from other forms of debt securities, which normally provide for periodic payment of interest in fixed amounts with principal paid at maturity or specified call dates. Instead, Asset Backed Securities provide periodic payments which generally consist of both interest and principal payments. The life of an Asset Backed Security varies with the prepayment experience with respect to the underlying debt instruments. The rate of such prepayments, and hence the life of an Asset Backed Security, will be primarily a function of current market interest rates, although other economic and demographic factors may be involved. For example, falling interest rates generally result in an increase in the rate of prepayments of mortgage loans while rising interest rates generally decrease the rate of prepayments. An acceleration in prepayments in response to sharply falling interest rates will shorten the security's average maturity and limit the potential appreciation in the security's value relative to a conventional debt security. Consequently, Asset Backed Securities are not as effective in locking in high, long-term yields. Conversely, in periods of sharply rising rates, prepayments are generally slow, increasing the security's average life and its potential for price depreciation. Mortgage Backed Securities represent an ownership interest in a pool of residential mortgage loans, the interest in which is in most cases issued and guaranteed by an agency or instrumentality of the U.S. Government, though not necessarily by the U.S. Government itself. One such type of Mortgage Backed Security is a GNMA Certificate. GNMA Certificates are backed as to the timely payment of principal and interest by the full faith and credit of the U.S. Government. Another type is a FNMA Certificate; the principal and interest of which are guaranteed only by FNMA itself, not by the full faith and credit of the U.S. Government. Another type is a FHLMC Participation Certificate. This type of obligation is guaranteed by FHLMC as to timely payment of principal and interest. However, like a FNMA security, it is not guaranteed by the full PROSPECTUS 20
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faith and credit of the U.S. Government. Mortgage Backed Securities issued by private issuers, whether or not such obligations are subject to guarantees by the private issuer, may entail greater risk than obligations directly or indirectly guaranteed by the U.S. Government. Such securities will be purchased for the Funds only when Pacific Century determines that they are readily marketable at the time of purchase. The average life of Mortgage Backed Securities varies with the maturities of the underlying mortgage instruments, which have maximum maturities of 40 years. The average life is likely to be substantially less than the original maturity of the mortgage pools underlying the securities as the result of mortgage prepayments, mortgage refinancings, or foreclosures. The rate of mortgage prepayments, and hence the average life of the certificates, will be a function of the level of interest rates, general economic conditions, the location and age of the mortgage and other social and demographic conditions. Such prepayments are passed through to the registered holder with the regular monthly payments of principal and interest and have the effect of reducing future payments. As a result of the pass-through of prepayments of principal on the underlying securities, Mortgage Backed Securities are often subject to more rapid prepayments of principal than their stated maturity would indicate. Because the prepayment characteristics of the underlying mortgages vary, it is not possible to predict accurately the realized yield or the average life of a particular issue of pass-through certificates. As a result of these principal payment features, Mortgage Backed Securities are generally more volatile than other U.S. Government securities. Estimated average life will be determined by Pacific Century and used for the purpose of determining, respectively, the average weighted maturity of the Funds. Various independent mortgage backed securities dealers publish average remaining life data using proprietary models and, in making such determinations for the Funds, Pacific Century might deem such data unreasonable if such data appeared to present a significantly different average remaining expected life for a security when compared to data relating to the average remaining life of comparable securities as provided by other independent mortgage backed securities dealers. The Funds also may invest in non-mortgage backed securities including interests in pools of receivables, such as motor vehicle installment purchase obligations and credit card receivables. Such securities are generally issued as pass-through certificates, which represent undivided fractional ownership interests in the underlying pool of assets. Such securities also may be debt instruments, which also are known as collateralized obligations and are generally issued as the debt of a special purpose entity organized solely for the purpose of owing such assets and issuing such debt. Non-mortgage backed securities are not issued or guaranteed by the U.S. Government or its agencies or instrumentalities; however, the payment of principal and interest on such obligations may be guaranteed up to certain amounts and for a certain time period by a letter of credit issued by a financial institution (such as a bank or insurance company) unaffiliated with the issuers of such securities. Non-mortgage backed securities will be purchased by the Funds only when such securities are readily marketable and rated at the time of purchase in one of the two highest rating categories assigned by an NRSRO or, if unrated, considered by the investment adviser to be of comparable quality. In addition, such securities generally will have remaining estimated lives at the time of purchase of five years or less. See SAI, "Additional Information on Fund Investments." REPURCHASE AGREEMENTS Each of the Funds may enter into repurchase agreements wherein the seller of a security to the Fund agrees to repurchase that security from the Fund at a mutually agreed-upon time and price. The period of maturity is usually quite short, often overnight or a few days, although it may extend over a number of months. A Fund may enter into repurchase agreements only with respect to obligations PROSPECTUS 21
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that could otherwise be purchased by the Fund. All repurchase agreements will be fully collateralized based on values that are marked to market daily by Pacific Century. If the seller defaults and the value of the underlying securities has declined, the Fund may incur a loss. In addition, if bankruptcy proceedings are commenced with respect to the seller of the security, the Fund's disposition of the security may be delayed or limited. OTHER INVESTMENT COMPANIES In connection with the management of its daily cash position, Balanced Fund, Diversified Fixed Income Fund, Growth and Income Fund, Growth Stock Fund, New Asia Growth Fund, Short Intermediate U.S. Treasury Securities Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities Fund and U.S. Treasury Securities Fund may also invest in securities issued by other investment companies, including (to the extent permitted by the 1940 Act) other investment companies managed by Pacific Century. New Asia Growth Fund may also invest in securities issued by other investment companies by purchasing the securities of certain foreign investment funds or trusts called passive foreign investment companies, which have been the only or primary way to invest in certain developing countries of Asia. Securities of other investment companies will be acquired by a Fund within the limits prescribed by the 1940 Act. Each of the Funds intends to limit its investments so that, as determined immediately after a securities purchase is made: (a) not more than 5% of the value of its total assets will be invested in the securities of any one investment company; (b) not more than 10% of the value of its total assets will be invested in the aggregate in securities of investment companies as a group; (c) not more than 3% of the outstanding voting stock of any one investment company will be owned by the Fund; and (d) the Fund, together with other investment companies having the same investment adviser and companies controlled by such companies, owns not more than 10% of the total stock of any one closed-end company. As a shareholder of another investment company, a Fund would bear, along with other shareholders, its pro rata portion of the other investment company's expenses, including advisory fees. Accordingly, in addition to bearing their proportionate share of the relevant Fund's expenses (i.e., management fees and operating expenses), shareholders will also indirectly bear similar expenses of such other investment companies or trusts. However, Pacific Century has undertaken to waive or reimburse the Funds its advisory fees with respect to Fund assets so invested (except when such purchase is part of a plan of merger, consolidation, reorganization or acquisition). Investments by New Asia Growth Fund in wholly-owned investment entities created under the laws of certain countries will not be deemed the making of an investment in other investment companies. REAL ESTATE MORTGAGE INVESTMENT CONDUITS Each of the Funds may invest in Real Estate Mortgage Investment Conduits ("REMICs"). REMICs are a pass-through vehicle created to issue multiclass Mortgage Backed Securities. REMICs may be organized as corporations, partnerships, or trusts and those meeting certain qualifications are not subject to double taxation. Interests in REMICs may be senior or junior, regular (debt instruments) or residual (equity interests). FLOATING AND VARIABLE RATE DEBT INSTRUMENTS Each of the Funds may invest in floating and variable rate debt instruments. Floating and variable rate debt instruments bear interest at rates that are not fixed, but vary with changes in specified market rates or indices or at specified intervals. Certain of these instruments may carry a demand feature that would permit the holder to tender them back to the issuer at a par value prior to maturity. The floating and variable rate instruments that the Funds may purchase include certificates of participation in such obligations purchased from banks. Pacific Century will monitor on an ongoing basis the ability of an PROSPECTUS 22
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issuer of a demand instrument to make payment when due, which could be affected by events occurring between the date the Funds elect to demand payment and the date payment is due, except when such demand instruments permit same-day settlement. In this regard, Pacific Century, pursuant to direction of the Board of Trustees, will determine the liquidity of those instruments with demand features that cannot be exercised within seven days. WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS Each of the Funds may purchase securities on a "when-issued" basis and may also purchase or sell securities on a "forward commitment" basis. These transactions, which involve a commitment by a Fund to purchase or sell particular securities with payment and delivery taking place at a future date (perhaps one or two months later), permit a Fund to lock-in a price or yield on a security it owns or intends to purchase, regardless of future changes in interest rates. When-issued and forward commitment transactions involve the risk, however, that the yield obtained in a transaction may be less favorable than the yield available in the market when the securities delivery takes place. The Funds do not intend to engage in when-issued purchases and forward commitments for speculative purposes but only in furtherance of their investment objectives. The forward commitments and when-issued purchases are not expected to exceed 25% of the value of any of the Funds' total assets absent unusual market conditions. The Funds will not start earning interest or dividends on when-issued securities until they are received. The value of the securities underlying a when-issued purchase or a forward commitment to purchase securities, and any subsequent fluctuations in their value, is taken into account when determining the net asset value of a Fund starting on the date such Fund agrees to purchase the securities. Each Fund will establish a segregated account in which it will maintain liquid assets in an amount at least equal in value to such Fund's commitment to purchase securities on a when-issued or forward commitment basis. If the value of these assets declines, the Fund will replace additional liquid assets in the account on a daily basis so that the value of the assets in the account is equal to the amount of such commitments. LETTERS OF CREDIT AND LIQUIDITY AGREEMENTS Each of the Funds may purchase debt obligations that are backed by an irrevocable letter of credit or liquidity agreement of a bank, savings and loan association or insurance company which assumes the obligation for payment of principal and interest in the event of default by the issuer. Only banks, savings and loan associations and insurance companies which, in the opinion of Pacific Century, are of investment quality comparable to other permitted investments of such Fund, may be used for letter of credit and liquidity agreement backed investments. FOREIGN SECURITIES Balanced Fund, Diversified Fixed Income Fund, Growth and Income Fund, Growth Stock Fund, Short Intermediate U.S. Treasury Securities Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities Fund and U.S. Treasury Securities Fund may invest directly in securities of foreign governmental and private issuers that are denominated in and pay interest in U.S. dollars. New Asia Growth Fund may invest in the securities of foreign issuers directly or in the form of American Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs") or other Depositary Receipts (which, together with ADRs, GDRs and EDRs, are hereinafter collectively referred to as "Depositary Receipts") to the extent such Depositary Receipts become available. ADRs (which include American Depositary Shares and New York Shares) are publicly traded on exchanges or over-the-counter ("OTC") in the United States. GDRs, EDRs and other types of Depositary Receipts are typically issued by foreign depositaries, although they may also be issued by U.S. depositaries, and PROSPECTUS 23
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evidence ownership interests in a security or pool of securities issued by either a U.S. or foreign corporation. Depositary Receipts may be "sponsored" or "unsponsored." In a sponsored arrangement, the foreign issuer assumes the obligation to pay some or all of the depositary's transaction fees, whereas in an unsponsored arrangement, the foreign issuer assumes no obligation and the depositary's transaction fees are paid by the holders of the Depositary Receipts. Foreign issuers in respect of whose securities unsponsored Depositary Receipts have been issued are not necessarily obligated to disclose material information in the markets in which the unsponsored Depositary Receipts are traded, and, therefore, there may not be correlation between such information and the market value of such securities. New Asia Growth Fund may hold foreign currency in connection with the purchase and sale of foreign securities. To the extent the foreign currency is so held, there may be a risk due to foreign currency exchange rate fluctuations. Such foreign currency will be held with the Fund's custodian bank or by an approved foreign subcustodian. Investing in the securities of foreign issuers involves special risks and considerations not typically associated with investing in the United States. See "Additional Risk Disclosure" below. For additional discussion concerning investment in foreign debt securities, see "Debt Securities" below. CONVERTIBLE SECURITIES Each of Balanced Fund, Growth and Income Fund, Growth Stock Fund and New Asia Growth Fund may invest in convertible securities that provide current income and are issued by companies with the characteristics described above. The Funds may purchase convertible securities that are fixed-income debt securities or preferred stocks, and which may be converted at a stated price within a specified period of time into a certain quantity of the common stock of the same or other issuers. Convertible securities, while usually subordinated to nonconvertible debt securities of the same issuer, are senior to common stocks in an issuer's capital structure. Convertible securities may offer more flexibility by providing the investor with a steady income stream (generally yielding a lower amount than nonconvertible securities of the same issuer and a higher amount than common stocks) as well as the opportunity to take advantage of increases in the price of the issuer's common stock through the conversion feature. Convertible security prices tend to be influenced by changes in the market value of the common stock as well as changes in interest rates. Convertible securities in which the Funds may invest are subject to the rating criteria and limitations discussed below under "Debt Securities." WARRANTS Balanced Fund, Growth and Income Fund, Growth Stock Fund and New Asia Growth Fund may invest in warrants. A warrant gives the holder thereof the right to subscribe by a specified date to a stated number of shares of stock of the issuer at a fixed price. Warrants tend to be more volatile than the underlying stock, and if at a warrant's expiration date the stock is trading at a price below the price set in the warrant, the warrant will expire worthless. Conversely, if at the expiration date the stock is trading at a price higher than the price set in the warrant, a Fund can acquire the stock at a price below its market value. No Fund may invest more than 10% of its net assets in warrants. INTEREST ONLY OR PRINCIPAL ONLY OBLIGATIONS Each of the Funds may make limited investments (not exceeding 5% of the relevant Fund's net assets) in separately traded principal and interest components of securities issued by the United States Treasury. The principal and interest components or selected securities are traded independently under the Separate Trading of Registered Interest and Principal of Securities program ("STRIPs"). Under the STRIPs program, the principal and interest components are individually numbered and separately issued by the U.S. Treasury at the request of PROSPECTUS 24
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depository financial institutions, which then trade the component parts independently. GUARANTEED INVESTMENT CONTRACTS Each of the Funds may invest up to 5% of its net assets in Guaranteed Investment Contracts ("GICs") issued by highly rated U.S. insurance companies. GICs are considered to be illiquid, and accordingly, are subject to the Fund's 15% limitation on investment in illiquid securities. See the SAI, "Additional Information on Fund Investments." PORTFOLIO TURNOVER Generally, the Funds will purchase portfolio securities for capital appreciation or investment income, or both, and not for short-term trading profits. However, a Fund may sell a portfolio investment soon after its acquisition if Pacific Century believes that such a disposition is consistent with attaining the investment objective of the particular Fund. Portfolio investments may be sold for a variety of reasons, such as a more favorable investment opportunity or other circumstances bearing on the desirability of continuing to hold such investments. The annual portfolio turnover rate is not expected to exceed 100% for any Fund. For the fiscal years ended July 31, 1997 and July 31, 1996, the portfolio turnover rate for the Funds were as follows: PORTFOLIO TURNOVER RATE FOR FISCAL YEARS ENDED JULY 31, 1997 AND JULY 31, 1996 [Download Table] FUND 1997 1996 ------------------------------------------------------------------ ------ ----- Diversified Fixed Income Fund..................................... 80.98% 58.86% Growth and Income Fund............................................ 74.83% 80.83% Growth Stock Fund................................................. 32.20% 61.30% New Asia Growth Fund.............................................. 134.89% 86.53% Short Intermediate U.S. Treasury Securities Fund.................. 51.56% 47.17% Tax-Free Securities Fund.......................................... 11.07% 24.78% Tax-Free Short Intermediate Securities Fund....................... 29.46% 54.70% U.S. Treasury Securities Fund..................................... 44.90% 15.75% See "Portfolio Transactions" in the Statement of Additional Information for additional information relating to portfolio turnover rate. INVESTMENT POLICIES Each Fund's investment objectives, as set forth in the first paragraph of the description of each Fund in the "Highlights" section, are fundamental; that is, they may not be changed without approval by vote of the holders of a majority of the relevant Fund's outstanding voting securities, as described under "Capital Stock" in the SAI. If the Trust's Board of Trustees determines, however, that a Fund's investment objective can best be achieved by a substantive change in a non-fundamental investment policy or strategy, the Trust's Board may make such change without shareholder approval and will disclose any such material changes in the then-current prospectus. Any policy that is not specified in a Fund's Prospectus, or in the SAI, as being fundamental, is nonfundamental. PROSPECTUS 25
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ADDITIONAL RISK DISCLOSURE RISK FACTORS AND SPECIAL CONSIDERATIONS OF INVESTING IN FOREIGN SECURITIES GENERALLY AND IN COUNTRIES WITH SMALLER CAPITAL MARKETS Investing on an international basis involves certain risks not involved in domestic investments, including fluctuations in foreign exchange rates, future political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws or restrictions. In addition, with respect to certain foreign countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could affect investments in those countries. Moreover, individual foreign economies may differ favorably or unfavorably from the U.S. economy in such respect as growth of gross national product, rates of inflation, capital reinvestment, resources, self-sufficiency and balance of payments position. Certain foreign investments may also be subject to foreign withholding taxes. Most of the foreign securities held by the Funds will not be registered with the Securities and Exchange Commission, nor will the issuers thereof be subject to the reporting requirements of such agency. Accordingly, there may be less publicly available information about a foreign company than about a U.S. company, and such foreign companies may not be subject to accounting, auditing and financial reporting standards and requirements comparable to those to which U.S. companies are subject. As a result, traditional investment measurements, such as price/earnings ratios, as used in the United States, may not be applicable to certain smaller capital markets. Foreign companies are not generally subject to uniform accounting, auditing and financial reporting standards or to practices and requirements comparable to those applicable to domestic companies. Foreign markets also have different clearance and settlement procedures, and in certain markets there have been times when settlements have failed to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. Brokerage commissions and other transaction costs on foreign securities exchanges are generally higher than in the United States. There is generally less government supervision and regulation of exchanges, brokers and issuers in foreign countries than there is in the United States. The foregoing risks are often heightened for investments in smaller capital markets and developing countries. To the extent a Fund invests in foreign securities, its operating expense ratio can be expected to be higher than that of an investment company investing exclusively in U.S. securities since certain expenses of the Fund, such as management and advisory fees and custodial costs, may be higher. New Asia Growth Fund will invest heavily in securities denominated or quoted in currencies other than the U.S. dollar. Accordingly, changes in foreign currency exchange rates will affect the value of securities in the portfolio and the unrealized appreciation or depreciation of investments insofar as U.S. investors are concerned. RISKS OF HEDGING STRATEGIES Participation in the options or futures markets and in currency exchange transactions involves investment risks and transaction costs to which a Fund would not be subject absent the use of these strategies. If the investment adviser's predictions of movements in the direction of the securities, foreign currency and interest rate markets are inaccurate, the adverse consequences to a Fund may leave the Fund in a worse position than if such strategies were not used. Risks inherent in the use of options, foreign currency and futures contracts and options on futures contracts include (1) dependence on the investment adviser's ability to predict correctly movements in the direction of interest rates, securities prices and currency markets; (2) imperfect correlation between the price of options and futures contracts and options thereon and movements in the prices of the securities or currencies being hedged; (3) the fact that skills needed to use these strategies are different from those needed to select portfolio PROSPECTUS 26
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securities; (4) the possible absence of a liquid secondary market for any particular instrument at any time; (5) the possible need to defer closing out certain hedged positions to avoid adverse tax consequences; and (6) the possible inability of the Fund to purchase or sell a portfolio security at a time that otherwise would be favorable for it to do so, or the possible need for the Fund to sell a portfolio security at a disadvantageous time, due to the need for the Fund to maintain "cover" or to segregate securities in connection with hedging transactions. See SAI, "Additional Information on Fund Investments" and "Tax Information." A Fund will generally purchase options and futures on an exchange only if there appears to be a liquid secondary market for such options or futures; a Fund will generally purchase over-the-counter options only if management believes that the other party to the options will continue to make a market for such options. However, there can be no assurance that a liquid secondary market will continue to exist or that the other party will continue to make a market. Thus, it may not be possible to close an options or futures transaction. The inability to close options and futures positions also could have an adverse impact on a Fund's ability to effectively hedge its portfolio. There is also the risk of loss by a Fund of margin deposits or collateral in the event of bankruptcy of a broker with whom the Fund has an open position in an option, a futures contract or related option. RISK FACTORS ASSOCIATED WITH INVESTMENT IN CERTAIN DEBT SECURITIES Lowest Category of Investment Grade. Obligations rated in the lowest of the top four rating categories by an NRSRO have speculative characteristics, and changes in economic conditions or other circumstances are more likely to lead to a weakened capacity to make principal and interest payments than is the case with higher grade bonds. Subsequent to its purchase by a Fund, an issue of securities may cease to be rated or its rating category may be reduced below the minimum rating required for purchase by the respective Fund. The investment adviser will consider such an event in determining whether the relevant Fund should continue to hold the obligation. Lower Rated Debt Securities (New Asia Growth Fund only). New Asia Growth Fund may invest in securities rated in the medium to low rating categories of NRSROs such as Standard & Poor's Corporation ("S&P") and Moody's Investors Service, Inc. ("Moody's") and unrated securities of comparable quality (referred to herein as "high yield/high risk securities"). These securities are predominantly speculative with respect to the capacity to pay interest and repay principal in accordance with the terms of the security, generally involve a greater volatility of price than securities in higher rating categories, may have call or redemption features which would permit the issuer to repurchase securities from New Asia Growth Fund, are less liquid than higher rated securities, and may have their value and liquidity negatively impacted by adverse publicity and investor perceptions. See "Appendix" in the SAI. These securities are commonly referred to as "junk bonds." In purchasing such securities, New Asia Growth Fund will rely on the investment adviser's judgment, analysis and experience in evaluating the creditworthiness of an issuer of such securities. The investment adviser will take into consideration, among other things, the issuer's financial resources, its sensitivity to economic conditions and trends, its operating history, the quality of the issuer's management and regulatory matters. New Asia Growth Fund is not authorized to purchase debt securities that are in default, except that the Fund may invest in sovereign debt which is in default, provided that not more than 5% of its total assets is invested in sovereign debt (including sovereign debt which is in default). For a further discussion of the risks associated with investment in high yield/high risk securities, see SAI, "Additional Information Fund Investments." Sovereign Debt (New Asia Growth Fund only). The sovereign debt instruments in which New Asia Growth Fund may invest involve great risk and are deemed to be the equivalent in terms of quality to high yield high risk securities. New Asia Growth PROSPECTUS 27
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Fund may have difficulty disposing of certain sovereign debt obligations because there may be no liquid secondary trading market for such securities. New Asia Growth Fund may invest up to 5% of its total assets in sovereign debt, including sovereign debt which is in default. SPECIAL CONCERNS FOR NEW ASIA GROWTH FUND Investing in Developing Asian Securities Markets and Economies. Because New Asia Growth Fund intends to invest primarily in securities of companies located in developing Asian countries, an investor in the Fund should be aware of certain risk factors and special considerations relating to investing in these developing economies. More generally, the investor should also be aware of risks and considerations related to international investing and investing in smaller capital markets, each of which may involve risks which are not typically associated with investments in securities of U.S. issuers. Consequently, the Fund should be considered as a means of diversifying an investment portfolio and not in itself a balanced investment program. New Asia Growth Fund invests primarily in the securities of companies located in the developing countries of Asia. The securities markets of developing Asian countries are not as large as the U.S. securities markets and have substantially less trading volume, resulting in a lack of liquidity and high price volatility. Certain markets, such as those of China, are in only the earliest stages of development. There is also a high concentration of market capitalization and trading volume in a small number of issuers representing a limited number of industries, as well as a high concentration of investors and financial intermediaries. Many of such markets also may be affected by developments with respect to more established markets in the region, such as in Japan. Developing Asian brokers typically are fewer in number and less capitalized than brokers in the United States. These factors, combined with the U.S. regulatory requirements for open-end investment companies and the restrictions on foreign investments discussed below, result in potentially fewer investment opportunities for New Asia Growth Fund and may have an adverse impact on the investment performance of the Fund. The investment objective of New Asia Growth Fund reflects the belief that the economies of the developing Asian countries will continue to grow in such a fashion as to provide attractive investment opportunities. At the same time, emerging economies present certain risks that do not exist in more established economies. Especially significant is that political and social uncertainties exist for some of these developing Asian countries. In addition, the governments of many of such countries have a heavy role in regulating and supervising the economy. Another risk common to most such countries is that the economy is heavily export oriented and, accordingly, is dependent upon international trade. The existence of overburdened infrastructure and obsolete financial systems also presents risks in certain countries, as do environmental problems. Certain economies also depend to a significant degree upon exports of primary commodities and, therefore, are vulnerable to changes in commodity prices which, in turn, may be affected by a variety of factors. Archaic legal systems in certain developing Asian countries also may have an adverse impact on New Asia Growth Fund. For example, while the potential liability of a shareholder in a U.S. corporation with respect to the acts of the corporation is generally limited to the amount of the shareholder's investment, the notion of limited liability is less clear in certain developing Asian countries. Similarly, the rights of investors in developing Asian companies may be more limited than those of shareholders of U.S. corporations. Certain of the risks associated with international investments and investing in smaller capital markets are heightened for investments in developing Asian countries. For example, some of the currencies of developing Asian countries have experienced devaluations relative to the U.S. dollar, and major adjustments have been made periodically in certain of such currencies. Certain countries, such as India, face serious exchange constraints. PROSPECTUS 28
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Inflation accounting rules in some developing Asian countries require, for companies that keep accounting records in the local currency, for both tax and accounting purposes, that certain assets and liabilities be restated on the company's balance sheet in order to express items in terms of currency of constant purchasing power. Inflation accounting may indirectly generate losses or profits for certain developing Asian companies. Satisfactory custodial services for investment securities may not be available in some developing Asian countries, which may result in the Fund incurring additional costs and delays in providing transportation and custody services for such securities outside such countries. Certain developing Asian countries, such as the Philippines and India, are especially large debtors to commercial banks and foreign governments. In addition, trading in sovereign debt issued or guaranteed by governmental entities in developing Asian countries involves a high degree of risk. These risks are discussed below in "Risk Factors Associated with Investment in Certain Debt Securities." Restrictions on Foreign Investments. Some developing Asian countries prohibit or impose substantial restrictions on investments in their capital markets, particularly their equity markets, by foreign entities such as New Asia Growth Fund. As illustrations, certain countries may require governmental approval prior to investments by foreign persons or limit the amount of investment by foreign persons in a particular company or limit the investment by foreign persons to only a specific class of securities of a company which may have less advantageous terms (including price) than securities of the company available for purchase by nationals. Certain countries may restrict investment opportunities in issuers or industries deemed important to national interests. The manner in which foreign investors may invest in companies in certain developing Asian countries, as well as limitations on such investments, also may have an adverse impact on the operations of New Asia Growth Fund. For example, New Asia Growth Fund may be required in certain of such countries to invest initially through a local broker or other entity and then have the shares that were purchased reregistered in the name of New Asia Growth Fund. Re-registration may in some instances not be able to occur on a timely basis, resulting in a delay during which New Asia Growth Fund may be denied certain of its rights as an investor, including rights as to dividends or to be made aware of certain corporate actions. There also may be instances where New Asia Growth Fund places a purchase order but is subsequently informed, at the time of re-registration, that the permissible allocation of the investment to foreign investors has been filled, depriving the Fund of the ability to make its desired investment at that time. Substantial limitations may exist in certain countries with respect to the Fund's ability to repatriate investment income, capital or the proceeds of sales of securities by foreign investors. New Asia Growth Fund could be adversely affected by delays in, or a refusal to grant, any required governmental approval for repatriation of capital, as well as by the application to the Fund of any restrictions on investments. In addition, even where there is no outright restriction on repatriation of capital, the mechanics of repatriation may affect certain aspects of the operations of the Fund. For example, funds may be withdrawn from China only in U.S. or Hong Kong dollars and only at an exchange rate established by the government once each week. A number of publicly traded closed-end investment companies have been organized to facilitate indirect foreign investment in developing Asian countries, and certain of such countries, such as Thailand and South Korea, have specifically authorized such funds. There also are investment opportunities in certain of such countries in pooled vehicles that resemble open-end investment companies. As discussed above, the Fund's investment in these companies will be subject to certain percentage limitations of the 1940 Act. See "Additional Discussion Regarding Permitted Investment Activities--Other Investment Companies." This restriction on investments in securities of investment PROSPECTUS 29
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companies may limit opportunities for New Asia Growth Fund to invest indirectly in certain developing Asian countries. Shares of certain investment companies may at times be acquired only at market prices representing premiums to their net asset values. In certain countries, banks or other financial institutions may be among the leading companies or have actively traded securities. The 1940 Act restricts New Asia Growth Fund's investments in any equity securities of an issuer which, in its most recent fiscal year, derived more than 15% of its revenues from "securities-related activities," as defined by the rules thereunder. These provisions may restrict the Fund's investments in certain foreign banks and other financial institutions. Limitations on Share Transactions. To permit New Asia Growth Fund to invest the net proceeds from the sale of its shares in an orderly manner, the Fund may, from time to time, suspend the sale of its shares, except for dividend reinvestment. The Fund also reserves the right to limit the number of its shares that may be purchased by a person during a specified period of time or in the aggregate. SPECIAL CONCERNS FOR THE TAX-FREE FUNDS Tax-Free Securities Fund and Tax-Free Short Intermediate Securities Fund are non-diversified, which means that their assets may be invested among fewer issuers and therefore the value of their assets may be subject to greater impact by events affecting one of their investments. Since Tax-Free Securities Fund and Tax-Free Short Intermediate Securities Fund invest significantly in obligations of issuers located in Hawaii, the marketability, and market value of these obligations may be affected by certain Hawaiian constitutional provisions, legislative measures, executive orders, administrative regulations, and vote initiatives. The Hawaiian economy is concentrated in tourism, agriculture and military operations. Tourism is the strongest factor with tourists from a variety of nations cushioning any adverse economic situations in a single country. Hawaiian agriculture is diversifying into an expanded range of agricultural products, away from the dominant pineapple and sugar production that has been subject to increased foreign competition. Governmental activities, including activities usually administered on a municipal or county level such as public education, are the responsibility of the state. This concentration aggravates an otherwise high level of state debt obligations. The state General Fund has operated either within planned deficits or with ending fund balances since December 1962. Revenue is derived primarily from general excise taxes and individual and corporate income tax. ADDITIONAL INVESTMENT RESTRICTIONS As matters of fundamental policy, each of the Funds may not: 1. Purchase securities of any one issuer (other than securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities) if, immediately after such purchase, more than 5% of the value of the Fund's total assets would be invested in the securities of such issuer, or more than 10% of the issuer's outstanding voting securities would be owned by the Fund, except that up to 25% of the value of the Fund's total assets may be invested without regard to these limitations, and except that this restriction does not apply to Tax-Free Securities Fund or Tax-Free Short Intermediate Securities Fund, which are non-diversified funds. 2. Purchase any securities which would cause 25% or more of the value of the Fund's total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that (a) there is no limitation with respect PROSPECTUS 30
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to U.S. Government Obligations and repurchase agreements secured by such obligations; (b) with respect to Tax-Free Securities Fund and Tax-Free Short Intermediate Securities Fund, there is no limitation with respect to Municipal Obligations (for purposes of this limitation, private activity bonds that are backed only by the assets and revenues of a non-governmental user shall not be deemed to be Municipal Obligations); (c) wholly owned finance companies will be considered to be in the industries of their parents if their activities are primarily related to financing the activities of the parents; and (d) utilities will be divided according to their services, for example, gas, gas transmission, electric and gas, electric and telephone will each be considered a separate industry. 3. Make loans, borrow money or issue senior securities, except under certain circumstances, and subject to certain percentage limitations, specified above and in the SAI. If a percentage limitation is satisfied at the time of investment, a later increase or decrease in such percentage resulting from a change in the value of a Fund's portfolio securities will not constitute a violation of such limitation. MANAGEMENT, ADVISORY AND OTHER SERVICE ARRANGEMENTS THE BOARD OF TRUSTEES The business and affairs of the Trust are managed under the direction and control of its Board of Trustees. The names and principal occupations of the Trustees of the Trust are listed below. Trustees deemed to be "interested persons" of the Trust for purposes of the 1940 Act are indicated by an asterisk. [Enlarge/Download Table] POSITION(S) HELD NAME AND ADDRESS WITH THE TRUST PRINCIPAL ORGANIZATION ----------------------------------------------- -------------------------------------------- Deborah G. Patterson* Trustee and Chairperson Senior Vice President of Bank of Hawaii--Asset Management and Private Client Group (1994-present); Director of KPMG Peat Marwick (1993-1994); Senior Vice President and Manager of Wells Fargo Bank (1987-1992) Irigma McKay* Trustee and President Senior Vice President of BISYS Fund Services (1994-present); Senior Vice President of Concord Financial Group (1986-1994) Douglas Philpotts* Trustee Chairman of the Board of Directors (1992-1994), President (1986-1992), and Director (1984-present) of Pacific Century Richard W. Gushman, II Trustee President and Chief Executive Officer of OKOA, Inc. (1985-present); Adviser to RAMPAC, Inc. Stanley W. Hong Trustee President and Chief Executive Officer of the Chamber of Commerce of Hawaii (1996-present); Business Consultant (1994-present) Russell K. Okata Trustee Executive Director of Hawaii Government Employees Association (1981-present) Oswald K. Stender Trustee Trustee of Bernice Pauahi Bishop Estate (1990-present); Director of Hawaiian Electric Industries, Inc. (1993-present) PROSPECTUS 31
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Trustees of the Trust who are not officers or employees of the Trust, BISYS or Pacific Century are entitled to receive from the Trust a quarterly retainer and a fee for each Board of Trustees meeting attended. All Trustees are reimbursed for all reasonable out-of-pocket expenses relating to attendance at meetings. THE ADVISER Pursuant to an Advisory Agreement, the Funds are advised by Pacific Century, whose address is Financial Plaza of the Pacific, 111 S. King Street, Honolulu, Hawaii 96813. Pacific Century is a Hawaii corporation organized in 1898 and is the largest trust company in the State of Hawaii, both in terms of assets under administration and assets under management. As of July 31, 1997, Pacific Century had approximately $7.5 billion of client financial assets under management. Pacific Century is a division of Bank of Hawaii, the largest banking organization headquartered in the State of Hawaii, with approximately $12.6 billion of assets as of July 31, 1997, and branches and offices throughout the Pacific Basin, including Guam, Singapore, Tokyo, Seoul and Taiwan. All shares of Bank of Hawaii are owned by Pacific Century Financial Corporation (formerly Bancorp Hawaii, Inc., "Pacific Century Financial") and Bank of Hawaii's Directors (each of whom owns qualifying shares as required by Hawaii law). Pacific Century Financial is a bank holding company, registered under the Bank Holding Company Act of 1956, as amended, and its common stock is listed and traded on the New York Stock Exchange (the "Exchange"). Pacific Century Financial files annual and periodic reports with the Commission and the Exchange, which are available for public inspection. Pacific Century is not authorized to and does not carry on a banking business. The actual management of the portfolios of the Trust is coordinated by Pacific Century's investment unit, which is staffed with more than 40 people, including 5 Chartered Financial Analysts and 9 M.B.A.'s. All investment decisions of the Funds are made by a committee, and no person(s) is primarily responsible for making recommendations to the committee. Pacific Century has served as investment adviser to other investment companies since 1984. These include the Hawaiian Tax-Free Trust, with assets exceeding $660 million as of July 31, 1997 and the Cash Assets Trust, with assets of approximately $736 million as of July 31, 1997. Subject to the supervision of the Board of Trustees, Pacific Century will provide a continuous investment program for the Funds, including investment research and management with respect to all securities and investments and cash equivalents in the Funds. Pacific Century will determine from time to time what securities and other investments will be purchased, retained or sold by the Trust with respect to the Funds. Pacific Century will provide the services under the Advisory Agreement in accordance with each of the Fund's investment objectives, policies, and restrictions. For its services, Pacific Century is entitled to monthly advisory fees based on a percentage of each Fund's average daily net assets. The following table sets forth the rate of advisory fee payable by each Fund under the Advisory Agreement as a percentage of average daily net assets. PROSPECTUS 32
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ADVISORY FEE PAYABLE UNDER ADVISORY AGREEMENT [Enlarge/Download Table] ADVISORY FEE ADVISORY FEE (% OF AVERAGE (% OF AVERAGE FUND DAILY NET ASSETS) FUND DAILY NET ASSETS) ------------------------------ ----------------- --------------------------------- ----------------- Diversified Fixed Income Fund 0.60% Short Intermediate U.S. Treasury Growth and Income Fund 0.80% Securities Fund 0.50% Growth Stock Fund 0.80% Tax-Free Securities Fund 0.60% New Asia Growth Fund 0.90% Tax-Free Short Intermediate Fund 0.50% U.S. Treasury Securities Fund 0.60% For the fiscal year ended July 31, 1997, the advisory fees paid by the Funds to Pacific Century under the Advisory Agreement as a percentage of average daily net assets were as follows: Diversified Fixed Income Fund--0.60%; Growth and Income Fund--0.80%; Growth Stock Fund--0.80%; New Asia Growth Fund--0.90%; Tax-Free Securities Fund--0.60%; Tax-Free Short Intermediate Securities Fund--0.50%; Short Intermediate U.S. Treasury Securities Fund--0.30% (after advisory fee waiver); and U.S. Treasury Securities Fund--0.60%. Balanced Fund has not commenced operations as of the date of this Prospectus. THE SUB-ADVISER Nicholas-Applegate Capital Management (Hong Kong) LLC has been retained as Sub-Adviser to New Asia Growth Fund. Pursuant to a separate sub-advisory agreement with Pacific Century (the "Sub-Advisory Agreement"), the Sub-Adviser provides investment advisory services with respect to management of the foreign component of New Asia Growth Fund's portfolio, including investment research with respect to all foreign securities, currencies and cash equivalents in New Asia Growth Fund. The Sub-Adviser is a California limited liability company, located at Room 604-6, Three Exchange Square, 8 Connaught Place, Central, Hong Kong, and is part of an investment management organization which together manage approximately $31 billion as of July 31, 1997 through a variety of investment products and services. The Sub-Adviser is registered as an investment adviser with the Commission under the Investment Advisers Act of 1940. The Sub-Adviser specializes in the management of equities in Asia. For its services to New Asia Growth Fund under the Sub-Advisory Agreement, Pacific Century pays the Sub-Adviser a fee equal to 0.50% of the Fund's average daily net assets, computed daily and payable quarterly. The fee payable by Pacific Century to the Sub-Adviser represents a portion of the 0.90% investment advisory fee paid to Pacific Century. New Asia Growth Fund does not pay any incremental fee for the services of the Sub-Adviser. All investment decisions of the Sub-Adviser with respect to New Asia Growth Fund are made by a committee, and no person is responsible for making recommendations to the committee. THE SPONSOR, ADMINISTRATOR AND DISTRIBUTOR BISYS is the administrator for each Fund, and also acts as the Trust's principal underwriter and distributor. BISYS generally assists in all aspects of the administration and operation of the Funds. For expenses assumed and services provided as administrator pursuant to its Administration Agreement with the Trust, BISYS is entitled to receive a fee from the Funds, computed daily and paid monthly, at an annual rate equal to 0.20% of the average daily net assets of each Fund. In addition, BISYS, as the principal underwriter of the Funds within the meaning of the 1940 Act, has entered into a Distribution Agreement with the Trust pursuant to which BISYS has the responsibility for distributing shares of the Funds. The PROSPECTUS 33
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Distribution Agreement provides that BISYS shall act as agent for the Funds for the sale of their shares and may enter into selling agreements with banks, broker/dealers or other financial institutions to market and make available shares to their respective customers. BISYS is a broker-dealer registered with the Commission, and is a member of the National Association of Securities Dealers ("NASD"). For the fiscal year ended July 31, 1997, the ratio of total expenses to average net assets (excluding waivers) for the Funds were as follows: Diversified Fixed Income Fund--0.94%, Growth and Income Fund--1.11%, Growth Stock Fund--1.11%, New Asia Growth Fund--1.82%, Short Intermediate U.S. Treasury Securities Fund--0.87%, Tax-Free Securities Fund--0.91%, Tax-Free Short Intermediate Securities Fund--0.89%, and U.S. Treasury Securities Fund--0.95%. OTHER SERVICE ARRANGEMENTS Administrative Data Management Corporation ("ADM" or the "Transfer Agent"), 581 Main Street, Woodbridge, New Jersey 07095, serves as the Trust's transfer agent and dividend disbursing agent. Ernst & Young LLP, One Columbus, Suite 2300, 10 West Broad Street, Columbus, Ohio 43215, serves as independent auditors for the Trust. VALUATION OF CLASS Y SHARES The net asset value of the Class Y shares for each Fund is determined and its shares are priced as of the close of the Exchange (currently 4:00 p.m., Eastern Time) (the "Valuation Time") each Business Day. As used herein, a "Business Day" is a day on which the Exchange is open for trading and any other day (other than a day on which no shares of that Fund are tendered for redemption and no order to purchase shares received) during which there is sufficient trading in the Fund's portfolio securities that the Fund's net asset value per share might be materially affected. The Exchange will not be open in observance of the following holidays: New Year's Day, Presidents' Day, Martin Luther King Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day and Good Friday. Net asset value per share for Class Y is calculated by determining the value of Class Y's proportional interest in the securities and other assets of each Fund, less (i) such class's proportional share of general liabilities and (ii) liabilities allocable only to such class, and dividing such amount by the number of shares of the Class outstanding. The net asset value per share for each Fund will fluctuate as the value of its investment portfolio changes. Except for debt obligations with remaining maturities of 60 days or less, which are valued at amortized cost, assets are valued at current market prices, or if such prices are not readily available, at fair value as determined in good faith by the Board of Trustees. Prices used for such valuations may be provided by independent pricing services. For further information about valuation of investments in the Funds, see the SAI. HOW TO PURCHASE CLASS Y SHARES PURCHASE OF SHARES Class Y shares of each Fund are sold on a continuous basis by BISYS. The principal office of BISYS is located at 3435 Stelzer Road, Columbus, Ohio 43219-3035. If you wish to purchase shares contact BISYS at 800-258-9232. Only Institutions acting on behalf of customers having a qualified trust account, employee benefit account or other qualifying account at such Institution are eligible to PROSPECTUS 34
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invest in Class Y of each Fund's shares. Direct purchases of Fund shares by individual investors, including purchases through SIPC insured brokerage accounts, are not permitted. Class Y shares of any Fund acquired by persons through qualifying accounts may continue to be held in separate accounts in the name of the person or persons so acquiring the shares, but dividends and distributions relating to such shares may not be reinvested and no additional Class Y shares of such Fund may be purchased for such separate accounts unless the account holder qualifies to purchase additional Class Y shares. Persons who have acquired shares of any Fund, as described above, and do not qualify for purchasing additional Class Y shares, may make an additional investment in the Fund by purchasing Class A and Class B shares, which are not offered hereby. Persons who have acquired Class Y shares, as described above, but no longer qualify to make an additional investment in such shares will have their holdings converted to Class A shares of the same Fund. As shareholders of Class A shares, such former Class Y shareholders will be permitted to reinvest dividends and distributions relating to their share holdings, but will be subject to the higher expenses associated with Class A shares. See "Exchange Privileges and Conversion Feature" below. Class Y shares of the Funds may be purchased through procedures established by BISYS in connection with requirements of qualified accounts maintained by or on behalf of certain persons ("Customers") by an Institution. These procedures may include instructions under which a Customer's account is "swept" automatically no less frequently than weekly and amounts in excess of a minimum amount agreed upon by an Institution and its Customer are invested by BISYS in shares of a Fund. Class Y shares of a Fund sold to an Institution acting in a fiduciary, advisory, custodial or other similar capacity on behalf of a customer will normally be held of record by such Institution. With respect to shares so sold, it is the responsibility of the particular Institution to transmit purchase or redemption orders to BISYS and to deliver federal funds for purchase on a timely basis. Beneficial ownership of shares of a Fund will be recorded by such Institution and reflected in the account statements provided by the Institution to the customer. Class Y shares of each Fund are purchased at the public offering price per share, which is the net asset value per Class Y share (see "Valuation of Class Y Shares") next determined after receipt by the Transfer Agent of an order to purchase Class Y shares. BISYS and the Institutions are responsible for the prompt transmission of purchase orders to the Transfer Agent. Purchases of Class Y shares of a Fund will be effected only on a Business Day of such Fund. An order received by the Transfer Agent prior to the Valuation Time on any Business Day will be executed based on the net asset value determined as of the Valuation Time on the date of receipt. An order received by the Transfer Agent after the Valuation Time on any Business Day will be executed based on the net asset value determined as of the next Business Day. There is no sales charge imposed by the Trust in connection with the purchase of Class Y shares in the Funds. Sales charges may apply to purchases of the other series or classes of the Trust's shares. Depending upon the terms of a particular Customer account, an Institution may charge a Customer's account fees for services provided in connection with investment in the Funds. Information concerning these services and any charges will be provided by the Institutions. This Prospectus should be read in conjunction with any such information received from the Institutions. The Trust reserves the right to reject any order for the purchase of its shares in whole or in part. Every shareholder will receive a confirmation of each new transaction in the Shareholder's account. Certificates representing shares will not be issued. PROSPECTUS 35
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EXCHANGE PRIVILEGES AND CONVERSION FEATURE Class Y shareholders may exchange shares of any Fund on the basis of the relative net asset value of the shares exchanged for Class Y shares of any other Fund, Class Y shares of any other series of the Trust or for shares of the Cash Assets Trust, the Tax-Free Cash Assets Trust, the U.S. Treasuries Cash Asset Trust or the Hawaiian Tax-Free Trust so long as they maintain the respective minimum account balance in each Fund in which they own shares. For federal income tax purposes, such an exchange of shares is deemed a sale on which a shareholder may realize capital gain or loss. Before an exchange can be effected, a shareholder must receive a prospectus of the fund into which the subject shares are to be exchanged. An exchange can be made by calling the Trust at 800-258-9232. Exchange privileges may be exercised only in those states where Class Y shares of such other Fund or series may be legally sold, and may be amended or terminated at any time upon 60 days' notice. Class Y shareholders of any Fund who terminate their qualified trust account, employee benefit account or other qualifying relationship with an Institution are no longer eligible to make additional investments in a Fund's Class Y shares. Effective February 15, 1997, such Class Y shareholders will have their Class Y shares of a Fund converted to Class A shares of the same Fund on the basis of the relative net asset values of the shares of the two classes on the conversion date, without incurring any fee, sales load or other charge. As Class A shareholders of a Fund, such former Class Y shareholders will be able to reinvest dividends and distributions relating to their share holdings, but will be subject to the higher expenses associated with Class A shares. A conversion of Class Y shares for Class A shares will be a tax free transaction for any Class Y shareholder involved in such conversion. Class Y shareholders who are no longer eligible to make additional investments in a Fund's Class Y shares and who do not wish to have their holdings converted to Class A shares may choose to redeem their shares. HOW TO REDEEM CLASS Y SHARES An Institution may redeem Class Y shares on behalf of its Customers without charge on any day that the net asset value is calculated (see, "Valuation of Class Y Shares") and Class Y shares may ordinarily be redeemed by mail or by telephone. REDEMPTION BY MAIL OR TELEPHONE A written or telephone (available only if the shareholder has elected the telephone redemption option) request for redemption must be received by BISYS in order to constitute a valid tender for redemption. BISYS and the Institutions are responsible for the prompt transmission of redemption requests to the Transfer Agent. The Trust, the Fund, the Distributor and the Transfer Agent are not liable for damages resulting from following instructions communicated by telephone that any of them reasonably believed to be genuine. The Trust will employ reasonable procedures to confirm that instructions communicated by telephone are genuine. If the Trust fails to do so, it may be liable for any losses due to unauthorized or fraudulent instructions. A description of the procedures employed by the Trust to confirm instructions communicated by telephone is contained in the SAI. This policy places the entire risk of loss for unauthorized or fraudulent transactions on the shareholder, except that if the Fund, the Transfer Agent, BISYS or their affiliates do not follow reasonable procedures, some or all of them may be liable for any such losses. During times of drastic economic or market changes, telephone exchanges or redemptions may be difficult to implement. If you experience difficulty in making a telephone exchange or redemption, your exchange or redemption request may be PROSPECTUS 36
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made by regular or express mail, and it will be implemented at the next determined net asset value following receipt by the Transfer Agent. PAYMENTS TO CLASS Y SHAREHOLDERS Redemption orders are effected at the net asset value per Class Y share next determined after the shares are properly tendered for redemption, as described above. The proceeds paid upon redemption of shares in a Fund may be more or less than the amount invested. Payment to shareholders for shares redeemed will be made within seven days after receipt by the Transfer Agent of the request for redemption. However, to the greatest extent possible, the Trust will attempt to honor requests from shareholders for next Business Day payments upon redemption of Class Y shares if the request for redemption is received by the Transfer Agent before 4:00 p.m., Eastern Time, on a Business Day or, if the request for redemption is received after 4:00 p.m., Eastern Time, to honor requests for payment within two Business Days, unless it would be disadvantageous to the Trust or the shareholders of the particular Fund to sell or liquidate portfolio securities in an amount sufficient to satisfy requests for payments in such manner. DIVIDEND AND TAX INFORMATION DIVIDENDS AND DISTRIBUTIONS Diversified Fixed Income Fund, Short Intermediate U.S. Treasury Securities Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities Fund and U.S. Treasury Securities Fund will declare dividends of substantially all of their net income daily and will pay such dividends monthly. Balanced Fund, Growth and Income Fund and Growth Stock Fund will declare and pay dividends of substantially all of their net income monthly. New Asia Growth Fund will declare and pay dividends of substantially all of its net income quarterly. Distributable net realized capital gains are distributed at least annually to shareholders of record. A shareholder will automatically receive all income dividends and capital gains distributions in additional full and fractional shares of the same Class of shares held unless the shareholder elects to receive such dividends or distributions in cash. Dividends and distributions are reinvested as of the ex-dividend date using the net asset value determined on that date and are credited to a shareholder's account on the payment date. Reinvested dividends and distributions receive the same tax treatment as dividends and distributions paid in cash. Dividends are generally taxable when received. However, dividends declared in October, November or December to shareholders of record during those months and paid during the following January are treated for tax purposes as if they were received by each shareholder on December 31 of the prior year. Elections to receive dividends or distributions in cash, or any revocation thereof, must be made in writing to BISYS at 3435 Stelzer Road, Columbus, Ohio 43219-3035, and will become effective with respect to dividends and distributions having record dates after receipt by the Transfer Agent. TAX INFORMATION Each Fund intends to qualify as a "regulated investment company" under the Internal Revenue Code of 1986, as amended (the "Code"). If a Fund does so qualify, it will not be liable for federal income taxes to the extent that it distributes its income to its shareholders as dividends and capital gain distributions. However, the Code contains a number of complex tests relating to such qualification and it is possible, although not likely, that a Fund might not meet one or more of these tests in any particular year. If it does not so qualify, it would be treated for tax purposes as an ordinary corporation, would receive no tax deduction for payments made to shareholders and would be unable to pass through foreign tax credits or to pay dividends or distributions which would qualify as "exempt-inter- PROSPECTUS 37
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est dividends" or "capital gains dividends," as discussed below. The Tax-Free Securities Fund and Tax-Free Short Intermediate Securities Fund each intends to qualify during each fiscal year under the Code to pay exempt-interest dividends to shareholders of exempt-interest dividends. Exempt-interest dividends which are derived from net interest income earned by a Fund on tax-exempt securities will be excludable from gross income of the shareholders of Tax-Free Securities Fund and Tax-Free Short Intermediate Securities Fund for regular federal income tax purposes. Capital gains dividends and distributions of short-term capital gains and accrued market discount on taxable securities and municipal obligations are taxable and are not included in exempt-interest dividends. Dividends from interest on taxable short-term obligations, and income from repurchase agreements and securities loans are reportable by shareholders of Tax-Free Securities Fund and Tax-Free Short Intermediate Securities Fund as ordinary income. Although tax-exempt dividends are not taxed, each taxpayer must report the total amount of tax-exempt interest (including exempt-interest dividends from the Trust) received or acquired during the year. Capital gains dividends (net gains from the sale of capital assets held for more than 12 months over net short-term losses which a Fund distributes) are reportable by shareholders as long-term capital gains. This is the case whether the shareholder takes his or her distribution in cash or elects to have the distribution reinvested in Fund shares and regardless of the length of time the shareholder has held his or her shares. The maximum capital gains rate for individuals is 28% with respect to assets held for more than 12 months, but not more than 18 months ("mid-term gains"), and 20% with respect to assets held for more than 18 months ("long-term gains"). The maximum capital gains rate for corporate shareholders currently is the same as the maximum tax rate for ordinary income. Short-term gains, when distributed, are taxed to shareholders as ordinary income. Capital losses of a Fund are not claimed by shareholders but carried forward by the Fund to offset gains in later years and thereby lessen the later-year capital gains distributions and amounts taxed to shareholders. A Fund's gains or losses on sales of securities will be long-term, mid-term or short-term depending upon the length of time the Fund has held such securities. Capital gains and losses of the Fund will also include gains and losses on futures and options, if any, including gains and losses actually realized on sales and exchanges and gains and losses deemed to be realized. Those deemed to be realized are on futures and options held by a Fund at year-end, which are "marked to the market," that is, deemed sold for fair market value. Net gains or losses realized and deemed realized on Section 1256 futures and options contracts will be reportable by the Fund as long-term to the extent of 60% of the gains or losses and short-term to the extent of 40% regardless of the actual holding period of such investments. Corporate shareholders may be entitled to a dividends received deduction with respect to dividends paid by a Fund to the extent they relate to dividends received by such Fund from domestic corporations. Information as to the federal tax status of the Funds' dividends and distributions will be mailed to shareholders annually. The Trust will be required to withhold, subject to certain exemptions, at a rate of 31% on dividends paid and redemption proceeds (including proceeds from exchanges) paid or credited to non-exempt shareholders of the Funds if a correct Taxpayer Identification Number, certified when required, is not on file with the Trust or the Transfer Agent. Under the Code, dividends (but not capital gain distributions) paid to a non-resident alien or other foreign shareholder may be subject to U.S. withholding tax at the rate of 30% (or a lower treaty rate). PROSPECTUS 38
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SPECIAL TAX CONCERNS FOR NEW ASIA GROWTH FUND New Asia Growth Fund may, from time to time, invest in passive foreign investment companies ("PFICs"). PFICs are foreign corporations which derive a majority of their income from passive sources. For tax purposes, New Asia Growth Fund's investments in PFICs are subject to special tax provisions that may result in the taxation of certain gains realized by the Fund as ordinary income, plus an interest liability on such gains or on distributions from the PFIC. See SAI, "Tax Information." Gains or losses on disposition of debt securities denominated in a foreign currency attributable to fluctuations in the value of foreign currency between the date of acquisition of the security and the date of disposition are treated as ordinary gain or loss. These gains or losses increase or decrease the amount of New Asia Growth Fund's investment company taxable income available to be distributed to shareholders as ordinary income, rather than increasing or decreasing the amount of the Fund's net capital gain. If currency fluctuation losses exceed other investment company taxable income during a taxable year, distributions made by New Asia Growth Fund during the year would be characterized as a return of capital to shareholders, reducing the shareholder's basis in his, her or its Fund shares. New Asia Growth Fund may incur foreign income taxes in connection with some of its foreign investments. Certain of these taxes may be credited to shareholders. See SAI, "Tax Information." SPECIAL CONCERNS FOR THE TAX-FREE FUNDS Persons who are "substantial users" (or persons related thereto) of facilities financed by industrial development bonds or private activity bonds should consult their own tax advisers before purchasing shares of either Tax-Free Securities Fund or Tax-Free Short Intermediate Securities Fund. While interest from Municipal Obligations, held by Tax-Free Securities Fund and Tax-Free Short Intermediate Securities Fund, is tax-exempt for purposes of computing the shareholder's regular tax, interest from so-called private activity bonds issued after August 7, 1986, constitutes a tax preference for both individuals and corporations and thus will enter into the computation of the alternative minimum tax. All tax-exempt income distributed to corporate shareholders will enter into the computation of the alternative minimum tax. Whether or not these computations will result in a tax will depend on many factors, and shareholders should consult their tax advisers as to the possible alternative minimum tax, if any, they may incur. Under the Code, interest on loans incurred by shareholders to enable them to purchase shares of a Fund may not be deducted for federal or Hawaii tax purposes to the extent the shareholders receive tax-exempt dividends from the Fund. In addition, under rules used by the Internal Revenue Service for determining when borrowed funds are deemed used for the purpose of purchasing or carrying particular assets, the purchase of shares of the Fund may be considered to have been made with borrowed funds even though the borrowed funds are not directly traceable to the purchase of shares. The receipt of exempt-interest dividends from a Fund by an individual shareholder may result in some portion of any social security payments or railroad retirement benefits received by the shareholder or the shareholder's spouse being included in taxable income. TAX EFFECTS OF REDEMPTIONS A shareholder who redeems his or her shares or exchanges his or her shares for shares of another Fund generally will have a capital gain or loss (depending on whether the proceeds of the redemption are more or less than their tax basis, which is usually cost). In the case of an individual, any such capital gain will be treated as short-term capital gain if the shares were held for not more than 12 months, mid-term gain, taxable at the maximum rate of 28%, if such shares were held for more than 12, but not more than 18 months, and long-term PROSPECTUS 39
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capital gain, taxable at the maximum rate of 20%, if such shares were held for more than 18 months. In the case of a corporation, any such capital gain will be treated as long-term capital gain, taxable at the same rates as ordinary income, if such shares were held for more than 12 months. Any such capital loss will be treated as long-term capital loss if such shares were held for more than 12 months, and otherwise will be treated as short term capital loss. However, if the shares redeemed or sold were held for six months or less, any capital loss is disallowed to the extent of any exempt-interest dividends on these shares and is otherwise treated as long-term to the extent of capital gains distributions received on such shares. HAWAIIAN TAX INFORMATION If at the close of each quarter of Tax-Free Short Intermediate Securities Fund's and Tax-Free Securities Fund's taxable year at least 50% of the value of its total assets consists of obligations the interest on which, if such obligations were held by an individual, would be exempt from Hawaii personal income tax (under either the laws of Hawaii or of the United States), Tax-Free Securities Fund and Tax-Free Short Intermediate Securities Fund will be entitled to pay dividends to its shareholders which will be exempt from Hawaii personal income tax to the extent derived from such obligations. Similar exemptions may be available in other states with regard to the portion of tax-exempt dividends attributable to interest exempt from state taxation under federal law. The Funds, and dividends and distributions made by the Funds to Hawaii residents, will generally be treated for Hawaii income tax purposes in the same manner as they are treated under the Code for federal income tax purposes. Under Hawaii law, interest derived from obligations of states (and their political subdivisions) other than Hawaii will not be exempt from Hawaii income taxation. Persons or entities who are not Hawaii residents should not be subject to Hawaii income taxation on dividends and distributions made by the Trust but will be subject to other state and local taxes. For further information regarding taxation, see "Tax Information" in the SAI. The foregoing is a general and abbreviated summary of the applicable provisions of the Code and Treasury regulations presently in effect, and state taxation. Shareholders are urged to consult their own tax advisers regarding specific questions as to federal, state, local or foreign taxes. Foreign investors should consider applicable foreign taxes in their evaluation of an investment in a Fund. GENERAL INFORMATION PERFORMANCE From time to time performance for the Class Y shares of the Funds showing each Fund's average annual total return, aggregate total return, yield, and tax-equivalent yield where appropriate may be presented in advertisements, sales literature and in reports to Class Y Shareholders. Such performance figures are based on historical earnings and are not intended to indicate future performance. Average annual total return will be calculated for the period since the establishment of the Funds. Average annual total return is measured by comparing the value of an investment in the Class Y shares of a Fund at the beginning of the relevant period to the redemption value of the investment, after reflecting the reinvestment of any dividends or capital gains distributions and annualizing the difference. Aggregate total return is calculated similarly to average annual return except that the return figure is aggregated over the relevant period instead of annualized. Yield will be computed by dividing such Fund's net investment income per Class Y share earned during a recent 30-day period by such Fund's per Class Y PROSPECTUS 40
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share maximum offering price (reduced by any undeclared earned income expected to be paid shortly as a dividend) on the last day of the period and annualizing the result. Tax-equivalent yield for Tax-Free Securities Fund and Short Intermediate Tax-Free Securities Fund will be computed assuming a stated income tax rate has been applied to non-exempt income to derive the tax-exempt portion of the Funds' yield. Class Y shareholders may also be provided with information comparing the performance of the Class Y shares of the Funds to the performance of other mutual funds or mutual fund portfolios with comparable investment objectives and policies. This information may be based on data relating to various mutual fund or market indices such as those prepared by Dow Jones & Co., Inc. and Standard & Poor's Corporation or data prepared by Lipper Analytical Services, Inc. Comparisons may also be made to indices or data published in Money Magazine, Forbes, Barron's, The Wall Street Journal, The New York Times, Business Week, American Banker, Institutional Investor, Pensions and Investments, USA Today, Fortune, CDA/Wiesenberger, Ibbotson Associates, Inc., Morningstar and local newspapers and periodicals. In addition to yield information, general information about the Funds that appears in a publication such as those mentioned above may also be quoted or reproduced in advertisements or in reports to shareholders. Reports to shareholders may contain performance information on any Fund. Yield and total return are functions of the type and quality of instruments held in the portfolio, operating expenses, and market conditions. Consequently, current yields and total return will fluctuate and are not necessarily representative of future results. Any fees charged by an affiliate of Pacific Century or an Institution with respect to customer accounts for investing in shares of the Funds will not be included in performance calculations; such fees, if charged, would reduce the actual yield and total return from that quoted. Because of differences in the fees and/or expenses borne by the Class A and Class B shares of the Funds, the average annual total return, aggregate total return, yield, and tax-equivalent yield, as the case may be, can be expected, at any given time, to be lower than the average annual total return, aggregate total return, yield, and tax-equivalent yield, respectively, on Class Y shares. Standardized yield and total return quotations will be computed separately for Class A, Class B and Class Y shares. DESCRIPTION OF THE TRUST AND ITS SHARES CAPITALIZATION--The Trust was organized as a Massachusetts business trust on October 30, 1992, and currently consists of nine separately managed series. The Board of Trustees may establish additional series in the future. The series of the Trust are: Balanced Fund, Diversified Fixed Income Fund, Growth and Income Fund, Growth Stock Fund, New Asia Growth Fund, Short Intermediate U.S. Treasury Securities Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities Fund and U.S. Treasury Securities Fund, each with unlimited transferable shares of beneficial interest, no par value. When issued in accordance with the terms and procedures described in their respective Prospectuses, shares of the Funds are fully paid, non-assessable and freely transferable. Each series is comprised of three classes of shares--Class Y, Class A, and Class B. The classes have identical rights with respect to the series of which they are a part, provided that there are certain matters which affect one class but not another. Currently, the only such matters are the existence of Distribution and Shareholder Service Plans with respect to each of Class A and Class B shares but not any Class Y shares, the absence of any sales load with regard to the purchase of the Class Y shares, and the fact that a salesperson or any other person entitled to receive compensation for selling or servicing Class A, Class B or Class Y shares may receive different compensation with respect to one such Class over the other Class in the same Fund. On all such matters, shareholders vote as a class, and not by series. Class A and Class B PROSPECTUS 41
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shares have different sales charges and other expenses which may effect performance. A separate Prospectus applies to the Class A and Class B shares of each series. Prospectuses relating to the Class A and Class B shares of each series may be obtained by calling the telephone number listed on the first page of this Prospectus. VOTING--Shareholders have the right to vote on the election of Trustees and on any and all matters as to which, by law or the provisions of the Declaration of Trust of the Trust, they may be entitled to vote. All shares of the Trust have equal voting rights and will be voted in the aggregate, and not by class or series, except where voting by class or series is required by law or where the matter involved affects only one class or series. The Trust is not required to hold annual meetings of the Funds' shareholders, and does not intend to do so, in any fiscal year in which it is not required by law to elect Trustees. The Trustees are required to call a meeting for the purpose of considering the removal of persons serving as Trustee, if requested in writing to do so by the holders of not less than 10% of the outstanding shares of the Trust. SHAREHOLDER LIABILITY--Under Massachusetts law, shareholders of the Funds could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Trust's Declaration of Trust disclaims shareholder liability for acts or obligations of the Trust. The Declaration of Trust provides for indemnification out of a Fund's property for any losses and expenses of any shareholder of such Fund held liable on account of being or having been a shareholder. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances in which a Fund would be unable to meet its obligations. SHAREHOLDER INQUIRIES Shareholder inquiries may be addressed to a Fund at the address or telephone number set forth on the cover page of this Prospectus. PROSPECTUS 42
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INVESTMENT ADVISER Pacific Century Trust 111 S. King Street Honolulu, Hawaii 96813 SUB-ADVISER Nicholas-Applegate Capital Management (Hong Kong) LLC 8 Connaught Place Hong Kong ADMINISTRATOR AND DISTRIBUTOR BISYS Fund Services 3435 Stelzer Road Columbus, Ohio 43219-3035 LEGAL COUNSEL Shereff, Friedman, Hoffman & Goodman, LLP 919 Third Avenue New York, New York 10022 INDEPENDENT AUDITORS Ernst & Young LLP One Columbus, Suite 2300 10 West Broad Street Columbus, Ohio 43215 TRANSFER AGENT Administrative Data Management Corp. 581 Main Street Woodbridge, New Jersey 07095 [PACIFIC CAPITAL FUNDS LOGO] ------------------------ Diversified Fixed Income Fund Growth and Income Fund Growth Stock Fund New Asia Growth Fund Short Intermediate U.S. Treasury Securities Fund Tax-Free Securities Fund Tax-Free Short Intermediate Securities Fund U.S. Treasury Securities Fund ------------------------ Class Y November 29, 1997
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PACIFIC CAPITAL FUNDS Telephone: 800-258-9232 STATEMENT OF ADDITIONAL INFORMATION DATED NOVEMBER 29, 1997 BALANCED FUND DIVERSIFIED FIXED INCOME FUND GROWTH AND INCOME FUND GROWTH STOCK FUND NEW ASIA GROWTH FUND SHORT INTERMEDIATE U.S. TREASURY SECURITIES FUND TAX-FREE SECURITIES FUND TAX-FREE SHORT INTERMEDIATE SECURITIES FUND U.S. TREASURY SECURITIES FUND Pacific Capital Funds (the "Trust") is a professionally managed, open-end, management investment company with multiple funds available for investment. This Statement of Additional Information ("SAI") contains information about the "Class A, Class B and Class Y" shares of all nine of the Trust's investment portfolios -- Balanced Fund, Diversified Fixed Income Fund, Growth and Income Fund, Growth Stock Fund (formerly the Income Stock Fund), New Asia Growth Fund, Short Intermediate U.S. Treasury Securities Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities Fund and U.S. Treasury Securities Fund (each, a "Fund" and collectively, the "Funds"). The various Funds and Classes of shares of the Funds are offered through separate Prospectuses. Balanced Fund has not commenced operations as of the date of this Statement of Additional Information. This SAI is not a prospectus and should be read in conjunction with the applicable Prospectus, dated November 29, 1997. All terms used in this SAI that are defined in the applicable Prospectus will have the meanings assigned therein. Copies of the Prospectuses for the Funds may be obtained without charge by writing to BISYS Fund Services ("BISYS") the Trust's sponsor, administrator and distributor, at 3435 Stelzer Road, Columbus, Ohio 43219-3035 or calling the Transfer Agent at the telephone number indicated above. ----------------------------------
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TABLE OF CONTENTS [Enlarge/Download Table] Cross Reference Page to Prospectus ---- ------------- Investment Restrictions........................... 3................. Additional Investment Restrictions Additional Information on Fund Investments........ 7................. Additional Discussion Regarding Permitted Investment Activities Management........................................ 21................. Management, Advisory and Other Service Arrangements Distribution and Shareholder Service Plans........ 28................. Management, Advisory and Other Service Arrangements Calculation of Yield and Total Return............. 29................. General Information Determination of Net Asset Value.................. 43................. Valuation of Class A and Class B Shares, Valuation of Class Y Shares Purchase of Shares ............................... 43................. How to Purchase Class A and Class B Shares Redemption of Shares.............................. 44................. How to Redeem Class A and Class B Shares; How to Redeem Class Y Shares Portfolio Transactions............................ 44................. Management, Advisory, and Other Service Arrangements Federal and Hawaiian Tax Information.............. 47................. Dividend and Tax Information Capital Stock..................................... 52................. General Information Custodian......................................... 56................. Management, Advisory, and Other Service Arrangements Other............................................. 57 Independent Auditors.............................. 57 Financial Information............................. 57 Appendix A........................................ A-1 Appendix B ....................................... B-1 2
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INVESTMENT RESTRICTIONS The Funds are subject to the following investment restrictions, all of which are fundamental policies. As stated in each of the Fund's Prospectuses under "Additional Discussion Regarding Permitted Investment Activities -- Investment Policies," a fundamental investment policy may not be changed without approval by vote of the holders of a majority of the relevant Fund's outstanding voting securities. Also see "Capital Stock" in this SAI. Investment Restrictions for All Funds except New Asia Growth Fund Each of Balanced Fund, Diversified Fixed Income Fund, Growth and Income Fund, Growth Stock Fund, Short Intermediate U.S. Treasury Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities Fund and U.S. Treasury Securities Fund may not: (1) purchase securities of any issuer (except Municipal Obligations and securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities) if, as a result, with respect to 75% of its total assets, more than 5% of the value of the Fund's total assets would be invested in the securities of any one issuer or, with respect to 100% of its total assets the Fund's ownership would be more than 10% of the outstanding voting securities of such issuer except that this restriction does not apply to the Tax-Free Securities Fund or the Tax-Free Short Intermediate Fund (the "TaxFree Funds"), which are non-diversified funds; (2) purchase the securities of issuers conducting their principal business activity in the same industry if, immediately after the purchase and as a result thereof, the value of any Fund's investments in that industry would be 25% or more of the current value of such Fund's total assets, provided that there is no limitation with respect to investments in (a) U.S. Government Obligations and repurchase agreements secured by such obligations and (b) with respect to the Tax-Free Funds, Municipal Obligations (for purposes of this limitation, private activity bonds that are backed only by the assets and revenues of a non-governmental user shall not be deemed to be Municipal Obligations); (3) borrow money or issue senior securities as defined in the Investment Company Act of 1940, as amended (the "1940 Act") (except, with regard to senior securities, as permitted pursuant to an order and/or a rule issued by the Securities and Exchange Commission (the "Commission")), except that each of the Funds, may borrow from banks up to 20% of the current value of its net assets for temporary purposes only in order to meet redemptions, and these borrowings may be secured by the pledge of up to 20% of the current value of its net assets (but investments may not be purchased while any such outstanding borrowing in excess of 5% of its net assets exists); (4) purchase or sell real estate or real estate limited partnerships (other than obligations or other securities secured by real estate or interests therein or securities issued by companies that invest in real estate or interests therein); 3
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(5) purchase commodities or commodity contracts; except that each Fund may enter into futures contracts and may write call options and purchase call and put options on futures contracts in accordance with its investment objective and policies; See "Additional Discussion Regarding Permitted Investment Activities -- Futures Contracts and Related Options" or "Additional Discussion Regarding Permitted and Investment Activities -- Hedging Strategies", as applicable, in each Fund's Prospectus; (6) purchase securities on margin (except for short-term credits necessary for the clearance of transactions and except for margin payments in connection with options, futures and options on futures) or make short sales of securities; (7) underwrite securities of other issuers, except to the extent that the purchase of permitted investments directly from the issuer thereof or from an underwriter for an issuer and the later disposition of such securities in accordance with the Fund's investment program may be deemed to be an underwriting; (8) purchase interests, leases, or limited partnership interests in oil, gas, or other mineral exploration or development programs; (9) make investments for the purpose of exercising control or management; or (10) lend money or portfolio securities, except that each of the Funds may enter into repurchase agreements and lend portfolio securities to certain brokers, dealers and financial institutions aggregating up to 30% of the current value of the lending Fund's total assets. In addition, each of Balanced Fund, Diversified Fixed Income Fund, Growth and Income Fund, Growth Stock Fund, Short Intermediate U.S. Treasury Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities Fund and U.S. Treasury Securities Fund will comply with the following non-fundamental restrictions, which may be changed by the Board of Trustees without shareholder approval: 1. No Fund will purchase securities of unseasoned issuers, including their predecessors, that have been in operation for less than three years, if by reason thereof the value of the Fund's investment in such classes of securities would exceed 15% of the Fund's total assets. 2. No Fund will invest more than 10% of its net assets in warrants. 3. Each Fund reserves the right to invest up to 15% of the current value of its net assets in repurchase agreements having maturities of more than seven days and other illiquid securities. For purposes of this restriction, illiquid securities shall not include securities which may be resold under Rule 144A under the Securities Act that the Board of Trustees, or its delegate, determines to be liquid, based upon the trading markets for the specific security. 4
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4. Each Fund may purchase put and call options and write covered put and call options on securities in which such Fund may invest directly and that are traded on registered domestic securities exchanges or that result from separate, privately negotiated transactions with primary U.S. Government securities dealers recognized by the Board of Governors of the Federal Reserve System in an amount not exceeding 5% of the Fund's net assets. INVESTMENT RESTRICTIONS FOR NEW ASIA GROWTH FUND New Asia Growth Fund is subject to the following investment restrictions, all of which are fundamental policies. New Asia Growth Fund may not: (1) purchase securities of any issuer (other than securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities) if, as a result, with respect to 75% of its total assets, more than 5% of the value of the Fund's total assets would be invested in the securities of any one issuer or, with respect to 100% of its total assets, the Fund's ownership would be more than 10% of the outstanding voting securities of such issuer; (2) purchase the securities of issuers conducting their principal business activity in the same industry if, immediately after the purchase and as a result thereof, the value of the Fund's investments in that industry would be 25% or more of the current value of the Fund's total assets, provided that there is no limitation with respect to investments in U.S. Government Obligations and repurchase agreements secured by such obligations; (3) borrow money or issue senior securities as defined in the 1940 Act (except, with regard to senior securities, as permitted pursuant to an order and/or a rule issued by the Commission), except that the Fund may borrow from banks up to 33-1/3% the current value of its net assets for temporary, extraordinary or emergency purposes, for clearance of transactions, to hedge against currency movements or for investment purposes, and these borrowings may be secured by the pledge of up to 33-1/3% current value of its net assets; (4) purchase or sell real estate or real estate limited partnerships (other than obligations or other securities secured by real estate or interests therein or securities issued by companies that invest in real estate or interests therein); (5) purchase commodities or commodity contracts; except that the Fund may deal in forward foreign exchange between currencies of the different countries in which it may invest, may enter into futures contracts and may write call options and purchase call and put options on futures contracts in accordance with its investment objective and policies; 5
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(6) purchase securities on margin (except for short-term credits necessary for the clearance of transactions and except for margin payments in connection with options, futures and options on futures) or make short sales of securities; (7) underwrite securities of other issuers, except to the extent that the purchase of permitted investments directly from the issuer thereof or from an underwriter for an issuer and the later disposition of such securities in accordance with the Fund's investment program may be deemed to be an underwriting; (8) purchase interests, leases, or limited partnership interests in oil, gas, or other mineral exploration or development programs; (9) make investments for the purpose of exercising control or management. Investments by the Fund in wholly-owned investment entities created under the laws of certain countries will not be deemed the making of investments for the purpose of exercising control of management; or (10) lend money or portfolio securities, except that the Fund may enter into repurchase agreements and lend portfolio securities to certain brokers, dealers and financial institutions aggregating up to 33-1/3% of the current value of the Fund's total assets. In addition, New Asia Growth Fund will comply with the following nonfundamental restrictions, which may be changed by the Board of Trustees without shareholder approval: a. The Fund will not purchase securities of unseasoned issuers, including their predecessors, that have been in operation for less than three years, if by reason thereof the value of the Fund's investment in such classes of securities would exceed 15% of such Fund's total assets. b. The Fund reserves the right to invest up to 15% of the current value of its net assets in repurchase agreements having maturities of more than seven days and other illiquid securities. For purposes of this restriction, illiquid securities shall not include securities which may be resold under Rule 144A under the Securities Act that the Board of Trustees, or its delegate, determines to be liquid, based upon the trading markets for the specific security. c. To the extent required by the Commission or its staff, the Fund will for purposes of fundamental investment restrictions (1) and (2), treat securities issued or guaranteed by the government of any one foreign country (including governmental agencies and instrumentalities thereof) as the obligations of a single issuer. d. The Fund may not invest more than 10% of its net assets in warrants. 6
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e. The aggregate value of the exercise price or strike price of call options written by the Fund may not exceed 25% of the Fund's net asset value. ------------------ If a percentage limitation is satisfied at the time of investment, a later increase or decrease in such percentage resulting from a change in the value of a Fund's portfolio securities or resulting from reconstructions, consolidations, payments out of assets of the Fund or realization of units will not constitute a violation of such limitation. ADDITIONAL INFORMATION ON FUND INVESTMENTS CHANGES IN INVESTMENT RATINGS. To the extent the ratings given by a nationally recognized statistical rating organization (an "NRSRO") may change as a result of changes in such organizations or their rating systems, each Fund will attempt to use comparable ratings as standards for investments in accordance with the investment policies contained in its Prospectus and in this Statement of Additional Information. The ratings of the NRSROs currently used by the Funds are more fully described in Appendix A to this Statement of Additional Information. FOREIGN SECURITIES Each of the Funds may invest in foreign securities. Investing in foreign securities involves certain risks described in the applicable Prospectus. Foreign markets have different settlement and clearance procedures, and in certain markets there have been times when settlements have failed to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. For example, delays in settlement could result in temporary periods when assets of a Fund are uninvested and no return is earned thereon. The inability of a Fund to make intended security purchases due to settlement problems could cause the Fund to miss attractive investment opportunities. The inability to dispose of a portfolio security due to settlement problems could result either in losses to a Fund due to subsequent declines in the value of such portfolio security or, if the Fund has entered into a contract to sell the security, could result in possible liability to the purchaser. 7
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DEBT SECURITIES Sovereign Debt (New Asia Growth Fund only). New Asia Growth Fund may invest in sovereign debt. Certain developing Asian countries, such as the Philippines, owe significant amounts of debt to commercial banks and foreign governments. Investment in sovereign debt involves a high degree of risk. The governmental entity that controls the repayment of sovereign debt may not be able or willing to repay the principal and/or interest when due in accordance with the terms of such debt. A governmental entity's willingness or ability to repay principal and interest due in a timely manner may be affected by, among other factors, its cash flow situation, the extent of its foreign reserves, the availability of sufficient foreign exchange on the date a payment is due, the relative size of the debt service burden to the economy as a whole, the governmental entity's policy towards the International Monetary Fund and the political constraints to which a governmental entity may be subject. Governmental entities may also be dependent on expected disbursements from foreign governments, multilateral agencies and others abroad to reduce principal and interest arrearage on their debt. The commitment on the part of these governments, agencies and others to make such disbursements may be conditioned on a governmental entity's implementation of economic reforms and/or economic performance and the timely service of such debtor's obligations. Failure to implement such reforms, achieve such levels of economic performance or repay principal or interest when due may result in the cancellation of such third party's commitments to lend funds to the governmental entity, which may further impair such debtor's ability or willingness to timely service its debts. Consequently, governmental entities may default on their sovereign debt. Holders of sovereign debt, including New Asia Growth Fund, may be requested to participate in the rescheduling of such debt and to extend further loans to governmental entities. There is no bankruptcy proceeding by which sovereign debt on which a governmental entity has defaulted may be collected in whole or in part. The sovereign debt instruments in which New Asia Growth Fund may invest involve great risk and are deemed to be the equivalent in terms of quality to high yield/high risk securities discussed below and are subject to many of the same risks as such securities. Similarly, New Asia Growth Fund may have difficulty disposing of certain sovereign debt obligations because there may be a thin trading market for such securities. New Asia Growth Fund will not invest more than 5% of its total assets in sovereign debt, including sovereign debt which is in default. Lower Rated Debt Securities (New Asia Growth Fund only). New Asia Growth Fund may invest in lower rated debt securities. Securities rated in the medium to low rating categories of NRSROs such as Standard & Poor's Corporation ("S&P") and Moody's Investors Service, Inc. ("Moody's") and unrated securities of comparable quality (referred to herein as "high yield/high risk securities") are predominantly speculative with respect to the capacity to pay interest and repay principal in accordance with the terms of the security and generally involve a greater volatility of price than securities in higher rating categories. See "Appendix A." These securities are commonly referred to as "junk bonds." In purchasing such securities, New Asia Growth Fund will rely on the investment adviser's judgment, analysis and experience in evaluating the creditworthiness 8
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of an issuer of such securities. The investment adviser will take into consideration, among other things, the issuer's financial resources, its sensitivity to economic conditions and trends, its operating history, the quality of the issuer's management and regulatory matters. New Asia Growth Fund is not authorized to purchase debt securities that are in default, except that the Fund may invest in sovereign debt (discussed above) which is in default, provided that not more than 5% of the Fund's total assets are invested in sovereign debt (including sovereign debt securities which are in default). The market values of high yield/high risk securities tend to reflect individual issuer developments to a greater extent than do higher rated securities, which react primarily to fluctuations in the general level of interest rates. Issuers of high yield/high risk securities may be highly leveraged and may not have available to them more traditional methods of financing. Therefore, the risk associated with acquiring the securities of such issuers generally is greater than is the case with higher rated securities. For example, during an economic downturn or a sustained period of rising interest rates, issues of high yield/high risk securities may be more likely to experience financial stress, especially if such issuers are highly leveraged. During such periods, such issuers may not have sufficient revenues to meet their interest payment obligations. The issuer's ability to service its debt obligations also may be adversely affected by specific issuer developments, or the issuer's inability to meet specific projected business forecasts, or the unavailability of additional financing. The risk of loss due to default by the issuer is significantly greater for the holders of high yield/high risk securities because such securities may be unsecured and may be subordinated to the creditors of the issuer. High yield/high risk securities may have call or redemption features which would permit an issuer to repurchase the securities from New Asia Growth Fund. If a call were exercised by the issuer during a period of declining interest rates, New Asia Growth Fund likely would have to replace such called securities with lower yielding securities, thus decreasing the net investment income to the Fund and dividends to shareholders. New Asia Growth Fund may have difficulty disposing of certain high yield/high risk securities because there may be a thin trading market for such securities. To the extent that a secondary trading market for high yield/high risk securities does exist, it is generally not as liquid as the secondary market for higher rated securities. Reduced secondary market liquidity may have an adverse impact on market price and New Asia Growth Fund's ability to dispose of particular issues when necessary to meet the Fund's liquidity needs or in response to a specific economic event such as a deterioration in the creditworthiness of the issuer. Reduced secondary market liquidity for certain high yield/high risk securities also may make it more difficult for New Asia Growth Fund to obtain accurate market quotations for purposes of valuing the Fund's portfolio. Market quotations are generally available on many high yield/high risk securities only from a limited number of dealers and may not necessarily represent firm bids of such dealers of prices for actual sales. The Trustees, or the investment adviser, will carefully consider the factors affecting the market for high yield/high risk, lower rated securities in determining whether any particular security is liquid or illiquid and whether current market quotations are readily available. 9
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Adverse publicity and investor perceptions, which may not be based on fundamental analysis, also may decrease the value and liquidity of high yield/high risk securities, particularly in a thinly traded market. Factors adversely affecting the market value of high yield/high risk securities are likely to adversely affect New Asia Growth Fund's net asset value. In addition, New Asia Growth Fund may incur additional expenses to the extent it is required to seek recovery upon a default on a portfolio holding or participate in the restructuring of the obligation. MUNICIPAL BONDS The Tax-Free Funds may invest in municipal bonds. As discussed in the Prospectus, the two principal classifications of municipal bonds are "general obligation" and "revenue" bonds. Municipal bonds are debt obligations issued to obtain funds for various public purposes, including the construction of a wide range of public facilities such as bridges, highways, housing, hospitals, mass transportation, schools, streets, and water and sewer works. Other purposes for which municipal bonds may be issued include the refunding of outstanding obligations and obtaining funds for general operating expenses or to loan to other public institutions and facilities. Industrial development bonds are a specific type of revenue bond backed by the credit and security of a private user. Certain types of industrial development bonds are issued by or on behalf of public authorities to obtain funds to provide privately-operated housing facilities, sports facilities, convention or trade show facilities, airport, mass transit, port or parking facilities, air or water pollution control facilities and certain local facilities for water supply, gas, electricity, or sewage or solid waste disposal. Assessment bonds, wherein a specially created district or project area levies a tax (generally on its taxable property) to pay for an improvement or project, may be considered a variant of either category. There are, of course, other variations in the types of municipal bonds, both within a particular classification and between classifications, depending on numerous factors. MUNICIPAL NOTES The Tax-Free Funds may invest in municipal notes. Municipal notes include, but are not limited to, tax anticipation notes ("TANs"), bond anticipation notes ("BANs"), revenue anticipation notes ("RANs") and construction loan notes. Notes sold as interim financing in anticipation of collection of taxes, a bond sale or receipt of other revenues are usually general obligations of the issuer. TANs. Uncertainty in a municipal issuer's capacity to raise taxes as a result of such events as a decline in its tax base or a rise in delinquencies, could adversely affect the issuer's ability to meet its obligations on outstanding TANs. Furthermore, some municipal issuers mix various tax proceeds into a general fund that is used to meet obligations other than those of the outstanding TANs. Use of such a general fund to meet various obligations could affect the likelihood of making payments on TANs. BANs. The ability of a municipal issuer to meet its obligations on its BANs is primarily dependent on the issuer's adequate access to the longer term municipal 10
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bond market and the likelihood that the proceeds of such bond sales will be used to pay the principal of, and interest on, BANs. RANs. A decline in the receipt of certain revenues, such as anticipated revenues from another level of government, could adversely affect an issuer's ability to meet its obligations on outstanding RANs. In addition, the possibility that the revenues would, when received, be used to meet other obligations could affect the ability of the issuer to pay the principal of, and interest on, RANs. The values of outstanding municipal securities will vary as a result of changing market evaluations of the ability of their issuers to meet the interest and principal payments (i.e., credit risk). Such values will also change in response to changes in the interest rates payable on new issues of municipal securities (i.e., market risk). Should such interest rates rise, the values of outstanding securities, including those held in the Tax-Free Funds' portfolios, will decline and (if purchased at par value) they would sell at a discount. If interest rates fall, the values of outstanding securities will generally increase and (if purchased at par value) they would sell at a premium. Changes in the value of municipal securities held in the Funds' portfolios arising from these or other factors will cause changes in the net asset value per share of the Tax-Free Funds. The taxable securities market is a broader and more liquid market with a greater number of investors, issuers and market makers than the market for municipal securities. The more limited marketability of municipal securities may make it difficult in certain circumstances to dispose of large investments advantageously. WARRANTS Each Fund may invest in warrants. Any limitations on a Fund's investment in warrants are set forth above in "Investment Restrictions." Warrants represent rights to purchase securities at a specific price valid for a specific period of time. The prices of warrants do not necessarily correlate with the prices of the underlying securities. A Fund may only purchase warrants on securities in which such Fund may invest directly. GUARANTEED INVESTMENT CONTRACTS Each of the Funds may make limited investments in Guaranteed Investment Contracts ("GICs") issued by highly rated U.S. insurance companies. Pursuant to such contracts, the Funds make cash contributions to a deposit fund of the insurance company's general account. The insurance company then credits to the respective Fund on a monthly basis guaranteed interest which is based on an index. The GICs provide that this guaranteed interest will not be less than a certain minimum rate. Generally, a GIC allows a purchaser to buy an annuity with the monies accumulated under the contract; however, the Funds will not purchase any such annuities. The insurance company may assess periodic charges against a GIC for expense and service costs allocable to it, and the charges will be deducted from the value of the deposit fund. A GIC is a general obligation of the issuing insurance company and not a separate 11
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account. The purchase price paid for a GIC becomes part of the general assets of the issuer, and the contract is paid from the general assets of the issuer. Each Fund will only purchase GICs from issuers which, at the time of purchase, are rated "A" or higher by A.M. Best Company, have assets of $1 billion or more, and meet quality and credit standards established by Hawaiian Trust. Generally, GICs are not assignable or transferable without the permission of the issuing insurance companies, and an active secondary market in GICs does not currently exist. Also, a Fund may not receive the principal amount of a GIC from the insurance company on seven days' notice or less. Therefore, GICs are considered by the Funds to be illiquid investments. OPTIONS, FUTURES AND OTHER HEDGING STRATEGIES As discussed in the applicable Prospectus, the Funds may use a variety of financial instruments to hedge a Fund's investments and, in certain limited cases, to enhance income or manage a Fund's cash flow ("Hedging Instruments"). The particular Hedging Instruments are described in Appendix B to this Statement of Additional Information. Hedging strategies can be broadly categorized as short hedges and long hedges. A short hedge is a purchase or sale of a Hedging Instrument intended partially or fully to offset potential declines in the value of one or more investments held by a Fund. Thus, in a short hedge a Fund takes a position in a Hedging Instrument whose price is expected to move in the opposite direction of the price of the investment being hedged. For example, a Fund might purchase a put option on a security to hedge against a potential decline in the value of that security. If the price of the security declines below the exercise price of the put, the Fund could exercise the put and thus limit its loss below the exercise price to the premium paid plus transaction costs. In the alternative, because the value of the put option can be expected to increase as the value of the underlying security declines, a Fund might be able to close out the put option and realize a gain to offset the decline in the value of the security. Conversely, a long hedge is a purchase or sale of a Hedging Instrument intended partially or fully to offset potential increases in the acquisition cost of one or more investments that a Fund intends to acquire. Thus, in a long hedge a Fund takes a position in a Hedging Instrument whose price is expected to move in the same direction as the price of the prospective investment being hedged. For example, the Fund might purchase a call option on a security it intends to purchase in order to hedge against an increase in the cost of the security. If the price of the security increased above the exercise price of the call, the Fund could exercise the call and thus limit its acquisition cost to the exercise price plus the premium paid and transaction costs. Alternatively, a Fund might be able to offset the price increase by closing out an appreciated call option and realizing a gain. Hedging Instruments on securities generally are used to hedge against price movements in one or more particular securities positions that a Fund owns or intends to acquire. Hedging Instruments on stock indices, in contrast, generally are used 12
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to hedge against price movements in broad equity market sectors in which a Fund has invested or expects to invest. Hedging Instruments on debt securities may be used to hedge either individual securities or broad fixed income market sectors. The use of Hedging Instruments is subject to applicable regulations of the Commission, the several options and futures exchanges upon which they are traded and the Commodity Futures Trading Commission ("CFTC"). In addition, a Fund's ability to use Hedging Instruments will be limited by tax considerations. See "Federal and Hawaiian Tax Information." In addition to the products, strategies and risks described below and in the Prospectus, the investment adviser expects to discover additional opportunities in connection with options, future contracts, foreign currency forward contracts and other hedging techniques. These new opportunities may become available as the investment adviser develops new techniques, as regulatory authorities broaden the range of permitted transactions and as new options, futures contracts, foreign currency forward contracts or other techniques are developed. The investment adviser may utilize these opportunities to the extent that they are consistent with a Fund's investment objectives and permitted by the Fund's investment limitations and applicable regulatory authorities. The applicable Prospectus and this Statement of Additional Information will be supplemented to the extent that new products or techniques involve materially different risks than those described below or in the Prospectus. Special Risks of Hedging Strategies. The use of Hedging Instruments involves special considerations and risks, as described below. Risks pertaining to particular Hedging Instruments are described in the sections that follow. (1) Successful use of most Hedging Instruments depends upon the investment adviser's ability to predict movements of the overall securities and interest rate markets, which requires different skills than predicting changes in the price of individual securities. There can be no assurance that any particular hedging strategy adopted will succeed. (2) There might be imperfect correlation, or even no correlation, between price movements of a Hedging Instrument and price movements of the investments being hedged. For example, if the value of a Hedging Instrument used in a short hedge increased by less than the decline in value of the hedged investment, the hedge would not be fully successful. Such a lack of correlation might occur due to factors unrelated to the value of the investments being hedged, such as speculative or other pressures on the markets in which Hedging Instruments are traded. The effectiveness of hedges using Hedging Instruments on indices will depend on the degree of correlation between price movements in the index and price movements in the securities being hedged. (3) Hedging strategies, if successful, can reduce risk of loss by wholly or partially offsetting the negative effect of unfavorable price movements in the investments being hedged. However, hedging strategies can also reduce opportunity for gain by offsetting the positive effect of favorable 13
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price movements in the hedged investments. For example, if a Fund entered into a short hedge because the investment adviser projected a decline in the price of a security held by the Fund, and the price of that security increased instead, the gain from that increase might be wholly or partially offset by a decline in the price of the Hedging Instrument. Moreover, if the price of the Hedging Instrument declined by more than the increase in the price of the security, the Fund could suffer a loss. In either such case, the Fund would have been in a better position had it not hedged at all. (4) As described below, a Fund might be required to maintain assets as "cover," maintain segregated accounts or make margin payments when it takes positions in Hedging Instruments involving obligations to third parties (i.e., Hedging Instruments other than purchased options). If a Fund were unable to close out its positions in such Hedging Instruments, it might be required to continue to maintain such assets or accounts or make such payments until the position expired or matured. These requirements might impair a Fund's ability to sell a portfolio security or make an investment at a time when it would otherwise be favorable to do so, or require that the Fund sell a portfolio security at a disadvantageous time. A Fund's ability to close out a position in a Hedging Instrument prior to expiration or maturity depends on the existence of a liquid secondary market or, in the absence of such a market, the ability and willingness of a contra party to enter into a transaction closing out the position. Therefore, there is no assurance that any hedging position can be closed out at a time and price that is favorable to the Fund. Cover for Hedging Strategies. Transactions using Hedging Instruments, other than purchased options, expose a Fund to an obligation to another party. A Fund will not enter into any such transactions unless, to the extent required by law, it (1) owns an offsetting covered position in securities or other options or futures contracts or (2) segregates liquid assets with a value sufficient at all times to cover its potential obligations to the extent not covered as provided in (1) above. Each Fund will comply with Commission guidelines regarding cover for hedging transactions. Assets used as cover or held in a segregated account cannot be sold while the position in the corresponding Hedging Instrument is open, unless they are replaced with similar assets. As a result, the commitment of a large portion of a Fund's assets to cover or to segregated accounts could impede portfolio management or the Fund's ability to meet redemption requests or other current obligations. Options. As described in the applicable Prospectus, each Fund may engage in options for hedging purposes, and each of Balanced Fund, Diversified Fixed Income Fund, Growth and Income Fund, Growth Stock Fund, Short Intermediate U.S. Treasury Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities Fund and U.S. Treasury Securities Fund may engage in options to enhance income. The purchase of call options serves as a long hedge, and the purchase of put options serves as a short hedge. Writing covered put or call options can enable a 14
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Fund to enhance income by reason of the premiums paid by the purchasers of such options. However, if the market price of the security underlying a covered put option declines to less than the exercise price of the option, minus the premium received, a Fund would expect to suffer a loss. Writing covered call options serves as a limited short hedge, because declines in the value of the hedged investment would be offset to the extent of the premium received for writing the option. However, if the security appreciates to a price higher than the exercise price of the call option, it can be expected that the option will be exercised and a Fund will be obligated to sell the security at less than its market value. Options may be used to enhance income since the receipt of premiums by a Fund's options positions may enable the Fund to realize a greater return than would be realized on the underlying securities alone. In return for the premium received for a call option, a Fund forgoes the opportunity for profit from a price increase in the underlying security above the exercise price so long as the option remains open, but retains the risk of loss should the price of the security decline. In return for the premium received for a put option, a Fund assumes the risk that the price of the underlying security will decline below the exercise price, in which case the put would be exercised and the Fund would suffer a loss. A Fund may purchase put options in an effort to protect the value of a security it owns against a possible decline in market value. The value of an option position will reflect, among other things, the current market value of the underlying investment, the time remaining until expiration, the relationship of the exercise price to the market price of the underlying investment, the historical price volatility of the underlying investment and general market conditions. Options normally have expiration dates of up to nine months. Options that expire unexercised have no value. A Fund may effectively terminate its right or obligation under an option by entering into a closing transaction. For example, a Fund may terminate its obligation under a call option that it had written by purchasing an identical call option; this is known as a closing purchase transaction. Conversely, a Fund may terminate a position in a put or call option it had purchased by writing an identical put or call option; this is known as a closing sale transaction. Currently, many options on equity securities are exchange-traded. Exchange markets for options on debt securities and foreign currencies exist but are relatively new, and these instruments are primarily traded on the OTC market. Exchange-traded options in the United States are issued by a clearing organization affiliated with the exchange on which the option is listed which, in effect, guarantees completion of every exchange-traded option transaction. In contrast, OTC options are contracts between a Fund and its contra party (usually a securities dealer or a bank, as required by the Fund's policies) with no clearing organization guarantee. Thus, when a Fund purchases or writes an OTC option, it relies on the party from whom it purchased the option or to whom it has written the option (the contra party) to make or take delivery of the underlying investment upon exercise of the option. Failure by the contra party to do so would result in the loss of any premium paid by a Fund as well as the loss of any expected benefits of the transaction. 15
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Generally, foreign currency options (New Asia Growth Fund only) and OTC debt options used by a Fund may be European-style options or American style options. A European style option is only exercisable immediately prior to its expiration. American-style options are exercisable at any time prior to the expiration date of the option. A Fund's ability to establish and close out positions in exchange-listed options depends on the existence of a liquid market. The Fund intends to purchase or write only those exchange-traded options for which there appears to be a liquid secondary market. However, there can be no assurance that such a market will exist at any particular time. Closing transactions can be made for OTC options only by negotiating directly with the contra party, or by a transaction in the secondary market if any such market exists. Although a Fund will enter into OTC options only with contra parties that are expected to be capable of entering into closing transactions with the Fund, there is no assurance that the Fund will in fact be able to close out an OTC option position at a favorable price prior to expiration. In the event of insolvency of the contra party, a Fund might be unable to close out an OTC option position at any time prior to its expiration. If a Fund were unable to effect a closing transaction for an option it had purchased, it would have to exercise the option to realize any profit. The inability to enter into a closing purchase transaction for a covered call option written by a Fund could cause material losses because the Fund would be unable to sell the investment used as cover for the written option until the option expires or is exercised. The staff of the Commission has taken the position that purchased options not traded on registered domestic securities exchanges and the assets used as cover for written options not traded on such exchanges are generally illiquid securities. However, the staff has also opined that, to the extent a mutual fund sells an OTC option to a primary dealer that it considers creditworthy and contracts with such primary dealer to establish a formula price at which the fund would have the absolute right to repurchase the option, the fund would only be required to treat as illiquid the portion of the assets used to cover such option equal to the formula price minus the amount by which the option is "in-the-money." In accordance with this view, the Funds will treat such options and, except to the extent permitted through the procedure described in the preceding sentence, assets as subject to such Fund's limitation on investments in securities that are not readily marketable. Futures. The purchase of futures or call options thereon can serve as a long hedge, and the sale of futures or the purchase of put options thereon can serve as a short hedge. Writing covered call options on futures contracts can serve as a limited short hedge, using a strategy similar to that used for writing covered call options on securities and indices. Futures strategies also can be used to manage the average duration of a Fund. If the investment adviser wishes to shorten the average duration of a Fund, the Fund may sell a futures contract or a call option thereon, or purchase a put option on that futures contract. If the investment adviser wishes to lengthen the average duration of a Fund, the Fund may buy a futures contract or a call option thereon. 16
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No price is paid upon entering into a futures contract. Instead, at the inception of a futures contract each Fund is required to deposit in a segregated account with its custodian, in the name of the futures broker through whom the transaction was effected, initial margin consisting of cash, U.S. Government securities or other liquid, high-grade debt securities, in an amount generally equal to 10% or less of the contract value. Margin must also be deposited when writing a call option on a futures contract, in accordance with applicable exchange rules. Unlike margin in securities transactions, initial margin on futures contracts does not represent a borrowing, but rather is in the nature of a performance bond or good-faith deposit that is returned to a Fund at the termination of the transaction if all contractual obligations have been satisfied. Under certain circumstances, such as periods of high volatility, a Fund may be required by an exchange to increase the level of its initial margin payment, and initial margin requirements might be increased generally in the future by regulatory action. Subsequent variation margin payments are made to and from the futures broker daily as the value of the futures position varies, a process known as marking to market. Variation margin does not involve borrowing, but rather represents a daily settlement of a Fund's obligations to or from a futures broker. When a Fund purchases an option on a future, the premium paid plus transaction costs is all that is at risk. In contrast, when a Fund purchases or sells a futures contract or writes a call option thereon, it is subject to daily variation margin calls that could be substantial in the event of adverse price movements. If a Fund has insufficient cash to meet daily variation margin requirements, it might need to sell securities at a time when such sales are disadvantageous. Holders and writers of futures positions and options on futures can enter into offsetting closing transactions, similar to closing transactions on options, by selling or purchasing, respectively, an instrument identical to the instrument held or written. Positions in futures and options on futures may be closed only on an exchange or board of trade that provides a secondary market. The Funds intend to enter into futures transactions only on exchanges or boards of trade where there appears to be a liquid secondary market. However, there can be no assurance that such a market will exist for a particular contract at a particular time. Secondary markets for options on futures are currently in the development stage, and a Fund will not trade options on futures on any exchange or board of trade unless, in the Hawaiian Trust's opinion, the markets for such options have developed sufficiently that the liquidity risks for such options are not greater than the corresponding risks for futures. Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a future or related option can vary from the previous day's settlement price; once that limit is reached, no trades may be made that day at a price beyond the limit. Daily price limits do not limit potential losses because prices could move to the daily limit for several consecutive days with little or no trading, thereby preventing liquidation of unfavorable positions. If a Fund were unable to liquidate a futures or related options position due to the absence of a liquid secondary market or the imposition of price limits, it could incur substantial losses. The Fund would continue to be subject to market risk with respect to the position. In addition, except in the case of purchased options, the Fund 17
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would continue to be required to make daily variation margin payments and might be required to maintain the position being hedged by the future or option or to maintain cash or securities in a segregated account. Certain characteristics of the futures market might increase the risk that movements in the prices of futures contracts or related options might not correlate perfectly with movements in the prices of the investments being hedged. For example, all participants in the futures and related options markets are subject to daily variation margin calls and might be compelled to liquidate futures or related options positions whose prices are moving unfavorably to avoid being subject to further calls. These liquidations could increase price volatility of the instruments and distort the normal price relationship between the futures or options and the investments being hedged. Also, because initial margin deposit requirements in the futures market are less onerous than margin requirements in the securities markets, there might be increased participation by speculators in the futures markets. This participation also might cause temporary price distortions. In addition, activities of large traders in both the futures and securities markets involving arbitrage, program trading and other investment strategies might result in temporary price distortions. Limitations on the Use of Futures. In accordance with current CFTC regulations, each Fund may use futures contracts and options thereon traded on a commodities exchange in bona fide hedging transactions without regard to percentage limitations but may not enter into other types of futures contracts and options thereon for which the aggregate initial margin and premiums exceed 5% of the Fund's total assets (calculated in accordance with CFTC regulations). Furthermore, as a matter of operating policy, aggregate initial margin deposits for all futures contracts and premiums paid for related options for each of Balanced Fund, Diversified Fixed Income Fund, Growth and Income Fund, Growth Stock Fund, Short Intermediate U.S. Treasury Securities Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities Fund and U.S. Treasury Securities Fund may not exceed 5% of each Fund's total assets (calculated in accordance with CFTC regulations) and the value of the securities that are subject to futures and options thereon (both for receipt and delivery) may not exceed one-third of the market value of each Fund's total assets. Foreign Currency Hedging Strategies -- Special Considerations (New Asia Growth Fund Only). New Asia Growth Fund may use options and futures on foreign currencies, and foreign currency forward contracts as described below to hedge against movements in the values of the foreign currencies in which the Fund's securities are denominated. Such currency hedges can protect against price movements in a security that the New Asia Growth Fund owns or intends to acquire that are attributable to changes in the value of the currency in which it is denominated. Such hedges do not, however, protect against price movements in the securities that are attributable to other causes. New Asia Growth Fund might seek to hedge against changes in the value of a particular currency when no Hedging Instruments on that currency are available or such Hedging Instruments are more expensive than certain other Hedging Instruments. In such cases, New Asia Growth Fund may hedge against price movements in that currency by entering into transactions using Hedging Instruments on other currencies, the values of 18
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which the investment adviser believes will have a high degree of positive correlation to the value of the currency being hedged. The risk that movements in the price of the Hedging Instrument will not correlate perfectly with movements in the price of the currency being hedged is magnified when this strategy is used. The value of Hedging Instruments on foreign currencies depends on the value of the underlying currency relative to the U.S. dollar. Because foreign currency transactions occurring in the interbank market might involve substantially larger amounts than those involved in the use of such Hedging Instruments, the Fund could be disadvantaged by having to deal in the odd lot market (generally consisting of transactions of less than $1 million) for the underlying foreign currencies at prices that are less favorable than for round lots. There is no systematic reporting of last sale information for foreign currencies or any regulatory requirement that quotations available through dealers or other market sources be firm or revised on a timely basis. Quotation information generally is representative of very large transactions in the interbank market and thus might not reflect odd-lot transactions where rates might be less favorable. The interbank market in foreign currencies is a global, round-the-clock market. To the extent the U.S. options or futures markets are closed while the markets for the underlying currencies remain open, significant price and rate movements might take place in the underlying markets that cannot be reflected in the markets for the Hedging Instruments until they reopen. Settlement of hedging transactions involving foreign currencies might be required to take place within the country issuing the underlying currency. Thus, the New Asia Growth Fund might be required to accept or make delivery of the underlying foreign currency in accordance with any U.S. or foreign regulations regarding the maintenance of foreign banking arrangements by U.S. residents and might be required to pay any fees, taxes and charges associated with such delivery assessed in the issuing country. Foreign Currency Forward Contracts (New Asia Growth Fund Only). New Asia Growth Fund may enter into foreign currency forward contracts to purchase or sell foreign currencies for a fixed amount of U.S. dollars or another foreign currency. New Asia Growth Fund also may use foreign currency forward contracts for cross-hedging. Under this strategy, New Asia Growth Fund would increase its exposure to foreign currencies that the investment adviser believes might rise in value relative to the U.S. dollar, or shift its exposure to foreign currency fluctuations from one country to another. For example, if New Asia Growth Fund owned securities denominated in a foreign currency and the investment adviser believed that currency would decline relative to another currency, it might enter into a forward contract to sell an appropriate amount of the first foreign currency, with payment to be made in the second foreign currency. The cost to New Asia Growth Fund engaging in foreign currency forward contracts varies with factors such as the currency involved, the length of the contract period and the market conditions then prevailing. Because foreign currency forward contracts are usually entered into on a principal basis, no fees or commissions are involved. When New Asia Growth Fund enters into a foreign currency forward contract, it relies on the contra party to make or take delivery of the underlying currency at the 19
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maturity of the contract. Failure by the contra party to do so would result in the loss of any expected benefit of the transaction. As is the case with futures contracts, holders and writers of foreign currency forward contracts can enter into offsetting closing transactions, similar to closing transactions on futures, by selling or purchasing, respectively, an instrument identical to the instrument held or written. Secondary markets generally do not exist for foreign currency forward contracts, with the result that closing transactions generally can be made for foreign currency forward contracts only by negotiating directly with the contra party. Thus, there can be no assurance that New Asia Growth Fund will in fact be able to close out a foreign currency forward contract at a favorable price prior to maturity. In addition, in the event of insolvency of the contra party, New Asia Growth Fund might be unable to close out a foreign currency forward contract at any time prior to maturity. In either event, New Asia Growth Fund would continue to be subject to market risk with respect to the position, and would continue to be required to maintain a position in securities denominated in the foreign currency or to maintain cash or securities in a segregated account. The precise matching of foreign currency forward contract amounts and the value of the securities involved generally will not be possible because the value of such securities, measured in the foreign currency, will change after the foreign currency forward contract has been established. Thus, New Asia Growth Fund might need to purchase or sell foreign currencies in the spot (cash) market to the extent such foreign currencies are not covered by forward contracts. The projection of short-term currency market movements is extremely difficult, and the successful execution of a short-term hedging strategy is highly uncertain. Limitations on the Use of Foreign Currency Forward Contracts (New Asia Growth Fund Only). New Asia Growth Fund may enter into foreign currency forward contracts or maintain a net exposure to such contracts only if (1) the consummation of the contracts would not obligate the Fund to deliver an amount of foreign currency in excess of the value of its portfolio securities or other assets denominated in that currency or (2) New Asia Growth Fund maintains cash, U.S. Government securities or liquid, high-grade debt securities in a segregated account in an amount not less than the value of its total assets committed to the consummation of the contract and not covered as provided in (1) above, as marked to market daily. Under normal circumstances, consideration of the prospect for currency parities will be incorporated into the longer term investment decisions made with regard to overall diversification strategies. However, the investment adviser believes that it is important to have the flexibility to enter into such forward contracts when it determines that the best interests of New Asia Growth Fund will be served. ASSET BACKED SECURITIES The purchase of non-mortgage backed securities raise considerations peculiar to the financing of the instruments underlying such securities. For example, most organizations that issue Asset Backed Securities relating to motor vehicle installment purchase obligations perfect their interest in their respective obligations only 20
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by filing a financing statement and by having the servicer of the obligations, which is usually the originator, take custody thereof. In such circumstances, if the servicer were to sell the same obligations to another party, in violation of its duty to do so, there is a risk that such party could acquire an interest in the obligations superior to that of the holders of the Asset Backed Securities. Also, although most such obligations grant a security interest in the motor vehicle being financed, in most states the security interest in a motor vehicle must be noted on the certificate of title to perfect such security interest against competing claims of other parties. Due to the large number of vehicles involved, however, the certificate of title to each vehicle financed, pursuant to the obligations underlying the Asset Backed Securities, usually is not amended to reflect the assignment of the seller's security interest for the benefit of the holders of the Asset Backed Securities. Therefore, there is the possibility that recoveries on repossessed collateral may not, in some cases, be available to support payments on those securities. In addition, various state and Federal laws give the motor vehicle owner the right to assert against the holder of the owner's obligation certain defenses such owner would have against the seller of the motor vehicle. The assertion of such defenses could reduce payments on the related Asset Backed Securities. Insofar as credit card receivables are concerned, credit card holders are entitled to the protection of a number of state and Federal consumer credit laws, many of which give such holder the right to set off certain amounts against balances owed on the credit card, thereby reducing the amounts paid on such receivables. In addition, unlike most other Asset Backed Securities, credit card receivables are unsecured obligations of the cardholders. MANAGEMENT Trustees and Officers. The name, age and principal occupation during the past five years of each of the Trustees and executive officers of the Trust are listed below. The address of each, unless otherwise indicated, is 3435 Stelzer Road, Columbus, Ohio 43219-3035. Trustees deemed to be "interested persons" of the Trust for purposes of the 1940 Act are indicated by an asterisk (*). Deborah G. Patterson* (43), Trustee and Chairperson - Senior Vice President of Bank of Hawaii - Asset Management and Private Client Group (1994- present); Director of KPMG Peat Marwick (1993-1994); Senior Vice President and Manager of Wells Fargo Bank (1987-1992); Vice President and Manager of Citibank NA - Private Banking and Investment Division (1980-1987); Officer of Bank Securities Association; Member of the Advisory Board of Hawaii Family Stress Center; Director of American Red Cross, Hawaii State Chapter; Director of the Honolulu Symphony Society; Member of the Strategic Planning Committee - Aloha United Way; Member of the Rotary Club of Honolulu; Member of the Advisory Board of Leadership Council of Marin (1992-1994); Member of the American Arbitration Association (1988-1992). Irimga McKay* (37), Trustee and President - 1230 Columbia Street, San Diego, California 92101. Senior Vice President of BISYS Fund Services (1994-present); Senior Vice President of Concord Financial Group (1986-1994). 21
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Douglas Philpotts* (66), Trustee - Financial Plaza of the Pacific, P.O. Box 3170, Honolulu, Hawaii 96802. Chairman of the Board of Directors (1992-1994), President (1986-1992) and Director (1984-present) of Pacific Century Trust; Director of Victoria Ward; Trustee of The Strong Foundation and Seabury Hall; Trustee of Cash Assets Trust, U.S. Treasuries Cash Assets Trust, Hawaiian Tax-Free Trust and Tax-Free Cash Assets Trust (1992-present); Affiliated with The Pacific Club, Ohu Country Club, Maui Country Club, Punahou O-Mens Club, and University of Hawaii Foundation President's Club. Formerly a Director and Officer of various cultural, educational, community and professional organizations. Richard W. Gushman II (51), Trustee - 700 Bishop Street, Suite 200, Honolulu, Hawaii 96813. President and Chief Executive Officer of OKOA, INC., a private Hawaii corporation involved in commercial real estate (1985-present); Adviser to RAMPAC, Inc., a wholly owned subsidiary of the Bank of Hawaii, involved with commercial real estate finance; Trustee of Cash Assets Trust, Tax-Free Cash Assets Trust and U.S. Treasuries Cash Assets Trust (1993-present); Member of the Boards of Aloha United Way Downtown Improvement Association, Boys and Girls Club of Honolulu and Oceanic Cablevision, Inc. Stanley W. Hong (61), Trustee -1132 Bishop Street, Honolulu, Hawaii 96813. President and Chief Executive Officer of the Chamber of Commerce of Hawaii (1996-present); Business Consultant (1994-present); Senior Vice President of McCormack Properties, Ltd. (1993-1995); President and Chief Executive Officer of the Hawaii Visitors Bureau (1984-1993); Vice President, General Counsel and Corporate Secretary at TheoDavies & Co., Ltd., a multiple business company (1973-1984); formerly Legislative Assistant to U.S. Senator Hiram L. Fong; Member of the Boards of Directors of several community organizations; Trustee of Cash Assets Trust, Tax-Free Cash Assets Trust and U.S. Treasuries Cash Assets Trust (1993-present); Director of Capital Investment of Hawaii, Inc. (Real Estate and Wholesale Bakery) (1995-present); Director of Central Pacific Bank (1995-present); Trustee of the Nature Conservancy of Hawaii (1990-present); Regent of Chaminade University of Honolulu (1990-present). Russell K. Okata (53), Trustee - 888 Mililani Street, Suite 601, Honolulu, Hawaii 96813-2991. Executive Director, Deputy Executive Director, Administration Officer or Research Statistician of Hawaii Government Employees Association AFSCME Local 152, AFL-CIO (1970-present); Trustee of Cash Assets Trust, Tax-Free Cash Assets Trust and U.S. Treasuries Cash Assets Trust (1993-present); Chairman of the Royal State Insurance Group (1988-present); Trustee of several charitable organizations. Oswald K. Stender (65), Trustee - P.O. Box 3466, Honolulu, Hawaii 96801. Trustee of Bernice Pauahi Bishop Estate (1990-present); Director of Hawaiian Electric Industries, Inc., a public utility holding company (1993-present); Senior Advisor to the Trustees of The Estate of James Campbell (1987-1989); and Chief Executive Officer (1976-1988); Director of several housing and real estate associations; Director, member or trustee of several community organizations; Trustee of Cash Assets Trust, Tax-Free Cash Assets Trust and U.S. Treasuries Cash Assets Trust (1993-present). Craig Warren (35), Treasurer - 111 South King Street, Honolulu, Hawaii 96813. Vice President of Bank of Hawaii - Asset Management and Private Client Group 22
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(1994-present); Senior Financial Analyst of Federal Home Loan Bank of San Francisco Marketing Strategies and Analysis Division (1993-1994); Chief Financial Officer of Wells Fargo Securities, Inc. (1990-1992); Vice President of Wells Fargo Bank - Private Banking Group (1987-1992). Gregory Maddox (29), Secretary - 1230 Columbia Street, San Diego, California 92101. Director of BISYS Fund Services (1991-present). Thresa Dewar (43), Assistant Secretary - Vice President and Treasurer, Financial Administration of BISYS Fund Services (March, 1997-present); Vice President and Controller of Federated Administrative Services (1972-1994). Alaina Metz (30), Vice President - Chief Administrative Officer of BISYS Fund Services - Blue Sky Compliance (1995 - present); Alliance Capital Management, L.P. (1989-1995). William J. Tomko (39), Vice President - Senior Vice President of BISYS Fund Services (1987-present). Eileen Walther (44), Vice President - Vice President of Accounting Services of BISYS Fund Services (1996-present); Assistant Vice President of Templeton International (1984-1995). As of the date of this SAI, Trustees and officers of the Trust as a group beneficially owned less than 1% of the outstanding shares of each Fund. Trustees of the Trust who are not officers or employees of the Trust, BISYS or Pacific Century Trust, the adviser to the Funds ("Pacific Century") are entitled to receive from the Trust a quarterly retainer and a fee for each Board of Trustees meeting attended. All Trustees are reimbursed for all reasonable out-of-pocket expenses relating to attendance at meetings. The following table sets forth the fees and expenses paid by each Fund to the Trustees for the fiscal year ended July 31, 1997: [Download Table] Aggregate Trustees' Fees and Expenses for the Fiscal Year Ended Fund July 31, 1997 ---- ------------- Diversified Fixed Income Fund $ 15,638 Growth and Income Fund $ 8,622 Growth Stock Fund $ 21,030 New Asia Growth Fund $ 958 Short Intermediate U.S. Treasury Securities $ 2,646 Fund Tax-Free Securities Fund $ 32,709 Tax-Free Short Intermediate Securities Fund $ 4,623 U.S. Treasury Securities Fund $ 2,007 ---------- 23
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The following table sets forth the aggregate compensation paid by the Trust to the Trustees who are not officers and employees of the Trust, BISYS or Pacific Century and the aggregate compensation paid to such Trustees by all investment companies (including the Trust) advised by Pacific Century for the periods indicated. [Enlarge/Download Table] Pension or Total Compensation Retirement Estimated from Trust and Aggregate Benefits Accrued Benefits Other Funds Compensation as Part Upon Advised by Pacific Name of Trustee From Trust(1) of Fund Expenses Retirement Century (2) --------------- ------------- ---------------- ---------- ----------- Richard W. Gushman II $10,500 None None $43,700 Stanley W. Hong $10,500 None None $44,788 Russell K. Okata $10,500 None None $44,137.50 Douglas Philpotts $10,500 None None $46,900 Oswald K. Stender $10,500 None None $43,755.23 --------- (1) Provided for the fiscal year ended July 31, 1997. (2) Provided for the calendar year ended December 31, 1996. In addition to the Funds, each of the Trustees served on the boards of one other trust advised by Pacific Century, comprising four separate funds. 24
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Investment Adviser. Pursuant to an Investment Advisory Agreement (the "Advisory Agreement"), each of the Funds is advised by Pacific Century. Subject to the supervision of the Board of Trustees, Pacific Century will provide a continuous investment program for the Funds, including investment research and management with respect to all securities and investments and cash equivalents in the Funds. Pacific Century will determine from time to time what securities and other investments will be purchased, retained or sold by the Trust with respect to the Funds. From time to time, the Funds, to the extent consistent with their investment objectives, policies and restrictions, may invest in securities of companies with which Pacific Century has a lending relationship. Pacific Century will provide the services under the Advisory Agreement in accordance with each of the Fund's investment objectives, policies, and restrictions. For its services under the Advisory Agreement, Pacific Century receives compensation from each Fund based on a percentage of the Fund's average daily net assets. The rate of advisory fees payable by each Fund to Pacific Century is set forth in the prospectus. The following table sets forth the aggregate fees paid by each Fund pursuant to its Advisory Agreement for the fiscal years July 31, 1997 ended July 31, 1996 and July 31, 1995: Compensation Paid to Pacific Century Under the Advisory Agreement [Enlarge/Download Table] For the Fiscal Year For the Fiscal Year For the Fiscal Year Ended July 31,1997 Ended July 31, 1996 Ended July 31, 1995 --------------------------- ------------------------------ ----------------------------- Aggregate Aggregate Aggregate Advisory Fee Advisory Advisory Paid Fee Paid Aggregate Fee Paid Aggregate (After Waiver Aggregate (After Waiver, as Fee (After Waiver, as Fee Fund as applicable) Fee Waived applicable) Waived applicable) Waived ---- -------------- ---------- ----------------- ---------- ----------------- --------- Diversified Fixed $867,869 N/A $ 814,802 N/A $208,807* $ 2,102* Income Fund Growth and Income $768,642 N/A $ 503,952 N/A $217,059* $ 2,099* Fund Growth Stock Fund $1,499,559 N/A $ 1,359,262 N/A $869,719 $ 1,855 New Asia Growth $141,522 $ 7,778 $ 52,972 N/A $1,722* $ 6,789* Fund Short Intermediate $71,646 $47,940 $ 61,600 $41,079 $37,281 $26,093 U.S. Treasury Securities Fund Tax-Free Securities $1,756,304 N/A $ 1,724,513 N/A $1,242,045* $11,920* Fund Tax-Free Short $195,480 N/A $ 202,701 N/A $ 149,902* $1,569* Intermediate Securities Fund U.S. Treasury $145,470 N/A $ 172,954 N/A $ 349,687 -- Securities Fund -------------------- * Period from commencement of operations through July 31, 1995. Diversified Fixed Income Fund, Growth and Income Fund, Tax-Free Securities Fund and Tax-Free Short Intermediate Securities Fund commenced operations on October 14, 1994. New Asia Growth Fund commenced operations on February 15, 1995. 25
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The Advisory Agreement provides that Pacific Century shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Funds in connection with the performance of the Advisory Agreement, except a loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services or loss resulting from willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard by it of its obligations and duties under the Advisory Agreement. The Advisory Agreement will continue in effect beyond its initial two year term provided the continuance is approved annually (i) by the holders of a majority of the respective Fund's outstanding voting securities or by the Trust's Board of Trustees and (ii) by a majority of the Trustees of the Trust who are not parties to the Advisory Agreement or "interested persons" (as defined in the 1940 Act) of any such party. The Advisory Agreement may be terminated on 60 days' written notice by either party and will terminate automatically if assigned. The Trust has been advised that Pacific Century should be able to perform the services contemplated by the Advisory Agreement, the Custodian Agreement, and the Prospectuses, without violation of the Glass-Steagall Act. However, there are no controlling judicial or administrative interpretations or decisions and future judicial or administrative interpretations of, or decisions relating to, present federal or state statutes and regulations relating to the permissible activities of banks and their subsidiaries or affiliates, as well as future changes in federal or state statutes and regulations and judicial or administrative decisions or interpretations thereof, could prevent Pacific Century from continuing to perform, in whole or in part, such services. If Pacific Century were prohibited from performing any of such services, it is expected that new agreements would be entered into with another entity or entities qualified to perform such services. 26
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The Sub-Adviser (New Asia Growth Fund only). Nicholas Applegate Capital Management (Hong Kong) LLC serves as Sub-Adviser to New Asia Growth Fund. Pursuant to a separate sub-advisory agreement with Pacific Century (the "Sub-Advisory Agreement"), the SubAdviser provides investment advisory services with respect to management of the foreign component of New Asia Growth Fund's portfolio, including investment research with respect to all foreign securities, currencies and cash equivalents in New Asia Growth Fund. For its services, Pacific Century pays the Sub-Adviser a fee, computed daily and payable quarterly, equal on an annual basis, to 0.50% of New Asia Growth Fund's average daily net assets. The Sub-Adviser's fee is paid by Pacific Century, and New Asia Growth Fund does not pay any incremental fee for the services of the Sub-Adviser. For the fiscal years ended July 31, 1997, July 31, 1996 and July 31, 1995, Pacific Century paid sub-advisory fees to the predecessor sub-adviser in the amount of $141,522, $29,567 and $4,728, respectively, for services provided to New Asia. The Sub-Adviser is a California limited liability company. The Sub-Advisory Agreement will continue in effect beyond its initial two year term provided its continuance is approved annually in the same manner as the Advisory Agreement. The Sub-Advisory Agreement may be terminated at any time without penalty on 60 days' written notice by either party, by the Board of Trustees or by the vote of a majority of the Fund's outstanding voting securities. The Sub-Advisory Agreement will terminate automatically if assigned. Administrator and Distributor. The Trust has retained BISYS as administrator and distributor on behalf of each of its Funds. See, "Management, Advisory and Other Services" in the applicable Prospectus. Under the Administration Agreement with the Trust, BISYS, in connection therewith, furnishes the Trust with office facilities, together with those ordinary clerical and bookkeeping services that are not being furnished by Pacific Century. For expenses assumed and services provided as administrator pursuant to the Administration Agreement, BISYS is entitled to receive a fee from the Funds, computed daily and paid monthly, at an annual rate equal to 0.20% of the average daily net assets of each Fund. The following table sets forth the aggregate fees paid, after giving effect to fee waivers, as applicable, by each Fund to BISYS for services provided pursuant to the Administration Agreement for the fiscal years ended July 31, 1997, July 31, 1996 and July 31, 1995: 27
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Compensation Paid to BISYS Under the Administration Agreement [Enlarge/Download Table] Aggregate Fees Paid Aggregate Fees Aggregate Fees under Paid under Paid under Administration Administration Administration Agreement for Agreement for Agreement for Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended July 31, 1997 July 31, 1996 July 31, 1995 Fund (after waiver) (after waiver) (after waiver) ---- -------------- -------------- -------------- Diversified Fixed Income Fund $231,432 $216,788 $ 52,202* Growth and Income Fund $153,729 $100,430 $ 40,700* Growth Stock Fund $299,912 $270,656 $169,099 New Asia Growth Fund $ 24,883 $ 8,807 $ 1,405* Short Intermediate U.S. Treasury $ 35,823 $ 30,800 $ 33,598 Securities Fund Tax-Free Securities Fund $486,348 $457,502 $310,511* Tax-Free Short Intermediate $ 58,644 $ 60,810 $ 44,970* Securities Fund U.S. Treasury Securities Fund $ 38,792 $ 45,683 $ 93,618 * Period from commencement of operations through July 31, 1995. Diversified Fixed Income Fund, Growth and Income Fund, Tax-Free Securities Fund and Tax-Free Short Intermediate Securities Fund commenced operations on October 14, 1994. New Asia Growth Fund commenced operations on February 15, 1995. BISYS has entered into a Distribution Agreement with the Trust pursuant to which it has the responsibility of distributing shares of the Funds. For its services, BISYS is entitled to a distribution fee, as set forth in the Distribution and Shareholder Service Plans for each of the Class A and Class B shares ("Class A Distribution Plan" and "Class B Distribution Plan," respectively). The Class A Distribution Plan and the Class B Distribution Plan have been adopted pursuant to Rule 12b-1 under the 1940 Act. See "Distribution and Shareholder Service Plans" below. Transfer Agent. Administrative Data Management Corporation ("ADM"), serves as Transfer Agent for each of the Funds. 28
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Code of Ethics. The Board of Trustees of the Trust has adopted a Code of Ethics under Rule 17j-1 of the Investment Company Act (the "Code"). The Code restricts the investing activities of Fund officers, Trustees and advisory persons and, as described below, imposes additional, more onerous restrictions on Fund investment personnel. All persons covered by the Code are required to preclear any personal securities investment (with limited exceptions, such as government securities) and must comply with ongoing requirements concerning recordkeeping and disclosure of personal securities investments. The preclearance requirement and associated procedures are designed to identify any prohibition or limitation applicable to a proposed investment. In addition, all persons covered by the Code are prohibited from purchasing or selling any security which, to such person's knowledge, is being purchased or sold (as the case may be), or is being considered for purchase or sale, by a Fund. Investment personnel are subject to additional restrictions such as a ban on acquiring securities in an initial public offering, "blackout periods" which prohibit trading by investment personnel of a Fund within periods of trading by the Fund in the same security and a ban on short-term trading in securities. DISTRIBUTION AND SHAREHOLDER SERVICE PLANS As indicated above, the Trust has adopted for the Class A and Class B shares of each of the Funds the Class A Distribution Plan and the Class B Distribution Plan under Section 12(b) of the 1940 Act and Rule 12b-1 thereunder. The Class A Distribution Plan and the Class B Distribution Plan of each of the Funds were adopted by the Board of Trustees, including a majority of the trustees who were not "interested persons" (as defined in the 1940 Act) of the Funds and who had no direct or indirect financial interest in the operation of the Distribution Plans or in any agreement related to the Distribution Plans (the "Qualified Trustees"). The Class A Distribution Plan provides that with respect to the Class A shares, BISYS is entitled to receive a fee in an amount not to exceed on an annual basis 0.75% of the average daily net asset value of the Fund attributable to the Fund's Class A shares. The Class B Distribution Plan provides that with respect to the Class B Shares, BISYS is entitled to receive a fee in an amount not to exceed on an annual basis 1.00% of the average daily net asset value of the Fund attributable to the Fund's Class B shares. The distribution fee compensates BISYS for the following: (a) payments BISYS makes to banks and other institutions and industry professionals, such as broker/dealers, including Pacific Century, BISYS and their affiliates or subsidiaries, pursuant to an agreement in connection with providing sales and/or administrative support services to the holders of a Fund's Class A and Class B shares; or (b) payments to financial institutions and industry professionals (such as insurance companies, investment counselors, and BISYS' affiliates and subsidiaries) in consideration for the distribution services provided and expenses assumed in connection with distribution assistance, including, but not limited to, printing and distributing prospectuses to persons other than current Class A and Class B shareholders of a Fund, printing and distributing advertising and sales literature and reports to Class A and Class B shareholders in connection with the sale of a Fund's shares, and providing personnel and communication equipment used in servicing shareholder accounts and prospective Class A and Class B shareholder inquiries. The distribution fees shall be paid to BISYS only to compensate or to reimburse it for actual payments or expenses incurred as described above. The distribution fees paid by the Funds to BISYS for services provided under the Class A Distribution Plan for the fiscal year ended July 31, 1997, restated to reflect fee waivers, are set forth in the table below. The Class B shares 29
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had not yet been publicly offered as of the date of this Statement of Additional Information. Accordingly, no distribution fees have been paid to BISYS to date under the Class B Distribution Plan. Distribution Fees Paid to BISYS Under the Class A Distribution Plan [Download Table] Aggregate Distribution Fees Paid for Fiscal Year Ended July 31, 1997 Fund (after waiver) ---- -------------- Diversified Fixed Income Fund $ 2,805 Growth and Income Fund $ 5,247 Growth Stock Fund $16,369 New Asia Growth Fund $ 6,793 Short Intermediate U.S. Treasury Securities Fund $ 1,865 Tax-Free Securities Fund $ 3,161 Tax-Free Short Intermediate Securities Fund $ 1,996 U.S. Treasury Securities Fund $ 2,630 The Class A Distribution Plan and Class B Distribution Plan will continue in effect from year to year if such continuance is approved by a majority vote of both the Trustees of the Trust and the Qualified Trustees. Agreements related to the Distribution Plans also must be approved by such vote of the Trustees and the Qualified Trustees. Such agreements will terminate automatically if assigned, and may be terminated at any time, without payment of any penalty, by a vote of a majority of the outstanding voting securities of the proper Fund. The Distribution Plans relating to a Fund may not be amended to increase materially the amounts payable thereunder without the approval of a majority of the outstanding voting securities of the proper Fund, and no material amendment to the Distribution Plans may be made except by a majority of both the Trustees of the Trust and the Qualified Trustees. CALCULATION OF YIELD AND TOTAL RETURN As indicated in the Prospectuses, the Funds may advertise certain yield information. As and to the extent required by the Commission, yield will be calculated based on a 30-day (or one month) period, computed by dividing the net investment income per share earned during the period by the maximum offering price per share on the last day of the period, according to the following formula: YIELD = 2[((a-b)cd)+1)(6)-1], where a = dividends and interest earned during the period; 30
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b = expenses accrued for the period (net of reimbursements); c = the average daily number of shares outstanding during the period that were entitled to receive dividends; and d = the maximum offering price per share on the last day of the period. The net investment income of the Funds includes actual interest income, plus or minus amortized purchase discount (which may include original issue discount) or premium, less accrued expenses. Realized and unrealized gains and losses on portfolio securities are not included in the Funds' net investment income. For purposes of sales literature, yield on Class A shares also may be calculated on the basis of the net asset value per share rather than the public offering price, provided that the yield data derived pursuant to the calculation described above also are presented. The tax-equivalent yield for the Tax-Free Funds also may be computed by dividing that portion of the yield of the Funds which is tax-exempt by one minus a stated income tax rate and adding the product to that portion, if any, of the yield of the Funds that is not tax-exempt. The yield for the Funds will fluctuate from time to time, unlike bank deposits or other investments that pay a fixed yield for a stated period of time, and does not provide a basis for determining future yields since it is based on historical data. Yield is a function of portfolio quality, composition, maturity and market conditions as well as the expenses allocated to the Fund. In addition, investors should recognize that changes in the net asset values of shares of the Funds will affect the yield of such Funds for any specified period, and such changes should be considered together with the Fund's yield in ascertaining the Fund's total return to shareholders for the period. Yield information for the Funds may be useful in reviewing the performance of the Fund and for providing a basis for comparison with investment alternatives. The yield of a Fund, however, may not be comparable to the yields from investment alternatives because of differences in the foregoing variables and differences in the methods used to value portfolio securities, compute expenses and calculate yield. As indicated in the Prospectuses, the Funds may advertise certain total return information. As and to the extent required by the Commission, an average annual compound rate of return ("T") will be computed by using the value at the end of a specified period ("ERV") of a hypothetical initial investment ("P") over a period of years ("n") according to the following formula: P(1+T)(n) = ERV. Aggregate total return will be calculated similarly to average annual total return except that the return figure is aggregated over the relevant period rather than annualized. In addition, as indicated in the Prospectuses, the Funds may also, at times, calculate total return of Class A shares based on net asset value per share (rather than the public offering price), in which case the figures would not reflect the effect of any sales charges that would have been paid by an investor, or based on the assumption that a sales charge other than the maximum sales charge (reflecting a Volume Discount) was assessed, provided that total return data for the Class A shares derived pursuant to the calculation described above also are presented. From time to time, the Trust may include the following types of information in advertisements, supplemental sales literature and reports to Shareholders: (1) discussions of general economic or financial principles (such as the effects of compounding and the benefits of dollar-cost averaging); (2) discussions of general economic trends; (3) presentations of statistical data to supplement such discussions; (4) descriptions of past or anticipated portfolio holdings for one or more of the Funds; (5) descriptions of investment strategies for one or more of the Funds; (6) descriptions or comparisons of various savings and investment products (including, but not limited to, insured bank products, annuities, qualified retirement plans and individual 31
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stocks and bonds), which may or may not include the Funds; (7) comparisons of investment products (including the Funds) with relevant market or industry indices or other appropriate benchmarks; (8) discussions of fund rankings or ratings by recognized rating organizations; and (9) testimonials describing the experience of persons that have invested in one or more of the Funds. The Trust may also include calculations, such as hypothetical compounding examples, which describe hypothetical investment results in such communications. Such performance examples will be based on an express set of assumptions and are not indicative of the performance of any of the Funds. From time to time, the Trust may also quote the Funds' performance in advertising and other types of literature as compared to the performance of the S&P Index, the Dow Jones Industrial Average, indices of bonds, stocks or government securities, and other mutual funds or mutual fund portfolios with comparable investment objectives and policies. This information may be based on data relating to various mutual fund or market indices such as those prepared by Dow Jones & Co., Inc. and Standard & Poor's Corporation or data prepared by Lipper Analytical Services, Inc. Comparisons may also be made to indices or data published in Money Magazine, Forbes, Barron's, The Wall Street Journal, The New York Times, Business Week, American Banker, Institutional Investor, Pensions and Investments, USA Today, Fortune, CDA/Wiesenberger, Ibbotson Associates, Inc., Morningstar and local newspapers and periodicals. The S&P Index and the Dow Jones Industrial Average are unmanaged indices of selected common stock prices. The U.S. Treasury Securities Fund, the Short Intermediate U.S. Treasury Securities Fund, the Diversified Fixed Income Fund, the Tax-Free Securities Fund or the Tax-Free Short Intermediate Securities Fund also may be compared, in reports and promotional literature, to the Consumer Price Index, the Salomon One Year Treasury Benchmark Index, the Ten Year U.S. Government Bond Average, S&P's Corporate Bond Yield Averages, the Schabacker Investment Management Indices, the Salomon Brothers High Grade Bond Index, the Lehman Brothers Long-Term High Quality Government/Corporate Bond Index, the Lehman Brothers 20+ Treasury Index, the Lehman Brothers 5-7 Year Treasury Index, and Bank Averages (which are calculated from figures supplied by the U.S. League of Savings Institutions based on effective annual rates of interest on both passbook and certificate accounts). This comparative performance could be expressed as a ranking prepared by Lipper Analytical Services, Inc., CDA/Wiesenberger or Morningstar, Inc., independent services which monitor the performance of mutual funds. The Funds' performance will be calculated by relating net asset value per share at the beginning of a stated period to the net asset value of the investment, assuming reinvestment of all gains distributions and dividends paid, at the end of the period. Any such comparisons may be useful to investors who wish to compare a Fund's past performance with that of its competitors. Of course, past performance cannot be a guarantee of future results. The Trust also may discuss in advertising and other types of literature that one or more of the Funds has been assigned a rating by an NRSRO, such as Standard & Poor's Corporation. Such rating would assess the creditworthiness of the investments held by a Fund. The assigned rating would not be a recommendation to purchase, sell or hold the Fund's shares since the rating would not comment on the market price of the Fund's shares or the suitability of the Fund for a particular investor. In addition, the assigned rating would be subject to change, suspension or withdrawal as a result of changes in, or unavailability of, information relating to a Fund or its investments. The Trust may compare a Fund's performance with other investments which are assigned ratings by NRSROs. Any such comparisons may be useful to investors who wish to compare the Fund's past performance with other rated investments. 32
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Set forth below is total return and yield information for the Class A and Class Y shares of the Funds, other than Balanced Fund, which has not yet commenced operations as of the date of this Statement of Additional Information. Information for Class B shares of the Funds is not presented because these shares have not yet been offered at the date of this Statement of Additional Information. 33
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Diversified Fixed Income Fund The average annual and aggregate total return for the Diversified Fixed Income Fund includes the performance of certain common trust fund ("Commingled") accounts advised by Pacific Century and managed the same as the Fund in all material respects, for periods dating back to October 31, 1977, as applicable, and prior to commencement of operations of the Fund's Class A and Y shares. (See note "*"). Such performance is adjusted to reflect the expenses associated with the Fund. The Commingled accounts were not registered with the Commission under the 1940 Act, and therefore were not subject to the investment restrictions imposed by law on registered mutual funds. If the Commingled accounts had been registered, the Commingled accounts' performance may have been adversely affected. [Enlarge/Download Table] Class A* Class Y* -------------------------------- --------------------------------- Redeemable Redeemable Expressed as value of a Expressed as value of a a percentage hypothetical a percentage hypothetical based on a $1000 based on a $1000 hypothetical investment hypothetical investment $1000 at the end of $1000 at the end of Period investment the period investment the period ------ ---------- ------------ ---------- ---------- Average Annual Total Return (including maximum applicable sales charge)** One Year Ended July 31, 1997 4.79% $1,048 9.30% $1,093 Five Years ended July 31, 1997 5.46% $1,304 6.68% $1,382 Ten Years ended July 31, 1997 7.80% $2,119 8.55% $2,272 Aggregate Total Return (including maximum applicable sales charge)** One Year Ended July 31, 1997 4.79% $1,048 9.30% $1,093 Five Years ended July 31, 1997 30.43% $1,304 38.18% $1,382 Ten Years ended July 31, 1997 111.90% $2,119 127.21% $2,272 Inception (October 31, 1977) 109.81% $2,098 130.47% $2,305 to July 31, 1997 Yield (including maximum applicable sales charge)** 30 Days Ended July 31, 1997 5.16% 5.63% ------------------- * Class A and Class Y shares of the Fund commenced operations on October 14, 1994. ** The maximum applicable sales charge on the Class A shares is 4.0%. There is no sales charge imposed in connection with the purchase of Class Y shares. 34
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Growth and Income Fund The average annual and aggregate total return for the Growth and Income Fund includes the performance of certain common trust fund ("Commingled") accounts advised by Pacific Century and managed the same as the Fund in all material respects, for periods dating back to October 31, 1977, as applicable, and prior to commencement of operations of the Fund's Class A and Y shares. (See note "*"). Such performance is adjusted to reflect the expenses associated with the Fund. The Commingled accounts were not registered with the Commission under the 1940 Act, and therefore were not subject to the investment restrictions imposed by law on registered mutual funds. If the Commingled accounts had been registered, the Commingled accounts' performance may have been adversely affected. [Enlarge/Download Table] Class A* Class Y* -------------------------------- --------------------------------- Redeemable Redeemable Expressed as value of a Expressed as value of a a percentage hypothetical a percentage hypothetical based on a $1000 based on a $1000 hypothetical investment hypothetical investment $1000 at the end of $1000 at the end of Period investment the period investment the period ------ ---------- ------------ ---------- ---------- Average Annual Total Return (including maximum applicable sales charge)** One Year Ended July 31, 1997 41.72% $1,417 47.96% $1,480 Five Years ended July 31, 1997 14.61% $1,978 15.82% $2,084 Ten Years ended July 31, 1997 11.27% $2,909 11.98% $3,099 Aggregate Total Return (including maximum applicable sales charge)** One Year Ended July 31, 1997 41.72% $1,417 47.96% $1,480 Five Years ended July 31, 1997 97.79% $1,978 108.41% $2,084 Ten Years ended July 31, 1997 190.85% $2,909 209.94% $3,099 Inception (October 31, 1977) to 653.93% $7,539 724.66% $8,247 July 31, 1997 Yield (including maximum applicable sales charge)** 30 Days Ended July 31, 1997 .21% .44% ------------------- * The Class A and Class Y Shares of the Fund commenced operations on October 14, 1994. ** The maximum applicable sales charge on the Class A shares is 4.0%. There is no sales charge imposed in connection with the purchase of Class Y shares. 35
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Growth Stock Fund The average annual and aggregate total return for the Growth Stock Fund includes the performance of certain common trust fund ("Commingled") accounts advised by Pacific Century and managed the same as the Fund in all material respects, for periods dating back to October 31, 1977, as applicable, and prior to commencement of operations of the Fund's Class A and Y shares. (See note "*"). Such performance is adjusted to reflect the expenses associated with the Fund. The Commingled accounts were not registered with the Commission under the 1940 Act, and therefore were not subject to the investment restrictions imposed by law on registered mutual funds. If the Commingled accounts had been registered, the Commingled accounts' performance may have been adversely affected. [Enlarge/Download Table] Class A* Class Y* -------------------------------- --------------------------------- Redeemable Redeemable Expressed as value of a Expressed as value of a a percentage hypothetical a percentage hypothetical based on a $1000 based on a $1000 hypothetical investment hypothetical investment $1000 at the end of $1000 at the end of Period investment the period investment the period ------ ---------- ------------ ---------- ---------- Average Annual Total Return (including maximum applicable sales charge)** One Year Ended July 31, 1997 41.08% $1,411 47.39% $1,474 Five Years ended July 31, 1997 15.39% $2,046 16.58% $2,153 Ten Years ended July 31, 1997 11.70% $3,025 12.45% $3,233 Aggregate Total Return (including maximum applicable sales charge)** One Year Ended July 31, 1997 41.08% $1,411 47.39% $1,474 Five Years ended July 31, 1997 104.59% $2,046 115.38% $2,153 Ten Years ended July 31, 1997 202.48% $3,025 223.27% $3,233 Inception (October 31, 1977) to 953.61% $10,536 1,056.68% $11,567 July 31, 1997 Yield (including maximum applicable sales charge)** 30 Days Ended July 31, 1997 N/A N/A ------------------- * The Class A shares of the Fund commenced operations on November 1, 1993. The Class Y shares of the Fund commenced operations on October 14, 1994. ** The maximum applicable sales charge on the Class A shares is 4.0%. There is no sales charge imposed in connection with the purchase of Class Y shares. 36
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[Download Table] Short Intermediate U.S. Treasury Securities Fund ------------------------------------------------------------ Class A Class Y ---------------------------- ---------------------------- Redeemable Redeemable Expressed as value of a Expressed as value of a a percentage hypothetical a percentage hypothetical based on a $1000 based on a $1000 hypothetical investment hypothetical investment $1000 at the end of $1000 at the end of Period investment the period investment the period ------ ------------ ------------- ------------ ------------- Average Annual Total Return (including maximum applicable sales charge)** One Year 4.47% $1,045 7.19% $1,072 Ended July 31, 1997 Inception* 3.22% $1,122 4.10% $1,157 to July 31, 1997 Aggregate Total Return (including maximum applicable sales charge)** One Year 4.47% $1,045 7.19% $1,072 Ended July 31, 1997 Inception* 12.23% $1,122 15.73% $1,157 to July 31, 1997 Yield (including maximum applicable sales charge)** 30 Days 5.03% 5.40% Ended July 31, 1997 New Asia Growth Fund ------------------------------------------------------------ Class A Class Y ---------------------------- ---------------------------- Redeemable Redeemable value of a Expressed as value of a Expressed as hypothetical a percentage hypothetical a percentage $1000 based on a $1000 based on a investment hypothetical investment hypothetical at the end $1000 at the end of $1000 of Period investment the period investment the period ------ ---------- ---------- ---------- ---------- One Year 19.64% $1,196 26.50% $1,265 Ended July 31, 1997 Inception* 13.48% $1,365 16.23% $1,448 to July 31, 1997 Aggregate Total Return (including maximum applicable sales charge)** One Year 19.64% $1,196 26.50% $1,265 Ended July 31, 1997 Inception* 36.51% $1,365 44.77% $1,448 to July 31, 1997 Yield (including maximum applicable sales charge)** 30 Days N/A Ended July 31, 1997 ----------------------- * Short Intermediate U.S. Treasury Securities Fund commenced operations of its Class A shares on November 1, 1993 and its Class Y shares on October 14, 1994. The New Asia Growth Fund commenced operations of its Class A and Class Y shares on February 15, 1995. ** The maximum applicable sales charge on the Class A of the Short-Intermediate U.S. Treasury Securities Fund is 2.25%. The maximum applicable sales charge on the Class A shares of the New Asia Growth Fund is 5.25%. There is no sales charge imposed in connection with the purchase of Class Y shares of either Fund. 37
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Tax Free Securities Fund The average annual and aggregate total return for the Tax Free Securities Fund includes the performance of certain common trust fund ("Commingled") accounts advised by Pacific Century and managed the same as the Fund in all material respects, for periods dating back to October 31, 1977, as applicable, and prior to commencement of operations of the Fund's Class A and Y shares. (See note "*"). Such performance is adjusted to reflect the expenses associated with the Fund. The Commingled accounts were not registered with the Commission under the 1940 Act, and therefore were not subject to the investment restrictions imposed by law on registered mutual funds. If the Commingled accounts had been registered, the Commingled accounts' performance may have been adversely affected. [Enlarge/Download Table] Class A* Class Y* ------------------------------- ------------------------------ Redeemable Redeemable Expressed as value of a Expressed as value of a a percentage hypothetical a percentage hypothetical based on a $1000 based on a $1000 hypothetical investment hypothetical investment $1000 at the end of $1000 at the end of Period investment the period investment the period ------ ---------- ---------- ---------- ---------- Average Annual Total Return (including maximum applicable sales charge)** One Year Ended July 31, 1997 4.93% $1,049 9.58% $1,096 Five Years ended July 31, 1997 4.96% $1,274 6.12% $1,346 Ten Years ended July 31, 1997 6.88% $1,945 7.60% $2,080 Aggregate Total Return (including maximum applicable sales charge)** One Year Ended July 31, 1997 4.93% $1,049 9.58% $1,096 Five Years ended July 31, 1997 27.39% $1,274 34.58% $1,346 Ten Years ended July 31, 1997 94.54% $1,945 108.04% $2,080 Inception (October 31, 1997) 70.32% $1,703.15 86.64% $1,866 to July 31, 1997 Yield (including maximum applicable sales charge)** 30 Days Ended July 31, 1997 4.05% 4.47% ------------------- * The Class A and Class Y shares of the Fund commenced operations on October 14, 1994. ** The maximum applicable sales charge on the Class A shares is 4.0%. There is no sales charge imposed in connection with the purchase of Class Y shares. 38
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Tax Free Short Intermediate Securities Fund The average annual and aggregate total return for the Tax Free Short-Intermediate Securities Fund includes the performance of certain common trust fund ("Commingled") accounts advised by Pacific Century and managed the same as the Fund in all material respects, for periods dating back to March 31, 1988, as applicable, and prior to commencement of operations of the Fund's Class A and Y shares. (See note "*"). Such performance is adjusted to reflect the expenses associated with the Fund. The Commingled accounts were not registered with the Commission under the 1940 Act, and therefore were not subject to the investment restrictions imposed by law on registered mutual funds. If the Commingled accounts had been registered, the Commingled accounts' performance may have been adversely affected. [Enlarge/Download Table] Class A* Class Y* ------------------------------ ------------------------------ Redeemable Redeemable Expressed as value of a Expressed as value of a a percentage hypothetical a percentage hypothetical based on a $1000 based on a $1000 hypothetical investment hypothetical investment $1000 at the end of $1000 at the end of Period investment the period investment the period ------ ---------- ---------- ---------- ---------- Average Annual Total Return (including maximum applicable sales charge)** One Year Ended July 31, 1997 2.71% $1,027 5.36% $1,054 Five Years ended July 31, 1997 3.10% $1,165 3.91% $1,211 Inception (March 31, 1988) to July 31, 1997 4.33% $1,485 4.87% $1,559 Aggregate Total Return (including maximum applicable sales charge)** One Year Ended July 31, 1997 2.71% $1,027 5.36% $1,054 Five Years ended July 31, 1997 16.49% $1,165 21.13% $1,211 Inception (March 31, 1988) to July 31, 1997 48.53% $1,485 55.96% $1,560 Yield (including maximum applicable sales charge)** 30 Days Ended July 31, 1997 3.05% 3.37% ------------------- * The Class A and Class Y shares of the Fund commenced operations on October 14, 1994. ** The maximum applicable sales charge on the Class A shares is 2.25%. There is no sales charge imposed in connection with the purchase of Class Y Shares. 39
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U.S. Treasury Securities Fund The average annual and aggregate total return for the U.S. Treasury Securities Fund includes the performance of certain common trust fund ("Commingled") accounts advised by Pacific Century and managed the same as the Fund in all material respects, for periods dating back to December 31, 1984, as applicable, and prior to commencement of operations of the Fund's Class A and Y shares. (See note "*"). Such performance is adjusted to reflect the expenses associated with the Fund. The Commingled accounts were not registered with the Commission under the 1940 Act, and therefore were not subject to the investment restrictions imposed by law on registered mutual funds. If the Commingled accounts had been registered, the Commingled accounts' performance may have been adversely affected. [Enlarge/Download Table] Class A* Class Y* ------------------------------ ------------------------------ Redeemable Redeemable Expressed as value of a Expressed as value of a a percentage hypothetical a percentage hypothetical based on a $1000 based on a $1000 hypothetical investment hypothetical investment $1000 at the end of $1000 at the end of Period investment the period investment the period ------ ---------- ---------- ---------- ---------- Average Annual Total Return (including maximum applicable sales charge)** One Year Ended July 4.33% $1,043 8.92% $1,089 31, 1997 Five Years ended July 5.09% $1,282 6.17% $1,349 31, 1997 Ten Years ended July 7.09% $1,984 7.72% $2,105 31, 1997 Aggregate Total Return (including maximum applicable sales charge)** One Year Ended July 4.33% $1,043 8.92% $1,089 31, 1997 Five Years ended July 28.20% $1,282 34.90% $1,349 31, 1997 Ten Years ended July 98.37% $1,984 110.45% $2,105 31, 1997 Inception (December 175.72% $2,757 194.16% $2,942 31, 1984) to July 31, 1997 Yield (including maximum applicable sales charge)** 30 Days Ended July 31, 4.87% 5.32% 1997 ------------------- * The Class A Shares of the Fund commenced operations on November 1, 1993 and the Class Y shares commenced operations on October 14, 1994. ** The maximum applicable sales charge on the Class A shares is 4.0%. There is no sales charge imposed in connection with the purchase of Class Y shares. 40
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DETERMINATION OF NET ASSET VALUE Net asset value per share of the Class A and Class B shares for each Fund is determined on each day that the New York Stock Exchange (the "Exchange") is open for trading and any other day (other than a day on which no Shares of that Fund are tendered for redemption and no order to purchase shares is received) during which there is sufficient trading in the Fund's portfolio securities that the Fund's net asset value per share might be materially affected. The Exchange is closed on the following holidays: New Year's Day, Martin Luther King Day, Presidents' Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Christmas Day and Good Friday. Securities of the Funds for which market quotations are available are valued at latest reported prices. Securities of the Funds for which the primary market is a national securities exchange or the National Association of Securities Dealers Automated Quotations National Market System are valued at last reported sale prices. In the absence of any sale of such securities on the valuation date and in the case of other securities, including U.S. Government securities but excluding money market instruments maturing in 60 days or less, the valuations are based on the mean between the bid and asked prices. Money market instruments and other debt securities maturing in 60 days or less are valued at amortized cost. The assets of the Funds, other than debt securities maturing in 60 days or less, are valued at the mean between the bid and asked prices. Futures contracts and options listed on a national exchange are valued at the last sale price on the exchange on which they are traded at the close of the Exchange, or, in the absence of any sale on the valuation date, at mean between the bid and asked prices. Options not listed on a national exchange are valued at the mean between the bid and asked prices. Quotation of foreign securities in a foreign currency shall be converted to U.S. dollar equivalents at the current rate obtained from a recognized bank or dealer. Foreign currency exchange contracts shall be valued at the current cost of covering or offsetting such contracts. In all cases, bid prices will be furnished by reputable independent pricing services approved by the Board of Trustees. Prices provided by an independent pricing service may be determined without exclusive reliance on quoted prices and may take into account appropriate factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data. All other securities and other assets of the Funds for which current market quotations are not readily available are valued at fair value as determined in good faith by Pacific Century in accordance with procedures adopted by the Trustees and subject to ratification by the Trustees. If Pacific Century is unable to make such a determination in accordance with such procedures, the securities and assets will be valued at fair value as determined in good faith by the Trustees. PURCHASE OF SHARES Reference is made to "How to Purchase Class A and Class B Shares" and "How to Purchase Class Y Shares" in the Prospectuses for certain information as to the purchase of Fund shares. Each Fund offers three classes of shares: Shares of Class A are sold with an initial sales charge, shares of Class B are sold with a CDSC and shares of Class Y are sold to eligible investors without a sales charge. Class A and Class B shares each have exclusive 41
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voting rights with respect to the Rule 12b-1 distribution plan adopted with respect to such class pursuant to which the distribution fees are paid. Class B shares automatically convert to Class A shares after approximately eight years. See "Conversion of Class B shares to Class A shares." Class Y shareholders of any Fund who terminate their qualified trust account, employee benefit account or other qualifying relationship with an institution are no longer eligible to make additional investments in a Fund's Class Y shares. The Board of Trustees has approved an automatic conversion feature whereby Class Y shares held by shareholders who have terminated their qualifying relationship on or after February 15, 1997 will be converted to Class A shares of the same Fund on the basis of the relative net asset values of the shares of the two classes on the conversion date, without incurring any fee, sales load or other charge. As Class A shareholders in a Fund, such former Class Y shareholders will be able to reinvest dividends and distributions relating to their shareholdings, but will be subject to the higher expenses associated with Class A shares. A conversion of Class Y shares for Class A shares will be a tax-free transaction for any Class Y shareholder involved in such conversion. Class Y shareholders who plan to terminate their qualified trust account, employee benefit account or other qualifying relationship and who do not wish to have their holdings converted to Class A shares may choose to redeem their shares. Class Y shareholders whose qualified trust account, employee benefit account or other qualifying relationship was terminated prior to February 15, 1997 are permitted to remain as Class Y shareholders; however, such shareholders may not make additional purchases of Class Y shares, nor may such shareholders reinvest dividends and distributions in respect of their Class Y shareholdings. REDEMPTION OF SHARES Reference is made to the sections in the Prospectus(es) entitled "How to Redeem Class A and Class B Shares" and "How to Redeem Class Y Shares." The Trust will employ reasonable procedures to confirm that instructions communicated by telephone are genuine. The Trust uses the following procedures to process telephone redemptions: (1) obtaining some or all of the following information: account number, name(s), social security number registered to the account, and personal identification; (2) recording all telephone transactions; and (3) sending written confirmation of each transaction to the registered owner. PORTFOLIO TRANSACTIONS The Trust has no obligation to deal with any broker-dealer or group of broker-dealers in the execution of transactions in portfolio securities. In connection with its duties to arrange for the purchase and sale of each Fund's portfolio securities, Pacific Century will select such broker-dealers ("Broker-Dealers") as will, in Pacific Century's judgment, implement the policy of the Trust to achieve quality execution at the most favorable prices through responsible Broker-Dealers, and in the case of agency transactions, at competitive commission rates. Pacific Century shall cause the Trust to deal directly with the selling or purchasing principal or market maker without incurring brokerage commissions unless Pacific Century determines that better price or execution may be obtained by paying such commissions. 42
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In allocating transactions to Broker-Dealers, Pacific Century is authorized to consider, in determining whether a particular Broker-Dealer will provide best execution, the Broker-Dealer's reliability, integrity, financial condition and risk in positioning the securities involved, as well as the difficulty of the transaction in question, and thus need not pay the lowest spread or commission where it is believed that another Broker-Dealer would offer greater reliability or provide a better price or execution. In addition, Pacific Century has adopted a brokerage allocation policy in reliance on Section 28(e) of the Securities and Exchange Act of 1934, permitting Pacific Century to cause a Fund to pay commission rates in excess of those another Broker-Dealer would have charged if Pacific Century determines in good faith that the amount of commission is reasonable in relation to the value of the brokerage and research services provided by the Broker-Dealer, viewed either in terms of the particular transaction or Pacific Century's overall responsibilities as to the accounts over which it exercises investment discretion. Such research may be in written form or through direct contact with individuals and may include quotations on portfolio securities and information on particular issuers and industries, as well as on market, economic or institutional activities. If, on the foregoing basis, the transaction in question could be allocated to two or more Broker-Dealers, Pacific Century is authorized, in allocating portfolio trades, to consider whether a Broker-Dealer has sold shares of the Trust or any other investment company or companies having Pacific Century as its investment adviser or having the same administrator or principal underwriter as the Trust. Each year, Pacific Century assesses the contribution of the brokerage and research services provided by the Broker-Dealers, and attempts to allocate a portion of its brokerage business in response to these assessments. Research analysts, counselors, and various investment committees each seek to evaluate the brokerage and research services they receive from BrokerDealers and make judgments as to the level of business which would recognize such services. In addition, Brokers-Dealers sometimes suggest a level of business they would like to receive in return for the various brokerage and research services they provide. Actual brokerage received by any firm may be less than the suggested allocations but can, and often does, exceed the suggestions, because the total business is allocated on the basis of all the considerations described above. In no case is a Broker-Dealer excluded from receiving business from Pacific Century because it has not been identified as providing research services. Purchases and sales of securities by U.S. Treasury Securities Fund, Short Intermediate U.S. Treasury Securities Fund, Diversified Fixed Income Fund, Tax-Free Securities Fund and Tax-Free Short Intermediate Securities Fund usually will be principal transactions. Each of the Funds also will purchase portfolio securities in underwritten offerings and may purchase securities directly from the issuer. Generally, debt securities, taxable money market securities and over the counter equities are traded on a net basis and do not involve brokerage commissions. The cost of executing a Fund's portfolio securities transactions will consist primarily of dealer spreads and underwriting commissions. Purchases and sales of equity securities on a securities exchange are effected through brokers who charge a negotiated commission for their services. In the over-the-counter market, securities are generally traded on a "net" basis with dealers acting as principal for their own accounts without a stated commission, although the price of the security usually includes a profit to the dealer. In underwritten offerings, securities are purchased at a fixed price that 43
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includes an amount of compensation to the underwriter, generally referred to as the underwriter's concession or discount. BISYS and certain affiliates of the Sub-Adviser are registered broker-dealers. From time to time, a portion of a Fund's brokerage transactions may be conducted with such broker-dealers, subject to the criteria for allocation of brokerage described above. The Trust's Board of Trustees has adopted procedures pursuant to Rule 17e-1 under the 1940 Act to ensure that all brokerage commissions paid to such broker-dealers are fair and reasonable. As a result of its investment policies, each Fund may engage in a substantial number of portfolio transactions. Accordingly, while each Fund anticipates that its annual portfolio turnover rate should not exceed 100%, under normal conditions, it is impossible to predict portfolio turnover rates. A high portfolio turnover rate involves correspondingly greater transaction costs in the form of dealer spreads and brokerage commissions, which are borne directly by the Fund. The portfolio turnover rate will not be a limiting factor when Pacific Century deems portfolio changes appropriate. For the fiscal years ended July 31, 1997, July 31, 1996 and July 31, 1995, purchase and sale transactions by U.S. Treasury Securities Fund, Short Intermediate U.S. Treasury Securities Fund, Diversified Fixed Income Fund, Tax-Free Securities Fund and Tax-Free Short Intermediate Securities Fund did not involve brokerage commissions. The total brokerage commissions paid by Growth and Income Fund, Growth Stock Fund and New Asia Growth Fund for the fiscal years ended July 31, 1997, July 31, 1996 and July 31, 1995, are set forth in the table below: Brokerage Commissions Paid By Certain Funds ------------------------------------------- [Download Table] Total Total Total Commission Commission Commission Paid for Fiscal Paid for Fiscal Paid for Fiscal Year Ended Year Ended Year Ended Fund July 31, 1997 July 31, 1996 July 31, 1995 ---- ------------- ------------- ------------- Growth and Income $237,637 $269,961.90 $37,693.60* Fund Growth Stock Fund $241,913 $355,375.96 $130,066.20 New Asia Growth $243,253 $ 95,781.41 $21,682.82* Fund -------------------- * Period from commencement of operations through July 31, 1995. Growth and Income Fund commenced operations on October 14, 1994. New Asia Growth Fund commenced operations on February 15, 1995. With respect to the Growth and Income Fund, the total amount of commissions paid by the Fund for the fiscal year ended July 31, 1997 differed materially from the amount paid by the Fund for the fiscal year ended July 31, 1995 because the Fund increased in size by more than 150% during that period. As a result, the size of the transactions and the number of transactions were also increased. With respect to the New Asia Growth Fund, the total amount of commissions paid by the Fund for the fiscal year ended July 31, 1997 differed materially from the amount paid by the Fund for the fiscal year ended July 31, 1995 because the Fund more than doubled in size during that period, and because of volatility in the South East Asian market. As a result, the number of transactions were also increased. 44
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For the fiscal years ended July 31, 1997, July 31, 1996, and the period February 15, 1995 (commencement of operations) to July 31, 1995, the New Asia Growth Fund paid brokerage commissions of $10,992, $7,457, and $1,600, respectively, to Credit Lyonnais Securities, an affiliate of Credit Lyonnais, which served as Sub-Adviser to the New Asia Growth Fund until July 31, 1997. Nicholas-Applegate, the current Sub-Adviser to the New Asia Growth Fund is not affiliated with any Broker-Dealer which effects portfolio transactions for the Funds. For the fiscal year ended July 31, 1997, the percentage of the Funds' aggregate brokerage commissions paid to Credit Lyonnais Securities was 4.5%, and the percentage of the Funds' aggregate dollar amount of transactions involving the payment of commissions effected through Credit Lyonnais Securities was 8.54%. The percentage of total portfolio transactions placed with, and related commissions paid to, firms which provided research, statistical, or other services to Pacific Century in connection with the management of the Funds, or in some cases, to the Funds, for the fiscal year ended July 31, 1997 are set forth below: [Download Table] Fund Percentage of Total Total Commissions Paid to ---- Portfolio Transactions Provider of Research, ---------------------- Statistical and Other Services -------- Growth Stock Fund 100% $209,198 Growth and Income Fund 100% $151,532 The portfolio turnover rates for each Fund for the fiscal years ended July 31, 1997 and July 31, 1996 are set forth in the table below: Portfolio Turnover Rates Of The Funds ------------------------------------- [Download Table] Year Year Fund Ended July 31, 1997 Ended July 31, 1996 ---- ------------------- ------------------- Diversified Fixed Income Fund 80.98% 58.86% Growth and Income Fund 74.83% 80.83% Growth Stock Fund 32.20% 61.30% New Asia Growth Fund 134.89% 86.53% Short Intermediate U.S. 51.56% 47.17% Treasury Securities Fund Tax-Free Securities Fund 11.07% 24.78% Tax-Free Short Intermediate 29.46% 54.70% Securities Fund U.S. Treasury Securities Fund 44.90% 15.75% 45
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FEDERAL AND HAWAIIAN TAX INFORMATION The Prospectus describes generally the federal and certain Hawaiian tax treatment of distributions by the Funds. This section of the SAI includes certain additional information concerning federal and Hawaiian income taxes. Qualification as a "regulated investment company" under the Code generally requires, among other things, that (a) at least 90% of each Fund's annual gross income be derived from interest, payments with respect to securities loans, dividends, gains from the sale or other disposition of securities or options thereon, and certain related income; (b) for tax years beginning on or before August 5, 1997, each Fund derives less than 30% of its gross income from gains from the sale or other disposition of securities or options thereon, or certain other financial investments, held for less than three months; and (c) each Fund diversifies its holdings so that, at the end of each quarter of the taxable year, (i) at least 50% of the market value of the Fund's assets is represented by cash, U.S. Government securities, securities of other regulated investment companies and other securities limited in respect of any one issuer to an amount not greater than 5% of the Fund's assets and 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its assets is invested in the securities of any one issuer (other than U.S. Government securities and the securities of other regulated investment companies), or of two or more issuers which the Fund controls (i.e., owns, directly or indirectly, 20% of the voting stock) and which are determined to be engaged in the same or similar trades or businesses or related trades or businesses. As regulated investment companies, the Funds will not be subject to federal income tax on their net investment income and net capital gains distributed to their shareholders, provided that they distribute to their shareholders at least 90% of their net investment income and tax-exempt income earned in each year. A 4% nondeductible excise tax will be imposed on each Fund to the extent it does not meet certain minimum distribution requirements by the end of each calendar year. This excise tax would not apply to tax-exempt income of the Tax-Free Funds. For this purpose, any income or gain retained by a Fund that is subject to tax will be considered to have been distributed by year-end. In addition, dividends and distributions declared payable as of a date in October, November or December of any calendar year are deemed under the Code to have been received by the shareholders on December 31 of that calendar year (and also will be taxable to shareholders in such year) if the dividend is actually paid in the following January. Each Fund intends to distribute substantially all of its net investment income and net capital gains and, thus, expects not to be subject to the excise tax. 46
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Income and dividends received by any of the Funds from sources within foreign countries may be subject to withholding and other taxes imposed by such countries. Tax conventions between certain countries and the United States may reduce or eliminate such taxes. Shareholders may be able to claim U.S. foreign tax credits with respect to such taxes, subject to certain conditions and limitations contained in the Code. For example, certain retirement accounts cannot claim foreign tax credits on investments in foreign securities held in the Fund. Because each of Balanced Fund, Growth and Income Fund, Growth Stock Fund, Diversified Fixed Income Fund, Short Intermediate U.S. Treasury Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities Fund and U.S. Treasury Securities Fund is expected to limit their investment in foreign securities, these Funds will not be eligible to elect to "pass through" foreign tax credits to shareholders. New Asia Growth Fund invests primarily in foreign securities. If more than 50% in value of New Asia Growth Fund's total assets at the close of its taxable year consists of securities of foreign corporations, New Asia Growth Fund will be eligible and intends to file an election with the Internal Revenue Service pursuant to which shareholders of New Asia Growth Fund will be required to include their proportionate shares of such withholding taxes in their U.S. income tax returns as gross income, treat such proportionate shares as taxes paid by them, and deduct such proportionate shares in computing their taxable incomes or, alternatively, use them as foreign tax credits against their U.S. income taxes. No deductions for foreign taxes, however, may be claimed by noncorporate shareholders who do not itemize deductions. A shareholder that is a nonresident alien individual or a foreign corporation may be subject to U.S. withholding tax on the income resulting from New Asia Growth Fund's election described in this paragraph but may not be able to claim a credit or deduction against such U.S. tax for the foreign taxes treated as having been paid by such shareholder. New Asia Growth Fund will report annually to its shareholders the amount per share of such withholding taxes. Gains or losses on sales of portfolio securities by a Fund will be mid-term or long-term capital gains or losses if the securities have been held by it for more than one year or more than 18 months, respectively, except in certain cases where a Fund acquires a put or writes a call thereon or otherwise engages in a transaction that "tolls" the Fund's holding period. Other gains or losses on the sale of securities will be short-term capital gains or losses. The amount of tax payable by an individual or corporation will be affected by a combination of tax laws covering, for example, deductions, credits, deferrals, exemptions, sources of income and other matters. A capital gains distribution or dividend will be a return of invested capital to the extent the net asset value of an investor's shares is thereby reduced below his or her cost, even though the distribution would be taxable to the shareholder. A redemption of shares by a shareholder under these circumstances could result in a capital loss for federal tax purposes. If a shareholder exchanges or otherwise disposes of shares of the Fund within 90 days of having acquired such shares, and if, as a result of having acquired those shares, the shareholder subsequently pays a reduced sales charge for shares of the Fund, or of a different fund, the sales charge previously incurred acquiring the Fund's shares shall not be taken into account (to the extent such previous sales charges do not exceed the reduction in sales charges) for the purpose of determining the amount of gain or loss on the exchange, but will be treated as having been incurred in the acquisition of such other shares. Any loss realized on a redemption or exchange of shares of a Fund will be disallowed to the extent shares are reacquired within the 61-day period beginning 30 days before and ending 30 days after the shares are disposed of. 47
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If an option written by a Fund lapses or is terminated through a closing transaction, such as a repurchase by the Fund of the option from its holder, such Fund will realize a short-term capital gain or loss, depending on whether the premium income is greater or less than the amount paid by the Fund in the closing transaction. If securities are sold by a Fund pursuant to the exercise of a call option written by it, such Fund will add the premium received to the sale price of the securities delivered in determining the amount of gain or loss on the sale. If securities are purchased by a Fund pursuant to the exercise of a put option written by it, such Fund will subtract the premium received from its cost basis in the securities purchased. The requirement (which applies solely to tax years beginning on or before September 5, 1997) that each Fund derive less than 30% of its gross income from gains from the sale of securities held for less than three months may limit the Fund's ability to write options. The amount of any gain or loss realized by a Fund on closing out a futures contract will generally result in a realized capital gain or loss for tax purposes. Regulated futures contracts held at the end of each fiscal year will be required to be "marked to market" for federal income tax purposes. In this regard, they will be deemed to have been sold at market value. Sixty percent (60%) of any net gain or loss recognized on these deemed sales and sixty percent (60%) of any net realized gain or loss from any actual sales, will be treated as long-term capital gain or loss, and the remainder will be treated as short-term capital gain or loss. Transactions that qualify as designated hedges are excepted from the marked to market rule and the "60%/40%" rule. Newly-enacted Code Section 1259 will require the recognition of gain (but not loss) if a Fund makes a "constructive sale" of an appreciated financial position (e.g. debt instruments and stock). A Fund generally will be considered to make a constructive sale of an appreciated financial position if it sells the same or substantially identical property short, enters into a futures or forward contract to deliver the same or substantially identical property, or enters into certain other similar transactions. Currency transactions may be subject to Section 988 of the Code, under which foreign currency gains or losses would generally be computed separately and treated as ordinary income or losses. The Funds will attempt to monitor Section 988 transactions to avoid an adverse tax impact. Class B Shareholders. No gain or loss will be recognized by a shareholder upon the conversion of Class B shares to Class A shares. Foreign Shareholders. Under the Code, distributions of net investment income (including distributions of short-term capital gains) by a Fund to a nonresident alien individual, nonresident alien fiduciary of a trust or estate, foreign corporation, or foreign partnership (a "foreign shareholder") will be subject to U.S. withholding tax (at the rate of 30% or a lower treaty rate). Withholding will not apply if a dividend paid by a Fund to a foreign shareholder is "effectively connected" with a U.S. trade or business, in which case the reporting and withholding requirements applicable to U.S. citizens or domestic corporations will apply. Distributions of net capital gains derived by non-resident aliens or foreign entities that are not effectively connected with a U.S. trade or business are not subject to tax withholding, but in the case of a foreign shareholder who is a nonresident alien individual, such distributions ordinarily will be subject to U.S. income tax if the individual is physically present in the U.S. for more than 182 days during the taxable year (in which case the individual may be treated as a U.S. resident in any event). Other Matters. Investors should be aware that the investments to be made by the Funds may involve sophisticated tax rules such as the original issue discount, marked to market and real estate mortgage investment conduit ("REMIC") rules that would result in income or gain recognition by the Funds without corresponding current cash receipts. Although the Funds will seek to avoid significant noncash income, such noncash income could be recognized by the Funds, in which case a Fund may distribute cash derived from other sources in order to meet the minimum distribution requirements described above. 48
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Special Tax Considerations For New Asia Growth Fund Due to investment laws in certain developing countries in Asia, it is anticipated that New Asia Growth Fund's investments in equity securities in such countries will consist primarily of shares of investment companies (or similar investment entities) organized under foreign law or of ownership interests in special accounts, trusts or partnerships. New Asia Growth Fund may invest up to 10% of its total assets in securities of closed-end investment companies. If New Asia Growth Fund purchases shares of an investment company (or similar investment entity) organized under foreign law, New Asia Growth Fund will be treated as owning shares in a passive foreign investment company ("PFIC") for U.S. federal income tax purposes. New Asia Growth Fund may be subject to U.S. federal income tax, and an additional tax in the nature of interest, on a portion of the distributions from such a company and on gain from the disposition of the shares of such company (collectively referred to as "excess distributions"), even if such excess distributions are paid by New Asia Growth Fund as a dividend to its shareholders. New Asia Growth Fund may be eligible to make an election with respect to certain PFICs in which it owns shares that will allow it to avoid the taxes on excess distributions. However, such election may cause New Asia Growth Fund to recognize income in a particular year in excess of the distributions received from such PFICs. Alternatively, New Asia Growth Fund may elect to "mark-to-market" at the end of each taxable year all shares that it holds in PFICs. If it makes this election, New Asia Growth Fund will recognize as ordinary income any increase in the value of such shares. Unrealized losses, however, will not be recognized. By making the mark-to-market election, New Asia Growth Fund can avoid imposition of the interest charge with respect to its distributions from PFICs, but in any particular year may be required to recognize income in excess of the distributions it receives from PFICs and its proceeds from dispositions of PFIC stock. Special Tax Considerations for the Tax-Free Funds. Federal -- The portion of total dividends paid by the Tax-Free Funds with respect to any taxable year that qualifies for exclusion from gross income ("exempt-interest dividends") will be the same for all shareholders receiving dividends during such year. In order for the Tax-Free Funds to pay exempt-interest dividends during any taxable year, at the close of each fiscal quarter at least 50% of the aggregate value of the Tax-Free Funds assets, respectively, must consist of tax-exempt securities. In addition, the Tax-Free Funds must distribute 90% of the aggregate interest excludable from gross income (net of non-deductible expenses) and 90% of the investment company taxable income earned by it during the taxable year. Not later than 60 days after the close of its taxable year, the Tax-Free Funds will notify each shareholder of the portion of the dividends paid with respect to such taxable year which constitutes exempt-interest dividends. The aggregate amount of dividends so designated cannot exceed the excess of the amount of interest excludable from gross income under Section 103 of the Code received by such Funds during the taxable year over any amounts disallowed as deductions under Sections 265 and 171(a)(2) of the Code. In addition, market discount earned on tax-exempt obligations will not qualify as tax-exempt income. The Code treats interest on private activity bonds, as defined therein, as an item of tax preference subject to an alternative minimum tax on individuals and corporations at the applicable tax rates. Further, exempt-interest dividends are includable in adjusted current earnings in calculating corporate alternative minimum taxable income. Except for temporary defensive purposes, the Trust will not invest in the types of Municipal Obligations which would give rise to interest that would be treated as a preference 49
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subject to alternative minimum taxation if more than 20% of its net assets would be so invested, and may refrain from investing in that type of bond completely. In addition, any loss realized by a shareholder upon the sale or redemption of shares of a Fund held less than six months is disallowed to the extent of any exempt-interest dividends received by the shareholder. Shareholders who may be "substantial users" (or related persons of substantial users) with respect to municipal securities held by the Tax-Free Funds should consult their tax advisers to determine whether exempt-interest dividends paid by the Funds with respect to such obligations retain their federal exclusions. Hawaiian Tax Information. The Tax-Free Funds, and dividends and distributions made by the Tax-Free Funds to Hawaii residents, will generally be treated for Hawaii income tax purposes in the same manner as they are treated under the Code for federal income tax purposes. If at the close of each quarter of the Tax-Free Funds' taxable year at least 50% of the value of its total assets consists of obligations the interest on which, if such obligations were held by an individual, would be exempt from Hawaii personal income tax (under either the laws of Hawaii or of the United States), the TaxFree Funds will be entitled to pay dividends to its shareholders which will be exempt from Hawaii personal income tax. Similar exemptions may be available in other states with regard to the portion of tax-exempt dividends attributable to interest exempt from state taxation under federal law. Under Hawaii law, however, interest derived from obligations of states (and their political subdivisions) other than Hawaii will not be exempt from Hawaii income taxation. (Interest derived from bonds or obligations issued by or under the authority of the following is exempt from Hawaii income taxation: Guam, Northern Mariana Islands, Puerto Rico, and the Virgin Islands.) Interest on Hawaiian Municipal Obligations, tax-exempt obligations of states other than Hawaii and their political subdivisions, and obligations of the United States or its possessions is not exempt from the Hawaii Franchise Tax. This tax applies to banks, building and loan associations, industrial loan companies, financial corporations, and small business investment companies. Persons or entities who are not Hawaii residents should not be subject to Hawaii income taxation on dividends and distributions made by the Trust but will be subject to other state and local taxes. Other Matters. Shares of the Tax-Free Funds would not be suitable for tax-exempt institutions and may not be suitable for retirement plans qualified under Section 401 of the Code, H.R. 10 plans and IRAs since such plans and accounts are generally tax-exempt and, therefore, would not benefit from the exempt status of dividends from such Funds. Such dividends would be ultimately taxable to the beneficiaries when distributed to them. CAPITAL STOCK Each Fund is comprised of three classes of shares -- "Class A", "Class B" and "Class Y" -- each comprised of an unlimited number of units of beneficial interest in the Trust. When certain matters affect one class but not another, the shareholders will vote as a class regarding such matters. Subject to the foregoing, on any matter submitted to a vote of shareholders, all shares then entitled to vote will be voted separately by Fund unless otherwise required by the 1940 Act, in which 50
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case all shares will be voted in the aggregate. For example, a change in a Fund's fundamental investment policies would be voted upon only by shareholders of the Fund involved. Additionally, approval of the advisory agreement is a matter to be determined separately by Fund. Approval by the shareholders of one Fund is effective as to that Fund whether or not sufficient votes are received from the shareholders of the other Funds to approve the proposal as to those Funds. As used in the Prospectus and in this SAI, the term "majority," when referring to approvals to be obtained from shareholders of a Fund means the vote of the lesser of (i) 67% of the shares of the Fund represented at a meeting if the holders of more than 50% of the outstanding shares of the Fund are present in person or by proxy, or (ii) more than 50% of the outstanding shares of the Fund. The term "majority," when referring to the approvals to be obtained from shareholders of the Trust as a whole means the vote of the lesser of (i) 67% of the Trust's shares represented at a meeting if the holders of more than 50% of the Trust's outstanding shares are present in person or by proxy, or (ii) more than 50% of the Trust's outstanding shares. Shareholders are entitled to one vote for each full share held and fractional votes for fractional shares held. The Trust may dispense with annual meetings of shareholders in any year in which it is not required to elect Trustees under the 1940 Act. However, the Trust undertakes to hold a special meeting of its shareholders for the purpose of voting on the question of removal of a Trustee or Trustees if requested in writing by the holders of at least 10% of the Trust's outstanding voting securities, and to assist in communicating with other shareholders as required by Section 16(c) of the 1940 Act. Each share of a class of a Fund represents an equal proportional interest in that Fund or portfolio with each other share of the same class and is entitled to such dividends and distributions out of the income earned on the assets belonging to that Fund or portfolio as are declared in the discretion of the Trustees. In the event of the liquidation or dissolution of the Trust, shareholders of a Fund or portfolio are entitled to receive the assets attributable to that Fund or portfolio that are available for distribution, and a distribution of any general assets not attributable to a particular Fund or portfolio that are available for distribution in such manner and on such basis as the Trustees in their sole discretion may determine. Shareholders are not entitled to any preemptive rights. All shares, when issued, will be fully paid and non-assessable by the Trust. As of September 1, 1997 the persons set forth below were known by the Trust to own of record or beneficially 5% or more of the Class A or Class Y shares, as applicable, of the indicated Fund. Unless otherwise indicated, the address of STROBRO, REINCO and HAWCO is Pacific Century Trust, P.O. Box 3170, Honolulu, HI 96802. In addition, unless otherwise indicated, the address of BHC Securities, Inc. is Attn: Mutual Funds, 1 Commerce Street, 2005 Market Street, Suite 12000, Philadelphia, PA 19103. 51
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[Download Table] Percentage of Shares Held of CLASS Y SHARES Record Or Beneficially -------------- ---------------------- Diversified Fixed Income Securities Fund STROBRO 47.4% HAWCO 51.8% Growth and Income Fund STROBRO 50.7% HAWCO 45.9% Growth Stock Fund REINCO 7.1% STROBRO 50.0% HAWCO 39.7% New Asia Growth Fund Vanguard Fiduciary Trust Company 8.4% P.O. Box 2600 V.M. 421 Valley Forge, PA 19482 HAWCO 42.2% REINCO 18.8% STROBRO 26.1% Short Intermediate U.S. Treasury Securities Fund HAWCO 65.8% REINCO 5.3% STROBRO 28.6% 52
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[Download Table] Tax-Free Securities Fund STROBRO 95.2% Tax-Free Short Intermediate Securities Fund STROBRO 86.5% HAWCO 11.2% U.S. Treasury Securities Fund REINCO 87.6% CLASS A SHARES Diversified Fixed Income Fund BHC Securities, Inc. 90.9% Growth and Income Fund BHC Securities, Inc. 86.9% Growth Stock Fund BHC Securities, Inc. 72.8% Arrow & Co 16.3% New Asia Growth Fund Merrill Lynch Pierce Fenner & Smith Incorporated 11.8% 4800 Deer Lake Drive East, 3rd Floor Mutual Fund Operations Jacksonville, Florida 32246 53
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[Download Table] BHC Securities, Inc. 84.4% Short-Intermediate U.S. Treasury Securities Fund BHC Securities, Inc. 81.3% Merrill Lynch Pierce Fenner & Smith Incorporated 8.3% 4800 Deer Lake Drive East, 3rd Floor Mutual Fund Operations Jacksonville, Florida 32246 Tax-Free Short Intermediate Securities Fund Douglas Philpotts Trustee 26.8% c/o Douglas Philpotts 94B Polipoli Kula, Hawaii 96790 BHC Securities, Inc. 61.9% Wedbush Morgan Securities, Inc. 8.0% P.O. Box 71584 Los Angeles, California 90071 Tax-Free Securities Fund Douglas Philpotts Trustee 20.7% c/o Douglas Philpotts 94B Polipoli Kula, Hawaii 96790 BHC Securities, Inc. 18.7% Elizabeth Godfrey 5.0% Arrow & Co. 40.4% P.O. Box 30010 Durham, Gort Carolina 27702 Wedbush Morgan Securities Inc. 10.2% U.S. Treasury Securities Fund Hugh Shearer Trustee 6.3% P.O. Box 3196 Honolulu, HI 96801 BHC Securities, Inc. 73.1% Merrill Lynch Pierce Fenner & Smith Incorporated 12.0% 4800 Deer Lake Drive East, 3rd Floor Mutual Fund Operations Jacksonville, Florida 32246 54
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CUSTODIAN Bank One Trust Company, N.A. ("Bank One") has been retained to act as Custodian for Balanced Fund, Diversified Fixed Income Fund, Growth and Income Fund, Growth Stock Fund, Short Intermediate U.S. Treasury Securities Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities Fund and U.S. Treasury Securities Fund. Union Bank of California, formerly Mitsubishi ("Bank of California") has been retained as Custodian for New Asia Growth Fund. With regard to each Fund, the relevant Custodian, among other things, maintains a custody account or accounts in the name of the Fund; receives and delivers all assets for the Fund upon purchase and upon sale or maturity; collects and receives all income and other payments and distributions on account of the assets of each Fund and pays all expenses of the Fund. For its services as Custodian, each of Bank One and Bank of California, respectively, receives an asset-based fee. OTHER The Registration Statement, including the Prospectus, the Statement of Additional Information and the exhibits filed therewith, may be examined at the office of the Commission in Washington, D.C. Statements contained in the Prospectus or the Statement of Additional Information as to the contents of any contract or other document referred to herein or in the Prospectus are not necessarily complete, and, in each instance, reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. INDEPENDENT AUDITORS The financial statements of Pacific Capital Funds as of July 31, 1997, appearing in this Statement of Additional Information, have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and is included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. Ernst & Young LLP has been selected as the independent auditors for the Pacific Capital Funds. Ernst & Young LLP provides audit services, tax return preparation and 55
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assistance and consultation in connection with certain Commission filings. Ernst & Young LLP is located at One Columbus, Suite 2300, 10 West Broad Street, Columbus, Ohio 43215. FINANCIAL INFORMATION Included in this Statement of Additional Information are the audited financial statements for the Class A and Class Y shares of each Fund at July 31, 1997. Financial statements are not provided for Class B shares of each Fund or for Balanced Fund since Class B shares of each Fund and Balanced Fund had not yet commenced operations as of the date of this Statement of Additional Information. 56
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REPORT OF INDEPENDENT AUDITORS To the Shareholders and Board of Trustees of Pacific Capital Funds We have audited the accompanying statements of assets and liabilities, including the schedules of portfolio investments, of the Pacific Capital Funds (comprising, respectively, the Growth Stock Fund, U.S. Treasury Securities Fund, Short Intermediate U.S. Treasury Securities Fund, Growth and Income Fund, Diversified Fixed Income Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities Fund, and New Asia Growth Fund) as of July 31, 1997, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights presented herein for each of the respective years or periods in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of July 31, 1997, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the respective funds constituting the Pacific Capital Funds as of July 31, 1997, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights presented herein for each of the respective years or periods in the period ended July 31, 1997, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Columbus, Ohio September 12, 1997 57
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PACIFIC CAPITAL FUNDS STATEMENTS OF ASSETS AND LIABILITIES JULY 31, 1997 [Enlarge/Download Table] SHORT INTERMEDIATE GROWTH U.S. TREASURY U.S. TREASURY STOCK SECURITIES SECURITIES GROWTH AND FUND FUND FUND INCOME FUND ------------ ------------- ------------------ ------------ ASSETS: Investments, at value (Cost $125,420,032; $22,918,222; $26,669,931; and $90,175,740, respectively).......... $208,844,861 $24,392,861 $26,968,639 $127,413,189 Interest and dividends receivable.............. 152,073 545,520 383,909 175,774 Receivable for capital shares issued........... 14,381 13,740 16,616 70,210 Prepaid expenses and other assets............ -- -- 81 291 ------------ ----------- ----------- ------------ Total Assets.......... 209,011,315 24,952,121 27,369,245 127,659,464 ------------ ----------- ----------- ------------ LIABILITIES: Dividends payable....... -- 7,508 8,046 -- Payable to brokers for investments purchased... 666,002 -- -- -- Accrued expenses and other payables: Investment advisory fees................... 137,104 12,374 6,810 83,957 Administration fees.... 5,424 632 660 3,324 Distribution fees-- Retail Class........... 1,992 226 127 733 Fund accounting fees... 1,199 29 460 1,041 Transfer agent fees.... 3,558 2,452 2,124 1,902 Trustees' fees......... 5,738 748 774 2,315 Custodian fees......... 1,289 534 856 -- Legal fees............. 8,864 2,817 3,591 6,273 Audit fees............. 19,380 2,548 2,775 8,065 Printing costs......... 10,564 2,765 2,110 4,285 Other.................. 995 300 465 212 ------------ ----------- ----------- ------------ Total Liabilities..... 862,109 32,933 28,798 112,107 ------------ ----------- ----------- ------------ NET ASSETS: Capital................. 110,174,854 27,582,163 27,193,087 83,775,351 Undistributed (distributions in excess of) net investment income.................. (14,687) (35,524) 40 44,608 Accumulated undistributed net realized gains (losses) from investment transactions........... 14,564,210 (4,102,090) (151,388) 6,489,949 Unrealized appreciation from investments........ 83,424,829 1,474,639 298,708 37,237,449 ------------ ----------- ----------- ------------ Net Assets............ $208,149,206 $24,919,188 $27,340,447 $127,547,357 ============ =========== =========== ============ Net Assets Retail Class........... $ 9,742,529 $ 1,087,438 $ 618,637 $ 3,725,915 Institutional Class.... 198,406,677 23,831,750 26,721,810 123,821,442 ------------ ----------- ----------- ------------ Total................. $208,149,206 $24,919,188 $27,340,447 $127,547,357 ============ =========== =========== ============ Outstanding units of beneficial interest (shares) Retail Class........... 559,075 116,045 64,800 215,980 Institutional Class.... 11,375,655 2,541,120 2,793,910 7,171,253 ------------ ----------- ----------- ------------ Total................. 11,934,730 2,657,165 2,858,710 7,387,233 ============ =========== =========== ============ Net Asset Value Retail Class-- redemption price per share.................. $ 17.43 $ 9.37 $ 9.55 $ 17.25 ============ =========== =========== ============ Retail Class--maximum sales charge........... 4.00% 4.00% 2.25% 4.00% ------------ ----------- ----------- ------------ Retail Class--maximum offering price per share (100%/(100%-maximum sales charge) of net asset value adjusted to nearest cent)...... $ 18.16 $ 9.76 $ 9.77 $ 17.97 ============ =========== =========== ============ Institutional Class-- offering and redemption price per share......... $ 17.44 $ 9.38 $ 9.56 $ 17.27 ============ =========== =========== ============ See notes to financial statements. 58
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PACIFIC CAPITAL FUNDS STATEMENTS OF ASSETS AND LIABILITIES JULY 31, 1997 [Enlarge/Download Table] TAX-FREE DIVERSIFIED TAX-FREE SHORT INTERMEDIATE FIXED INCOME SECURITIES SECURITIES NEW ASIA FUND FUND FUND GROWTH FUND ------------ ------------ ------------------ ----------- ASSETS: Investments, at value (Cost $127,758,477; $273,111,775; $38,681,464; and $19,750,749, respectively).......... $131,523,476 $296,205,350 $39,279,168 $21,426,264 Foreign currency (Cost $700,940).............. -- -- -- 689,471 Interest and dividends receivable............. 2,302,810 3,421,498 404,664 35,121 Receivable for capital shares issued.......... 19,834 -- -- 10,502 Receivable from brokers for investments sold... -- -- -- 290,000 Prepaid expenses and other assets........... -- 4,947 -- 19,636 ------------ ------------ ----------- ----------- Total Assets.......... 133,846,120 299,631,795 39,683,832 22,470,994 ------------ ------------ ----------- ----------- LIABILITIES: Dividends payable....... 40,594 75,538 7,732 -- Payable to brokers for investments purchased.. -- -- 1,500,000 586,740 Unrealized losses on forward foreign currency contracts..... -- -- -- 644 Accrued expenses and other payables: Investment advisory fees.................. 66,691 150,656 16,238 16,230 Administration fees.... 3,460 7,839 935 536 Distribution fees-- Retail Class.......... 225 533 155 712 Fund accounting fees... 1,400 1,354 347 Transfer agent fees.... 3,447 3,250 2,536 1,613 Trustees' fees......... 4,113 8,744 1,140 290 Custodian fees......... 2,221 5,413 1,448 11,974 Legal fees............. 9,655 15,578 5,016 -- Audit fees............. 14,654 30,019 4,300 2,782 Printing costs......... 13,110 23,995 2,959 14,319 Other.................. 471 934 5,657 208 ------------ ------------ ----------- ----------- Total Liabilities..... 160,041 322,499 1,549,470 636,395 ------------ ------------ ----------- ----------- NET ASSETS: Capital................. 132,482,157 275,206,266 37,363,214 18,399,844 Undistributed (distributions in excess of) net investment income...... -- -- -- (64,536) Accumulated undistributed net realized gains (losses) from investment and foreign currency transactions........... (2,561,077) 1,009,455 173,444 1,836,687 Unrealized appreciation from investments....... 3,764,999 23,093,575 597,704 1,675,515 Unrealized depreciation from translation of assets and liabilities in foreign currency....... -- -- -- (12,911) ------------ ------------ ----------- ----------- Net Assets............ $133,686,079 $299,309,296 $38,134,362 $21,834,599 ============ ============ =========== =========== Net Assets Retail Class........... $ 1,103,189 $ 2,544,893 $ 724,724 $ 3,458,603 Institutional Class.... 132,582,890 296,764,403 37,409,638 18,375,996 ------------ ------------ ----------- ----------- Total................. $133,686,079 $299,309,296 $38,134,362 $21,834,599 ============ ============ =========== =========== Outstanding units of beneficial interest (shares) Retail Class........... 103,034 234,871 71,289 249,040 Institutional Class.... 12,296,236 27,323,380 3,664,505 1,318,129 ------------ ------------ ----------- ----------- Total................. 12,399,270 27,558,251 3,735,794 1,567,169 ============ ============ =========== =========== Net Asset Value Retail Class-- redemption price per share................. $ 10.71 $ 10.84 $ 10.17 $ 13.89 ============ ============ =========== =========== Retail Class--maximum sales charge.......... 4.00% 4.00% 2.25% 5.25% ------------ ------------ ----------- ----------- Retail Class--maximum offering price per share (100%/(100%-maximum sales charge) of net asset value adjusted to nearest cent)...... $ 11.16 $ 11.29 $ 10.40 $ 14.66 ============ ============ =========== =========== Institutional Class-- offering and redemption price per share................. $ 10.78 $ 10.86 $ 10.21 $ 13.94 ============ ============ =========== =========== See notes to financial statements. 59
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PACIFIC CAPITAL FUNDS STATEMENTS OF OPERATIONS FOR THE YEAR ENDED JULY 31, 1997 [Enlarge/Download Table] SHORT INTERMEDIATE U.S. TREASURY U.S. TREASURY GROWTH AND GROWTH STOCK SECURITIES SECURITIES INCOME FUND FUND FUND FUND ------------ ------------- ------------------ ----------- INVESTMENT INCOME: Interest income......... $ 53,417 $1,624,911 $1,443,919 $ 3,116 Dividend income......... 2,796,184 15,979 13,758 1,791,271 ----------- ---------- ---------- ----------- Total Income.......... 2,849,601 1,640,890 1,457,677 1,794,387 ----------- ---------- ---------- ----------- EXPENSES: Investment advisory fees.................. 1,499,559 145,470 119,586 768,642 Administration fees..... 375,496 48,551 47,835 192,634 Distribution fees-- Retail Class.......... 49,247 7,902 5,592 15,806 Custodian fees.......... 10,274 -- -- 4,338 Accounting fees......... 58,423 8,369 8,990 31,379 Legal fees.............. 34,886 5,787 7,072 18,996 Audit fees.............. 21,398 2,555 2,783 10,083 Trustees' fees and expenses.............. 21,030 2,007 2,646 8,622 Transfer agent fees..... 20,668 13,733 13,140 14,874 Registration and filing fees.................... 11,744 661 2,572 9,216 Printing costs.......... 29,881 1,789 3,152 12,956 Other................... 4,702 776 548 1,963 ----------- ---------- ---------- ----------- Total expenses before voluntary fee reductions........ 2,137,308 237,600 213,916 1,089,509 Expenses voluntarily reduced........... (108,462) (15,031) (63,679) (49,464) ----------- ---------- ---------- ----------- Net Expenses.......... 2,028,846 222,569 150,237 1,040,045 ----------- ---------- ---------- ----------- Net Investment Income... 820,755 1,418,321 1,307,440 754,342 ----------- ---------- ---------- ----------- REALIZED/UNREALIZED GAINS (LOSSES) ON INVESTMENTS: Net realized gains (losses) on investment transactions........... 18,904,660 (192,623) (52,500) 7,101,576 Net change in unrealized appreciation (depreciation) on investments............ 54,151,452 873,271 504,853 31,411,841 ----------- ---------- ---------- ----------- Net realized/unrealized gains (losses) on investments.......... 73,056,112 680,648 452,353 38,513,417 ----------- ---------- ---------- ----------- Change in net assets resulting from operations......... $73,876,867 $2,098,969 $1,759,793 $39,267,759 =========== ========== ========== =========== See notes to financial statements. 60
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PACIFIC CAPITAL FUNDS STATEMENTS OF OPERATIONS FOR THE YEAR ENDED JULY 31, 1997 [Download Table] TAX-FREE DIVERSIFIED TAX-FREE SHORT INTERMEDIATE NEW ASIA FIXED INCOME SECURITIES SECURITIES GROWTH FUND FUND FUND FUND ------------ ----------- ------------------ ---------- INVESTMENT INCOME: Interest income......... $ 9,405,764 $16,734,532 $1,804,935 $ -- Dividend income......... 108,622 51,542 16,239 391,949 Foreign tax withholding. -- -- -- (28,545) ----------- ----------- ---------- ---------- Total Income.......... 9,514,386 16,786,074 1,821,174 363,404 ----------- ----------- ---------- ---------- EXPENSES: Investment advisory fees................... 867,869 1,756,304 195,480 149,300 Administration fees..... 289,515 586,170 78,274 33,272 Distribution fees-- Retail Class........... 8,426 9,531 6,001 20,429 Custodian fees.......... 7,941 24,869 9,080 57,856 Accounting fees......... 48,581 98,573 17,205 11,733 Legal fees.............. 31,260 55,302 10,433 1,825 Audit fees.............. 16,480 32,850 4,608 2,783 Organization costs...... -- -- -- 12,728 Trustees' fees and expenses............... 15,638 32,709 4,653 958 Transfer agent fees..... 19,117 25,322 14,326 12,182 Registration and filing fees................... 34,949 4,609 5,948 2,829 Printing costs.......... 22,301 41,181 6,250 17,611 Other................... 3,926 7,305 1,050 136 ----------- ----------- ---------- ---------- Total expenses before voluntary fee reductions and reimbursements....... 1,366,003 2,674,725 353,308 323,642 Expenses voluntarily reduced............... (63,704) (124,192) (23,635) (29,803) ----------- ----------- ---------- ---------- Net Expenses.......... 1,302,299 2,550,533 329,673 293,839 ----------- ----------- ---------- ---------- Net Investment Income... 8,212,087 14,235,541 1,491,501 69,565 ----------- ----------- ---------- ---------- REALIZED/UNREALIZED GAINS (LOSSES) ON INVESTMENTS AND FOREIGN CURRENCIES: Net realized gains (losses) on investment transactions........... (2,549,993) 1,060,114 240,632 1,836,689 Net realized gains (losses) on foreign currency transactions.. -- -- -- (80,544) Net change in unrealized appreciation (depreciation) on investments............ 7,498,463 11,477,661 306,192 2,113,745 Net change in unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies............. -- -- -- (13,022) ----------- ----------- ---------- ---------- Net realized/unrealized gains (losses) on investments and foreign currencies..... 4,948,470 12,537,775 546,824 3,856,868 ----------- ----------- ---------- ---------- Change in net assets resulting from operations.............. $13,160,557 $26,773,316 $2,038,325 $3,926,433 =========== =========== ========== ========== See notes to financial statements. 61
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PACIFIC CAPITAL FUNDS STATEMENTS OF CHANGES IN NET ASSETS [Enlarge/Download Table] SHORT INTERMEDIATE GROWTH STOCK FUND U.S. TREASURY SECURITIES FUND U.S. TREASURY SECURITIES FUND ---------------------------- ------------------------------- ------------------------------- FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR ENDED ENDED ENDED ENDED ENDED ENDED JULY 31, 1997 JULY 31, 1996 JULY 31, 1997 JULY 31, 1996 JULY 31, 1997 JULY 31, 1996 ------------- ------------- -------------- -------------- -------------- -------------- FROM INVESTMENT ACTIVITIES: OPERATIONS: Net investment income.. $ 820,755 $ 1,444,330 $ 1,418,321 $ 1,665,167 $ 1,307,440 $ 1,106,083 Net realized gains (losses) on investment transactions.......... 18,904,660 2,853,413 (192,623) 610,897 (52,500) (66,180) Net change in unrealized appreciation (depreciation) on investments........... 54,151,452 9,013,715 873,271 (980,793) 504,853 (370,513) ------------ ------------ -------------- -------------- -------------- -------------- Change in net assets resulting from operations............. 73,876,867 13,311,458 2,098,969 1,295,271 1,759,793 669,390 ------------ ------------ -------------- -------------- -------------- -------------- DISTRIBUTIONS TO RETAIL CLASS SHAREHOLDERS: From net investment income................ (13,022) (26,967) (52,996) (58,924) (38,945) (44,406) In excess of net investment income..... (3,861) -- (7,810) (9,639) -- (3,140) From net realized gains................. (24) (73,928) -- -- -- -- In excess of net realized gains........ -- (168,943) -- -- -- (2,008) DISTRIBUTIONS TO INSTITUTIONAL CLASS SHAREHOLDERS: From net investment income................ (857,427) (1,401,180) (1,365,325) (1,606,243) (1,268,495) (1,061,677) In excess of net investment income..... (17,466) -- (32,190) (262,742) -- (75,078) From net realized gains................. (777) (2,779,485) -- -- -- -- In excess of net realized gains........ -- (6,351,795) -- -- -- (35,758) ------------ ------------ -------------- -------------- -------------- -------------- Change in net assets from shareholder distributions.......... (892,577) (10,802,298) (1,458,321) (1,937,548) (1,307,440) (1,222,067) ------------ ------------ -------------- -------------- -------------- -------------- CAPITAL TRANSACTIONS: Proceeds from shares issued................ 39,726,376 133,828,085 1,643,143 1,647,781 12,120,256 18,121,546 Dividends reinvested... 92,112 6,438,745 1,415,273 1,902,174 92,421 158,516 Cost of shares redeemed.............. (82,478,968) (105,692,774) (3,007,324) (30,979,541) (10,025,991) (9,729,562) ------------ ------------ -------------- -------------- -------------- -------------- Change in net assets from share transactions........... (42,660,480) 34,574,056 51,092 (27,429,586) 2,186,686 8,550,500 ------------ ------------ -------------- -------------- -------------- -------------- Change in net assets.... 30,323,810 37,083,216 691,740 (28,071,863) 2,639,039 7,997,823 NET ASSETS: Beginning of period.... 177,825,396 140,742,180 24,227,448 52,299,311 24,701,408 16,703,585 ------------ ------------ -------------- -------------- -------------- -------------- End of period.......... $208,149,206 $177,825,396 $24,919,188 $24,227,448 $27,340,447 $24,701,408 ============ ============ ============== ============== ============== ============== SHARE TRANSACTIONS: Issued................. 2,786,983 11,098,985 178,092 173,866 1,287,668 1,882,513 Reinvested............. 6,775 541,450 153,769 200,813 9,773 16,520 Redeemed............... (5,810,150) (8,707,702) (325,626) (3,272,020) (1,060,313) (1,016,011) ------------ ------------ -------------- -------------- -------------- -------------- Change in shares........ (3,016,392) 2,932,733 6,235 (2,897,341) 237,128 883,022 ============ ============ ============== ============== ============== ============== See notes to financial statements. 62
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PACIFIC CAPITAL FUNDS STATEMENTS OF CHANGES IN NET ASSETS [Enlarge/Download Table] GROWTH AND INCOME FUND DIVERSIFIED FIXED INCOME FUND TAX-FREE SECURITIES FUND ---------------------------- ------------------------------- ---------------------------- FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR ENDED ENDED ENDED ENDED ENDED ENDED JULY 31, 1997 JULY 31, 1996 JULY 31, 1997 JULY 31, 1996 JULY 31, 1997 JULY 31, 1996 ------------- ------------- -------------- -------------- ------------- ------------- FROM INVESTMENT ACTIVITIES: OPERATIONS: Net investment income.. $ 754,342 $ 897,198 $ 8,212,087 $ 7,564,301 $ 14,235,541 $ 14,113,815 Net realized gains (losses) on investment transactions.......... 7,101,576 4,517,339 (2,549,993) 1,793,439 1,060,114 2,578,744 Net change in unrealized appreciation (depreciation) on investments........... 31,411,841 1,140,677 7,498,463 (6,350,290) 11,477,661 (505,505) ------------ ----------- -------------- -------------- ------------ ------------ Change in net assets resulting from operations............. 39,267,759 6,555,214 13,160,557 3,007,450 26,773,316 16,187,054 ------------ ----------- -------------- -------------- ------------ ------------ DISTRIBUTIONS TO RETAIL CLASS SHAREHOLDERS: From net investment income................ (9,645) (6,661) (61,085) (29,853) (58,439) (36,401) In excess of net investment income..... (2,559) (198) -- (1,073) -- (3,016) From net realized gains................. (74,382) (10,087) -- -- (3,793) (5,488) In excess of net realized gains........ -- -- (10,239) (5,216) -- (2,095) DISTRIBUTIONS TO INSTITUTIONAL CLASS SHAREHOLDERS: From net investment income................ (719,837) (890,537) (8,151,002) (7,534,448) (14,177,102) (14,077,414) In excess of net investment income..... -- (26,449) -- (270,854) -- (1,166,451) From net realized gains................. (3,890,622) (1,430,857) -- -- (1,632,634) (2,573,256) In excess of net realized gains........ -- -- (1,342,055) (1,188,466) -- (982,014) ------------ ----------- -------------- -------------- ------------ ------------ Change in net assets from shareholder distributions.......... (4,697,045) (2,364,789) (9,564,381) (9,029,910) (15,871,968) (18,846,135) ------------ ----------- -------------- -------------- ------------ ------------ CAPITAL TRANSACTIONS: Proceeds from shares issued................ 45,972,983 51,831,280 45,518,283 199,818,303 33,235,182 29,212,660 Dividends reinvested... 2,407,024 1,252,724 669,521 891,166 1,633,767 3,570,050 Cost of shares redeemed.............. (30,990,437) (23,786,655) (78,932,125) (86,706,905) (35,963,665) (22,829,691) ------------ ----------- -------------- -------------- ------------ ------------ Change in net assets from share transactions........... 17,389,570 29,297,349 (32,744,321) 114,002,564 (1,094,716) 9,953,019 ------------ ----------- -------------- -------------- ------------ ------------ Change in net assets.... 51,960,284 33,487,774 (29,148,145) 107,980,104 9,806,632 7,293,938 NET ASSETS: Beginning of period.... 75,587,073 42,099,299 162,834,224 54,854,120 289,502,664 282,208,726 ------------ ----------- -------------- -------------- ------------ ------------ End of period.......... $127,547,357 $75,587,073 $133,686,079 $162,834,224 $299,309,296 $289,502,664 ============ =========== ============== ============== ============ ============ SHARE TRANSACTIONS: Issued................. 3,234,048 4,307,112 4,316,676 18,193,814 3,152,571 2,767,223 Reinvested............. 178,441 105,986 62,706 80,018 153,874 333,366 Redeemed............... (2,162,896) (1,958,541) (7,448,705) (7,867,181) (3,412,859) (2,160,738) ------------ ----------- -------------- -------------- ------------ ------------ Change in shares........ 1,249,593 2,454,557 (3,069,323) 10,406,651 (106,414) 939,851 ============ =========== ============== ============== ============ ============ See notes to financial statements. 63
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PACIFIC CAPITAL FUNDS STATEMENTS OF CHANGES IN NET ASSETS [Download Table] TAX-FREE SHORT INTERMEDIATE SECURITIES FUND NEW ASIA GROWTH FUND --------------------------- --------------------------- FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR ENDED ENDED ENDED ENDED JULY 31, 1997 JULY 31, 1996 JULY 31, 1997 JULY 31, 1996 ------------- ------------- ------------- ------------- FROM INVESTMENT ACTIVITIES: OPERATIONS: Net investment income (loss)................ $ 1,491,501 $ 1,577,123 $ 69,565 $ (4,037) Net realized gains (losses) on investment transactions.......... 240,632 247,802 1,836,689 187,718 Net realized gains (losses) on foreign currency transactions. -- -- (80,544) (55,916) Net change in unrealized appreciation (depreciation) on investments........... 306,192 (381,865) 2,113,745 (603,577) Net change in unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies............ -- -- (13,022) 3,412 ----------- ----------- ----------- ----------- Change in net assets resulting from operations.............. 2,038,325 1,443,060 3,926,433 (472,400) ----------- ----------- ----------- ----------- DISTRIBUTIONS TO RETAIL CLASS SHAREHOLDERS: From net investment income................ (28,544) (12,490) (770) -- In excess of net investment income..... -- (1,065) (714) (1,121) From net realized gains................. (986) -- (24,563) (15,201) DISTRIBUTIONS TO INSTITUTIONAL CLASS SHAREHOLDERS: From net investment income................ (1,462,957) (1,564,633) (15,241) -- In excess of net investment income..... -- (133,354) -- (7,846) From net realized gains................. (49,244) -- (130,393) (63,590) ----------- ----------- ----------- ----------- Change in net assets from shareholder distributions........... (1,541,731) (1,711,542) (171,681) (87,758) ----------- ----------- ----------- ----------- CAPITAL TRANSACTIONS: Proceeds from shares issued................ 6,196,477 7,865,169 11,076,770 10,749,362 Dividends reinvested... 67,282 9,183 103,064 59,730 Cost of shares redeemed.............. (8,549,132) (7,982,805) (3,558,390) (2,981,295) ----------- ----------- ----------- ----------- Change in net assets from share transactions. (2,285,373) (108,453) 7,621,444 7,827,797 ----------- ----------- ----------- ----------- Change in net assets.... (1,788,779) (376,935) 11,376,196 7,267,639 NET ASSETS: Beginning of period.... 39,923,141 40,300,076 10,458,403 3,190,764 ----------- ----------- ----------- ----------- End of period.......... $38,134,362 $39,923,141 $21,834,599 $10,458,403 =========== =========== =========== =========== SHARE TRANSACTIONS: Issued................. 613,972 773,603 902,626 910,887 Reinvested............. 6,643 907 8,369 5,614 Redeemed............... (845,154) (788,553) (283,285) (261,382) ----------- ----------- ----------- ----------- Change in shares........ (224,539) (14,043) 627,710 655,119 =========== =========== =========== =========== See notes to financial statements. 64
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PACIFIC CAPITAL FUNDS GROWTH STOCK FUND SCHEDULE OF INVESTMENTS JULY 31, 1997 [Download Table] SHARES OR PRINCIPAL SECURITY MARKET AMOUNT DESCRIPTION VALUE ---------- ----------------------------------------------------- ------------ COMMON STOCKS (98.2%): Aerospace/Defense (1.0%): 35,925 General Motors Corp., Class H........................ $ 2,171,217 ------------ Banks (2.4%): 39,000 BankAmerica Corp..................................... 2,944,500 17,850 Chase Manhattan Corp................................. 2,027,091 ------------ 4,971,591 ------------ Beverages (6.5%): 68,575 Anheuser Busch Co., Inc.............................. 2,944,439 85,925 Coca-Cola Co......................................... 5,950,306 120,850 PepsiCo, Inc......................................... 4,630,066 ------------ 13,524,811 ------------ Chemicals (2.0%): 48,075 Avery Dennison Corp.................................. 2,121,310 58,250 Sigma-Aldrich........................................ 2,016,906 ------------ 4,138,216 ------------ Computers & Peripherals (7.4%): 70,500 Cisco Systems (b).................................... 5,609,155 95,500 Compaq Computer Corp. (b)............................ 5,455,438 27,050 Hewlett Packard Co................................... 1,895,191 52,200 Sun Microsystems, Inc. (b)........................... 2,384,888 ------------ 15,344,672 ------------ Electrical Equipment (7.1%): 45,525 C-Cube Microsystems Inc. (b)......................... 1,098,291 144,800 General Electric Co.................................. 10,163,149 44,500 SCI Systems, Inc. (b)................................ 3,534,969 ------------ 14,796,409 ------------ Electronic & Electrical (1.5%): 52,875 Emerson Electric Co.................................. 3,119,625 ------------ Entertainment (1.4%): 35,400 Walt Disney Co....................................... 2,860,763 ------------ Financial Services (2.6%): 57,025 Paine Webber Group, Inc.............................. 2,281,000 21,350 Student Loan Marketing Assoc......................... 3,201,166 ------------ 5,482,166 ------------ Food Distributors (1.6%): 89,000 Sysco Corp........................................... 3,320,813 ------------ Food Processing & Packaging (7.3%): 65,450 ConAgra, Inc. ...................................... $ 4,601,953 46,325 Pioneer Hi-Bred International, Inc.................. 3,428,050 117,900 Sara Lee Corp....................................... 5,165,493 25,000 Wm. Wrigley Jr. Co.................................. 1,923,438 ------------ 15,118,934 ------------ Funeral Services (1.8%): 109,950 Service Corp. International......................... 3,738,300 ------------ Health Care (3.2%): 85,075 Columbia HCA Healthcare............................. 2,743,668 46,200 Health Management Assoc. (b)........................ 1,475,513 28,450 Oxford Health Plans Inc. (b)........................ 2,391,578 ------------ 6,610,759 ------------ Insurance (2.9%): 55,875 American International Group, Inc................... 5,950,688 ------------ Manufacturing (2.0%): 39,100 Illinois Tool Works, Inc............................ 2,028,313 21,700 Minnesota Mining & Manufacturing Co................................... 2,056,075 ------------ 4,084,388 ------------ Medical Supplies (1.3%): 30,000 Medtronic, Inc...................................... 2,617,500 ------------ Metal & Mineral Production (0.6%): 52,775 Barrick Gold Corp................................... 1,203,930 ------------ Oil & Gas Exploration, Production, & Services (1.8%): 49,000 Mobil Corp.......................................... 3,748,500 ------------ Oilfield Equipment & Services (0.7%): 17,800 Schlumberger Ltd.................................... 1,359,475 ------------ Paint, Varnishes, Enamels (1.4%): 93,650 Sherwin Williams Co................................. 3,002,653 ------------ Pharmaceuticals (12.9%): 64,950 Abbott Laboratories................................. 4,250,166 44,550 American Home Products Corp......................... 3,672,591 40,000 Eli Lilly & Co...................................... 4,519,999 89,000 Johnson & Johnson, Inc.............................. 5,545,812 58,150 Merck & Co. Inc..................................... 6,043,965 Continued 65
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PACIFIC CAPITAL FUNDS GROWTH STOCK FUND SCHEDULE OF INVESTMENTS, CONTINUED JULY 31, 1997 [Download Table] SHARES OR PRINCIPAL SECURITY MARKET AMOUNT DESCRIPTION VALUE ----------- ---------------------------------------------------- ------------ COMMON STOCKS, CONTINUED: Pharmaceuticals, continued 52,300 Pfizer, Inc......................................... $ 3,118,388 ------------ 27,150,921 ------------ Retail (4.2%): 71,950 Dollar General Corp................................. 3,165,800 37,975 Kohl's Corp. (b).................................... 2,392,425 85,400 Wal-Mart Stores, Inc................................ 3,207,838 ------------ 8,766,063 ------------ Retail--Grocery Stores (1.5%): 85,300 Albertsons, Inc..................................... 3,161,431 ------------ Semiconductors (2.0%): 46,300 Intel Corp.......................................... 4,250,919 ------------ Services (Commercial/Consumer) (1.1%): 123,500 Sothebys Holdings, Inc., Class A.................... 2,223,000 ------------ Soaps & Cleaning Agents (2.1%): 28,075 Procter & Gamble Co................................. 4,270,909 ------------ Software & Computer Services (7.7%): 26,675 BMC Software Inc. (b)............................... 1,607,169 41,000 Computer Associates International, Inc.............. 2,790,563 55,725 Microsoft Corp. (b)................................. 7,885,087 72,475 Oracle Systems Corp. (b)............................ 3,945,357 ------------ 16,228,176 ------------ Steel (0.5%): 15,875 Nucor Corp........................................... $ 985,242 ------------ Technology--Services (Data Processing) (1.2%): 52,550 Automatic Data Processing, Inc....................... 2,601,225 ------------ Telecommunications (0.8%): 51,150 Alltel Corp.......................................... 1,681,556 ------------ Tobacco & Tobacco Products (2.0%): 93,975 Philip Morris Cos., Inc.............................. 4,240,622 ------------ Transportation--Air (1.2%): 87,575 Southwest Airlines Co................................ 2,556,095 ------------ Utilities--Telecommunications (4.5%): 55,825 Century Telephone Enterprises, Inc................... 2,051,569 42,825 GTE Corp............................................. 1,991,363 32,050 Northern Telecom Ltd................................. 3,351,227 32,100 SBC Communications................................... 1,899,919 ------------ 9,294,078 ------------ Total Common Stocks 204,575,647 ------------ INVESTMENT COMPANY (2.1%): 4,269,214 The One Group Prime Money Market Fund, (Fiduciary Shares)............................................ 4,269,214 ------------ Total Investment Company 4,269,214 ------------ Total (Cost--$125,420,032) (a) $208,844,861 ============ -------- Percentages indicated are based on net assets of $208,149,206. (a) Represents cost for financial reporting purposes and differs from cost basis for federal income tax purposes by the amount of losses recognized for financial reporting in excess of federal income tax reporting of $4,655. Cost for federal income tax purposes differs from market value by net unrealized appreciation of securities as follows: [Download Table] Unrealized appreciation.. $84,748,254 Unrealized depreciation.. (1,328,080) ----------- Net unrealized appreciation............. $83,420,174 =========== (b) Non income producing securities. See notes to financial statements. 66
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PACIFIC CAPITAL FUNDS U.S. TREASURY SECURITIES FUND SCHEDULE OF INVESTMENTS JULY 31, 1997 [Download Table] SHARES OR PRINCIPAL SECURITY MARKET AMOUNT DESCRIPTION VALUE ---------- ------------------------------------------------------- ----------- U.S. TREASURY NOTES (53.5%): 2,350,000 5.50%, 9/30/97......................................... $ 2,350,234 1,900,000 7.13%, 9/30/99......................................... 1,953,390 2,000,000 7.13%, 2/29/00......................................... 2,063,440 4,000,000 7.75%, 2/15/01......................................... 4,246,119 980,000 8.00%, 5/15/01......................................... 1,051,217 1,000,000 7.50%, 2/15/05......................................... 1,089,220 550,000 6.50%, 5/15/05......................................... 566,154 ----------- Total U.S. Treasury Notes 13,319,774 ----------- U.S. TREASURY BONDS (43.1%): 2,150,000 7.63%, 2/15/07........................................ $ 2,281,688 7,700,000 7.25%, 5/15/16........................................ 8,470,924 ----------- Total U.S. Treasury Bonds 10,752,612 ----------- INVESTMENT COMPANY (1.3%): 320,475 The One Group US Treasury Securities Money Market Fund (Fiduciary Shares).............................. 320,475 ----------- Total Investment Company 320,475 ----------- Total (Cost--$22,918,222) (a) $24,392,861 =========== -------- Percentages indicated are based on net assets of $24,919,188. (a) Represents cost for financial reporting purposes and differs from cost basis for federal income tax purposes by the amount of losses recognized for financial reporting in excess of federal income tax reporting of $55,550. Cost for federal income tax purposes differs from market value by net unrealized appreciation of securities as follows: [Download Table] Unrealized appreciation... $1,474,639 Unrealized depreciation... (55,550) ---------- Net unrealized appreciation.............. $1,419,089 ========== See notes to financial statements. 67
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PACIFIC CAPITAL FUNDS SHORT INTERMEDIATE U.S. TREASURY SECURITIES FUND SCHEDULE OF INVESTMENTS JULY 31, 1997 [Download Table] SHARES OR PRINCIPAL SECURITY MARKET AMOUNT DESCRIPTION VALUE --------- ------------------------------------------------------- ----------- U.S. TREASURY NOTES (97.6%): 2,000,000 5.50%, 9/30/97......................................... $ 2,000,200 2,000,000 6.00%, 12/31/97........................................ 2,004,640 1,100,000 7.25%, 2/15/98......................................... 1,109,625 250,000 5.13%, 12/31/98........................................ 248,288 200,000 6.75%, 6/30/99......................................... 203,780 1,000,000 7.88%, 11/15/99........................................ 1,045,040 5,000,000 6.25%, 5/31/00......................................... 5,060,100 2,000,000 6.13%, 7/31/00......................................... 2,017,660 3,000,000 6.50%, 5/31/01......................................... 3,065,760 4,000,000 6.25%, 2/15/03......................................... 4,063,280 5,700,000 6.50%, 5/15/05......................................... 5,867,409 ----------- Total U.S. Treasury Notes 26,685,782 ----------- INVESTMENT COMPANY (1.0%): 282,857 The One Group US Treasury Securities Money Market Fund (Fiduciary Shares).................................... $ 282,857 ----------- Total Investment Company 282,857 ----------- Total (Cost--$26,669,931) (a) $26,968,639 =========== -------- Percentages indicated are based on net assets of $27,340,447. (a)Represents cost for federal income tax purposes and differs from market value by net unrealized appreciation of securities as follows: [Download Table] Unrealized appreciation........ $299,125 Unrealized depreciation........ (417) -------- Net unrealized appreciation.... $298,708 ======== See notes to financial statements. 68
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PACIFIC CAPITAL FUNDS GROWTH AND INCOME FUND SCHEDULE OF INVESTMENTS JULY 31, 1997 [Download Table] SHARES OR PRINCIPAL SECURITY MARKET AMOUNT DESCRIPTION VALUE ----------- ---------------------------------------------------- ------------ COMMON STOCKS (97.0%): Aerospace/Defense (1.1%): 23,000 Boeing Co........................................... $ 1,352,688 ------------ Automotive (0.9%): 28,800 Ford Motor Co....................................... 1,177,200 ------------ Automotive Parts (1.3%): 35,825 Lear Corp. (b)...................................... 1,715,122 ------------ Banks (4.6%): 44,550 BankAmerica Corp.................................... 3,363,525 29,675 BankBoston.......................................... 2,520,520 ------------ 5,884,045 ------------ Beverages (1.9%): 63,000 PepsiCo, Inc........................................ 2,413,688 ------------ Chemicals (2.3%): 18,700 E.I. Du Pont De Nemours Co.......................... 1,251,731 50,225 Sigma-Aldrich....................................... 1,739,041 ------------ 2,990,772 ------------ Computers & Peripherals (8.4%): 34,025 Cisco Systems (b)................................... 2,707,114 86,875 Compaq Computer Corp. (b)........................... 4,962,734 63,425 Sun Microsystems, Inc. (b).......................... 2,897,730 ------------ 10,567,578 ------------ Containers--Metal, Glass, Paper, Plastic (0.9%): 26,325 Bemis, Inc.......................................... 1,209,305 ------------ Electrical Equipment (5.4%): 65,600 General Electric Co................................. 4,604,300 29,450 SCI Systems, Inc. (b)............................... 2,339,434 ------------ 6,943,734 ------------ Electronic & Electrical (1.0%): 20,875 Emerson Electric Co. ............................... 1,231,625 ------------ Financial Services (6.6%): 50,425 Paine Webber Group, Inc............................. 2,017,000 21,000 Student Loan Marketing Assoc........................ 3,148,688 46,462 Washington Mutual................................... 3,211,685 ------------ 8,377,373 ------------ Food Processing & Packaging (2.2%): 21,375 ConAgra, Inc. ...................................... 1,502,930 Food Processing & Packaging, continued: 44,325 Hormel Foods Corp................................... $ 1,252,181 ------------ 2,755,111 ------------ Footwear (0.9%): 18,800 Nike, Inc........................................... 1,171,475 ------------ Funeral Services (1.2%): 43,475 Service Corp. International......................... 1,478,150 ------------ Heavy Machinery--Industrial, Farm, Construction (1.3%): 24,150 Ingersoll-Rand Co. ................................. 1,643,709 ------------ Household Products (1.0%): 29,775 Newell Co........................................... 1,248,689 ------------ Insurance (5.2%): 21,112 American International Group, Inc................... 2,248,481 30,225 Travelers Property Casualty......................... 1,299,675 43,350 Travelers, Inc...................................... 3,118,491 ------------ 6,666,647 ------------ Leisure--Recreation, Gaming (1.3%): 40,600 Carnival Corp. Cruise Lines......................... 1,710,275 ------------ Medical Supplies (1.0%): 14,675 Medtronic, Inc. .................................... 1,280,394 ------------ Metal & Mineral Production (0.5%): 27,950 Barrick Gold Corp................................... 637,609 ------------ Oil & Gas Exploration, Production, & Services (5.8%): 18,250 Amoco Corp. ........................................ 1,715,500 41,150 Exxon Corp.......................................... 2,643,887 23,950 Mobil Corp. ........................................ 1,832,175 47,950 Union Pacific Resources............................. 1,183,766 ------------ 7,375,328 ------------ Oilfield Equipment & Services (2.3%): 26,350 Schlumberger Ltd.................................... 2,012,481 11,475 Transocean Offshore Inc............................. 937,364 ------------ 2,949,845 ------------ Paint, Varnishes, Enamels (0.9%): 37,550 Sherwin Williams Co................................. 1,203,947 ------------ Continued 69
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PACIFIC CAPITAL FUNDS GROWTH AND INCOME FUND SCHEDULE OF INVESTMENTS, CONTINUED JULY 31, 1997 [Download Table] SHARES OR PRINCIPAL SECURITY MARKET AMOUNT DESCRIPTION VALUE ----------- ---------------------------------------------------- ------------ COMMON STOCKS, CONTINUED: Pharmaceuticals (8.6%): 25,200 American Home Products Corp......................... $ 2,077,425 37,450 Johnson & Johnson, Inc.............................. 2,333,603 35,650 Merck & Co. Inc..................................... 3,705,373 20,750 Pfizer, Inc......................................... 1,237,219 40,100 Pharmacia & Upjohn.................................. 1,513,775 ------------ 10,867,395 ------------ Publishing (1.4%): 26,225 McGraw Hill, Inc.................................... 1,778,383 ------------ Restaurants (1.7%): 90,625 Wendy's International............................... 2,214,648 ------------ Retail (4.4%): 41,737 Dollar General Corp................................. 1,836,428 53,750 Wal-Mart Stores, Inc................................ 2,018,984 31,000 Walgreen Co......................................... 1,751,500 ------------ 5,606,912 ------------ Semiconductors (1.1%): 15,950 Intel Corp.......................................... 1,464,409 ------------ Software & Computer Services (7.4%): 33,975 Computer Associates International, Inc................................. 2,312,423 24,325 Microsoft Corp. (b)................................. 3,441,988 68,425 Oracle Systems Corp. (b)............................ 3,724,886 ------------ 9,479,297 ------------ Steel (0.7%): 14,375 Nucor Corp.......................................... $ 892,148 ------------ Tobacco & Tobacco Products (3.9%): 109,775 Philip Morris Cos., Inc............................. 4,953,597 ------------ Toys & Bicycles--Manufacturing (1.5%): 55,425 Mattel, Inc......................................... 1,926,019 ------------ Transportation (1.1%): 51,650 Comair Holdings, Inc................................ 1,391,322 ------------ Utilities--Electric (2.5%): 50,000 Illinova Corp....................................... 1,178,125 93,775 Southern Co......................................... 2,057,189 ------------ 3,235,314 ------------ Utilities--Telecommunications (4.7%): 31,225 Century Telephone Enterprises, Inc................................... 1,147,519 49,350 GTE Corp............................................ 2,294,775 42,050 SBC Communications.................................. 2,488,834 ------------ 5,931,128 ------------ Total Common Stocks 123,724,881 ------------ INVESTMENT COMPANY (2.9%): 3,688,308 The One Group Prime Money Market Fund, (Fiduciary Shares)............................................ 3,688,308 ------------ Total Investment Company 3,688,308 ------------ Total (Cost--$90,175,740) (a) $127,413,189 ============ -------- Percentages indicated are based on net assets of $127,547,357. (a) Represents cost for financial reporting purposes and differs from cost basis for federal income tax purposes by the amount of losses recognized for financial reporting in excess of federal income tax reporting of $52,014. Cost for federal income tax purposes differs from market value by net unrealized appreciation of securities as follows: [Download Table] Unrealized appreciation..... $37,764,210 Unrealized depreciation..... (578,775) ----------- Net unrealized appreciation. $37,185,435 =========== (b)Non income producing securities. See notes to financial statements. 70
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PACIFIC CAPITAL FUNDS DIVERSIFIED FIXED INCOME FUND SCHEDULE OF INVESTMENTS JULY 31, 1997 [Download Table] SHARES OR PRINCIPAL SECURITY MARKET AMOUNT DESCRIPTION VALUE ---------- ------------------------ ------------ CORPORATE BONDS (43.5%): Automotive (0.8%): 1,000,000 Ford Motor Co., 7.25%, 10/1/08................ $ 1,050,000 ------------ Banking (4.4%): 700,000 Interamerica Development Bank, 8.50%, 3/15/11... 831,250 4,900,000 Suntrust Bank, 6.90%, 5,004,125 7/01/07................ ------------ 5,835,375 ------------ Banking--Foreign (11.6%): 5,000,000 Abbey National PLC, 6.69%, 10/17/05........ 5,037,500 3,425,000 Bayerische Landesbk--NY, 6.38%, 8/31/00......... 3,459,250 5,000,000 Dresdner Bank--NY, 6.63%, 9/15/05......... 5,031,250 2,000,000 Swiss Bank Corp.--NY, 6.75%, 7/15/05......... 2,030,000 ------------ 15,558,000 ------------ Electric Utility (2.3%): 1,500,000 Duke Power Co., 8.00%, 11/1/99................ 1,558,125 1,500,000 National Rural Utility, 6.45%, 4/1/01.......... 1,513,125 ------------ 3,071,250 ------------ Financial Services (14.0%): 5,000,000 General Electric Capital Corp., 7.88%, 12/1/06.. 5,512,499 5,000,000 JPM Capital Corp., 7.54%, 1/15/27, Callable 1/15/07 @ 104.................. 5,056,250 2,000,000 Merrill Lynch & Co. Inc., 7.00%, 1/15/07... 2,065,000 3,000,000 Merrill Lynch & Co. Inc., 7.00%, 4/27/08... 3,093,750 3,000,000 Salomon Inc., 6.70%, 3,030,000 7/5/00................. ------------ 18,757,499 ------------ Health Care (3.6%): 4,300,000 Johnson & Johnson, 8.72%, 11/1/24......... 4,821,375 ------------ Insurance (0.8%): 1,000,000 St. Paul Cos., Inc., 7.29%, 8/28/07......... 1,042,500 ------------ Oil & Gas--Exploration & Production Services (1.1%): 1,050,000 Amoco Canada Petroleum Co., 7.95%, 10/1/22......... $ 1,130,063 350,000 Societe Nationale Elf Aquitaine, 8.00%, 10/15/01........ 373,625 ------------ 1,503,688 ------------ Retail (1.2%): 1,400,000 Wal-Mart Stores, Inc., 8.00%, 9/15/06......... 1,554,000 ------------ Telecommunications (3.7%): 4,750,000 Bellsouth Telecommunications, Inc., 7.00%, 2/1/05.......... 4,940,000 ------------ Total Corporate Bonds 58,133,687 ------------ U.S. GOVERNMENT AGENCIES (14.0%): Federal Home Loan Bank (4.8%): 2,500,000 6.30%, 4/29/99.......... 2,513,575 3,000,000 6.50%, 6/18/99.......... 3,000,630 935,000 6.70%, 7/22/02.......... 938,478 ------------ 6,452,683 ------------ Federal National Mortgage Association (9.2%): 2,500,000 5.49%, 8/12/97.......... 2,495,505 1,300,000 6.38%, 8/14/01.......... 1,319,045 7,000,000 7.69%, 9/13/06.......... 7,378,490 1,000,000 6.76%, 7/16/07.......... 1,017,320 ------------ 12,210,360 ------------ Total U.S. Government Agencies 18,663,043 ------------ U.S. TREASURY NOTES (28.0%): 3,250,000 5.63%, 8/31/97.......... 3,250,363 1,000,000 5.50%, 9/30/97.......... 1,000,100 8,000,000 6.75%, 4/30/00.......... 8,191,520 5,000,000 6.63%, 7/31/01.......... 5,134,550 3,500,000 6.25%, 2/15/03.......... 3,555,370 8,200,000 7.25%, 8/15/04.......... 8,795,730 7,300,000 6.50%, 5/15/05.......... 7,514,401 ------------ Total U.S. Treasury Notes 37,442,034 ------------ U.S. TREASURY BONDS (10.9%): 10,000,000 7.25%, 5/15/16.......... 11,001,200 3,650,000 6.25%, 8/15/23.......... 3,599,083 ------------ Total U.S. Treasury Bonds 14,600,283 ------------ Continued 71
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PACIFIC CAPITAL FUNDS DIVERSIFIED FIXED INCOME FUND SCHEDULE OF INVESTMENTS, CONTINUED JULY 31, 1997 [Download Table] SHARES OR PRINCIPAL SECURITY MARKET AMOUNT DESCRIPTION VALUE --------- ------------------------------------------------------ ------------ PRIVATE PLACEMENT (0.8%): 1,000,000 MIC Financing Trust I, 8.38%, 2/1/27............................................... $ 1,058,750 ------------ Total Private Placement 1,058,750 ------------ INVESTMENT COMPANY (1.2%): 1,625,679 The One Group Prime Money Market Fund (Fiduciary Shares).............................................. $ 1,625,679 ------------ Total Investment Company 1,625,679 ------------ Total (Cost--$127,758,477) (a) $131,523,476 ============ -------- Percentages indicated are based on net assets of $133,686,079. (a) Represents cost for financial reporting purposes and differs from cost basis for federal income tax purposes by the amount of losses recognized for financial reporting in excess of federal income tax reporting of $39,129. Cost for federal income tax purposes differs from market value by net unrealized appreciation of securities as follows: [Download Table] Unrealized appreciation..... $3,890,609 Unrealized depreciation..... (164,739) ---------- Net unrealized appreciation. $3,725,870 ========== PLC--Public Limited Company See notes to financial statements. 72
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PACIFIC CAPITAL FUNDS TAX-FREE SECURITIES FUND SCHEDULE OF INVESTMENTS JULY 31, 1997 [Download Table] SHARES OR PRINCIPAL SECURITY MARKET AMOUNT DESCRIPTION VALUE ---------- ----------------------------------------------------- ------------ ALTERNATIVE MINIMUM TAX PAPER (17.8%): Hawaii (17.8%): 2,320,000 Hawaii Airports System Revenue, 7.50%, 7/1/20, Second Series, FGIC, AMT................................... $ 2,557,800 320,000 Hawaii Airports System Revenue, 7.50%, 7/1/09, Second Series, FGIC, AMT................................... 353,600 740,000 Hawaii Airports System Revenue, 7.00%, 7/1/10, FGIC, AMT................................................. 822,325 510,000 Hawaii Airports System Revenue, 7.38%, 7/1/11, AMBAC, AMT................................................. 561,000 10,585,000 Hawaii Airports System Revenue, 6.90%, 7/1/12, Second Series, MBIA, AMT................................... 12,569,687 1,890,000 Hawaii Airports System Revenue, 7.00%, 7/1/18, Second Series, MBIA, AMT................................... 2,081,363 640,000 Hawaii Airports System Revenue, 7.30%, 7/1/20, AMBAC, AMT................................................. 702,400 1,500,000 Hawaii Airports System Revenue, 6.75%, 7/1/21, Second Series, MBIA........................................ 1,629,375 3,205,000 Hawaii Department of Budget & Finance, Special Purpose Mortgage Revenue, Citizens Utilities Co. Project, 6.60%, 7/1/22, AMT......................... 3,417,331 7,000,000 Hawaii Department of Budget & Finance, Special Purpose Mortgage Revenue, Hawaii Electric Co., 6.60%, 1/1/25, Series A, MBIA, AMT.................. 7,726,250 1,475,000 Hawaii Department of Budget & Finance, Special Purpose Mortgage Revenue, Hawaiian Electric Co. & Subsidiaries, 6.55%, 12/1/22, MBIA, AMT............. 1,589,313 3,000,000 Hawaii Department of Budget & Finance, Special Purpose Revenue, Hawaii Electric Co., 6.20%, 5/1/26, Series A, MBIA, AMT................................. 3,198,750 1,825,000 Hawaii Harbor Capital Improvement Revenue, 6.10%, 7/1/07, FGIC, AMT................................... 2,000,656 Hawaii, continued: 1,605,000 Hawaii Harbor Capital Improvement Revenue, 7.25%, 7/1/10, MBIA, AMT................................... $ 1,759,481 2,245,000 Hawaii Harbor Capital Improvement Revenue, 7.00%, 7/1/17, MBIA, AMT................................... 2,438,631 1,350,000 Hawaii Harbor Capital Improvement Revenue, 6.50%, 7/1/19, FGIC, AMT................................... 1,458,000 3,205,000 Hawaii Harbor Capital Improvement Revenue, 6.38%, 7/1/24, FGIC, AMT................................... 3,449,381 3,205,000 Hawaii Housing Finance & Development Corp., Single Family Mortgage Revenue, 6.00%, 7/1/26, Series A, AMT................................................. 3,281,119 1,445,000 Honolulu City & County, 7.25%, 2/1/08, Series B, Callable 2/1/00 @ 102 and 2/1/02 @ 100, FGIC, AMT................................................. 1,564,213 ------------ 53,160,675 ------------ Total Alternative Minimum Tax Paper 53,160,675 ------------ MUNICIPAL BONDS (79.5%): Arizona (0.9%): 1,000,000 Arizona Unified School District, Maricopa County, GO, 5.40%, 7/1/12....................................... 1,033,750 1,650,000 Phoenix Arizona Civic Improvement Corp., 5.25%, 7/1/16, Callable 7/1/07 @ 100, MBIA................. 1,654,125 ------------ 2,687,875 ------------ California (7.5%): 1,500,000 Metropolitan Water District, 5.00%, 7/1/15, MBIA..... 1,494,375 3,000,000 Metropolitan Water District, Southern California, 5.75%, 7/1/21, MBIA................................. 3,120,000 2,565,000 Northern California Transmission, Oregon Transmission Project, 7.00%, 5/1/13, Series A, MBIA.............. 3,145,331 Continued 73
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PACIFIC CAPITAL FUNDS TAX-FREE SECURITIES FUND SCHEDULE OF INVESTMENTS, CONTINUED JULY 31, 1997 [Download Table] SHARES OR PRINCIPAL SECURITY MARKET AMOUNT DESCRIPTION VALUE --------- ----------------------------------------------------- ------------ MUNICIPAL BONDS, CONTINUED: California, continued: 5,450,000 San Diego Public Facilities, 5.38%, 5/15/17, Callable 5/15/07 @ 101 and 5/15/09 @ 100..................... $ 5,531,750 1,745,000 San Francisco California C&C Airport Community, International Airport Revenues, 5.63%, 5/1/21, Callable 5/1/06 @ 101 and 5/1/07 @ 100, FGIC........ 1,790,806 1,735,000 San Francisco, Bay Area Rapid Transit, District Sales Tax Revenue, 5.50%, 7/1/15, FGIC.................... 1,780,544 5,000,000 State Department Water, 6.00%, 12/1/20, Series P, Callable 6/1/06 @ 101 and 6/1/07 @ 100.............. 5,356,250 ------------ 22,219,056 ------------ Colorado (0.3%): 1,000,000 Adams & Arapaho County, 5.35%, 12/1/15, FGIC......... 1,028,750 ------------ Connecticut (0.4%): 1,000,000 Connecticut State, Special Tax Obligation Revenue, 6.25%, 10/1/14, FGIC................................ 1,086,250 ------------ Florida (5.3%): 2,000,000 Dade County, Water & Sewer, 5.50%, 10/1/15, FGIC..... 2,032,500 2,000,000 Florida State, Bond Finance Department, General Services Environmental Revenue, 5.75%, 7/1/13, AMBAC............................................... 2,115,000 3,500,000 Florida State, Turnpike Authority Revenue, Department of Transportation, 5.50%, 7/1/17, FGIC.............. 3,600,624 2,000,000 Florida State, Turnpike Revenue, Department of Transportation, 5.50%, 7/1/21, Series A, FGIC....... 2,050,000 2,875,000 Orange County, Public Tax Service, 6.00%, 10/1/24, FGIC................................................ 3,083,438 Florida, continued: 2,565,000 Orlando, Utilities Community Water & Electric Revenue Refunding, 6.75%, 10/1/17, Series D................. $ 3,126,094 ------------ 16,007,656 ------------ Georgia (2.9%): 1,285,000 Georgia State, Municipal Electric Authority Revenue, 6.13%, 1/1/14, Series B, FGIC....................... 1,373,344 1,605,000 Metropolitan Atlanta, Rapid Transportation Authority, Sales Tax Revenue, 6.25%, 7/1/11, Series P, AMBAC... 1,827,694 4,690,000 Municipal Electric Authority, Special Obligation Third Crossover, 6.60%, 1/1/18, MBIA................ 5,557,650 ------------ 8,758,688 ------------ Hawaii (37.7%): 2,000,000 Hawaii County, 5.50%, 5/1/08, Series A, FGIC...................................... 2,145,000 1,375,000 Hawaii County, GO, 4.50%, 2/1/04, Series A, FGIC..... 1,383,594 1,305,000 Hawaii County, GO, 7.30%, 6/1/10, Series A, Pre- refunded 6/1/00 @ 101, FGIC, (b).................................... 1,432,238 2,095,000 Hawaii County, GO, 5.10%, 2/1/13, Series A, FGIC..... 2,115,950 415,000 Hawaii County, GO, 5.60%, 5/1/13, Series A, FGIC..... 443,013 2,320,000 Hawaii County, GO, 5.20%, 2/1/15..................... 2,343,200 1,810,000 Hawaii County, GO, 5.00%, 2/1/10, Series A, FGIC..... 1,828,100 1,455,000 Hawaii Department Budget & Finance, Queens Health System, 5.88%, 7/1/11............................... 1,540,481 1,745,000 Hawaii Department Budget & Finance, Queens Health System, 6.05%, 7/01/16.............................. 1,858,425 2,535,000 Hawaii Department Budget & Finance, Special Purpose Mortgage Revenue, Hawaii Electric Co., 6.88%, 4/1/12, MBIA........................................ 2,596,727 Continued 74
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PACIFIC CAPITAL FUNDS TAX-FREE SECURITIES FUND SCHEDULE OF INVESTMENTS, CONTINUED JULY 31, 1997 [Download Table] SHARES OR PRINCIPAL SECURITY MARKET AMOUNT DESCRIPTION VALUE --------- ------------------------------------------------------- ------------ MUNICIPAL BONDS, CONTINUED: Hawaii, continued: 2,820,000 Hawaii Department Budget & Finance, Special Purpose Mortgage Revenue, Hawaii Electric Light Co. Project, 7.20%, 12/1/14, MBIA.................................. $ 3,084,375 1,285,000 Hawaii Department Budget & Finance, Special Purpose Mortgage Revenue, Kaiser Permanente, 6.25%, 3/1/21, Series A.............................................. 1,355,675 965,000 Hawaii Department Budget & Finance, Special Purpose Mortgage Revenue, Maui Electric Co. Project, 6.88%, 4/1/12, MBIA.......................................... 988,498 1,170,000 Hawaii Department Budget & Finance, Special Purpose Mortgage, Kapiolani Health Care System, 6.30%, 7/1/08, Callable 7/1/03 @ 102, MBIA........................... 1,285,538 2,535,000 Hawaii Department Budget & Finance, Special Purpose Mortgage, Kapiolani Health Care System, 6.40%, 7/1/13, Callable 7/1/03 @ 102, MBIA........................... 2,782,163 965,000 Hawaii Department Transportation, Special Facility Revenue, 5.75%, 3/1/13................................ 996,363 965,000 Hawaii Harbor Capital Improvement Revenue, 6.20%, 7/1/08, MBIA.......................................... 1,045,819 4,525,000 Hawaii Housing Finance & Development Corp., 5.85%, 7/1/17................................................ 4,649,437 1,925,000 Hawaii Housing Finance & Development Corp., Federal National Mortgage Assoc., 5.70%,7/1/13................ 1,989,969 4,185,000 Hawaii Housing Finance & Development Corp., Federal National Mortgage Assoc., 7.00%, 7/1/31............... 4,441,330 1,580,000 Hawaii Housing Finance & Development Corp., Single Family Mortgage Purchase Revenue, 6.90%, 7/1/16, Series B.............................................. 1,676,775 Hawaii, continued: 2,340,000 Hawaii Housing Finance & Development Corp., University of Hawaii Housing, 5.70%, 10/1/25, AMBAC............. $ 2,439,450 2,000,000 Hawaii State, 6.00%, 10/1/12, Series BZ, FGIC......... 2,237,500 2,000,000 Hawaii State, 6.50%, 12/1/13, Series CM, FGIC......... 2,350,000 3,000,000 Hawaii State, 5.50%, 3/1/16, Series CN, FGIC.......... 3,082,500 5,000,000 Hawaii, GO, 6.05%, 1/1/08, FGIC....................... 5,531,249 640,000 Hawaii, GO, 5.50%, 6/1/08, FGIC....................... 671,200 1,345,000 Hawaii, GO, 6.38%, 2/1/09, Series BT, Pre-refunded 2/1/01 @ 101, (b)........................................... 1,455,963 640,000 Hawaii, GO, 5.50%, 6/1/09, FGIC....................... 668,000 1,035,000 Hawaii, GO, 5.00%, 7/1/09, FGIC....................... 1,049,231 4,490,000 Hawaii, GO, 6.13%, 2/1/10, Series BT, Pre-refunded 2/1/01 @ 101, (b)........................................... 4,821,137 640,000 Hawaii, GO, 5.50%, 6/1/10, Series CE, FGIC............ 664,800 4,000,000 Hawaii, GO, 5.25%, 9/1/10, Series CK, FGIC............ 4,099,999 3,145,000 Hawaii, GO, 5.25%, 6/1/13, FGIC....................... 3,200,038 1,000,000 Hawaii, GO, 5.25%, 3/1/16, Series CL, FGIC............ 1,010,000 1,480,000 Honolulu City & County, 7.15%, 6/1/10, Series C, Prefunded 6/1/00 @ 101, (b).......................... 1,618,750 2,565,000 Honolulu City & County, 7.35%, 7/1/06, Series A, FGIC. 3,090,825 3,000,000 Honolulu City & County, 6.00%, 1/1/11, Series A, FGIC. 3,344,999 3,000,000 Honolulu City & County, 5.75%, 4/1/11, Series A, FGIC. 3,243,750 1,605,000 Honolulu City & County, 5.75%, 4/1/12, FGIC........... 1,759,481 2,890,000 Honolulu City & County, 5.75%, 4/1/13, Series A, FGIC. 3,128,425 2,000,000 Honolulu City & County, 5.63%, 9/1/13, Series A, Callable 9/1/06 @ 102 and 9/1/08 @ 100,.............. 2,100,000 Continued 75
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PACIFIC CAPITAL FUNDS TAX-FREE SECURITIES FUND SCHEDULE OF INVESTMENTS, CONTINUED JULY 31, 1997 [Download Table] SHARES OR PRINCIPAL SECURITY MARKET AMOUNT DESCRIPTION VALUE --------- ------------------------------------------------------ ------------ MUNICIPAL BONDS, CONTINUED: Hawaii, continued: 1,280,000 Honolulu City & County Refunding & Improvement, 5.50%, 10/1/11, Series B, FGIC.............................. $ 1,360,000 640,000 Honolulu City & County Refunding & Improvement, 5.25%, 10/1/12, Series B, FGIC.............................. 664,800 1,055,000 Honolulu City & County Water, 6.00%, 12/1/10, FGIC.... 1,180,281 1,595,000 Honolulu City & County Water, 6.00%, 12/1/11, FGIC.... 1,786,400 640,000 Honolulu City & County Water, 6.00%, 12/1/14, FGIC.... 715,200 1,380,000 Honolulu City & County, GO, 5.00%, 11/1/12, Series A, MBIA................................................. 1,386,900 695,000 Kauai County, 5.55%, 8/1/04........................... 743,650 740,000 Kauai County, 5.65%, 8/1/05........................... 800,125 780,000 Kauai County, 5.75%, 8/1/06........................... 852,150 925,000 Kauai County, 5.90%, 8/1/09, Series C, AMBAC.......... 1,023,281 1,005,000 Maui County, 5.10%, 9/1/11, Series A, Callable 9/1/07 @ 101................................................ 1,020,075 645,000 Maui County Refunding, 5.25%, 9/1/06.................. 674,025 890,000 Maui County Refunding, 5.13%, 12/15/10................ 904,463 355,000 Maui County Water, 6.10%, 12/1/02, Series A, Pre- refunded 12/1/01 @ 101, FGIC, (b)..................................... 386,506 375,000 Maui County Water, 6.20%, 12/1/03, Series A, FGIC..... 409,688 400,000 Maui County Water, 6.30%, 12/1/04, Series A, Pre- refunded 12/1/01 @ 101, FGIC, (b)..................................... 438,500 425,000 Maui County Water, 6.40%, 12/1/05, Series A, Pre- refunded 12/1/01 @ 101, FGIC, (b)..................................... 468,031 390,000 Maui County Water, 6.50%, 12/1/06, Series A, Pre- refunded 12/1/01 @ 101, FGIC, (b)..................................... 430,950 380,000 Maui County Water, 6.60%, 12/1/07, Series A, Pre- refunded 12/1/01 @ 101, FGIC, (b)..................................... 421,325 Hawaii, continued: 520,000 Maui County Water, 6.65%, 12/1/08, Series A, Pre- refunded 12/1/01 @ 101, FGIC, (b).................................... $ 577,200 455,000 Maui County Water, 6.65%, 12/1/09, Series A, Pre- refunded 12/1/01 @ 101, FGIC, (b).................................... 505,050 595,000 Maui County Water, 6.70%, 12/1/10, Series A, Pre- refunded 12/1/01 @ 101, FGIC, (b).................................... 661,938 535,000 Maui County Water, 6.70%, 12/1/11, Series A, Pre- refunded 12/1/01 @ 101, FGIC, (b).................................... 595,188 1,020,000 Maui County, GO, 5.90%, 6/1/14....................... 1,085,025 ------------ 112,640,718 ------------ Kansas (1.7%): 2,565,000 Burlington Pollution Control Refunding, Kansas Gas & Electric Co. Project, 7.00%, 6/1/31................. 2,843,944 2,000,000 Kansas City, Utilities System, Revenue Refunding & Improvement, 6.38%, 9/1/23.......................... 2,200,000 ------------ 5,043,944 ------------ Maine (0.7%): 1,925,000 Maine State Turnpike Authority, Turnpike Revenue, 6.00%, 7/1/14....................................... 2,069,375 ------------ Massachusetts (1.6%): 3,790,000 Commonwealth of Massachusetts, 5.50%, 7/1/15, Series B................................................... 3,889,488 1,000,000 Massachusetts State Water Pollution Abatement Trust, 5.70%, 2/1/13....................................... 1,047,500 ------------ 4,936,988 ------------ Michigan (2.4%): 4,000,000 Michigan Environmental Protection Program, GO, 5.40%, 11/1/19............................................. 4,074,999 1,545,000 Michigan Strategic Obligations Revenue, 6.95%, 5/1/11.............................................. 1,875,244 1,250,000 Saline Area Schools, GO, 5.50%, 5/1/15, FGIC......... 1,289,063 ------------ 7,239,306 ------------ Continued 76
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PACIFIC CAPITAL FUNDS TAX-FREE SECURITIES FUND SCHEDULE OF INVESTMENTS, CONTINUED JULY 31, 1997 [Download Table] SHARES OR PRINCIPAL SECURITY MARKET AMOUNT DESCRIPTION VALUE --------- ----------------------------------------------------- ------------ MUNICIPAL BONDS, CONTINUED: Minnesota (0.8%): 2,000,000 North St. Paul, Maplewood, Independent School District, No. 622, 6.88%, 2/1/15, Series A, Prefunded 2/1/05 @ 100.............................. $ 2,327,500 ------------ New Jersey (1.3%): 2,000,000 New Jersey Wastewater Treatment Trust, 6.38%, 4/1/14, Series B............................................ 2,212,500 1,500,000 South Brunswick Township Board of Education, 6.40%, 8/1/14, FGIC........................................ 1,700,625 ------------ 3,913,125 ------------ New Mexico (2.0%): 2,000,000 Rio Rancho Water & Waste Water Systems Revenue, 5.90%, 5/15/15, Series A, FSA....................... 2,095,000 2,085,000 Santa Fe Revenue, 6.25%, 6/1/15, Prefunded 6/1/04 @ 100................................................. 2,316,956 1,625,000 Sante Fe, New Mexico, Gross Receipts Tax Revenue, 5.63%, 6/1/16....................................... 1,677,813 ------------ 6,089,769 ------------ New York (0.7%): 2,000,000 Triborough Bridge & Tunnel Authority, New York Revenues, General Purpose, 5.30%, 1/1/17............ 2,012,500 ------------ North Carolina (1.2%): 3,085,000 Easton Municipal Power Agency, 6.50%, 1/1/18, (b).... 3,644,156 ------------ Ohio (1.5%): 2,320,000 Cleveland Package Facilities Revenue, 5.50%, 9/15/16. 2,372,200 1,120,000 Cleveland Waterworks Revenue, 6.25%, 1/1/16, MBIA.... 1,191,400 1,000,000 Ohio Water Development Authority, Pollution Control, 5.50%, 12/1/15, MBIA................................ 1,026,250 ------------ 4,589,850 ------------ Oregon (0.6l%): 1,605,000 Umatilla County, School District Number 016R, Pendleton, 6.00%, 7/1/14, AMBAC..................... $ 1,727,381 ------------ Pennsylvania (1.1%): 3,150,000 Southeastern Pennsylvania Transportation Authority, 6.00%, 3/1/15, Series A, Callable 3/1/05 @ 101, FGIC................................................ 3,350,813 ------------ South Carolina (0.8%): 1,960,000 Piedmont Municipal Power Agency, South Carolina Electric Refunding, 6.50%, 1/1/14, Series A, FGIC... 2,288,300 ------------ Tennessee (2.6%): 1,000,000 Johnson City, School Sales Tax, 6.70%, 5/1/21........ 1,161,250 6,300,000 Shelby County Refunding, 5.63%, 4/1/15, Series A..... 6,544,125 ------------ 7,705,375 ------------ Texas (1.7%): 1,520,000 Harris County, Certificates of Obligation, 6.00%, 10/1/15............................................. 1,634,000 2,000,000 Texas State Refunding, Public Finance Authority, 5.95%, 10/1/15, Series A............................ 2,115,000 1,280,000 Texas State, Public Financial Authority, 6.00%, 10/1/12, Series A............................................ 1,366,400 ------------ 5,115,400 ------------ Virginia (3.8%): 3,500,000 Commonwealth of Virginia Public School Authority, Special Obligation, Chesapeake School, 5.63%, 6/1/15.............................................. 3,644,375 2,995,000 Fairfax County Public Improvement, 5.50%, 6/1/14, Series A............................................ 3,096,081 2,750,000 Norfolk Water Revenue, 5.75%, 11/1/13, MBIA.......... 2,894,375 Continued 77
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PACIFIC CAPITAL FUNDS TAX-FREE SECURITIES FUND SCHEDULE OF INVESTMENTS, CONTINUED JULY 31, 1997 [Download Table] SHARES OR PRINCIPAL SECURITY MARKET AMOUNT DESCRIPTION VALUE --------- ----------------------------------------------------- ------------ MUNICIPAL BONDS, CONTINUED: Virginia, continued: 1,750,000 Richmond Refunding, 5.20%, 1/15/14................... $ 1,776,250 ------------ 11,411,081 ------------ Total Municipal Bonds 237,893,856 ------------ MUNICIPAL VARIABLE RATE DEMAND OBLIGATIONS (1.6%): Indiana (0.6%): 1,700,000 Purdue University, 3.50%*, 7/1/11, Series E.......... 1,700,000 ------------ New York (0.9%): 1,000,000 New York City Municipal Water Fin. Auth., Water & Sewer Sys Revenues, 3.60%*, 6/15/25................. 1,000,000 1,800,000 New York, New York, 3.60%*, 10/1/23................... $ 1,800,000 ------------ 2,800,000 ------------ Washington (0.1%): 400,000 Washington State Health Care, 3.70%*, 1/1/18.......... 400,000 ------------ Total Municipal Variable Rate Demand Obligations 4,900,000 ------------ INVESTMENT COMPANY (0.1%): 250,819 Nuveen Tax Free Money Market Fund..................... 250,819 ------------ Total Investment Company 250,819 ------------ Total (Cost--$273,111,775) (a) $296,205,350 ============ -------- Percentages indicated are based on net assets of $299,309,296. * Variable rate security. Rate presented represents rate in effect at July 31, 1997. Maturity reflects final maturity date. (a)Represents cost for federal income tax purposes and differs from market value by net unrealized appreciation of securities as follows: [Download Table] Unrealized appreciation.. $23,106,595 Unrealized depreciation.. (13,020) ----------- Net unrealized appreciation............. $23,093,575 =========== (b) Collateralized by various U.S. Government Securities. AMBAC--AMBAC Indemnity Corporation AMT--Alternative Minimum Tax Paper FGIC--Insured by Financial Guaranty Insurance Corporation FSA--Insured by Financial Security Assurance GO--General Obligation MBIA--Insured by Municipal Bond Insurance Association See notes to financial statements. 78
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PACIFIC CAPITAL FUNDS TAX-FREE SHORT INTERMEDIATE SECURITIES FUND SCHEDULE OF INVESTMENTS JULY 31, 1997 [Download Table] SHARES OR PRINCIPAL SECURITY MARKET AMOUNT DESCRIPTION VALUE ---------- ----------------------------------------------------- ----------- ALTERNATIVE MINIMUM TAX PAPER (15.8%): Hawaii (10.3%): 2,000,000 Hawaii State Airports System, Revenue, 5.45%, 7/1/00, Second Series, MBIA................................. $ 2,074,999 1,270,000 Hawaii State Airports Systems Revenue, 5.60%, 7/1/01. 1,335,088 500,000 Hawaii State Housing Fin & Dev Single Family, 4.55%, 7/1/02, Series A, AMT............................... 500,625 ----------- 3,910,712 ----------- Illinois (1.3%): 500,000 Chicago Illinois O'Hare International Airport, 4.90%, 1/1/01.............................................. 508,750 ----------- Texas (4.2%): 550,000 Brazos, Higher Education Authority, 5.60%, 6/1/99, Series A-2.......................................... 563,063 1,000,000 El Paso Texas Apartment Revenue, 5.00%, 8/15/01...... 1,025,000 ----------- 1,588,063 ----------- Total Alternative Minimum Tax Paper 6,007,525 ----------- MUNICIPAL BONDS (82.5%): Alaska (2.7%): 1,000,000 Alaska State Housing Finance Corp., 4.60%, 6/1/00.... 1,013,750 ----------- Arizona (3.6%): 750,000 Arizona State Transportation Board, 5.50%, 7/1/00.... 780,938 600,000 Salt River Project, Arizona Agricultural, 4.45%, 1/1/00, Series B............................................ 606,000 ----------- 1,386,938 ----------- Hawaii (45.4%): 2,500,000 Hawaii State Airport System Revenue, 5.55%, 7/1/00, MBIA................................................ 2,612,499 120,000 Hawaii State Community Development Authority, District #1, Special Tax Assessment, 4.45%, 7/1/98.. 120,641 165,000 Hawaii State Community Development Authority, District #2, Special Tax Assessment, 4.45%, 7/1/98.. $ 165,881 1,000,000 Hawaii State Housing Fin & Dev Single Family, 4.80%, 7/1/07, Series B.................................... 1,002,500 3,000,000 Hawaii State, GO, 5.50%, 1/1/00...................... 3,101,249 2,500,000 Hawaii State, GO, 4.60%, 2/1/00, Series Cd........... 2,534,374 1,500,000 Hawaii State, GO, 5.00%, 9/1/00, Series Ck........... 1,541,250 1,200,000 Hawaii State, GO, 4.50%, 3/1/01, Series Cl........... 1,215,000 850,000 Honolulu, City & County, 4.70%, 9/1/01, Series A..... 868,063 800,000 Honolulu, City & County, 5.25%, 9/1/02, Series A, FGIC................................................ 837,000 700,000 Honolulu, City & County GO, 5.10%, 1/1/00, Series A, FGIC................................................ 716,625 750,000 Honolulu, City & County GO, 5.10%, 6/1/00, Series B.. 771,563 375,000 Honolulu, City & County Improvement District, 5.85%, 10/15/97............................................ 376,328 370,000 Honolulu, City & County Improvement District, 6.05%, 10/15/98............................................ 378,788 370,000 Honolulu, City & County Improvement District, 6.20%, 10/15/99............................................ 383,875 620,000 Maui County, GO, 5.35%, 6/1/00....................... 641,700 ----------- 17,267,336 ----------- Illinois (4.0%): 1,500,000 Metropolitan Pier & Exposition, 4.60%, 12/15/00...... 1,522,500 ----------- Maryland (2.7%): 1,000,000 Maryland State and Local Facilities, GO, 5.00%, 3/1/03.............................................. 1,040,000 ----------- Continued 79
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PACIFIC CAPITAL FUNDS TAX-FREE SHORT INTERMEDIATE SECURITIES FUND SCHEDULE OF INVESTMENTS, CONTINUED JULY 31, 1997 [Download Table] SHARES OR PRINCIPAL SECURITY MARKET AMOUNT DESCRIPTION VALUE --------- ------------------------------------------------------ ----------- MUNICIPAL BONDS, CONTINUED: Massachusetts (3.4%): 1,265,000 Massachusetts State Construction, 5.13%, 11/1/00, Series D............................................. $ 1,302,950 ----------- Michigan (2.7%): 1,000,000 Ypsilanti Michigan School District Ref., GO, 4.60%, 5/1/01, FGIC......................................... 1,013,750 ----------- Minnesota (5.9%): 1,500,000 Minnesota State Revenue, 5.00%, 6/30/01, Series A..... 1,546,875 700,000 Minnesota State, GO, 5.00%, 8/1/00.................... 721,000 ----------- 2,267,875 ----------- Missouri (2.8%): 1,000,000 Kansas City Water Revenue, 5.50%, 12/1/02............. 1,063,750 ----------- Rhode Island (3.3%): 1,250,000 Rhode Island Housing & Mortgage Financial Corporation, 5.00%, 7/1/00........................................ 1,275,000 ----------- Texas (1.3%): 500,000 Tarrant County Texas Health Facilities Development, 4.75%, 9/1/00, AMBAC................................. 508,750 ----------- Virginia (2.0%): 750,000 Virginia State Public School Authority, 4.50%, 1/1/01. $ 758,438 ----------- Wisconsin (2.7%): 1,000,000 Milwaukee, GO, 5.00%, 2/1/01.......................... 1,032,500 ----------- Total Municipal Bonds 31,453,537 ----------- MUNICIPAL VARIABLE RATE DEMAND OBLIGATIONS (3.9%): Washington (3.9%): 1,500,000 Washington State Health Care Facility Hutchinson, 3.70%*, 1/1/18....................................... 1,500,000 ----------- Total Municipal Variable Rate Demand Obligations 1,500,000 ----------- INVESTMENT COMPANY (0.8%): 318,106 Nuveen Tax Free Money Market Fund.......................................... 318,106 ----------- Total Investment Company 318,106 ----------- Total (Cost--$38,681,464) (a) $39,279,168 =========== -------- Percentages indicated are based on net assets of $38,134,362. * Variable rate security. Rate presented represents rate in effect at July 31, 1997. Maturity reflects final maturity date. (a) Represents cost for federal income tax purposes and differs from market value by net unrealized appreciation of securities as follows: [Download Table] Unrealized appreciation..... $597,704 Unrealized depreciation..... 0 -------- Net unrealized appreciation. $597,704 ======== AMBAC--AMBAC Indemnity Corporation AMT--Alternative Minimum Tax Paper FGIC--Insured by Financial Guaranty Insurance Corporation GO--General Obligation MBIA--Insured by Municipal Bond Insurance Association See notes to financial statements. 80
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PACIFIC CAPITAL FUNDS NEW ASIA GROWTH FUND SCHEDULE OF INVESTMENTS JULY 31, 1997 [Download Table] SHARES OR PRINCIPAL SECURITY MARKET AMOUNT DESCRIPTION VALUE --------- ------------------------------------------------------- ----------- COMMON STOCKS (81.6%): Hong Kong (42.3%): Chemicals (0.2%): 200,000 Ngai Hing Hong Co. Ltd................................. $ 53,729 ----------- Construction (5.7%): 70,000 Cheung Kong Infrastructure............................. 242,298 170,600 New World Infrastructure Ltd. (b)...................... 542,039 1,500,000 Wai Kee Holdings Ltd................................... 450,434 ----------- 1,234,771 ----------- Containers & Packaging (1.4%): 136,000 Cosco Pacific Limited.................................. 304,758 ----------- Diversified--Conglomerates, Holding Companies (10.1%): 62,000 Citic Pacific Limited.................................. 393,179 78,000 Hutchison Whampoa Ltd.................................. 760,604 111,000 Swire Pacific Ltd., Class A............................ 1,053,724 ----------- 2,207,507 ----------- Electrical & Electronic (1.0%): 590,000 Elec & Eltek International Holdings Ltd. .............. 213,367 ----------- Financial Services (1.6%): 53,200 Dah Sing Financial Group............................... 339,434 ----------- Forest Products (0.5%): 514,000 Ta Fu International Ltd................................ 100,908 ----------- Real Estate (14.0%): 37,000 Cheung Kong Holdings Ltd............................... 410,977 438,000 China Resources Beijing Land........................... 347,909 186,000 China Resources Enterprise Ltd. ....................... 929,696 794,000 Fairyoung Holdings Ltd. (b)............................ 328,161 289,000 Lai Sun Development Co. Ltd............................ 324,739 60,000 New World Development Co. Ltd.......................... 432,029 120,000 Wheelock & Co. Ltd..................................... 289,828 ----------- 3,063,339 ----------- Telecommunications (2.2%): 161,500 Asia Satellite Telecom Holdings, Ltd. ................. 484,967 ----------- Textile/Apparel (0.6%): 865,000 Chaifa Holdings Ltd.................................... 139,651 ----------- Transportation--Air (0.7%): 246,000 China Southern Airlines Co............................. 151,714 ----------- Utilities--Electric (4.3%): 42,000 China Light & Power Co. Ltd............................ $ 240,851 480,000 Guangdong Electric Power............................... 359,572 85,500 Hong Kong Electric Holdings Ltd........................ 348,956 ----------- 949,379 ----------- 9,243,524 ----------- India (2.8%): Engineering (2.8%): 35,000 Larsen & Toubro--GDR................................... 612,500 ----------- Indonesia (6.5%): Automotive (1.3%): 73,000 PT Astra International................................. 279,159 ----------- Chemicals (0.2%): 36,000 PT Lautan Luas (b)..................................... 49,904 ----------- Fisheries (2.0%): 263,000 PT Daya Guna Samudera.................................. 434,980 ----------- Food Products (0.7%): 165,100 PT Fiskar Agung Perkasa................................ 156,261 ----------- Hotels & Lodging (1.5%): 490,000 PT Sona Topas Tourism.................................. 318,547 ----------- Utilities--Telecommunications (0.8%): 120,000 PT Telekomunikasi...................................... 183,556 ----------- 1,422,407 ----------- Korea (4.7%): Machinery & Equipment (1.7%): 42,000 Daewoo Heavy Industries................................ 364,314 ----------- Steel (1.3%): 3,360 Pohang Iron & Steel Co................................. 287,959 ----------- Utilities--Electric (1.7%): 12,500 Korea Electric Power Corp.............................. 365,169 ----------- 1,017,442 ----------- Malaysia (7.0%): Construction (0.8%): 100,000 Metacorp Berhad........................................ 173,714 ----------- Continued 81
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PACIFIC CAPITAL FUNDS NEW ASIA GROWTH FUND SCHEDULE OF INVESTMENTS, CONTINUED JULY 31, 1997 [Download Table] SHARES OR PRINCIPAL SECURITY MARKET AMOUNT DESCRIPTION VALUE --------- ------------------------------------------------------- ----------- COMMON STOCKS, CONTINUED: Malaysia, continued: Diversified--Conglomerates, Holding Companies (1.9%): 130,000 Multi-Purpose Holdings Berhad.......................... $ 161,728 200,000 Renong Berhad.......................................... 256,398 ----------- 418,126 ----------- Engineering (1.1%): 120,000 IJM Corp Berhad........................................ 232,124 ----------- Financial Services (1.0%): 170,000 Public Finance Berhad.................................. 224,387 ----------- Real Estate (0.8%): 175,000 Hong Leong Properties Berhad........................... 179,214 ----------- Telecommunications (0.8%): 135,000 Time Engineering Berhad................................ 171,021 ----------- Transportation (0.6%): 112,000 Johor Port Berhad...................................... 125,742 ----------- 1,524,328 ----------- Philippines (1.6%): Real Estate (1.6%): 1,332,000 Belle Corporation (b).................................. 298,551 325,000 Fil - Estate Land, Inc. (b)............................ 58,276 ----------- 356,827 ----------- Singapore (5.3%): Beverages (1.2%): 40,000 Fraser & Neave Ltd. ................................... 271,920 ----------- Diversified--Conglomerates, Holding Companies (0.6%): 32,500 Keppel Corporation..................................... 139,189 ----------- Electrical Equipment (2.1%): 60,000 Elec & Eltek International Co. Ltd..................... 450,000 ----------- Hotels & Lodging (1.2%): 150,000 Hotel Properties Ltd................................... 257,984 ----------- Real Estate (0.2%): 33,600 Orchard Parade Holdings Ltd............................ 47,281 ----------- 1,166,374 ----------- Taiwan (7.2%): Banks (1.0%): 148,350 Chinatrust Commercial Bank............................. $ 223,394 ----------- Computers & Peripherals (2.9%): 15,000 Asustek Computer Inc. (b).............................. 311,628 36,000 Inventec Co. Ltd.(b)................................... 294,897 ----------- 606,525 ----------- Electrical & Electronic (2.5%): 26,400 Compal Electronics (b)................................. 126,534 96,000 Siliconware Precision Industries Co. (b)............................................... 426,659 ----------- 553,193 ----------- Real Estate (0.8%): 82,500 Kindom Construction Co., Ltd. (b)...................... 181,173 ----------- 1,564,285 ----------- Thailand (1.2%): Oil & Gas Exploration, Production, & Services (1.2%): 17,500 PTT Exploration & Production PLC....................... 258,039 ----------- United States (3.0%): Computers & Peripherals (2.4%): 8,450 Lite-On Technology Corp. GDR (b)....................... 252,951 10,000 Synnex Technology International Corp.--GDR (b)......... 289,500 ----------- 542,451 ----------- Construction & Housing (0.6%): 14,938 Dong-Ah Construction Industrial Co. EDR................ 120,624 ----------- 663,075 ----------- Total Common Stocks 17,828,801 ----------- WARRANTS (0.2%): Hong Kong (0.2%): Construction (0.2%): 225,000 Wai Kee Holdings Ltd., 6/30/00......................... 36,616 ----------- Total Warrants 36,616 ----------- Continued 82
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PACIFIC CAPITAL FUNDS NEW ASIA GROWTH FUND SCHEDULE OF INVESTMENTS, CONTINUED JULY 31, 1997 [Download Table] SHARES OR PRINCIPAL SECURITY MARKET AMOUNT DESCRIPTION VALUE --------- ------------------------------------------------------- ----------- COMMON STOCKS, CONTINUED: INVESTMENT COMPANY (16.3%): United States (16.3%): 3,560,847 Union Bank of California Money Market Fund............. $ 3,560,847 ----------- Total Investment Company 3,560,847 ----------- Total (Cost--$19,750,749) (a) $21,426,264 =========== -------- Percentages indicated are based on net assets of $21,834,599. Forward Currency Contracts: [Download Table] DELIVERY CONTRACT CONTRACT VALUE DATE PRICE (U.S. DOLLARS) DEPRECIATION -------- -------- -------------- ------------ Currency Purchased: Hong Kong Dollar.............. 8/4/97 $ 7.74 $586,932 $(219) Currency Sold: Indonesia Rupee............... 8/4/97 $2,620.00 $278,408 $(425) (a) Represents cost for federal income tax purposes and differs from value by net unrealized appreciation of securities as follows: [Download Table] Unrealized appreciation.... $ 3,227,362 Unrealized depreciation.... (1,551,847) ----------- Net unrealized appreciation............... $ 1,675,515 =========== (b) Non income producing securities. EDR--European Depository Receipt GDR--Global Depository Receipt PLC--Public Limited Company See notes to financial statements. 83
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PACIFIC CAPITAL FUNDS NOTES TO FINANCIAL STATEMENTS JULY 31, 1997 1. ORGANIZATION Pacific Capital Funds (the "Trust") was organized on October 30, 1992, and is registered under the Investment Company Act of 1940, as amended, ("the 1940 Act"), as a diversified, open-end management investment company established as a Massachusetts business trust. The Trust currently consists of the following investment portfolios (individually, a "Fund" and collectively, the "Funds"): Growth Stock Fund, U.S. Treasury Securities Fund, Short Intermediate U.S. Treasury Securities Fund, Growth and Income Fund, Diversified Fixed Income Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities Fund, and New Asia Growth Fund. The Trust is authorized to issue an unlimited number of shares without par value in two classes of shares for each Fund: Retail Class and Institutional Class. The Institutional Class commenced operations October 14, 1994 when the Trust identified those Institutional Shareholders that were part of the Retail Class (as of October 13, 1994) and transferred the Shareholders into the Institutional Class. Retail Class Shares are subject to initial sales charges, imposed at the time of purchase, in accordance with the Funds' prospectuses. Each class of shares for each Fund has identical rights and privileges except with respect to distribution (12b-1) fees paid by Retail Class Shares, voting rights on matters affecting a single class of shares and the exchange privileges of each class of shares. The Funds' investment objectives are as follows: Growth Stock Fund seeks long-term capital appreciation; U.S. Treasury Securities Fund and Short Intermediate U.S. Treasury Securities Fund seek a high level of current income consistent with prudent risk of capital. Growth and Income Fund seeks primarily current income and secondarily capital appreciation. Diversified Fixed Income Fund seeks a high level of current income. Tax-Free Securities Fund and Tax-Free Short Intermediate Securities Fund seek a high level of current income exempt from federal and Hawaii income taxes. New Asia Growth Fund seeks long-term growth of capital. 2. SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies followed by the Trust in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses for the period. Actual results could differ from those estimates. SECURITIES VALUATION Investments of the Funds for which the primary market is a national securities exchange or the National Association of Securities Dealers Automated Quotation National Market System ("NASDAQ") are valued at last reported sale price on the day of valuation. In the absence of any sale of such securities on the valuation date, the valuations are based on the mean of the latest quoted bid and asked prices. Securities, including thinly traded, unlisted, and restricted securities, for which market quotations are not readily available, are valued at fair market value by the investment adviser under the supervision of the Funds' Board of Trustees. Investments in investment companies are valued at their respective net asset values as reported by such companies. Money market instruments and other debt securities maturing in 60 days or less are valued at amortized cost, which approximates market value. Investments in foreign securities, currency holdings and other assets and liabilities of New Asia Growth Fund are valued based on quotations from the primary market in which they are traded and translated from the local currency into U.S. dollars using current exchange rates. The differences between the cost and market values of securities are reflected as either unrealized appreciation or depreciation. Continued 84
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PACIFIC CAPITAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED JULY 31, 1997 SECURITIES TRANSACTIONS AND RELATED INCOME Securities transactions are accounted for on the date the security is purchased or sold (trade date). Interest income is recognized on the accrual basis and includes, where applicable, the pro rata amortization of premium or accretion of discount. Dividend income is recorded on the ex-dividend date and is reduced by applicable foreign taxes withheld. Gains or losses realized from sales of securities are determined by comparing the identified cost of the security lot sold with the net sales proceeds. FOREIGN CURRENCY TRANSLATION The New Asia Growth Fund isolates that portion of the results of operations resulting from changes in currency exchange rates from the fluctuation arising from changes in market prices of securities held. Purchases and sales of securities, income receipts and expense payments are translated into U.S. dollars at the exchange rate on the dates of the transactions. Reported net realized foreign exchange gains or losses arise from sales and maturities of portfolio securities, sales of foreign currencies, currency exchange fluctuations between the trade and settlement dates of securities transactions, and the difference between the amounts of assets and liabilities recorded and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign currency appreciation or depreciation arises from changes in the value of assets and liabilities, including investments in securities, resulting from changes in currency exchange rates. RISKS ASSOCIATED WITH FOREIGN SECURITIES AND CURRENCIES Investments in securities of foreign issuers carry certain risks not ordinarily associated with investments in securities of domestic issuers. Such risks include future political and economic developments, and the possible imposition of exchange controls or other foreign governmental laws and restrictions. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, political or social instability or diplomatic developments which could adversely affect investments in those countries. Certain countries may also impose substantial restrictions on investments in their capital markets by foreign entities, including restrictions on investments in issuers of industries deemed sensitive to relevant national interests. These factors may limit the investment opportunities available in the New Asia Growth Fund and result in a lack of liquidity and a high price volatility with respect to securities of issuers from developing countries. Withholding taxes on foreign dividends have been provided for in accordance with the New Asia Growth Fund's understanding of applicable countries' tax rules and rates. FORWARD CURRENCY EXCHANGE CONTRACTS The New Asia Growth Fund may from time to time enter into foreign currency exchange transactions to convert to and from different foreign currencies. The Fund may enter into currency exchange transactions on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market, or use forward currency contracts to purchase or to sell foreign currencies. A forward foreign currency contract is an obligation by the Fund to purchase or to sell a specific currency at a future date at a price set at the time of the contract. The Fund may use forward foreign currency exchange contracts in order to protect against uncertainty in fluctuations of future foreign exchange rates. The use of such forward Continued 85
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PACIFIC CAPITAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED JULY 31, 1997 contracts is limited to hedging against movements in the value of foreign currencies relative to the U.S. dollar in connection with specific portfolio transactions or with respect to portfolio positions. The forward foreign currency exchange contracts are adjusted by the daily exchange rate of the underlying currency and any appreciation or depreciation is recorded for financial statement purposes as unrealized until the contract settlement date, at which time the Fund records realized gains or losses 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. The Fund could be exposed to risk if a counterparty is unable to meet the terms of a forward foreign exchange currency contract or if the value of the foreign currency changes unfavorably. WHEN-ISSUED AND FORWARD COMMITMENTS The Funds may purchase securities on a "when-issued" basis and may also purchase or sell securities on a forward commitment. The Funds record when- issued securities on the trade date and maintain security positions such that sufficient liquid assets will be available to make payment for the securities purchased. The value of securities underlying when-issued or forward commitments to purchase securities, and any subsequent fluctuation in their value, is taken into account when determining the net asset value of the Funds commencing with the date the Funds agree to purchase the securities. The Funds do not accrue interest or dividends on when-issued securities until the underlying securities are received. REPURCHASE AGREEMENTS The Funds may acquire securities from member banks of the Federal Deposit Insurance Corporation and from registered broker-dealers which Hawaiian Trust Company, Limited ("Hawaiian Trust") deems creditworthy under guidelines approved by the Board of Trustees, subject to the seller's agreement to repurchase such securities at a mutually agreed-upon date and price ("repurchase agreement"). The repurchase price generally equals the price paid by a Fund plus interest negotiated on the basis of current short- term rates, which may be more or less than the rate on the underlying portfolio securities. The seller, under a repurchase agreement, is required to maintain the value of collateral held pursuant to the agreement at not less than 102% of the repurchase price (including accrued interest). Securities subject to repurchase agreements will be held by the Trust's custodian or another qualified custodian or in the Federal Reserve/Treasury book-entry system. Repurchase agreements are considered to be loans by a Fund under the 1940 Act. DIVIDENDS TO SHAREHOLDERS Dividends from net investment income are declared daily and paid monthly for the U.S. Treasury Securities Fund, Short Intermediate U.S. Treasury Securities Fund, Diversified Fixed Income Fund, Tax-Free Securities Fund and Tax-Free Short Intermediate Securities Fund. Dividends from net investment income are declared and paid monthly for the Growth Stock Fund and Growth and Income Fund. Dividends from net investment income are declared and paid quarterly for the New Asia Growth Fund. Distributable net realized capital gains, if any, are declared and distributed annually. Dividends from net investment income and net realized capital gains are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments of foreign currency transactions and deferrals of certain losses. Permanent book and tax basis differences are reflected in the components of net assets. Continued 86
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PACIFIC CAPITAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED JULY 31, 1997 FEDERAL INCOME TAXES Each Fund intends to continue to qualify as a regulated investment company by complying with the provisions available to certain investment companies as defined in applicable sections of the Internal Revenue Code, and to make distributions of net investment income and net realized capital gains sufficient to relieve it from all, or substantially all, federal income taxes. ORGANIZATION COSTS Costs incurred by the Trust in connection with organization, registration and the initial public offering of shares have been deferred and are amortized using the straight-line method over a period of two years from the commencement of the public offering of shares of each Fund. CONCENTRATION OF CREDIT RISK The Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities Fund have a majority of their investments in the securities of issuers in Hawaii. Such concentration may subject the Fund to the effects of economic changes occurring within that State. OTHER Expenses that are directly related to one Fund are charged directly to that Fund. Other operating expenses for the Funds or the Trust are prorated to the Funds on the basis of relative net assets or other appropriate basis. 3. PURCHASES AND SALES OF SECURITIES Purchases and sales of securities (excluding short-term securities) for the year ended July 31, 1997 are as follows: [Download Table] PURCHASES SALES ------------ ------------ Growth Stock Fund.................................... $ 58,249,346 $ 92,090,700 U.S. Treasury Securities Fund........................ 10,008,609 10,750,239 Short Intermediate U.S. Treasury Securities Fund..... 13,308,723 11,193,471 Growth and Income Fund............................... 81,708,653 70,234,365 Diversified Fixed Income Fund........................ 110,382,175 147,784,788 Tax-Free Securities Fund............................. 31,839,329 35,193,262 Tax-Free Short Intermediate Securities Fund.......... 11,321,459 12,977,684 New Asia Growth Fund................................. 24,575,698 19,365,912 4. RELATED PARTY TRANSACTIONS Investment advisory services are provided to the Trust by Hawaiian Trust (the "Adviser"). Under the terms of the investment advisory agreement with the Trust, the Adviser is entitled to receive fees based on a percentage of the average net assets of the Fund. Continued 87
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PACIFIC CAPITAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED JULY 31, 1997 BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services ("BISYS"), an Ohio Limited Partnership, and BISYS Fund Services Ohio, Inc. ("BISYS Services") are subsidiaries of The BISYS Group, Inc. BISYS, with whom certain officers and a trustee of the Trust are affiliated, serves the Trust as principal underwriter and administrator. Such officers and trustee are not paid any fees directly by the Funds for serving as officers and trustee of the Trust. Under the terms of the management and administration agreement, BISYS' fees are computed at an annual rate of 0.20% of the average daily net assets of each Fund. BISYS also serves as the Trust's distributor and receives fees for providing distribution services in accordance with a Distribution Agreement (the "Agreement") pursuant to Rule 12b-1 under the 1940 Act. Under the Agreement, Retail Class Shares pay BISYS a fee not to exceed, on an annual basis, 0.75% of the average daily net assets attributable to the Retail Class of shares of each Fund for payments BISYS makes to banks, including the Advisor, other institutions and broker/dealers, and for expenses BISYS and any of its affiliates or subsidiaries incur for providing distribution or shareholder service assistance. For the year ended July 31, 1997, BISYS, as the Trust's principal underwriter, received approximately $231,831 from commissions on sales of Retail Class shares of which $210,914 was reallowed to dealers affiliated with the Advisor and $15,602 was reallowed to other dealers. BISYS Services serves the Trust as fund accountant. Under the terms of the fund accounting agreement, BISYS Services is entitled to receive fees based on a percentage of the average net assets of each Fund and is reimbursed for certain out-of-pocket expenses incurred in providing fund accounting services. Fees may be voluntarily reduced or expenses reimbursed to assist the Funds in maintaining competitive expense ratios. Information regarding these transactions for the year ended July 31, 1997 is as follows: [Enlarge/Download Table] INVESTMENT ADVISORY FEES ---------------------------- ANNUAL FEE AS A ADMINISTRATION 12b-1 FEES PERCENTAGE FEES FEES VOLUNTARILY OF AVERAGE VOLUNTARILY VOLUNTARILY REDUCED-- ACCOUNTING DAILY NET ASSETS REDUCED REDUCED RETAIL CLASS FEES* ---------------- ----------- -------------- ------------ ---------- Growth Stock Fund...... 0.80% $ -- $ 75,584 $32,878 $56,233 U.S. Treasury Securities Fund........ 0.60% -- 9,759 5,272 7,274 Short Intermediate U.S. Treasury Securities Fund....... 0.50% 47,940 12,012 3,727 7,165 Growth and Income Fund. 0.80% -- 38,905 10,559 28,824 Diversified Fixed Income Fund............ 0.60% -- 58,083 5,621 43,393 Tax-Free Securities Fund................... 0.60% -- 117,822 6,370 87,816 Tax-Free Short Intermediate Securities Fund....... 0.50% -- 19,630 4,005 11,729 New Asia Growth Fund... 0.90% 7,778 8,389 13,636 4,977 -------- * Accounting fees do not include out-of-pocket expenses. Continued 88
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PACIFIC CAPITAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED JULY 31, 1997 5. CAPITAL SHARE TRANSACTIONS: Transactions in capital shares for the Trust were as follows: [Download Table] U.S. TREASURY GROWTH STOCK FUND SECURITIES FUND ------------------------- ------------------------ AMOUNT SHARES AMOUNT SHARES ------------- ---------- ------------ ---------- FOR THE YEAR ENDED FOR THE YEAR ENDED JULY 31, 1997 JULY 31, 1997 ------------------------- ------------------------ RETAIL CLASS SHARES: Shares issued........... $ 3,204,633 224,887 $ 262,172 28,434 Dividends reinvested.... 16,102 1,191 48,799 5,310 Shares redeemed......... (1,497,916) (109,496) (228,130) (24,896) ------------- ---------- ------------ ---------- Net increase/(decrease). $ 1,722,819 116,582 $ 82,841 8,848 ============= ========== ============ ========== INSTITUTIONAL CLASS SHARES: Shares issued........... $ 36,521,743 2,562,096 $ 1,380,971 149,658 Dividends reinvested.... 76,010 5,584 1,366,474 148,459 Shares redeemed......... (80,981,052) (5,700,654) (2,779,194) (300,730) ------------- ---------- ------------ ---------- Net increase/(decrease). $ (44,383,299) (3,132,974) $ (31,749) (2,613) ============= ========== ============ ========== FOR THE YEAR ENDED FOR THE YEAR ENDED JULY 31, 1996 JULY 31, 1996 ------------------------- ------------------------ RETAIL CLASS SHARES: Shares issued........... $ 2,212,900 181,079 $ 120,008 12,543 Dividends reinvested.... 269,722 22,667 60,138 6,342 Shares redeemed......... (1,174,009) (94,879) (205,941) (21,534) ------------- ---------- ------------ ---------- Net increase/(decrease). $ 1,308,613 108,867 $ (25,795) (2,649) ============= ========== ============ ========== INSTITUTIONAL CLASS SHARES: Shares issued........... $ 131,615,185 10,917,906 $ 1,527,773 161,323 Dividends reinvested.... 6,169,023 518,783 1,842,036 194,471 Shares redeemed......... (104,518,765) (8,612,823) (30,773,600) (3,250,486) ------------- ---------- ------------ ---------- Net increase/(decrease). $ 33,265,443 2,823,866 $(27,403,791) (2,894,692) ============= ========== ============ ========== Continued 89
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PACIFIC CAPITAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED JULY 31, 1997 5. CAPITAL SHARE TRANSACTIONS (CONTINUED): [Download Table] SHORT INTERMEDIATE U.S. TREASURY SECURITIES FUND GROWTH AND INCOME FUND -------------------------- ------------------------ AMOUNT SHARES AMOUNT SHARES ------------ ------------ ------------ ---------- RETAIL CLASS SHARES: Shares issued........... $ 140,921 14,898 $ 2,191,642 153,432 Dividends reinvested.... 36,426 3,858 81,348 6,075 Shares redeemed......... (728,488) (76,854) (527,062) (37,700) ------------ ----------- ------------ ---------- Net increase/(decrease). $ (551,141) (58,098) $ 1,745,928 121,807 ============ =========== ============ ========== INSTITUTIONAL CLASS SHARES: Shares issued........... $11,979,335 1,272,770 $ 43,781,341 3,080,616 Dividends reinvested.... 55,995 5,915 2,325,676 172,366 Shares redeemed......... (9,297,503) (983,459) (30,463,375) (2,125,196) ------------ ----------- ------------ ---------- Net increase/(decrease). $ 2,737,827 295,226 $ 15,643,642 1,127,786 ============ =========== ============ ========== FOR THE YEAR ENDED FOR THE YEAR ENDED JULY 31, 1996 JULY 31, 1996 -------------------------- ------------------------ RETAIL CLASS SHARES: Shares issued........... $ 747,638 76,883 $ 924,629 74,394 Dividends reinvested.... 47,554 4,976 16,890 1,409 Shares redeemed......... (95,449) (9,947) (128,162) (10,325) ------------ ----------- ------------ ---------- Net increase/(decrease). $ 699,743 71,912 $ 813,357 65,478 ============ =========== ============ ========== INSTITUTIONAL CLASS SHARES: Shares issued........... $17,373,908 1,805,630 $ 50,906,651 4,232,718 Dividends reinvested.... 110,962 11,544 1,235,834 104,577 Shares redeemed......... (9,634,113) (1,006,064) (23,658,493) (1,948,216) ------------ ----------- ------------ ---------- Net increase/(decrease). $ 7,850,757 811,110 $ 28,483,992 2,389,079 ============ =========== ============ ========== Continued 90
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PACIFIC CAPITAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED JULY 31, 1997 5. CAPITAL SHARE TRANSACTIONS (CONTINUED): [Download Table] DIVERSIFIED FIXED TAX-FREE INCOME FUND SECURITIES FUND ------------------------ ------------------------ AMOUNT SHARES AMOUNT SHARES ------------ ---------- ------------ ---------- FOR THE YEAR ENDED FOR THE YEAR ENDED JULY 31, 1997 JULY 31, 1997 ------------------------ ------------------------ RETAIL CLASS SHARES: Shares issued........... $ 748,361 71,630 $ 2,100,119 201,633 Dividends reinvested.... 70,514 6,720 20,004 1,896 Shares redeemed......... (829,853) (79,822) (241,385) (23,123) ------------ ---------- ------------ ---------- Net increase/(decrease). $ (10,978) (1,472) $ 1,878,738 180,406 ============ ========== ============ ========== INSTITUTIONAL CLASS SHARES: Shares issued........... $ 44,769,922 4,245,046 $ 31,135,063 2,950,938 Dividends reinvested.... 599,007 55,986 1,613,763 151,978 Shares redeemed......... (78,102,272) (7,368,883) (35,722,280) (3,389,736) ------------ ---------- ------------ ---------- Net increase/(decrease). $(32,733,343) (3,067,851) $ (2,973,454) (286,820) ============ ========== ============ ========== FOR THE YEAR ENDED FOR THE YEAR ENDED JULY 31, 1996 JULY 31, 1996 ------------------------ ------------------------ RETAIL CLASS SHARES: Shares issued........... $ 1,199,728 107,934 $ 619,694 58,332 Dividends reinvested.... 35,296 3,293 17,516 1,652 Shares redeemed......... (100,216) (9,260) (608,257) (58,984) ------------ ---------- ------------ ---------- Net increase/(decrease). $ 1,134,808 101,967 $ 28,953 1,000 ============ ========== ============ ========== INSTITUTIONAL CLASS SHARES: Shares issued........... $198,618,575 18,085,880 $ 28,592,966 2,708,891 Dividends reinvested.... 855,870 76,725 3,552,534 331,714 Shares redeemed......... (86,606,689) (7,857,921) (22,221,434) (2,101,754) ------------ ---------- ------------ ---------- Net increase/(decrease). $112,867,756 10,304,684 $ 9,924,066 938,851 ============ ========== ============ ========== Continued 91
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PACIFIC CAPITAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED JULY 31, 1997 5. CAPITAL SHARE TRANSACTIONS (CONTINUED): [Download Table] TAX-FREE SHORT INTERMEDIATE NEW ASIA SECURITIES FUND GROWTH FUND --------------------- --------------------- AMOUNT SHARES AMOUNT SHARES ----------- -------- ----------- -------- FOR THE YEAR ENDED FOR THE YEAR ENDED JULY 31, 1997 JULY 31, 1997 --------------------- --------------------- RETAIL CLASS SHARES: Shares issued................... $ 741,966 73,793 $ 1,372,902 111,117 Dividends reinvested............ 15,130 1,502 21,601 1,764 Shares redeemed................. (491,902) (48,887) (527,801) (42,850) ----------- -------- ----------- -------- Net increase/(decrease)......... $ 265,194 26,408 $ 866,702 70,031 =========== ======== =========== ======== INSTITUTIONAL CLASS SHARES: Shares issued................... $ 5,454,511 540,179 $ 9,703,868 791,509 Dividends reinvested............ 52,152 5,141 81,463 6,605 Shares redeemed................. (8,057,230) (796,267) (3,030,589) (240,435) ----------- -------- ----------- -------- Net increase/(decrease)......... $(2,550,567) (250,947) $ 6,754,742 557,679 =========== ======== =========== ======== FOR THE YEAR ENDED FOR THE YEAR ENDED JULY 31, 1996 JULY 31, 1996 --------------------- --------------------- RETAIL CLASS SHARES: Shares issued................... $ 194,515 19,329 $ 1,841,034 156,856 Dividends reinvested............ 2,672 265 13,647 1,284 Shares redeemed................. (52,273) (5,147) (101,353) (8,592) ----------- -------- ----------- -------- Net increase/(decrease)......... $ 144,914 14,447 $ 1,753,328 149,548 =========== ======== =========== ======== INSTITUTIONAL CLASS SHARES: Shares issued................... $ 7,670,654 754,274 $ 8,908,328 754,031 Dividends reinvested............ 6,511 642 46,083 4,330 Shares redeemed................. (7,930,532) (783,406) (2,879,942) (252,790) ----------- -------- ----------- -------- Net increase/(decrease)......... $ (253,367) (28,490) $ 6,074,469 505,571 =========== ======== =========== ======== 6. FEDERAL INCOME TAXES (UNAUDITED) For federal income tax purposes, the following Funds have capital loss carryforwards as of July 31, 1997, which are available to offset future capital gains, if any: [Download Table] AMOUNT EXPIRES ---------- ------- U.S. Treasury Securities Fund.............................. $ 288,915 2002 U.S. Treasury Securities Fund.............................. 326,761 2003 U.S. Treasury Securities Fund.............................. 3,238,241 2004 U.S. Treasury Securities Fund.............................. 58,103 2005 Short Intermediate U.S. Treasury Securities Fund........... 151,388 2005 Diversified Fixed Income Fund.............................. 405,487 2005 Continued 92
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PACIFIC CAPITAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED JULY 31, 1997 Under current tax law, capital losses realized after October 31 may be deferred and treated as occurring on the first day of the fiscal year ended July 31, 1998. Diversified Fixed Income Fund and U.S. Treasury Fund deferred such losses of $2,116,461 and $134,520, respectively. Similarly, New Asia Growth Fund deferred foreign currency losses of $76,177. The following table presents distributions from long-term capital gains for the following Funds for the year ended July 31, 1997: [Download Table] Growth Stock....................................................... $ 6,971 Growth and Income Fund............................................. 3,674,369 Diversified Fixed Income Fund...................................... 1,347,352 Tax Free Securities Fund........................................... 1,589,719 Tax Free Short Intermediate Securities Fund........................ 50,230 New Asia Growth Fund............................................... 91,852 Pacific Capital Funds designates the following eligible distribution for the dividends received deduction for corporations for the Fund's taxable year ended July 31, 1997. [Download Table] GROWTH AND GROWTH STOCK INCOME FUND FUND ------------ ---------- RETAIL CLASS: Dividend income...................................... $ 82,325 $ 32,902 Dividend income per share............................ $ 0.179 $ 0.224 INSTITUTIONAL CLASS: Dividend income...................................... $2,328,521 $1,519,228 Dividend income per share............................ $ 0.181 $ 0.230 The Pacific Capital Funds designate the following exempt-interest dividends for the Fund's taxable year ended July 31, 1997. [Download Table] TAX-FREE TAX-FREE SECURITIES SHORT INTERMEDIATE FUND SECURITIES FUND ----------- ------------------ RETAIL CLASS: Exempt-interest distributions.................. $ 61,303 $ 30,354 Exempt-interest distributions per share........ $ 0.505 $ 0.382 INSTITUTIONAL CLASS: Exempt-interest distributions.................. $14,097,576 $1,454,175 Exempt-interest distributions per share........ $ 0.510 $ 0.384 Continued 93
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PACIFIC CAPITAL FUNDS NOTES TO FINANCIAL STATEMENTS, CONTINUED JULY 31, 1997 The percentage break-down of the exempt-interest income by state for the Tax-Free Securities Fund and the Tax-Free Short Intermediate Securities Fund for the taxable year ended July 31, 1997 were as follows: [Download Table] TAX-FREE SHORT TAX-FREE INTERMEDIATE STATE SECURITIES FUND SECURITIES FUND ----- --------------- --------------- Alaska....................................... -- % 2.4% Arizona...................................... 0.2 5.0 California................................... 6.0 -- Colorado..................................... 0.3 -- Connecticut.................................. 0.4 -- Florida...................................... 6.4 2.5 Georgia...................................... 2.9 -- Hawaii....................................... 57.5 57.1 Idaho........................................ 0.1 -- Illinois..................................... 0.1 4.0 Kansas....................................... 1.8 -- Maine........................................ 0.7 -- Maryland..................................... -- 1.0 Massachusetts................................ 2.0 3.4 Michigan..................................... 2.3 1.7 Minnesota.................................... 0.8 5.8 Missouri..................................... -- 1.2 New Jersey................................... 1.3 1.3 New Mexico................................... 1.9 -- New York..................................... 0.6 -- North Carolina............................... 1.2 -- Ohio......................................... 1.4 -- Oregon....................................... 1.0 1.3 Pennsylvania................................. 1.1 Puerto Rico.................................. -- 0.8 Rhode Island................................. -- 3.3 South Carolina............................... 0.8 -- Tennessee.................................... 3.2 Texas........................................ 2.1 5.2 Virginia..................................... 3.9 -- Washington................................... -- 1.2 West Virginia................................ -- 0.2 Wisconsin.................................... -- 2.6 ----- ----- Total..................................... 100.0% 100.0% ===== ===== 7. SPECIAL MEETING A special meeting was held on May 19, 1997 to approve the change in the sub- adviser of New Asia Growth Fund (the fund). Credit Lyonnais International Asset Management (HK) Ltd was acquired in February 1997 by Nicholas Applegate Capital Management (Hong Kong) LLC. Presented in person or represented by proxy at the meeting were holders of 907,018 shares of the fund, who represented a majority and consequently a quorum of the 1,460,284 outstanding shares. All 907,018 voted unanimously for the change in sub- adviser. Continued 94
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PACIFIC CAPITAL FUNDS FINANCIAL HIGHLIGHTS [Enlarge/Download Table] GROWTH STOCK FUND --------------------------------------------------------------------------------------- FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED NOVEMBER 1, JULY 31, 1997 JULY 31, 1996 JULY 31, 1995 1993 TO ----------------------- ---------------------- ---------------------------- JULY 31, RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL RETAIL (c) INSTITUTIONAL (b) 1994 (a) ------- ------------- ------- ------------- ---------- ----------------- ----------- NET ASSET VALUE, BEGINNING OF PERIOD.... $11.89 $11.89 $11.71 $11.71 $ 9.83 $ 9.89 $10.00 ------- -------- ------- -------- ------ -------- ------- Investment Activities Net investment income.. 0.03 0.07 0.07 0.10 0.12 0.11 0.07 Net realized and unrealized gain (loss) from investments...... 5.55 5.55 0.89 0.89 1.87 1.83 (0.18) ------- -------- ------- -------- ------ -------- ------- Total from Investment Activities........... 5.58 5.62 0.96 0.99 1.99 1.94 (0.11) ------- -------- ------- -------- ------ -------- ------- Distributions Net investment income.. (0.03) (0.07) (0.07) (0.10) (0.11) (0.12) (0.06) In excess of net investment income..... (0.01) -- -- -- -- -- -- Net realized gains..... -- -- (0.22) (0.22) -- -- -- In excess of net realized gains........ -- -- (0.49) (0.49) -- -- -- ------- -------- ------- -------- ------ -------- ------- Total Distributions... (0.04) (0.07) (0.78) (0.81) (0.11) (0.12) (0.06) ------- -------- ------- -------- ------ -------- ------- NET ASSET VALUE, END OF PERIOD................. $17.43 $17.44 $11.89 $11.89 $11.71 $11.71 $ 9.83 ======= ======== ======= ======== ====== ======== ======= Total Return (excludes sales charges)......... 47.02% 47.39% 8.25% 8.53% 20.43% 20.64%(d) (1.05%)(f) ANNUALIZED RATIOS/ SUPPLEMENTARY DATA: Net assets at end of period (000)........... $9,742 $198,407 $5,261 $172,565 $3,905 $136,837 $56,121 Ratio of expenses to average net assets..... 1.32% 1.07% 1.34% 1.09% 1.36% 1.13%(e) 1.41%(e) Ratio of net investment income to average net assets................. 0.16% 0.45% 0.60% 0.86% 1.12% 1.30%(e) 0.98%(e) Ratio of expenses to average net assets*.... 1.86% 1.11% 1.88% 1.13% 1.98% 1.21%(e) 2.31%(e) Ratio of net investment income to average net assets*................ (0.38%) 0.41% 0.06% 0.82% 0.50% 1.23%(e) 0.07%(e) Portfolio Turnover (g).. 32.20% 32.20% 61.30% 61.30% 32.40% 32.40% 25.89% Average Commission Rate paid (h)............... $0.0893 $0.0893 $0.0895 $0.0895 -- -- -- -------- * During the period, certain fees were voluntarily reduced. In addition, the investment adviser reimbursed expenses. If such voluntary fee reductions and expense reimbursements had not occurred, the ratios would have been as indicated. (a) Period from commencement of operations. (b) On October 13, 1994, the Trust identified those Institutional shareholders that were part of the Retail Class and transferred these shareholders into the Institutional Class at the prevailing net asset value effective October 14, 1994. The Financial Highlights presented for the Institutional Class reflects operations and distributions for the period from October 14, 1994 through July 31, 1995. (c) The Financial Highlights presented for the Retail Class reflects operations and distributions for the Fund, as a whole, for the period from August 1, 1994 through October 13, 1994 combined with the operations and distributions of the Retail Class only for the period from October 14, 1994 through July 31, 1995. (d) Represents total return for the Fund, as a whole, for the period from August 1, 1994 through October 13, 1994 plus total return for the Institutional Class for the period from October 14, 1994 through July 31, 1995. (e) Annualized. (f) Not annualized. (g) Portfolio turnover is calculated on the basis of the Fund, as a whole, without distinguishing between the classes of shares issued. (h) Represents the total dollar amount of commissions paid on portfolio transactions divided by total number of portfolio shares purchased and sold for which commissions were charged. See notes to financial statements. 95
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PACIFIC CAPITAL FUNDS FINANCIAL HIGHLIGHTS [Enlarge/Download Table] U.S TREASURY SECURITIES FUND ------------------------------------------------------------------------------------------ FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED NOVEMBER 1, JULY 31, 1997 JULY 31, 1996 JULY 31, 1995 1993 TO --------------------------- --------------------- ---------------------------- JULY 31, RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL RETAIL (c) INSTITUTIONAL (b) 1994 (a) --------------------------- ------ ------------- ---------- ----------------- ----------- NET ASSET VALUE, BEGINNING OF PERIOD..... $ 9.13 $ 9.14 $ 9.42 $ 9.43 $ 9.04 $ 8.66 $10.00 ------- ------- ------ ------- ------ ------- ------- Investment Activities Net investment income... 0.52 0.53 0.53 0.59 0.50 0.44 0.31 Net realized and unrealized gain (loss) from investments....... 0.25 0.26 (0.20) (0.24) 0.38 0.76 (1.00) ------- ------- ------ ------- ------ ------- ------- Total from Investment Activities............ 0.77 0.79 0.33 0.35 0.88 1.20 (0.69) ------- ------- ------ ------- ------ ------- ------- Distributions Net investment income... (0.46) (0.54) (0.53) (0.55) (0.50) (0.43) (0.27) In excess of net investment income...... (0.07) (0.01) (0.09) (0.09) -- -- -- ------- ------- ------ ------- ------ ------- ------- Total Distributions.... (0.53) (0.55) (0.62) (0.64) (0.50) (0.43) (0.27) ------- ------- ------ ------- ------ ------- ------- NET ASSET VALUE, END OF PERIOD.................. $ 9.37 $ 9.38 $ 9.13 $ 9.14 $ 9.42 $ 9.43 $ 9.04 ======= ======= ====== ======= ====== ======= ======= Total Return (excludes sales charges).......... 8.68% 8.92% 3.43% 3.71% 10.18% 10.49%(d) (6.95%)(f) ANNUALIZED RATIOS/ SUPPLEMENTARY DATA: Net assets at end of period (000)............ $1,087 $23,832 $979 $23,248 $1,035 $51,264 $60,125 Ratio of expenses to average net assets...... 1.16% 0.91% 1.20% 0.95% 1.19% 1.02%(e) 1.15%(e) Ratio of net investment income to average net assets...... 5.60% 5.85% 5.55% 5.81% 5.57% 5.78%(e) 4.62%(e) Ratio of expenses to average net assets*..... 1.70% 0.95% 1.74% 0.99% 1.81% 1.09%(e) 2.09%(e) Ratio of net investment income to average net assets*..... 5.06% 5.81% 5.01% 5.77% 4.96% 5.71%(e) 3.68%(e) Portfolio Turnover (g)... 44.90% 44.90% 15.75% 15.75% 80.98% 80.98% 11.36% -------- * During the period, certain fees were voluntarily reduced. In addition, the investment adviser reimbursed expenses. If such voluntary fee reductions and expense reimbursements had not occurred, the ratios would have been as indicated. (a) Period from commencement of operations. (b) On October 13, 1994, the Trust identified those Institutional shareholders that were part of the Retail Class and transferred these shareholders into the Institutional Class at the prevailing net asset value effective October 14, 1994. The Financial Highlights presented for the Institutional Class reflects operations and distributions for the period from October 14, 1994 through July 31, 1995. (c) The Financial Highlights presented for the Retail Class reflects operations and distributions for the Fund, as a whole, for the period from August 1, 1994 through October 13, 1994 combined with the operations and distributions of the Retail Class only for the period from October 14, 1994 through July 31, 1995. (d) Represents total return for the Fund, as a whole, for the period from August 1, 1994 through October 13, 1994 plus total return for the Institutional Class for the period from October 14, 1994 through July 31, 1995. (e) Annualized. (f) Not annualized. (g) Portfolio turnover is calculated on the basis of the Fund, as a whole, without distinguishing between the classes of shares issued. See notes to financial statements. 96
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PACIFIC CAPITAL FUNDS FINANCIAL HIGHLIGHTS [Enlarge/Download Table] SHORT INTERMEDIATE U.S. TREASURY SECURITIES FUND ------------------------------------------------------------------------------------------- FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 13, JULY 31, 1997 JULY 31, 1996 JULY 31, 1995 1993 TO --------------------------- --------------------- ---------------------------- JULY 31, RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL RETAIL (c) INSTITUTIONAL (b) 1994 (a) --------------------------- ------ ------------- ---------- ----------------- ------------ NET ASSET VALUE, BEGINNING OF PERIOD..... $ 9.41 $ 9.42 $ 9.60 $ 9.61 $ 9.52 $ 9.30 $10.00 ------- ------- ------ ------- ------ ------- ------ Investment Activities Net investment income... 0.49 0.52 0.48 0.53 0.52 0.44 0.24 Net realized and unrealized gain (loss) from investments....... 0.14 0.14 (0.11) (0.13) 0.05 0.31 (0.52) ------- ------- ------ ------- ------ ------- ------ Total from Investment Activities............ 0.63 0.66 0.37 0.40 0.57 0.75 (0.28) ------- ------- ------ ------- ------ ------- ------ Distributions Net investment income... (0.49) (0.52) (0.50) (0.53) (0.49) (0.44) (0.20) In excess of net investment income...... -- -- (0.04) (0.04) -- -- -- Net realized gains...... -- -- -- -- -- -- -- In excess of net realized gains......... -- -- (0.02) (0.02) -- -- -- ------- ------- ------ ------- ------ ------- ------ Total Distributions.... (0.49) (0.52) (0.56) (0.59) (0.49) (0.44) (0.20) ------- ------- ------ ------- ------ ------- ------ NET ASSET VALUE, END OF PERIOD.................. $ 9.55 $ 9.56 $ 9.41 $ 9.42 $ 9.60 $ 9.61 $ 9.52 ======= ======= ====== ======= ====== ======= ====== Total Return (excludes sales charges).......... 6.92% 7.19% 3.90% 4.18% 6.28% 6.57%(d) (2.76%)(f) ANNUALIZED RATIOS/ SUPPLEMENTARY DATA: Net assets at end of period (000)............ $618 $26,722 $1,156 $23,545 $489 $16,214 $3,419 Ratio of expenses to average net assets.............. 0.87% 0.62% 0.92% 0.67% 0.99% 0.75%(e) 1.00%(e) Ratio of net investment income to average net assets... 5.22% 5.47% 5.14% 5.40% 5.51% 5.84%(e) 3.96%(e) Ratio of expenses to average net assets*............. 1.62% 0.87% 1.67% 0.92% 1.78% 0.99%(e) 5.39%(e) Ratio of net investment income to average net assets*.. 4.47% 5.22% 4.39% 5.15% 4.72% 5.61%(e) (0.43%)(e) Portfolio Turnover (g)... 51.56% 51.56% 47.17% 47.17% 62.73% 62.73% 0.00% -------- * During the period, certain fees were voluntarily reduced. In addition, the investment adviser reimbursed expenses. If such voluntary fee reductions and expense reimbursements had not occurred, the ratios would have been as indicated. (a) Period from commencement of operations. (b) On October 13, 1994, the Trust identified those Institutional shareholders that were part of the Retail Class and transferred these shareholders into the Institutional Class at the prevailing net asset value effective October 14, 1994. The Financial Highlights presented for the Institutional Class reflects operations and distributions for the period from October 14, 1994 through July 31, 1995. (c) The Financial Highlights presented for the Retail Class reflects operations and distributions for the Fund, as a whole, for the period from August 1, 1994 through October 13, 1994 combined with the operations and distributions of the Retail Class only for the period from October 14, 1994 through July 31, 1995. (d) Represents total return for the Fund, as a whole, for the period from August 1, 1994 through October 13, 1994 plus total return for the Institutional Class for the period from October 14, 1994 through July 31, 1995. (e) Annualized. (f) Not annualized. (g) Portfolio turnover is calculated on the basis of the Fund, as a whole, without distinguishing between the classes of shares issued. See notes to financial statements. 97
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PACIFIC CAPITAL FUNDS FINANCIAL HIGHLIGHTS [Enlarge/Download Table] GROWTH AND INCOME FUND ----------------------------------------------------------------------- FOR THE FOR THE YEAR ENDED YEAR ENDED OCTOBER 14, 1994 TO JULY 31, 1997 JULY 31, 1996 JULY 31, 1995 (a) ----------------------- ---------------------- ------------------------ RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL ------- ------------- ------- ------------- ------ ------------- NET ASSET VALUE, BEGINNING OF PERIOD.... $12.32 $12.32 $11.44 $11.43 $10.00 $10.00 ------- -------- ------- ------- ------ ------- Investment Activities Net investment income.. 0.08 0.11 0.16 0.17 0.17 0.20 Net realized and unrealized gain from investments........... 5.57 5.58 1.19 1.21 1.44 1.42 ------- -------- ------- ------- ------ ------- Total from Investment Activities........... 5.65 5.69 1.35 1.38 1.61 1.62 ------- -------- ------- ------- ------ ------- Distributions Net investment income.. (0.08) (0.11) (0.15) (0.17) (0.17) (0.19) In excess of net investment income..... (0.01) -- (0.01) (0.01) -- -- Net realized gains..... (0.63) (0.63) (0.31) (0.31) -- -- ------- -------- ------- ------- ------ ------- Total Distributions... (0.72) (0.74) (0.47) (0.49) (0.17) (0.19) ------- -------- ------- ------- ------ ------- NET ASSET VALUE, END OF PERIOD................. $17.25 $17.27 $12.32 $12.32 $11.44 $11.43 ======= ======== ======= ======= ====== ======= Total Return (excludes sales charges)......... 47.59% 47.96% 11.96% 12.29% 16.35%(b) 16.41%(b) ANNUALIZED RATIOS/ SUPPLEMENTARY DATA: Net assets at end of period (000)........... $3,726 $123,821 $1,160 $74,427 $328 $41,771 Ratio of expenses to average net assets..... 1.32% 1.07% 1.37% 1.11% 1.40%(c) 1.14%(c) Ratio of net investment income to average net assets................. 0.48% 0.79% 1.03% 1.43% 2.08%(c) 2.47%(c) Ratio of expenses to average net assets*.... 1.86% 1.12% 1.91% 1.15% 1.99%(c) 1.22%(c) Ratio of net investment income to average net assets*................ (0.06)% 0.75% 0.49% 1.39% 1.49%(c) 2.39%(c) Portfolio Turnover (d).. 74.83% 74.83% 80.83% 80.83% 12.78% 12.78% Average Commission Rate Paid (e)............... $0.0874 $0.0874 $0.0921 $0.0921 -------- * During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. (a) Period from commencement of operations. (b) Not annualized. (c) Annualized. (d) Portfolio turnover is calculated on the basis of the Fund, as a whole, without distinguishing between the classes of shares issued. (e) Represents the total dollar amount of commissions paid on portfolio transactions divided by total number of portfolio shares purchased and sold for which commissions were charged. See notes to financial statements. 98
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PACIFIC CAPITAL FUNDS FINANCIAL HIGHLIGHTS [Enlarge/Download Table] DIVERSIFIED FIXED INCOME FUND -------------------------------------------------------------------------- FOR THE FOR THE YEAR ENDED YEAR ENDED OCTOBER 14, 1994 TO JULY 31, 1997 JULY 31, 1996 JULY 31, 1995 (a) --------------------------- --------------------- ------------------------ RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL --------------------------- ------ ------------- ------ ------------- NET ASSET VALUE, BEGINNING OF PERIOD..... $10.45 $10.53 $10.75 $10.84 $10.00 $10.00 ------- -------- ------ -------- ------ ------- Investment Activities Net investment income... 0.57 0.60 0.59 0.58 0.49 0.55 Net realized and unrealized gain from investments............ 0.35 0.34 (0.19) (0.16) 0.74 0.78 ------- -------- ------ -------- ------ ------- Total from Investment Activities............ 0.92 0.94 0.40 0.42 1.23 1.33 ------- -------- ------ -------- ------ ------- Distributions Net investment income... (0.57) (0.60) (0.58) (0.61) (0.48) (0.49) In excess of net investment income...... -- -- (0.02) (0.02) -- -- In excess of net realized gains......... (0.09) (0.09) (0.10) (0.10) -- -- ------- -------- ------ -------- ------ ------- Total Distributions.... (0.66) (0.69) (0.70) (0.73) (0.48) (0.49) ------- -------- ------ -------- ------ ------- NET ASSET VALUE, END OF PERIOD.................. $10.71 $10.78 $10.45 $10.53 $10.75 $10.84 ======= ======== ====== ======== ====== ======= Total Return (excludes sales charges).......... 9.20% 9.30% 3.69% 3.85% 12.66%(b) 13.70%(b) ANNUALIZED RATIOS/ SUPPLEMENTARY DATA: Net assets at end of period (000)............ $1,103 $132,583 $1,093 $161,742 $27 $54,827 Ratio of expenses to average net assets...... 1.15% 0.90% 1.15% 0.88% 1.18%(c) 0.93%(c) Ratio of net investment income to average net assets... 5.44% 5.67% 5.31% 5.56% 6.25%(c) 6.71%(c) Ratio of expenses to average net assets*..... 1.69% 0.94% 1.69% 0.92% 1.77%(c) 1.01%(c) Ratio of net investment income to average net assets*.. 4.90% 5.63% 4.77% 5.52% 5.66%(c) 6.63%(c) Portfolio Turnover (d)... 80.98% 80.98% 58.86% 58.86% 60.47% 60.47% -------- * During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. (a) Period from commencement of operations. (b) Not annualized. (c) Annualized. (d) Portfolio turnover is calculated on the basis of the Fund, as a whole, without distinguishing between the classes of shares issued. See notes to financial statements. 99
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PACIFIC CAPITAL FUNDS FINANCIAL HIGHLIGHTS [Enlarge/Download Table] TAX-FREE SECURITIES FUND -------------------------------------------------------------------------- FOR THE FOR THE YEAR ENDED YEAR ENDED OCTOBER 14, 1994 TO JULY 31, 1997 JULY 31, 1996 JULY 31, 1995 (a) --------------------------- --------------------- ------------------------ RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL --------------------------- ------ ------------- ------ ------------- NET ASSET VALUE, BEGINNING OF PERIOD..... $10.44 $10.46 $10.53 $10.56 $10.00 $10.00 ------- -------- ------ -------- ------ -------- Investment Activities Net investment income... 0.49 0.51 0.50 0.52 0.39 0.42 Net realized and unrealized gain from investments............ 0.46 0.46 0.07 0.07 0.50 0.51 ------- -------- ------ -------- ------ -------- Total from Investment Activities............ 0.95 0.97 0.57 0.59 0.89 0.93 ------- -------- ------ -------- ------ -------- Distributions Net investment income... (0.49) (0.51) (0.49) (0.52) (0.36) (0.37) In excess of net investment income...... -- -- (0.04) (0.04) -- -- Net realized gains...... (0.06) (0.06) (0.09) (0.09) -- -- In excess of net realized gains......... -- -- (0.04) (0.04) -- -- ------- -------- ------ -------- ------ -------- Total Distributions.... (0.55) (0.57) (0.66) (0.69) (0.36) (0.37) ------- -------- ------ -------- ------ -------- NET ASSET VALUE, END OF PERIOD.................. $10.84 $10.86 $10.44 $10.46 $10.53 $10.56 ======= ======== ====== ======== ====== ======== Total Return (excludes sales charges).......... 9.35% 9.58% 5.54% 5.73% 9.06%(b) 9.54%(b) ANNUALIZED RATIOS/ SUPPLEMENTARY DATA: Net assets at end of period (000)............ $2,545 $296,764 $569 $288,934 $563 $281,646 Ratio of expenses to average net assets...... 1.12% 0.87% 1.14% 0.89% 1.15%(c) 0.89%(c) Ratio of net investment income to average net assets... 4.60% 4.86% 4.66% 4.92% 4.93%(c) 5.16%(c) Ratio of expenses to average net assets*..... 1.66% 0.91% 1.68% 0.93% 1.74%(c) 0.98%(c) Ratio of net investment income to average net assets*.. 4.06% 4.82% 4.12% 4.88% 4.34%(c) 5.07%(c) Portfolio Turnover (d)... 11.07% 11.07% 24.78% 24.78% 49.17% 49.17% -------- * During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. (a) Period from commencement of operations. (b) Not annualized. (c) Annualized. (d) Portfolio turnover is calculated on the basis of the Fund, as a whole, without distinguishing between the classes of shares issued. See notes to financial statements. 100
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PACIFIC CAPITAL FUNDS FINANCIAL HIGHLIGHTS [Enlarge/Download Table] TAX-FREE SHORT INTERMEDIATE SECURITIES FUND -------------------------------------------------------------------------- FOR THE FOR THE YEAR ENDED YEAR ENDED OCTOBER 14, 1994 TO JULY 31, 1997 JULY 31, 1996 JULY 31, 1995 (a) --------------------------- --------------------- ------------------------ RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL --------------------------- ------ ------------- ------ ------------- NET ASSET VALUE, BEGINNING OF PERIOD..... $10.05 $10.08 $10.11 $10.14 $10.00 $10.00 ------- ------- ------ ------- ------ ------- Investment Activities Net investment income... 0.37 0.39 0.37 0.40 0.30 0.32 Net realized and unrealized gain from investments............ 0.13 0.14 (0.03) (0.03) 0.08 0.11 ------- ------- ------ ------- ------ ------- Total from Investment Activities............ 0.50 0.53 0.34 0.37 0.38 0.43 ------- ------- ------ ------- ------ ------- Distributions Net investment income... (0.37) (0.39) (0.37) (0.40) (0.27) (0.29) In excess of net investment income...... -- -- (0.03) (0.03) -- -- Net realized gains...... (0.01) (0.01) -- -- -- -- ------- ------- ------ ------- ------ ------- Total Distributions.... (0.38) (0.40) (0.40) (0.43) (0.27) (0.29) ------- ------- ------ ------- ------ ------- NET ASSET VALUE, END OF PERIOD.................. $10.17 $10.21 $10.05 $10.08 $10.11 $10.14 ======= ======= ====== ======= ====== ======= Total Return (excludes sales charges).......... 5.06% 5.36% 3.41% 3.67% 3.90%(b) 4.36%(b) ANNUALIZED RATIOS/ SUPPLEMENTARY DATA: Net assets at end of period (000)............ $724 $37,410 $451 $39,472 $308 $39,993 Ratio of expenses to average net assets...... 1.09% 0.84% 1.08% 0.83% 1.05%(c) 0.85%(c) Ratio of net investment income to average net assets... 3.57% 3.82% 3.64% 3.90% 3.82%(c) 4.03%(c) Ratio of expenses to average net assets*..... 1.64% 0.89% 1.63% 0.88% 1.64%(c) 0.94%(c) Ratio of net investment income to average net assets*.. 3.02% 3.77% 3.09% 3.85% 3.23%(c) 3.94%(c) Portfolio Turnover (d)... 29.46% 29.46% 54.70% 54.70% 89.98% 89.98% -------- * During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. (a) Period from commencement of operations. (b) Not annualized. (c) Annualized. (d) Portfolio turnover is calculated on the basis of the Fund, as a whole, without distinguishing between the classes of shares issued. See notes to financial statements. 101
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PACIFIC CAPITAL FUNDS FINANCIAL HIGHLIGHTS [Enlarge/Download Table] NEW ASIA GROWTH FUND ------------------------------------------------------------------------- FOR THE FOR THE YEAR ENDED YEAR ENDED FEBRUARY 15, 1995 TO JULY 31, 1997 JULY 31, 1996 JULY 31, 1995(a) ----------------------- ----------------------- ------------------------- RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL RETAIL INSTITUTIONAL ------- ------------- ------- ------------- ------ ------------- NET ASSET VALUE, BEGINNING OF PERIOD.... $11.11 $11.14 $11.21 $11.22 $10.00 $10.00 ------- ------- ------- ------- ------ ------ Investment Activities Net investment income (loss)................ 0.03 0.06 (0.02) (0.01) 0.02 0.04 Net realized and unrealized gain from investments........... 2.88 2.87 0.20 0.22 1.19 1.18 ------- ------- ------- ------- ------ ------ Total from Investment Activities........... 2.91 2.93 0.18 0.21 1.21 1.22 ------- ------- ------- ------- ------ ------ Distributions Net investment income.. (0.01) (0.01) -- -- -- -- In excess of net investment income..... -- -- 0.02 0.03 -- -- Net realized gains..... (0.12) (0.12) (0.26) (0.26) -- -- ------- ------- ------- ------- ------ ------ Total Distributions... (0.13) (0.13) (0.28) (0.29) -- -- ------- ------- ------- ------- ------ ------ NET ASSET VALUE, END OF PERIOD................. $13.89 $13.94 $11.11 $11.14 $11.21 $11.22 ======= ======= ======= ======= ====== ====== Total Return (excludes sales charges)......... 26.31% 26.50% 1.71% 1.99% 12.10%(b) 12.20%(b) ANNUALIZED RATIOS/ SUPPLEMENTARY DATA: Net assets at end of period (000)........... $3,459 $18,376 $1,990 $8,469 $330 $2,861 Ratio of expenses to average net assets..... 1.98% 1.72% 2.22% 1.98% 2.24%(c) 1.97%(c) Ratio of net investment income (loss) to average net assets.. 0.20% 0.46% (0.28%) (0.02%) 0.80%(c) 1.18%(c) Ratio of expenses to average net assets*.... 2.58% 1.82% 3.58% 2.84% 3.51%(c) 2.74%(c) Ratio of net investment income (loss) to average net assets*. (0.40%) 0.36% (1.64%) (0.88%) (0.47%)(c) 0.42%(c) Portfolio Turnover (d).. 134.89% 134.89% 86.53% 86.53% 55.62% 55.62% Average Commission Rate Paid (e)............... $0.0059 $0.0059 $0.0069 $0.0069 -- -- -------- * During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. (a) Period from commencement of operations. (b) Not annualized. (c) Annualized. (d) Portfolio turnover is calculated on the basis of the Fund, as a whole, without distinguishing between the classes of shares issued. (e) Represents the total dollar amount of commissions paid on portfolio transactions divided by total number of portfolio shares purchased and sold for which commissions were charged. See notes to financial statements. 102
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APPENDIX A RATINGS OF FIXED INCOME SECURITIES The following is a description of the ratings given by Moody's Investor Service, Inc. ("Moody's"), Duff & Phelps, Inc. ("D&P"), Fitch Investor Service ("Fitch"), Standard & Poor's Corporation ("S&P"), IBCA Limited ("IBCA") and Thompson Bank Watch ("Thompson"), each an NRSRO, to corporate bonds and commercial paper. Corporate Bond Ratings Moody's: Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt-edged." Interest payments are protected by a large or by an exceptionally stable margin, and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa - Bonds rated Aa are judged to be of high quality by all standards. Together with the Aaa group, they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long term risk appear somewhat larger than in Aaa securities. A - Bonds rated A possess many favorable investment attributes, and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa - Bonds rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba - Bonds rated Ba are judged to have speculative elements. Their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B - Bonds rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or maintenance of other terms of the contract over any longer period of time may be small. A-1
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Caa - Bonds rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca - Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C - Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Note: Moody's may apply numerical modifiers 1, 2 and 3 in each generic rating classification from Aa through B in its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. S&P: AAA - This is the highest rating assigned by Standard & Poor's to a debt obligation and indicates an extremely strong capacity to pay principal and interest. AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to pay principal and interest is very strong, and in the majority of instances they differ from AAA issues only in small degree. A - Bonds rated A have a strong capacity to pay principal and interest, although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than bonds in higher rated categories. BBB - Bonds rated BBB are regarded as having an adequate capability to pay principal and interest. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay principal and interest for bonds in this category than for bonds in higher rated categories. BB - Bonds rated BB have less near-term vulnerability to default than other speculative issues. However, they face major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. B - Bonds rated B have a greater vulnerability to default but currently have the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. CCC - Bonds rated CCC have a currently identifiable vulnerability to default and are dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, they are not likely to have the capacity to pay interest and repay principal. A-2
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CC - The rating CC is typically applied to debt subordinated to senior debt which is assigned an actual or implied CCC rating. C - The rating C is typically applied to debt subordinated to senior debt which is assigned an actual or implied CCC--debt rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed but debt service payments are continued. CI - The rating CI is reserved for income bonds on which no interest is being paid. D - Debt rated D is in default. The D rating is assigned on the day an interest or principal payment is missed. The D rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized. Plus (+) or minus (-): The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major ratings categories. Provisional ratings: The letter "p" indicates that the rating is provisional. A provisional rating assumes the successful completion of the project being financed by the debt being rated and indicates that payment of debt service requirements is largely or entirely dependent upon the successful and timely completion of the project. This rating, however, while addressing credit quality subsequent to completion of the project, makes no comment on the likelihood or risk of default upon failure of such completion. The investor should exercise judgment with respect to such likelihood and risk. L - The letter "L" indicates that the rating pertains to the principal amount of those bonds to the extent that the underlying deposit collateral is insured by the Federal Savings & Loan Insurance Corp. or the Federal Deposit Insurance Corp. and interest is adequately collateralized. * - Continuance of the rating is contingent upon Standard & Poor's receipt of an executed copy of the escrow agreement or closing documentation confirming investments and cash flows. NR - Indicates that no rating has been requested, that there is insufficient information on which to base a rating or that Standard & Poor's does not rate a particular type of obligation as a matter of policy. Debt Obligations of Issuers outside the United States and its territories are rated on the same basis as domestic corporate and municipal issues. The ratings measure the creditworthiness of the obligor but do not take into account currency exchange and related uncertainties. D&P: AAA - Bonds rated AAA are judged to be of highest credit quality and carry the smallest amount of investment risk. A-3
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AA - Bonds rated AA are of high credit quality, but modest risk may vary over time due to economic conditions. A - Bonds rated A have average but adequate protection, but risk is more variable and greater in periods of economic stress. BBB - Bonds rated BBB offer below average protection which is still considered sufficient for prudent investment. The ratings from AA to BBB may be modified by the addition of a plus or minus sign to show a security's relative standing within its category. Fitch: AAA - Bonds rated AAA are considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. AA - Bonds rated AA are considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated "F-1+." A - Bonds rated A are considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB - Bonds rated BBB are considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. BB - Bonds rated BB are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified which could assist the obligor in satisfying its debt service requirements. B - Bonds rated B are considered highly speculative. While bonds in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue. CCC - Bonds rated CCC have certain identifiable characteristics which, if not remedied, may lead to default. The ability to meet obligations requires an advantageous business and economic environment. A-4
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CC - Bonds rated CC are minimally protected. Default in payment of interest and/or principal seems probable over time. C - Bonds rated C are in imminent default in payment of interest or principal. DDD-DD- and D - Bonds are in default on interest and/or principal payments. Such bonds are extremely speculative and should be valued on the basis of their ultimate recovery value in liquidation or reorganization of the obligor. "DDD" represents the highest potential for recovery on these bonds, and "D" represents the lowest potential for recovery. Thomson: Thomson rates only bank debt. AAA - Bonds rated AAA have a very high ability to pay interest and principal on a timely basis. AA - Bonds rated AA have a superior ability to pay interest and repay principal with limited incremental risk versus AAA bonds. A - Bonds rated A have a strong ability to repay principal and interest, but could be more vulnerable to adverse internal and external developments. BBB - Bonds rated BBB have an acceptable capacity to pay interest and repay principal and are more vulnerable to risk than higher-rated obligations. BB, B, CCC, and CC, designations are assigned by Thomson to non-investment grade long-term debt. Such issues are regarded as having speculative characteristics regarding the likelihood of timely payment of principal and interest. BB indicates the lowest degree of speculation and CC the highest degree of speculation. The D designation indicates that the long-term debt is in default. The ratings from AAA through CC may include a plus or minus sign designation which indicates where within the respective category the issue is placed. IBCA: AAA - Bonds rated AAA have the lowest expectation of investment risk. Capacity for timely repayment of principal and interest is substantial, such that adverse changes in business, economic or financial conditions are unlikely to increase investment risk significantly. AA - Bonds rated AA have a very low expectation of investment risk. Capacity for timely repayment of principal and interest is substantial. Adverse changes in business, economic or financial conditions may increase investment risk albeit not very significantly. A-5
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A - Bonds rated A have a low expectation of investment risk. Capacity for timely repayment of principal and interest is strong, although adverse changes in business, economic or financial conditions may lead to increased investment risk. BBB - Bonds rated BBB have a low expectation of investment risk. Capacity for timely repayment of principal and interest is adequate, although adverse changes in business, economic or financial conditions are more likely to lead to increased investment risk than for obligations in higher categories. BB, B, CCC, CC, and C Bonds are speculative. BB represents the lowest degree of speculation and indicates a possibility of investment risk developing. C represents the highest degree of speculation and indicates that the obligations are currently in default. IBCA may append a rating of plus (+) or minus (-) to a rating to denote a relative status within major rating categories. CORPORATE COMMERCIAL PAPER RATINGS MOODY'S: The term "commercial paper" as used by Moody's means promissory obligations not having an original maturity in excess of nine months. Moody's makes no representations as to whether such commercial paper is by any other definition "commercial paper" or is exempt from registration under the Securities Act of 1933, as amended. Moody's commercial paper ratings are opinions of the ability of issuers to repay punctually promissory obligations not having an original maturity in excess of nine months. Moody's makes no representation that such obligations are exempt from registration under the Securities Act of 1933, nor does it represent that any specific note is a valid obligation of a rated issuer or issued in conformity with any applicable law. Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment capacity of rated issuers: P-1 (Prime-1) - Issuers rated P-1 have a superior capacity for repayment of short-term promissory obligations. P-1 repayment capacity will normally be evidenced by the following characteristics: - Leading market positions in well established industries - High rates of return on funds employed - Conservative capitalization structures with moderate reliance on debt and ample asset protection - Broad margins in earnings coverage of fixed financial charges and high internal cash generation - Well established access to a range of financial markets and assured sources of alternate liquidity. A-6
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P-2 (Prime-2) - Issuers rated P-2 have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, will be subject to more variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. P-3 (Prime-3) - Issuers rated P-3 have an acceptable capacity for repayment of short-term promissory obligations. The effect of industry characteristics and market composition may be more pronounced. Variability in earnings and profitability may result in changes in level of debt protection measurements and the requirement for relatively high financial leverage. Adequate alternate liquidity is maintained. Issuers rated Not Prime do not fall within any of the Prime rating categories. If an issuer represents to Moody's that its commercial paper obligations are supported by the credit of another entity or entities, then the name or names of such supporting entity or entities are listed within parentheses beneath the name of the issuer, or there is a footnote referring the reader to another page for the name or names of the supporting entity or entities. In assigning ratings to such issuers, Moody's evaluates the financial strength of the indicated affiliated corporations, commercial banks, insurance companies, foreign governments or other entities, but only as one factor in the total rating assessment. Moody's makes no representation and gives no opinion on the legal validity or enforceability of any support arrangement. You are cautioned to review with your counsel any questions regarding particular support arrangements. S&P: A Standard & Poor's commercial paper rating is a current assessment of the likelihood of timely payment of debt having an original maturity of no more than 365 days. Ratings are graded into four categories, ranging from "A" for the highest quality obligations to "D" for the lowest. The four categories are as follows: A - Issues rated A are regarded as having the greatest capacity for timely payment. Bonds in this category are delineated with the numbers 1, 2 and 3 to indicate the relative degree of safety. A-1 - Issues rated A-1 indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Commercial paper with overwhelming safety characteristics will be rated A-1+. A-2 - Issues rated A-2 have a strong capacity for timely payments on issues. However, the relative degree of safety is not as high as for issues designated "A-1." A-3 - Issues rated A-3 have a satisfactory capacity for timely payment. They are, however, somewhat more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations. A-7
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B - Issues rated B are regarded as having only adequate capacity for timely payment. However, such capacity may be damaged by changing conditions or short-term adversities. C - Issues rated C are short-term debt obligations with a doubtful capacity for payment. D - This rating indicates that the issue is either in default or is expected to be in default upon maturity. D&P: Duff 1+ - The Duff 1+ rating for corporate commercial paper indicates the highest certainty of timely payment. Corporate commercial paper with very high certainty of payment, excellent liquidity and minor risk will be rated Duff 1. Corporate commercial paper with high certainty of timely payment, strong liquidity and very small risk will be rated Duff 1- . Duff 2 - The Duff 2 rating for corporate commercial paper indicates good certainty of timely payment. Liquidity factors and company fundamentals are sound. Although ongoing funding needs may enlarge total financing requirements, access to capital market is good. Risk factors are small. FITCH: F-1 - The highest rating for corporate paper is F-1+. Issuers so rated have exceptionally strong credit quality. Issuers rated F-1 have very strong credit quality, reflecting assurance of timely payment only slightly less in degree than F-1+ issues. F-2 - Issuers rated F-2 have good credit quality and satisfactory degree of assurance of timely payment, reflecting the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue. THOMSON: TBW-1 - The TBW-1 rating reflects a very high degree of likelihood that principal and interest will be timely repaid and paid. TBW-2 - Bank commercial paper rated TBW-2 has a strong degree of safety regarding payment. TBW-3 - Bank commercial paper rated TBW-3 is the lowest investment grade category, reflecting an adequate capacity to timely service principal and interest but more exposure to adverse internal and external developments than higher-rated issues. TBW-4 - Bank commercial paper rated TBW-4 indicates that the debt is regarded as non-investment grade and therefore speculative. A-8
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CORPORATE NOTE RATINGS S&P: The two highest ratings for corporate notes are SP-1 and SP-2. SP-1 - Notes rated SP-1 reflect a very strong or strong capacity to pay principal and interest. Note issues with overwhelming safety characteristics will be rated SP-1+. SP-2 - Notes rated SP-2 reflect a satisfactory capacity to pay principal and interest. A-9
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APPENDIX B OPTIONS AND FUTURES The following instruments may be used by a Fund for hedging purposes or to enhance income to the extent described in the applicable Prospectus and this Statement of Additional Information. Options on Equity and Debt Securities -- A call option is a short-term contract pursuant to which the purchaser of the option, in return for a premium, has the right to buy the security or currency underlying the option at a specified price at any time during the term of the option. The writer of the call option, who receives the premium, has the obligation, upon exercise of the option during the option term, to deliver the underlying security or currency against payment of the exercise price. A put option is a similar contact that gives its purchaser, in return for a premium, the right to sell the underlying security or currency at a specified price during the option term. The writer of the put option, who receives the premium, has the obligation, upon exercise of the option during the option term, to buy the underlying security or currency at the exercise price. Options on Securities Indexes -- A securities index assigns relative values to the securities included in the index and fluctuates with changes in the market values of those securities. A securities index option operates in the same way as a more traditional stock option, except that exercise of a securities index option is effected with cash payment and does not involve delivery of securities. Thus, upon exercise of a securities index option, the purchaser will realize, and the writer will pay, an amount based on the difference between the exercise price and the closing price of the securities index. Stock Index Futures Contracts -- A stock index futures contract is a bilateral agreement pursuant to which one party agrees to accept, and the other party agrees to make, delivery of an amount of cash equal to a specified dollar amount times the difference between the stock index value at the close of trading of the contract and the price at which the futures contract is originally struck. No physical delivery of the stocks comprising the index is made. Generally, contracts are closed out prior to the expiration date of the contract. Interest Rate Futures Contracts -- Interest rate futures contracts are bilateral agreements pursuant to which one party agrees to make, and the other party agrees to accept, delivery of a specified type of debt security at a specified future time and at a specified price. Although such futures contracts by their terms call for actual delivery or acceptance of debt securities, in most cases, the contracts are closed out before the settlement date without the making or taking of delivery. Options on Future Contracts -- Put and call options on futures contracts will, respectively, give a Fund the right (but not the obligation), for a specified price, to sell or to purchase the underlying futures contract, upon exercise of the option, at any time during the option period. Forward Contracts on Foreign Currencies -- A forward contract on a foreign currency is an obligation to purchase or sell a specific currency at a future date, which may be any number of days agreed upon by the parties from the date of the contract at a price set on the date of the contract. B-1
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PART C OTHER INFORMATION Item 24. Financial Statements and Exhibits. (a) (1) Included in the Prospectuses (Part A) for Growth Stock Fund, U.S. Treasury Securities Fund, and Short- Intermediate U.S. Treasury Securities Fund: Financial Highlights (selected per share data and ratios) for the fiscal period from commencement of operations through July 31, 1994 and for the fiscal years ended July 31, 1995, 1996 and 1997. (2) Included in the Prospectuses (Part A) for Diversified Fixed Income Fund, Growth and Income Fund, New Asia Growth Fund, Tax-Free Securities Fund and Tax-Free Short Intermediate Securities Fund: Financial Highlights (selected per share data and ratios) for the fiscal period from commencement of operations through July 31, 1995 and for the fiscal year ended July 31, 1996 and 1997. (3) Included in the Statement of Additional Information (Part B) for Growth Stock Fund, U.S. Treasury Securities Fund and Short-Intermediate U.S. Treasury Securities Fund: Audited Financial Statements: Schedule of Portfolio Investments as of July 31, 1997. Statement of Assets and Liabilities as of July 31, 1997. Statement of Operations for the year ended July 31, 1997. Statement of Changes in Net Assets for the years ended July 31, 1996 and 1997. Financial Highlights for the period from commencement of operations through July 31, 1994 and for the years ended July 31, 1995, 1996 and 1997. (4) Included in the Statement of Additional Information (Part B) for Diversified Fixed Income Fund, Growth and Income Fund, New Asia Growth Fund, Tax-Free Securities Fund and Tax Free Short Intermediate Securities Fund:
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Audited Financial Statements: Schedule of Portfolio Investments as of July 31, 1997. Statement of Assets and Liabilities as of July 31, 1997. Statement of Operations for the year ended July 31, 1997. Statement of Changes in Net Assets for the years ended July 31, 1996 and 1997. Financial Highlights for the period from commencement of operations through July 31, 1995 and for the years ended July 31, 1996 and 1997. (b) Exhibits: [Download Table] Exhibit Number Description ------ ----------- 1(a)* - Declaration of Trust (b)o - Amendment No. 1 to Declaration of Trust (c)++ - Amendment No. 2 to Declaration of Trust 2* - By-Laws 3 - Not applicable 4 - Instruments Defining Rights of Shareholders (Incorporated by reference to Exhibits 1 and 2 above.) 5(a)** - Investment Advisory Agreement between Hawaiian Trust Company, Limited and the Registrant, dated as of October 29, 1993 ("Investment Advisory Agreement") (b)+ - Addendum and Amended Schedule A to Investment Advisory Agreement (c) - Sub-Advisory Agreement between Pacific Century Trust and Nicholas-Applegate Capital Management (Hong Kong) LLC 6(a)** - Distribution Agreement between BISYS Fund Services (formerly, The Winsbury Company C-2
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[Download Table] Exhibit Number Description ------ ----------- Limited Partnership) and the Registrant, dated as of October 29, 1993 ("Distribution Agreement") (b)o - Amended Schedules A and B to Distribution Agreement (c)*** - Form of Selling Agreement (d) - Amended Distribution Agreement between BISYS Fund Services (formerly, The Winsbury Company Limited Partnership) and the Registrant, dated as of October 29, 1993 as amended through September 26, 1997 7 - Not applicable 8(a)++ - Form of Custodian Agreement between Bank One Trust Company, N.A. and the Registrant, on behalf of Balanced Fund, Diversified Fixed Income Fund, Growth and Income Fund, Growth Stock Fund, Short Intermediate U.S. Treasury Fund, Tax-Free Securities Fund, Tax-Free Short Intermediate Securities Fund and U.S. Treasury Securities Fund (the "Custodian Agreement") (b)ooo - Custodian Agreement between Union Bank of California and Hawaiian Trust Company, Limited, on behalf of New Asia Growth Fund. 9(a)** - Administration Agreement between BISYS Fund Services (formerly The Winsbury Company Limited Partnership) and the Registrant, dated as of October 29, 1993 ("Administration Agreement") (b)o - Amended Schedule A to Administration Agreement (c)** - Transfer Agency Agreement between Administrative Data Management Corporation and the Registrant, dated as of August 17, 1993 ("Transfer Agency Agreement") (d)o - Amended Appendix E to Transfer Agency Agreement (e)** - Fund Accounting Agreement between BISYS Fund Services (formerly, The Winsbury Service Corporation) and the Registrant, dated as of C-3
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[Download Table] Exhibit Number Description ------ ----------- October 29, 1993 ("Fund Accounting Agreement") (f)o - Amended Schedule A to the Fund Accounting Agreement 10(a)** - Opinion and Consent of Counsel 10(b) - 24e-2 Opinion and Consent of Counsel 11 - Consent of Independent Auditors 12 - Not Applicable 13** - Form of Investment Letter 14 - Not Applicable 15(a) - Class A Distribution and Shareholder Service Plan between the Registrant and BISYS Fund Services (formerly, The Winsbury Company), dated as of October 29, 1993 (b)o - Amended Appendix A to the Distribution and Shareholder Service Plan (c) - Class B Distribution and Shareholder Service Plan between the Registrant and BISYS Fund Services (formerly, The Winsbury Company), dated as of September 26, 1997 16(a)oo - Schedule of computation of each performance quotation provided in the Registration Statement in response to Item 22 (relating to Class A Shares of Pacific Capital Growth Stock Fund, Growth and Income Fund, Diversified Fixed Income Fund, U.S. Treasury Securities Fund, Short-Intermediate U.S. Treasury Fund, Tax-Free Securities Fund and Tax-Free Short-Intermediate Securities Fund). (b)oo - Schedule of computation of each performance quotation provided in the Registration Statement in response to Item 22 (relating to Class Y Shares of Pacific Capital Growth Stock Fund, Growth and Income Fund, Diversified Fixed Income Fund, U.S. Treasury Securities Fund, Short-Intermediate U.S. Treasury Fund, Tax-Free Securities Fund and Tax-Free Short-Intermediate Securities Fund). C-4
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[Download Table] Exhibit Number Description ------ ----------- 16(c)ooo - Schedule of computation of each performance quotation provided in the Registration Statement in response to Item 22 (relating to Class A and Class Y Shares of New Asia Growth Fund). 17(a) Financial Data Schedule for Diversified Fixed Income Fund -- Class A (b) Financial Data Schedule for Diversified Fixed Income Fund -- Class Y (c) Financial Data Schedule for Growth and Income Fund -- Class A (d) Financial Data Schedule for Growth and Income Fund -- Class Y (e) Financial Data Schedule for Growth Stock Fund -- Class A (f) Financial Data Schedule for Growth Stock Fund -- Class Y (g) Financial Data Schedule for New Asia Growth Fund -- Class A (h) Financial Data Schedule for New Asia Growth Fund -- Class Y (i) Financial Data Schedule for Short Intermediate U.S. Treasury Securities Fund -- Class A (j) Financial Data Schedule for Short Intermediate U.S. Treasury Securities Fund -- Class Y (k) Financial Data Schedule for Tax-Free Securities Fund -- Class A (l) Financial Data Schedule for Tax-Free Securities Fund -- Class Y (m) Financial Data Schedule for Tax-Free Short Intermediate Securities Fund -- Class A (n) Financial Data Schedule for Tax-Free Short Intermediate Securities Fund -- Class Y (o) Financial Data Schedule for U.S. Treasury Securities Fund -- Class A C-5
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[Download Table] (p) Financial Data Schedule for U.S. Treasury Securities Fund -- Class Y 18 Not applicable 19[] Other Exhibits o Power of Attorney For Trustees and certain Officers: Irimga McKay Deborah G. Patterson Douglas Philpotts Richard W. Gushman, II Stanley W. Hong Russell G. Okata Oswald K. Stender Craig Warren ---------------------------------- * Refiled electronically herein. Initially filed as an exhibit to Registrant's Registration Statement on Form N-1A (File No. 33-57684), filed on January 29, 1993. ** Refiled electronically herein. Initially filed as an exhibit to Post-Effective Amendment No. 1 to Registrant's Registration Statement on Form N-1A, filed on February 28, 1994. *** Refiled electronically herein. Initially filed as an exhibit to Pre-Effective Amendment No. 1 to Registrant's Registration Statement on Form N-1A, filed on July 8, 1993. + Refiled electronically herein. Initially filed as an exhibit to Post-Effective Amendment No. 2 to Registrant's Registration Statement on Form N-14, filed on October 21, 1994. ++ Refiled electronically herein. Initially filed as an exhibit to Post-Effective Amendment No. 4 to Registrant's Registration Statement on Form N-1A, filed on December 28, 1994. o Refiled electronically herein. Initially filed as an exhibit to Post-Effective Amendment No. 5 to Registrant's Registration Statement on Form N-1A, filed on April 7, 1995. oo Refiled electronically herein. Initially filed as an exhibit to Post-Effective Amendment No. 5 and Post-Effective Amendment No. 6 to Registrant's Registration Statement on Form N-1A, filed on April 7, 1995 and July 14, 1995, respectively. ooo Refiled electronically herein. Initially filed as an exhibit to Post-Effective Amendment No. 6 to Registrant's Registration Statement on Form N-1A, filed on July 14, 1995. + Refiled electronically herein. Initially filed as an exhibit to + Post-Effective Amendment No. 7 to Registrant's Registration Statement on Form N-1A, filed on November 2, 1995. [] Incorporated by reference to identically numbered Exhibit to Post-Effective Amendment No. 8 to the Registrant's Registration Statement on Form N-1A, filed on November 29, 1996. C-6
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Item 25 Persons Controlled by or under Common Control with Registrant. No person is controlled by or under common control with Registrant. Item 26. Number of Holders of Securities. As of September 11, 1997 the number of record holders of each class of securities of the Registrant was as follows: Fund Number of Record Holders ---- ------------------------ Balanced Fund Retail Class 0 Institutional Class 0 Diversified Fixed Income Fund Retail Class 5 Institutional Class 13 Growth and Income Fund Retail Class 19 Institutional Class 15 Growth Stock Fund Retail Class 60 Institutional Class 16 New Asia Growth Fund Retail Class 25 Institutional Class 7 Short Intermediate U.S. Treasury Securities Fund Retail Class 7 Institutional Class 7 Tax-Free Securities Fund Retail Class 12 Institutional Class 13 Tax-Free Short Intermediate Securities Fund Retail Class 8 Institutional Class 9 U.S. Treasury Securities Fund Retail Class 10 Institutional Class 4 C-7
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Item 27. Indemnification. Section 5.3 of Article V of the Registrant's Declaration of Trust provides: (a) Subject to the exceptions and limitations contained in paragraph (b) below: (i) The Trustees shall provide for indemnification by the Trust (or by the appropriate Series thereof) to the fullest extent permitted by law of every person who is, or has been, a Trustee or officer of the Trust or any Series of the Trust against all liability and against all expenses reasonably incurred or paid by him in connection with any claim, action, suit or proceeding in which he becomes involved as a party or otherwise by virtue of his being or having been a Trustee or officer of the Trust or of any Series and against amounts paid or incurred by him in the settlement thereof; (ii) The words "claim," "action," "suit," or "proceeding" shall apply to all claims, actions, suits or proceedings (civil, criminal, or other, including appeals), actual or threatened; and the words "liability" and "expenses" shall include, without limitation, attorneys' fees, costs, judgements, amounts paid in settlement, fines, penalties and other liabilities. (b) No indemnification shall be provided hereunder to a Trustee or Officer: (i) against any liability to the Trust or the Shareholders by reason of a final adjudication by the court or other body before which the proceeding was brought that he engaged in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office; (ii) with respect to any matter as to which he shall have been finally adjudicated not to have acted in good faith in the reasonable belief that his action was in the best interest of the Trust; (iii) in the event of a settlement or other disposition not involving a final adjudication as provided in paragraph (b)(i) resulting in a payment by a Trustee or officer, unless there has been a determination that such Trustee or officer did not engage in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office: (A) by the court or other body approving the settlement or other disposition; or (B) based upon a review of readily available facts (as opposed to a full trial-type inquiry) by (x) vote of a majority of the Disinterested Trustees acting on the matter (provided that a majority of the Disinterested Trustees then in office act on the matter) or (y) written opinion of independent legal counsel. (C) The rights of indemnification herein provided may be insured against by policies maintained by the Trust, shall be severable, shall not affect any other rights to which any Trustee or officer may now or hereafter be entitled, shall continue as to a person who has ceased to be such Trustee or officer and shall inure to the benefit of the heirs, executors, administrators and assigns of such a person. Nothing contained C-8
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herein shall affect any rights to indemnification to which personnel of the Trust other than Trustees and officers may be entitled by contract or otherwise under law. (D) Expenses of preparation and presentation of a defense to any claim, action, suit or proceeding of the character described in paragraph (a) of this Section 5.3 may be advanced by the Trust prior to final disposition thereof upon receipt of any undertaking by or on behalf of the recipient to repay such amount if it is ultimately determined that he is not entitled to indemnification under this Section 5.3, provided that either: (i) such undertaking is secured by a surety bond or some other appropriate security provided by the recipient, or the Trust shall be insured against losses arising out of any such advances; or (ii) a majority of the Disinterested Trustees acting on the matter (provided that a majority of the Disinterested Trustees act on the matter) or an independent legal counsel in a written opinion shall determine, based upon a review of readily available facts (as opposed to a full trial-type inquiry), that there is reason to believe that the recipient ultimately will be found entitled to indemnification. As used in this Section 5.3, a "Disinterested Trustee" is one who is neither (i) an "Interested Person" of the Trust (including anyone who has been exempted from being an "Interested Person" by any rule, regulation or order of the Commission), as defined in the 1940 Act, nor (ii) involved in the claim, action, suit or proceeding. Item 28. Business and Other Connections of Investment Adviser and Sub-Adviser. a. Investment Adviser. Pacific Century Trust serves as investment adviser to all of the Registrant's investment portfolios. To the knowledge of Registrant, none of the trustees or executive officers of Pacific Century Trust, except those set forth below, is or has been at any time during the past two fiscal years engaged in any other business, profession, vocation or employment of a substantial nature. Set forth below are the names and principal businesses of the directors and executive officers of Pacific Century Trust, who are or during the past two fiscal years have been engaged in any other business, profession, vocation or employment of a substantial nature for their own account or in the capacity of director, officer, employee, partner or trustee. [Enlarge/Download Table] ======================================================================================================== Principal Business(es) During at Least Name Position(s) the Last Two Fiscal Years -------------------------------------------------------------------------------------------------------- William E. Aull Director President, Hawaii Pacific University Owner/Manager, various Australian cattle/sheep ranches. -------------------------------------------------------------------------------------------------------- Herbert M. Richards, Jr. Director President and Manager, Kahua Ranch, Ltd. -------------------------------------------------------------------------------------------------------- K. Tim Yee Director President and Chief Executive Officer Queen Emmu Foundation C-9
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[Enlarge/Download Table] -------------------------------------------------------------------------------------------------------- Frank McGee Senior Vice Riggs National Bank President -------------------------------------------------------------------------------------------------------- b. Sub-Adviser. Nicholas-Applegate Management (Hong Kong) LLC ("Nicholas- Applegate") serves as sub-adviser to New Asia Growth Fund. To the knowledge of Registrant, none of the trustees or executive officers of Nicholas-Applegate, except those set forth below, is or has been at any time during the past two fiscal years engaged in any other business, profession, vocation or employment of a substantial nature. Set forth below are the names and principal businesses of the directors and executive officers of Nicholas-Applegate who are or during the past two fiscal years have been engaged in any other business, profession, vocation or employment of a substantial nature for their own account or in the capacity of director, officer, employee, partner or trustee. [Enlarge/Download Table] ======================================================================================================== Principal Business(es) During at Least Name Position(s) the Last Two Fiscal Years -------------------------------------------------------------------------------------------------------- Ghassan Alain Director Member of the General Management Hugues Hindie Committee of Credit Lyonnais S.A.; Head of Asset Management and Investor Relations Division -------------------------------------------------------------------------------------------------------- Thomas Douglas Tremayne Director Managing Director of CLIAM (HK), Waring Ltd. -------------------------------------------------------------------------------------------------------- David Peter Wong Director Group Finance Director of CLIAM (HK), Ltd. -------------------------------------------------------------------------------------------------------- Kim Teo Poh Jin Director Managing Director of CLIAM Singapore -------------------------------------------------------------------------------------------------------- Henry Dominic Chicheley Director Group Investment Director of Thornton CLIAM (HK), Ltd. -------------------------------------------------------------------------------------------------------- David Charles Robert Director Director of CLIAM North America Harding -------------------------------------------------------------------------------------------------------- Paul Mack Director Managing Director of CLIAM Hong Kong -------------------------------------------------------------------------------------------------------- Item 29. Principal Underwriter. (a) BISYS Fund Services (formerly known as The Winsbury Company) acts as distributor and administrator for the Registrant. BISYS Fund Services also distributes the securities of American Performance Funds, AmSouth Mutual Funds, The ARCH Fund, Inc., The BB&T Mutual Funds Group, The Conventry Group, Empire Builder Tax Free Bond Fund, First Choice Funds Trust, Fountain Square Funds, Hirtle Callaghan Trust, HSBC Family of Funds, The Infinity Mutual Funds, Inc., Intrust Funds, The Kent Funds, Magna Funds, Marketwatch Funds, C-10
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Meyers Sheppard Investment Trust, Minerva Funds, MMA Proxis Mutual Funds, M.S.D.& T. Funds, Parkstone Group of Funds, The Parkstone Advantage Funds, Pegasus Funds, Qualivest Funds, The Republic Funds Trust, The Republic Advisors Funds Trust, The Riverfront Funds, Inc., SBSF Funds, Inc. dba Key Mutual Funds, Sefton Funds, The Sessions Group, Summit Investment Trust, The Time Horizon Funds, Variable Insurance Funds and The Victory Portfolios, each of which is a management investment company. The parent of BISYS Fund Services, Inc. (the sole general partner of BISYS Fund Services) is The BISYS Group, Inc. (b) The following are the directors, officers and partners of BISYS Fund Services: [Enlarge/Download Table] ==================================================================================================== Positions and Positions and Name and Principal Offices with Offices with Business Addresses BISYS Fund Services the Registrant ---------------------------------------------------------------------------------------------------- The BISYS Group, Inc. Sole Shareholder None 150 Clove Road Little Falls, NJ 07424 ---------------------------------------------------------------------------------------------------- BISYS Fund Services, Inc. Sole General Partner None 3435 Stelzer Avenue Columbus, OH 43219 ---------------------------------------------------------------------------------------------------- WC Subsidiary Corporation Sole Limited Partner None 150 Clove Road Little Falls, NJ 07424 ---------------------------------------------------------------------------------------------------- (c) Not applicable. Item 30. Location of Accounts and Records. Persons maintaining physical possession of accounts, books and other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940 and the rules promulgated thereunder are as follows: (1) Pacific Capital Funds 3435 Stelzer Avenue Columbus, OH 43219-3035 Attention: Secretary (Registrant) (2) Pacific Century Trust Financial Plaza of the Pacific 111 S. King Street Honolulu, Hawaii 96813 Attention: Trust Investments (Investment Adviser) C-11
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(3) BISYS Fund Services 3435 Stelzer Avenue Columbus, OH 43219-3035 (Manager, Administrator and Distributor) (4) Shereff, Friedman, Hoffman & Goodman, LLP 919 Third Avenue New York, New York 10022 (Declaration of Trust, Bylaws, Minute Book) (5) Nicholas-Applegate Management (Hong Kong) LLC 8 Connaught Place Hong Kong Item 31. Management Services. Other than as set forth under the captions "Management of the Funds" and "Other Information" in the Prospectus constituting Part A of this Registration Statement and "Management" and "Custodian" in the Statement of Additional Information constituting Part B of this Registration Statement, Registrant is not a party to any management-related service contract. Item 32. Undertakings. (a) Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to trustees, officers and controlling persons of the Registrant pursuant to the provisions set forth above in response to Item 27, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in such Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a trustee, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such trustee, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (b) Registrant undertakes to hold a special meeting of its shareholders for the purpose of voting on the question of removal of a trustee or trustees if requested in writing by the holders of at least 10% of the Registrant's outstanding voting securities, and to assist in communicating with other shareholders as required by Section 16(c) of the Investment Company Act of 1940. (C) Registrant undertakes to furnish each person to whom a prospectus is delivered with a copy of Registrant's latest annual report to shareholders, upon request and without charge. C-12
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SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Post-Effective Amendment No. 10 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Diego, and State of California on the 30th day of September, 1997 PACIFIC CAPITAL FUNDS By: /s/ Irimga McKay -------------------- Irimga McKay President Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the date(s) indicated: [Download Table] Signature Title Date --------- ----- ---- /s/ Irimga McKay President September 30, 1997 ------------------------------ (Principal Executive (Irimga McKay) Officer) * Treasurer (Principal ------------------------------ Financial and Accounting (Craig Warren) Officer * Trustee and Chairperson ------------------------------ (Deborah G. Patterson) * Trustee ------------------------------ (Douglas Philpotts) * Trustee ------------------------------ (Richard W. Gushman, II) * Trustee ------------------------------ (Stanley W. Hong) * Trustee ------------------------------ (Russell K. Okata) * Trustee ------------------------------ (Oswald K. Stender) *By: /s/ Irimga Mckay September 30, 1997 ------------------------------ (Irimga McKay Attorney-in-Fact) C-13
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EXHIBIT INDEX [Download Table] 5(c) Sub-Advisory Agreement between Pacific Century Trust and Nicholas-Applegate Capital Management (Hong Kong) LLC 6(d) Amended Distribution Agreement between BISYS Fund Services (formerly, The Winsbury Company Limited Partnership) and the Registrant, dated as of October 29, 1993 as amended through September 26, 1997 10(b) 24e-2 Opinion and Consent of Counsel 11 Consent of Independent Auditors 15(a) Class A Distribution and Shareholder Service Plan between the Registrant and BISYS Fund Services (formerly, The Winsbury Company), dated as of October 29, 1993 15(c) Class B Distribution and Shareholder Service Plan between the Registrant and BISYS Fund Services (formerly, The Winsbury Company), dated as of September 26, 1997 17(a) Financial Data Schedule for Diversified Fixed Income Fund-- Class A (b) Financial Data Schedule for Diversified Fixed Income Fund - - Class Y (c) Financial Data Schedule for Growth and Income Fund -- Class A (d) Financial Data Schedule for Growth and Income Fund -- Class Y (e) Financial Data Schedule for Growth Stock Fund -- Class A (f) Financial Data Schedule for Growth Stock Fund -- Class Y (g) Financial Data Schedule for New Asia Growth Fund -- Class A (h) Financial Data Schedule for New Asia Growth Fund -- Class Y (i) Financial Data Schedule for Short Intermediate U.S. Treasury Securities Fund -- Class A (j) Financial Data Schedule for Short Intermediate U.S. Treasury Securities Fund -- Class Y (k) Financial Data Schedule for Tax-Free Securities Fund -- Class A (l) Financial Data Schedule for Tax-Free Securities Fund -- Class Y C-14
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[Download Table] (m) Financial Data Schedule for Tax-Free Short Intermediate Securities Fund -- Class A (n) Financial Data Schedule for Tax-Free Short Intermediate Securities Fund -- Class Y (o) Financial Data Schedule for U.S. Treasury Securities Fund -- Class A (p) Financial Data Schedule for U.S. Treasury Securities Fund -- Class Y 18 Rule 18f-3 Plan C-15

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