<PAGE>
As filed with the Securities and Exchange Commission on September 27, 1996
Registration No. ____
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. ____ [ ]
Post-Effective Amendment No. ____ [ ]
PIMCO Funds
(Exact name of Registrant as Specified in Charter)
840 Newport Center Drive, Newport Beach, California 92660
(Address of Principal Executive Offices)
(714) 640-3031
(Area Code and Telephone Number)
__________
R. Wesley Burns
Pacific Investment Management Company
840 Newport Center Drive
Newport Beach, California 92660
(Name and Address of Agent for Service)
Copies to:
<TABLE>
<S> <C> <C>
Newton B. Schott, Jr., Esq. Robert W. Helm, Esq. Douglass N. Ellis, Jr.,Esq.
c/o PIMCO Advisors L.P. Dechert Price & Rhoads Ropes & Gray
2187 Atlantic Street 1500 K Street, N.W., One International Place
Stamford, CT 06902 Suite 500 Boston, MA 02110
Washington, DC 20005
</TABLE>
__________
Approximate Date of Proposed Public Offering:
As soon as practicable after this Registration Statement becomes effective.
__________
It is proposed that this filing will become effective on October 28, 1996
pursuant to Rule 488.
__________
An indefinite amount of the Registrant's securities has been registered
under the Securities Act of 1933 pursuant to Rule 24f-2. In reliance upon such
Rule, no filing fee is being paid at this time. A Rule 24f-2 notice for the
Registrant for the fiscal year ended March 31, 1996 was filed on May 30, 1996.
<PAGE>
PIMCO Funds
High Yield Fund, Total Return Fund,
Low Duration Fund and Money Market Fund
<TABLE>
<CAPTION>
Cross-Reference Sheet
as required by Rule 481(a)
<S> <C>
Form N-14 Item Caption in Prospectus/Proxy Statement
1 Cross-Reference Sheet; Outside Front
Cover of Prospectus
2 Outside Back Cover Page of Prospectus;
Table of Contents
3 Overview: Risk Factors
4 Approval or Disapproval of Agreement and Plan of
Reorganization
5 Information about the Acquiring Funds
6 Information about the Acquired Funds
7 Voting Information
8, 9 Not Applicable
Form N-14 Item Caption in Statement of Additional Information
10, 11 Cover Page; Table of Contents
12, 13 Additional Information about the Acquiring
and Acquired Funds
14 Financial Statements
Form N-14 Item Caption in Part C
15 Indemnification
16 Exhibits
17 Undertakings
</TABLE>
<PAGE>
PIMCO ADVISORS FUNDS
High Income Fund
Total Return Income Fund
U.S. Government Fund
Short-Intermediate Fund
Money Market Fund
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
December ___, 1996
To the Shareholders:
Notice is hereby given that a Special Meeting of Shareholders of the High
Income Fund, the Total Return Income Fund, the U.S. Government Fund, the Short-
Intermediate Fund and the Money Market Fund (each an "Acquired Fund") will be
held _________, December ___, 1996 at ________ at the offices of PIMCO Advisors
Funds at 2187 Atlantic Street, Stamford, Connecticut, to consider the following:
1. To approve or disapprove an Agreement and Plan of Reorganization
providing for the transfer of all of the assets of the High Income Fund
to the PIMS High Yield Fund (the "PIMS High Yield Fund"), a series of
PIMCO Funds: Pacific Investment Management Series ("PIMS"), in exchange
for shares of the PIMS High Yield Fund and the assumption by the PIMS
High Yield Fund of all of the liabilities of the High Income Fund, and
the distribution of such shares to the shareholders of the High Income
Fund in complete liquidation of the High Income Fund. (This proposal
will be voted upon by the shareholders of the High Income Fund only.)
2. To approve or disapprove an Agreement and Plan of Reorganization
providing for the transfer of all of the assets of the Total Return
Income Fund to the Total Return Fund, a series of PIMS (the "PIMS Total
Return Fund"), in exchange for shares of the PIMS Total Return Fund and
the assumption by the PIMS Total Return Fund of all of the liabilities
of the Total Return Income Fund, and the distribution of such shares to
the shareholders of the Total Return Income Fund in complete
liquidation of the Total Return Income Fund. (This proposal will be
voted upon by the shareholders of the Total Return Income Fund only.)
3. To approve or disapprove an Agreement and Plan of Reorganization
providing for the transfer of all of the assets of the U.S. Government
Fund to the PIMS Total Return Fund, in exchange for shares of the PIMS
Total Return Fund and the assumption by the PIMS Total Return Fund of
all of the liabilities of the
<PAGE>
U.S. Government Fund, and the distribution of such shares to the
shareholders of the U.S. Government Fund in complete liquidation of the
U.S. Government Fund. (This proposal will be voted upon by the
shareholders of the U.S. Government Fund only.)
4. To approve or disapprove an Agreement and Plan of Reorganization
providing for the transfer of all of the assets of the Short-
Intermediate Fund to the Low Duration Fund, a series of PIMS (the "PIMS
Low Duration Fund"), in exchange for shares of the PIMS Low Duration
Fund and the assumption by the PIMS Low Duration Fund of all of the
liabilities of the Short-Intermediate Fund, and the distribution of
such shares to the shareholders of the Short-Intermediate Fund in
complete liquidation of the Short-Intermediate Fund. (This proposal
will be voted upon by the shareholders of the Short-Intermediate Fund
only.)
5. To approve or disapprove an Agreement and Plan of Reorganization
providing for the transfer of all of the assets of the Money Market
Fund to the PIMS Money Market Fund, a series of PIMS (the "PIMS Money
Market Fund"), in exchange for shares of the PIMS Money Market Fund and
the assumption by the PIMS Money Market Fund of all of the liabilities
of the Money Market Fund, and the distribution of such shares to the
shareholders of the Money Market Fund in complete liquidation of the
Money Market Fund. (This proposal will be voted upon by the
shareholders of the Money Market Fund only.)
6. To transact such other business as may properly come before the
meeting.
The Trustees have fixed the close of business on October ___, 1996 as the
record date for determination of shareholders entitled to notice of, and to vote
at, the Special Meeting.
By order of the Board of Trustees
Newton B. Schott, Jr., Clerk
----------------------------------------------------------------------
WE URGE YOU TO MARK, SIGN, DATE, AND MAIL THE ENCLOSED PROXY IN THE
POSTAGE-PAID ENVELOPE PROVIDED SO THAT YOU WILL BE REPRESENTED AT THE
SPECIAL MEETING.
----------------------------------------------------------------------
October ___, 1996
<PAGE>
PROSPECTUS/PROXY STATEMENT October ___, 1996
<TABLE>
<CAPTION>
Acquisition of the assets of: By and in exchange for shares of:
- ---------------------------- --------------------------------
<S> <C>
High Income Fund High Yield Fund
Total Return Income Fund Total Return Fund
U.S. Government Fund Total Return Fund
Short-Intermediate Fund Low Duration Fund
Money Market Fund Money Market Fund
each a series of: each a series of:
- ---------------- ----------------
PIMCO Advisors Funds PIMCO Funds: Pacific Investment
2187 Atlantic Street Management Series
Stamford, Connecticut 06902 840 Newport Center Drive, Suite 360
1-800-426-0107 Newport Beach, California 92660
1-800-927-4648
</TABLE>
This Prospectus/Proxy Statement relates to the proposed mergers (the
"Mergers") of (i) the High Income Fund, (ii) the Total Return Income Fund, (iii)
the U.S. Government Fund, (iv) the Short-Intermediate Fund and (v) the Money
Market Fund (each an "Acquired Fund"), series of PIMCO Advisors Funds (the "PAF
Trust"), into, respectively, (i) the High Yield Fund (the "PIMS High Yield
Fund"), (ii) the Total Return Fund (the "PIMS Total Return Fund"), (iii) the
PIMS Total Return Fund, (iv) the Low Duration Fund (the "PIMS Low Duration
Fund") and (v) the Money Market Fund (the "PIMS Money Market Fund") (each an
"Acquiring Fund"), series of PIMCO Funds: Pacific Investment Management Series
(the "PIMS Trust"). The Acquired Funds and the Acquiring Funds are referred to
in this Prospectus/Proxy Statement as the "Funds." The Mergers are to be
effected through the transfer of all of the assets of each Acquired Fund to the
corresponding Acquiring Fund in exchange for shares of beneficial interest of
the Acquiring Fund (the "Merger Shares") and the assumption by the Acquiring
Fund of all of the liabilities of the Acquired Fund, followed by the
distribution of the Merger Shares to the shareholders of the Acquired Fund in
liquidation of the Acquired Fund. As a result of each proposed transaction,
each shareholder of the Acquired Fund will receive in exchange for his or her
Acquired Fund shares a number of Acquiring Fund shares of the same class equal
in value at the date of the exchange to the aggregate value of the shareholder's
Acquired Fund shares.
Because shareholders of the Acquired Funds are being asked to approve
transactions which will result in their holding shares of the Acquiring Funds,
this Proxy Statement also serves as a Prospectus for the Merger Shares of each
Acquiring Fund. The investment objective of each Acquiring Fund is as follows:
-1-
<PAGE>
1. The PIMS High Yield Fund, the PIMS Total Return Fund and the PIMS Low
Duration Fund each seek maximum total return, consistent with preservation
of capital and prudent investment management.
2. The PIMS Money Market Fund seeks maximum current income, consistent
with preservation of capital and daily liquidity.
The "total return" sought by certain of the Acquiring Funds will consist of
interest and dividends from underlying securities, capital appreciation
reflected in unrealized increases in value of portfolio securities (realized by
the shareholder only upon selling shares), or realized from the purchase and
sale of securities and use of futures and options, or gains from favorable
changes in foreign currency exchange rates. Generally, over the long term, the
total return obtained by a portfolio investing primarily in fixed income
securities is not expected to be as great as that obtained by a portfolio that
invests primarily in equity securities. At the same time, the market risk and
price volatility of a fixed income portfolio is expected to be less than that of
any equity portfolio, so that a fixed income portfolio is generally considered
to be a more conservative investment.
The PIMS Trust is an open-end series management investment company,
organized as a Massachusetts business trust in 1987, that currently offers
shares of 18 separate funds. Each Acquiring Fund is a diversified series of the
PIMS Trust.
The PIMS High Yield Fund may invest up to 100% of its assets in lower-rated
fixed income securities commonly known as "junk bonds", which are subject to
high risk, and speculative with regard to payment of interest and return of
principal. Investors should carefully consider these risks before investing in
this Fund. See "Characteristics and Risks of Securities and Investment
Techniques" in Appendix B.
Investment in the PIMS Money Market Fund (or in any other Fund) is neither
insured nor guaranteed by the U.S. Government. There can be no assurance that
the PIMS Money Market Fund will be able to maintain a stable net asset value of
$1.00 per share.
This Prospectus/Proxy Statement explains concisely what you should know
before investing in each Acquiring Fund. Please read it and keep it for future
reference.
The following documents have been filed with the Securities and Exchange
Commission (the "SEC") and are incorporated into this Prospectus/Proxy Statement
by reference: (i) the current Prospectus of the PAF Trust, dated February 1,
1996, as amended or supplemented from time to time (the "PAF Prospectus"); (ii)
the current Statement of Additional Information of the PAF Trust, dated July 12,
1996 (including the Report of Independent Accountants and financial statements
in respect of each Acquired Fund included therein), as amended or supplemented
from time to time (the "PAF Statement of Additional Information"); (iii) the
current Prospectus and Statement of Additional Information of the PIMS Trust,
each dated June 15, 1996, as amended or supplemented from time to time (the
-2-
<PAGE>
"PIMS Prospectus" and the "PIMS Statement of Additional Information,"
respectively); (iv) the financial statements in respect of each Acquired Fund
included in the PAF Trust's Semi-Annual Report to Shareholders for the six
months ended March 31, 1996 (the "PAF Semi-Annual Report"); (v) the Report of
Independent Accountants and financial statements in respect of each Acquiring
Fund included in the PIMS Trust's Annual Report to Shareholders for the fiscal
year ended March 31, 1996 (the "PIMS Annual Report"); and (vi) a Statement of
Additional Information dated October ___, 1996 relating to the transactions
described in this Prospectus/Proxy Statement (the "Merger Statement of
Additional Information").
For a free copy of any or all of the Prospectuses, Statements of Additional
Information, Annual Reports or Semi-Annual Reports referred to in the foregoing
paragraph, please call 1-800-927-4648 or write to the PIMS Trust at the address
appearing above.
THE SECURITIES OFFERED BY THIS PROSPECTUS/PROXY STATEMENT HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
SHARES OF THE ACQUIRING FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY,
AND INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
-3-
<PAGE>
OVERVIEW
Proposed Transactions
The transactions described on the first page of this Prospectus/Proxy
Statement are part of an overall restructuring of three of the registered
investment companies (the "PIMCO Mutual Funds") advised by PIMCO Advisors L.P.
("PIMCO Advisors") and its affiliates. The restructuring involves, among other
components, several mergers between Funds in the PIMCO family which are
counterparts of each other in that they are managed by the same investment
adviser in accordance with substantially similar investment objectives and
policies. The result of the restructuring will be a single, more integrated
mutual fund complex, with most PIMCO Mutual Funds offered to both retail and
institutional investors, and with broader exchange privileges for shareholders.
As part of the restructuring, the Trustees of each of the PAF Trust and the
PIMS Trust, both of which are open-end, series investment companies, have
unanimously approved the Merger of each Acquired Fund into the corresponding
Acquiring Fund. Each Merger is proposed to be accomplished pursuant to an
Agreement and Plan of Reorganization providing for the transfer of all of the
assets of the relevant Acquired Fund to the corresponding Acquiring Fund in
exchange for the assumption by the corresponding Acquiring Fund of all of the
liabilities of the Acquired Fund and for shares of the Acquiring Fund. The
completion of these transactions will result in the liquidation of each Acquired
Fund.
PIMCO Advisors is the investment adviser for the Acquired Funds. Pacific
Investment Management Company ("PIMCO"), a subsidiary partnership of PIMCO
Advisors, serves as investment adviser to the Acquiring Funds and as sub-adviser
to the Acquired Funds except for the Money Market Fund. Columbus Circle
Investors ("CCI"), a subsidiary partnership of PIMCO Advisors, serves as the
sub-adviser of the Money Market Fund. Two of the Acquired Funds (the High
Income Fund and the Total Return Income Fund) are managed by the same portfolio
manager at PIMCO as their Acquiring Fund counterparts (the PIMS High Yield Fund
and PIMS Total Return Fund, respectively). Furthermore, as explained further
below under "Comparison of Investment Objectives, Policies and Restrictions",
each Acquiring Fund is managed in a substantially similar manner to the
corresponding Acquired Fund except that the U.S. Government Fund invests only in
securities issued or guaranteed by the U.S. Government and its instrumentalities
("U.S. Government Securities") and related options and futures whereas the PIMS
Total Return Fund may invest in other securities. See "Comparison of Investment
Objectives, Policies and Restrictions."
As a result of each proposed transaction, each Acquired Fund will receive a
number of Class A, Class B and Class C shares of the relevant Acquiring Fund
equal in value to the value of the net assets of the Acquired Fund being
transferred and attributable to the Class A, Class B and Class C shares,
respectively, of the Acquired Fund. Following the transfer, (i) each Class A,
Class B and Class C shareholder of the relevant Acquired Fund will receive, on a
tax-free basis, a number of full and fractional Class A, Class B or Class C
Merger Shares of the relevant Acquiring Fund equal in value to the aggregate
value of the shareholder's
-4-
<PAGE>
Class A, Class B or Class C Acquired Fund shares, as the case may be, and (ii)
the Acquired Funds shall be liquidated.
The Class A, Class B and Class C shares of each Acquiring Fund have
substantially identical characteristics to the corresponding classes of the
Acquired Fund. Class A shares are generally sold subject to a front-end sales
load and are subject to a servicing fee at an annual rate of 0.25% of assets
attributable to Class A shares. Class A shares are generally not subject to a
contingent deferred sales charge (a "CDSC"), except in the case of certain
purchases of Class A shares without a sales load which are redeemed within one
year after purchase. Class B shares are sold at net asset value, without an
initial sales charge but subject to a CDSC at declining rates if redeemed within
7 years of purchase. Class B shares are subject to servicing and distribution
fees at an aggregate annual rate of 1.00% of assets attributable to Class B
shares and convert automatically to Class A shares 7 years after purchase.
Class C shares are sold at net asset value, without an initial sales charge, are
subject to a 1.00% CDSC if redeemed within one year after purchase, are subject
to servicing and distribution fees at an aggregate annual rate of 1.00% of
assets attributable to Class C shares and do not have a conversion feature. The
Acquiring Funds have not previously offered Class A, Class B or Class C shares,
but will begin offering such shares to the public at or before the time that the
Mergers are consummated. No sales charge will be charged to Acquired Fund
shareholders on the issuance of the Merger Shares. The Merger Shares will be
subject to a CDSC to the same extent that the Acquired Fund shares exchanged
were so subject. For the purposes of computing the CDSC, if any, payable on
redemption of Class A, Class B and Class C Merger Shares, and determining the
conversion date of Class B Merger Shares, the Merger Shares will be treated as
having been purchased as of the date that and for the price at which the
Acquired Fund shares exchanged for such Merger Shares were purchased.
The Trustees of the PAF Trust unanimously recommend that shareholders of
each Acquired Fund approve the Merger for such Fund because it offers
shareholders the opportunity to pursue a substantially similar investment
program in a larger fund, which should offer opportunities for greater
diversification of risk; because the Mergers and the general restructuring of
which they are a part will offer broader exchange privileges; and because the
Mergers will immediately result in more predictable Fund operating expenses,
under the Acquiring Funds' fee structure described below, at lower levels than
have historically been experienced by each Acquired Fund except for the Money
Market Fund. Because the PIMS Money Market Fund does not have in effect a
voluntary expense waiver on the part of the adviser, the Money Market Fund may
experience a higher level of fees under the Acquiring Fund fee unified structure
even though the total expenses for the Acquiring Fund will be lower than the
total expenses of the Money Market Fund would be in the absence of its adviser's
voluntary expense waiver. See "Background and Reasons for the Proposed
Mergers."
-5-
<PAGE>
Operating Expenses
The PIMS Trust's "unified" fee structure differs from the fee and expense
structure of the PAF Trust. Both the Acquiring Funds and the Acquired Funds pay
a management or advisory fee, computed as a percentage of Fund net assets, to
their investment adviser, PIMCO Advisors, in the case of the Acquired Funds, and
PIMCO, in the case of the Acquiring Funds. However, the management fee paid by
each Acquired Fund covers both portfolio management and administrative services,
while the advisory fee paid by each Acquiring Fund covers portfolio management
only. Each Acquired Fund directly bears the expenses associated with various
third-party services, such as audit, custodial, portfolio accounting, legal,
transfer agency and printing costs. By contrast, each Acquiring Fund pays a
single administrative fee, computed as a percentage of Fund net assets, to
PIMCO, which also serves as each Acquiring Funds' administrator and which bears
the costs of such third-party services to the Fund, as well as itself providing
administrative services to the Fund. The result is an expense level for each
Acquiring Fund that is precise and predictable under ordinary circumstances.
Furthermore, investors in the Acquiring Funds are insulated from price increases
in third party services and from increased expense ratios arising from a decline
in net assets, because the administrator, rather than the Acquiring Fund, bears
these risks for a period of at least one year. Administrative fee arrangements
for the Acquired Funds and the Acquiring Funds are discussed further under
"Administrative Arrangements" on page ___.
For information about the expenses associated with the Mergers, see
"Background and Reasons for the Proposed Mergers."
As the following tables demonstrate, each Merger would result in High
Income, Total Return Income, U.S. Government, and Short-Intermediate Fund
shareholders receiving an immediate reduction in the level of Fund expenses
borne by such shareholders compared to historical periods. The expenses of the
Money Market Fund are expected to be higher because the PIMS Money Market Fund
does not have in effect the fee waiver referred to in notes 9 and 10 in the
following table. These tables summarize, for Class A, Class B and Class C
shares, expenses (i) that each Acquired Fund incurred in its fiscal year ended
September 30, 1995, (ii) that each Acquired Fund incurred during the first 11
months of its fiscal year ending September 30, 1996 (through August 31, 1996)
and (iii) that each Acquiring Fund would have incurred in its most recent fiscal
year after giving effect to the proposed Merger on a pro forma combined basis as
if the Merger had occurred as of the beginning of the Acquiring Fund's most
recent fiscal year. The tables are provided to help you understand an
investor's share of the operating expenses which each Fund incurs. The examples
show the estimated cumulative expenses attributable to a hypothetical $1,000
investment in each Acquired Fund, and each Acquiring Fund on a pro forma basis,
over specified periods.
-6-
<PAGE>
<TABLE>
<CAPTION>
Historical Expenses Current Expenses
High Income Fund High Income Fund
(for fiscal year (for period ended Pro Forma Expenses
ended Sept. 30, 1995) Aug. 31, 1996) PIMS High Yield Fund
-----------------------------------------------------------------------
CLASS A SHARES | |
<S> <C> | <C> | <C>
| |
Shareholder Transaction Expenses | |
Maximum initial sales charge imposed on purchases | |
(as a percentage of offering price at | |
the time of purchase)(1)(2)......................... 4.75% | 4.75% | 4.75%
Maximum contingent deferred sales charge (as a | |
percentage of original purchase price)(2)........... 1.00%(3) | 1.00%(3) | 1.00%(3)(4)
| |
Annual Fund Operating Expenses (as a percentage | |
of average net assets) | |
Advisory Fee.......................................... 0.60% | 0.60% | 0.25%
Administrative Fee.................................... | | 0.40%
12b-1 Fees............................................ 0.25% | 0.25% | 0.25%
Other Expenses........................................ 0.29% | 0.25% | ---- (11)
------------------------|---------------------|------------------------
Total Fund Operating Expenses...................... 1.14% | 1.10% | 0.90%
| |
CLASS B SHARES | |
| |
Shareholder Transaction Expenses | |
Maximum initial sales charge imposed on purchases | |
(as a percentage of offering price)................. None | None | None
Maximum contingent deferred sales charge (as a | |
percentage of original purchase price)(2)........... 5.00% | 5.00% | 5.00%(4)
| |
Annual Fund Operating Expenses (as a | |
percentage of average net assets) | |
Advisory Fee.......................................... 0.60% | 0.60% | 0.25%
Administrative Fee.................................... | | 0.40%
12b-1 Fees............................................ 1.00%(5) | 1.00%(5) | 1.00%(5)
Other Expenses........................................ 0.29% | 0.25% | ---- (11)
------------------------|---------------------|------------------------
Total Fund Operating Expenses...................... 1.89% | 1.85% | 1.65%
| |
CLASS C SHARES | |
| |
Shareholder Transaction Expenses | |
Maximum initial sales charge imposed on purchases | |
(as a percentage of offering price)................. None | None | None
Maximum contingent deferred sales charge (as a | |
percentage of original purchase price)(2)........... 1.00% | 1.00% | 1.00%(4)
| |
Annual Fund Operating Expenses (as a | |
percentage of average net assets) | |
Advisory Fee.......................................... 0.60% | 0.60% | 0.25%
Administrative Fee.................................... | | 0.40%
12b-1 Fees............................................ 1.00%(5) | 1.00%(5) | 1.00%(5)
Other Expenses........................................ 0.29% | 0.25% |
| | ---- (11)
------------------------|---------------------|------------------------
Total Fund Operating Expenses...................... 1.89% | 1.85% | 1.65%
</TABLE>
-7-
<PAGE>
<TABLE>
<CAPTION>
Historical Expenses Current Expenses
Total Return Income Total Return Income Pro Forma Expenses
Fund (for fiscal year Fund (for period PIMS Total
ended Sept. 30, 1995) ended Aug. 31, 1996) Return Fund
-----------------------------------------------------------------------
CLASS A SHARES
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum initial sales charge imposed on purchases
(as a percentage of offering price at
the time of purchase)(1)(2)................................. 4.75% 4.75% 4.75%
Maximum contingent deferred sales charge (as a
percentage of original purchase price)(2)................... 1.00%(3) 1.00%(3) 1.00%(3)(4)
Annual Fund Operating Expenses (as a percentage of
average net assets)
Advisory Fee................................................. 0.60% 0.60% 0.25%
Administrative Fee........................................... 0.40%
12b-1 Fees................................................... 0.25% 0.25% 0.25%
Other Expenses............................................... 0.36% 0.23% ---- (11)
----------------------- ------------------- -----------------------
Total Fund Operating Expenses............................. 1.21% 1.08% 0.90%
CLASS B SHARES
Shareholder Transaction Expenses
Maximum initial sales charge imposed on purchases
(as a percentage of offering price)......................... None None None
Maximum contingent deferred sales charge (as a
percentage of original purchase price)(2)................... 5.00% 5.00% 5.00%(4)
Annual Fund Operating Expenses (as a
percentage of average net assets)
Advisory Fee................................................. 0.60% 0.60% 0.25%
Administrative Fee........................................... 0.40%
12b-1 Fees................................................... 1.00%(5) 1.00%(5) 1.00%(5)
Other Expenses............................................... 0.36% 0.23% ---- (11)
----------------------- ------------------- -----------------------
Total Fund Operating Expenses............................. 1.96% 1.83% 1.65%
CLASS C SHARES
Shareholder Transaction Expenses
Maximum initial sales charge imposed on purchases
(as a percentage of offering price)......................... None None None
Maximum contingent deferred sales charge (as a
percentage of original purchase price)(2)................... 1.00% 1.00% 1.00%(4)
Annual Fund Operating Expenses (as a
percentage of average net assets)
Advisory Fee................................................. 0.60% 0.60% 0.25%
Administrative Fee........................................... 0.40%
12b-1 Fees................................................... 1.00%(5) 1.00%(5) 1.00%(5)
Other Expenses............................................... 0.36% 0.23% ---- (11)
----------------------- ------------------- -----------------------
Total Fund Operating Expenses............................. 1.96% 1.83% 1.65%
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
Historical Expenses Current Expenses
U.S. Government U.S. Government Fund Pro Forma Expenses
Fund (for fiscal year (for period ended PIMS Total
ended Sept. 30, 1995) Aug. 31, 1996) Return Fund
-----------------------------------------------------------------------
CLASS A SHARES | |
<S> <C> | <C> | <C>
| |
Shareholder Transaction Expenses | |
Maximum initial sales charge imposed on purchases | |
(as a percentage of offering price at | |
the time of purchase)(1)(2).......................... 4.75% | 4.75% | 4.75%
Maximum contingent deferred sales charge (as a | |
percentage of original purchase price)(2)............ 1.00%(3) | 1.00%(3) | 1.00%(3)(4)
| |
Annual Fund Operating Expenses (as a percentage of | |
average net assets) | |
Advisory Fee.......................................... 0.59% | 0.59% | 0.25%
Administrative Fee.................................... | | 0.40%
12b-1 Fees............................................ 0.25% | 0.25% | 0.25%
Other Expenses........................................ 0.20% | 0.23% | -- (11)
------------------------|-----------------------|----------------------
Total Fund Operating Expenses....................... 1.04% | 1.07% | 0.90%
| |
CLASS B SHARES | |
| |
Shareholder Transaction Expenses | |
Maximum initial sales charge imposed on purchases | |
(as a percentage of offering price).................. None | None | None
Maximum contingent deferred sales charge (as a | |
percentage of original purchase price)(2)............ 5.00% | 5.00% | 5.00%(4)
| |
Annual Fund Operating Expenses (as a | |
percentage of average net assets) | |
Advisory Fee.......................................... 0.59% | 0.59% | 0.25%
Administrative Fee.................................... | | 0.40%
12b-1 Fees............................................ 1.00%(5) | 1.00%(5) | 1.00%(5)
Other Expenses........................................ 0.20% | 0.23% | -- (11)
------------------------|-----------------------|----------------------
Total Fund Operating Expenses....................... 1.79% | 1.82% | 1.65%
| |
CLASS C SHARES | |
| |
Shareholder Transaction Expenses | |
Maximum initial sales charge imposed on purchases | |
(as a percentage of offering price).................. None | None | None
Maximum contingent deferred sales charge (as a | |
percentage of original purchase price)(2)............ 1.00% | 1.00% | 1.00%(4)
| |
Annual Fund Operating Expenses (as a | |
percentage of average net assets) | |
Advisory Fee.......................................... 0.59% | 0.59% | 0.25%
Administrative Fee.................................... | | 0.40%
12b-1 Fees............................................ 1.00%(5) | 1.00%(5) | 1.00%(5)
Other Expenses........................................ 0.20% | 0.23% | -- (11)
------------------------|-----------------------|----------------------
Total Fund Operating Expenses....................... 1.79% | 1.82% | 1.65%
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
Historical Expenses Current Expenses
Short-Intermediate Short-Intermediate Pro Forma Expenses
Fund (for fiscal year Fund (for period PIMS Low
ended Sept. 30, 1995) ended Aug. 31, 1996) Duration Fund
----------------------------------------------------------------------------
<S> <C> <C> <C>
CLASS A SHARES
Shareholder Transaction Expenses
Maximum initial sales charge imposed on purchases
(as a percentage of offering price at
the time of purchase)(1)(2)........................ 3.00% 3.00% 3.00%
Maximum contingent deferred sales charge (as a
percentage of original purchase price)(2).......... 1.00%(3) 1.00%(3) 1.00%(3)(4)
Annual Fund Operating Expenses (as a percentage of
average net assets)
Advisory Fee........................................ 0.50% 0.50% 0.25%
Administrative Fee.................................. 0.40%
12b-1 Fees.......................................... 0.25% 0.25% 0.25%
Other Expenses...................................... 0.20% 0.23% -- (11)
----------------------------------------------------------------------------
Total Fund Operating Expenses..................... 0.95% 0.98% 0.90%
CLASS B SHARES
Shareholder Transaction Expenses
Maximum initial sales charge imposed on purchases
(as a percentage of offering price)................ None None None
Maximum contingent deferred sales charge (as a
percentage of original purchase price)(2).......... 5.00% 5.00% 5.00%(4)
Annual Fund Operating Expenses (as a
percentage of average net assets)
Advisory Fee........................................ 0.50% 0.50% 0.25%
Administrative Fee.................................. 0.40%
12b-1 Fees.......................................... 1.00%(5) 1.00%(5) 1.00%(5)
Other Expenses...................................... 0.20% 0.23% -- (11)
----------------------------------------------------------------------------
Total Fund Operating Expenses..................... 1.70% 1.73% 1.65%
CLASS C SHARES
Shareholder Transaction Expenses
Maximum initial sales charge imposed on purchases
(as a percentage of offering price)................ None None None
Maximum contingent deferred sales charge (as a
percentage of original purchase price)(2).......... 1.00% 1.00% 1.00%(4)
Annual Fund Operating Expenses (as a
percentage of average net assets)
Advisory Fee........................................ 0.50% 0.50% 0.25%
Administrative Fee.................................. 0.40%
12b-1 Fees.......................................... 0.75%(5) 0.75%(5) 1.00%(5)
Other Expenses...................................... 0.20% 0.23% -- (11)
----------------------------------------------------------------------------
Total Fund Operating Expenses..................... 1.45% 1.48% 1.65%
</TABLE>
-10-
<PAGE>
<TABLE>
<CAPTION>
Historical Expenses Current Expenses
Money Market Fund Money Market Fund Pro Forma Expenses
(for fiscal year (for period ended PIMS Money
ended Sept. 30, 1995) Aug. 31, 1996) Market Fund
---------------------------------------------------------------
CLASS A SHARES
<S> <C> <C> <C>
Shareholder Transaction Expenses
Maximum initial sales charge imposed on purchases
(as a percentage of offering price at
the time of purchase)(1)(2)....................... None(6) None(6) None(6)
Maximum contingent deferred sales charge (as a
percentage of original purchase price)(2)......... 1.00%(3) 1.00%(3) 1.00%(3)(4)
Annual Fund Operating Expenses (as a percentage of
average net assets)
Advisory Fee....................................... 0.10%(7) 0.10%(7) 0.15%
Administrative Fee................................. 0.35%
12b-1 Fees......................................... 0.10%(8) 0.10%(8) 0.25%
Other Expenses..................................... 0.29% 0.27% -- (11)
---------------------------------------------------------------
Total Fund Operating Expenses.................... 0.49%(9) 0.47% 0.75%
CLASS B SHARES
Shareholder Transaction Expenses
Maximum initial sales charge imposed on purchases
(as a percentage of offering price)............... None None None
Maximum contingent deferred sales charge (as a
percentage of original purchase price)(2)......... 5.00% 5.00% 5.00%(4)
Annual Fund Operating Expenses (as a
percentage of average net assets)
Advisory Fee....................................... 0.10%(7) 0.10%(7) 0.15%
Administrative Fee................................. 0.35%
12b-1 Fees......................................... 0.10%(5)(8) 0.10%(5)(8) 1.00%(5)
Other Expenses..................................... 0.29% 0.27% -- (11)
---------------------------------------------------------------
Total Fund Operating Expenses.................... 0.49%(10) 0.47% 1.50%
CLASS C SHARES
Shareholder Transaction Expenses
Maximum initial sales charge imposed on purchases
(as a percentage of offering price)............... None None None
Maximum contingent deferred sales charge (as a
percentage of original purchase price)(2)....... 1.00% 1.00% 1.00%(4)
Annual Fund Operating Expenses (as a
percentage of average net assets)
Advisory Fee....................................... 0.10%(7) 0.10%(7) 0.15%
Administrative Fee................................. 0.35%
12b-1 Fees......................................... 0.10%(5)(8) 0.10%(5)(8) 1.00%(5)
Other Expenses..................................... 0.29% 0.27% -- (11)
---------------------------------------------------------------
Total Fund Operating Expenses.................... 0.49%(9) 0.47% 1.50%
</TABLE>
-11-
<PAGE>
(1) Not applicable to shares issued in connection with the proposed
Merger.
(2) Not applicable to reinvested dividends.
(3) Imposed only in certain circumstances where Class A shares are
purchased without a sales charge. See "Alternative Purchase
Arrangements" in Appendix B.
(4) The CDSC on the Merger Shares will be based on the original purchase
price of the Acquired Fund shares exchanged in the Merger. See
"Description of Merger Shares" on page __ for additional information
regarding how the CDSC will be determined for Class A, Class B and
Class C Merger Shares.
(5) Class B and Class C shares are sold without a front-end sales charge,
but their higher 12b-1 fees may cause long-term shareholders to pay
more than the economic equivalent of the maximum permitted front-end
sales charge permitted by the rules of the National Association of
Securities Dealers, Inc., depending on the length of time during which
they maintain their investment.
(6) Regular sales charges apply when Class A shares of the Money Market
Fund (on which no sales charge was paid at time of purchase) are
exchanged for shares of any other Fund.
(7) PIMCO Advisors has voluntarily undertaken to reduce its advisory fee
with respect to the Money Market Fund to 0.10% of the Fund's average
daily net assets until further notice. Absent such undertaking, the
advisory fee would be 0.50% of the Fund's average daily net assets.
(8) The Distributor has voluntarily undertaken to reduce the 12b-1 fee it
receives with respect to the Money Market Fund to 0.10% of the Fund's
average daily net assets until further notice. Absent such
undertaking, the 12b-1 fee would be .20% of the Fund's average daily
net assets.
(9) Absent the undertakings noted, the total operating expenses for the
Money Market Fund would be .95% of the Fund's average daily net
assets.
(10) Absent the undertaking noted, the total operating expenses for the
Money Market Fund would be 1.75% of the Fund's average daily net
assets.
(11) The Fund will incur certain expenses as identified in this
Prospectus/Proxy Statement in the section entitled "Administrative
Arrangements," but these expenses are not currently expected to exceed
.01%.
Examples
An investment of $1,000 would incur the following expenses, assuming (1) 5%
annual return and (2) no redemption:
<TABLE>
<CAPTION>
1 3 5 10
year years years years
----- ----- ----- -----
<S> <C> <C> <C> <C>
Class A shares:
High Income Fund (Historical)............................. $59 $82 $107 $180
High Income Fund (Current)................................ $58 $81 $105 $175
PIMS High Yield Fund (Pro Forma).......................... $56 $75 $ 95 $153
Total Return Income Fund (Historical)..................... $59 $84 $111 $187
Total Return Income Fund (Current)........................ $58 $80 $104 $173
PIMS Total Return Fund (Pro Forma) for merger with Total
Return Income Fund...................................... $56 $75 $ 95 $153
U.S. Government Fund (Historical)......................... $58 $79 $102 $169
U.S. Government Fund (Current)............................ $58 $80 $104 $172
PIMS Total Return Fund (Pro Forma) for merger with U.S.
Government Fund......................................... $56 $75 $ 95 $153
Short-Intermediate Fund (Historical)...................... $39 $59 $ 81 $143
Short-Intermediate Fund (Current)......................... $40 $60 $ 83 $147
PIMS Low Duration Fund (Pro Forma)........................ $39 $58 $ 78 $137
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
1 3 5 10
year years years years
----- ----- ----- -----
<S> <C> <C> <C> <C>
Money Market Fund (Historical)............................ $5 $16 $ 27 $ 62
Money Market Fund (Current)............................... $ 5 $15 $ 26 $ 59
PIMS Money Market Fund (Pro Forma)........................ $ 8 $24 $ 42 $ 93
Class B shares:
High Income Fund (Historical)............................. $19 $59 $102 $192
High Income Fund (Current)................................ $19 $58 $100 $188
PIMS High Yield Fund (Pro Forma).......................... $17 $52 $ 90 $166
Total Return Income Fund (Historical)..................... $20 $62 $106 $199
Total Return Income Fund (Current)........................ $19 $58 $ 99 $185
PIMS Total Return Fund (Pro Forma) for merger with
Total Return Income Fund............................... $17 $52 $ 90 $166
U.S. Government Fund (Historical)......................... $18 $56 $ 97 $181
U.S. Government Fund (Current)............................ $18 $57 $ 99 $184
PIMS Total Return Fund (Pro Forma) for merger with
U.S. Government Fund................................... $17 $52 $ 90 $166
Short-Intermediate Fund (Historical)...................... $17 $54 $ 92 $171
Short-Intermediate Fund (Current)......................... $18 $54 $ 94 $175
PIMS Low Duration Fund (Pro Forma)........................ $17 $52 $ 90 $166
Money Market Fund (Historical)............................ $ 5 $16 $ 27 $ 62
Money Market Fund (Current)............................... $ 5 $15 $ 26 $ 59
PIMS Money Market Fund (Pro Forma)........................ $15 $47 $ 82 $149
Class C shares:
High Income Fund (Historical)............................. $19 $59 $102 $221
High Income Fund (Current)................................ $19 $58 $100 $217
PIMS High Yield Fund (Pro Forma).......................... $17 $52 $ 90 $195
Total Return Income Fund (Historical)..................... $20 $62 $106 $229
Total Return Income Fund (Current)........................ $19 $58 $ 99 $215
PIMS Total Return Fund (Pro Forma) for merger with
Total Return Income Fund............................... $17 $52 $ 90 $195
U.S. Government Fund (Historical)......................... $18 $56 $ 97 $211
U.S. Government Fund (Current)............................ $18 $57 $ 99 $214
PIMS Total Return Fund (Pro Forma) for merger with
U.S. Government Fund................................... $17 $52 $ 90 $195
Short-Intermediate Fund (Historical)...................... $15 $46 $ 79 $174
Short-Intermediate Fund (Current)......................... $15 $47 $ 81 $177
PIMS Low Duration Fund (Pro Forma)........................ $17 $52 $ 90 $195
Money Market Fund (Historical)............................ $ 5 $16 $ 27 $ 62
Money Market Fund (Current)............................... $ 5 $15 $ 26 $ 59
PIMS Money Market Fund (Pro Forma)........................ $15 $47 $ 82 $179
</TABLE>
-13-
<PAGE>
An investment of $1,000 would incur the following expenses, assuming (1) 5%
annual return and (2) redemption at the end of each period:
<TABLE>
<CAPTION>
1 3 5 10
year years years years
----- ----- ----- -----
<S> <C> <C> <C> <C>
Class A shares:
High Income Fund (Historical).................... $59 $82 $107 $180
High Income Fund (Current)..................... $58 $81 $105 $175
PIMS High Yield Fund (Pro Forma)............... $56 $75 $95 $153
Total Return Income Fund (Historical)............ $59 $84 $111 $187
Total Return Income Fund (Current)............. $58 $80 $104 $173
PIMS Total Return Fund (Pro Forma) for merger
with Total Return Income Fund................. $56 $75 $95 $153
U.S. Government Fund (Historical)................ $58 $79 $102 $169
U.S. Government Fund (Current)................. $58 $80 $104 $172
PIMS Total Return Fund (Pro Forma) for merger
with U.S. Government Fund.................... $56 $75 $95 $153
Short-Intermediate Fund (Historical)............. $39 $59 $81 $143
Short-Intermediate Fund (Current).............. $40 $60 $83 $147
PIMS Low Duration Fund (Pro Forma)............. $39 $58 $78 $137
Money Market Fund (Historical)................... $5 $16 $27 $62
Money Market Fund (Current).................... $5 $15 $26 $59
PIMS Money Market Fund (Pro Forma)............. $8 $24 $42 $93
Class B shares:
High Income Fund (Historical).................... $69 $89 $122 $192
High Income Fund (Current)..................... $69 $88 $120 $188
PIMS High Yield Fund (Pro Forma)............... $67 $82 $110 $166
Total Return Income Fund (Historical)............ $70 $92 $126 $199
Total Return Income Fund (Current)............. $69 $88 $119 $185
PIMS Total Return Fund (Pro Forma) for merger
with Total Return Income Fund................. $67 $82 $110 $166
U.S. Government Fund (Historical)................ $68 $86 $117 $181
U.S. Government Fund (Current)................. $68 $87 $119 $184
PIMS Total Return Fund (Pro Forma) for merger
with U.S. Government Fund..................... $67 $82 $110 $166
Short-Intermediate Fund (Historical)............. $67 $84 $112 $171
Short-Intermediate Fund (Current).............. $68 $84 $114 $175
PIMS Low Duration Fund (Pro Forma)............. $67 $82 $110 $166
Money Market Fund (Historical)................... $55 $46 $47 $62
Money Market Fund (Current).................... $55 $45 $46 $59
</TABLE>
-14-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
PIMS Money Market Fund (Pro Forma)............. $65 $77 $102 $149
Class C shares:
High Income Fund (Historical).................... $30 $59 $102 $221
High Income Fund (Current)..................... $29 $58 $100 $217
PIMS High Yield Fund (Pro Forma)............... $27 $52 $90 $195
Total Return Income Fund (Historical)............ $30 $62 $106 $229
Total Return Income Fund (Current)............. $29 $58 $99 $215
PIMS Total Return Fund (Pro Forma) for merger
with Total Return Income Fund................. $27 $52 $90 $195
U.S. Government Fund (Historical)................ $29 $56 $97 $211
U.S. Government Fund (Current)................. $28 $57 $99 $214
PIMS Total Return Fund (Pro Forma) for merger
with U.S. Government Fund..................... $27 $52 $90 $195
Short-Intermediate Fund (Historical)............ $25 $46 $79 $174
Short-Intermediate Fund (Current).............. $25 $47 $81 $177
PIMS Low Duration Fund (Pro Forma)............. $27 $52 $90 $195
Money Market Fund (Historical)................... $15 $16 $27 $62
Money Market Fund (Current).................... $15 $16 $27 $61
PIMS Money Market Fund (Pro Forma)............. $25 $47 $82 $179
</TABLE>
The examples for Class A shares assume payment of the current maximum
applicable sales load.
The above examples should not be considered a representation of past or
future expenses or performance. Actual expenses may be greater or less than
those shown. Federal regulations require the examples to assume a 5% annual
return, but actual annual return will vary.
Federal Income Tax Consequences
For federal income tax purposes no gain or loss will be recognized by an
Acquired Fund or its shareholders as a result of the Merger, and the tax basis
of the Merger Shares received by each Acquired Fund shareholder will be the same
as the tax basis of the shareholder's Acquired Fund shares. See "Information
about the Mergers -- Federal Income Tax Consequences."
Comparison of Investment Objectives, Policies and Restrictions
Each Acquiring Fund has investment objectives, policies and restrictions
that are substantially similar to those of the corresponding Acquired Fund,
except for the PIMS Total Return Fund and the U.S. Government Fund which differ
in the ways described below. The investment objectives, policies and
restrictions of the Acquiring Fund and the Acquiring
-15-
<PAGE>
Funds, and certain differences between them, are summarized below. For a more
detailed description of the investment techniques used by the Acquired Funds and
the Acquiring Funds, please see, respectively, the PAF Prospectus and Appendix B
to this Prospectus/Proxy Statement.
High Income Fund vs. PIMS High Yield Fund
- -----------------------------------------
The investment objective of the High Income Fund is to seek maximum total
return, consistent with preservation of capital. The High Income Fund normally
invests at least 65% of its assets in a diversified portfolio of U.S. dollar-
denominated fixed income securities rated lower than Baa by Moody's Investors
Service ("Moody's) or BBB by Standard & Poor's ("S&P"), but rated at least B by
Moody's or S&P (or if unrated, determined by PIMCO (the sub-adviser) to be of
comparable quality). The remainder of the High Income Fund's assets may be
invested in investment grade fixed income securities. The High Income Fund may
invest up to 20% of its assets in foreign currency-denominated securities, and
may invest beyond this limit in U.S. dollar-denominated securities of foreign
issuers. The average portfolio duration of the High Income Fund varies from two
to six years.
The investment objective of the PIMS High Yield Fund is to seek maximum
total return, consistent with preservation of capital and prudent investment
management. The PIMS High Yield Fund normally invests at least 65% of its assets
in a diversified portfolio of U.S. dollar-denominated fixed income securities
rated lower than Baa by Moody's or BBB by S&P, but rated at least B by Moody's
or S&P (or if unrated, determined by the investment adviser to be of comparable
quality). The remainder of the PIMS High Yield Fund's assets may be invested in
investment grade fixed income securities. The PIMS High Yield Fund may invest in
the securities of foreign issuers, but they must be U.S. dollar-denominated. The
average portfolio duration of the PIMS High Yield Fund varies from two to six
years.
The types of securities in which each Fund may invest include the
following: securities issued or guaranteed by the U.S. Government, its agencies
or instrumentalities ("U.S. Government Securities"); corporate debt securities;
corporate commercial paper; mortgage-backed and other asset backed securities;
variable and floating rate debt securities; bank certificates of deposit, fixed
time deposits and bankers' acceptances; warrants; repurchase agreements and
reverse repurchase agreements; loan participations; and obligations of foreign
governments or their subdivisions, agencies and instrumentalities, and
international agencies or supranational entities.
Each Fund may make loans of its portfolio securities, may purchase and sell
securities on a when-issued, delayed delivery, or forward commitment basis, and
may invest up to 15% of its net assets in illiquid securities. Each Fund may
purchase and write put and call options on securities and securities indices,
and enter into futures contracts on securities and securities indices, and
options thereon. Each Fund may engage in hedging strategies involving equity
options. Each Fund may enter into interest rate and index swap agreements.
-16-
<PAGE>
Unlike the High Income Fund, the PIMS High Yield Fund may not invest in
foreign currency exchange related securities such as foreign currency warrants,
buy and sell foreign currencies on a spot basis, enter into foreign currency
forward contracts, buy and sell foreign currency options, futures, and options
on futures, or enter into currency swap agreements. The High Income Fund may
sell securities short "against-the-box." Although the PIMS High Yield Fund does
not engage in defensive investing, the High Income Fund may invest up to 100% of
its assets in money market instruments for temporary defensive purposes. The
PIMS High Yield Fund may invest in convertible securities, structured notes, and
inverse floating rate debt securities.
Benjamin Trosky, a Managing Director of PIMCO, is primarily responsible for
the day-to-day management of both the High Income Fund and the PIMS High Yield
Fund.
Total Return Income Fund vs. PIMS Total Return Fund
- ---------------------------------------------------
The investment objective of the Total Return Income Fund is to seek maximum
total return consistent with preservation of capital. The Total Return Income
Fund normally invests at least 65% of its assets in a diversified portfolio of
fixed income securities rated at least Baa by Moody's or BBB by S&P (or if
unrated, determined by the sub-adviser to be of comparable quality). The Total
Return Income Fund is permitted to invest up to 10% of its assets in fixed
income securities that are rated below investment grade but rated B or higher by
Moody's or S&P. The Total Return Income Fund maintains an overall dollar-
weighted average quality of at least A. The Fund may invest up to 20% of its
assets in foreign currency-denominated securities, and may invest beyond this
limit in U.S. dollar-denominated securities of foreign issuers. The average
portfolio duration of the Total Return Income Fund varies from three to six
years.
The investment objective of the PIMS Total Return Fund is to seek maximum
total return, consistent with preservation of capital and prudent investment
management. The PIMS Total Return Fund normally invests at least 65% of its
assets in a diversified portfolio of fixed income securities rated at least Baa
by Moody's or BBB by S&P (or if unrated, determined by the investment adviser to
be of comparable quality). The PIMS Total Return Fund is permitted to invest up
to 10% of its assets in fixed income securities that are rated below investment
grade but rated B or higher by Moody's or S&P. The PIMS Total Return Fund may
invest up to 20% of its assets in foreign currency-denominated securities, and
may invest beyond this limit in U.S. dollar-denominated securities of foreign
issuers. The average portfolio duration of the PIMS Total Return Fund varies
from three to six years.
The types of securities in which each Fund may invest include the
following: U.S. Government Securities; corporate debt securities; corporate
commercial paper; mortgage-backed and other asset backed securities; variable
and floating rate debt securities; bank certificates of deposit, fixed time
deposits and bankers' acceptances; warrants; repurchase agreements and reverse
repurchase agreements; loan participations; and obligations of foreign
-17-
<PAGE>
governments or their subdivisions, agencies and instrumentalities, international
agencies or supranational entities.
Each Fund may make loans of its portfolio securities, may purchase and sell
securities on a when-issued, delayed delivery, or forward commitment basis, and
may invest up to 15% of its net assets in illiquid securities. The PIMS Total
Return Fund may sell securities short otherwise than "against-the-box," although
the Total Return Income Fund may only sell short "against-the-box." Each Fund
may purchase and write put and call options on securities and securities
indices, and enter into futures contracts on securities and securities indices,
and options thereon. Each Fund may enter into interest rate, index, and currency
exchange rate swap agreements.
Each Fund may invest in foreign currency exchange related securities such
as foreign currency warrants, may buy and sell foreign currencies on a spot
basis, enter into foreign currency forward contracts, buy and sell foreign
currency options, futures, and options on futures, and enter into currency swap
agreements. Although the Total Return Income Fund may invest up to 100% of its
assets in money market instruments for temporary defensive purposes, the PIMS
Total Return Fund does not engage in defensive investing. The PIMS Total Return
Fund may invest in convertible securities, structured notes, and inverse
floating rate debt securities.
William H. Gross, a Managing Director of PIMCO, is primarily responsible
for the day-to-day management of both the Total Return Income Fund and the PIMS
Total Return Fund.
U.S. Government Fund vs. PIMS Total Return Fund
- -----------------------------------------------
The investment objective of the U.S. Government Fund is to seek maximum
total return consistent with preservation of capital. The U.S. Government Fund
invests exclusively in U.S. Government Securities, related repurchase
agreements, put and call options on U.S. Government Securities and futures
contracts with respect to U.S. Government Securities and options thereon. The
U.S. Government Fund may purchase collateralized mortgage obligations ("CMOs")
issued by U.S. Government instrumentalities and invest in zero coupon U.S.
Government Securities or in certificates representing rights to receive payments
of the interest only or principal only of U.S. Government Securities ("IO/PO
Strips"). The average portfolio duration of the U.S. Government Fund is three to
six years.
The investment objective of the PIMS Total Return Fund is to seek maximum
total return, consistent with preservation of capital and prudent investment
management. The PIMS Total Return Fund normally invests primarily (usually at
least 65%) of its assets in a diversified portfolio of fixed income securities
rated at least Baa by Moody's or BBB by S&P (or if unrated, determined by the
investment adviser to be of comparable quality). During the five years ended
March 31, 1996, the PIMS Total Return Fund has invested between
-18-
<PAGE>
approximately two-thirds and one third of its total assets in U.S. Government
Securities, primarily in mortgage-backed securities of U.S. Government agencies.
Although the U.S. Government Fund invests exclusively in U.S. Government
Securities, the PIMS Total Return Fund may invest up to 10% of its assets in
fixed income securities that are rated below investment grade but rated B or
higher by Moody's or S&P. The PIMS Total Return Fund may also invest up to 20%
of its assets in foreign currency-denominated securities, and may invest beyond
this limit in U.S. dollar-denominated securities of foreign issuers. The
average portfolio duration of the PIMS Total Return Fund varies from a three to
six years.
In addition to the foregoing, the PIMS Total Return Fund may also invest in
the following types of securities: corporate debt securities; corporate
commercial paper; mortgage-backed and other asset backed securities; variable
and floating (including inverse floating) rate debt securities; bank
certificates of deposit, fixed time deposits and bankers' acceptances; warrants;
convertible securities; structured notes; repurchase agreements and reverse
repurchase agreements; loan participations; and obligations of foreign
governments or their subdivisions, agencies and instrumentalities, international
agencies or supranational entities. The PIMS Total Return Fund may purchase and
write put and call options on securities and securities indices, and enter into
futures contracts on securities and securities indices, and options thereon. The
PIMS Total Return Fund may enter into interest rate, index, and currency
exchange rate swap agreements. The PIMS Total Return Fund may invest in foreign
currency exchange related securities such as foreign currency warrants, may buy
and sell foreign currencies on a spot basis, enter into foreign currency forward
contracts, buy and sell foreign currency options, futures, and options on
futures, and enter into currency swap agreements.
Each of the U.S. Government Fund and the PIMS Total Return Fund may make
loans of its portfolio securities, may purchase and sell securities on a when-
issued, delayed delivery, or forward commitment basis, and may invest up to 15%
of its net assets in illiquid securities. The PIMS Total Return Fund may also
sell securities short otherwise than "against-the-box." The U.S. Government Fund
may only sell short "against-the-box" and will not make short sales or maintain
a short position unless not more than 10% of the Fund's net assets is held as
collateral for such sales at any one time. Although the U.S. Government Fund may
invest up to 100% of its assets in money market instruments, the PIMS Total
Return Fund does not engage in defensive investing.
Frank B. Rabinovitch, a Managing Director of PIMCO, is primarily
responsible for the day-to-day management of the U.S. Government Fund. William
H. Gross, a Managing Director of PIMCO, is primarily responsible for the day-to-
day management of the PIMS Total Return Fund.
Short-Intermediate Fund vs. PIMS Low Duration Fund
- --------------------------------------------------
-19-
<PAGE>
The investment objective of the Short-Intermediate Fund is to seek current
income, consistent with relatively low volatility of principal. The Short-
Intermediate Fund normally invests at least 65% of its assets in a diversified
portfolio of fixed income securities rated at least Baa by Moody's or BBB by S&P
(or if unrated, determined by the sub-adviser to be of comparable quality). The
Short-Intermediate Fund is permitted to invest up to 10% of its assets in fixed
income securities that are rated below investment grade but rated B or higher by
Moody's or S&P. The Short-Intermediate Fund maintains an overall dollar-weighted
average quality of at least A. The Short-Intermediate Fund may invest up to 20%
of its assets in foreign currency-denominated securities, and may invest beyond
this limit in U.S. dollar-denominated securities of foreign issuers. The average
portfolio duration of the Short-Intermediate Fund varies from one to three
years.
The investment objective of the PIMS Low Duration Fund is to seek maximum
total return, consistent with preservation of capital and prudent investment
management. The PIMS Low Duration Fund normally invests at least 65% of its
assets in a diversified portfolio of fixed income securities rated at least Baa
by Moody's or BBB by S&P (or if unrated, determined by the adviser to be of
comparable quality). The PIMS Low Duration Fund is permitted to invest up to 10%
of its assets in fixed income securities that are rated below investment grade
but rated B or higher by Moody's or S&P. The PIMS Low Duration Fund may invest
up to 20% of its assets in foreign currency-denominated securities, and may
invest beyond this limit in U.S. dollar-denominated securities of foreign
issuers. The average portfolio duration of the PIMS Low Duration Fund varies
from one to three years.
The types of securities in which each Fund may invest include the
following: U.S. Government Securities; corporate debt securities; corporate
commercial paper; mortgage-backed and other asset backed securities; variable
and floating rate debt securities; bank certificates of deposit, fixed time
deposits and bankers' acceptances; warrants; repurchase agreements and reverse
repurchase agreements; loan participations; and obligations of foreign
governments or their subdivisions, agencies and instrumentalities, international
agencies or supranational entities.
Each Fund may make loans of its portfolio securities, may purchase and sell
securities on a when-issued, delayed delivery, or forward commitment basis, and
may invest up to 15% of its net assets in illiquid securities. Each Fund may,
subject to certain collateral requirements, sell securities short. Each Fund may
purchase and write put and call options on securities and securities indices,
and enter into futures contracts on securities and securities indices, and
options thereon. Each Fund may enter into interest rate, index, and currency
exchange rate swap agreements.
Each Fund may invest in foreign currency exchange related securities such
as foreign currency warrants, may buy and sell foreign currencies on a spot
basis, enter into foreign currency forward contracts, buy and sell foreign
currency options, futures, and options on futures, and enter into currency swap
agreements. The Short-Intermediate Fund may invest up
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to 100% of its assets in money market instruments for temporary defensive
purposes. The PIMS Low Duration Fund does not engage in defensive investing.
The PIMS Low Duration Fund may invest in convertible securities, structured
notes, and inverse floating rate debt securities.
David H. Edington, a Managing Director of PIMCO, is primarily responsible
for the day-to-day management of the Short-Intermediate Fund. William H. Gross,
a Managing Director of PIMCO, is primarily responsible for the day-to-day
management of the PIMS Low Duration Fund.
Money Market Fund vs. PIMS Money Market Fund
- --------------------------------------------
The investment objective of the Money Market Fund is to seek the maximum
current income believed to be consistent with preservation of capital and
maintenance of liquidity. The investment objective of the PIMS Money Market Fund
is to seek maximum current income consistent with the preservation of capital
and daily liquidity.
Each Fund may invest in high quality, U.S. dollar-denominated, short-term
fixed income securities, including: U.S. Government Securities; certificates of
deposit, bankers' acceptances and other bank obligations; commercial paper,
short-term corporate obligations, and repurchase agreements with respect to U.S.
Government Securities. Generally, each Fund's investments will, at the time of
investment, have remaining maturities of 397 days or less. The dollar-weighted
average maturity of the portfolio securities of either Fund may not exceed 90
days.
As money markets funds, both Funds are limited by federal law in the type,
quality and amount of securities in which they may invest. The PIMS Money Market
Fund (unlike the Money Market Fund) may invest in "Second Tier Securities" which
are defined as money market instruments that are rated in the second-highest
rating category for short-term debt obligations by one or more nationally
reorganized statistical rating organization. Both Funds may invest up to 100% of
their assets in the obligations of U.S. banks. The PIMS Money Market Fund may
also invest in obligations of savings and loans, and repurchase agreements with
respect to securities other than U.S. Government Securities.
A management committee at CCI is primarily responsible for the day-to-day
management of the Money Market Fund. Leslie Barbi, a Vice President of PIMCO, is
primarily responsible for the day-to-day management of the PIMS Money Market
Fund.
Comparison of Distribution Policies and Purchase, Exchange and Redemption
Procedures
Each Acquired Fund and each Acquiring Fund declares and pays dividends
daily and distributes any net investment income monthly. Each Fund distributes
any net realized capital gains at least annually.
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The Acquired Funds and the Acquiring Funds have substantially the same
procedures for purchasing shares. The Funds offer three classes of shares,
Classes A, B and C, to the general public. These shares can be purchased at
their net asset value next determined, plus any applicable sales charges, from
PIMCO Advisors Distribution Company (the "Distributor"), the principal
underwriter of the PAF Trust, the PIMS Trust and PIMCO Funds: Equity Advisors
Series ("PFEAS"), a series investment company affiliated with the PAF Trust and
the PIMS Trust that currently offers 17, mostly equity mutual funds, or through
other broker-dealers which have dealer agreements with the Distributor or have
agreed to act as introducing brokers for the Distributor.
Shares of each Acquired Fund can be exchanged at net asset value for shares
of the same class of any other fund offered by the PAF Trust (other than the
Opportunity Fund, which is currently closed to new investors); similarly, shares
of each Acquiring Fund can be exchanged at net asset value for shares of the
same class of any other fund offered by either the PIMS Trust (except the PIMS
International Fund, which is available only to private account clients of PIMCO)
or by PFEAS. It is currently expected that, if the Mergers and similar
transactions are approved, shareholders of all classes will be able to exchange
into a broader range of funds within the PIMS Trust or PFEAS.
Redemption procedures for the Acquired Funds and the Acquiring Funds are
substantially identical. Shares of a Fund may be redeemed on any day the New
York Stock Exchange is open at their net asset value next determined after
receipt of the redemption request, less any applicable CDSC. Shares can be
redeemed through a participating broker by telephone, by submitting a written
redemption request directly to the Fund's transfer agent (for non-broker
accounts) [or through an Automatic Withdrawal Plan or PIMCO Advisors Fund Link
(an automated system enabling electronic fund transfers to be made directly
between a shareholder's Fund account and bank account)].
RISK FACTORS
Because each Acquiring Fund shares similar investment objectives and
policies with the corresponding Acquired Fund, the risks of an investment in the
Acquiring Fund are substantially similar to the risks of an investment in the
corresponding Acquired Fund, with the exception of investments in the PIMS Total
Return Fund by U.S. Government Fund shareholders. The PIMS Total Return and U.S.
Government Funds, as described above [on page(s) ____] have different investment
objectives and correspondingly are exposed to different risks. Certain risks
associated with an investment in the Acquiring Funds are summarized below. A
more detailed description of certain of the risks associated with an investment
in the Acquiring Funds is contained in Appendix B to this Prospectus/Proxy
Statement under the caption "Characteristics and Risks of Securities and
Investment Techniques."
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<PAGE>
The "total return" sought by certain of the Acquiring Funds will consist of
interest and dividends from underlying securities, capital appreciation
reflected in unrealized increases in value of portfolio securities (realized by
the shareholder only upon selling shares), or realized from the purchase and
sale of securities and use of futures and options, or gains from favorable
changes in foreign currency exchange rates. Generally, over the long term, the
total return obtained by a portfolio investing primarily in fixed income
securities is not expected to be as great as that obtained by a portfolio that
invests primarily in equity securities. At the same time, the market risk and
price volatility of a fixed income portfolio is expected to be less than that of
an equity portfolio, so that a fixed income portfolio is generally considered to
be a more conservative investment. The change in market value of fixed income
securities (and therefore their capital appreciation or depreciation) is largely
a function of changes in the current level of interest rates. When interest
rates are falling, a portfolio with a shorter duration generally will not
generate as high a level of total return as a portfolio with a longer duration.
Conversely, when interest rates are rising, a portfolio with a shorter duration
will generally outperform longer duration portfolios. When interest rates are
flat, shorter duration portfolios generally will not generate as high a level of
total return as longer duration portfolios (assuming that long-term interest
rates are higher than short-term rates, which is commonly the case). With
respect to the composition of any fixed income portfolio, the longer the
duration of the portfolio, the greater the anticipated potential for total
return, with, however, greater attendant market risk and price volatility than
for a portfolio with a shorter duration. The market value of fixed income
securities denominated in currencies other than the U.S. dollar also may be
affected by movements in foreign currency exchange rates.
The rate of prepayments on underlying mortgages will affect the price and
volatility of a mortgage-related security, and may have the effect of shortening
or extending the effective maturity of the security beyond what was anticipated
at the time of purchase. To the extent that unanticipated rates of prepayment on
underlying mortgages increase the effective maturity of a mortgage-related
security, the volatility of such security can be expected to increase.
The values of all securities and other instruments held by the Acquiring
Funds vary from time to time in response to a wide variety of market factors.
Consequently, the net asset value per share of the Acquiring Funds, except the
PIMS Money Market Fund, will vary. The net asset value per share of an Acquiring
Fund may be less at the time of redemption than it was at the time of
investment. Although the PIMS Money Market Fund attempts to maintain a stable
net asset value of $1.00 per share, there can be no assurance that it will be
able to do so. It is the policy of the Acquiring Funds, which invest primarily
in fixed income securities, to be as fully invested as practicable in such
securities at all times. While the duration of the Acquiring Funds' portfolios
are generally in the ranges noted, each Acquiring Fund (other than the Money
Market Fund) would be permitted to invest in money market securities to shorten
the duration of its portfolio and/or to provide for payment of expenses and/or
to meet redemption requests.
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<PAGE>
Derivative Instruments. The Acquiring Funds, except the PIMS Money Market Fund,
may use derivative instruments consisting of futures, options, options on
futures, and swap agreements, for hedging purposes or as a part of their
investment strategies. Use of these instruments may involve certain costs and
risks, including the risk that the Fund could not close out a position when it
would be most advantageous to do so due to an illiquid market, the risk of an
imperfect correlation between the value of the securities being hedged and the
value of the particular derivative instrument, the risk of bankruptcy or default
of counterparties, and the risk that unexpected changes in interest rates or
other market movements may adversely affect the value of the Fund's investments
in particular derivative instruments. While the U.S. Government Fund limits its
investments in derivative instruments to put and call options on U.S. Government
Securities and futures contracts with respect to U.S. Government Securities and
options thereon, the PIMS Total Return Fund is not subject to such restrictions.
Foreign Securities. The Acquiring Funds may invest in the securities of foreign
issuers, which may be subject to additional risk factors, including foreign
currency and political risks, not applicable to securities of U.S. issuers.
Some of the risks of investing in foreign securities include adverse changes in
foreign currency exchange rates and restrictions, liquidity risks, tax
liability, and risks of adverse political and economic developments.
Foreign Currency Transactions. The Acquiring Funds, except the PIMS High Yield
Fund and PIMS Money Market Fund, are subject to the risk in foreign currency
transactions that currency exchange rates may fluctuate significantly and
unpredictably over a short period of time. The PIMS High Yield Fund and the
PIMS Money Market Fund may only invest in U.S. dollar-denominated securities of
foreign issuers and thus are not directly exposed to foreign currency related
risks.
High Yield Securities. The PIMS High Yield Fund normally invests at least 65%
of its assets in securities rated below investment grade, sometimes referred to
as "high yield securities" or "junk bonds." The remaining Acquiring Funds,
except the PIMS Money Market Fund, may invest up to 10% of their assets in
securities rated below investment grade. Such securities carry a high degree of
credit risk and are considered speculative by the major rating agencies.
Repurchase Agreements. Investing in repurchase agreements subjects the
Acquiring Funds, like the Acquired Funds, to the risk that the default or
bankruptcy of the seller of the repurchase agreement could subject the Fund to
expenses, delays and risk of loss on the securities. The Acquiring Funds,
however, limit their investments in repurchase agreements maturing in more than
seven days and other illiquid securities to no more than 15% of net assets,
consistent with the Funds' policies on investments in illiquid securities. The
U.S. Government Fund and the Money Market Fund invest only in repurchase
agreements related to U.S. Government Securities; however, their respective
Acquiring Funds, the PIMS Total Return Fund and PIMS Money Market Fund, are not
subject to such a restriction.
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<PAGE>
Reverse Repurchase Agreements and Other Borrowings. Reverse repurchase
agreements and borrowings subject each of the Acquiring Funds, except the PIMS
Money Market Fund, to the risk that changes in the value of a Fund's portfolio
securities may amplify changes in the Fund's net asset value per share and also
may cause the Fund to liquidate portfolio positions when it would not be
advantageous to do so. While the PIMS Total Return Fund may engage in reverse
repurchase agreements, the U.S. Government Fund may not.
Loans of Portfolio Securities. The Acquired Funds, except the Money Market
Fund, and the Acquiring Funds, incur similar risks from lending their
securities to broker-dealers if they exercise their right to lend securities.
Those risks include the risk of the loss of rights in the collateral or delay in
recovery of the collateral if the borrower fails financially. While the U.S.
Government Fund only accepts cash and U.S. Government Securities as collateral
for such loans, the PIMS Total Return Fund is not subject to such a restriction.
Illiquid Securities. The Acquired Funds and the Acquiring Funds share similar
risks for investments in illiquid securities - specifically, higher transaction
costs. The Acquiring Funds, except the PIMS Money Market Fund, and the Acquired
Funds except the Money Market Fund, may invest up to 15% of their net assets in
illiquid securities. Each Money Market Fund may invest up to 10% of its net
assets in illiquid securities.
Corporate Debt Securities. The U.S. Government Fund invests 100% of its assets
in U.S. Government Securities, related repurchase agreements, put and call
options on U.S. Government Securities and futures contracts with respect to U.S.
Government Securities and options thereon. The PIMS Total Return Fund may
invest in corporate debt securities, which unlike U.S. Government Securities,
are not supported by the full faith and credit of the United States Government
or the credit or discretionary authority of the agency issuing the instrument.
Corporate debt securities impose the potential risk of default of the corporate
issuer.
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<PAGE>
SPECIAL MEETING OF SHAREHOLDERS
This Prospectus/Proxy Statement is furnished in connection with a
Special Meeting of Shareholders to be held on December __, 1996 or at such later
time made necessary by adjournment (the "Meeting") and the solicitation of
proxies by and on behalf of the Trustees of the PAF Trust for use at the
Meeting. The Meeting is being held to consider the proposed Mergers of each
Acquired Fund with the corresponding Acquiring Fund by the transfer of all of
the Acquired Fund's assets and liabilities to the Acquiring Fund. This
Prospectus/Proxy Statement and the enclosed form of proxy are being mailed to
shareholders on or about October __, 1996.
The Trustees of the PAF Trust know of no matters other than those set
forth herein to be brought before the Meeting. If, however, any other matters
properly come before the Meeting, it is the Trustees' intention that proxies
will be voted on such matters in accordance with the judgment of the persons
named in the enclosed form of proxy.
PROPOSALS 1, 2, 3, 4 and 5:
APPROVAL OR DISAPPROVAL OF AGREEMENT AND PLAN OF
REORGANIZATION
The shareholders of the High Income Fund are being asked to approve or
disapprove a Merger between the High Income Fund and the PIMS High Yield Fund
(Proposal 1); the shareholders of the Total Return Income Fund are being asked
to approve or disapprove a Merger between the Total Return Income Fund and the
PIMS Total Return Fund (Proposal 2); the shareholders of the U.S. Government
Fund are being asked to approve or disapprove a Merger between the U.S.
Government Fund and the PIMS Total Return Fund (Proposal 3); the shareholders of
the Short-Intermediate Fund are being asked to approve or disapprove a Merger
between the Short-Intermediate Fund and the PIMS Low Duration Fund (Proposal 4);
and the shareholders of the Money Market Fund are being asked to approve or
disapprove a Merger between the Money Market Fund and the PIMS Money Market Fund
(Proposal 5). Each Merger is proposed to take place pursuant to an Agreement and
Plan of Reorganization between the Acquired Fund and the Acquiring Fund, dated
as of November __, 1996 (the "Agreement"), each of which is in the form
attached to this Prospectus/Proxy Statement as Appendix A.
Each Agreement provides, among other things, for the transfer of all
of the assets of the Acquired Fund to the Acquiring Fund in exchange for (i) the
assumption by the Acquiring Fund of all of the liabilities of the Acquired Fund
and (ii) the issuance to the Acquired Fund of the Class A, Class B and Class C
Merger Shares, the number of which will be calculated based on the value of the
net assets attributable to the Class A, Class B and Class C shares,
respectively, of the Acquired Fund acquired by the Acquiring Fund and the net
asset value per
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<PAGE>
Class A, Class B and Class C share of the Acquiring Fund, all as more fully
described below under "Information About the Mergers."
After receipt of the Merger Shares, the Acquired Fund will cause the
Class A Merger Shares to be distributed to its Class A shareholders, the Class B
Merger Shares to be distributed to its Class B shareholders and the Class C
Merger Shares to be distributed to its Class C shareholders, in complete
liquidation of the Acquired Fund. Each shareholder of the Acquired Fund will
receive a number of full and fractional Class A, Class B or Class C Merger
Shares equal in value at the date of the exchange to the aggregate value of the
shareholder's Class A, Class B or Class C Acquired Fund shares, as the case may
be.
Trustees Recommendation. The Trustees of the PAF Trust have voted
unanimously to approve each proposed Merger and to recommend that shareholders
of each Acquired Fund also approve the Merger for such Fund.
Required Shareholder Vote. The affirmative vote of a plurality of the
quorum required for the transaction of business of an Acquired Fund is necessary
for the consummation of the proposed Merger for such Fund. At a meeting of
shareholders of the Acquired Fund, 30% of the Acquired Fund shareholders shall
constitute a quorum for purposes of transacting business.
A shareholder of an Acquired Fund objecting to the proposed Merger is
not entitled under either Massachusetts law or the PAF Trust's Agreement and
Declaration of Trust (the "PAF Declaration of Trust") to demand payment for and
an appraisal of his or her Acquired Fund shares if the Merger is consummated
over his or her objection. Shareholders may, however, redeem their shares at
any time prior to the Merger and, if the Merger is consummated, shareholders
will still be free at any time to redeem their Merger Shares, for cash at net
asset value (less any applicable CDSC) at the time of such redemption, or to
exchange their Merger Shares for shares of the same class of certain other funds
offered by the PIMS Trust or PFEAS, at net asset value at the time of such
exchange. See "Exchange Privilege" in Appendix B.
Each proposed Merger is subject to the approval of the shareholders of
the relevant Acquired Fund. The Mergers of the U.S. Government Fund into the
PIMS Total Return Fund and the Total Return Income Fund into the PIMS Total
Return Fund are separate transactions requiring separate votes. In the event
that any Merger is not approved by the shareholders of the Acquired Fund, the
Acquired Fund will continue to be managed as a separate series of the PAF Trust
in accordance with its current investment objective and policies, and the PAF
Trust's Trustees may consider such alternatives as may be in the best interests
of shareholders.
Background and Reasons for the Proposed Mergers
The Trustees of the PAF Trust, including the Trustees who are not
"interested persons" of the PAF Trust (the "Independent Trustees"), have
determined that each Merger would be in
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<PAGE>
the best interests of the relevant Acquired Fund, and that the interests of such
shareholders would not be diluted as a result of effecting the Merger. The
Trustees have unanimously approved each proposed Merger and have recommended its
approval by shareholders. In addition to the reasons for recommending the
Mergers described below, the Trustees took into account the fact that the
Acquired Fund will be bearing a portion of the expenses associated with the
Mergers, including those described under "Information About the Mergers," and
also considered the unrealized capital appreciation in each Fund as a percentage
of the Fund's net assets.
The principal reasons why the Trustees are recommending the Mergers
and the overall restructuring of the PIMCO Mutual Funds of which the Mergers are
a part, are as follows::
(i) Economies of Scale at Fund level. The Trustees have determined
that it is in the best interests of each Acquired Fund's shareholders to combine
the Acquired Fund with the corresponding Acquiring Fund in order to increase the
asset base over which the Fund's expenses will be spread, which, in part, has
allowed the Trustees of the PIMS Trust to approve agreements that provide total
fees and expenses at favorable rates. As described more fully in the overview
under "Operating Expenses," total expenses for each Acquired Fund except for the
Money Market Fund will decline immediately.
(ii) Unified fee structure. Pursuant to the PIMS Trust's unified fee
structure, Acquired Fund shareholders will gain the immediate benefits of a
level of Fund expenses that is, under ordinary circumstances, precise and
predictable. Acquired Fund shareholders will be insulated from price increases
in third-party services and from associated increased expense ratios arising
from a decline in net assets. However, there can be no assurance that the
Mergers will continue to result in savings in operating expenses to
shareholders. Information on each Fund's operating expenses is set out above in
the Overview under "Operating Expenses."
(iii) Appropriate investment objectives, diversification, etc. The
investment objective, policies, and restrictions of each Acquiring Fund are
substantially similar to those of the corresponding Acquired Fund (with the
exception of the PIMS Total Return Fund with respect to the U.S. Government
Fund), and the Trustees believe that an investment in shares of the Acquiring
Fund will provide shareholders with an investment opportunity comparable to that
currently afforded by the Acquired Fund, with the potential for reduced
investment risk because of the opportunities for additional diversification of
portfolio investments through increased Fund assets. The PIMS Total Return Fund
will provide investors in the U.S. Government Fund with a more diversified
investment opportunity but may also expose U.S. Government Fund shareholders to
greater investment risk.
(iv) Continued investment in a mutual fund without recognition of
gain or loss for federal income tax purposes. The proposed reorganization will
permit Acquired Fund shareholders to keep their investment in an open-end mutual
fund, without recognition of gain
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<PAGE>
or loss for federal income tax purposes. If the Acquired Funds were to
liquidate and shareholders were to receive the net asset value of their shares
in liquidating distributions, gain or loss would be recognized for federal
income tax purposes.
(v) Larger, more integrated fund complex. The restructuring of the
PIMCO Mutual Funds (which is subject to satisfaction of a number of conditions,
including shareholder approval of the Mergers) should reduce confusion for
shareholders between funds with similar names and/or investment objectives. It
will also give shareholders broader exchange privileges among funds. The
restructuring may also allow the expansion of institutional and retail
distribution channels.
Information About the Mergers
Agreement and Plan of Reorganization. Each proposed Agreement and
Plan of Reorganization provides that the relevant Acquiring Fund will acquire
all of the assets of the corresponding Acquired Fund in exchange for the
assumption by the Acquiring Fund of all of the liabilities of the Acquired Fund
and for the issuance of the Class A, Class B and Class C Merger Shares, all as
of the Exchange Date (defined in each Agreement to be January __, 1997 or such
other date as is agreed to by the Acquiring Fund and the Acquired Fund). The
following discussion of the Agreements is qualified in its entirety by the full
text of each Agreement, the form of which is attached as Appendix A to this
Prospectus/Proxy Statement.
Each Acquired Fund will sell all of its assets to the corresponding
Acquiring Fund, and, in exchange, the Acquiring Fund will assume all of the
liabilities of the Acquired Fund and deliver to the Acquired Fund (i) a number
of full and fractional Class A Merger Shares having an aggregate net asset value
equal to the value of the assets of the Acquired Fund attributable to its Class
A shares, less the value of the liabilities of the Acquired Fund assumed by the
Acquiring Fund attributable to the Class A shares of the Acquired Fund, (ii) a
number of full and fractional Class B Merger Shares having a net asset value
equal to the value of assets of the Acquired Fund attributable to its Class B
shares, less the value of the liabilities of the Acquired Fund assumed by the
Acquiring Fund attributable to the Class B shares of the Acquired Fund, and
(iii) a number of full and fractional Class C Merger Shares, having a net asset
value equal to the value of the assets of the Acquired Fund attributable to its
Class C shares, less the value of the liabilities of the Acquired Fund assumed
by the Acquiring Fund attributable to the Class C shares of the Acquired Fund.
Immediately following the Exchange Date, each Acquired Fund will
distribute pro rata to its shareholders of record as of the close of business on
the Exchange Date the full and fractional Merger Shares received by the Acquired
Fund, with Class A Merger Shares being distributed to holders of Class A shares
of the Acquired Fund, Class B Merger Shares being distributed to holders of
Class B shares of the Acquired Fund and Class C Merger Shares being distributed
to holders of Class C shares of the Acquired Fund. As a result of the proposed
transaction, each holder of Class A, Class B and Class C shares of the Acquired
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<PAGE>
Fund will receive a number of Class A, Class B and Class C Merger Shares equal
in aggregate value at the Exchange Date to the value of the Class A, Class B and
Class C shares, respectively, of the Acquired Fund held by the shareholder.
This distribution will be accomplished by the establishment of accounts on the
share records of the corresponding Acquiring Fund in the names of the Acquired
Fund shareholders, each account representing the respective number of full and
fractional Class A, Class B or Class C Merger Shares due such shareholder. New
certificates for Merger Shares will not be issued. Shareholders of the Acquired
Funds holding certificates for shares will be sent instructions on how they will
be able to exchange those certificates for certificates representing shares of
the Acquiring Funds.
The consummation of each Merger is subject to the conditions set forth
in the Agreement, any of which may be waived. The Agreement may be terminated
and the Merger abandoned at any time, before or after approval by the
shareholders of each Fund, prior to the Exchange Date, by mutual consent of the
relevant Funds or, if any condition set forth in the Agreement has not been
fulfilled and has not been waived by the party entitled to its benefits, by such
party.
All legal and accounting fees and expenses, printing and other fees
and expenses (other than portfolio transfer taxes (if any), brokerage and other
similar expenses, all of which will be borne by the relevant Fund) incurred in
connection with the consummation of the transactions contemplated by the
Agreement will be allocated in accordance with the following: First, the costs
of the overall restructuring of the PIMCO Mutual Funds referred to in the
Overview under "Proposed Transactions," including the costs of the Mergers and
this Prospectus/Proxy Statement, are being preliminarily allocated on a basis
approved by the Trustees, including the Independent Trustees, of the PAF Trust.
This preliminary allocation is based in part on the number of funds involved and
in part on the number of shareholders to whom mailings will be made. PIMCO
Advisors will bear any and all expenses preliminarily allocated to the Acquired
Fund and the Acquiring Fund to the extent that they would otherwise exceed the
respective expense caps (the "Relevant Expense Caps") set forth below. The
Acquired Fund and the Acquiring Fund have agreed to pay the expenses
preliminarily allocated to them but not, however, in an amount exceeding the
Relevant Expense Caps. The Relevant Expense Caps represent a percentage
(approximately 50%) of the projected aggregate savings for shareholders of the
Acquired Funds for the first year following the Mergers. The currently
estimated expenses to be borne by the Funds and Relevant Expense Caps are as
follows:
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<TABLE>
Name of Fund Current Expense Estimate Relevant Expense Cap
------------ ------------------------ --------------------
<S> <C> <C>
PAF Total Return Income Fund $71,464 $180,938
PAF High Income Fund $103,671 $239,260
PAF U.S.Government Fund $103,772 $226,711
PAF Short-Intermediate Fund $46,322 $46,322
PAF Money Market Fund $0 $0
PIMS Total Return Fund $20,000 $20,000
PIMS High Yield Fund $20,000 $20,000
PIMS Low Duration Fund $20,000 $20,000
PIMS Money Market Fund $20,000 $20,000
</TABLE>
Notwithstanding any of the foregoing, expenses will in any event be
paid by the party directly incurring such expenses if and to the extent that the
payment by any other party of such expenses would result in the disqualification
of the first party as a "regulated investment company" within the meaning of
Section 851 of the Code.
Description of the Merger Shares. Full and fractional Merger Shares
will be issued to each Acquired Fund's shareholders in accordance with the
procedure under the Agreement as described above. The Merger Shares are Class
A, Class B and Class C shares of the Acquiring Funds, which have identical
characteristics to those of the corresponding class of Acquired Fund shares with
respect to sales charges, CDSCs, conversion, and 12b-1 fees. Investors
purchasing Class A shares of the Acquiring Funds generally pay a sales charge of
up to 4.75% at the time of purchase, but Acquired Fund shareholders receiving
Class A Merger Shares in the Merger will not pay a sales charge on such shares.
Class A shares of the Acquiring Funds are generally not subject to redemption
fees, except that certain purchases of $1,000,000 or more of Class A shares of
the Acquiring Funds are not subject to a front-end sales load but are subject to
a 1% CDSC if redeemed within 18 months after purchase. Class A shares of the
Acquiring Funds are subject to a 12b-1 servicing fee at the annual rate of 0.25%
of the net assets attributable to the Acquiring Funds's Class A shares. Class B
shares of the Acquiring Funds are sold without a sales charge, but are subject
to a CDSC of up to 5.0% if redeemed within seven years of original purchase.
Class B shares are also subject to 12b-1 distribution and servicing fees at the
annual rates of 0.75% and 0.25%, respectively, of the Acquiring Fund's average
daily net assets attributable to Class B shares. Class B shares of the
Acquiring Funds convert automatically into Class A shares after they have been
held for seven years. Class C shares of the Acquiring Funds are sold without a
sales charge, but are subject to a CDSC of 1% if redeemed within one year after
purchase, and do not automatically convert into any other class of shares.
Class C shares of the Acquiring Funds are subject to 12b-1 distribution and
servicing fees at the annual rates of 0.75% and 0.25%, respectively, of the
average daily net assets attributable to the Acquiring Fund's Class C shares.
For purposes of determining the CDSC payable on redemption of Class A, Class B
or Class C Merger Shares received by holders of Class A, Class B or Class C
shares of the Acquired Fund, as well as the conversion date of Class B Merger
Shares, such shares will be treated as having
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<PAGE>
been acquired as of the dates that, and for the prices at which, such
shareholders originally acquired their Class A, Class B or Class C shares, as
the case may be, of the Acquired Fund, and the CDSC would be applied at the same
rate as was in effect for the Acquired Fund at the time the shares of the
Acquired Fund were originally purchased. See "Alternative Purchase
Arrangements" in Appendix B for more information about the characteristics of
Class A, Class B and Class C shares of the Acquiring Funds.
Administrative Arrangements. PIMCO serves as administrator to the
Acquiring Funds pursuant to an administration agreement. The administrator
provides administrative services to the Acquiring Funds, which includes clerical
help and accounting, bookkeeping, internal audit services, and certain other
services required by the Acquiring Funds, preparation of reports to the
Acquiring Funds' shareholders and regulatory filings. In addition, pursuant to
the unified fee arrangement described above, the administrator, at its own
expense, arranges for the provision of legal, audit, custody, portfolio
accounting, transfer agency and other ordinary services for the Acquiring Funds,
and is responsible for the costs of registration of the Acquiring Funds' shares
and the printing of prospectuses and shareholder reports for current
shareholders. For such services, each Acquiring Fund, except the PIMS Money
Market Fund, pays the administrator an administrative fee at the annual rate of
0.40% (.35% in the case of the PIMS Money Market Fund) of the average daily net
assets attributable to each Fund's Class A, Class B and Class C shares.
Certain expenses of the Acquiring Funds are not borne by the
administrator. The Acquiring Funds are responsible for the following expenses:
(i) salaries and other compensation of any of the PIMS Trust's executive
officers and employees who are not officers, directors, stockholders, or
employees of PIMCO, or its subsidiaries or affiliates; (ii) taxes and
governmental fees; (iii) brokerage fees and commissions and other portfolio
transaction expenses; (iv) the costs of borrowing money, including interest
expenses; (v) fees and expenses of the Trustees who are not "interested persons"
of PIMCO or the PIMS Trust, and any counsel retained exclusively for their
benefit; (vi) extraordinary expenses, including costs of litigation and
indemnification expenses; (vii) expenses which are capitalized in accordance
with generally accepted accounting principles; and (viii) any expenses allocated
or allocable to a specific class of shares, which include distribution and/or
service fees payable with respect to Class A, B and C shares and may include
certain other expenses as permitted by the PIMS Trust's Amended and Restated
Multi-Class Plan adopted pursuant to Rule 18f-3 under the Investment Company Act
of 1940, as amended (the "1940 Act") and subject to review and approval by the
Trustees.
Certain Payments by Distributor. In connection with the sale of Class
B and Class C shares of the Acquired Funds, the Distributor pays commissions to
broker-dealers from its own assets that it expects to recover over time through
the receipt of distribution fees in connection with the Funds' Class B and Class
C shares and the receipt of any CDSC on Class B and Class C shares. The total
amount of such commissions paid by the Distributor with respect to the Acquired
Funds before the consummation of the proposed Mergers will
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<PAGE>
likely exceed the amounts recovered by the Distributor by that time. Such
unrecovered amounts do not represent a liability of the Acquired Funds and,
consequently, the Acquiring Funds will not assume any such liability in
connection with the consummation of the Mergers. However, to the extent the
Distributor has not fully recovered such commissions before the consummation of
the proposed Mergers, it is anticipated that the PIMS Trust's Trustees will
consider such unrecovered amounts, among other factors, in determining whether
to continue payments of distribution fees in the future with respect to Class B
and Class C shares of the Acquiring Funds.
Declaration of Trust. Each of the Merger Shares will be fully paid
and nonassessable by the PIMS Trust when issued, will be transferable without
restriction, and will have no preemptive or conversion rights, except that Class
B Merger Shares will have the conversion rights specified above. The
Declaration of Trust, as amended, of the PIMS Trust (the "PIMS Declaration")
permits the Trust to divide its shares, without shareholder approval, into two
or more series of shares representing separate investment portfolios and to
further divide any such series, without shareholder approval, into two or more
classes of shares having such preferences and special or relative rights and
privileges as the Trustees may determine. The Acquiring Funds' shares are
currently divided into five classes, the Institutional Class, the Administrative
Class, Class A, Class B and Class C.
Under Massachusetts law, shareholders of a Massachusetts business
trust could, under certain circumstances, be held personally liable for the
obligations of the trust. However, the PIMS Declaration disclaims shareholder
liability for acts or obligations of the PIMS Trust and/or the Acquiring Funds
and requires that notice of such disclaimer be given in each agreement,
undertaking, or obligation entered into or executed by the PIMS Trust, the
Acquiring Funds or the Trustees. The PIMS Declaration provides for
indemnification out of Acquiring Fund property for all loss and expense of any
shareholder held personally liable for the obligations of the Acquiring Fund.
Thus, the risk of a shareholder's incurring financial loss from shareholder
liability is limited to circumstances in which the Acquiring Fund would be
unable to meet its obligations. The likelihood of such a circumstance is
considered remote. The shareholders of the Acquired Fund are currently subject
to this same risk of shareholder liability, under Massachusetts law and similar
provisions in the PAF Declaration of Trust.
The PIMS Trust, like the PAF Trust, is governed by Massachusetts law,
and the PIMS Trust's operations, like those of the PAF Trust, are subject to the
provisions of the 1940 Act and the rules thereunder. Certain differences
between the PIMS Declaration rules and the PAF Declaration are summarized below.
The PIMS Declaration sets forth the specific matters on which
shareholders are entitled to vote, the size of the vote required for approval of
each such matter, the circumstances in which shareholders may call and hold
meetings, and other information concerning shareholders' general voting rights.
The PAF Declaration states that shareholders shall have
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<PAGE>
power to vote as is provided for in, and may hold meetings and take actions
pursuant to, the provisions of the PAF Bylaws.
The PAF Bylaws provide that shareholders have the right to vote (i)
for the election of Trustees, provided however, that no meeting of shareholders
is required to be called for the purpose of electing Trustees unless and until
such times as less than a majority of the Trustees have been elected by
shareholders; (ii) with respect to any manager or subadviser to the extent
required by the 1940 Act; (iii) with respect to the termination of the PAF Trust
by any vote of shareholders; (iv) with respect to amendments to the PAF
Declaration which may adversely affect the rights of shareholders; (v) to the
same extent as the stockholders of a Massachusetts business corporation as to
whether or not an action should be brought derivatively or as a class action on
behalf of the PAF Trust or its shareholders; and (vi) with respect to such
additional matters relating to the PAF Trust as may be required by law, the PAF
Declaration, By-laws or any registration of the PAF Trust, or as the PAF
Trustees consider necessary or desirable.
Similarly, the PIMS Declaration permits shareholders to vote (i) for
the election of Trustees; (ii) the approval of investment advisory contracts,
(iii) termination of the PIMS Trust; (iv) certain amendments to the PIMS
Declaration; (v) with respect to certain reorganizations of the PIMS Trust; (vi)
with respect to incorporation of the PIMS Trust; (vii) to the same extent as the
stockholders of a Massachusetts business corporation as to whether or not an
action should be brought derivatively or as a class action on behalf of the PIMS
Trust or shareholders; and (viii) with respect to such other matters required by
the PIMS Declaration, By-laws or the 1940 Act, or as the PIMS Trustees consider
necessary or desirable.
Both Declarations may be amended upon the vote of a majority of the
shares entitled to vote, except in the case of the PAF Declaration Trustee
approval is also required. In both cases, Trustees may make certain minor
amendments without shareholder approval, such as changing the name of the Trust,
or correcting ambiguous or inconsistent provisions. Under the PIMS Declaration,
any amendment that would reduce the amount payable to shareholders upon
liquidation requires two-thirds approval of shareholders.
The PIMS Declaration provides that the Trust (or any series or class
thereof) may be terminated upon the vote of two-thirds of the shares entitled to
vote or such other vote as the Trustees may establish. In the case of the PAF
Declaration, the PAF Trust (or any series or class thereof) may be terminated by
the PAF Trust with or without shareholder approval. In addition, the PIMS
Declaration provides that any merger or consolidation of the PIMS Trust or
series thereof shall be approved by the vote of two-thirds of the shares
entitled to vote, unless recommended by the PIMS Trustees, in which case only a
majority vote is required. The PAF Bylaws permit a shareholder vote on a merger
or consolidation to the extent that the PAF Trustees consider such a vote
necessary or desirable. The PIMS Declaration provides that the PIMS Trust may
incorporate upon a vote of a majority of the shares entitled to vote.
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<PAGE>
Shares under both Declarations are deemed to be personal property
giving no rights to shareholders except as set forth under the Declarations.
The PAF Declaration provides that shareholders shall have no preemptive or other
right to subscribe for additional shares of the Trust. The PIMS Declaration
provides that shareholders shall not have preference, preemptive, appraisal,
conversion or exchange rights, except as the Trustees may determine. Each share
of either Trust entitles a shareholder to one vote, with fractional voting for
fractional shares. The PIMS Declaration provides that on any matter submitted
to a vote, shares shall be voted in the aggregate, except (i) when required by
the 1940 Act, shares shall be voted by individual series, and (ii) when the PIMS
Trustees determine that a matter affects the interests of less than all series
(or classes), in which case only such series (or classes) may vote. The PAF
Declaration includes no comparable provision; however, the PAF Bylaws provide
that on any matter submitted to a vote, shares shall be voted by individual
series, except (i) when required by the 1940 Act, shares shall be voted in the
aggregate and (ii) when the PAF Trustees determine that a matter affects the
interests of fewer than all series (or classes), in which case only such series
(or classes) may vote.
The PAF Declaration states that the minimum number of Trustees shall
be three, and shall be set forth in the Bylaws. The PIMS Declaration permits
between one and fifteen Trustees. Trustees of both PAF and PIMS serve until
resignation, removal or death, or until the next meeting of shareholders called
for the purpose of electing Trustees. PAF Trustees may be removed with or
without cause by a majority vote of the Trustees at a meeting of Trustees as
which a quorum is present. PIMS Trustees may be removed for cause by a vote of
two-thirds of the Trustees or by a vote of two-thirds of the outstanding shares
of the PIMS Trust.
Each fund of the PIMS Trust currently offers two classes of shares,
Institutional Class and Administrative Class shares. The PIMS Trust also
expects that, in connection with the overall reorganization of the mutual funds
advised by PIMCO Advisors, all of its funds will offer three additional classes
of shares, Class A, Class B and Class C shares, beginning on or about January 1,
1997. Rule 18f-3 under the 1940 Act currently provides, inter alia, that each
class (i) shall have a different arrangement for shareholder services or the
distribution of securities or both, and shall pay all of the expenses of that
arrangement; (ii) may pay a different share of other expenses, not including
advisory or custodial fees or other expenses related to the management of that
company's assets, if these expenses are actually incurred in a different amount
by that class, or if the class receives services of a different kind or to a
different degree than other classes; (iii) may pay a different advisory fee to
the extent that any difference in amount paid is the result of the application
of the same performance fee provisions in the advisory contract of the company
to the different investment performance of each class; and (iv) shall have
exclusive voting rights of any matter submitted to shareholders that relates
solely to its arrangement.
Federal income tax consequences. As a condition to each Acquired
Fund's obligation to consummate the Merger, the Fund will receive an opinion
from Ropes & Gray, counsel to
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<PAGE>
the PAF Trust, to the effect that, on the basis of the existing provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), current
administrative rules and court decisions, for federal income tax purposes: (i)
under Section 361 of the Code, no gain or loss will be recognized by the
Acquired Fund as a result of the reorganization; (ii) under Section 354 of the
Code, no gain or loss will be recognized by shareholders of the Acquired Fund on
the distribution of Merger Shares to them in exchange for their shares of the
Acquired Fund; (iii) under Section 358 of the Code, the tax basis of the Merger
Shares that the Acquired Fund's shareholders receive in place of their Acquired
Fund shares will be the same as the basis of the Acquired Fund shares; and (iv)
under Section 1223(1) of the Code, a shareholder's holding period for the Merger
Shares received pursuant to the Agreement will be determined by including the
holding period for the Acquired Fund shares exchanged for the Merger Shares,
provided that the shareholder held the Acquired Fund shares as a capital asset.
The opinion will be based on certain factual certifications made by officers of
the PIMS Trust and the PAF Trust and will also be based on customary
assumptions.
Prior to the Exchange Date, each Acquired Fund will declare a
distribution to shareholders which, together with all previous distributions,
will have the effect of distributing to shareholders all of its investment
company taxable income (computed without regard to the deduction for dividends
paid) and net realized capital gains, if any, through the Exchange Date.
Capitalization. The following tables show the capitalization as of
(i) June 30, 1996 for the U.S. Government Fund and the PIMS Total Return Fund,
for the Total Return Income Fund and the PIMS Total Return Fund, and for the
Short-Intermediate Fund and the PIMS Low Duration Fund, and (ii) March 31, 1996
for the High Income Fund and PIMS High Yield Fund and for the Money Market Fund
and PIMS Money Market Fund, and on a pro forma basis as of the relevant dates,
giving effect to each proposed acquisition of assets at net asset value:
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<PAGE>
<TABLE>
<CAPTION>
CAPITALIZATION TABLE
MARCH 31, 1996
(UNAUDITED)
High PIMS High
Income Fund Yield Fund Pro
Forma
Combined*
--------------------------------------------
<S> <C> <C> <C>
Net assets (000's omitted)
Class A $ 19,123 $ - $19,120
Class B 17,193 - 17,190
Class C 178,954 - 178,925
Institutional Class - 536,983 536,894
Administrative Class - 1,007 1,007
Shares outstanding (000's omitted)
Class A 2,395 - 2,395
Class B 2,158 - 2,158
Class C 22,592 - 22,592
Institutional Class - 49,062 49,062
Administrative Class - 92 92
Net asset value per share
Class A $ 7.98 $ - $ 7.98
Class B 7.97 - 7.97
Class C 7.92 - 7.92
Institutional Class - 10.94 10.94
Administrative Class - 10.94 10.94
</TABLE>
* Pro Forma net assets have been reduced by merger-related legal and
accounting costs and certain other costs.
-37-
<PAGE>
<TABLE>
<CAPTION>
CAPITALIZATION TABLE
JUNE 30, 1996
(UNAUDITED)
Total Return PIMS Total Pro Forma
Income Fund Return Fund Combined/(1)/
-----------------------------------------------
<S> <C> <C> <C>
Net assets (000's omitted)
Class A $59,103 $ - $ 59,103
Class B 41,430 - 41,430
Class C 91,548 - 91,548
Institutional Class - 10,629,773 10,629,773
Administrative Class - 117,134 117,134
Shares outstanding (000's omitted)
Class A 5,747 - 5,747
Class B 4,016 - 4,016
Class C 8,904 - 8,904
Institutional Class - 1,040,655 1,040,655
Administrative Class - 11,467 11,467
Net asset value per share
Class A $ 10.28 $ - $ 10.28
Class B 10.32 - 10.32
Class C 10.28 - 10.28
Institutional Class - 10.21 10.21
Administrative Class - 10.21 10.21
</TABLE>
(1) These Pro Forma figures represent only the merger of the Total Return
Income Fund into the PIMS Total Return Fund.
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<PAGE>
<TABLE>
<CAPTION>
CAPITALIZATION TABLE
JUNE 30, 1996
(UNAUDITED)
U.S. PIMS Total Pro Forma
Government Return Fund Combined/(1)/
Fund
------------------------------------------------
<S> <C> <C> <C>
Net assets (000's omitted)
Class A $ 16,789 $ - $ 16,789
Class B 5,130 - 5,130
Class C 248,893 - 248,893
Institutional Class - 10,629,773 10,629,773
Administrative Class - 117,134 117,134
Shares outstanding (000's omitted)
Class A 1,884 - 1,884
Class B 576 - 576
Class C 28,053 - 28,053
Institutional Class - 1,040,655 1,040,655
Administrative Class - 11,467 11,467
Net asset value per share
Class A $ 8.91 $ - $ 8.91
Class B 8.90 - 8.90
Class C 8.87 - 8.87
Institutional Class - 10.21 10.21
Administrative Class - 10.21 10.21
</TABLE>
/(1)/ These Pro Forma figures represent only the merger of the U.S. Government
Fund into the PIMS Total Return Fund.
-39-
<PAGE>
<TABLE>
<CAPTION>
CAPITALIZATION TABLE
JUNE 30, 1996
(UNAUDITED)
Short- PIMS Low Pro Forma
Intermediate Duration Fund Combined
Fund
---------------------------------------------
<S> <C> <C> <C>
Net assets (000's omitted)
Class A $46,566 $ - $ 46,566
Class B 2,601 - 2,601
Class C 68,510 - 68,510
Institutional Class - 2,672,414 2,672,414
Administrative Class - 3,232 3,232
Shares outstanding (000's omitted)
Class A 4,806 - 4,806
Class B 268 - 268
Class C 7,092 - 7,092
Institutional Class - 269,908 269,908
Administrative Class - 326 326
Net asset value per share
Class A $ 9.69 $ - $ 9.69
Class B 9.69 - 9.69
Class C 9.66 - 9.66
Institutional Class - 9.90 9.90
Administrative Class - 9.90 9.90
</TABLE>
-40-
<PAGE>
<TABLE>
<CAPTION>
CAPITALIZATION TABLE
MARCH 31, 1996
(UNAUDITED)
Money PIMS Money Pro
Market Fund Market Fund Forma Combined*
-------------------------------------------
<S> <C> <C> <C>
Net assets (000's omitted)
Class A $21,991 $ - $21,988
Class B 293 - 293
Class C 78,189 - 78,176
Institutional Class - 25,935 25,931
Administrative Class - 10 10
Shares outstanding (000's omitted)
Class A 21,991 - 21,991
Class B 293 - 293
Class C 78,189 - 78,189
Institutional Class - 25,935 25,935
Administrative Class - 10 10
Net asset value per share
Class A $ 1.00 $ - $ 1.00
Class B 1.00 - 1.00
Class C 1.00 - 1.00
Institutional Class - 1.00 1.00
Administrative Class - 1.00 1.00
</TABLE>
* Pro Forma net assets have been reduced by merger-related legal and
accounting costs and certain other costs.
Pro forma financial statements of the PIMS High Yield and Money Market Funds
as of and for the fiscal year ended March 31, 1996 are included in the Merger
Statement of Additional Information. Because each Agreement provides that the
Acquiring Fund will be the surviving fund following the reorganization and
because the Acquiring Fund's investment objective and policies will remain
unchanged, the pro forma financial statements reflect the transfer of the assets
and liabilities of the Acquired Fund to the Acquiring Fund as contemplated by
the Agreement. Because the assets of the Total Return Income, U.S. Government
and Short-Intermediate Funds each represent less than 10% of the assets of their
respective Acquiring Funds, pro forma financial statements for these Funds are
not provided.
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<PAGE>
INFORMATION ABOUT THE ACQUIRING FUNDS
Other information relating to the Acquiring Funds, including
information with respect to their investment objectives, policies and
restrictions, may be found at Appendix B to this Proxy Statement/Prospectus.
Further information regarding the Acquiring Fund, including financial
information, may be found in the Merger Statement of Additional Information, the
PIMS Prospectus, the PIMS Statement of Additional Information and the PIMS
Annual Report, which are available on request by calling 1-800-927-4648.
Certain information and commentary from the PIMS Annual Report relating to the
Acquiring Funds' recent investment performance is set forth in Appendix C to
this Prospectus/Proxy Statement.
Proxy materials, reports, proxy and information statements and other
information filed by the PIMS Trust with respect to the Acquiring Funds can be
inspected and copied at the Public Reference Facilities maintained by the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.
20549; 7 World Trade Center, Suite 1300, New York, New York 10048; and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material
can also be obtained from the Public Reference Branch, Office of Consumer
Affairs and Information Services, Securities and Exchange Commission,
Washington, D.C. 20549 at prescribed rates.
INFORMATION ABOUT THE ACQUIRED FUNDS
Other information relating to the Acquired Funds, including
information in respect of their investment objectives and policies and financial
history, may be found in the Merger Statement of Additional Information, the PAF
Prospectus, the PAF Statement of Additional Information and the PAF Semi-Annual
Report, which are available on request by calling 1-800-426-0107.
Proxy materials, reports, proxy and information statements and other
information filed by the PAF Trust with respect to the Acquired Funds can be
inspected and copied at the Public Reference Facilities maintained by the
Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C.
20549; 7 World Trade Center, Suite 1300, New York, New York 10048; and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material
can also be obtained from the Public Reference Branch, Office of Consumer
Affairs and Information Services, Securities and Exchange Commission,
Washington, D.C. 20549 at prescribed rates.
VOTING INFORMATION
Record date, quorum and method of tabulation. Shareholders of record
of each Acquired Fund at the close of business on October __, 1996 (the "Record
Date") will be entitled to notice of and to vote at the Meeting or any
adjournment thereof. The holders of more than 30% of each of the Class A, Class
B and Class C shares of each Acquired Fund
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<PAGE>
outstanding at the close of business on the Record Date present in person or
represented by proxy will constitute a quorum for the Meeting with respect to
that Fund. Shareholders are entitled to one vote for each share held, with
fractional shares voting proportionally. Shareholders of each Acquired Fund will
vote only on the approval or disapproval of that Fund's Merger.
Votes cast by proxy or in person at the Meeting will be counted by
persons appointed by the PAF Trust as tellers for the Meeting. The tellers will
count the total number of votes cast "for" approval of the proposal for purposes
of determining whether sufficient affirmative votes have been cast. The tellers
will count shares represented by proxies that reflect abstentions and "broker
non-votes" (i.e., shares held by brokers or nominees as to which (i)
instructions have not been received from the beneficial owners or the persons
entitled to vote and (ii) the broker or nominee does not have the discretionary
voting power on a particular matter) as shares that are present and entitled to
vote on the matter for purposes of determining the presence of a quorum. So
long as a quorum is present, abstentions and broker non-votes have the effect of
negative votes on the proposal.
As of the Record Date, as shown on the books of the PAF Trust, there
were issued and outstanding the following number of shares of beneficial
interest of each class of each Acquired Fund:
Class A Class B Class C
------- ------- -------
High Income Fund
Total Return Income Fund
U.S. Government Fund
Short-Intermediate Fund
Money Market Fund
As of the Record Date, the officers and Trustees of the PAF Trust and
the PIMS Trust as a group beneficially owned [less than 1%] of the outstanding
shares of each class of each Acquired Fund. As of the Record Date, to the best
of the knowledge of the PAF Trust, the following persons owned beneficially 5%
or more of the outstanding shares of the indicated classes of the Acquired
Funds:
[insert list of 5% shareholders and pro forma ownership of the 5%
shareholders following Mergers]
As of the Record Date, the officers and Trustees of the PIMS Trust and
the PAF Trust as a group beneficially owned [less than 1%] of the outstanding
shares of each Acquiring Fund. As of the Record Date, to the best of the
knowledge of the PIMS Trust, the following persons beneficially owned 5% or more
of the outstanding shares of the indicated classes of the Acquiring Funds:
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<PAGE>
[insert list of 5% shareholders and pro forma ownership of the 5%
shareholders following Mergers]
Solicitation of proxies. Solicitation of proxies by personal
interview, mail, and telephone, may be made by officers and Trustees of the PAF
Trust and the PIMS Trust and employees of the Distributor and its affiliates.
In addition, the firm of ____________ has been retained to assist in the
solicitation of proxies. The costs for solicitation of proxies, like the other
costs associated with the general restructuring of the PIMCO Mutual Funds, will
be only partially borne by the Funds. See "Information About the Mergers."
Revocation of proxies. Any shareholder giving a proxy has the power
to revoke it by mail (addressed to the PAF Trust's Clerk at the principal office
of the PAF Trust at 2187 Atlantic Street, Stamford, Connecticut 06902) or in
person at the Meeting, by executing a superseding proxy, or by submitting a
notice of revocation to the Clerk of the PAF Trust. All properly executed
proxies received in time for the Meeting will be voted as specified in the
proxy, or, if no specification is made, FOR the proposal (set forth in Proposals
1, 2, 3, 4 or 5 of the Notice of Meeting) to implement the Merger with respect
to the relevant Acquired Fund.
Adjournment. If sufficient votes in favor of any proposal are not
received by the time scheduled for the Meeting, the persons named as proxies may
propose one or more adjournments of the Meeting to permit further solicitation
of proxies. Any adjournment will require the affirmative vote of a plurality of
the votes cast on the question in person or by proxy at the session of the
Meeting to be adjourned. If a meeting is adjourned with respect to a proposal,
any other proposal(s) may still be acted upon. The persons named as proxies
will vote in favor of such adjournment those proxies which they are entitled to
vote in favor of the proposal. They will vote against any such adjournment
those proxies required to be voted against the proposal. The Acquired Funds
will pay the costs of any additional solicitation and of any adjourned session.
October __, 1996
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<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made as of
September __, 1996 in ______, ________, by and between PIMCO Advisors Funds, a
Massachusetts business trust (the "PAF Trust"), on behalf of its _________ Fund
series (the "Acquired Fund"), and PIMCO Funds, a Massachusetts business trust
(the "PIMS Trust"), on behalf of its ____________ Fund series (the "Acquiring
Fund").
PLAN OF REORGANIZATION
----------------------
(a) The Acquired Fund will sell, assign, convey, transfer and deliver to
the Acquiring Fund on the Exchange Date (as defined in Section 6) all of its
properties and assets. In consideration therefor, the Acquiring Fund shall, on
the Exchange Date, assume all of the liabilities of the Acquired Fund existing
at the Valuation Time and deliver to the Acquired Fund (i) a number of full and
fractional Class A shares of beneficial interest of the Acquiring Fund (the
"Class A Merger Shares") having an aggregate net asset value equal to the value
of the assets of the Acquiring Fund attributable to Class A shares of the
Acquired Fund transferred to the Acquiring Fund on such date less the value of
the liabilities of the Acquired Fund attributable to Class A shares of the
Acquired Fund assumed by the Acquiring Fund on that date, (ii) a number of full
and fractional Class B shares of beneficial interest of the Acquiring Fund (the
"Class B Merger Shares") having an aggregate net asset value equal to the value
of the assets of the Acquired Fund attributable to Class B shares of the
Acquired Fund transferred to the Acquiring Fund on such date less the value of
the liabilities of the Acquired Fund attributable to Class B shares of the
Acquired Fund assumed by the Acquiring Fund on that date, and (iii) a number of
full and fractional Class C shares of beneficial interest of the Acquiring Fund
(the "Class C Merger Shares") having an aggregate net asset value equal to the
value of the assets of the Acquired Fund attributable to Class C shares of the
Acquired Fund transferred to the Acquiring Fund on such date less the value of
the liabilities of the Acquired Fund attributable to Class C shares of the
Acquired Fund assumed by the Acquiring Fund on that date. (The Class A Merger
Shares, the Class B Merger Shares and the Class C Merger Shares shall be
referred to collectively as the "Merger Shares.") It is intended that the
reorganization described in this Plan shall be a reorganization within the
meaning of Section 368 of the Internal Revenue Code of 1986, as amended (the
"Code").
(b) Upon consummation of the transactions described in paragraph (a) of
this Plan of Reorganization, the Acquired Fund shall distribute in complete
liquidation to its Class A, Class B and Class C shareholders of record as of the
Exchange Date Class A, Class B and Class C Merger Shares, each shareholder being
entitled to receive that proportion of such Class A, Class B and Class C Merger
Shares which the number of Class A, Class B or Class C shares of beneficial
interest of the Acquired Fund held by such shareholder bears to the
A-1
<PAGE>
number of Class A, Class B and Class C shares of the Acquired Fund outstanding
on such date. Certificates representing the Merger Shares will not be issued.
All issued and outstanding shares of the Acquired Fund will simultaneously be
cancelled on the books of the Acquired Fund.
(c) As promptly as practicable after the liquidation of the Acquired Fund
as aforesaid, the Acquired Fund shall be dissolved pursuant to the provisions of
the Declaration of Trust of the PAF Trust, as amended, and applicable law, and
its legal existence terminated. Any reporting responsibility of the Acquired
Fund is and shall remain the responsibility of the Acquired Fund up to and
including the Exchange Date and, if applicable, such later date on which the
Acquired Fund is liquidated.
AGREEMENT
---------
The Acquiring Fund and the Acquired Fund agree as follows:
1. Representations, Warranties and Agreements of the Acquiring Fund. The
----------------------------------------------------------------
Acquiring Fund represents and warrants to and agrees with the Acquired
Fund that:
a. The Acquiring Fund is a series of shares of the PIMS Trust, a
Massachusetts business trust duly established and validly existing
under the laws of The Commonwealth of Massachusetts, and has power to
own all of its properties and assets and to carry out its obligations
under this Agreement. The PIMS Trust is qualified as a foreign
association in every jurisdiction where required, except to the extent
that failure to so qualify would not have a material adverse effect on
the PIMS Trust. Each of the PIMS Trust and the Acquiring Fund has all
necessary federal, state and local authorizations to carry on its
business as now being conducted and to carry out this Agreement.
b. The PIMS Trust is registered under the Investment Company Act of 1940,
as amended (the "1940 Act"), as an open-end management investment
company, and such registration has not been revoked or rescinded and
is in full force and effect.
c. [A statement of assets and liabilities, statements of operations,
statements of changes in net assets and a schedule of investments
(indicating their market values) of the Acquiring Fund as of and for
the year ended March 31, 1996 have been furnished to the Acquired
Fund. Such statement of assets and liabilities and schedule fairly
present the financial position of the Acquiring Fund as of their date
and said statements of operations and changes in net assets fairly
reflect the results of its operations and changes in net assets for
the
A-2
<PAGE>
periods covered thereby in conformity with generally accepted
accounting principles.]
d. The prospectus and statement of additional information of the PIMS
Trust, each dated June 15, 1996 (collectively, the "PIMS Prospectus"),
previously furnished to the Acquired Fund, did not as of such date and
does not contain, with respect to the PIMS Trust or the Acquiring
Fund, any untrue statements of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading.
e. There are no material legal, administrative or other proceedings
pending or, to the knowledge of the PIMS Trust or the Acquiring Fund,
threatened against the PIMS Trust or the Acquiring Fund, which assert
liability on the part of the PIMS Trust or the Acquiring Fund. The
Acquiring Fund knows of no facts which might form the basis for the
institution of such proceedings and is not a party to or subject to
the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects its business
or its ability to consummate the transactions herein contemplated.
f. The Acquiring Fund has no known liabilities of a material nature,
contingent or otherwise, [other than those shown as belonging to it on
its statement of assets and liabilities as of March 31, 1996 and those
incurred in the ordinary course of business as an investment company
since March 31, 1996.] Prior to the Exchange Date, the Acquiring Fund
will endeavor to quantify and to reflect on its balance sheet all of
its material known liabilities and will advise the Acquired Fund of
all material liabilities, contingent or otherwise, incurred by it
[subsequent to March 31, 1996], whether or not incurred in the
ordinary course of business.
g. As of the Exchange Date, the Acquiring Fund will have filed all
federal and other tax returns and reports which, to the knowledge of
the PIMS Trust's officers, are required to be filed by the Acquiring
Fund and has paid or will pay all federal and other taxes shown to be
due on said returns or on any assessments received by the Acquiring
Fund. All tax liabilities of the Acquiring Fund have been adequately
provided for on its books, and no tax deficiency or liability of the
Acquiring Fund has been asserted, and no question with respect thereto
has been raised or is under audit, by the Internal Revenue Service or
by any state or local tax authority for taxes in excess of those
already paid.
h. No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Acquiring Fund of the transactions contemplated by this Agreement,
except such as may be required under the Securities Act of 1933, as
amended (the "1933 Act"), the Securities
A-3
<PAGE>
Exchange Act of 1934, as amended (the "1934 Act"), the 1940 Act and
state securities or blue sky laws (which term as used herein shall
include the laws of the District of Columbia and of Puerto Rico).
i. The registration statement (the "Registration Statement") filed with
the Securities and Exchange Commission (the "Commission") by the PIMS
Trust on Form N-14 on behalf of the Acquiring Fund and relating to the
Merger Shares issuable hereunder, and the proxy statement of the
Acquired Fund relating to the meeting of the Acquired Fund's
shareholders referred to in Section 7(a) herein (together with the
documents incorporated therein by reference, the "Acquired Fund Proxy
Statement"), on [the effective date of the Registration Statement] (i)
will comply in all material respects with the provisions of the 1933
Act, the 1934 Act and the 1940 Act and the rules and regulations
thereunder and (ii) will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading;
and at the time of the shareholders meeting referred to in Section
7(a) and on the Exchange Date, the prospectus which is contained in
the Registration Statement, as amended or supplemented by any
amendments or supplements filed with the Commission by the PIMS Trust
and the Acquired Fund Proxy Statement will not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; provided, however, that none of the representations and
warranties in this subsection shall apply to statements in or
omissions from the Registration Statement or the Acquired Fund Proxy
Statement made in reliance upon and in conformity with information
furnished by the Acquired Fund for use in the Registration Statement
or the Acquired Fund Proxy Statement.
j. There are no material contracts outstanding to which the Acquiring
Fund is a party, other than as will be disclosed in the Registration
Statement, the PIMS Prospectus or the Acquired Fund Proxy Statement.
k. To the best of its knowledge, all of the issued and outstanding shares
of beneficial interest of the Acquiring Fund have been offered for
sale and sold in conformity with all applicable federal and state
securities laws (including any applicable exemptions therefrom), or
the Acquiring Fund has taken any action necessary to remedy any prior
failure to have offered for sale and sold such shares in conformity
with such laws.
l. The Acquiring Fund qualifies and will at all times through the
Exchange Date qualify for taxation as a "regulated investment company"
under Sections 851 and 852 of the Code.
A-4
<PAGE>
m. The issuance of the Merger Shares pursuant to this Agreement will be
in compliance with all applicable federal and state securities laws.
n. The Merger Shares to be issued to the Acquired Fund have been duly
authorized and, when issued and delivered pursuant to this Agreement,
will be legally and validly issued and will be fully paid and
nonassessable by the Acquiring Fund, and no shareholder of the
Acquiring Fund will have any preemptive right of subscription or
purchase in respect thereof.
o. All issued and outstanding shares of the Acquiring Fund are, and at
the Exchange Date will be, duly and validly issued and outstanding,
fully paid and non-assessable by the Acquiring Fund. The Acquiring
Fund does not have outstanding any options, warrants or other rights
to subscribe for or purchase any of the Acquiring Fund shares, nor is
there outstanding any security convertible into any of the Acquiring
Fund shares.
2. Representations, Warranties and Agreements of the Acquired Fund. The
---------------------------------------------------------------
Acquired Fund represents and warrants to and agrees with the Acquiring
Fund that:
a. The Acquired Fund is a series of shares of the PAF Trust, a
Massachusetts business trust duly established and validly existing
under the laws of The Commonwealth of Massachusetts, and has power to
own all of its properties and assets and to carry out this Agreement.
The PAF Trust is qualified as a foreign association in every
jurisdiction where required, except to the extent that failure to so
qualify would not have a material adverse effect on the PAF Trust.
Each of the PAF Trust and the Acquired Fund has all necessary federal,
state and local authorizations to own all of its properties and assets
and to carry on its business as now being conducted and to carry out
this Agreement.
b. The PAF Trust is registered under the 1940 Act as an open-end
management investment company, and such registration has not been
revoked or rescinded and is in full force and effect.
c. A statement of assets and liabilities, statements of operations,
statements of changes in net assets and a schedule of investments
(indicating their market values) of the Acquired Fund as of and for
the fiscal year ended September 30, 1996 have been furnished to the
Acquiring Fund. Such statement of assets and liabilities and schedule
fairly present the financial position of the Acquired Fund as of their
date and said statements of operations and changes in net assets
fairly reflect the results of its operations and changes in net assets
for the periods covered thereby in conformity with generally accepted
accounting principles.
A-5
<PAGE>
d. The prospectus and statement of additional information of the PAF
Trust dated February 1, 1996 and July 12, 1996, respectively
(collectively, the "PAF Prospectus"), which has been previously
furnished to the Acquiring Fund, did not contain as of such dates and
does not contain, with respect to the PAF Trust and the Acquired Fund,
any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading.
e. There are no material legal, administrative or other proceedings
pending or, to the knowledge of the PAF Trust or the Acquired Fund,
threatened against the PAF Trust or the Acquired Fund, which assert
liability on the part of the PAF Trust or the Acquired Fund. The
Acquired Fund knows of no facts which might form the basis for the
institution of such proceedings and is not a party to or subject to
the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects its business
or its ability to consummate the transactions herein contemplated.
f. There are no material contracts outstanding to which the Acquired Fund
is a party, other than as will be disclosed in [the Registration
Statement,] the PAF Prospectus or the Acquired Fund Proxy Statement.
g. The Acquired Fund has no known liabilities of a material nature,
contingent or otherwise, other than those shown on the Acquired Fund's
statement of assets and liabilities as of September 30, 1996 referred
to above and those incurred in the ordinary course of its business as
an investment company since such date. Prior to the Exchange Date, the
Acquired Fund will endeavor to quantify and to reflect on its balance
sheet all of its material known liabilities and will advise the
Acquiring Fund of all material liabilities, contingent or otherwise,
incurred by it subsequent to September 30, 1996, whether or not
incurred in the ordinary course of business.
h. As of the Exchange Date, the Acquired Fund will have filed all federal
and other tax returns and reports which, to the knowledge of the PAF
Trust's officers, are required to be filed by the Acquired Fund and
has paid or will pay all federal and other taxes shown to be due on
said returns or on any assessments received by the Acquired Fund. All
tax liabilities of the Acquired Fund have been adequately provided for
on its books, and no tax deficiency or liability of the Acquired Fund
has been asserted, and no question with respect thereto has been
raised or is under audit, by the Internal Revenue Service or by any
state or local tax authority for taxes in excess of those already
paid.
i. At both the Valuation Time (as defined in Section 3(c)) and the
Exchange Date, the PAF Trust, on behalf of the Acquired Fund, will
have full right, power and
A-6
<PAGE>
authority to sell, assign, transfer and deliver the Investments and
any other assets and liabilities of the Acquired Fund to be
transferred to the Acquiring Fund pursuant to this Agreement. At the
Exchange Date, subject only to the delivery of the Investments and any
such other assets and liabilities as contemplated by this Agreement,
the Acquiring Fund will acquire the Investments and any such other
assets and liabilities subject to no encumbrances, liens or security
interests whatsoever and without any restrictions upon the transfer
thereof. As used in this Agreement, the term "Investments" shall mean
the Acquired Fund's investments shown on the schedule of its
investments as of September 30, 1996 referred to in Section 2(c)
hereof, as supplemented with such changes in the portfolio as the
Acquired Fund shall make, and changes resulting from stock dividends,
stock split-ups, mergers and similar corporate actions through the
Exchange Date.
j. No registration under the 1933 Act of any of the Investments would be
required if they were, as of the time of such transfer, the subject of
a public distribution by either of the Acquiring Fund or the Acquired
Fund, except as previously disclosed to the Acquiring Fund by the
Acquired Fund.
k. No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Acquired Fund of the transactions contemplated by this Agreement,
except such as may be required under the 1933 Act, 1934 Act, the 1940
Act or state securities or blue sky laws.
l. The Registration Statement and the Acquired Fund Proxy Statement, on
the effective date of the Registration Statements (i) will comply in
all material respects with the provisions of the 1933 Act, the 1934
Act and the 1940 Act and the rules and regulations thereunder and (ii)
will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading; and at the time of the
shareholders meeting referred to in Section 7(a) and on the Exchange
Date, the Acquired Fund Proxy Statement and the Registration Statement
will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading; provided, however, that
none of the representations and warranties in this subsection shall
apply to statements in or omissions from the Registration Statement or
the Acquired Fund Proxy Statement made in reliance upon and in
conformity with information furnished by the Acquiring Fund for use in
the Registration Statement or the Acquired Fund Proxy Statement.
A-7
<PAGE>
m. The Acquired Fund qualifies and will at all times through the Exchange
Date qualify for taxation as a "regulated investment company" under
Section 851 and 852 of the Code.
n. At the Exchange Date, the Acquired Fund will have sold such of its
assets, if any, as are necessary to assure that, after giving effect
to the acquisition of the assets of the Acquired Fund pursuant to this
Agreement, the Acquiring Fund will remain a "diversified company"
within the meaning of Section 5(b)(1) of the 1940 Act and in
compliance with such other mandatory investment restrictions as are
set forth in the PIMS Prospectus, as amended through the Exchange
Date.
o. To the best of its knowledge, all of the issued and outstanding shares
of beneficial interest of the Acquired Fund shall have been offered
for sale and sold in conformity with all applicable federal and state
securities laws (including any applicable exemptions therefrom), or
the Acquired Fund has taken any action necessary to remedy any prior
failure to have offered for sale and sold such shares in conformity
with such laws.
p. All issued and outstanding shares of the Acquired Fund are, and at the
Exchange Date will be, duly and validly issued and outstanding, fully
paid and non-assessable by the Acquired Fund. The Acquired Fund does
not have outstanding any options, warrants or other rights to
subscribe for or purchase any of the Acquired Fund shares, nor is
there outstanding any security convertible into any of the Acquired
Fund shares, except that Class B shares of the Acquired Fund are
convertible into Class A shares of the Acquired Fund in the manner and
on the terms described in the PAF Prospectus.
3. Reorganization.
--------------
a. Subject to the requisite approval of the shareholders of the Acquired
Fund and to the other terms and conditions contained herein (including
the Acquired Fund's obligation to distribute to its shareholders all
of its investment company taxable income and net capital gain as
described in Section 8(m) hereof), the Acquired Fund agrees to sell,
assign, convey, transfer and deliver to the Acquiring Fund, and the
Acquiring Fund agrees to acquire from the Acquired Fund, on the
Exchange Date all of the Investments and all of the cash and other
properties and assets of the Acquired Fund, whether accrued or
contingent (including cash received by the Acquired Fund upon the
liquidation of the Acquired Fund of any investments purchased by the
Acquired Fund after September 30, 1996 and designated by the Acquiring
Fund as being unsuitable for it to acquire), in exchange for that
number of shares of beneficial interest of the Acquiring Fund provided
for in Section 4 and the assumption by the
A-8
<PAGE>
Acquiring Fund of all of the liabilities of the Acquired Fund, whether
accrued or contingent, existing at the Valuation Time except for the
Acquired Fund's liabilities, if any, arising in connection with this
Agreement. Pursuant to this Agreement, the Acquired Fund will, as soon
as practicable after the Exchange Date, distribute all of the Merger
Shares received by it to the shareholders of the Acquired Fund in
exchange for their Class A, Class B and Class C shares of the Acquired
Fund.
b. The Acquired Fund will pay or cause to be paid to the Acquiring Fund
any interest, cash or such dividends, rights and other payments
received by it on or after the Exchange Date with respect to the
Investments and other properties and assets of the Acquired Fund,
whether accrued or contingent, received by it on or after the Exchange
Date. Any such distribution shall be deemed included in the assets
transferred to the Acquiring Fund at the Exchange Date and shall not
be separately valued unless the securities in respect of which such
distribution is made shall have gone "ex" such distribution prior to
the Valuation Time, in which case any such distribution which remains
unpaid at the Exchange Date shall be included in the determination of
the value of the assets of the Acquired Fund acquired by the Acquiring
Fund.
c. The Valuation Time shall be 4:00 p.m. Eastern time on [the Exchange
Date] or such earlier or later day as may be mutually agreed upon in
writing by the parties hereto (the "Valuation Time").
4. Exchange Date: Valuation Time. On the Exchange Date, the Acquiring
-----------------------------
Fund will deliver to the Acquired Fund (i) a number of full and
fractional Class A Merger Shares having an aggregate net asset value
equal to the value of the assets of the Acquired Fund attributable to
Class A shares of the Acquired Fund transferred to the Acquiring Fund
on such date less the value of the liabilities of the Acquired Fund
attributable to Class A shares of the Acquired Fund assumed by the
Acquiring Fund on that date, (ii) a number of full and fractional
Class B Merger Shares having an aggregate net asset value equal to the
value of the assets of the Acquired Fund attributable to Class B
shares of the Acquired Fund transferred to the Acquiring Fund on such
date less the value of the liabilities of the Acquired Fund
attributable to Class B shares of the Acquired Fund assumed by the
Acquiring Fund on that date, and (iii) a number of full and fractional
Class C Merger Shares having an aggregate net asset value equal to the
value of the assets of the Acquired Fund attributable to Class C
shares of the Acquired Fund transferred to the Acquiring Fund on such
date less the value of the liabilities of the Acquired Fund
attributable to Class C shares of the Acquired Fund assumed by the
Acquiring Fund on that date, determined as hereinafter provided in
this Section 4.
A-9
<PAGE>
a. The net asset value of the Merger Shares to be delivered to the
Acquired Fund, the value of the assets attributable to the Class A,
Class B and Class C shares of the Acquired Fund, and the value of the
liabilities attributable to the Class A, Class B and Class C shares of
the Acquired Fund to be assumed by the Acquiring Fund, shall in each
case be determined as of the Valuation Time.
b. The net asset value of the Class A, Class B and Class C Merger Shares
shall be computed in the manner set forth in the PIMS Prospectus. The
value of the assets and liabilities of the Class A, Class B and Class
C shares of the Acquired Fund shall be determined by the Acquiring
Fund, in cooperation with the Acquired Fund, pursuant to procedures
which the Acquiring Fund would use in determining the fair market
value of the Acquiring Fund's assets and liabilities.
c. No adjustment shall be made in the net asset value of either the
Acquired Fund or the Acquiring Fund to take into account differences
in realized and unrealized gains and losses.
d. The Acquiring Fund shall issue the Merger Shares to the Acquired Fund
in three certificates registered in the name of the Acquired Fund, one
representing Class A Merger Shares, one representing Class B Merger
Shares and one representing Class C Merger Shares. The Acquired Fund
shall distribute the Class A Merger Shares to the Class A shareholders
of the Acquired Fund by redelivering such certificate to the Acquiring
Fund's transfer agent, which will as soon as practicable set up open
accounts for each Class A Acquired Fund shareholder in accordance with
written instructions furnished by the Acquired Fund. The Acquired Fund
shall distribute the Class B Merger Shares to the Class B shareholders
of the Acquired Fund by redelivering such certificate to the Acquiring
Fund's transfer agent, which will as soon as practicable set up open
accounts for each Class B Acquired Fund shareholder in accordance with
written instructions furnished by the Acquired Fund. The Acquired Fund
shall distribute the Class C Merger shares to the Class C shareholders
of the Acquired Fund by redelivering such certificate to the Acquiring
Fund's transfer agent, which will as soon as practicable set up open
accounts for each Class C Acquired Fund shareholder in accordance with
written instructions furnished by the Acquired Fund. With respect to
any Acquired Fund shareholder holding share certificates as of the
Exchange Date, such certificates will from and after the Exchange Date
be deemed to be certificates for the Merger Shares issued to each
shareholder in respect of the Acquired Fund shares represented by such
certificates; certificates representing the Merger Shares will not be
issued to Acquired Fund shareholders.
e. The Acquiring Fund shall assume all liabilities of the Acquired Fund,
whether accrued or contingent, in connection with the acquisition of
assets and
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<PAGE>
subsequent dissolution of the Acquired Fund or otherwise, except for
the Acquired Fund's liabilities, if any, pursuant to this Agreement.
5. Expenses, Fees, etc.
-------------------
a. The parties hereto understand and agree that the transactions
contemplated by this Agreement are being undertaken contemporaneously
with a general restructuring and consolidation of certain of the
registered investment companies advised by PIMCO Advisors, L.P. and
its affiliates; and that in connection therewith the costs of all such
transactions are being preliminarily allocated on a basis approved,
inter alia, by the Trustees of both the PAF Trust and the PIMS Trust.
----------
The Acquired Fund and the Acquiring Fund agree to pay the expenses
preliminarily allocated to them but not, however, in an amount
exceeding the Relevant Expense Caps. PIMCO Advisors L.P., by
countersigning this Agreement, agrees that PIMCO Advisors L.P. will
bear any and all expenses preliminarily allocated to the Acquired Fund
and the Acquiring Fund to the extent that they would otherwise exceed
the Relevant Expense Caps. For these purposes, the "Relevant Expense
Caps" will be $20,000 for the Acquiring Fund and [$180,938 - Total
Return Fund] [$239,260 - High Income Fund] [$226,711 - U.S. Government
Fund] [$46,322 - Short-Intermediate Fund] [$0 - Money Market Fund] for
the Acquired Fund; provided, however, that the Relevant Expense Caps
will be reduced for the Acquired Funds, pursuant to the conditions of
the Trustee approval referred to above, to the extent that expenses of
the general restructuring and consolidation preliminarily allocated to
all the PAF Trust's funds would otherwise exceed $500,000.
Notwithstanding any of the foregoing, expenses will in any event be
paid by the party directly incurring such expenses if and to the
extent that the payment by the other party of such expenses would
result in the disqualification of such party as a "regulated
investment company" within the meaning of Section 851 of the Code.
b. In the event the transactions contemplated by this Agreement are not
consummated by reason of the Acquiring Fund's being either unwilling
or unable to go forward other than by reason of the nonfulfillment or
failure of any condition to the Acquiring Fund's obligations referred
to in Section 7(a) or Section 8, the Acquiring Fund shall pay directly
all reasonable fees and expenses incurred by the Acquired Fund in
connection with such transactions, including, without limitation,
legal, accounting and filing fees.
c. In the event the transactions contemplated by this Agreement are not
consummated by reason of the Acquired Fund's being either unwilling or
unable to go forward other than by reason of the nonfulfillment or
failure of any condition to the Acquired Fund's obligations referred
to in Section 7(a) or
A-11
<PAGE>
Section 9, the Acquired Fund shall pay directly all reasonable fees
and expenses incurred by the Acquiring Fund in connection with such
transactions, including, without limitation, legal, accounting and
filings fees.
d. In the event the transactions contemplated by this Agreement are not
consummated for any reason other than (i) the Acquiring Fund's or the
Acquired Fund's being either unwilling or unable to go forward or (ii)
the nonfulfillment or failure of any condition to the Acquiring Fund's
or the Acquired Fund's obligations referred to in Section 7(a),
Section 8 or Section 9 of this Agreement, then each of the Acquiring
Fund and the Acquired Fund shall bear all of its own expenses incurred
in connection with such transactions.
e. Notwithstanding any other provisions of this Agreement, if for any
reason the transactions contemplated by this Agreement are not
consummated, no party shall be liable to the other party for any
damages resulting therefrom, including, without limitation,
consequential damages, except as specifically set forth above.
6. Exchange Date. Delivery of the assets of the Acquired Fund to be
-------------
transferred, assumption of the liabilities of the Acquired Fund to be
assumed, and the delivery of the Merger Shares to be issued shall be
made at [place] at [time] as of January __, 1997, or at such other
time and date agreed to by the Acquiring Fund and the Acquired Fund,
the date and time upon which such delivery is to take place being
referred to herein as the "Exchange Date."
7. Meetings of Shareholders; Dissolution.
-------------------------------------
a. The PAF Trust, on behalf of the Acquired Fund, agrees to call a
meeting of the Acquired Fund's shareholders as soon as is practicable
after the effective date of the Registration Statement for the purpose
of considering the sale of all of its assets to and the assumption of
all of its liabilities by the Acquiring Fund as herein provided,
adopting this Agreement, and authorizing the liquidation and
dissolution of the Acquired Fund.
b. The Acquired Fund agrees that the liquidation and dissolution of the
Acquired Fund will be effected in the manner provided in the PAF
Trust's Declaration of Trust in accordance with applicable law and
that on and after the Exchange Date, the Acquired Fund shall not
conduct any business except in connection with its liquidation and
dissolution.
c. [Reserved.]
A-12
<PAGE>
d. The Acquiring Fund has, after the preparation and delivery to the
Acquiring Fund by the Acquired Fund of a preliminary version of the
Acquired Fund Proxy Statement which was satisfactory to the Acquiring
Fund and to Dechert Price & Rhoads for inclusion in the Registration
Statement, filed the Registration Statement with the Commission. Each
of the Acquired Fund and the Acquiring Fund will cooperate with the
other, and each will furnish to the other the information relating to
itself required by the 1933 Act, the 1934 Act and the 1940 Act and the
rules and regulations thereunder to be set forth in the Registration
Statement.
8. Conditions to the Acquiring Fund's Obligations. The obligations of the
----------------------------------------------
Acquiring Fund hereunder shall be subject to the following conditions:
a. That this Agreement shall have been adopted and the transactions
contemplated hereby shall have been approved by the requisite votes of
the holders of the outstanding shares of beneficial interest of the
Acquired Fund entitled to vote.
b. That the Acquired Fund shall have furnished to the Acquiring Fund a
statement of the Acquired Fund's assets and liabilities, with values
determined as provided in Section 4 of this Agreement, together with a
list of Investments with their respective tax costs, all as of the
Valuation Time, certified on the Acquired Fund's behalf by the PAF
Trust's President (or any Vice President) and Treasurer, and a
certificate of both such officers, dated the Exchange Date, that there
has been no material adverse change in the financial position of the
Acquired Fund since September 30, 1996 other than changes in the
Investments and other assets and properties since that date or changes
in the market value of the Investments and other assets of the
Acquired Fund, or changes due to dividends paid or losses from
operations.
c. That the Acquired Fund shall have furnished to the Acquiring Fund a
statement, dated the Exchange Date, signed by the PAF Trust's
President (or any Vice President) and Treasurer certifying that as of
the Valuation Time and as of the Exchange Date all representations and
warranties as of the Acquired Fund made in this Agreement are true and
correct in all material respects as if made at and as of such dates
and the Acquired Fund has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied
at or prior to such dates.
d. That the Acquired Fund shall have delivered to the Acquiring Fund a
letter from Coopers & Lybrand L.L.P. dated the Exchange Date stating
that such firm has employed certain procedures whereby it has obtained
schedules of the tax provisions and qualifying tests for regulated
investment companies as prepared for the fiscal year ended September
30, 1996 and the period October 1, 1996 to
A-13
<PAGE>
the Exchange Date (the latter period being based on unaudited data)
and that, in the course of such procedures, nothing came to their
attention which caused them to believe that the Acquired Fund (i)
would not qualify as a regulated investment company for federal,
state, or local income tax purposes or (ii) would owe any federal,
state or local income tax or excise tax, for the tax year ended
September 30, 1996, and for the period from October 1, 1996 to the
Exchange Date.
e. That there shall not be any material litigation pending with respect
to the matters contemplated by this Agreement.
f. That the Acquiring Fund shall have received an opinion of Ropes &
Gray, in form satisfactory to Dechert Price & Rhoads, counsel to the
Acquiring Fund, and dated the Exchange Date, to the effect that (i)
the PAF Trust is a Massachusetts business trust duly formed and is
validly existing under the laws of The Commonwealth of Massachusetts
and has the power to own all its properties and to carry on its
business as presently conducted; (ii) this Agreement has been duly
authorized, executed and delivered by the PAF Trust on behalf of the
Acquired Fund and, assuming that the Registration Statement, the PIMS
Prospectus and the Acquired Fund Proxy Statement comply with the 1933
Act, the 1934 Act and the 1940 Act and assuming due authorization,
execution and delivery of this Agreement by the PIMS Trust on behalf
of the Acquiring Fund, is a valid and binding obligation of the PAF
Trust and the Acquired Fund; (iii) the PAF Trust, on behalf of the
Acquired Fund, has power to sell, assign, convey, transfer and deliver
the assets contemplated hereby and, upon consummation of the
transactions contemplated hereby in accordance with the terms of this
Agreement, the Acquired Fund will have duly sold, assigned, conveyed,
transferred and delivered such assets to the Acquiring Fund; (iv) the
execution and delivery of this Agreement did not, and the consummation
of the transactions contemplated hereby will not, violate the PAF
Trust's Declaration of Trust or By-Laws or any provision of any
agreement known to such counsel to which the PAF Trust or the Acquired
Fund is a party or by which it is bound, it being understood that with
respect to investment restrictions as contained in the PAF Trust's
Declaration of Trust, By-Laws or then-current prospectus or statement
of additional information, such counsel may rely upon a certificate of
an officer of the PAF Trust whose responsibility it is to advise the
PAF Trust and the Acquired Fund with respect to such matters; and (v)
no consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the PAF
Trust on behalf of the Acquired Fund of the transactions contemplated
hereby, except such as have been obtained under the 1933 Act, the 1934
Act and the 1940 Act and such as may be required under state
securities or blue sky laws. In addition, such counsel shall also
state that they have participated in conferences with officers and
other
A-14
<PAGE>
representatives of the Acquired Fund at which the contents of the
Acquired Fund Proxy Statement and related matters were discussed, and,
although they are not passing upon and do not assume any
responsibility for the accuracy, completeness or fairness of the
statements contained in the Acquired Fund Proxy Statement, on the
basis of the foregoing (relying as to materiality to a large extent
upon the opinions of officers and other representatives of the
Acquired Fund), no facts have come to their attention that lead them
to believe that the portions of the Acquired Fund Proxy Statement
relevant to the transfer of assets contemplated by this Agreement as
of its date, as of the date of the Acquired Fund shareholders'
meeting, or as of the Exchange Date, contained an untrue statement of
a material fact regarding the Acquired Fund or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein regarding the Acquired Fund, in light of the
circumstances under which they were made, not misleading. Such opinion
may state that such counsel does not express any opinion or belief as
to the financial statements or other financial data, or as to the
information relating to the Acquiring Fund, contained in the Acquired
Fund Proxy Statement or the Registration Statement, and that such
opinion is solely for the benefit of the Acquiring Fund, its Trustees
and its officers.
g. That the Acquiring Fund shall have received an opinion of Ropes &
Gray, in form satisfactory to Dechert Price & Rhoads, with respect to
the matters specified in Section 9(g) of this Agreement, and such
other matters as the Acquiring Fund may reasonably deem necessary or
desirable.
h. That the Acquiring Fund shall have received an opinion of Ropes &
Gray, dated the Exchange Date, satisfactory to Dechert Price & Rhoads
(which opinion would be based upon certain factual representations and
subject to certain qualifications), to the effect that, on the basis
of the existing provisions of the Code, current administrative rules,
and court decisions, for federal income tax purposes (i) no gain or
loss will be recognized by the Acquiring Fund upon receipt of the
Investments transferred to the Acquiring Fund pursuant to this
Agreement in exchange for the Merger Shares; (ii) the basis to the
Acquiring Fund of the Investments will be the same as the basis of the
Investments in the hands of the Acquired Fund immediately prior to
such exchange; and (iii) the Acquiring Fund's holding periods with
respect to the Investments will include the respective periods for
which the Investments were held by the Acquired Fund.
i. That the assets of the Acquired Fund to be acquired by the Acquiring
Fund will include no assets which the Acquiring Fund, by reason of
charter limitations or of investment restrictions [disclosed in the
Registration Statement in effect on the Exchange Date], may not
properly acquire.
A-15
<PAGE>
j. That the Registration Statement shall have become effective under the
1933 Act, and no stop order suspending such effectiveness shall have
been instituted or, to the knowledge of the PIMS Trust or the
Acquiring Fund, threatened by the Commission.
k. That the PAF Trust and the PIMS Trust shall have received from the
Commission and any relevant state securities administrator such order
or orders as are reasonably necessary or desirable under the 1933 Act,
the 1934 Act, the 1940 Act, and any applicable state securities or
blue sky laws in connection with the transactions contemplated hereby,
and that all such orders shall be in full force and effect.
l. That all actions taken by the PAF Trust on behalf of the Acquired Fund
in connection with the transactions contemplated by this Agreement and
all documents incidental thereto shall be satisfactory in form and
substance to the Acquiring Fund and Dechert Price & Rhoads.
m. That, prior to the Exchange Date, the Acquired Fund shall have
declared a dividend or dividends which, together with all previous
such dividends, shall have the effect of distributing to the
shareholders of the Acquired Fund [(i) all of the excess of (x) the
Acquired Fund's investment income excludable from gross income under
Section 103 of the Code over (y) the Acquired Fund's deductions
disallowed under Sections 265 and 171 of the Code,] (ii) all of the
Acquired Fund's investment company taxable income (as defined in
Section 852 of the Code) for its taxable years ending on or after
September 30, 1996 and on or prior to the Exchange Date (computed in
each case without regard to any deduction for dividends paid), and
(iii) all of the Acquired Fund's net capital gain realized (after
reduction for any capital loss carryover), in each case for both the
taxable year ending on September 30, 1996 and the short taxable period
beginning on October 1, 1996 and ending on the Exchange Date.
n. That the Acquired Fund shall have furnished to the Acquiring Fund a
certificate, signed by the President (or any Vice President) and the
Treasurer of the PAF Trust, as to the tax cost to the Acquired Fund of
the securities delivered to the Acquiring Fund pursuant to this
Agreement, together with any such other evidence as to such tax cost
as the Acquiring Fund may reasonably request.
o. That the Acquired Fund's custodian shall have delivered to the
Acquiring Fund a certificate identifying all of the assets of the
Acquired Fund held or maintained by such custodian as of the Valuation
Time.
A-16
<PAGE>
p. That the Acquired Fund's transfer agent shall have provided to the
Acquiring Fund (i) the originals or true copies of all of the records
of the Acquired Fund in the possession of such transfer agent as of
the Exchange Date, (ii) a certificate setting forth the number of
shares of the Acquired Fund outstanding as of the Valuation Time, and
(iii) the name and address of each holder of record of any shares and
the number of shares held of record by each such shareholder.
q. That all of the issued and outstanding shares of beneficial interest
of the Acquired Fund shall have been offered for sale and sold in
conformity with all applicable state securities or blue sky laws
(including any applicable exemptions therefrom) and, to the extent
that any audit of the records of the Acquired Fund or its transfer
agent by the Acquiring Fund or its agents shall have revealed
otherwise, either (i) the Acquired Fund shall have taken all actions
that in the opinion of the Acquiring Fund or Dechert Price & Rhoads
are necessary to remedy any prior failure on the part of the Acquired
Fund to have offered for sale and sold such shares in conformity with
such laws or (ii) the Acquired Fund shall have furnished (or caused to
be furnished) surety, or deposited (or caused to be deposited) assets
in escrow, for the benefit of the Acquiring Fund in amounts sufficient
and upon terms satisfactory, in the opinion of the Acquiring Fund or
Dechert Price & Rhoads, to indemnify the Acquiring Fund against any
expense, loss, claim, damage or liability whatsoever that may be
asserted or threatened by reason of such failure on the part of the
Acquired Fund to have offered and sold such shares in conformity with
such laws.
r. That the Acquiring Fund shall have received from Price Waterhouse LLP
a letter addressed to the Acquiring Fund dated as of the Exchange Date
satisfactory in form and substance to the Acquiring Fund to the effect
that, on the basis of limited procedures agreed upon by the Acquiring
Fund and described in such letter (but not an examination in
accordance with generally accepted auditing standards), as of the
Valuation Time the value of the assets and liabilities of the Acquired
Fund to be exchanged for the Merger Shares has been determined in
accordance with the provisions of the PIMS Trust's Declaration of
Trust, pursuant to the procedures customarily utilized by the
Acquiring Fund in valuing its assets and issuing its shares.
9. Conditions to the Acquired Fund's Obligations. The obligations of the
---------------------------------------------
Acquired Fund hereunder shall be subject to the following conditions:
a. That this Agreement shall have been adopted and the transactions
contemplated hereby shall have been approved by the requisite votes of
the holders of the outstanding shares of beneficial interest of the
Acquired Fund entitled to vote.
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<PAGE>
b. That the Acquiring Fund shall have furnished to the Acquired Fund a
statement of the Acquiring Fund's net assets, together with a list of
portfolio holdings with values determined as provided in Section 4,
all as of the Valuation Time, certified on the Acquiring Fund's behalf
by the PIMS Trust's President (or any Vice President) and Treasurer
(or any Assistant Treasurer), and a certificate of both such officers,
dated the Exchange Date, to the effect that as of the Valuation Time
and as of the Exchange Date there has been no material adverse change
in the financial position of the Acquiring Fund since March 31, 1996,
other than changes in its portfolio securities since that date,
changes in the market value of the portfolio securities, changes due
to net redemptions, dividends paid or losses from operations.
c. That the PIMS Trust, on behalf of the Acquiring Fund, shall have
executed and delivered to the Acquired Fund an Assumption of
Liabilities dated as of the Exchange Date pursuant to which the
Acquiring Fund will assume all of the liabilities of the Acquired Fund
existing at the Valuation Time in connection with the transactions
contemplated by this Agreement, other than liabilities arising
pursuant to this Agreement.
d. That the Acquiring Fund shall have furnished to the Acquired Fund a
statement, dated the Exchange Date, signed by the PIMS Trust's
President (or any Vice President) and Treasurer (or any Assistant
Treasurer) certifying that as of the Valuation Time and as of the
Exchange Date all representations and warranties of the Acquiring Fund
made in this Agreement are true and correct in all material respects
as if made at and as of such dates, and that the Acquiring Fund has
complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied at or prior to
each of such dates.
e. That there shall not be any material litigation pending or threatened
with respect to the matters contemplated by this Agreement.
f. That the Acquired Fund shall have received an opinion of Dechert Price
& Rhoads, in form satisfactory to Ropes & Gray, counsel to the
Acquired Fund and dated the Exchange Date, to the effect that (i) the
PIMS Trust is a Massachusetts business trust duly formed and is
validly existing under the laws of The Commonwealth of Massachusetts
and has the power to own all its properties and to carry on its
business as presently conducted; (ii) the Merger Shares to be
delivered to the Acquired Fund as provided for by this Agreement are
duly authorized and upon such delivery will be validly issued and will
be fully paid and nonassessable by the PIMS Trust and the Acquiring
Fund and no shareholder of the Acquiring Fund has any preemptive right
to subscription or purchase in respect thereof; (iii) this Agreement
has been duly authorized, executed and delivered by the PIMS Trust on
behalf of the Acquiring Fund
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<PAGE>
and, assuming that the PAF Prospectus, the Registration Statement and
the Acquired Fund Proxy Statement comply with the 1933 Act, the 1934
Act and the 1940 Act and assuming due authorization, execution and
delivery of this Agreement by the PAF Trust on behalf of the Acquired
Fund, is a valid and binding obligation of the PIMS Trust and the
Acquiring Fund; (iv) the execution and delivery of this Agreement did
not, and the consummation of the transactions contemplated hereby will
not, violate the PIMS Trust's Declaration of Trust or By-Laws, or any
provision of any agreement known to such counsel to which the PIMS
Trust or the Acquiring Fund is a party or by which it is bound, it
being understood that with respect to investment restrictions as
contained in the PIMS Trust's Declaration of Trust, By-Laws or then-
current prospectus or statement of additional information, such
counsel may rely upon a certificate of an officer of the PIMS Trust
whose responsibility it is to advise the PIMS Trust and the Acquiring
Fund with respect to such matters; (v) no consent, approval,
authorization or order of any court or governmental authority is
required for the consummation by the PIMS Trust on behalf of the
Acquiring Fund of the transactions contemplated herein, except such as
have been obtained under the 1933 Act, the 1934 Act and the 1940 Act
and such as may be required under state securities or blue sky laws;
[and (vi) the Registration Statement has become effective under the
1933 Act, and to best of the knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been instituted or are
pending or contemplated under the 1933 Act]. In addition, such counsel
shall also state that they have participated in conferences with
officers and other representatives of the Acquiring Fund at which the
contents of the Acquired Fund Proxy Statement and related matters were
discussed, and, although they are not passing upon and do not assume
any responsibility for the accuracy, completeness or fairness of the
statements contained in the Acquired Fund Proxy Statement, on the
basis of the foregoing (relying as to materiality to a large extent
upon the opinions of officers and other representatives of the
Acquiring Fund), no facts have come to their attention that lead them
to believe that the Acquired Fund Proxy Statement as of its date, as
of the date of the Acquired Fund shareholders' meeting, or as of the
Exchange Date, contained an untrue statement of a material fact
regarding the Acquiring Fund or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein regarding the Acquiring Fund, in light of the circumstances
under which they were made, not misleading. Such opinion may state
that such counsel does not express any opinion or belief as to the
financial statements or other financial data, or as to the information
relating to the Acquired Fund, contained in the Acquired Fund Proxy
Statement or the Registration Statement, and that such opinion is
solely for the benefit of the Acquired Fund, its Trustees and its
officers.
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<PAGE>
g. That the Acquired Fund shall have received an opinion of Ropes & Gray,
dated the Exchange Date (which opinion would be based upon certain
factual representations and subject to certain qualifications), in
form satisfactory to the Acquired Fund, to the effect that, on the
basis of the existing provisions of the Code, current administrative
rules, and court decisions, for federal income tax purposes: (i) no
gain or loss will be recognized by the Acquired Fund as a result of
the reorganization; (ii) no gain or loss will be recognized by
shareholders of the Acquired Fund on the distribution of Merger Shares
to them in exchange for their shares of the Acquired Fund; (iii) the
tax basis of the Merger Shares that the Acquired Fund's shareholders
receive in place of their Acquired Fund shares will be the same as the
basis of the Acquired Fund shares; and (iv) a shareholder's holding
period for the Merger Shares received pursuant to the Agreement will
be determined by including the holding period for the Acquired Fund
shares exchanged for the Merger Shares, provided that the shareholder
held the Acquired Fund shares as a capital asset.
h. That all actions taken by the PIMS Trust on behalf of the Acquiring
Fund in connection with the transactions contemplated by this
Agreement and all documents incidental thereto shall be satisfactory
in form and substance to the Acquired Fund and Ropes & Gray.
i. That the Registration Statement shall have become effective under the
1933 Act, and no stop order suspending such effectiveness shall have
been instituted or, to the knowledge of the PIMS Trust or the
Acquiring Fund, threatened by the Commission .
j. That the PAF Trust and PIMS Trust shall have received from the
Commission and any relevant state securities administrator such order
or orders as are reasonably necessary or desirable under the 1933 Act,
the 1934 Act, the 1940 Act, and any applicable state securities or
blue sky laws in connection with the transactions contemplated hereby,
and that all such orders shall be in full force and effect.
10. Indemnification.
---------------
a. The Acquired Fund will indemnify and hold harmless, out of the assets
of the Acquired Fund (which shall be deemed to include the assets of
the Acquiring Fund represented by the Merger Shares following the
Exchange Date) but no other assets, the trustees and officers of the
PIMS Trust (for purposes of this subparagraph, the "Indemnified
Parties") against any and all expenses, losses, claims, damages and
liabilities at any time imposed upon or reasonably incurred by any one
or more of the Indemnified Parties in connection with, arising out of,
or resulting from any claim, action, suit or proceeding in which any
one or
A-20
<PAGE>
more of the Indemnified Parties may be involved or with which any
one or more of the Indemnified Parties may be threatened by
reason of any untrue statement or alleged untrue statement of a
material fact relating to the PAF Trust or the Acquired Fund
contained in the Registration Statement, the PAF Prospectus or
the Acquired Fund Proxy Statement or any amendment or supplement
to any of the foregoing, or arising out of or based upon the
omission or alleged omission to state in any of the foregoing a
material fact relating to the PAF Trust or the Acquired Fund
required to be stated therein or necessary to make the statements
relating to the PAF Trust or the Acquired Fund therein not
misleading, including, without limitation, any amounts paid by
any one or more of the Indemnified Parties in a reasonable
compromise or settlement of any such claim, action, suit or
proceeding, or threatened claim, action, suit or proceeding made
with the consent of the PAF Trust or the Acquired Fund. The
Indemnified Parties will notify the PAF Trust and the Acquired
Fund in writing within ten days after the receipt by any one or
more of the Indemnified Parties of any notice of legal process or
any suit brought against or claim made against such Indemnified
Party as to any matters covered by this Section 10(a). The
Acquired Fund shall be entitled to participate at its own expense
in the defense of any claim, action, suit or proceeding covered
by this Section 10(a), or, if it so elects, to assume at its
expense by counsel satisfactory to the Indemnified Parties the
defense of any such claim, action, suit or proceeding, and if the
Acquired Fund elects to assume such defense, the Indemnified
Parties shall be entitled to participate in the defense of any
such claim, action, suit or proceeding at their expense. The
Acquired Fund's obligation under Section 10(a) to indemnify and
hold harmless the Indemnified parties shall constitute a
guarantee of payment so that the Acquired Fund will pay in the
first instance any expenses, losses, claims, damages and
liabilities required to be paid by it under this Section 10(a)
without the necessity of the Indemnified Parties' first paying
the same.
b. The Acquiring Fund will indemnify and hold harmless, out of the
assets of the Acquiring Fund but no other assets, the trustees
and officers of the PAF Trust (for purposes of this subparagraph,
the "Indemnified Parties") against any and all expenses, losses,
claims, damages and liabilities at any time imposed upon or
reasonably incurred by any one or more of the Indemnified Parties
in connection with, arising out of, or resulting from any claim,
action, suit or proceeding in which any one or more of the
Indemnified Parties may be involved or with which any one or more
of the Indemnified Parties may be threatened by reason of any
untrue statement or alleged untrue statement of a material fact
relating to the Acquiring Fund contained in the Registration
Statement, the PIMS Prospectus or the Acquired Fund Proxy
Statement, or any amendment or supplement to any thereof, or
arising out of, or based upon, the omission or alleged omission
to state in any of the foregoing a material fact
A-21
<PAGE>
relating to the PIMS Trust or the Acquiring Fund required to be
stated therein or necessary to make the statements relating to
the PIMS Trust or the Acquiring Fund therein not misleading,
including, without limitation, any amounts paid by any one or
more of the Indemnified Parties in a reasonable compromise or
settlement of any such claim, action, suit or proceeding, or
threatened claim, action, suit or proceeding made with the
consent of the PIMS Trust or the Acquiring Fund. The Indemnified
Parties will notify the PAF Trust and the Acquiring Fund in
writing within ten days after the receipt by any one or more of
the Indemnified parties of any notice of legal process or any
suit brought against or claim made against such Indemnified Party
as to any matters covered by this Section 10(b). The Acquiring
Fund shall be entitled to participate at its own expense in the
defense of any claim, action, suit or proceeding covered by this
Section 10(b), or, if it so elects, to assume at its expense by
counsel satisfactory to the Indemnified Parties the defense of
any such clam, action, suit or proceeding, and, if the Acquiring
Fund elects to assume such defense, the Indemnified Parties shall
be entitled to participate in the defense of any such claim,
action, suit or proceeding at their own expense. The Acquiring
Fund's obligation under this Section 10(b) to indemnify and hold
harmless the Indemnified Parties shall constitute a guarantee of
payment so that the Acquiring Fund will pay in the first instance
any expenses, losses, claims, damages and liabilities required to
be paid by it under this Section 10(b) without the necessity of
the Indemnified Parties' first paying the same.
11. No Broker, etc. Each of the Acquired Fund and the Acquiring Fund
--------------
represents that there is no person who has dealt with it, the PAF
Trust or the PIMS Trust who by reason of such dealings is
entitled to any broker's or finder's or other similar fee or
commission arising out of the transactions contemplated by this
Agreement.
12. Termination. The Acquired Fund and the Acquiring Fund may, by
-----------
mutual consent of the trustees on behalf of each Fund, terminate
this Agreement, and the Acquired Fund or the Acquiring Fund,
after consultation with counsel and by consent of their trustees
or an officer authorized by such trustees, may waive any
condition to their respective obligations hereunder. If the
transactions contemplated by this Agreement have not been
substantially completed by February 28, 1997, this Agreement
shall automatically terminate on that date unless a later date is
agreed to by the Acquired Fund and the Acquiring Fund.
13. Rule 145. Pursuant to Rule 145 under the 1933 Act, the Acquiring
--------
Fund will, in connection with the issuance of any of any Merger
Shares to any person who at the time of the transaction
contemplated hereby is deemed to be an affiliate of a party to
the transaction pursuant to Rule 145(c), cause to be affixed upon
the certificates issued to such person (if any) a legend as
follows:
A-22
<PAGE>
"THESE SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT TO
[Acquiring Fund] OR ITS PRINCIPAL UNDERWRITER UNLESS (i) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR (ii) IN THE OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE FUND SUCH REGISTRATION IS
NOT REQUIRED."
and, further, the Acquiring Fund will issue stop transfer
instructions to the Acquiring Fund's transfer agent with respect
to such shares. The Acquired Fund will provide the Acquiring Fund
on the Exchange Date with the name of any Acquired Fund
shareholder who is to the knowledge of the Acquired Fund an
affiliate of the Acquired Fund on such date.
14. Covenants, etc. Deemed Material. All covenants, agreements,
-------------------------------
representations and warranties made under this Agreement and any
certificates delivered pursuant to this Agreement shall be deemed
to have been material and relied upon by each of the parties,
notwithstanding an investigation made by them or on their behalf.
15. Sole Agreement; Amendments. This Agreement supersedes all
--------------------------
previous correspondence and oral communications between the
parties regarding the subject matter hereof, constitutes the only
understanding with respect to such subject matter, may not be
changed except by a letter of agreement signed by each party
hereto, and shall be construed in accordance with and governed by
the laws of The Commonwealth of Massachusetts.
16. Declaration of Trust.
--------------------
a. A copy of the Declaration of Trust of the PAF Trust is on file
with the Secretary of State of The Commonwealth of Massachusetts,
and notice is hereby given that this instrument is executed on
behalf of the trustees of the PAF Trust on behalf of the Acquired
Fund, as trustees and not individually and that the obligations
of this instrument are not binding upon any of the trustees,
officers or shareholders of the PAF Trust individually but are
binding only upon the assets and property of the Acquired Fund.
b. A copy of the Declaration of Trust of the PIMS Trust is on file
with the Secretary of State of The Commonwealth of Massachusetts,
and notice is hereby given that this instrument is executed on
behalf of the trustees of the PIMS Trust on behalf of the
Acquiring Fund, as trustees and not individually and that the
obligations of this instrument are not binding upon any of the
trustees,
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<PAGE>
officers or shareholders of the PIMS Trust individually but are
binding only upon the assets and property of the Acquiring Fund.
PIMCO ADVISORS FUNDS, on behalf of its
_____________________ Fund series
By:________________________________
PIMCO FUNDS,
on behalf of its _______________ Fund series
By:_________________________________
Agreed and accepted as to Section 5(a) only by PIMCO Advisors L.P.
By: _____________________________
Title: ___________________________
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<PAGE>
APPENDIX B
INFORMATION ABOUT THE ACQUIRING FUNDS
PIMCO Funds: Pacific Investment Management Series (the "Trust") is a
no-load, open-end management investment company ("mutual fund") consisting of
twenty separate investment portfolios, among which are the High Yield Fund, the
Total Return Fund, the Low Duration Fund and the Money Market Fund (the
"Funds"). Each Fund has its own investment objective and policies. The Trust
is designed to provide access to the professional investment management services
offered by Pacific Investment Management Company ("PIMCO" or the "Adviser"),
which serves as investment adviser to the Funds.
Each Fund offers its shares in five classes: Class A, Class B, Class
C, the Institutional Class and the Administrative Class. This Prospectus/Proxy
Statement describes only those classes of shares to be received by shareholders
of the Acquired Funds in the Mergers, i.e. Class A, Class B, and Class C.
Information regarding the Institutional Class and Administrative Class of each
Fund is contained in the current Prospectus and the Statement of Additional
Information of the Trust, which are available upon request to the Trust without
charge.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective and general investment policies of each
Acquiring Fund are described below. There can be no assurance that the
investment objective of any Fund will be achieved. Because the market value of
each Fund's investments will change, the net asset value per share of each Fund
(except the Money Market Fund) also will vary. Specific portfolio securities
eligible for purchase by the Funds, investment techniques that may be used by
the Funds, and the risks associated with these securities and techniques are
described more fully under "Characteristics and Risks of Securities and
Investment Techniques" below and "Investment Objectives and Policies" in the
PIMS Statement of Additional Information.
Each of the Funds differs from the others primarily in the length of
the Fund's duration or the proportion of its investments in certain types of
fixed income securities. For a discussion of the concept of duration, see
"Description of Duration."
The investment objective of the Money Market Fund is to seek to obtain
maximum current income consistent with preservation of capital and daily
liquidity. The Money Market Fund also attempts to maintain a stable net asset
value of $1.00 per share, although there can be no assurance that it will be
successful in doing so. Each of the remaining Funds seeks to maximize total
return, consistent with preservation of capital and prudent investment
management.
In selecting securities for each Fund, the Adviser utilizes economic
forecasting, interest rate anticipation, credit and call risk analysis, foreign
currency exchange rate forecasting, and other security selection techniques. The
proportion of each Fund's assets committed to investment in securities with
particular characteristics (such as maturity, type and coupon rate) will vary
based on the Adviser's outlook for the U.S. and foreign economies, the financial
markets, and other factors.
Each of the Funds will invest at least 65% of its assets in the
following types of securities, which, unless specifically provided otherwise in
the description of the Funds that follows, may be issued by domestic or foreign
entities and denominated in U.S. dollars or foreign currencies: securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
("U.S. Government securities"); corporate debt securities, including convertible
securities and corporate commercial paper; mortgage-backed and other asset-
backed securities; structured notes and loan participations; bank certificates
of deposit, fixed time deposits and bankers' acceptances; repurchase agreements
and reverse repurchase agreements; obligations of foreign governments or their
subdivisions, agencies and instrumentalities; and obligations of international
agencies or supranational entities. Fixed income securities may have fixed,
variable, or floating rates of interest, including rates of interest that vary
inversely at a multiple of a designated or floating rate, or that vary according
to changes in relative values of currencies. Each of the Funds may hold
different percentages of its assets in these various types of securities, and
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each Fund, except the Money Market Fund, may invest all of its assets in
derivative instruments or in mortgage-or asset-backed securities.
The compositions of the Funds differ as follows:
The Money Market Fund seeks maximum current income consistent with the
preservation of capital and daily liquidity. It attempts to achieve this
objective by investing at least 95% of its total assets, measured at the time of
investment, in a diversified portfolio of the highest quality money market
securities. The Fund may also invest up to 5% of its total assets, measured at
the time of investment, in money market securities that are in the second-
highest rating category for short-term obligations. The Fund's investments in
securities will be limited to U.S. dollar-denominated securities that mature in
13 months or less from the date of purchase. The Fund may invest in the
following: obligations of the U.S. Government (including its agencies and
instrumentalities); short-term corporate debt securities from domestic and
foreign corporations; obligations of domestic and foreign commercial banks,
savings banks, and savings and loan associations; and commercial paper. The
Fund may invest more than 25% of its total assets in securities or obligations
issued by U.S. banks. The dollar-weighted average portfolio maturity of the
Fund will not exceed 90 days.
The Money Market Fund may invest only in U.S. dollar-denominated money
market instruments that present minimal credit risk and, with respect to at
least 95% of its total assets, measured at the time of investment, that are of
the highest quality. The Adviser will make a determination as to whether a
security presents minimal credit risk under procedures adopted by the Board of
Trustees. A money market instrument will be considered to be of the highest
quality (1) if rated in the highest rating category (i) by any two nationally
recognized statistical rating organizations ("NRSROs") (e.g., Aaa or Prime-1 by
Moody's, AAA or A-1 by S&P, or, (ii) if rated by only one NRSRO, by that NRSRO,
and whose acquisition is approved or ratified by the Board of Trustees; (2) if
unrated but issued by an issuer that has short-term debt obligations of
comparable maturity, priority, and security, and that are rated in the highest
rating category by (i) any two NRSROs or, (ii) if rated by only one NRSRO, by
that NRSRO, and whose acquisition is approved or ratified by the Board of
Trustees; or (3) an unrated security that is of comparable quality to a security
rated in the highest rating category as determined by the Adviser and whose
acquisition is approved or ratified by the Board of Trustees. With respect to
no more than 5% of its total assets, measured at the time of investment, the
Fund may also invest in money market instruments that are rated in the second-
highest rating category by one or more NRSROs for short-term debt obligations
(e.g., rated Aa or Prime-2 by Moody's or AA or A-2 by S&P). A money market
instrument will be considered to be in the second-highest rating category under
the criteria described above with respect to instruments considered to be of the
highest quality, as applied to instruments in the second-highest rating
category. See "Description of Securities Ratings" for a description of Moody's
and S&P's ratings applicable to fixed income securities.
The Money Market Fund may not invest more than 5% of its total assets,
measured at the time of investment, in securities of any one issuer that are of
the highest quality, except that (1) the Fund may invest more than 5% of its
total assets in the securities of a single issuer if rated in the highest rating
category for a period of up to three business days after purchase, provided that
the Fund may not make more than one investment at a time in accordance with this
exception, and (2) this limitation shall not apply to U.S. Government securities
and repurchase agreements with respect thereto. The Fund may not invest more
than the greater of 1% of its total assets or $1,000,000, measured at the time
of investment, in securities of any one issuer that are in the second-highest
rating category, except that this limitation shall not apply to U.S. Government
securities. In the event that an instrument acquired by the Fund is downgraded
or otherwise ceases to be of the quality that is required for securities
purchased by the Fund, the Adviser, under procedures approved by the Board of
Trustees (or the Board of Trustees itself if the Adviser becomes aware an
unrated security is downgraded below high quality and the Adviser does not
dispose of the security or such security does not mature within five business
days) shall promptly reassess whether such security presents minimal credit risk
and determine whether to retain the instrument.
The Low Duration Fund invests in a diversified portfolio of fixed
income securities of varying maturities. The average portfolio duration of this
Fund will normally vary within a one- to three-year time frame based on the
Adviser's forecast for interest rates. The Fund may invest up to 10% of its
assets in fixed income securities that are rated below investment grade but
rated B or higher by Moody's or S&P (or, if unrated, determined by the Adviser
to be of comparable quality). For information on the risks associated with
investments in securities rated below investment grade, see "Description of
Securities Ratings." The Fund may invest up to 20% of its assets in
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securities denominated in foreign currencies, and may invest beyond this limit
in U.S. dollar-denominated securities of foreign issuers.
The High Yield Fund invests under normal circumstances at least 65% of
its assets in a diversified portfolio of fixed income securities rated lower
than Baa by Moody's or lower than BBB by S&P but rated at least B by Moody's or
S&P (or, if unrated, determined by the Adviser to be of comparable quality).
Such securities are colloquially referred to as "junk bonds." The remainder of
the Fund's assets may be invested in investment grade fixed income securities
(i.e., securities rated at least Baa by Moody's or BBB by S&P, or, if unrated,
deemed by the Adviser to be of comparable quality). The average portfolio
duration of this Fund will normally vary within a two- to six-year time frame
depending on the Adviser's view of the potential for total return offered by a
particular duration strategy. The Fund may invest in securities of foreign
issuers, but only those that are U.S. dollar-denominated. The Fund may also
engage in hedging strategies involving equity options.
Investments in high yield securities, while generally providing
greater potential opportunity for capital appreciation and higher yields than
investments in higher rated securities, also entail greater risk, including the
possibility of default or bankruptcy of the issuer of such securities. Risk of
default or bankruptcy may be greater in periods of economic uncertainty or
recession, as the issuers of high yield securities may be less able to withstand
general economic downturns. The Adviser seeks to reduce risk through
diversification, credit analysis and attention to current developments and
trends in both the economy and financial markets. The value of all fixed income
securities, including those held by the Fund, can be expected to change
inversely with interest rates. For a further discussion of the special risks of
investing in lower rated securities, see "Characteristics and Risks of
Securities and Investment Techniques--High Yield Securities."
Total Return Fund invests under normal circumstances at least 65% of
its assets in a diversified portfolio of fixed income securities of varying
maturities. The average portfolio duration of this Fund will normally vary
within a three- to six-year time frame based on the Adviser's forecast for
interest rates. The Fund may invest up to 10% of its assets in fixed income
securities that are rated below investment grade but rated B or higher by
Moody's or S&P (or, if unrated, determined by the Adviser to be of comparable
quality). For information on the risks associated with investments in
securities rated below investment grade, see "Description of Securities
Ratings." The Fund may also invest up to 20% of its assets in securities
denominated in foreign currencies, and may invest beyond this limit in U.S.
dollar-denominated securities of foreign issuers. Portfolio holdings will be
concentrated in areas of the bond market (based on quality, sector, coupon or
maturity) which the Adviser believes to be relatively undervalued.
As a non-fundamental, operating policy, the Adviser intends to use
foreign currency-related derivative instruments (currency futures and related
options, currency options, forward contracts and swap agreements) in an effort
to hedge foreign currency risk with respect to at least 75% of the assets of the
Funds denominated in currencies other than the U.S. dollar. There can be no
assurance that the Adviser will be successful in doing so. The active use of
currency derivatives involves transaction costs which may adversely effect yield
and return.
Total Return
The "total return" sought by certain of the Funds will consist of
interest and dividends from underlying securities, capital appreciation
reflected in unrealized increases in value of portfolio securities (realized by
the shareholder only upon selling shares), or realized from the purchase and
sale of securities and use of futures and options, or gains from favorable
changes in foreign currency exchange rates. Generally, over the long term, the
total return obtained by a portfolio investing primarily in fixed income
securities is not expected to be as great as that obtained by a portfolio that
invests primarily in equity securities. At the same time, the market risk and
price volatility of a fixed income portfolio is expected to be less than that of
an equity portfolio, so that a fixed income portfolio is generally considered to
be a more conservative investment. The change in market value of fixed income
securities (and therefore their capital appreciation or depreciation) is largely
a function of changes in the current level of interest rates. When interest
rates are falling, a portfolio with a shorter duration generally will not
generate as high a level of total return as a portfolio with a longer duration.
Conversely, when interest rates are rising, a portfolio with a shorter duration
will generally outperform longer duration portfolios. When interest rates are
flat, shorter duration portfolios generally will not generate as high a level of
total return as longer duration portfolios (assuming that long-term interest
rates are higher than short-term rates, which is commonly the case).
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With respect to the composition of any fixed income portfolio, the longer the
duration of the portfolio, the greater the anticipated potential for total
return, with, however, greater attendant market risk and price volatility than
for a portfolio with a shorter duration. The market value of fixed income
securities denominated in currencies other than the U.S. dollar also may be
affected by movements in foreign currency exchange rates.
INVESTMENT RESTRICTIONS
Each Fund's investment objective, as set forth under "Investment
Objectives and Policies," and the investment restrictions set forth below are
fundamental policies of the Fund and may not be changed with respect to a Fund
without shareholder approval by vote of a majority of the outstanding shares of
that Fund. Under these restrictions, a Fund may not:
(1) invest in a security if, as a result of such investment, more than
25% of its total assets (taken at market value at the time of such investment)
would be invested in the securities of issuers in any particular industry,
except that this restriction does not apply (a) to securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities (or
repurchase agreements with respect thereto) and (b) with respect to the Money
Market Fund, to securities or obligations issued by U.S. banks;
(2) with respect to 75% of its assets, invest in a security if, as a
result of such investment, more than 5% of its total assets (taken at market
value at the time of such investment) would be invested in the securities of any
one issuer, except that this restriction does not apply to securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities;
(3) with respect to 75% of its assets, invest in a security if, as a
result of such investment, it would hold more than 10% (taken at the time of
such investment) of the outstanding voting securities of any one issuer;
(4) purchase or sell real estate, although it may purchase securities
secured by real estate or interests therein, or securities issued by companies
which invest in real estate or interests therein;
(5) purchase or sell commodities or commodities contracts or oil, gas
or mineral programs. This restriction shall not prohibit a Fund, subject to
restrictions described in this Appendix B and in the PIMS Statement of
Additional Information, from purchasing, selling or entering into futures
contracts, options on futures contracts, foreign currency forward contracts,
foreign currency options, or any interest rate, securities-related or foreign
currency-related hedging instrument, including swap agreements and other
derivative instruments, subject to compliance with any applicable provisions of
the federal securities or commodities laws;
(6) for the High Yield Fund: purchase securities on margin, except for
use of short-term credit necessary for clearance of purchases and sales of
portfolio securities, but it may make margin deposits in connection with
transactions in options, futures, and options on futures;
(7) borrow money, issue senior securities, or pledge, mortgage or
hypothecate its assets, except that a Fund may (i) borrow from banks or enter
into reverse repurchase agreements, or employ similar investment techniques, and
pledge its assets in connection therewith, but only if immediately after each
borrowing there is asset coverage of 300% and (ii) enter into transactions in
options, futures, options on futures, and other derivative instruments as
described in this Appendix B and in the PIMS Statement of Additional Information
(the deposit of assets in escrow in connection with the writing of covered put
and call options and the purchase of securities on a when-issued or delayed
delivery basis, collateral arrangements with respect to initial or variation
margin deposits for futures contracts, and commitments entered into under swap
agreements or other derivative instruments will not be deemed to be pledges of a
Fund's assets);
(8) lend any funds or other assets, except that a Fund may, consistent
with its investment objective and policies: (a) invest in debt obligations,
including bonds, debentures, or other debt securities, bankers' acceptances and
commercial paper, even though the purchase of such obligations may be deemed to
be the making of loans, (b) enter into repurchase agreements, and (c) lend its
portfolio securities in an amount not to exceed one-third of the value of its
total assets, provided such loans are made in accordance with applicable
guidelines established by the Securities and Exchange Commission and the
Trustees of the Trust;
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(9) act as an underwriter of securities of other issuers, except to
the extent that in connection with the disposition of portfolio securities, it
may be deemed to be an underwriter under the federal securities laws; or
(10)(a) for the High Yield Fund: maintain a short position, or
purchase, write or sell puts, calls, straddles, spreads or combinations thereof,
except as set forth in this Appendix B and in the PIMS Statement of Additional
Information for transactions in options, futures, options on futures, and
transactions arising under swap agreements or other derivative instruments;
(b) for the Money Market, Low Duration and Total Return Funds:
maintain a short position, or purchase, write or sell puts, calls, straddles,
spreads or combinations thereof, except on such conditions as may be set forth
in this Appendix B and in the PIMS Statement of Additional Information.
Each Fund is also subject to the following non-fundamental
restrictions and policies (which may be changed without shareholder approval)
relating to the investment of its assets and activities. Unless otherwise
indicated, a Fund may not:
(A) invest for the purpose of exercising control or management;
(B) purchase securities of other investment companies, except that a
Fund may, for temporary purposes, purchase shares of money market mutual funds,
subject to such restrictions as may be imposed by the Investment Company Act of
1940 and rules thereunder, or by any State in which shares of the Fund are
registered (collateral arrangements with respect to securities on loan from a
Fund are not considered to involve the purchase of securities by the Fund and
are not subject to this restriction);
(C) invest more than 15% of the net assets of a Fund (10% in the case
of the Money Market Fund) (taken at market value at the time of the investment)
in "illiquid securities," illiquid securities being defined to include
securities subject to legal or contractual restrictions on resale (which may
include private placements) repurchase agreements maturing in more than seven
days, certain loan participation interests, fixed time deposits which are not
subject to prepayment or provide for withdrawal penalties upon prepayment (other
than overnight deposits), certain options traded over the counter that a Fund
has purchased, and securities and other liquid assets being used to cover such
options a Fund has written, securities for which market quotations are not
readily available, or other securities which legally or in the Adviser's opinion
may be deemed illiquid (other than securities issued pursuant to Rule 144A under
the Securities Act of 1933 and certain commercial paper that PIMCO has
determined to be liquid under procedures approved by the Board of Trustees);
(D) invest in a security if, as a result of such investment, more than
5% of its total assets (taken at market value at the time of such investment)
would be invested in securities of issuers (other than issuers of Federal agency
obligations) having a record, together with predecessors or unconditional
guarantors, of less than three years of continuous operation;
(E) purchase or retain securities of any issuer if 5% of the
securities of such issuer are owned by those officers and Directors of Trustees
of the Trust or of the Adviser who each own beneficially more than one-half of
1% of its securities;
(F) purchase securities for the Fund from, or sell portfolio
securities to, any of the officers and Directors or Trustees of the Trust or of
the Adviser;
(G) for the Money Market, Low Duration and Total Return Funds:
purchase securities on margin, except for use of short-term credit necessary for
clearance of purchases and sales of portfolio securities, but it may make margin
deposits in connection with covered transactions in options, futures, options on
futures and short positions;
(H) invest more than 5% of the assets of a Fund (taken at market value
at the time of investment) in any combination of interest only, principal only,
or inverse floating rate securities;
(I) borrow money (excluding dollar rolls and reverse repurchase
agreements, which are subject to the Fund's fundamental borrowing restriction),
except for temporary administrative purposes; or
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(J)(a) for the Low Duration Fund, invest greater than 5% of its assets
in the securities of issuers based in Newly Industrialized Countries ("NICs");
and
(b) for the remaining Funds, invest greater than 10% of its assets
in the securities of issuers based in NICs.
In addition, the Trust has adopted a non-fundamental policy pursuant
to which each Fund that may invest in securities denominated in foreign
currencies will hedge at least 75% of its exposure to foreign currency using the
techniques described in this Appendix B. There can be no assurance that
currency hedging techniques will be successful.
Unless otherwise indicated, all limitations applicable to Fund
investments (as stated above and elsewhere in this Appendix B) apply only at the
time a transaction is entered into. Any subsequent change in a rating assigned
by any rating service to a security (or, if unrated, deemed to be of comparable
quality), or change in the percentage of Fund assets invested in certain
securities or other instruments, or change in the average duration of a Fund's
investment portfolio, resulting from market fluctuations or other changes in a
Fund's total assets will not require a Fund to dispose of an investment until
the Adviser determines that it is practicable to sell or close out the
investment without undue market or tax consequences to the Fund. In the event
that ratings services assign different ratings to the same security, the Adviser
will determine which rating it believes best reflects the security's quality and
risk at that time, which may be the higher of the several assigned ratings.
CHARACTERISTICS AND RISKS OF SECURITIES
AND INVESTMENT TECHNIQUES
The following describes in greater detail different types of
securities and investment techniques used by the individual Funds, and discusses
certain concepts relevant to the investment policies of the Funds. Additional
information about the Funds' investments and investment practices may be found
in the PIMS Statement of Additional Information.
U.S. Government Securities
U.S. Government securities are obligations of, or guaranteed by, the
U.S. Government, its agencies or instrumentalities. The U.S. Government does
not guarantee the net asset value of the Funds' shares. Some U.S. Government
securities, such as Treasury bills, notes and bonds, and securities guaranteed
by the Government National Mortgage Association ("GNMA"), are supported by the
full faith and credit of the United States; others, such as those of the Federal
Home Loan Banks, are supported by the right of the issuer to borrow from the
U.S. Treasury; others, such as those of the Federal National Mortgage
Association ("FNMA"), are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; and still others, such as those
of the Student Loan Marketing Association, are supported only by the credit of
the instrumentality. U.S. Government securities include securities that have no
coupons, or have been stripped of their unmatured interest coupons, individual
interest coupons from such securities that trade separately, and evidences of
receipt of such securities. Such securities may pay no cash income, and are
purchased at a deep discount from their value at maturity. Because interest on
zero coupon securities is not distributed on a current basis but is, in effect,
compounded, zero coupon securities tend to be subject to greater market risk
than interest-paying securities of similar maturities. Custodial receipts issued
in connection with so-called trademark zero coupon securities, such as CATs and
TIGRs, are not issued by the U.S. Treasury, and are therefore not U.S.
Government securities, although the underlying bond represented by such receipt
is a debt obligation of the U.S. Treasury. Other zero coupon Treasury
securities (STRIPs and CUBEs) are direct obligations of the U.S. Government.
Corporate Debt Securities
Corporate debt securities include corporate bonds, debentures, notes
and other similar corporate debt instruments, including convertible securities.
Debt securities may be acquired with warrants attached. Corporate income-
producing securities may also include forms of preferred or preference stock.
The rate of interest on a corporate debt security may be fixed, floating or
variable, and may vary inversely with respect to a reference rate. See "Variable
and Floating Rate Securities" below. The rate of return or return of principal
on some debt
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obligations may be linked or indexed to the level of exchange rates between the
U.S. dollar and a foreign currency or currencies.
Investments in corporate debt securities that are rated below
investment grade (rated below Baa (Moody's) or BBB (S&P)) are described as
"speculative" both by Moody's and S&P. Such securities are sometimes referred
to as "junk bonds," and may be subject to greater market fluctuations, less
liquidity and greater risk of loss of income or principal, including a greater
possibility of default or bankruptcy of the issuer of such securities, than are
more highly rated debt securities. Moody's also describes securities rated Baa
as having speculative characteristics. The Adviser seeks to minimize these
risks through diversification, in-depth credit analysis and attention to current
developments in interest rates and market conditions. See "Description of
Securities Ratings." Investments in high yield securities are discussed
separately below, see "High Yield Securities ('Junk Bonds')."
Variable and Floating Rate Securities
Variable and floating rate securities provide for a periodic
adjustment in the interest rate paid on the obligations. The terms of such
obligations must provide that interest rates are adjusted periodically based
upon an interest rate adjustment index as provided in the respective
obligations. The adjustment intervals may be regular, and range from daily up to
annually, or may be event based, such as based on a change in the prime rate.
Each of the Funds may invest in floating rate debt instruments
("floaters"). The interest rate on a floater is a variable rate which is tied to
another interest rate, such as a money-market index or Treasury bill rate. The
interest rate on a floater resets periodically, typically every six months.
While, because of the interest rate reset feature, floaters provide a Fund with
a certain degree of protection against rises in interest rates, a Fund will
participate in any declines in interest rates as well.
Each of the Funds (except the Money Market Fund) may also invest in
inverse floating rate debt instruments ("inverse floaters"). The interest rate
on an inverse floater resets in the opposite direction from the market rate of
interest to which the inverse floater is indexed. An inverse floating rate
security may exhibit greater price volatility than a fixed rate obligation of
similar credit quality. The Funds have adopted a policy under which no Fund will
invest more than 5% of its net assets in any combination of inverse floater,
interest only ("IO"), or principal only ("PO") securities. See "Mortgage-
Related and Other Asset-Backed Securities" for a discussion of IOs and POs.
Mortgage-Related and Other Asset-Backed Securities
Each of the Funds (except the Money Market Fund) may invest all of its
assets in mortgage- or asset-backed securities. The value of some mortgage- or
asset-backed securities in which the Funds invest may be particularly sensitive
to changes in prevailing interest rates, and, like the other investments of the
Funds, the ability of a Fund to successfully utilize these instruments may
depend in part upon the ability of the Adviser to forecast interest rates and
other economic factors correctly.
Mortgage Pass-Through Securities are securities representing interests
in "pools" of mortgage loans secured by residential or commercial real property
in which payments of both interest and principal on the securities are generally
made monthly, in effect "passing through" monthly payments made by the
individual borrowers on the mortgage loans which underlie the securities (net of
fees paid to the issuer or guarantor of the securities). Early repayment of
principal on some mortgage-related securities (arising from prepayments of
principal due to sale of the underlying property, refinancing, or foreclosure,
net of fees and costs which may be incurred) may expose a Fund to a lower rate
of return upon reinvestment of principal. Also, if a security subject to
prepayment has been purchased at a premium, the value of the premium would be
lost in the event of prepayment. Like other fixed income securities, when
interest rates rise, the value of a mortgage-related security generally will
decline; however, when interest rates are declining, the value of mortgage-
related securities with prepayment features may not increase as much as other
fixed income securities.
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The rate of prepayments on underlying mortgages will affect the price
and volatility of a mortgage-related security, and may have the effect of
shortening or extending the effective maturity of the security beyond what was
anticipated at the time of purchase. To the extent that unanticipated rates of
prepayment on underlying mortgages increase the effective maturity of a
mortgage-related security, the volatility of such security can be expected to
increase.
Payment of principal and interest on some mortgage pass-through
securities (but not the market value of the securities themselves) may be
guaranteed by the full faith and credit of the U.S. Government (in the case of
securities guaranteed by GNMA); or guaranteed by agencies or instrumentalities
of the U.S. Government (in the case of securities guaranteed by FNMA or the
Federal Home Loan Mortgage Corporation ("FHLMC"), which are supported only by
the discretionary authority of the U.S. Government to purchase the agency's
obligations). Mortgage-related securities created by non-governmental issuers
(such as commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers) may be
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit, which may be
issued by governmental entities, private insurers or the mortgage poolers.
Collateralized Mortgage Obligations ("CMOs") are hybrid mortgage-
related instruments. Similar to a bond, interest and pre-paid principal on a
CMO are paid, in most cases, semi-annually. CMOs may be collateralized by whole
mortgage loans but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by GNMA, FHLMC, or FNMA. CMOs are structured
into multiple classes, with each class bearing a different stated maturity.
Monthly payments of principal, including prepayments, are first returned to
investors holding the shortest maturity class; investors holding the longer
maturity classes receive principal only after the first class has been retired.
CMOs that are issued or guaranteed by the U.S. Government or by any of its
agencies or instrumentalities will be considered U.S. Government securities by
the Funds, while other CMOs, even if collateralized by U.S. Government
securities, will have the same status as other privately issued securities for
purposes of applying a Fund's diversification tests.
Commercial Mortgage-Backed Securities include securities that reflect
an interest in, and are secured by, mortgage loans on commercial real property.
The market for commercial mortgage-backed securities developed more recently and
in terms of total outstanding principal amount of issues is relatively small
compared to the market for residential single-family mortgage-backed securities.
Many of the risks of investing in commercial mortgage-backed securities reflect
the risks of investing in the real estate securing the underlying mortgage
loans. These risks reflect the effects of local and other economic conditions on
real estate markets, the ability of tenants to make loan payments, and the
ability of a property to attract and retain tenants. Commercial mortgage-backed
securities may be less liquid and exhibit greater price volatility than other
types of mortgage- or asset-backed securities.
Mortgage-Related Securities include securities other than those
described above that directly or indirectly represent a participation in, or are
secured by and payable from, mortgage loans on real property, such as CMO
residuals or stripped mortgage-backed securities ("SMBS"), and may be structured
in classes with rights to receive varying proportions of principal and interest.
A common type of SMBS will have one class receiving some of the
interest and most of the principal from the mortgage assets, while the other
class will receive most of the interest and the remainder of the principal. In
the most extreme case, one class will receive all of the interest (the "IO"
class), while the other class will receive all of the principal (the principal-
only, or "PO" class). The yield to maturity on an IO class is extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying mortgage assets, and a rapid rate of principal payments may
have a material adverse effect on a Fund's yield to maturity from these
securities. The Funds have adopted a policy under which no Fund will invest
more than 5% of its net assets in any combination of IO, PO, or inverse floater
securities. The Funds may invest in other asset-backed securities that have
been offered to investors. For a discussion of the characteristics of some of
these instruments, see the PIMS Statement of Additional Information.
Repurchase Agreements
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For the purpose of achieving income, each of the Funds may enter into
repurchase agreements, which entail the purchase of a portfolio eligible
security from a bank or broker-dealer that agrees to repurchase the security at
the Fund's cost plus interest within a specified time (normally one day). If
the party agreeing to repurchase should default, as a result of bankruptcy or
otherwise, the Fund will seek to sell the securities which it holds, which
action could involve procedural costs or delays in addition to a loss on the
securities if their value should fall below their repurchase price. No Fund
will invest more than 15% of its net assets (10% in the case of the Money Market
Fund) (taken at current market value) in repurchase agreements maturing in more
than seven days.
Reverse Repurchase Agreements, Dollar Rolls, and Other Borrowings
A reverse repurchase agreement is a form of leverage that involves the
sale of a security by a Fund and its agreement to repurchase the instrument at a
specified time and price. The Fund will maintain a segregated account
consisting of liquid assets, as determined to be liquid by the Adviser in
accordance with procedures established by the Board of Trustees, maturing not
later than the expiration of the reverse repurchase agreement, to cover its
obligations under reverse repurchase agreements.
A Fund may enter into dollar rolls, in which the Fund sells mortgage-
backed or other securities for delivery in the current month and simultaneously
contracts to purchase substantially similar securities on a specified future
date. In the case of dollar rolls involving mortgage-backed securities, the
mortgage-backed securities that are purchased will be of the same type and will
have the same interest rate as those sold, but will be supported by different
pools of mortgages. The Fund forgoes principal and interest paid during the
roll period on the securities sold in a dollar roll, but the Fund is compensated
by the difference between the current sales price and the lower price for the
future purchase as well as by any interest earned on the proceeds of the
securities sold. The Fund also could be compensated through the receipt of fee
income equivalent to a lower forward price. The Fund will maintain a segregated
account consisting of liquid assets, as determined to be liquid by the Adviser
in accordance with procedures established by the Board of Trustees, to cover its
obligations under dollar rolls.
Dollar rolls and reverse repurchase agreements will be subject to the
Funds' limitations on borrowings, which will restrict the aggregate of such
transactions (plus any other borrowings) to 33 1/3% of a Fund's total assets.
Apart from transactions involving reverse repurchase agreements and dollar
rolls, a Fund will not borrow money, except for temporary administrative
purposes.
Loans of Portfolio Securities
For the purpose of achieving income, the Funds may lend their
portfolio securities to brokers, dealers, and other financial institutions,
provided: (i) the loan is secured continuously by collateral consisting of U.S.
Government securities, cash or cash equivalents (negotiable certificates of
deposit, bankers' acceptances or letters of credit) maintained on a daily mark-
to-market basis in an amount at least equal to the current market value of the
securities loaned; (ii) the Fund may at any time call the loan and obtain the
return of the securities loaned; (iii) the Fund will receive any interest or
dividends paid on the loaned securities; and (iv) the aggregate market value of
securities loaned will not at any time exceed 33 1/3% of the total assets of
the Fund.
Delayed Delivery, When-Issued, and Forward Commitment Transactions
Each of the Funds may purchase or sell securities on a when-issued,
delayed delivery, or forward commitment basis. These transactions involve a
commitment by the Fund to purchase or sell securities for a predetermined price
or yield, with payment and delivery taking place more than seven days in the
future, or after a period longer than the customary settlement period for that
type of security. When such purchases are outstanding, the Fund will set aside
and maintain until the settlement date in a segregated account, liquid assets,
as determined to be liquid by the Adviser in accordance with procedures
established by the Board of Trustees, in an amount sufficient to meet the
purchase price. Typically, no income accrues on securities a Fund has committed
to purchase prior to the time delivery of the securities is made, although a
Fund may earn income on securities it has deposited in a segregated account.
When purchasing a security on a when-issued, delayed delivery, or forward
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commitment basis, the Fund assumes the rights and risks of ownership of the
security, including the risk of price and yield fluctuations, and takes such
fluctuations into account when determining its net asset value. Because the Fund
is not required to pay for the security until the delivery date, these risks are
in addition to the risks associated with the Fund's other investments. If the
Fund remains substantially fully invested at a time when-issued, delayed
delivery, or forward commitment purchases are outstanding, the purchases may
result in a form of leverage. When the Fund has sold a security on a when-
issued, delayed delivery, or forward commitment basis, the Fund does not
participate in future gains or losses with respect to the security. If the
other party to a transaction fails to deliver or pay for the securities, the
Fund could miss a favorable price or yield opportunity or could suffer a loss.
A Fund may dispose of or renegotiate a transaction after it is entered into, and
may sell when-issued or forward commitment securities before they are delivered,
which may result in a capital gain or loss. There is no percentage limitation
on the extent to which the Funds may purchase or sell securities on a when-
issued, delayed delivery, or forward commitment basis.
Short Sales
Each of the Funds (except the High Yield Fund) may from time to time
effect short sales as part of their overall portfolio management strategies,
including the use of derivative instruments, or to offset potential declines in
value of long positions in similar securities as those sold short. A short sale
(other than a short sale against the box) is a transaction in which a Fund sells
a security it does not own at the time of the sale in anticipation that the
market price of that security will decline. To the extent that a Fund engages
in short sales, it must (except in the case of short sales "against the box")
maintain asset coverage in the form of liquid assets, as determined to be liquid
by the Adviser in accordance with procedures established by the Board of
Trustees, in a segregated account, or otherwise cover its position in a
permissible manner. A short sale is "against the box" to the extent that the
Fund contemporaneously owns, or has the right to obtain at no added cost,
securities identical to those sold short.
Foreign Securities
Each of the Funds may invest directly in fixed income securities of
non-U.S. issuers. The Money Market and High Yield Funds may only invest in U.S.
dollar-denominated fixed income securities of non-U.S. issuers.
Each of the Funds will limit its foreign investments to securities of
issuers based in developed countries (including Newly Industrialized Countries
("NICs"), such as Taiwan, South Korea and Mexico). The Low Duration Fund limits
its investments in securities of issuers based in NICs to 5% of its net assets,
and the remaining Funds limit their investments in securities of issuers based
in NICs to 10% of their net assets. Investing in the securities of issuers in
any foreign country involves special risks and considerations not typically
associated with investing in U.S. companies. Shareholders should consider
carefully the substantial risks involved in investing in securities issued by
companies and governments of foreign nations. These risks include: differences
in accounting, auditing and financial reporting standards; generally higher
commission rates on foreign portfolio transactions; the possibility of
nationalization, expropriation or confiscatory taxation; adverse changes in
investment or exchange control regulations (which may include suspension of the
ability to transfer currency from a country); and political instability which
could affect U.S. investments in foreign countries. Additionally, foreign
securities and dividends and interest payable on those securities may be subject
to foreign taxes, including taxes withheld from payments on those securities.
Foreign securities often trade with less frequency and volume than domestic
securities and therefore may exhibit greater price volatility. Additional costs
associated with an investment in foreign securities may include higher custodial
fees than apply to domestic custodial arrangements and transaction costs of
foreign currency conversions. Changes in foreign exchange rates also will
affect the value of securities denominated or quoted in currencies other than
the U.S. dollar.
Each of the Funds may invest in Brady Bonds. Brady Bonds are
securities created through the exchange of existing commercial bank loans to
sovereign entities for new obligations in connection with debt restructurings
under a debt restructuring plan introduced by former U.S. Secretary of the
Treasury, Nicholas F. Brady. Brady Bonds have been issued only recently, and
for that reason do not have a long payment history. Brady Bonds may be
collateralized or uncollateralized, are issued in various currencies (but
primarily the U.S. dollar), and are actively traded in the over-the-counter
secondary market. Brady Bonds are not considered to be U.S. Government
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securities. In light of the residual risk of Brady Bonds and, among other
factors, the history of defaults with respect to commercial bank loans by public
and private entities in countries issuing Brady Bonds, investments in Brady
Bonds may be viewed as speculative. There can be no assurance that Brady Bonds
acquired by a Fund will not be subject to restructuring arrangements or to
requests for new credit, which may cause the Fund to suffer a loss of interest
or principal on any of its holdings. For further information, see the PIMS
Statement of Additional Information.
Foreign Currency Transactions
Foreign currency exchange rates may fluctuate significantly over short
periods of time. They generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments in
different countries, actual or perceived changes in interest rates and other
complex factors, as seen from an international perspective. Currency exchange
rates also can be affected unpredictably by intervention (or the failure to
intervene) by U.S. or foreign governments or central banks, by currency controls
or political developments in the U.S. or abroad. Currencies in which the Funds'
assets are denominated may be devalued against the U.S. dollar, resulting in a
loss to the Funds.
All Funds that may invest in securities denominated in foreign
currencies may buy and sell foreign currencies on a spot and forward basis to
reduce the risks of adverse changes in foreign exchange rates. A forward
foreign currency exchange contract involves an obligation to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. By entering into a forward foreign currency contract, the Fund
"locks in" the exchange rate between the currency it will deliver and the
currency it will receive for the duration of the contract. As a result, a Fund
reduces its exposure to changes in the value of the currency it will deliver and
increases its exposure to changes in the value of the currency it will exchange
into. The effect on the value of a Fund is similar to selling securities
denominated in one currency and purchasing securities denominated in another.
Contracts to sell foreign currency would limit any potential gain which might be
realized by a Fund if the value of the hedged currency increases. A Fund may
enter into these contracts for the purpose of hedging against foreign exchange
risk arising from the Fund's investment or anticipated investment in securities
denominated in foreign currencies. A Fund also may enter into these contracts
for purposes of increasing exposure to a foreign currency or to shift exposure
to foreign currency fluctuations from one country to another. A Fund may use
one currency (or a basket of currencies) to hedge against adverse changes in the
value of another currency (or a basket of currencies) when exchange rates
between the two currencies are positively correlated. A Fund will segregate
liquid assets, such as cash or high grade debt obligations, in a segregated
account to cover forward currency contracts entered into for non-hedging
purposes.
All Funds that may invest in securities denominated in foreign
currencies may invest in options on foreign currencies and foreign currency
futures and options thereon. The Funds also may invest in foreign currency
exchange-related securities, such as foreign currency warrants and other
instruments whose return is linked to foreign currency exchange rates. Each
Fund that may invest in securities denominated in foreign currencies will use
these techniques to hedge at least 75% of its exposure to foreign currency. For
a description of these instruments, see "Derivative Instruments" below and the
PIMS Statement of Additional Information.
High Yield Securities ("Junk Bonds")
The High Yield Fund invests at least 65% of its assets in fixed income
securities rated lower than Baa by Moody's or lower than BBB by S&P but rated at
least B by Moody's or S&P (or, if not rated, of comparable quality). In
addition, the Low Duration and Total Return Funds may invest up to 10% of their
assets in such securities. Securities rated lower than Baa by Moody's or lower
than BBB by S&P are sometimes referred to as "high yield" or "junk" bonds.
Securities rated Baa are considered by Moody's to have some speculative
characteristics. Investors should consider the following risks associated with
high yield securities before investing in these Funds.
Investing in high yield securities involves special risks in addition
to the risks associated with investments in higher rated fixed income
securities. High yield securities may be regarded as predominately speculative
with
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respect to the issuer's continuing ability to meet principal and interest
payments. Analysis of the creditworthiness of issuers of high yield securities
may be more complex than for issuers of higher quality debt securities, and the
ability of a Fund to achieve its investment objective may, to the extent of its
investments in high yield securities, be more dependent upon such
creditworthiness analysis than would be the case if the Fund were investing in
higher quality securities.
High yield securities may be more susceptible to real or perceived
adverse economic and competitive industry conditions than higher grade
securities. The prices of high yield securities have been found to be less
sensitive to interest rate changes than more highly rated investments, but more
sensitive to adverse economic downturns or individual corporate developments. A
projection of an economic downturn or of a period of rising interest rates, for
example, could cause a decline in high yield security prices because the advent
of a recession could lessen the ability of a highly leveraged company to make
principal and interest payments on its debt securities. If the issuer of high
yield securities defaults, a Fund may incur additional expenses to seek
recovery. In the case of high yield securities structured as zero coupon or
payment-in-kind securities, the market prices of such securities are affected to
a greater extent by interest rate changes, and therefore tend to be more
volatile than securities which pay interest periodically and in cash.
The secondary markets on which high yield securities are traded may be
less liquid than the market for higher grade securities. Less liquidity in the
secondary trading markets could adversely affect and cause large fluctuations in
the daily net asset value of a Fund's shares. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high yield securities, especially in a thinly traded
market.
The use of credit ratings as the sole method of evaluating high yield
securities can involve certain risks. For example, credit ratings evaluate the
safety of principal and interest payments, not the market value risk of high
yield securities. Also, credit rating agencies may fail to change credit
ratings in a timely fashion to reflect events since the security was last rated.
The Adviser does not rely solely on credit ratings when selecting securities for
the Funds, and develops its own independent analysis of issuer credit quality.
If a credit rating agency changes the rating of a portfolio security held by a
Fund, the Fund may retain the portfolio security if the Adviser deems it in the
best interest of shareholders.
During the year ended March 31, 1996, based upon the dollar-weighted
average ratings of the Funds' portfolio holdings at the end of each month in the
Funds' fiscal year, each Fund that may invest greater than 5% of its assets in
securities rated below investment grade had the following percentages of its net
assets invested in securities rated in the categories indicated as rated by
Moody's (or, if unrated, determined by the Adviser to be of comparable quality).
See "Description of Securities Ratings" for further information.
Rating
----------------------------------------------------------------
Below
Fund Prime 1 Aaa Aa A ------- Baa Ba B
- ---- ------- ----- ---- --- Prime 1 ----- ------ ------
-------
Low Duration 9.65% 58.17% 2.80% 10.10% 0.00% 8.02% 10.71% 0.54%
High Yield 2.66 1.20 0.00 0.90 0.00 4.17 41.24 49.84
Total Return 9.80 62.57 6.12 7.35 0.00 5.92 6.23 2.00
These figures are intended solely to provide disclosure about each
Fund's asset composition during its fiscal year ended March 31, 1996. The asset
composition after this time may or may not be approximately the same as
represented by such figures. In addition, the categories reflect ratings by
Moody's, and ratings assigned by S&P may not be consistent with ratings
assigned by Moody's or other credit ratings services, and the Adviser may not
necessarily agree with a rating assigned by any credit rating agency.
Derivative Instruments
To the extent permitted by the investment objectives and policies of
the Funds, the Funds may (except the Money Market Fund) purchase and write call
and put options on securities, securities indexes and foreign currencies, and
enter into futures contracts and use options on futures contracts as further
described below. The Funds (except the Money Market Fund) also may enter into
swap agreements with respect to foreign currencies,
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interest rates, and securities indexes. The Funds may use these techniques to
hedge against changes in interest rates, foreign currency exchange rates or
securities prices or as part of their overall investment strategies. The Funds
(except the Money Market Fund) may also purchase and sell options relating to
foreign currencies for purposes of increasing exposure to a foreign currency or
to shift exposure to foreign currency fluctuations from one country to another.
Each Fund will maintain segregated accounts consisting of liquid assets, as
determined to be liquid by the Adviser in accordance with procedures established
by the Board of Trustees (or, as permitted by applicable regulation, enter into
certain offsetting positions), to cover its obligations under options, futures,
and swaps to avoid leveraging of the Fund.
The Funds consider derivative instruments to consist of securities or
other instruments whose value is derived from or related to the value of some
other instrument or asset, and not to include those securities whose payment of
principal and/or interest depend upon cash flows from underlying assets, such as
mortgage- or asset-backed securities. Each Fund (except the Money Market Fund)
may invest all of its assets in derivative instruments, subject only to the
Fund's investment objective and policies. The value of some derivative
instruments in which the Funds invest may be particularly sensitive to changes
in prevailing interest rates, and, like the other investments of the Funds, the
ability of a Fund to successfully utilize these instruments may depend in part
upon the ability of the Adviser to forecast interest rates and other economic
factors correctly. If the Adviser incorrectly forecasts such factors and has
taken positions in derivative instruments contrary to prevailing market trends,
the Funds could be exposed to the risk of loss.
The Funds might not employ any of the strategies described below, and
no assurance can be given that any strategy used will succeed. If the Adviser
incorrectly forecasts interest rates, market values or other economic factors in
utilizing a derivatives strategy for a Fund, the Fund might have been in a
better position if it had not entered into the transaction at all. The use of
these strategies involves certain special risks, including a possible imperfect
correlation, or even no correlation, between price movements of derivative
instruments and price movements of related investments. While some strategies
involving derivative instruments can reduce the risk of loss, they can also
reduce the opportunity for gain or even result in losses by offsetting favorable
price movements in related investments, or due to the possible inability of a
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 a Fund to sell a portfolio
security at a disadvantageous time, because the Fund is required to maintain
asset coverage or offsetting positions in connection with transactions in
derivative instruments and the possible inability of a Fund to close out or to
liquidate its derivatives positions.
Options on Securities, Securities Indexes, and Currencies. A Fund may
purchase put options on securities and indexes. One purpose of purchasing put
options is to protect holdings in an underlying or related security against a
substantial decline in market value. A Fund may also purchase call options on
securities and indexes. One purpose of purchasing call options is to protect
against substantial increases in prices of securities the Fund intends to
purchase pending its ability to invest in such securities in an orderly manner.
An option on a security (or index) is a contract that gives the holder of the
option, in return for a premium, the right to buy from (in the case of a call)
or sell to (in the case of a put) the writer of the option the security
underlying the option (or the cash value of the index) at a specified exercise
price at any time during the term of the option. The writer of an option on a
security has the obligation upon exercise of the option to deliver the
underlying security upon payment of the exercise price or to pay the exercise
price upon delivery of the underlying security. Upon exercise, the writer of an
option on an index is obligated to pay the difference between the cash value of
the index and the exercise price multiplied by the specified multiplier for the
index option. An index is designed to reflect specified facets of a particular
financial or securities market, a specific group of financial instruments or
securities, or certain economic indicators.
A Fund may sell put or call options it has previously purchased, which
could result in a net gain or loss depending on whether the amount realized on
the sale is more or less than the premium and other transaction costs paid on
the put or call option which is sold. A Fund may write a call or put option
only if the option is PIMCO Funds "covered" by the Fund holding a position in
the underlying securities or by other means which would permit immediate
satisfaction of the Fund's obligation as writer of the option. Prior to
exercise or expiration, an option may be closed out by an offsetting purchase or
sale of an option of the same series.
The Funds may write covered straddles consisting of a combination of a
call and a put written on the same underlying security. A straddle will be
covered when sufficient assets are deposited to meet the Funds'
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immediate obligations. The Funds may use the same liquid assets to cover both
the call and put options where the exercise price of the call and put are the
same, or the exercise price of the call is higher than that of the put. In such
cases, the Funds will also segregate liquid assets equivalent to the amount, if
any, by which the put is "in the money."
The purchase and writing of options involves certain risks. During
the option period, the covered call writer has, in return for the premium on the
option, given up the opportunity to profit from a price increase in the
underlying securities above the exercise price, but, as long as its obligation
as a writer continues, has retained the risk of loss should the price of the
underlying security decline. The writer of an option has no control over the
time when it may be required to fulfill its obligation as a writer of the
option. Once an option writer has received an exercise notice, it cannot effect
a closing purchase transaction in order to terminate its obligation under the
option and must deliver the underlying securities at the exercise price. If a
put or call option purchased by the Fund is not sold when it has remaining
value, and if the market price of the underlying security remains equal to or
greater than the exercise price (in the case of a put), or remains less than or
equal to the exercise price (in the case of a call), the Fund will lose its
entire investment in the option. Also, where a put or call option on a
particular security is purchased to hedge against price movements in a related
security, the price of the put or call option may move more or less than the
price of the related security. There can be no assurance that a liquid market
will exist when a Fund seeks to close out an option position. Furthermore, if
trading restrictions or suspensions are imposed on the options markets, a Fund
may be unable to close out a position.
Funds that invest in foreign currency-denominated securities may buy
or sell put and call options on foreign currencies. Currency options traded on
U.S. or other exchanges may be subject to position limits which may limit the
ability of a Fund to reduce foreign currency risk using such options. Over-the-
counter options differ from traded options in that they are two-party contracts
with price and other terms negotiated between buyer and seller and generally do
not have as much market liquidity as exchange-traded options. The Funds may be
required to treat as illiquid over-the-counter options purchased and securities
being used to cover certain written over-the-counter options.
Swap Agreements The Funds may enter into interest rate, index,
equity and currency exchange rate swap agreements. These transactions would be
entered into in an attempt to obtain a particular return when it is considered
desirable to do so, possibly at a lower cost to the Fund than if the Fund had
invested directly in the asset that yielded the desired return. Swap agreements
are two-party contracts entered into primarily by institutional investors for
periods ranging from a few weeks to more than one year. In a standard swap
transaction, two parties agree to exchange the returns (or differentials in
rates of return) earned or realized on particular predetermined investments or
instruments, which may be adjusted for an interest factor. The gross returns to
be exchanged or "swapped" between the parties are generally calculated with
respect to a "notional amount," i.e., the return on or increase in value of a
particular dollar amount invested at a particular interest rate, in a particular
foreign currency, or in a "basket" of securities representing a particular
index. Forms of swap agreements include interest rate caps, under which, in
return for a premium, one party agrees to make payments to the other to the
extent that interest rates exceed a specified rate, or "cap"; interest rate
floors, under which, in return for a premium, one party agrees to make payments
to the other to the extent that interest rates fall below a specified level, or
"floor"; and interest rate collars, under which a party sells a cap and
purchases a floor or vice versa in an attempt to protect itself against interest
rate movements exceeding given minimum or maximum levels.
Most swap agreements entered into by the Funds would calculate the
obligations of the parties to the agreement on a "net basis". Consequently, a
Fund's current obligations (or rights) under a swap agreement will generally be
equal only to the net amount to be paid or received under the agreement based on
the relative values of the positions held by each party to the agreement (the
"net amount"). A Fund's current obligations under a swap agreement will be
accrued daily (offset against amounts owed to the Fund), and any accrued but
unpaid net amounts owed to a swap counterparty will be covered by the
maintenance of a segregated account consisting of liquid assets, as determined
to be liquid by the Adviser in accordance with procedures established by the
Board of Trustees, to avoid any potential leveraging of the Fund's portfolio.
Obligations under swap agreements so covered will not be construed to be "senior
securities" for purposes of the Funds' investment restriction concerning senior
securities. A Fund will not enter into a swap agreement with any single party
if the net amount owed or to be received under existing contracts with that
party would exceed 5% of the Fund's assets.
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Whether a Fund's use of swap agreements will be successful in
furthering its investment objective will depend on the Adviser's ability to
predict correctly whether certain types of investments are likely to produce
greater returns than other investments. Because they are two-party contracts
and because they may have terms of greater than seven days, swap agreements may
be considered to be illiquid investments. Moreover, a Fund bears the risk of
loss of the amount expected to be received under a swap agreement in the event
of the default or bankruptcy of a swap agreement counterparty. The Funds will
enter into swap agreements only with counterparties that meet certain standards
for creditworthiness (generally, such counterparties would have to be eligible
counterparties under the terms of the Funds' repurchase agreement guidelines).
Certain restrictions imposed on the Funds by the Internal Revenue Code may limit
the Funds' ability to use swap agreements. The swaps market is a relatively new
market and is largely unregulated. It is possible that developments in the swaps
market, including potential government regulation, could adversely affect a
Fund's ability to terminate existing swap agreements or to realize amounts to be
received under such agreements.
Futures Contracts and Options on Futures Contracts Each of the Funds
(except the Money Market Fund) may invest in interest rate futures contracts and
options thereon ("futures options"), and to the extent they can invest in
foreign currency-denominated securities, may also invest in foreign currency
futures contracts and options thereon.
There are several risks associated with the use of futures and futures
options for hedging purposes. There can be no guarantee that there will be a
correlation between price movements in the hedging vehicle and in the portfolio
securities being hedged. An incorrect correlation could result in a loss on
both the hedged securities in a Fund and the hedging vehicle so that the
portfolio return might have been greater had hedging not been attempted. There
can be no assurance that a liquid market will exist at a time when a Fund seeks
to close out a futures contract or a futures option position. Most futures
exchanges and boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single day; once the daily limit has been
reached on a particular contract, no trades may be made that day at a price
beyond that limit. In addition, certain of these instruments are relatively new
and without a significant trading history. As a result, there is no assurance
that an active secondary market will develop or continue to exist. Lack of a
liquid market for any reason may prevent a Fund from liquidating an unfavorable
position, and the Fund would remain obligated to meet margin requirements until
the position is closed.
The Funds may write covered straddles consisting of a call and a put
written on the same underlying futures contract. A straddle will be covered
when sufficient assets are deposited to meet the Funds' immediate obligations. A
Fund may use the same liquid assets to cover both the call and put options where
the exercise price of the call and put are the same, or the exercise price of
the call is higher than that of the put. In such cases, the Funds will also
segregate liquid assets equivalent to the amount, if any, by which the put is
"in the money".
The Funds will only enter into futures contracts or futures options
which are standardized and traded on a U.S. or foreign exchange or board of
trade, or similar entity, or quoted on an automated quotation system. Each Fund
will use financial futures contracts and related options only for "bona fide
hedging" purposes, as such term is defined in applicable regulations of the
Commodity Futures Trading Commission ("CFTC"), or, with respect to positions in
financial futures and related options that do not qualify as "bona fide hedging"
positions, will enter such positions only to the extent that aggregate initial
margin deposits plus premiums paid by it for open futures option positions, less
the amount by which any such positions are "in-the-money," would not exceed 5%
of the Fund's net assets.
Illiquid Securities
Each of the Funds may invest up to 15% of its net assets in illiquid
securities (10% in the case of the Money Market Fund). The term "illiquid
securities" for this purpose means securities that cannot be disposed of within
seven days in the ordinary course of business at approximately the amount at
which a Fund has valued the securities. Illiquid securities are considered to
include, among other things, written over-the-counter options, securities or
other liquid assets being used as cover for such options, repurchase agreements
with maturities in excess of seven days, certain loan participation interests,
fixed time deposits which are not subject to prepayment or provide for
withdrawal penalties upon prepayment (other than overnight deposits), securities
that are subject to legal or contractual restrictions on resale (such as
privately placed debt securities) and other securities whose
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disposition is restricted under the federal securities laws (other than
securities issued pursuant to Rule 144A under the Securities Act of 1933 and
certain commercial paper that PIMCO has determined to be liquid under procedures
approved by the Board of Trustees).
MANAGEMENT OF THE TRUST
The business affairs of the Trust are managed under the direction of the
Board of Trustees. The Trustees are Guilford C. Babcock, Thomas P. Kemp, Brent
R. Harris, Vern O. Curtis, and William J. Popejoy. Additional information about
the Trustees and the Trust's executive officers may be found in the PIMS
Statement of Additional Information under the heading "Management -- Trustees
and Officers."
Investment Adviser
Pacific Investment Management Company ("PIMCO") serves as investment
adviser ("Adviser") to the Funds pursuant to an investment advisory contract.
The Adviser is an investment counseling firm founded in 1971, and had
approximately $77.2 billion in assets under management as of April 30, 1996.
PIMCO is a subsidiary partnership of PIMCO Advisors L.P. ("PIMCO Advisors"). A
majority interest in PIMCO Advisors is held by PIMCO Partners, G.P., a general
partnership between Pacific Investment Management Company, a California
corporation and indirect wholly owned subsidiary of Pacific Mutual Life
Insurance Company ("Pacific Mutual"), and PIMCO Partners, LLC, a limited
liability company controlled by the PIMCO Managing Directors. PIMCO's address is
840 Newport Center Drive, Suite 360, Newport Beach, California 92660. PIMCO is
registered as an investment adviser with the Securities and Exchange Commission
("SEC") and as a commodity trading advisor with the CFTC.
The Adviser manages the investment and reinvestment of the assets of each
Fund. The Adviser is responsible for placing orders for the purchase and sale of
each Fund's investments directly with brokers or dealers selected by it in its
discretion. See "Portfolio Transactions."
Information about the individual portfolio managers responsible for
management of the Funds, including their occupations for the past five years, is
provided below.
<TABLE>
<CAPTION>
Fund Portfolio Manager and Business Experience (past five years)
- ---- -----------------------------------------------------------
<S> <C>
Money Market Fund Leslie Barbi, Vice President, PIMCO. A Fixed Income Portfolio Manager,
Ms. Barbi has managed the PIMCO Money Market Fund since November
1, 1995. Prior to joining PIMCO in 1993, Ms. Barbi was associated with
Salomon Brothers as a proprietary Portfolio Manager.
Low Duration Fund William H. Gross, Managing Director, PIMCO. A Fixed Income
Total Return Fund Portfolio Manager, Mr. Gross is one of the founders of PIMCO and has
managed the PIMCO Low Duration and Total Return Funds since their
inception, May 11, 1987.
High Yield Fund Benjamin Trosky, Managing Director, PIMCO. A Fixed Income Portfolio
Manager, Mr. Trosky joined PIMCO in 1990 and has managed the
PIMCO High Yield Fund since its inception, December 16, 1992.
</TABLE>
Fund Administrator
PIMCO also serves as administrator to the Funds pursuant to an
administration agreement. PIMCO provides administrative services to the Funds,
which include clerical help and accounting, bookkeeping, internal audit
services, and certain other services required by the Funds, preparation of
reports to the Funds' shareholders and regulatory filings. In addition, PIMCO,
at its own expense, arranges for the provision of legal, audit, custody,
B-16
<PAGE>
transfer agency and other services for the Funds, and is responsible for the
costs of registration of the Trust's shares and the printing of prospectuses and
shareholder reports for current shareholders.
The Trust is responsible for the following expenses: (i) salaries and other
compensation of any of the Trust's executive officers and employees who are not
officers, directors, stockholders or employees of PIMCO or its subsidiaries or
affiliates; (ii) taxes and governmental fees; (iii) brokerage fees and
commissions and other portfolio transaction expenses; (iv) the costs of
borrowing money, including interest expenses; (v) fees and expenses of the
Trustees who are not "interested persons" of PIMCO or the Trust, and any counsel
retained exclusively for their benefit; (vi) extraordinary expenses, including
costs of litigation and indemnification expenses; (vii) expenses, such as
organizational expenses, which are capitalized in accordance with generally
accepted accounting principles; and (viii) any expenses allocated or allocable
to a specific class of shares, which include fees payable pursuant to a
distribution or servicing plan and may include certain other expenses as
permitted by the Trust's Multi-Class Plan adopted pursuant to Rule 18f-3 under
the 1940 Act and subject to review and approval by the Trustees.
Advisory and Administrative Fees
The PIMCO Funds feature fixed advisory and administrative fee rates. For
providing investment advisory and administrative services to the Funds as
described above, PIMCO receives monthly fees from each Fund at an annual rate
based on the average daily net assets of the Funds as follows:
<TABLE>
<CAPTION>
Advisory
Fund Fee Rate
---- --------
<S> <C>
Money Market Fund............................. 0.15%
All other Funds............................... 0.25%
<CAPTION>
Administrative
Fund Fee Rate
---- --------
<S> <C>
Money Market Fund (Class A, B and C).......... 0.35%
All other Funds (Class A, B and C)............ 0.40%
</TABLE>
Both the investment advisory contract, and administration agreement with
respect to Class A, B and C shares of the Funds, may be terminated by the
Trustees at any time on 60 days' written notice. The investment advisory
contract may be terminated by PIMCO on 60 days' written notice. Following the
expiration of the one-year period commencing with the effectiveness of the
administration agreement, it may be terminated by PIMCO on 60 days' written
notice. Following its initial two-year term, the investment advisory contract
will continue from year to year if approved by the Trustees. Following its
initial one-year term, the administration agreement with respect to the Class A,
B and C shares of the Funds will continue from year to year if approved by the
Trustees.
Distributor and Distribution and Servicing Plans
PIMCO Advisors Distribution Company (the "Distributor"), an indirect
wholly-owned subsidiary of PIMCO Advisors, is the principal underwriter of the
Trust's shares and in that connection makes distribution and servicing payments
to participating brokers and servicing payments to certain banks and other
financial intermediaries in connection with the sale of Class B or Class C
shares and servicing payments to participating brokers, certain banks and other
financial intermediaries in connection with the sale of Class A shares. In the
case of Class A shares, these parties are compensated based on the amount of the
front-end sales charge reallowed by the Distributor, except in cases where Class
A shares are sold without a front-end sales charge. In the case of Class B
shares, participating brokers are compensated by an advance of a sales
commission by the Distributor. In the case of Class C shares, part or all of the
first year's distribution and servicing fee is generally paid at the time of
sale. Pursuant to a Distribution Contract with the Trust with respect to each
Fund's Class A, Class B and
B-17
<PAGE>
Class C shares, the Distributor bears various other promotional and sales
related expenses, including the cost of printing and mailing prospectuses to
persons other than shareholders.
Class A Servicing Fees: As compensation for services rendered and expenses
borne by the Distributor in connection with personal services rendered to Class
A shareholders of the Trust and the maintenance of Class A shareholder accounts,
the Trust pays the Distributor the servicing fees up to the annual rates set
forth below (calculated as a percentage of each Fund's average daily net assets
attributable to Class A shares):
<TABLE>
<CAPTION>
Servicing
Fund Fee
---- ---
<S> <C>
High Yield, Total Return and Low Duration.............. .25%
Money Market*.......................................... .10%
</TABLE>
* Subject to increase by action of the Trust's Trustees to a rate not
exceeding .25% per annum. Also subject to increase to a rate not
exceeding 0.20% if the Distributor ceases to voluntarily waive any
portion of the fee.
Class B Distribution and Servicing Fees: As compensation for services
rendered and expenses borne by the Distributor in connection with the
distribution of Class B shares of each Fund of the Trust (including the Money
Market Fund) and in connection with personal services rendered to Class B
shareholder accounts, the Trust pays the Distributor distribution fees and
servicing fees up to the annual rate of .75% and .25% respectively (calculated
as a percentage of each Fund's average daily net assets attributable to Class B
shares).
Class C Distribution and Servicing Fees: As compensation for services
rendered and expenses borne by the Distributor in connection with the
distribution of Class C shares of the Trust and in connection with personal
services rendered to Class C shareholders of the Trust and the maintenance of
Class C shareholder accounts, the Trust pays the Distributor distribution and
servicing fees up to the annual rates set forth below (calculated as a
percentage of each Fund's average daily net assets attributable to Class C
shares):
<TABLE>
<CAPTION>
Distribution Servicing
Fund Fee Fee
---- --- ---
<S> <C> <C>
High Yield and Total Return........... .75% .25%
Low Duration*......................... .50% .25%
Money Market*......................... .00% .10%
</TABLE>
* Subject to increase by action of the Trust's Trustees to a rate not
exceeding .75% per annum with respect to the distribution fee for the
Low Duration and Money Market Funds, and .25% per annum with respect to
the servicing fee on shares of the Money Market Fund. Also, with respect
to the servicing fee on shares of the Money Market Fund, such fee is
subject to increase to a rate not exceeding 0.20% if the Distributor
ceases to voluntarily waive any portion of the fee.
The Class A servicing fee and Class B and C distribution and servicing fees
paid to the Distributor are made under Distribution and Servicing Plans adopted
pursuant to Rule 12b-1 under the Investment Company Act of 1940 and are of the
type known as "compensation" plans. This means that, although the Trustees of
the Trust are expected to take into account the expenses of the Distributor and
its predecessors in their periodic review of the Distribution and Servicing
Plans, the fees are payable to compensate the Distributor for services rendered
even if the amount paid exceeds the Distributor's expenses.
The distribution fee applicable to Class B and C shares may be spent by the
Distributor on any activities or expenses primarily intended to result in the
sale of Class B or C shares, respectively, including compensation to, and
expenses (including overhead and telephone expenses) of, financial consultants
or other employees of the Distributor or of participating or introducing brokers
who engage in distribution of Class B or C shares, printing of prospectuses and
reports for other than existing Class B or C shareholders, advertising and
preparation, printing and distribution of sales literature. The servicing fee,
applicable to Class A, B and C shares of the Trust, may be spent by the
Distributor on personal services rendered to shareholders of the Trust and the
maintenance of
B-18
<PAGE>
shareholder accounts, including compensation to, and expenses (including
telephone and overhead expenses) of, financial consultants or other employees of
the Distributor or participating or introducing brokers, certain banks and other
financial intermediaries who aid in the processing of purchase or redemption
requests or the processing of dividend payments, who provide information
periodically to shareholder showing their positions in a Fund's shares, who
forward communications from the Trust to shareholders, who render ongoing advice
concerning the suitability of particular investment opportunities offered by the
Trust in light of the shareholders' needs, who respond to inquiries from
shareholders relating to such services, or who train personnel in the provision
of such services. Distribution and servicing fees may also be spent on interest
relating to unreimbursed distribution or servicing expenses from prior years.
Many of the Distributor's sales and servicing efforts involve the Trust as
a whole, so that fees paid by any class of shares of any Fund may indirectly
support sales and servicing efforts relating to the other Funds' shares of the
same class. In reporting its expenses to the Trustees, the Distributor itemizes
expenses that relate to the distribution and/or servicing of a single Fund's
shares, and allocates other expenses among the Funds based on their relative net
assets. Expenses allocated to each Fund are further allocated among its classes
of shares annually based on the relative sales of each class, except for any
expenses that relate only to the sale or servicing of a single class. The
Distributor may make payments to brokers (and with respect to servicing fees
only, to certain banks and other financial intermediaries) of up to the
following percentages annually of the average daily net assets attributable to
shares in the accounts of their customers or clients:
Class A Shares
Servicing
Fee
---
All Funds except the Money Market Fund.............. 0.25%
Money Market Fund................................... 0.10%
Class B Shares
(Payable only with respect to shares outstanding for one year or more)
Servicing
Fee
---
All Funds........................................... 0.25%
Class C Shares -- purchased on or after July 1, 1991
(Payable only with respect to shares outstanding for one year
or more except in the case of shares for which no payment
is made to the party at the time of sale)
Servicing Distribution
Fee Fee
--- ---
All Funds except the Low Duration and Money
Market Funds..................................... 0.25% 0.65%
Low Duration Fund................................. 0.25% 0.45%
Money Market Fund................................. 0.10% --
Class C Shares -- purchased before July 1, 1991
Servicing
Fee
---
All Funds except the Money Market Fund.............. 0.25%
B-19
<PAGE>
Money Market Fund................................... 0.10%
The Distributor may from time to time pay additional cash bonuses or other
incentives to selected participating brokers in connection with the sale or
servicing of the Class A, B and C shares of the Funds. On some occasions, such
bonuses or incentives may be conditioned upon the sale of a specified minimum
dollar amount of the shares of a Fund and/or all of the Funds together or a
particular class of shares, during a specific period of time. The Distributor
currently expects that such additional bonuses or incentives will not exceed
.50% of the amount of any sale.
If in any year the Distributor's expenses incurred in connection with the
distribution of Class B and C shares and, for Classs A, B and C shares, in
connection with the servicing of shareholders and the maintenance of shareholder
accounts exceed the distribution and/or servicing fees paid by the Trust, the
Distributor would recover such excess only if the Distribution and Servicing
Plan with respect to such class of shares continues to be in effect in some
later year when the distribution and/or servicing fees exceed the Distributor's
expenses. The Trust is not obligated to repay any unreimbursed expenses that may
exist at such time, if any, as the relevant Distribution and Servicing Plan
terminates.
Custodian and Transfer Agent
Investors Fiduciary Trust Company, 127 West 10th Street, Kansas City,
Missouri 64105, serves as Custodian to the Trust. [Shareholder Services, Inc.,
P.O. Box 5866, Denver, Colorado 80217, serves as Transfer Agent for the Funds'
Class A, B and C shares.]
PURCHASE, EXCHANGE AND REDEMPTION OF SHARES
Each Fund offers its shares in five classes: Class A, Class B, Class C, the
Institutional Class and the Administrative Class. This Prospectus/Proxy
Statement describes only those classes of shares to be received by shareholders
of the Acquired Funds in the Mergers, i.e. Class A, Class B, and Class C.
Information regarding the Institutional Class and Administrative Class of each
Fund is contained in the PIMS Prospectus and the PIMS Statement of Additional
Information of the Trust, which are available upon request to the Trust without
charge.
How to Buy Shares
Class A, B and C shares of each Fund of the Trust are continuously offered
through the Trust's principal underwriter, PIMCO Advisors Distribution Company
(the "Distributor"), and through other firms which have dealer agreements with
the Distributor ("participating brokers") or which have agreed to act as
introducing brokers for the Distributor ("introducing brokers").
There are two ways to purchase Class A, B or C shares: either 1) through
your dealer or broker which has a dealer agreement or 2) directly by mailing an
Account Application with payment, as described below under the heading Direct
Investment, to the Distributor (if no dealer is named in the application, the
Distributor may act as dealer).
Class A, B and C shares may be purchased at a price equal to their net
asset value per share next determined after receipt of an order, plus a sales
charge which, at the election of the purchaser, may be imposed either (i) at the
time of the purchase in the case of Class A shares (the "initial sales charge
alternative"), (ii) on a contingent deferred basis in the case of Class B shares
(the "deferred sales charge alternative") or (iii) by the deduction of an
ongoing asset based sales charge in the case of Class C shares (the "asset based
sales charge alternative"). In certain circumstances Class A and Class C shares
are also subject to a contingent deferred sales charge. See "Alternative
Purchase Arrangements." Purchase payments for Class B and Class C shares are
fully invested at the net asset value next determined after acceptance of the
trade. Purchase payments for Class A shares, less the applicable sales charge,
are invested at the net asset value next determined after acceptance of the
trade.
B-20
<PAGE>
All purchase orders received by the Distributor prior to the close of
regular trading on the New York Stock Exchange (normally 4:00 p.m. Eastern
time), on a regular business day, are processed at that day's offering price.
However, orders received by the Distributor from dealers or brokers after the
offering price is determined that day will receive such offering price if the
orders were received by the dealer or broker from its customer prior to such
determination and were transmitted to and received by the Distributor prior to
its close of business that day (normally 5:00 p.m. Eastern time) or, in the case
of certain retirement plans, received by the Distributor prior to 10:00 a.m.
Eastern time on the next business day. Purchase orders received on other than a
regular business day will be executed on the next succeeding regular business
day. The Distributor, in its sole discretion, may accept or reject any order for
purchase of Fund shares. The sale of shares will be suspended during any period
in which the New York Stock Exchange is closed for other than weekends or
holidays, or if permitted by the rules of the SEC when trading on the Exchange
is restricted or during an emergency which makes it impracticable for the Funds
to dispose of their securities or to determine fairly the value of their net
assets, or during any other period permitted by the SEC for the protection of
investors.
Except for purchases through the PIMCO Advisors Auto Invest plan, the PIMCO
Advisors Auto Exchange plan and tax-qualified programs referred to below, the
minimum initial investment in Class A, B or C shares of the Trust is $1,000 and
in any Fund is $250, and the minimum additional investment is $100 per Fund. For
information about dealer commissions, see "Alternative Purchase Arrangements"
below. Persons selling Fund shares may receive different compensation for
selling Class A, Class B or Class C shares. Normally Trust shares purchased
through participating brokers are held in the investor's account with that
broker. No share certificates will be issued [unless specifically requested in
writing by an investor or broker-dealer.]
Direct Investment. Investors who wish to invest in the Trust directly,
rather than through a participating broker, may do so by opening an account with
the Distributor. All shareholders who open direct accounts with the Distributor
will receive from the Distributor individual confirmations of each purchase,
redemption, dividend reinvestment, exchange or transfer of Trust shares,
including the total number of Trust shares owned as of the confirmation date
except that purchases which result from the reinvestment of daily-accrued
dividends and/or distributions will be confirmed once each calendar quarter.
Information regarding direct investment or any other features or plans offered
by the Trust may be obtained by calling the Distributor at [800-426-0107] or by
calling your broker.
Purchase by Mail. Investors who wish to invest directly may send a check
payable to PIMCO Advisors Distribution Company, along with a completed
application form to:
PIMCO Advisors Distribution Company
[P.O. Box 5866
Denver, CO 80217-5866]
Purchased are accepted subject to collection of checks at full value and
conversion into federal funds. Payment by a check drawn on any member of the
Federal Reserve System can normally be converted into federal funds within two
business days after receipt of the check. Checks drawn on a non-member bank may
take up to 15 days to convert into federal funds. In all cases, the purchase
price is based on the net asset value next determined after the purchase order
and check are accepted, even though the check may not yet have been converted
into federal funds.
Subsequent Purchases of Shares. Subsequent purchases can be made as
indicated above by mailing a check with a letter describing the investment or
with the additional investment portion of a confirmation statement. Except for
subsequent purchases through the PIMCO Advisors Auto Invest plan, the PIMCO
Advisors Auto Exchange plan, tax-qualified programs and PIMCO Advisors Fund Link
referred to below, and except during periods when an Automatic Withdrawal plan
is in effect, the minimum subsequent purchase is $100 in Class A, B or C shares
of any Fund. All payments should be made payable to PIMCO Advisors Distribution
Company and should clearly indicate the shareholder's account number. Checks
should be mailed to the address above under "Purchase by Mail."
Tax-Qualified Retirement Plans. The Distributor makes available retirement
plan services and documents for Individual Retirement Accounts (IRAs), for which
First National Bank of Boston serves as trustee. These accounts include
Simplified Employee Pension Plan (SEP) and Salary Reduction Simplified Employee
Pension
B-21
<PAGE>
Plan (SAR/SEP) IRA accounts and prototype documents. In addition, prototype
documents are available for establishing 403(b)(7) Custodial Accounts with First
National Bank of Boston as custodian. This type of plan is available to
employees of certain non-profit organizations.
The Distributor also makes available prototype documents for establishing
Money Purchase and/or Profit Sharing Plans and 401(k) Retirement Savings Plans.
Investors should call the Distributor at [800-426-0107] for further
information about these plans and should consult with their own tax advisers
before establishing any retirement plan. Investors who maintain their accounts
with participating brokers should consult their broker about similar types of
accounts that may be offered through the broker. The minimum initial and
subsequent investment in Class A, B or C shares of any Fund for tax-qualified
plans is $25.
PIMCO Advisors Auto Invest. The PIMCO Advisors Auto Invest plan provides
for periodic investments into the shareholder's account with the Trust by means
of automatic transfers of a designated amount from the shareholder's bank
account. Investments may be made monthly or quarterly, and may be in any amount
subject to a minimum of $50 per month for each Fund in which shares are
purchased through the plan. Further information regarding the PIMCO Advisors
Auto Invest plan is available from the Distributor or participating brokers. You
may enroll by obtaining an Auto-Invest Application by calling the Distributor or
your broker.
PIMCO Advisors Auto Exchange. PIMCO Advisors Auto Exchange plan establishes
regular, periodic exchanges from one Fund to another. The plan provides for
regular investments into a shareholder's account in a specific Fund by means of
automatic exchanges of a designated amount from another Fund account of the same
class of shares and with identical account registration.
Exchanges may be made monthly or quarterly, and may be in any amount
subject to a minimum of $50 for each Fund whose shares are purchased through the
plan. Further information regarding the PIMCO Advisors Auto Exchange plan is
available from the Distributor at [800-426-0107] or participating brokers. You
may enroll by completing an application which may be obtained from the
Distributor or by telephone request at [800-426-0107]. For more information on
exchanges, see "Exchange Privilege".
PIMCO Advisors Fund Link. (Does not apply to shares held in broker "street
name" accounts.) PIMCO Advisors Fund Link ("Fund Link") connects your Fund
account with a bank account. Fund Link may be used for subsequent purchases and
for redemptions and other transactions described under "How to Redeem". Purchase
transactions are effected by electronic funds transfers from the shareholder's
account at a U.S. bank or other financial institution that is an Automated
Clearing House ("ACH") member. Investors may use Fund Link to make subsequent
purchases of shares in amounts from $50 to $10,000. To initiate such purchases,
call [800-852-8457]. All such calls will be recorded. Fund Link is normally
established within 45 days of receipt of an Application by the Transfer Agent.
The minimum investment by Fund Link is $50 per Fund. Shares will be purchased on
the regular business day the Distributor receives the funds through the ACH
system, provided the funds are received before the close of regular trading on
the New York Stock Exchange. If the funds are received after the close of
regular trading, the shares will be purchased on the next regular business day.
Fund Link privileges must be requested on the Account Application. To establish
Fund Link on an existing account, complete a Fund Link Application, which is
available from the Distributor or your broker, with signatures guaranteed from
all shareholders of record for the account. See "Signature Guarantee" under
"General" below. Such privileges apply to each shareholder of record for the
account unless and until the Distributor receives written instructions from a
shareholder of record cancelling such privileges. Changes of bank account
information must be made by completing a new Fund Link Application signed by all
owners of record of the account, with all signatures guaranteed. The
Distributor, the Transfer Agent and the Fund may rely on any telephone
instructions believes to be genuine and will not be responsible to shareholders
for any damage, loss or expenses arising out of such instructions. The Fund
reserves the right to amend, suspend or discontinue Fund Link privileges at any
time without prior notice.
General
B-22
<PAGE>
Changes in registration or account privileges may be made in writing to the
transfer agent (the "Transfer Agent"). Signature guarantees may be required. See
"Signature Guarantee" below.
All correspondence must include the account number and must be sent to:
PIMCO Advisors Distribution Company
[P.O. Box 5866
Denver, CO 80217-5866]
Signature Guarantee. When a signature guarantee is called for, the
shareholder should have "Signature Guaranteed" stamped under his signature and
guaranteed by any of the following entities: U.S. banks, foreign banks having a
U.S. correspondent bank, credit unions, savings associations, U.S. registered
dealers and brokers, municipal securities dealers and brokers, government
securities dealers and brokers, national securities exchanges, registered
securities associations and clearing agencies (each an "Eligible Guarantor
Institution"). The Distributor reserves the right to reject any signature
guarantee pursuant to its written signature guarantee standards or procedures,
which may be revised in the future to permit it to reject signature guarantees
from Eligible Guarantor Institutions that do not, based on credit guidelines,
satisfy such written standards or procedures. The Trust may change the signature
guarantee requirements from time to time upon notice to shareholders, which may
be given by means of a new or supplemental Prospectus.
Alternative Purchase Arrangements
Class A, Class B and Class C shares bear sales charges in different forms
and amounts and bear different levels of expenses. The alternative purchase
arrangements are designed to enable the investor to choose the method of
purchasing Fund shares that is most beneficial to the investor based on all
factors to be considered, which include: the amount and intended length of the
investment, the type of Fund and whether the investor intends to exchange shares
for shares of other Funds. Generally, when making an investment decision,
investors should at least consider the anticipated life of an intended
investment in the Funds, the accumulated distribution and servicing fees plus
contingent deferred sales charges on Class B or Class C shares, the initial
sales charge plus accumulated servicing fees on Class A shares (plus a
contingent deferred sales charge in certain circumstances), the possibility that
the anticipated higher return on Class A shares due to the lower ongoing charges
will offset the initial sales charge paid on such shares, the automatic
conversion of Class B shares to Class A shares and the difference in the
contingent deferred sales charges applicable to Class A, B and C shares.
Class A: The initial sales charge alternative (Class A) might be preferred
by investors purchasing shares of sufficient aggregate value to qualify for
reductions in the initial sales charge applicable to such shares. Similar
reductions are not available on the contingent deferred sales charge alternative
(Class B) or the asset based sales charge alternative (Class C). Class A shares
are subject to a servicing fee but are not subject to a distribution fee and,
accordingly, such shares are expected to pay correspondingly higher dividends on
a per share basis. However, because initial sales charges are deducted at the
time of purchase, not all of the purchase payment for Class A shares is invested
initially. Class B and Class C shares might be preferable to investors who wish
to have all purchase payments invested initially, although remaining subject to
higher distribution and servicing fees and, for certain periods, being subject
to a contingent deferred sales charge. An investor who qualifies for an
elimination of the Class A initial sales charge should also consider whether he
or she anticipates redeeming shares in a time period which will subject such
shares to a contingent deferred sales charge as described below. See "Initial
Sales Charge Alternative -- Class A Shares --Class A Deferred Sales Charge"
below.
Class B: Class B shares might be preferred by investors who intend to
invest in the Funds for longer periods and who do not intend to purchase shares
of sufficient aggregate value to qualify for sales charge reductions applicable
to Class A shares. Both Class B and Class C shares can be purchased at net asset
value without an initial sales charge. However, unlike Class C shares, Class B
shares convert into Class A shares after the shares have been held for seven
years. After the conversion takes place, the shares will no longer be subject to
a contingent deferred sales charge, and will be subject to the servicing fees
charged for Class A shares which are lower than the distribution and servicing
fees charged on either Class B or Class C shares. See "Deferred Sales Charge
Alternative -- Class B Shares" below.
B-23
<PAGE>
Class C: Class C shares might be preferred by investors who intend to
purchase shares which are not of sufficient aggregate value to qualify for Class
A sales charges of 1% or less and who wish to have all purchase payments
invested initially. Class C shares are preferable to Class B shares for
investors who intend to maintain their investment for intermediate periods and
therefore may also be preferable for investors who are unsure of the intended
length of their investment. Unlike Class B shares, Class C shares are not
subject to a contingent deferred sales charge after they have been held for one
year and are subject to only a 1% contingent deferred sales charge during the
first year. However, because Class C shares do not convert into Class A shares,
Class B shares are preferable to Class C shares for investors who intend to
maintain their investment in the Funds for long periods. See "Asset Based Sales
Charge Alternative -- Class C Shares" below.
In determining which class of shares to purchase, an investor should always
consider whether any waiver or reduction of a sales charge or a contingent
deferred sales charge is available. See generally "Initial Sales Charge
Alternative -- Class A Shares" and "Waiver of Contingent Deferred Sales Charges"
below.
There is no size limit on purchased of Class A shares. The maximum single
purchase of Class B shares accepted is $249,999. The maximum single purchase of
Class C shares accepted is $999,999. The Funds may refuse any order to purchase
shares.
For a description of the Distribution and Servicing Plans and distribution
and servicing fees payable thereunder with respect to Class A, Class B and Class
C shares, see "Distributor and Distribution and Servicing Plans" above.
Waiver of Contingent Deferred Sales Charges. The contingent deferred sales
charges applicable to Class A and C shares is currently waived for (i) any
partial or complete redemption in connection with a distribution without penalty
under Section 72(t) of the Internal Revenue Code of 1986, as amended (the
"Code") from a retirement plan, including a 403(b)(7) plan or an IRA (a) upon
attaining age 59 1/2, (b) as part of a series of substantially equal periodic
payments, or (c) in the case of an employer sponsored retirement plan, upon
separation from service and attaining age 55; (ii) any partial or complete
redemption in connection with a qualifying loan or hardship withdrawal from an
employer sponsored retirement plan; (iii) any complete redemption in connection
with a distribution from a qualified employer retirement plan in connection with
termination of employment or termination of the employer's plan and the transfer
to another employer's plan or to an IRA; (iv) any partial or complete redemption
following death or disability (as defined in the Code) of a shareholder
(including one who owns the shares as joint tenant with his or her spouse) from
an account in which the deceased or disabled is named, provided the redemption
is requested within one year of the death or initial determination of
disability; (v) any redemption resulting from a return of an excess contribution
to a qualified employer retirement plan or an IRA; or (vi) certain periodic
redemptions under an Automatic Withdrawal Plan from an account meeting certain
minimum balance requirements, in amounts meeting certain maximums established
from time to time by Distributor; (vii) redemptions by Trustees, officers and
employees of the Distributor and the Adviser; (viii) redemptions effected
pursuant to a Fund's right to involuntarily redeem a shareholder's account if
the aggregate net asset value of shares held in such shareholder's account is
less than a minimum account size specified in such Fund's prospectus; (ix)
involuntary redemptions caused by operation of law; (x) redemption of shares of
any Fund that is combined with another Fund, investment company, or personal
holding company by virtue of a merger, acquisition or other similar
reorganization transaction; (xi) redemptions by a shareholder who is a
participant making periodic purchases of not less than $50 through certain
employer sponsored savings plans that are clients of a broker-dealer with which
the Distributor has an agreement with respect to such purchases; or (xii)
redemptions effected by trustees or other fiduciaries who have purchased shares
for employer sponsored plans, the administrator for which has an agreement with
the Distributor with respect to such purchases.
The contingent deferred sales charge applicable to Class B shares is
currently waived for any partial or complete redemption (a) in connection with a
distribution without penalty under Section 72(t) of the Code from a 403(b)(7)
plan or an IRA upon attaining age 59 1/2 and (b) following death or disability
(as defined in the Code) of a shareholder (including one who owns the shares as
joint tenant with his or her spouse) from an account in which the deceased or
disabled is named, provided the redemption is requested within one year of the
death or initial determination of disability.
B-24
<PAGE>
The Distributor may require documentation prior to waiver of the contingent
deferred sales charge for any class including distribution letters,
certification by plan administrators, applicable tax forms, death certificates,
physicians certificates, etc.
Initial Sales Charge Alternative -- Class A Shares. Class A shares are sold
at a public offering price equal to their net asset value per share plus a sales
charge, as set forth below. As indicated below under "Class A Deferred Sales
Charge," certain investors that purchase $1,000,000 or more of any Fund's Class
A shares (and thus pay no initial sales charge) may be subject to a 1%
contingent deferred sales charge if they redeem such shares during the first 18
months after their purchase.
B-25
<PAGE>
High Yield Fund and Total Return Fund
<TABLE>
<CAPTION>
Discount or
Commission
Sales Charge Sales Charge to Dealers
As % of As % of As % of
Amount of Net Amount the Public Public
Purchase Invested Offering Price Offering Price
-------- ------------ -------------- --------------
<S> <C> <C> <C>
$0-$49,999 4.99% 4.75% 4.00%
$50,000-$99,999 4.44% 4.25% 3.50%
$100,000-$249,999 3.90% 3.75% 3.00%
$250,000-$499,999 2.56% 2.50% 2.00%
$500,000-$999,999 1.78% 1.75% 1.50%
$1,000,000+ 0.00%/1/ 0.00%/1/ 0.50%
<CAPTION>
Low Duration Fund
Discount or
Commission
Sales Charge Sales Charge to Dealers
As % of As % of As % of
Amount of Net Amount the Public Public
Purchase Invested Offering Price Offering Price
-------- ------------ -------------- --------------
<S> <C> <C> <C>
$0-$49,999 3.09% 3.00% 2.50%
$50,000-$99,999 2.56% 2.50% 2.00%
$100,000-$249,999 2.04% 2.00% 1.50%
$250,000-$499,999 1.52% 1.50% 1.25%
$500,000-$999,999 1.27% 1.25% 1.00%
$1,000,000+ 0.00%/1/ 0.00%/1/ 0.50%
</TABLE>
- ---------------------
As shown, investors that purchase more than $1,000,000 of any Fund's Class
A shares will not pay any initial sales charge on such purchase. However,
except with regard to purchases of Class A shares of the Money Market Fund,
purchasers of $1,000,000 or more of Class A shares (other than those purchasers
described below under "Sales at Net Asset Value" where no commission is paid)
will be subject to a contingent deferred sales charge of 1% if such shares are
redeemed during the first 18 months after such shares are purchased unless such
purchaser is eligible for a waiver of the contingent deferred sales charge as
described under "Waiver of Contingent Deferred Sales Charge" above. See "Class
A Deferred Sales Charge" below.
The Distributor will pay a commission to dealers who sell amounts of
$1,000,000 or more of Class A shares (or who sells Class A shares at net asset
value to certain employer-sponsored plans as outlined in "Sales at Net Asset
Value" below) (except for the Money Market Fund for which no payment is
made), according to the following schedule: 0.50% of the first $2,000,000 and
0.25% of amounts over $2,000,000.
B-26
<PAGE>
No initial sales charge applies to purchases of Class A shares of the Money
Market Fund. However, if a shareholder exchanges Class A shares of the Money
Market Fund, for which no sales load was paid at the time of purchase, for Class
A shares of any other Fund, the sales charge shown above for the other Fund
applies at the time of the exchange.
Each Fund receives the entire net asset value of its Class A shares
purchased by investors. The Distributor receives the sales charge shown above
less any applicable discount or commission "reallowed" to participating brokers
in the amounts indicated in the table above. The Distributor may, however, elect
to reallow the entire sales charge to participating brokers for all sales with
respect to which orders are placed with the Distributor for any particular Fund
during a particular period. A participating broker who receives a reallowance of
90% or more of the sales charge may be deemed to be an "underwriter" under the
Securities Act of 1933. During such periods as may from time to time be
designated by the Distributor, the Distributor will pay an additional amount of
up to 0.50% of the purchase price on sales of Class A shares of all or selected
Funds purchased to each participating broker which obtains purchase orders in
amounts exceeding thresholds established from time to time by the Distributor.
Shares issued pursuant to the automatic reinvestment of income dividends or
capital gains distributions are issued at net asset value and are not subject to
any sales charges.
Under the circumstances described below, investors may be entitled to pay
reduced sales charges for Class A shares.
Combined Purchase Privilege. Investors may qualify for a reduced
sales charge by combining purchases of the Class A shares of one or more Funds
(other than the Money Market Fund) or other series of the Trust or PIMCO Funds:
Equity Advisors Series ("PFEAS") into a "single purchase," if the resulting
purchase totals at least $50,000. The term single purchase refers to: (i) a
single purchase by an individual, or concurrent purchases, which in the
aggregate are at least equal to the prescribed amounts, by an individual, his
spouse and their children under the age of 21 years purchasing Class A shares of
the Funds for his, her or their own account; (ii) a single purchase by a trustee
or other fiduciary purchasing shares for a single trust, estate or fiduciary
account although more than one beneficiary is involved; or (iii) a single
purchase for the employee benefit plans of a single employer. For further
information, call the Distributor at [800-426-0107] or your broker.
Cumulative Quantity Discount (Right of Accumulation). A purchase of
additional Class A shares of any Fund (other than the Money Market Fund) may
qualify for a Cumulative Quantity Discount at the rate applicable to the
discount bracket obtained by adding:
(i) the investor's current purchase;
(ii) the value (at the close of business on the day of the current
purchase) of all Class A shares of any Fund (other than the Money
Market Fund) or other series of the Trust or PFEAS held by the
investor computed at the maximum offering price; and
(iii) the value of all shares described in paragraph (ii) owned by another
shareholder eligible to be combined with the investor's purchase into
a "single purchase" as defined above under "Combined Purchase
Privilege."
For example, if you owned Class A shares of the High Yield Fund worth
$25,000 at the current maximum offering price and wished to purchase Class A
shares of the Total Return Fund worth an additional $30,000, the sales charge
for the $30,000 purchase would be at the 4.25% rate applicable to a single
$55,000 purchase of shares of the Total Return Fund, rather than the 4.75% rate.
An investor or participating broker must notify the Distributor whenever a
quantity discount or reduced sales charge is applicable to a purchase and must
provide the Distributor with sufficient information at the time of purchase to
verify that each purchase qualifies for the privilege or discount. Upon such
notification, the investor will receive the lowest applicable sales charge. The
quantity discounts described above may be modified or terminated at any time.
B-27
<PAGE>
Letter of Intent. An investor may also obtain a reduced sales charge by
means of a written Letter of Intent, which expresses an intention to invest not
less than $50,000 within a period of 13 months in Class A shares of any Fund(s)
(other than the Money Market Fund). Each purchase of shares under a Letter of
Intent will be made at the public offering price or prices applicable at the
time of such purchase to a single transaction of the dollar amount indicated in
the Letter. At the investor's option, a Letter of Intent may include purchases
of Class A shares of any Fund (other than the Money Market Fund) made not more
than 90 days prior to the date the Letter of Intent is signed; however, the 13-
month period during which the Letter is in effect will begin on the date of the
earliest purchase to be included and the sales charge on any purchases prior to
the Letter will not be adjusted.
Investors qualifying for the Combined Purchase Privilege described above
may purchase shares of the Funds under a single Letter of Intent. For example,
if at the time you sign a Letter of Intent to invest at least $100,000 in Class
A shares of any Fund (other than the Money Market Fund), you and your spouse
each purchase Class A shares of the Total Return Fund worth $30,000 (for a total
of $60,000), it will only be necessary to invest a total of $40,000 during the
following 13 months in Class A shares of any of the Funds (other than the Money
Market Fund) to qualify for the 3.75% sales charge on the total amount being
invested (the sales charge applicable to an investment of $100,000 in any of the
Funds other than the Money Market and Low Duration Funds).
A Letter of Intent is not a binding obligation to purchase the full amount
indicated. The minimum initial investment under a Letter of Intent is 5% of such
amount. Shares purchased with the first 5% of such amount will be held in escrow
(while remaining registered in your name) to secure payment of the higher sales
charge applicable to the shares actually purchased in the event the full
intended amount is not purchased. If the full amount indicated is not purchased,
a sufficient amount of such escrowed shares will be involuntarily redeemed to
pay the additional sales charge applicable to the amount actually purchased, if
necessary. Dividends on escrowed shares, whether paid in cash or reinvested in
additional Fund shares, are not subject to escrow. When the full amount
indicated has been purchased, the escrow will be released.
If you are a current Class A shareholder desiring to enter into a Letter of
Intent, you can obtain a form of Letter of Intent by contacting the Distributor
at [800-426-0107] or any broker participating in this program.
Reinstatement Privilege. A Class A shareholder who has caused any or all of
his shares (other than Money Market Fund shares that were not acquired by
exchanging Class A shares of another Fund) to be redeemed may reinvest all or
any portion of the redemption proceeds in Class A shares of any Fund at net
asset value without any sales charge, provided that such reinvestment is made
within 90 calendar days after the redemption or repurchase date. Shares are sold
to a reinvesting shareholder at the net asset value next determined as described
above. A reinstatement pursuant to this privilege will not cancel the redemption
transaction and, consequently, any gain or loss so realized may be recognized
for federal tax purposes except that no loss may be recognized to the extent
that the proceeds are reinvested in shares of the same Fund within 30 days. The
reinstatement privilege may be utilized by a shareholder only once, irrespective
of the number of shares redeemed, except that the privilege may be utilized
without limit in connection with transactions whose sole purpose is to transfer
a shareholder's interest in a Fund to his Individual Retirement Account or other
qualified retirement plan account. An investor may exercise the reinstatement
privilege by written request sent to the Distributor or to the investor's
broker.
Sales at Net Asset Value. Each Fund may sell its Class A shares at net
asset value without a sales charge to a) current or retired officers, trustees,
directors or employees of the Trust, the Adviser or the Distributor, to a spouse
or child of such person or to any trust, profitsharing or pension plan for the
benefit of any such person, b) current or retired trustees of Cash Accumulation
Trust, a registered investment company for which PIMCO Advisors acts as
investment adviser, c) current registered representatives and other full-time
employees of participating brokers or such persons' spouses, d) trustees or
other fiduciaries purchasing shares for certain employer sponsored plans that
have at least 100 eligible participants or at least $1 million in total plan
assets, e) trustees or other fiduciaries purchasing shares for certain employer-
sponsored plans, the trustee, fiduciary or administrator for which has an
agreement with the Distributor with respect to such purchases, f) participants
investing through accounts known as "wrap accounts" established with brokers or
dealers are paid a single, inclusive fee for brokerage and investment management
services, g) broker-dealers or registered investment advisers affiliated with
such broker-dealers with which the Distributor has an agreement for the use of
the PIMCO Mutual Funds in particular investment products for which a fee is
charged, and h) trust accounts for which trust
B-28
<PAGE>
companies affiliated with the Trust or the Adviser serve as trustee. As
described above, the Distributor will not pay any initial commission to dealers
upon the sale of Class A shares to the purchasers described in this paragraph
except for sales to purchasers described under d) or e) in this paragraph.
Class A Deferred Sales Charge. For all Funds except the Money Market
Fund, investors who purchase $1,000,000 or more of Class A shares (and, thus,
purchase such shares without any initial sales charge) may be subject to a 1%
contingent deferred sales charge (the "Class A CDSC") if such shares are
redeemed within 18 months of their purchase. The Class A CDSC does not apply to
investors purchasing $1,000,000 or more of any Fund's Class A shares if such
investors are otherwise eligible to purchase Class A shares without any sales
charge because they are described under "Sales at Net Asset Value" above.
For purchases subject to the Class A CDSC, a 1% CDSC will apply for
any redemption of such Class A shares that occurs within 18 months of their
purchase. No CDSC will be imposed if the shares redeemed have been acquired
through the reinvestment of dividends or capital gains distributions or if the
amount redeemed is derived from increases in the value of the account above the
amount of purchase payments subject to the CDSC. In determining whether a CDSC
is payable, it is assumed that Class A shares acquired through the reinvestment
of dividends and distributions are redeemed first, and thereafter that Class A
shares that have been held by an investor for the longest period of time are
redeemed first.
The Class A CDSC does not apply to Class A shares of the Money Market
Fund but, if Money Market Fund Class A shares are purchased in a transaction
that, for any other Fund, would be subject to the CDSC (i.e., a purchase of
$1,000,000 or more) and are subsequently exchanged for Class A shares of any
other Fund, a Class A CDSC will apply to the shares of the Fund acquired by
exchange for a period of 18 months from the date of the exchange.
The Class A CDSC is currently waived in connection with certain
redemptions as described above under "Alternative Purchase Arrangements --
Waiver of Contingent Deferred Sales Charges."
For more information about the Class A CDSC, call the Distributor at
[800-426-0107].
Participating Brokers. Investment dealers and other firms provide
varying arrangements for their clients to purchase and redeem Fund shares. Some
may establish higher minimum investment requirements than set forth above.
Firms may arrange with their clients for other investment or administrative
services. Such firms may independently establish and charge additional amounts
to their clients for such services, which charges would reduce clients' return.
Firms also may hold Fund shares in nominee or street name as agent for and on
behalf of their customers. In such instances, the Trust's transfer agent will
have no information with respect to or control over accounts of specific
shareholders. Such shareholders may obtain access to their accounts and
information about their accounts only from their broker. In addition, certain
privileges with respect to the purchase and redemption of shares or the
reinvestment of dividends may not be available through such firms. Some firms
may participate in a program allowing them access to their clients' accounts for
servicing including, without limitation, transfers of registration and dividend
payee changes; and may perform functions such as generation of confirmation
statements and disbursement of cash dividends. This Prospectus/Proxy Statement
should be read in connection with such firms' material regarding their fees and
services.
Deferred Sales Charge Alternative -- Class B Shares. Class B shares
are sold at their current net asset value without any initial sales charge. The
full amount of an investor's purchase payment will be invested in shares of the
Fund(s) selected. A contingent deferred sales charge ("CDSC") will be imposed
on Class B shares (including Money Market Fund shares) if an investor redeems an
amount which causes the current value of the investor's account for a Fund to
fall below the total dollar amount of purchase payments subject to the CDSC,
except that no CDSC is imposed if the shares redeemed have been acquired through
the reinvestment of dividends or capital gains distributions or if the amount
redeemed is derived from increases in the value of the account above the amount
of purchase payments subject to the CDSC.
Initial purchases of Class B shares of the Low Duration Fund are
suitable only as a temporary investment for investors who expect to exchange
such shares into Class B shares of another Fund within a short time after
purchase. Investors who expect to hold shares of the Low Duration Fund for
longer periods should purchase Class A or Class C shares.
B-29
<PAGE>
Class B shares of the Money Market Fund are not offered for initial
purchases but may be obtained through exchanges of Class B shares of other
Funds. See "Exchange Privilege" below.
Class B shares are not available for purchase by employer sponsored
retirement plans.
Whether a CDSC is imposed and the amount of the CDSC will depend on
the number of years since the investor made a purchase payment from which an
amount is being redeemed. Purchased are subject to the CDSC according to the
following schedule:
<TABLE>
<CAPTION>
Year Since Purchase Percentage Contingent
Payment Was Made Deferred Sales Charge
---------------- ---------------------
<S> <C>
First........................... 5
Second.......................... 4
Third........................... 3
Fourth.......................... 3
Fifth........................... 2
Sixth........................... 1
Seventh......................... 0
Eighth.......................... *
</TABLE>
* Class B shares convert into Class A shares as described below.
In determining whether a CDSC is payable, it is assumed that the
purchase payment from which a redemption is made is the earliest purchase
payment from which a redemption or exchange has not already been fully effected.
In determining whether an amount is available for redemption without
incurring a CDSC, the purchase payments made for all Class B shares in the
shareholder's account with the particular Fund are aggregated, and the current
value of all such shares is aggregated. Any CDSC imposed on a redemption of
Class B shares is paid to the Distributor.
Class B shares are subject to higher distribution fees than Class A
shares for a fixed period after their purchase, after which they automatically
convert to Class A shares and are no longer subject to such higher distribution
fees. Class B shares of each Fund automatically convert into Class A shares
after they have been held for seven years.
For sales of Class B shares made and services rendered to Class B
shareholders, the Distributor intends to make payments to participating brokers,
at the time a shareholder purchases Class B shares, of 4% of the purchase amount
for each of the Funds. During such periods as may from time to time be
designated by the Distributor, the Distributor will pay selected participating
brokers an additional amount of up to 0.50% of the purchase price on sales of
Class B shares of all or selected Funds purchased to each participating broker
which obtains purchase orders in amounts exceeding thresholds established from
time to time by the Distributor.
The Class B CDSC is currently waived in connection with certain
redemptions as described above under "Alternative Purchase Arrangements --
Waiver of Contingent Deferred Sales Charges."
For more information about the Class B CDSC, call the Distributor at
[800-426-0107].
Asset Based Sales Charge Alternative -- Class C Shares. Class C
shares are sold at their current net asset value without any initial sales
charge. A CDSC is imposed on Class C shares (including Money Market Fund
shares) if an investor redeems an amount which causes the current value of the
investor's account for a Fund to fall below the total dollar amount of purchase
payments subject to the CDSC, except that no CDSC is imposed if the shares
redeemed have been acquired through the reinvestment of dividends or capital
gains distributions or if the amount redeemed is derived from increases in the
value of the account above the amount of purchase payments subject to the CDSC.
All of an investor's purchase payments are invested in shares of the Fund(s)
selected.
B-30
<PAGE>
Whether a CDSC is imposed and the amount of the CDSC will depend on the
number of years since the investor made a purchase payment from which an amount
is being redeemed and the date such purchase payment was made. Purchases are
subject to the CDSC according to the following schedule:
<TABLE>
<CAPTION>
Year Since Purchase Percentage Contingent
Payment Was Made Deferred Sales Charge
---------------- ---------------------
<S> <C>
First........................... 1
Thereafter...................... 0
</TABLE>
In determining whether a CDSC is payable, it is assumed that the
purchase payment from which the redemption is made is the earliest purchase
payment (from which a redemption or exchange has not already been effected). If
the earliest purchase from which a redemption has not yet been effected was made
on or after July 1, 1991 and within 12 months before the redemption, then a CDSC
at the rate of 1% will be imposed. If the earliest purchase payment from which
a redemption has not yet been effected was made before July 1, 1991, then a CDSC
of 2% may be imposed, in accordance with the table above.
The following example will illustrate the operation of the CDSC:
Assume that an individual opens an account and makes a purchase
payment of $10,000 after July 1, 1991 for Class C shares of a Fund and that six
months later the value of the investor's account for that Fund has grown through
investment performance and reinvestment of distributions of $11,000. The
investor then may redeem up to $1,000 from that Fund ($11,000 minus $10,000)
without incurring a CDSC. If the investor should redeem $3,000, a CDSC would be
imposed on $2,000 of the redemption (the amount by which the investor's account
for the Fund was reduced below the amount of the purchase payment). At the rate
of 1%, the CDSC would be $20.
In determining whether an amount is available for redemption without
incurring a CDSC, the purchase payments made for all Class C shares in the
shareholder's account with the particular Fund are aggregated, and the current
value of all such shares is aggregated. Any CDSC imposed on a redemption of
Class C shares is paid to the Distributor.
Unlike Class B shares, Class C shares do not automatically convert to
any other class of shares of the Funds.
Except as described below, for sales of Class C shares made and
services rendered to Class C shareholders, the Distributor expects to make
payments to participating brokers, at the time the shareholder purchases Class C
shares, of 1.00% (representing 0.75% distribution fees and 0.25% servicing fees)
of the purchase amount for all Funds except the Low Duration Fund for which the
expected payment is 0.75% (representing 0.50% distribution fees and 0.25%
servicing fees) and the Money Market Fund for which no payment is expected to be
made. For sales of Class C shares made to participants making periodic
purchases of not less than $50 through certain employer sponsored savings plans
which are clients of a broker-dealer with which the Distributor has an agreement
which respect to such purchases, no payments are made at the time of purchase.
At the time shares of the Money Market Fund on which no commission has been paid
are exchanged for shares of another Fund, the Distributor intends to make the
payments to participating brokers that are described above applicable to that
other Fund. During such periods as may from time to time be designated by the
Distributor, the Distributor will pay an additional amount of up to 0.50% of the
purchase price on sales of Class C shares of all or selected Funds purchased to
each participating broker which obtains purchase orders in amounts exceeding
thresholds established from time to time by the Distributor.
The Class C CDSC is currently waived in connection with certain
redemptions as described above under "Alternative Purchase Arrangements -
Waiver of Contingent Deferred Sales Charges."
For more information about the Class C CDSC, contact the Distributor
at [800-426-0107.]
EXCHANGE PRIVILEGE
B-31
<PAGE>
A shareholder may exchange Class A, Class B and Class C shares of any
Fund for the same Class of shares of any other Fund or other series of the Trust
or PFEAS in an account with identical registration on the basis of their
respective net asset values (except that a sales charge will apply on exchanges
of Class A shares of the Money Market Fund on which no sales load was paid at
the time of purchase). Exchanges may be made only with respect to funds or
classes registered in the state of residence of the investor or which an
exemption from registration is available. Shareholders interested in such an
exchange may request a prospectus for these funds by contacting the Distributor.
Class A shares of the Money Market Fund may be exchanged for Class A shares of
any other Fund, but the usual sales charges applicable to investments in such
other Fund apply on shares for which no sales load was paid at the time of
purchase. There are currently no exchange fees or charges. Except with respect
to tax-qualified programs and exchanges effected through the PIMCO Advisors Auto
Exchange plan, exchanges are subject to the $250 minimum initial purchase
requirement for each Fund. An exchange will constitute a taxable sale for
federal income tax purposes.
Investors who maintain their account with the Distributor may exchange
shares by a written exchange request sent to PIMCO Advisors Distribution
Company, [P.O. Box 5866, Denver, CO 80217-5866] or, unless the investor has
specifically declined telephone exchange privileges on the Account Application
or elected in writing not to utilize telephone exchanges, by a telephone request
to the Transfer Agent at [800-852-8457.] The Trust will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine,
and may be liable for any losses due to unauthorized to fraudulent instructions
if it fails to employ such procedures. The Trust will require a form of
personal identification prior to acting on a caller's telephone instructions,
will provide written confirmations of such transactions and will record
telephone instructions. Exchange forms are available from the Distributor at
[800-426-0107] and may be used if there will be no change in the registered name
of address of the shareholder. Changes in registration information or account
privileges may be made in writing to the Transfer Agent [Shareholder Services,
Inc., P.O. Box 5866, Denver, Colorado 80217-5866,] or by use of forms which are
available from the Distributor. A signature guarantee is required. See
"Signature Guarantee" under "General." Telephone exchanges may be made between
9:00 a.m. and the close of regular trading on the New York Stock Exchange
(normally 4:00 p.m. Eastern time) on any day the Exchange is open (generally
weekdays other than normal holidays). The Trust reserves the right to refuse
exchange purchases if, in the judgment of the Adviser, the purchase would
adversely affect the Fund and its shareholders. In particular, a pattern of
exchanges characteristic of "market-timing" strategies may be deemed by the
Adviser to be detrimental to the Fund. Although the Trust has no current
intention of terminating or modifying the exchange privilege, it reserves the
right to do so at any time. Except as otherwise permitted by SEC regulations,
the Trust will give 60 days' advance notice to shareholders of any termination
or material modification of the exchange privilege. For further information
about exchange privileges, contact your participating broker or call the
Transfer Agent at [800-426-0107.]
With respect to Class B and Class C shares, or Class A shares subject
to a CDSC, if less than all of an investment is exchanged out of a Fund, any
portion of the investment attributable to capital appreciation and/or reinvested
dividends or capital gains distributions will be changed first, and thereafter
any potions exchanged will be from the earliest investment made in the Fund from
which the exchange was made. Shareholders should take into account the effect
of any exchange on the applicability of any CDSC that may be imposed upon any
subsequent redemption. Although the Class A CDSC does not apply to Class A
shares of the Money Market Fund, if Money Market Fund Class A shares purchased
in a transaction that would otherwise be subject to the Class A CDSC (i.e. most
purchases of $1,000,000 or more) are subsequently exchanged for Class A shares
of any other Fund, a Class A CDSC will apply to the shares of the Fund acquired
by exchange for a period of 18 months from the date of the exchange. See
"Initial Sales charge Alternative -- Class A Shares -- Class A Deferred Sales
Charge" above.
Auto Exchange Investors may also select the PIMCO Advisors Auto Exchange plan
which establishes automatic periodic exchanges. For further information on
automatic exchanges see "PIMCO Advisors Auto Exchange" under "How to Buy
Shares."
HOW TO REDEEM
B-32
<PAGE>
Shares may be redeemed through a participating broker, by telephone,
by submitting a written redemption request directly to the Transfer Agent (for
non-broker accounts) or through an Automatic Withdrawal Plan or PIMCO Advisors
Fund Link.
A CDSC may apply to a redemption of Class A, Class B or Class C
shares. See "Alternative Purchase Arrangements" above. Shares are redeemed at
their net asset value next determined after a proper redemption request has been
received, less any applicable CDSC. There is no charge by the Distributor
(other than an applicable CDSC) with respect to a redemption; however, a
participating broker who processes a redemption for an investor may charge
customary commissions for its services. Dealers and other financial services
firms are obligated to transmit orders promptly. Requests for redemption
received by dealers or other firms prior to the close of regular trading on the
New York Stock Exchange (normally 4:00 p.m. Eastern time) on a regular business
day and received by the Distributors prior to the close of the Distributor's
business day will be confirmed at the net asset value effective as of the
closing of the Exchange on that day, less an applicable CDSC.
Direct Redemption A shareholder's original Account Application permits the
shareholder to redeem by written request and by telephone (unless the
shareholder specifically elects not to utilize telephone redemptions) and to
elect one or more of the additional redemption procedures described below. A
shareholder may change the instructions indicated on his original Account
Application, or may request additional redemption options, only by transmitting
a written direction to the Transfer Agent. Requests to institute or change any
of the additional redemption procedures will require a signature guarantee.
Redemption proceeds will normally be mailed to the redeeming
shareholder within seven days or, in the case of wire transfer of Fund Link
redemptions, sent to the designated bank account within one business day. Fund
Link redemptions may be received by the bank on the second or third business
day. In cases where shares have recently been purchased by personal check,
redemption proceeds may be withheld until the check has been collected, which
may take up to 15 days. To avoid such withholding, investors should purchase
shares by certified or bank check or by wire transfer.
Written Requests (Does not apply to shares held in broker "street name"
accounts.) To redeem shares in writing (whether or not represented by
certificates), a shareholder must send the following items to the Fund's
Transfer Agent, [Shareholder Services, Inc., P.O. Box 5866, Denver, Colorado
80217-5866]: (1) a written request for redemption signed by all registered
owners exactly as the account is registered on the Transfer Agent's records,
including fiduciary titles, if any, and specifying the account number and the
dollar amount of number of shares to be redeemed; (2) for certain redemptions
described below, a guarantee of all signatures on the written request [or on the
share certificate] or accompanying stock power, if required, as described under
"Signature Guarantee"; (3) [any share certificates issued for any of the shares
to be redeemed (see "Certificated Shares" below)]; and (4) any additional
documents which may be required by the Transfer Agent for redemption by
corporations, partnerships or other organizations, executors, administrators,
trustees, custodians or guardians, or if the redemption is requested by anyone
other than the shareholder(s) of record. Transfers of shares are subject to the
same requirements. A signature guarantee is not required for redemptions of
$50,00 or less, requested by and payable to all shareholders of record for the
account, to be sent to the address of record for that account. To avoid delay
in redemption or transfer, shareholders having any questions about these
requirements should contact the Transfer Agent in writing or by calling [800-
426-0107] before submitting a request. Redemption or transfer requests will not
be honored until all required documents in the proper form have been received by
the Transfer Agent.
If the proceeds of the redemption (i) exceed $50,000, (ii) are to be
paid to a person other than the record owner, (iii) are to be sent to an address
other than the address of the account on the Transfer Agent's records, or (iv)
are to be paid to a corporation, partnership, trust or fiduciary, the
signature(s) on the redemption request and on the certificates, if any, or stock
power must be guaranteed as described above, except that the Distributor may
wive the signature guarantee requirement for redemptions up to $2,500 by a
trustee of a qualified retirement plan, the administrator for which has an
agreement with the Distributor.
Telephone Redemptions (Does not apply to shares held in broker "street name"
accounts.) The Trust accepts telephone requests for redemption of
[uncertificated] shares for amounts up to $50,000 within any 7 calendar day
period, except for investors who have specifically declined telephone redemption
privileges on the Account Application or elected in writing not to utilize
telephone redemptions. The proceeds of a telephone redemption
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will be sent to the record shareholder at his record address. Changes in
account information must be made in written authorization with a signature
guarantee. See "Signature Guarantee" under "General." Telephone redemptions
will not be accepted during the 30-day period following any change in an
account's record address.
By completing an Account Application, an investor agrees that the
Trust, the Distributor and the Transfer Agent shall not be liable for any loss
incurred by the investor by reason of the Trust accepting unauthorized telephone
redemption requests for his account if the Trust reasonably believes the
instructions to be genuine. Thus, shareholders risk possible losses in the
event of a telephone redemption not authorized by them. The Trust may accept
telephone redemption instructions from any person identifying himself as the
owner of an account or the owner's broker where the owner has not declined in
writing to utilize this service. The Trust will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine, and may be
liable for any losses due to unauthorized or fraudulent instructions if it fails
to employ such procedures. The Trust will require a form of personal
identification prior to acting on a caller's telephone instructions, will
provide written confirmation of such transactions and will record telephone
instructions.
A shareholder making a telephone redemption should call the Transfer
Agent at [800-852-8457] and state (i) the name of the shareholder as it appears
on the Transfer Agent's records, (ii) his account number with the Trust, (iii)
the amount to be withdrawn and (iv) the name of the person requesting the
redemption. Usually the proceeds are sent to the investor on the next Trust
business day after the redemption is effected, provided the redemption request
is received prior to the close of regular trading on the New York Stock Exchange
(normally 4:00 p.m. Eastern time) that day. If the redemption request is
received after the closing of the Exchange, the redemption is effected on the
following Trust business day at that day's net asset value and the proceeds are
usually sent to the investor on the second following Trust business day. The
Trust reserves the right to terminate or modify the telephone redemption service
at any time. During times of severe disruptions in the securities markets, the
value of calls may make it difficult to redeem by telephone, in which case a
shareholder may wish to send a written request for redemption as described under
"Written Requests" above. Telephone communications may be recorded by the
Distributor of the Transfer Agent.
Fund Link Redemptions (Does not apply to shares held in broker "street name"
accounts.) If a shareholder has established Fund Link, the shareholder may
redeem shares by telephone and have the redemption proceeds sent to a designated
account at a financial institution. Fund Link is normally established within 45
days of receipt of the Application by the Transfer Agent. To use Fund Link for
redemptions, call the Transfer Agent at [800-852-8457.] Subject to the
limitations set forth above under "Telephone Redemptions," the Distributor, the
Trust and the Transfer Agent may rely on instructions by any registered owner
believed to be genuine and will not be responsible to any shareholder for any
loss, damage or expense arising out of such instructions. Requests received by
the Transfer Agent prior to the close of regular trading on the New York Stock
Exchange (normally 4:00 p.m. Eastern time) on a business day will be processed
at the net asset value on that day and the proceeds (less any CDSC) will
normally be sent to the designated bank account on the following business day
and received by the bank on the second or third business day. If the redemption
request is received after the close of regular trading on the Exchange, the
redemption is effected on the following business day. Shares purchased by check
may not be redeemed through Fund Link until such shares have been owned (i.e.,
paid for) for at least 15 days. [Fund Link may not be used to redeem shares held
in certificated form.] Changes in bank account information must be made by
completing a new Fund Link Application, signed by all owners of record of the
account, with all signatures guaranteed. See "Signature Guarantee" under
"General." See "PIMCO Advisors Fund Link" under "How to Buy Shares" for
information on establishing the Fund Link privilege. The trust may terminate
the Fund Link program at any time without notice to shareholders.
Expedited Wire Transfer Redemptions (Does not apply to shares held in broker
"street name" accounts.) If a shareholder has given authorization for expedited
wire redemption, shares can be redeemed and the proceeds sent by federal write
transfer to a single previously designated bank account. Requests received by
the Trust prior to the close of the Exchange will result in shares being
redeemed that day at the next determined net asset value (less any CDSC) and
normally the proceeds being sent to the designated bank account the following
business day. The bank must be a member of the Federal Reserve wire system.
Delivery of the proceeds of a wire redemption request may be delayed by the
Trust for up to 7 days if the Distributor deems it appropriate under then
current market conditions. Once authorization is on file, the Trust will honor
requests by any person identifying himself as the owner of an account or the
owner's broker by telephone at [800-0852-8457] or by written instructions. The
Trust cannot be responsible for the efficiency of the Federal Reserve wire
system or the shareholder's bank. The
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Trust does not currently charge for wire transfers. The shareholder is
responsible for any charges imposed by the shareholder's bank. The minimum
amount that may be wired is $2,500. The Trust reserves the right to change this
minimum or to terminate the wire redemption privilege. Shares purchased by
check may not be redeemed by wire transfer until such shares have been owned
(i.e., paid for) for at least 15 days. Expedited wire transfer redemptions may
be authorized by completing a form available from the Distributor. Wire
redemptions may not be used to redeem shares in certificated form. To change
the name of the single bank account designated to receive wire redemption
proceeds, it is necessary to send a written request with signatures guaranteed
to PIMCO Advisors Distribution Company, [P.O. Box 5866, Denver, CO 80217-5866.]
See "Signature Guarantee" under "General."
[Certificated Shares To redeem shares for which certificates have been issued,
the certificates must be mailed to or deposited with the Trust, duly endorsed or
accompanied by a duly endorsed or accompanied by a duly endorsed stock power or
by a written request for redemption. Signatures must be guaranteed as described
under "Signature Guarantee." Further documentation may be requested from
institutions or fiduciary accounts, such as corporations, custodians (e.g.,
under the Uniform Gifts to Minors Act), executors, administrators, trustees or
guardians ("institutional account owners"). The redemption request and stock
power must be signed exactly as the account is registered, including indication
of any special capacity of the registered owner.]
Automatic Withdrawal Plan
An investor who owns or buys shares of a fund having a net asset value
of $10,000 or more may open an Automatic Withdrawal plan and have a designated
sum of money (not less than $100 per Fund) paid monthly (or quarterly) to the
investor or another person. Such a plan may be established by obtaining an
Automatic Withdrawal Plan Application from the Distributor or your broker. If
an Automatic Withdrawal Plan is set up after the account is established
providing for payment to a person other than the record shareholder or to an
address other than the address of record, a signature guarantee is required.
See "Signature Guarantee" under "General." Shares of each class of any fund
are deposited in a Plan account and all distributions are reinvested in
additional shares of that class of Fund at the net asset value. Shares in a
Plan account are then redeemed at net asset value (less any applicable CDSC) to
make each withdrawal payment. Any applicable CDSC may be waived for certain
redemptions under an Automatic Withdrawal Plan. See "Waiver of Contingent
Deferred Sales Charges" under "Alternative Purchase Arrangements" above.
Redemptions for the purpose of withdrawals are ordinarily made on the
business day preceding the day of payment at that day's closing net asset value
and checks are mailed on the day of payment selected by the shareholder. The
Transfer Agent may accelerate the redemption and check mailing date by one day
to avoid weekend delays. Payment will be made to any person the investor
designates; however, if the shares are registered in the name of a trustee or
other fiduciary, payment will be made only to the fiduciary, except in the case
of a profit-sharing or pension plan where payment will be made to the designee.
As withdrawal payments may include a return of principal, they cannot be
considered a guaranteed annuity or actual yield of income to the investor. The
redemption of shares in connection with an Automatic Withdrawal Plan may result
in a gain or loss for tax purposes. Continued withdrawals in excess of income
will reduce and possibly exhaust invested principal, especially in the event of
a market decline. The maintenance of an Automatic Withdrawal Plan concurrently
with purchases of additional shares of the Fund would be disadvantageous to the
investor because of the CDSC that may become payable on such withdrawals in the
case of Class A, Class B or Class C shares and because of the initial sales
charge in the case of Class A shares. For this reason, the minimum investment
accepted for a Fund while an Automatic Withdrawal Plan is in effect for that
Fund is $1,000, and an investor may not maintain a plan for the accumulation of
shares of the Fund (other than through reinvestment of distributions) and an
Automatic Withdrawal Plan at the same time. The cost of administering the
Automatic Withdrawal Plans for the benefit of those shareholders participating
in them is borne by the Trust as an expense of all shareholders. The Trust or
the Distributor may terminate or change the terms of the Automatic Withdrawal
Plan at any time.
Because the Automatic Withdrawal Plan may involve invasion of capital,
investors should consider carefully with their own financial advisers whether
the plan and the specified amounts to be withdrawn are appropriate in their
circumstances. The Trust and the Distributor make no recommendations or
representations in this regard.
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<PAGE>
PORTFOLIO TRANSACTIONS
Pursuant to the advisory contract, the Adviser places orders for the
purchase and sale of portfolio investments for the Funds' accounts with brokers
or dealers selected by it in its discretion. In effecting purchases and sales
of portfolio securities for the account of the Funds, the Adviser will seek the
best price and execution of the Funds' orders. In doing so, a Fund may pay
higher commission rates than the lowest available when the Adviser believes it
is reasonable to do so in light of the value of the brokerage and research
services provided by the broker effecting the transaction. The Adviser also may
consider sales of shares of the Trust as a factor in the selection of broker-
dealers to execute portfolio transactions for the Trust.
The Adviser manages the Funds without regard generally to restrictions
on portfolio turnover, except those imposed on its ability to engage in short-
term trading by provisions of the federal tax laws. The use of futures
contracts and other derivative instruments with relatively short maturities may
tend to exaggerate the portfolio turnover rate for some of the Funds. Trading
in fixed income securities does not generally involve the payment of brokerage
commissions, but does involve indirect transaction costs. The use of futures
contracts may involve the payment of commissions to futures commission
merchants. The higher the rate of portfolio turnover of a Fund, the higher all
these transaction costs borne by the Fund generally will be.
Some securities considered for investment by the Funds may also be
appropriate for other clients served by the Adviser. If a purchase or sale of
securities consistent with the investment policies of a Fund and one or more of
these clients served by the Adviser is considered at or about the same time,
transactions in such securities will be allocated among the Fund and clients in
a manner deemed fair and reasonable by the Adviser.
NET ASSET VALUE
The net asset value per share of each class of each Fund is determined
as of the close of trading on the New York Stock Exchange (currently 4:00 p.m.,
Eastern time) by dividing the total market value of a Fund's portfolio
investments and other assets attributable to that class, less any liabilities,
by the number of total outstanding shares of that class. Net asset value will
not be determined on days on which the New York Stock Exchange is closed.
The Money Market Fund's securities are normally valued using the
amortized cost method of valuation. This involves valuing a security at cost on
the date of acquisition and thereafter assuming a constant accretion of a
discount or amortization of a premium to maturity. See the PIMS Statement of
Additional Information for a description of certain conditions and procedures
followed by the Money Market Fund in connection with amortized cost valuation.
For all other Funds, portfolio securities and other assets for which market
quotations are readily available are stated at market value. Market value is
determined on the basis of last reported sales prices, or if no sales are
reported, as is the case for most securities traded over-the-counter, at the
mean between representative bid and asked quotations obtained from a quotation
reporting system or from established market makers. Fixed income securities,
including those to be purchased under firm commitment agreements (other than
obligations having a maturity of 60 days or less), are normally valued on the
basis of quotations obtained from brokers and dealers or pricing services, which
take into account appropriate factors such as institutional-sized trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data.
Quotations of foreign securities in foreign currency are converted to
U.S. dollar equivalents using foreign exchange quotations received from
independent dealers. Short-term investments having a maturity of 60 days or
less are valued at amortized cost, when the Board of Trustees determines that
amortized cost is their fair value. Certain fixed income securities for which
daily market quotations are not readily available may be valued, pursuant to
guidelines established by the Board of Trustees, with reference to fixed income
securities whose prices are more readily obtainable and whose durations are
comparable to the securities being valued. Subject to the foregoing, other
securities for which market quotations are not readily available are valued at
fair value as determined in good faith by the Board of Trustees.
DIVIDENDS, DISTRIBUTIONS AND TAXES
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Shares begin earning dividends on the effective date of purchase,
provided notification deadlines are met. See "How to Buy Shares." Dividends are
declared daily from net investment income to shareholders of record at the close
of the previous business day, and distributed to shareholders monthly. Any net
realized capital gains from the sale of portfolio securities will be distributed
no less frequently than once yearly. Dividend and capital gain distributions of
a Fund will be reinvested in additional shares of that Fund unless the
shareholder elects to have them paid in cash. Dividends from net investment
income with respect to Class B and C shares are expected to be lower than those
paid with respect to Class A shares, reflecting the payment of distribution fees
by those classes.
Shareholders may elect to invest dividends and/or distributions paid
by any Fund in shares of the same class of any other Fund of the Trust at net
asset value. The shareholder must have an account existing in the Fund selected
for investment with the identical registered name and address and must elect
this option on a form provided for that purpose or by a telephone request to the
Transfer Agent at [800-426-0107]. For further information on this option,
contact your broker or call the Distributor at [800-426-0107].
Each Fund intends to qualify as a regulated investment company
annually and to elect to be treated as a regulated investment company under the
Internal Revenue Code of 1986, as amended. As such, a Fund generally will not
pay federal income tax on the income and gains it pays as dividends to its
shareholders. In order to avoid a 4% federal excise tax, each Fund intends to
distribute each year substantially all of its net income and gains.
Distributions received by tax-exempt shareholders will not be subject
to federal income tax to the extent permitted under applicable tax law. To the
extent that a shareholder is not exempt from tax on Fund distributions, such
shareholder will be subject to tax on dividends received from a Fund, regardless
of whether received in cash or reinvested in additional shares. All
shareholders must treat dividends, other than capital gain dividends or
dividends that represent a return of capital to shareholders, as ordinary
income. Dividends designated by a Fund as capital gain dividends are taxable to
shareholders as long-term capital gain except as provided by an applicable tax
exemption. Any distributions that are not from a Fund's net investment income
or net capital gain may be characterized as a return of capital to shareholders
or, in some cases, as capital gain. Certain dividends declared in October,
November or December of a calendar year are taxable to shareholders (who
otherwise are subject to tax on dividends) as though received on December 31 of
that year if paid to shareholders during January of the following calendar year.
For state income tax purposes, interest on some Federal obligations generally is
not exempt from taxation, whether received directly by a shareholder or through
distributions of investment company taxable income (for example, interest on
FNMA and GNMA Certificates). Each Fund will advise shareholders annually of the
amount and nature of the dividends paid to them.
Taxable shareholders should note that the timing of their investment
could have undesirable tax consequences. If shares are purchased on or just
before the day the Fund declares a dividend, taxable shareholders will pay full
price for the shares and may receive a portion of their investment back as a
taxable distribution.
The preceding discussion relates only to federal income tax; the
consequences under other tax laws may differ. For additional information
relating to the tax aspects of investing in a Fund, see the PIMS Statement of
Additional Information.
OTHER INFORMATION
Capitalization
The Trust was organized as a Massachusetts business trust on February
19, 1987. The Board of Trustees may establish additional portfolios in the
future. The capitalization of the Trust consists solely of an unlimited number
of shares of beneficial interest with a par value of $0.0001 each. When issued,
shares of the Trust are fully paid, non-assessable and freely transferable.
Under Massachusetts law, shareholders could, under certain
circumstances, be held personally liable for the obligations of the Trust.
However, the Declaration of Trust disclaims liability of the shareholders,
Trustees or officers of the Trust for acts or obligations of the Trust, which
are binding only on the assets and property of the Trust, and requires that
notice of the disclaimer be given in each contract or obligation entered into or
executed by
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the Trust or the Trustees. The Declaration of Trust provides for indemnification
out of Trust property for all loss and expense of any shareholder held
personally liable for the obligations of the Trust. The risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Trust itself would be unable to meet its obligations,
and thus should be considered remote.
Voting
Shareholders have the right to vote on the election of Trustees and on
any and all matters on which the law or the Declaration of Trust states they may
be entitled to vote. The Trust is not required to hold regular annual meetings
of Trust shareholders and does not intend to do so. Shareholders of a class of
shares have separate voting rights with respect to matters that only affect that
class. See "Other Information -- Voting Rights"' in the PIMS Statement of
Additional Information.
The Declaration of Trust provides that the holders of not less than
two-thirds of the outstanding shares of the Trust may remove a person serving as
Trustee either by declaration in writing or at a meeting called for such
purpose. The Trustees are required to call a meeting for the purpose of
considering the removal of a person 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.
Performance Information
The Trust may, from time to time, include the yield and total return
for each class of shares of its Funds in advertisements or reports to
shareholders or prospective investors. Yield quotations for the Money Market
Fund may include current yield and effective yield. Current yield will be based
on income received by a hypothetical investment over a given seven-day period
(less expenses accrued during the period) and "annualized" (i.e., assuming that
the seven-day yield would be received for 52 weeks, stated in terms of an annual
percentage return on the investment). Effective yield for the Fund is calculated
in the manner similar to that used to calculate current yield, but reflects the
compounding effect on earnings of reinvested dividends. For the remaining
Funds, quotations of yield for a Fund or class will be based on the investment
income per share (as defined by the SEC) during a particular 30-day (or one-
month) period (including dividends and interest), less expenses accrued during
the period ("net investment income"), and will be computed by dividing net
investment income by the maximum public offering price per share on the last day
of the period. Quotations of average annual total return for a Fund or class
will be expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the Fund or class over periods of one, five and ten
years (up to the life of the Fund), reflect the deduction of a proportional
share of Fund or class expenses (on an annual basis), and assume that all
dividends and distributions are reinvested when paid.
The Trust also may provide current distribution information to its
shareholders in shareholder reports or other shareholder communications, or in
certain types of sales literature provided to prospective investors. Current
distribution information for a particular class of a Fund will be based on
distributions for a specified period (i.e., total dividends from net investment
income), divided by the relevant class net asset value per share on the last day
of the period and annualized. The rate of current distributions does not
reflect deductions for unrealized losses from transactions in derivative
instruments such as options and futures, which may reduce total return. Current
distribution rates differ from standardized yield rates in that they represent
what a class of a Fund has declared and paid to shareholders as of the end of a
specified period rather than the Fund's actual net investment income for that
period.
Performance information for the Trust may also be compared to various
unmanaged indices, such as the Lehman Brothers Aggregate Bond Index, the Merrill
Lynch 1 to 3 Year Treasury Index, the Lehman Intermediate and 20+ Year Treasury
Blend Index, the Lehman BB Intermediate Corporate Index, indexes prepared by
Lipper Analytical Services, the J.P. Morgan Global Index, the Salomon Brothers
World Government Bond Index-10 Non U.S.-Dollar Hedged and the J.P. Morgan
Government Bond Index Non U.S.-Dollar Hedged, and other entities or
organizations which track the performance of investment companies or investment
advisers. Unmanaged indexes (i.e., other than Lipper) generally do not reflect
deductions for administrative and management costs and expenses. PIMCO may also
report to shareholders or to the public in advertisements concerning the
performance
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of PIMCO as adviser to clients other than the Trust, and on the comparative
performance or standing of PIMCO in relation to other money managers. Such
comparative information may be compiled or provided by independent ratings
services or by news organizations. Any performance information, whether related
to the Funds or to the Adviser, should be considered in light of a Fund's
investment objectives and policies, characteristics and quality of the
portfolio, and the market conditions during the time period indicated, and
should not be considered to be representative of what may be achieved in the
future. For a description of the methods used to determine yield and total
return for the Funds, see the PIMS Statement of Additional Information.
Investment results of the Funds will fluctuate over time, and any
presentation of the Funds' total return or yield for any prior period should not
be considered as a representation of what an investor's total return or yield
may be in any future period. The Trust's Annual Report contains additional
performance information for the Funds and is available upon request, without
charge, by calling (800) 927-4648 (Current Shareholders), or (800) 800-0952 (New
Accounts).
DESCRIPTION OF DURATION
Duration is a measure of the expected life of a fixed income security
that was developed as a more precise alternative to the concept of "term to
maturity". Traditionally, a fixed income security's "term to maturity" has been
used as a proxy for the sensitivity of the security's price to changes in
interest rates (which is the "interest rate risk" or "volatility" of the
security). However, "term to maturity" measures only the time until a fixed
income security provides its final payment, taking no account of the pattern of
the security's payments prior to maturity. In contrast, duration incorporates a
bond's yield, coupon interest payments, final maturity and call features into
one measure. Duration management is one of the fundamental tools used by the
Adviser.
Duration is a measure of the expected life of a fixed income security
on a present value basis. Duration takes the length of the time intervals
between the present time and the time that the interest and principal payments
are scheduled or, in the case of a callable bond, expected to be received, and
weights them by the present values of the cash to be received at each future
point in time. For any fixed income security with interest payments occurring
prior to the payment of principal, duration is always less than maturity. In
general, all other things being equal, the lower the stated or coupon rate of
interest of a fixed income security, the longer the duration of the security;
conversely, the higher the stated or coupon rate of interest of a fixed income
security, the shorter the duration of the security.
Futures, options and options on futures have durations which, in
general, are closely related to the duration of the securities which underlie
them. Holding long futures or call option positions (backed by a segregated
account of cash and cash equivalents) will lengthen a Fund's duration by
approximately the same amount that holding an equivalent amount of the
underlying securities would.
Short futures or put option positions have durations roughly equal to
the negative duration of the securities that underlie these positions, and have
the effect of reducing portfolio duration by approximately the same amount that
selling an equivalent amount of the underlying securities would.
There are some situations where even the standard duration calculation
does not properly reflect the interest rate exposure of a security. For
example, floating and variable rate securities often have final maturities of
ten or more years; however, their interest rate exposure corresponds to the
frequency of the coupon reset. Another example where the interest rate exposure
is not properly captured by duration is the case of mortgage pass-through
securities. The stated final maturity of such securities is generally 30 years,
but current prepayment rates are more critical in determining the securities'
interest rate exposure. Finally, the duration of a fixed income security may
vary over time in response to changes in interest rates and other market
factors. In these and other similar situations, the Adviser will use more
sophisticated analytical techniques that incorporate the anticipated economic
life of a security into the determination of its interest rate exposure.
DESCRIPTION OF SECURITIES RATINGS
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Certain of the Funds make use of average portfolio credit quality
standards to assist institutional investors whose own investment guidelines
limit their investments accordingly. In determining a Fund's overall dollar-
weighted average quality, unrated securities are treated as if rated, based on
the Adviser's view of their comparability to rated securities. A Fund's use of
average quality criteria is intended to be a guide for those institutional
investors whose investment guidelines require that assets be invested according
to comparable criteria. Reference to an overall average quality rating for a
Fund does not mean that all securities held by the Fund will be rated in that
category or higher. A Fund's investments may range in quality from securities
rated in the lowest category in which the Fund is permitted to invest to
securities rated in the highest category (as rated by Moody's or S&P or, if
unrated, determined by the Adviser to be of comparable quality). The percentage
of a Fund's assets invested in securities in a particular rating category will
vary. Following is a description of Moody's and S&P's ratings applicable to
fixed income securities.
Moody's Investors Service, Inc.
Corporate and Municipal Bond Ratings
Aaa: Bonds which are 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 edge". 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 which are 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 that make the long-term risks appear somewhat larger than with Aaa
securities.
A: Bonds which are 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 that suggest a susceptibility to impairment sometime in the
future.
Baa: Bonds which are 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 which are 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 which are rated B generally lack characteristics of a
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa: Bonds which are 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.
Moody's applies numerical modifiers, 1, 2, and 3 in each generic
rating classified 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
B-40
<PAGE>
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.
Corporate Short-Term Debt Ratings
Moody's short-term debt ratings are opinions of the ability of issuers
to repay punctually senior debt obligations which have an original maturity not
exceeding one year. Obligations relying upon support mechanisms such as letters
of credit and bonds of indemnity are excluded unless explicitly rated.
Moody's employs the following three designations, all judged to be
investment grade, to indicate the relative repayment ability of rated issuers:
PRIME-1: Issuers rated Prime-1 (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with
moderate reliance on debt and ample asset protection; broad margins in earnings
coverage of fixed financial charges and high internal cash generation; and well-
established access to a range of financial markets and assured sources of
alternate liquidity.
PRIME-2: Issuers rated Prime-2 (or supporting institutions) have a
strong ability for repayment of senior short-term debt 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, may be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
PRIME-3: Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligations. The effect
of industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.
NOT PRIME: Issuers rated Not Prime do not fall within any of the Prime
rating categories.
Standard & Poor's
Corporate and Municipal Bond Ratings
Investment Grade
AAA: Debt rated AAA has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A: Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB: Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions, or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
Speculative Grade
B-41
<PAGE>
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly
speculative characteristics with respect to capacity to pay interest and repay
principal. BB indicates the least degree of speculation and C the highest.
While such debt will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major exposures to adverse
conditions.
BB: Debt rated BB has less near-term vulnerability to default than
other speculative issues. However, it faces 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. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB- rating.
B: Debt rated B has a greater vulnerability to default but currently
has 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. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to
default and is 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, it is not likely to
have the capacity to pay interest and repay principal. The CCC rating category
is also used for debt subordinated to senior debt that is assigned an actual or
implied B or B- rating.
CC: The rating CC is typically applied to debt subordinated to senior
debt that is assigned an actual or implied CCC rating.
C: The rating C is typically applied to debt subordinated to senior
debt that 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.
C1: The rating C1 is reserved for income bonds on which no interest is
being paid.
D: Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating will also 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
rating 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 of, or the risk of default upon failure of, such completion. The
investor should exercise his own judgment with respect to such likelihood and
risk.
r: The "r" is attached to highlight derivative, hybrid, and certain
other obligations that S&P believes may experience high volatility or high
variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities.
The absence of an "r" symbol should not be taken as an indication that
an obligation will exhibit no volatility or variability in total return.
N.R.: Not rated.
B-42
<PAGE>
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.
Commercial Paper Rating Definitions
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 several categories, ranging from A for
the highest quality obligations to D for the lowest. These categories are as
follows:
A-1: This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to possess
extremely strong safety characteristics are denoted with a plus sign (+)
designation.
A-2: Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
A-3: Issues carrying this designation have adequate capacity for
timely payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B: Issues rated B are regarded as having only speculative capacity for
timely payment.
C: This rating is assigned to short-term debt obligations with a
doubtful capacity for payment.
D: Debt rated D is in payment default. The D rating category is used
when interest payments or principal payments are not made on the date due, even
if the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period.
A commercial paper rating is not a recommendation to purchase, sell or
hold a security inasmuch as it does not comment as to market price or
suitability for a particular investor. The ratings are based on current
information furnished to Standard & Poor's by the issuer or obtained from other
sources it considers reliable. Standard & Poor's does not perform an audit in
connection with any rating and may, on occasion, rely on unaudited financial
information. The ratings may be changed, suspended, or withdrawn as a result of
changes in or unavailability of such information.
B-43
<PAGE>
APPENDIX C - INFORMATION FROM ANNUAL REPORT
INVESTMENT PERFORMANCE
[The following table was represented as a line graph in the printed matter.]
================================================================================
Total Return Fund Through March 31, 1996
================================================================================
<TABLE>
<CAPTION>
MONTH TOTAL RETURN LBAG
========== ============== =============
<S> <C> <C>
05/31/87 1,000,000.00 1,000,000.00
12/31/87 1,030,745.18 1,043,430.28
12/31/88 1,127,426.29 1,125,714.10
12/31/89 1,288,016.57 1,289,275.51
12/31/90 1,391,670.78 1,404,797.46
12/31/91 1,663,829.39 1,629,609.19
12/31/92 1,825,855.68 1,750,227.21
12/31/93 2,054,300.21 1,920,864.71
12/31/94 1,980,883.43 1,864,840.30
12/31/95 2,372,627.60 2,209,361.20
03/31/96 2,315,678.28 2,170,163.07
</TABLE>
The line graph depicts the value of $1,000,000 invested at the inception of the
Fund's Institutional Class in May 1987 and held through March 1996, compared to
the Lehman Brothers Aggregate Bond Index, an unmanaged market index. The
performance of the Administrative Class from inception in September 1994 (shown
at right), reflects the payment of a service fee in an amount not to exceed
0.25% on an annualized basis.
<TABLE>
<CAPTION>
Annualized Returns Ended 3/31/96
- -----------------------------------------------------
Since
1 Yr 3 Yr 5 Yr Inception
<S> <C> <C> <C> <C>
Total Return Fund
Int'l Class (%) 11.14 6.59 9.92 9.96
Lehman Aggregate
Index (%) 10.79 5.99 8.49 9.16
- -----------------------------------------------------
Admin. Class (%) 10.99 n/a n/a 10.67
Lehman Aggregate
Index (%) 10.79 n/a n/a 10.91
- -----------------------------------------------------
</TABLE>
. An above-index duration for most of the year led to strong relative and
absolute performance through the final three quarters of 1995, but detracted
from returns in the first quarter of 1996.
. Foreign bond holdings averaging 15% to 20% were strong contributors to
performance as hedged German and Finnish bonds posted strong returns amid low
inflation and stagnant growth in core Europe.
. Small dollar-denominated Mexican and Argentine bond positions boosted returns
when prices rallied in response to credible growth and inflation policies.
. Corporate holdings, particularly below investment grade, outperformed other
sectors and benefited returns with higher yields and stable spreads. These
benefits were limited in the latter half of the year as longer maturity
corporates were pared in anticipation of widening spreads.
. Fixed-rate mortgage positions lagged as rising prepayments offset their
higher yields through the first nine months, followed by duration extension
and lower prices in early 1996.
C-1
<PAGE>
[The following table was represented as a line graph in the printed matter.]
================================================================================
Low Duration Fund Through March 31, 1996
================================================================================
<TABLE>
<CAPTION>
MONTH LOW DURATION MERRILL 1-3
========= ============ ============
<S> <C> <C>
05/31/87 1,000,000.00 1,000,000.00
12/31/87 1,044,478.09 1,047,984.76
12/31/88 1,130,408.56 1,113,174.49
12/31/89 1,261,510.71 1,234,771.63
12/31/90 1,375,736.40 1,354,820.12
12/31/91 1,560,925.88 1,513,055.27
12/31/92 1,680,926.86 1,608,398.67
12/31/93 1,811,369.22 1,695,419.33
12/31/94 1,822,760.28 1,705,049.92
12/31/95 2,040,217.87 1,892,602.79
03/31/96 2,041,263.49 1,898,924.61
</TABLE>
The line graph depicts the value of $1,000,000 invested at the inception of the
Fund's Institutional Class in May 1987 and held through March 1996, compared to
the Merrill Lynch 1-3 Year Treasury Index, an unmanaged market index. The
performance of the Administrative Class from inception in January 1995 (shown at
right), reflects the payment of a service fee in an amount not to exceed 0.25%
on an annualized basis.
<TABLE>
<CAPTION>
Annualized Returns Ended 3/31/96
- -----------------------------------------------------
Since
1 Yr 3 Yr 5 Yr Inception
<S> <C> <C> <C> <C>
Low Duration Fund
Inst'l Class (%) 9.13 5.76 7.66 8.41
Merrill Lynch 1-3
Yr Tsy Index (%) 7.75 4.92 6.52 7.52
- -----------------------------------------------------
Admin. Class (%) 8.83 n/a n/a 9.16
Merrill Lynch 1-3
Yr Tsy Index (%) 7.75 n/a n/a 9.00
- -----------------------------------------------------
</TABLE>
. An above-index duration led to strong relative performance through the final
three quarters of 1995, but detracted slightly in the first quarter of 1996.
. A broad maturity mix had a small positive impact on returns as
intermediate-term rates fell dramatically.
. Corporate holdings particularly below investment grade, outperformed other
sectors and benefited returns with higher yields and stable spreads.
. Small dollar-denominated Mexican bond positions boosted performance when
prices rallied in response to credible growth and inflation policies.
. Fixed-rate mortgage positions lagged as rising prepayments offset their
higher yields.
C-2
<PAGE>
INVESTMENT PERFORMANCE (Cont.)
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE GRAPH IN THE PRINTED MATTER]
================================================================================
High Yield Fund Through March 31, 1996
================================================================================
<TABLE>
LEHMAN BB
MONTH HIGH YIELD INT CORP
========= ============ ============
<S> <C> <C>
12/31/92 1,000,000.00 1,000,000.00
12/31/93 1,187,025.82 1,146,545.45
12/31/94 1,215,478.79 1,156,314.50
12/31/95 1,466,840.41 1,376,719.76
03/31/96 1,480,400.02 1,386,737.39
</TABLE>
The line graph depicts the value of $1,000,000 invested at the inception of the
Fund's Institutional Class in December 1992 and held through March 1996,
compared to the Lehman Brothers BB Intermediate Corporate Index, an unmanaged
market index. The performance of the Administrative Class from inception in
January 1995 (shown at right), reflects the payment of a service fee in an
amount not to exceed 0.25% on an annualized basis.
<TABLE>
<CAPTION>
Annualized Returns Ended 3/31/96
- -----------------------------------------------------
Since
1 Yr 3 Yr 5 Yr Inception
<S> <C> <C> <C> <C>
High Yield Fund
Inst'l Class (%) 15.70 11.68 n/a 12.89
Lehman BB Int.
Corp. Index (%) 13.48 9.79 n/a 10.59
- -----------------------------------------------------
Admin. Class (%) 15.54 n/a n/a 17.27
Lehman BB Int.
Corp. Index (%) 13.48 n/a n/a 15.30
- -----------------------------------------------------
</TABLE>
. A focus on BBB- and BB-rated non-cyclical credits benefited performance in
mid-1995 when investors became concerned about an economic slowdown.
. Maintaining this defensive strategy into 1996 detracted from returns as
lower-quality cyclical bonds outperformed on renewed optimism of economic
strength.
. Duration and maturity mix were held neutral to the index and had little
impact on relative return.
. Small holdings of dollar-denominated Mexican bonds aided performance as they
outperformed most high yield sectors during the period.
. Emphasizing the media/telecommunications and healthcare industries boosted
overall return due to improved cash flow ratios.
C-3
<PAGE>
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE GRAPH IN THE PRINTED MATTER]
================================================================================
Money Market Fund Through March 31, 1996
================================================================================
<TABLE>
<CAPTION>
LIPPER
MONTH MONEY MARKET MONEY MARKET
========= ============ ============
<S> <C> <C>
02/28/91 1,000,000.00 1,000,000.00
12/31/91 1,047,059.10 1,046,651.18
12/31/92 1,083,083.32 1,082,903.94
12/31/93 1,113,416.25 1,112,174.01
12/31/94 1,157,083.08 1,153,681.32
12/31/95 1,227,235.03 1,215,744.16
03/31/96 1,243,447.46 1,230,619.38
</TABLE>
The line graph depicts the value of $1,000,000 invested at the inception of the
Fund's Institutional Class in March 1991 and held through March 1996, compared
to the Lipper Money Market Index, an index consisting of the 30 largest equal
weighted Money Market Funds. The performance of the Administrative Class, from
inception in January 1995 (shown at right), reflects the payment of a service
fee in an amount not to exceed 0.25% on an annualized basis. Effective November
1, 1995, the Fund changed its index from the Salomon Three Month T-Bill to the
Lipper Money Market Index. Management of the Fund believes the Lipper Money
Market Index is more consistent with the Fund's investment objectives.
<TABLE>
<CAPTION>
Annualized Returns Ended 3/31/96
- -----------------------------------------------------
Since
1 Yr 3 Yr 5 Yr Inception
<S> <C> <C> <C> <C>
Money Market
Fund
Inst'l Class (%) 5.97 4.47 4.35 4.37
Lipper Money
Market Index (%) 5.25 4.12 4.13 4.16
- -----------------------------------------------------
Admin Class (%) 5.71 n/a n/a 5.66
Lipper Money
Market Index (%) 5.25 n/a n/a 5.28
- -----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Cumulative Returns Ended 3/31/96
- -----------------------------------------------------
5 Mo. (a)
<S> <C>
Money Market
Fund
Inst'l Class (%) 2.58
Lipper Money
Market Index (%) 1.96
- -----------------------------------------------------
Admin Class (%) 2.47
Lipper Money
Market Index (%) 1.96
- -----------------------------------------------------
</TABLE>
(a) Cumulative returns presented to reflect reorganization of the Fund,
effective November 1, 1995.
. High-grade, short-term corporate bonds offered higher yields than three-month
treasury bills, benefiting relative performance.
. Commercial paper offered by finance and utility companies boosted returns as
yields were consistently higher throughout the year.
. Maturity was held between two and three months for most of the year. This was
neutral for performance early in the period but added value when the yield
curve steepened in late 1995 and early 1996.
. Three Fed Funds reductions totaling 0.75% pushed money market yields lower
during the period.
14
C-4
<PAGE>
[Outside Back Cover]
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
OVERVIEW................................................................ -4-
Proposed Transactions............................................. -4-
Operating Expenses................................................ -6-
Examples.......................................................... -12-
Federal Income Tax Consequences................................... -15-
Comparison of Investment Objectives, Policies and Restrictions.... -15-
Comparison of Distribution Policies and Purchase, Exchange and
Redemption Procedures......................................... -21-
RISK FACTORS............................................................ -22-
SPECIAL MEETING OF SHAREHOLDERS......................................... -26-
PROPOSALS 1, 2, 3, 4 and 5:
APPROVAL OR DISAPPROVAL OF AGREEMENT AND PLAN OF
REORGANIZATION.................................................... -26-
Background and Reasons for the Proposed Mergers................... -27-
Information About the Mergers..................................... -29-
INFORMATION ABOUT THE ACQUIRING FUNDS................................... -42-
INFORMATION ABOUT THE ACQUIRED FUNDS.................................... -42-
VOTING INFORMATION...................................................... -42-
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION.............................. A-1
APPENDIX B
INFORMATION ABOUT THE ACQUIRING FUNDS............................. B-1
APPENDIX C
INFORMATION FROM ANNUAL REPORT.................................... C-1
</TABLE>
<PAGE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR THE PROPOSAL.
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the Meeting. The Trustees recommend a vote FOR the
proposal.
Proposal to approve the merger of the [ ] FOR [ ] AGAINST [ ] ABSTAIN
Fund named on the reverse side of this
card, as described in the Prospectus/Proxy
Statement and the relevant Agreement
and Plan of Reorganization.
PLEASE SIGN ON THE REVERSE SIDE AND RETURN
PROMPTLY IN THE ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
____________ FUND PROXY SOLICITED BY THE BOARD OF TRUSTEES
A SERIES OF _______________
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS -- DECEMBER ___, 1996
The undersigned hereby appoints Robert A. Prindiville, Stephen J. Treadway and
Newton B. Schott, Jr., and each of them, proxies, with power of substitution to
each, and hereby authorizes them to represent and to vote, as designated below,
at the Special Meeting of Shareholders of the Fund indicated above, a series of
the Trust indicated above, on December ___, 1996 at _____ Eastern time, and at
any adjournments thereof, all of the shares of the Fund which the undersigned
would be entitled to vote if personally present.
NOTE: Please sign exactly as your name
appears on this card. All joint owners
should sign. When signing as executor,
administrator, attorney, trustee or
guardian or as custodian for a minor,
please give full title as such. If a
corporation, please sign in full corporate
name and indicate the signer's office. If
a partner, sign in the partnership name.
Signature(s):
------------------------------------------
------------------------------------------
Date
------------------------------------------
<PAGE>
PIMCO FUNDS: PACIFIC INVESTMENT MANAGEMENT SERIES
High Yield Fund
Total Return Fund
Low Duration Fund
Money Market Fund
FORM N-14
PART B
STATEMENT OF ADDITIONAL INFORMATION
October __, 1996
This Statement of Additional Information relates to the proposed mergers
(the "Mergers") of the High Income Fund, a series of PIMCO Advisors Funds, a
Massachusetts business trust (the "PAF Trust"), into the High Yield Fund, a
series of PIMCO Funds: Pacific Investment Management Series, a Massachusetts
business trust (the "PIMS Trust"); the Total Return Income Fund, a series of the
PAF Trust, into the Total Return Fund, a series of the PIMS Trust; the Short-
Intermediate Fund, a series of the PAF Trust, into the Low Duration Fund, a
series of the PIMS Trust; the U.S. Government Fund, a series of the PAF Trust,
into the Total Return Fund, a series of PIMS Trust; and the Money Market Fund, a
series of the PAF Trust, into the Money Market Fund, a series of the PIMS Trust.
Each series listed above of the PAF Trust is an "Acquired Fund," and each series
of the PIMS Trust is an "Acquiring Fund."
This Statement of Additional Information contains information which may be
of interest to shareholders but which is not included in the Prospectus/Proxy
Statement dated October __, 1996 (the "Prospectus/Proxy Statement") of the PIMS
Trust which relates to the Mergers. As described in the Prospectus/Proxy
Statement, the Mergers would involve the transfer of all the assets of each
Acquired Fund in exchange for shares of the corresponding Acquiring Fund and the
assumption of all the liabilities of the Acquired Fund. Each Acquired Fund
would distribute the Acquiring Fund shares it receives to its shareholders in
complete liquidation of the Acquired Fund.
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus/Proxy Statement. The Prospectus/Proxy
Statement has been filed with the Securities and Exchange Commission and is
available upon request and without charge by writing PIMCO Funds: Pacific
Investment Management Series, 840 Newport Center Drive, Suite 360, Newport
Beach, CA 92660, or by calling (800) 927-4648.
1
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Item Page
- ------ ----
<C> <S> <C>
I. Additional Information about Acquiring and Acquired Funds..
II. Financial Statements.......................................
1. Incorporation by Reference ...........................
--------------------------
2. Unaudited Pro Forma Combined Financial Statements ....
-------------------------------------------------
</TABLE>
<PAGE>
I. Additional Information about Acquiring and Acquired Funds.
This Statement of Additional Information is accompanied by (i) the
current Prospectus and Statement of Additional Information of the PIMS Trust,
each dated June 15, 1996, which provide further information relating to the
Acquiring Funds, and (ii) the current Prospectus, dated February 1, 1996, as
supplemented September 26, 1996 and Statement of Additional Information, dated
July 12, 1996, of the PAF Trust, which provide further information relating to
the Acquired Funds. Each of the documents listed in (i) and (ii) has been filed
with the Securities and Exchange Commission and is incorporated herein by
reference.
The PIMS Trust currently offers Institutional Class shares and
Administrative Class shares of the Acquiring Funds to certain types of
institutional investors and high net-worth individuals through its current
Prospectus and Statement of Additional Information. The PAF Trust currently
offers Class A, Class B and Class C shares of the Acquired Funds to the general
public through its current Prospectus and Statement of Additional Information.
On or about the effective date of the Mergers, the Acquiring Funds will begin
offering Class A, Class B and Class C shares (in addition to Institutional Class
shares and Administrative Class shares) with substantially the same
characteristics (including dividend, voting and redemption rights) and
arrangements for distribution, purchases, redemptions and exchanges as are
currently in effect for the PAF Trust's Class A, Class B and Class C shares.
Accordingly, in addition to the Prospectus/Proxy Statement, shareholders should
consult "How to Buy Shares," "Alternative Purchase Arrangements," "Exchange
Privilege," "How to Redeem," "How Net Asset Value is Determined" and
"Description of the Trust" in the PAF Trust's current Prospectus and "Exchange
Privilege," "How to Redeem," "How Net Asset Value is Determined" and
"Organization and Capitalization of the Trust" in the PAF Trust's current
Statement of Additional Information for further information applicable to Class
A, Class B and Class C shares of the Acquiring Funds that will be issued to
Acquired Fund shareholders in connection with the Mergers.
The following documents, which have previously been filed with the Securities
and Exchange Commission, have been incorporated by reference into Part A of this
Registration Statement:
(1) PIMCO Advisors Funds Prospectus dated February 1, 1996 (filed on
February 7, 1996 pursuant to Rule 497 under the Securities Act of 1933)
(Registration Nos. 2-87203 and 811-3881)
(2) PIMCO Advisors Funds Prospectus Supplement dated September 27, 1996 (filed
on September 27, 1996 pursuant to Rule 497 under the Securities Act of
1933)
(Registration Nos. 2-87203 and 811-3881)
(3) PIMCO Advisors Funds Statement of Additional Information dated
July 12, 1996 (filed on July 16, 1996 pursuant to Rule 497 under the
Securities Act of 1933)
(Registration Nos. 2-87203 and 811-3881)
(4) PIMCO Funds: Pacific Investment Management Series Prospectus dated
June 15, 1996 (filed on June 14, 1996 as part of Post-Effective Amendment
No. 29 to Registration Statement on Form N-1A)
(Registration Nos. 33-12113 and 811-05028)
(5) PIMCO Funds: Pacific Investment Management Series Prospectus Supplement
dated September 3, 1996 (filed pursuant to Rule 497 under the Securities
Act of 1933 on September 3, 1996)
(Registration Nos. 33-12113 and 811-05028)
(6) PIMCO Funds: Pacific Investment Management Series Statement of Additional
Information dated June 15, 1996 (filed on June 14, 1996 as part of Post-
Effective Amendment No. 29 to Registration Statement on Form N-1A)
(Registration Nos. 33-12113 and 811-05028)
(7) PIMCO Advisors Funds Semi-Annual Report dated March 31, 1996 (filed on
May 30, 1996)
(Registration Nos. 2-87203 and 811-3881)
(8) PIMCO Funds: Pacific Investment Management Series Annual Report dated
March 31, 1996 (filed on June 5, 1996)
(Registration Nos. 33-12113 and 811-05028)
II. Financial Statements.
1. Incorporation by Reference. This Statement of Additional
--------------------------
Information is accompanied by the PIMS Trust's Annual Report for the fiscal year
ended March 31, 1996 and the PAF Trust's Semi-Annual Report for the six-month
period ended March 31, 1996 which contain historical financial information
regarding the Acquiring Funds and the Acquired Funds, respectively. Such reports
have been filed with the Securities and Exchange Commission and are incorporated
herein by reference. The PAF Trust's Current Statement of Additional Information
includes financial statements for the Acquired Funds from the PAF Trust's Annual
Report for the fiscal year ended September 30, 1995.
2. Unaudited Pro Forma Combined Financial Statements. Unaudited pro
-------------------------------------------------
forma financial statements for the PIMS Trust's High Yield Fund and Money
Market Fund, relating to the Mergers of such Funds, are set forth below. Because
the assets of the PAF Trust's Total Return Income Fund, U.S. Government Fund and
Short-Intermediate Fund each represent less than ten percent of the Assets of
their respective Acquiring Funds, pro forma financial statements for these Funds
are not provided. The following pro forma combined financial statements for the
Acquiring Funds should be read in conjunction with the separate financial
statements of the Acquired and Acquiring Fund referred to in the preceding
paragraph.
<PAGE>
March 31, 1996
PRO FORMA COMBINED STATEMENTS OF ASSETS AND LIABILITIES (unaudited)
All numbers are in thousands (except per share amounts)
<TABLE>
<CAPTION>
PIMCO Funds: PIMCO
Pacific Investment Advisors Funds
Management Series PIMS
High Yield
Fund
High Yield High Income Pro Forma Pro Forma
Fund Fund Adjustments Combined
--------- ---------- ----------- ----------
Assets:
<S> <C> <C> <C> <C>
Investments, at value $522,453 $ 206,131 $ -- $ 728,584
Cash, receivables and other assets 19,646 11,301 -- 30,947
-------- --------- -------- ---------
Total assets 542,099 217,432 -- 759,531
-------- --------- -------- ---------
Liabilities:
Total liabilities 4,109 2,162 124(2) 6,395
-------- --------- ---------- ---------
Net Assets: $537,990 $ 215,270 $ (124) $ 753,136
======== ========= ========= =========
Cost of investments owned $514,138 $ 199,746 $ -- $ 713,884
======== ========= ========= =========
Net Assets Consist of:
Paid in capital $525,389 $ 322,233 $ (124) $ 847,498
Undistributed
net investment income 3,604 70 -- 3,674
Accumulated undistributed net realized gain (loss ) 682 (113,418) -- (112,736)
Net unrealized appreciation 8,315 6,385 -- 14,700
-------- --------- --------- ---------
Net assets $537,990 $ 215,270 $ (124) $ 753,136
======== ========= ========= =========
Shares Issued and Outstanding:
PIMCO Funds
-----------
Institutional class 49,062 -- -- 49,062
Administrative class 92 -- -- 92
Class A -- -- 2,395 2,395
Class B -- -- 2,158 2,158
Class C -- -- 22,592 22,592
PIMCO Advisors Funds
---------------------
Institutional class -- -- -- --
Administrative class -- -- -- --
Class A -- 2,395 (2,395) --
Class B -- 2,158 (2,158) --
Class C -- 22,592 (22,592) --
Net Asset Value Per Share (1):
PIMCO Funds
-----------
Institutional class $ 10.94 $ -- $ -- $ 10.94
Administrative class $ 10.94 $ -- $ -- $ 10.94
Class A (1) $ -- $ -- $ 7.98 $ 7.98
Class B $ -- $ -- $ 7.97 $ 7.97
Class C $ -- $ -- $ 7.92 $ 7.92
PIMCO Advisors Funds
---------------------
Institutional class $ -- $ -- $ -- $ --
Administrative class $ -- $ -- $ -- $ --
Class A (1) $ -- $ 7.98 $ (7.98) $ --
Class B $ -- $ 7.97 $ (7.97) $ --
Class C $ -- $ 7.92 $ (7.92) $ --
</TABLE>
(1) All per share amounts represent Net Asset Value per share. Maximum
offering price of $8.38 per share for Class A shares reflects the 4.75%
sales commission charged up front as set forth in the prospectus.
(2) In connection with the reorganization, the combined Portfolio will incur
non-recurring reorganization costs of approximately $124,000 or $0.00
per share.
See Notes to Pro Forma combined financial statements.
<PAGE>
For the 12 months ended March 31, 1996
PRO FORMA COMBINED STATEMENTS OF OPERATIONS (unaudited)
All numbers are in thousands
<TABLE>
<CAPTION>
PIMCO Funds: PIMCO
Pacific Investment Advisors Funds
Management Series PIMS
High Yield Fund
High Yield High Income Pro Forma Pro Forma
Fund Fund Adjusments Combined
------------ ------------ ------------ ------------
Investment income:
<S> <C> <C> <C> <C>
Dividends, interest, and other $ 44,945 $ 17,270 $ -- $ 62,215
------------ ------------ ------------ ------------
Expenses:
Investment advisory fees 1,187 1,057 (648) 1,596
Administrative fees 842 -- 1,019 1,861
Service fees
-- Administrative Class 1 -- -- 1
-- Class A -- 23 -- 23
--Class B -- 14 -- 14
--Class C -- 403 -- 403
Distribution fees
-- Class B -- 42 -- 42
--Class C -- 1,209 -- 1,209
Transfer agent and custody fees 62 237 (299) --
Professional fees 23 95 (118) --
Shareholder reports and notices 48 150 (198) --
Trustees' fees 3 48 -- 51
Other 16 46 (62) --
------------ ------------ ------------ ------------
2,182 3,324 (306) 5,200
Custodian earnings and brokerage credits (10) -- -- (10)
------------ ------------ ------------ ------------
Net expenses 2,172 3,324 (306) 5,190
------------ ------------ ------------ ------------
Net investment income 42,773 13,946 306 57,025
------------ ------------ ------------ ------------
Realized and unrealized gain on
security transactions:
Net realized gain on security transactions 9,316 5,028 -- 14,344
Net unrealized gain on security transactions 11,913 3,150 -- 15,063
------------ ------------ ------------ ------------
Net gain on security transactions 21,229 8,178 -- 29,407
------------ ------------ ------------ ------------
Net increase in net assets
resulting from operations $ 64,002 $ 22,124 $ 306 $ 86,432
============ ============ ============ ============
</TABLE>
See Notes to Pro Forma combined financial statements.
<PAGE>
- --------------------------------------------------------------------------------
PRO FORMA COMBINED SCHEDULES OF INVESTMENTS (Unaudited)
- --------------------------------------------------------------------------------
March 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PIMCO
PIMCO High Advisors High Pro Forma
Yield Income Combined
--------------------------------------------
Principal Amount (000's)
--------------------------------------------
<S> <C> <C> <C>
CORPORATE BONDS AND NOTES
Banking and Finance
Cobb Theaters Finance Corp.
10.625% due 03/01/03 $ 0 $ 1,000 $ 1,000
Coleman Holdings
0.000% due 05/27/98 (a) 10,000 3,500 13,500
Navistar Financial
8.875% due 11/15/98 4,500 1,500 6,000
Phoenix RE Corp.
9.750% due 08/15/03 6,550 2,000 8,550
Reliance Financial Services
9.000% due 11/15/00 6,000 2,500 8,500
10.360% due 12/01/00 (b) 1,000 -- 1,000
Trizec Finance
10.875% due 10/15/05 6,500 2,750 9,250
UCC Investors
10.500% due 05/01/02 1,500 1,500 3,000
Industrials
Abbey Healthcare Group
9.500% due 11/01/02 7,470 2,750 10,220
Albritton Communications
9.750% due 11/30/07 4,000 1,500 5,500
American Airlines
10.610% due 03/04/10 650 -- 650
American Standard, Inc.
11.375% due 05/15/04 -- 2,500 2,500
Amerigas Partners L.P.
10.125% due 04/15/07 4,750 1,750 6,500
Ametek, Inc.
9.750% due 03/15/04 6,000 2,000 8,000
Atlas Air, Inc.
12.250% due 12/01/02 4,500 1,500 6,000
Bally's Grand
10.375% due 12/15/03 5,800 3,250 9,050
Benedek Broadcasting
11.875% due 03/01/05 5,500 2,000 7,500
Boyd Gaming Corp.
10.750% due 09/01/03 4,000 1,000 5,000
PIMCO % Combined
PIMCO High Advisors High Pro Forma Value of Net
Yield Income Combined Assets
-------------------------------------------- ------------
Value (000's)
--------------------------------------------
<S> <C> <C> <C> <C>
CORPORATE BONDS AND NOTES
Banking and Finance
Cobb Theaters Finance Corp
10.625% due 03/01/03 $ 0 $ 1,020 $ 1,020 0.1%
Coleman Holdings
0.000% due 05/27/98 (a) 8,300 2,905 11,205 1.5%
Navistar Financial
8.875% due 11/15/98 4,523 1,500 6,023 0.8%
Phoenix RE Corp.
9.750% due 08/15/03 7,009 2,130 9,139 1.2%
Reliance Financial Service
9.000% due 11/15/00 6,090 2,538 8,628 1.1%
10.360% due 12/01/00 (b) 1,013 -- 1,013 0.1%
Trizec Finance
10.875% due 10/15/05 6,630 2,805 9,435 1.3%
UCC Investors
10.500% due 05/01/02 1,575 1,582 3,157 0.5%
35,140 14,480 49,620 6.6%
Industrials
Abbey Healthcare Group
9.500% due 11/01/02 7,900 2,905 10,805 1.4%
Albritton Communications
9.750% due 11/30/07 3,810 1,432 5,242 0.7%
American Airlines
10.610% due 03/04/10 779 -- 779 0.1%
American Standard, Inc.
11.375% due 05/15/04 -- 2,725 2,725 0.4%
Amerigas Partners L.P.
10.125% due 04/15/07 5,035 1,846 6,881 0.9%
Ametek, Inc.
9.750% due 03/15/04 6,398 2,133 8,531 1.1%
Atlas Air, Inc.
12.250% due 12/01/02 4,815 1,598 6,413 0.9%
Bally's Grand
10.375% due 12/15/03 6,025 3,376 9,401 1.2%
Benedek Broadcasting
11.875% due 03/01/05 5,855 2,110 7,965 1.1%
Boyd Gaming Corp.
10.750% due 09/01/03 4,240 1,058 5,298 0.7%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRO FORMA COMBINED SCHEDULES OF INVESTMENTS (Unaudited)
- --------------------------------------------------------------------------------
March 31, 1996
- --------------------------------------------------------------------------------
PIMCO
PIMCO High Advisors High Pro Forma
Yield Income Combined
--------------------------------------------------------------
Principal Amount (000's)
--------------------------------------------------------------
<S> <C> <C> <C>
Buckeye Cellulose Corp.
8.500% due 12/15/05 2,500 500 3,000
Building Materials Corp.
0.000% due 07/01/04 (a) 15,570 4,930 20,500
Cablevision Systems
10.750% due 04/01/04 1,640 2,400 4,040
9.875% due 02/15/13 2,000 - 2,000
9.875% due 04/01/23 3,000 1,000 4,000
Century Communication
11.875% due 10/15/03 5,500 2,750 8,250
CF Cable TV, Inc.
9.125% due 07/15/07 7,000 2,000 9,000
Continental Cablevision
8.300% due 05/15/06 - 1,000 1,000
11.000% due 06/01/07 5,810 2,500 8,310
9.500% due 08/01/13 3,625 - 3,625
Cumberland Farms
10.500% due 10/01/03 3,500 500 4,000
Delta Air Lines
10.790% due 03/26/14 2,264 - 2,264
Doane Products Co.
10.625% due 03/01/06 1,000 500 1,500
Doskocil Companies, Inc.
9.750% due 07/15/00 3,250 2,000 5,250
Exide Corp.
0.000% due 12/15/04 (a) 6,250 2,850 9,100
Ferrell Gas
10.000% due 08/01/01 5,350 3,000 8,350
Figgie International, Inc.
9.875% due 10/01/99 4,740 2,500 7,240
G-I Holdings, Inc.
0.000% due 10/01/98 (a) 430 - 430
Genesis Health Ventures
9.750% due 06/15/05 5,000 2,000 7,000
Granite Broadcasting Corp.
10.375% due 05/15/05 3,750 1,500 5,250
Gulf Canada Resources
9.250% due 01/15/04 8,750 3,575 12,325
J.Q. Hammons Hotels
8.875% due 02/15/04 7,000 3,500 10,500
Healthsouth Rehabilitation
PIMCO % Combined
PIMCO High Advisors High Pro Forma Value of Net
Yield Income Combined Assets
------------------------------------------------------------ ------------
Value (000's)
------------------------------------------------------------
<S> <C> <C> <C> <C>
Buckeye Cellulose Corp.
8.500% due 12/15/05 2,475 495 2,970 0.4%
Building Materials Corp.
0.000% due 07/01/04 (a) 11,600 3,648 15,248 2.0%
Cablevision Systems
10.750% due 04/01/04 1,734 2,532 4,266 0.6%
9.875% due 02/15/13 2,090 - 2,090 0.3%
9.875% due 04/01/23 3,098 1,030 4,128 0.5%
Century Communication
11.875% due 10/15/03 5,899 2,943 8,842 1.2%
CF Cable TV, Inc.
9.125% due 07/15/07 7,018 2,030 9,048 1.2%
Continental Cablevision
8.300% due 05/15/06 - 1,033 1,033 0.1%
11.000% due 06/01/07 6,638 2,850 9,488 1.3%
9.500% due 08/01/13 4,087 - 4,087 0.5%
Cumberland Farms
10.500% due 10/01/03 3,338 484 3,822 0.5%
Delta Air Lines
10.790% due 03/26/14 2,721 - 2,721 0.4%
Doane Products Co.
10.625% due 03/01/06 1,025 513 1,538 0.2%
Doskocil Companies, Inc.
9.750% due 07/15/00 3,396 2,080 5,476 0.7%
Exide Corp.
0.000% due 12/15/04 (a) 5,313 2,280 7,593 1.0%
Ferrell Gas
10.000% due 08/01/01 5,725 3,195 8,920 1.2%
Figgie International, Inc.
9.875% due 10/01/99 4,835 2,550 7,385 1.0%
G-I Holdings, Inc.
0.000% due 10/01/98 (a) 344 - 344 0.0%
Genesis Health Ventures
9.750% due 06/15/05 5,225 2,080 7,305 1.0%
Granite Broadcasting Corp.
10.375% due 05/15/05 3,811 1,517 5,328 0.7%
Gulf Canada Resources
9.250% due 01/15/04 8,936 3,629 12,565 1.7%
J.Q. Hammons Hotels
8.875% due 02/15/04 6,808 3,360 10,168 1.3%
Healthsouth Rehabilitation
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRO FORMA COMBINED SCHEDULES OF INVESTMENTS (Unaudited)
- --------------------------------------------------------------------------------
March 31, 1996
- --------------------------------------------------------------------------------
PIMCO
PIMCO High Advisors High Pro Forma
Yield Income Combined
-------------------------------------------------------------
Principal Amount (000's)
-------------------------------------------------------------
<S> <C> <C> <C>
9.500% due 04/01/01 - 1,500 1,500
HMH Properties
9.500% due 05/15/05 5,000 1,000 6,000
Hollinger International Publishing
9.250% due 02/01/06 5,500 1,500 7,000
Infinity Broadcasting
10.375% due 03/15/02 4,500 1,500 6,000
Jorgensen, Earle M. Co.
10.750% due 03/01/00 6,050 2,000 8,050
K-III Communications Co.
8.500% due 02/01/06 8,500 2,500 11,000
Lenfest Communications
8.375% due 11/01/05 7,500 2,150 9,650
Mobilemedia Communications Corp.
9.375% due 11/01/07 4,000 1,500 5,500
Nuevo Energy Co.
12.500% due 06/15/02 5,454 1,750 7,204
Owens Illinois
10.500% due 06/15/02 2,000 - 2,000
11.000% due 12/01/03 6,000 3,000 9,000
Pacific Lumber
10.500% due 03/01/03 3,500 1,000 4,500
Paging Network
8.875% due 02/01/06 - 1,000 1,000
10.125% due 08/01/07 6,500 1,000 7,500
Pathmark Stores, Inc.
9.625% due 05/01/03 6,500 2,500 9,000
0.000% due 11/01/03 (a) 1,500 1,000 2,500
Repap Wisconsin, Inc.
9.250% due 02/01/02 6,750 3,000 9,750
Revlon Consumer Products Corp.
9.500% due 06/01/99 6,000 1,500 7,500
10.500% due 02/15/03 2,000 - 2,000
RJR Nabisco
8.000% due 07/15/01 2,000 - 2,000
8.625% due 12/01/02 5,500 - 5,500
Rogers Cablesystems, Inc.
10.000% due 03/15/05 5,500 2,000 7,500
Rogers Cantel Mobile
10.750% due 11/01/01 6,180 2,750 8,930
11.125% due 07/15/02 2,000 - 2,000
<CAPTION>
PIMCO % Combined
PIMCO High Advisors High Pro Forma Value of Net
Yield Income Combined Assets
------------------------------------------------------------ ------------
Value (000's)
------------------------------------------------------------
<S> <C> <C> <C> <C>
9.500% due 04/01/01 - 1,575 1,575 0.2%
HMH Properties
9.500% due 05/15/05 4,888 975 5,863 0.8%
Hollinger International Publishing
9.250% due 02/01/06 5,418 1,478 6,896 0.9%
Infinity Broadcasting
10.375% due 03/15/02 4,838 1,613 6,451 0.9%
Jorgensen, Earle M. Co.
10.750% due 03/01/00 5,974 1,965 7,939 1.1%
K-III Communications Co.
8.500% due 02/01/06 8,245 2,403 10,648 1.4%
Lenfest Communications
8.375% due 11/01/05 7,238 2,053 9,291 1.2%
Mobilemedia Communications Corp.
9.375% due 11/01/07 3,930 1,470 5,400 0.7%
Nuevo Energy Co.
12.500% due 06/15/02 5,877 1,881 7,758 1.0%
Owens Illinois
10.500% due 06/15/02 2,095 - 2,095 0.3%
11.000% due 12/01/03 6,585 3,315 9,900 1.3%
Pacific Lumber
10.500% due 03/01/03 3,360 970 4,330 0.6%
Paging Network
8.875% due 02/01/06 - 980 980 0.1%
10.125% due 08/01/07 6,833 1,050 7,883 1.0%
Pathmark Stores, Inc.
9.625% due 05/01/03 6,143 2,356 8,499 1.1%
0.000% due 11/01/03 (a) 908 605 1,513 0.2%
Repap Wisconsin, Inc.
9.250% due 02/01/02 6,480 2,873 9,353 1.2%
Revlon Consumer Products Corp.
9.500% due 06/01/99 6,090 1,515 7,605 1.0%
10.500% due 02/15/03 2,030 - 2,030 0.3%
RJR Nabisco
8.000% due 07/15/01 1,965 - 1,965 0.3%
8.625% due 12/01/02 5,472 - 5,472 0.7%
Rogers Cablesystems, Inc.
10.000% due 03/15/05 5,734 2,080 7,814 1.0%
Rogers Cantel Mobile
10.750% due 11/01/01 6,474 2,874 9,348 1.2%
11.125% due 07/15/02 2,138 - 2,138 0.3%
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
PRO FORMA COMBINED SCHEDULES OF INVESTMENTS (Unaudited)
- --------------------------------------------------------------------------------
March 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PIMCO
PIMCO High Advisors High Pro Forma
Yield Income Combined
----------------------------------------------------------------------------------
Principal Amount (000's)
---------------------------------------------------------------------------------
<S> <C> <C> <C>
SCI Television
11.000% due 06/30/05 7,675 3,100 10,775
Sequa Corp.
10.000% due 05/14/01 1,500 2,500 4,000
10.150% due 05/15/01 3,500 - 3,500
Showboat, Inc.
9.250% due 05/01/08 5,900 2,050 7,950
Sinclair Broadcasting Group, Inc.
10.000% due 09/30/05 - 500 500
Stone Consolidated
10.250% due 12/15/00 2,250 1,750 4,000
Stone Container Corp.
11.500% due 10/01/04 - 2,000 2,000
Sweetheart Cup Co.
9.625% due 09/01/00 6,000 3,250 9,250
Teekay Shipping Corp.
8.320% due 02/01/08 3,500 1,750 5,250
Telewest Communications
9.625% due 10/01/06 7,500 3,500 11,000
Tenet Healthcare
10.125% due 03/01/05 4,800 1,500 6,300
Unisys Corp.
12.000% due 04/15/03 4,000 1,500 5,500
West Point Stevens
8.750% due 12/15/01 5,000 2,000 7,000
World Color Press, Inc.
9.125% due 03/15/03 9,085 4,000 13,085
Young Broadcasting, Inc.
9.000% due 01/15/06 5,000 2,000 7,000
Utilities
AES Corp.
9.750% due 06/15/00 6,285 3,500 9,785
California Energy
9.875% due 06/30/03 3,000 2,000 5,000
0.000% due 01/15/04 (a) 10,240 4,650 14,890
CMS Energy
9.875% due 10/01/99 (b) 4,950 - 4,950
CTC Mansfield Funding
11.125% due 09/30/16 7,000 3,000 10,000
El Paso Electric Co.
PIMCO % Combined
PIMCO High Advisors High Pro Forma Value of Net
Yield Income Combined Assets
----------------------------------------------------- ----------------
Value (000's)
-----------------------------------------------------
<S> <C> <C> <C> <C>
SCI Television
11.000% due 06/30/05 8,068 3,247 11,315 1.5%
Sequa Corp.
10.000% due 05/14/01 1,507 2,511 4,018 0.5%
10.150% due 05/15/01 3,536 - 3,536 0.5%
Showboat, Inc.
9.250% due 05/01/08 6,033 2,091 8,124 1.1%
Sinclair Broadcasting Group, Inc.
10.000% due 09/30/05 - 498 498 0.1%
Stone Consolidated
10.250% due 12/15/00 2,374 1,838 4,212 0.6%
Stone Container Corp.
11.500% due 10/01/04 - 1,965 1,965 0.3%
Sweetheart Cup Co.
9.625% due 09/01/00 6,150 3,315 9,465 1.3%
Teekay Shipping Corp.
8.320% due 02/01/08 3,408 1,704 5,112 0.7%
Telewest Communications
9.625% due 10/01/06 7,500 3,491 10,991 1.5%
Tenet Healthcare
10.125% due 03/01/05 5,172 1,604 6,776 0.9%
Unisys Corp.
12.000% due 04/15/03 3,949 1,480 5,429 0.7%
West Point Stevens
8.750% due 12/15/01 4,994 1,994 6,988 0.9%
World Color Press, Inc.
9.125% due 03/15/03 9,210 4,039 13,249 1.8%
Young Broadcasting, Inc.
9.000% due 01/15/06 4,775 1,909 6,684 0.8%
316,364 123,149 439,513 58.3%
Utilities
AES Corp.
9.750% due 06/15/00 6,458 3,596 10,054 1.3%
California Energy
9.875% due 06/30/03 3,120 2,070 5,190 0.7%
0.000% due 01/15/04 (a) 9,805 4,418 14,223 1.9%
CMS Energy
9.875% due 10/01/99 (b) 5,173 - 5,173 0.7%
CTC Mansfield Funding
11.125% due 09/30/16 7,309 3,126 10,435 1.4%
El Paso Electric Co.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
PRO FORMA COMBINED SCHEDULES OF INVESTMENTS (Unaudited)
- --------------------------------------------------------------------------------
March 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PIMCO
PIMCO High Advisors High Pro Forma
Yield Income Combined
---------------------------------------------------
Principal Amount (000's)
---------------------------------------------------
<S> <C> <C> <C>
8.900% due 02/01/06 3,500 1,500 5,000
First PV Funding
10.150% due 01/15/16 - 2,000 2,000
Long Island Lighting Co.
7.050% due 03/15/03 2,500 - 2,500
7.125% due 06/01/05 - 3,000 3,000
8.200% due 03/15/23 4,500 - 4,500
Niagara Mohawk Power
9.500% due 03/01/21 2,000 500 2,500
7.875% due 04/01/24 5,500 2,000 7,500
North Atlantic Energy
9.050% due 06/01/02 5,750 1,736 7,486
Triton Energy
0.000% due 11/01/97 6,950 4,000 10,950
Wilmington Trust Co. - Tucson Electric
10.211% due 01/01/09 500 - 500
10.732% due 01/01/13 6,993 - 6,993
Total Corporate Bonds and Notes
(Cost $411,358, $158,447 and $569,805,
respectively)
U.S. TREASURY OBLIGATIONS
U.S. Treasury Note
5.000% due 1/31/98 - 4,000 4,000
Total U.S. Treasury Obligations
(Cost $0, $3,942 and $3,942,
respectively)
MORTGAGE-BACKED SECURITIES
Collateralized Mortgage Obligations
Asset Securitization Corp.
7.384% due 08/13/29 - 1,500 1,500
Federal National Mortgage Assn.
8.099% due 05/25/28 (b) 2,835 1,000 3,835
Lennar Central Partners L.P.
9.890% due 09/15/04 1,000 - 1,000
LTC
9.200% due 08/04/23 1,877 1,000 2,877
Manufacturers Hanover Corp.
5.807% due 12/16/25 (b) 980 - 980
9.400% due 12/16/25 (b) 4,361 - 4,361
Red Mountain Funding Corp.
9.150% due 11/28/27 4,227 1,500 5,727
</TABLE>
<TABLE>
<CAPTION>
PIMCO % Combined
PIMCO High Advisors High Pro Forma Value of Net
Yield Income Combined Assets
--------------------------------------------------- ------------
Value (000's)
---------------------------------------------------
<S> <C> <C> <C> <C>
8.900% due 02/01/06 3,561 1,526 5,087 0.7%
First PV Funding
10.150% due 01/15/16 - 2,090 2,090 0.3%
Long Island Lighting Co.
7.050% due 03/15/03 2,354 - 2,354 0.3%
7.125% due 06/01/05 - 2,756 2,756 0.4%
8.200% due 03/15/23 4,134 - 4,134 0.5%
Niagara Mohawk Power
9.500% due 03/01/21 1,893 472 2,365 0.3%
7.875% due 04/01/24 4,704 1,696 6,400 0.8%
North Atlantic Energy
9.050% due 06/01/02 5,725 1,724 7,449 1.0%
Triton Energy
0.000% due 11/01/97 6,151 3,540 9,691 1.3%
Wilmington Trust Co. - Tucson Electric
10.211% due 01/01/09 481 - 481 0.1%
10.732% due 01/01/13 6,720 - 6,720 0.9%
67,588 27,014 94,602 12.6%
Total Corporate Bonds and Notes
(Cost $411,358, $158,447 and $569,805,
respectively) 419,092 164,643 583,735 77.5%
U.S. TREASURY OBLIGATIONS
U.S. Treasury Note
5.000% due 1/31/98 - 3,950 3,950 0.5%
Total U.S. Treasury Obligations
(Cost $0, $3,942 and $3,942,
respectively) - 3,950 3,950 0.5%
MORTGAGE-BACKED SECURITIES
Collateralized Mortgage Obligations
Asset Securitization Corp.
7.384% due 08/13/29 - 1,418 1,418 0.2%
Federal National Mortgage Assn.
8.099% due 05/25/28 (b) 1,905 673 2,578 0.3%
Lennar Central Partners L.P.
9.890% due 09/15/04 1,006 - 1,006 0.1%
LTC
9.200% due 08/04/23 1,971 1,052 3,023 0.4%
Manufacturers Hanover Corp.
5.807% due 12/16/25 (b) 979 - 979 0.1%
9.400% due 12/16/25 (b) 4,208 - 4,208 0.6%
Red Mountain Funding Corp.
9.150% due 11/28/27 3,805 1,350 5,155 0.7%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PRO FORMA COMBINED SCHEDULES OF INVESTMENTS (Unaudited)
- --------------------------------------------------------------------------------
March 31, 1996
- --------------------------------------------------------------------------------
PIMCO
PIMCO High Advisors High Pro Forma
Yield Income Combined
--------------------------------------------------------------------
Principal Amount (000's)
--------------------------------------------------------------------
<S> <C> <C> <C>
Resolution Trust Corp.
7.260% due 09/25/20 (b) 1,092 429 1,521
9.250% due 06/25/23 3,562 - 3,562
9.050% due 08/25/23 - 1,172 1,172
9.500% due 05/25/24 171 - 171
8.500% due 03/25/25 272 - 272
Other Mortgage-Backed Securities
Kearny St. Real Estate Co.
9.400% due 10/15/05 5,000 - 5,000
MBLAC - NY REO Associates L.P.
10.375% due 02/01/98 (b) 2,577 1,312 3,889
Resolution Trust Corp.
8.000% due 06/25/26 12,332 4,342 16,674
6.900% due 02/25/27 5,272 1,729 7,001
Structured Asset Securities Corp.
7.050% due 11/25/02 4,000 - 4,000
Stripped Mortgage-Backed Securities
Federal National Mortgage Assn. (IO)
6.000% due 07/25/05 5,500 - 5,500
7.000% due 07/25/08 8,061 4,031 12,092
6.500% due 06/25/17 5,000 - 5,000
Fund America (IO)
9.590% due 10/20/21 2,536 - 2,536
Prudential Home (IO)
0.251% due 05/25/24 117,689 - 117,689
Total Mortgage-Backed Securities
(Cost $48,888, $13,235 and $62,123, respectively)
ASSET-BACKED SECURITIES
Airplanes Pass Through Trust
10.875% due 03/15/19 2,500 2,000 4,500
Total Asset-Backed Securities
(Cost $2,500, $2,000 and $4,500, respectively)
SOVEREIGN ISSUES
First Mexican Acceptance Corp.
<CAPTION>
PIMCO
PIMCO High Advisors High Pro Forma
Yield Income Combined
--------------------------------------------------------------------
Value (000's)
--------------------------------------------------------------------
<S> <C> <C> <C>
Resolution Trust Corp.
7.260% due 09/25/20 (b) 720 283 1,003
9.250% due 06/25/23 3,613 - 3,613
9.050% due 08/25/23 - 1,210 1,210
9.500% due 05/25/24 166 - 166
8.500% due 03/25/25 268 - 268
18,641 5,986 24,627
Other Mortgage-Backed Securities
Kearny St. Real Estate Co.
9.400% due 10/15/05 4,993 - 4,993
MBLAC - NY REO Associates L.P.
10.375% due 02/01/98 (b) 2,578 1,312 3,890
Resolution Trust Corp.
8.000% due 06/25/26 10,540 3,706 14,246
6.900% due 02/25/27 4,626 1,516 6,142
Structured Asset Securities Corp.
7.050% due 11/25/02 3,197 - 3,197
25,934 6,534 32,468
Stripped Mortgage-Backed Securities
Federal National Mortgage Assn. (IO)
6.000% due 07/25/05 525 - 525
7.000% due 07/25/08 1,212 577 1,789
6.500% due 06/25/17 568 - 568
Fund America (IO)
9.590% due 10/20/21 684 - 684
Prudential Home (IO)
0.251% due 05/25/24 1,097 - 1,097
4,086 577 4,663
Total Mortgage-Backed Securities
(Cost $48,888, $13,235 and $62,123,
respectively) 48,661 13,097 61,758
ASSET-BACKED SECURITIES
Airplanes Pass Through Trust
10.875% due 03/15/19 2,495 1,996 4,491
Total Asset-Backed Securities
(Cost $2,500, $2,000 and $4,500,
respectively) 2,495 1,996 4,491
SOVEREIGN ISSUES
First Mexican Acceptance Corp.
<CAPTION>
% Combined
Value of Net
Assets
------------
<S> <C>
Resolution Trust Corp.
7.260% due 09/25/20 (b) 0.1%
9.250% due 06/25/23 0.5%
9.050% due 08/25/23 0.3%
9.500% due 05/25/24 0.0%
8.500% due 03/25/25 0.0%
3.3%
Other Mortgage-Backed Securities
Kearny St. Real Estate Co.
9.400% due 10/15/05 0.7%
MBLAC - NY REO Associates L.P.
10.375% due 02/01/98 (b) 0.5%
Resolution Trust Corp.
8.000% due 06/25/26 1.9%
6.900% due 02/25/27 0.8%
Structured Asset Securities Corp.
7.050% due 11/25/02 0.4%
4.3%
Stripped Mortgage-Backed Securities
Federal National Mortgage Assn. (IO)
6.000% due 07/25/05 0.1%
7.000% due 07/25/08 0.2%
6.500% due 06/25/17 0.1%
Fund America (IO)
9.590% due 10/20/21 0.1%
Prudential Home (IO)
0.251% due 05/25/24 0.1%
0.6%
Total Mortgage-Backed Securities
(Cost $48,888, $13,235 and $62,123, respectively) 8.2%
ASSET-BACKED SECURITIES
Airplanes Pass Through Trust
10.875% due 03/15/19 0.6%
Total Asset-Backed Securities
(Cost $2,500, $2,000 and $4,500, respectively) 0.6%
SOVEREIGN ISSUES
First Mexican Acceptance Corp.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
PRO FORMA COMBINED SCHEDULES OF INVESTMENTS (Unaudited)
- --------------------------------------------------------------------------------
March 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PIMCO
PIMCO High Advisors High Pro Forma
Yield Income Combined
-------------------------------------------------------------------
Principal Amount (000's)
-------------------------------------------------------------------
<S> <C> <C> <C>
8.750% due 09/15/96 1,000 - 1,000
Republic of Argentina
6.313% due 03/31/05 (b) 14,603 7,673 22,276
5.000% due 03/31/23 (b) 8,000 1,000 9,000
Third Mexican Acceptance Corp.
7.370% due 03/15/98 1,000 - 1,000
United Mexican States
6.250% due 12/31/19 5,000 2,000 7,000
Total Sovereign Issues (Cost $19,236,
$7,092 and $26,328, respectively)
PREFERRED STOCK
Shares
Cablevision Systems 60,000 21,000 81,000
First Nationwide Bank 87,500 25,000 112,500
Newscorp Overseas, Ltd. - 133,200 133,200
Total Preferred Stock (Cost $15,581,
$8,143 and $23,724, respectively)
SHORT-TERM INSTRUMENTS
Principal Amount (000's)
Discount Notes
Amoco Corp.
5.180% due 04/08/96 - 300 300
5.190% due 04/19/96 - 1,500 1,500
Commonwealth Bank of Australia
5.190% due 05/20/96 1,800 - 1,800
Commonwealth of Canada
5.250% due 06/26/96 4,000 - 4,000
Duke Power Co.
5.230% due 04/12/96 - 1,000 1,000
Ford Motor Credit Corp.
5.240% due 04/08/96 - 2,000 2,000
5.250% due 06/26/96 3,500 - 3,500
General Electric Capital Corp.
5.340% due 04/23/96 4,500 - 4,500
5.260% due 04/25/96 - 800 800
Shell Oil Co.
5.180% due 04/12/96 - 1,300 1,300
<CAPTION>
PIMCO
PIMCO High Advisors High Pro Forma
Yield Income Combined
----------------------------------------------------------------
Value (000's)
----------------------------------------------------------------
<S> <C> <C> <C>
8.750% due 09/15/96 995 - 995
Republic of Argentina
6.313% due 03/31/05 (b) 10,514 5,524 16,038
5.000% due 03/31/23 (b) 4,140 518 4,658
Third Mexican Acceptance Corp.
7.370% due 03/15/98 919 - 919
United Mexican States
6.250% due 12/31/19 3,169 1,268 4,437
Total Sovereign Issues (Cost $19,236,
$7,092 and $26,328, respectively) 19,737 7,310 27,047
PREFERRED STOCK
Cablevision Systems 6,055 2,090 8,145
First Nationwide Bank 9,844 2,813 12,657
Newscorp Overseas, Ltd. - 3,346 3,346
Total Preferred Stock (Cost $15,581,
$8,143 and $23,724, respectively) 15,899 8,249 24,148
SHORT-TERM INSTRUMENTS
Discount Notes
Amoco Corp.
5.180% due 04/08/96 - 300 300
5.190% due 04/19/96 - 1,495 1,495
Commonwealth Bank of Australia
5.190% due 05/20/96 1,787 - 1,787
Commonwealth of Canada
5.250% due 06/26/96 3,947 - 3,947
Duke Power Co.
5.230% due 04/12/96 - 998 998
Ford Motor Credit Corp.
5.240% due 04/08/96 - 1,998 1,998
5.250% due 06/26/96 3,453 - 3,453
General Electric Capital Corp.
5.340% due 04/23/96 4,485 - 4,485
5.260% due 04/25/96 - 797 797
Shell Oil Co.
5.180% due 04/12/96 - 1,298 1,298
13,672 6,886 20,558
<CAPTION>
% Combined
Value of Net
Assets
------------
<S> <C>
8.750% due 09/15/96 0.1%
Republic of Argentina
6.313% due 03/31/05 (b) 2.1%
5.000% due 03/31/23 (b) 0.6%
Third Mexican Acceptance Corp.
7.370% due 03/15/98 0.1%
United Mexican States
6.250% due 12/31/19 0.7%
Total Sovereign Issues (Cost $19,236, $7,092 and $26,328, respectively) 3.6%
PREFERRED STOCK
Cablevision Systems 1.1%
First Nationwide Bank 1.7%
Newscorp Overseas, Ltd. 0.4%
Total Preferred Stock (Cost $15,581, $8,143 and $23,724, respectively) 3.2%
SHORT-TERM INSTRUMENTS
Discount Notes
Amoco Corp.
5.180% due 04/08/96 0.0%
5.190% due 04/19/96 0.2%
Commonwealth Bank of Australia
5.190% due 05/20/96 0.2%
Commonwealth of Canada
5.250% due 06/26/96 0.5%
Duke Power Co.
5.230% due 04/12/96 0.1%
Ford Motor Credit Corp.
5.240% due 04/08/96 0.3%
5.250% due 06/26/96 0.5%
General Electric Capital Corp.
5.340% due 04/23/96 0.6%
5.260% due 04/25/96 0.1%
Shell Oil Co.
5.180% due 04/12/96 0.2%
2.7%
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
PRO FORMA COMBINED SCHEDULES OF INVESTMENTS (Unaudited)
- --------------------------------------------------------------------------------
March 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PIMCO
PIMCO High Advisors High Pro Forma
Yield Income Combined
--------------------------------------------
Principal Amount (000's)
--------------------------------------------
<S> <C> <C> <C>
Repurchase Agreements
Daiwa Securities
5.200% due 04/01/96 2,000 - 2,000
(Dated 3/29/96. Collateralized by U.S. Treasury
Bill 09/19/96 valued at $2,049,323. Repurchase
proceeds are $2,000,867.)
State Street Bank
4.750% due 04/01/96 897 - 897
(Dated 3/29/96. Collateralized by U.S. Treasury
Bond 8.750% 05/15/17 valued at $916,524.
Repurchase proceeds are $897,355.)
2,897
Total Short-Term Instruments (Cost $16,575, $6,887
and $23,462, respectively) 16,569
Total Investments (Cost $514,138, $199,746
and $713,884, respectively) 522,453
Other Assets and Liabilities (Net) 15,537
Pro Forma Adjustments -
Net Assets $537,990
<CAPTION>
PIMCO
PIMCO High Advisors High Pro Forma
Yield Income Combined % Combined
-------------------------------------------- Value of Net
Value (000's) Assets
-------------------------------------------- ------------
<S> <C> <C> <C> <C>
Repurchase Agreements
Daiwa Securities
5.200% due 04/01/96 - 2,000 0.3%
(Dated 3/29/96. Collateralized by
U.S. Treasury Bill 09/19/96 valued at $2,049,323.
Repurchase proceeds are $2,000,867.)
State Street Bank
4.750% due 04/01/96 - 897 0.1%
(Dated 3/29/96. Collateralized by
U.S. Treasury Bond 8.750% 05/15/17 valued at $916,524.
Repurchase proceeds are $897,355.)
- 2,897 0.4%
Total Short-Term Instruments (Cost $16,575, $6,887
and $23,462, respectively) 6,886 23,455 3.1%
Total Investments (Cost $514,138, $199,746
and $713,884, respectively) 206,131 728,584 96.7%
Other Assets and Liabilities (Net) 9,139 24,676 3.3%
Pro Forma Adjustments - (124) 0.0%
Net Assets $215,270 $753,136 100.0%
Notes to Pro Forma Combined Schedules of Investments
(a) Security becomes interest bearing at a future date.
(b) Variable rate security. The rate listed is as of March 31, 1996.
</TABLE>
<PAGE>
B. The PAF Trust's Money Market Fund and the PIMS Trust's Money Market
Fund.
<PAGE>
March 31, 1996
PRO FORMA COMBINED STATEMENTS OF ASSETS AND LIABILITIES (unaudited)
All numbers are in thousands (except per share amounts)
<TABLE>
<CAPTION>
PIMCO Funds: PIMCO
Pacific Investment Advisors Funds
Management Series PIMS
Money Market
Money Money Fund
Market Market Pro Forma Pro Forma
Fund Fund Adjustments Combined
-------------- -------------- ----------- ------------------
Assets:
<S> <C> <C> <C> <C>
Investments, at value $ 25,295 $ 101,114 $ -- $ 126,409
Cash, receivables and other assets 656 1,457 -- 2,113
------------- ------------- ------------ --------------
Total assets 25,951 102,571 -- 128,522
------------- ------------- ------------ --------------
Liabilities:
Total liabilities 6 2,098 20 2,124
------------- ------------- ------------ --------------
Net Assets: $ 25,945 $ 100,473 $ (20) $ 126,398
============= ============= ============ ==============
Cost of investments owned $ 25,295 $ 101,114 $ -- $ 126,409
============= ============= ============ ==============
Net Assets Consist of:
Paid in capital $ 25,945 $ 100,473 $ (20) $ 126,398
Undistributed
net investment income -- -- -- --
Accumulated undistributed net
realized gain -- -- -- --
Net unrealized appreciation -- -- -- --
------------- ------------- ------------ --------------
Net assets $ 25,945 $ 100,473 $ (20) $ 126,398
============= ============= ============ ==============
Shares Issued and Outstanding:
PIMCO Funds
-----------
Institutional class 25,935 -- -- 25,935
Administrative class 10 -- -- 10
Class A -- -- 21,991 21,991
Class B -- -- 293 293
Class C -- -- 78,189 78,189
PIMCO Advisors Funds
--------------------
Institutional class -- -- -- --
Administrative class -- -- -- --
Class A -- 21,991 (21,991) --
Class B -- 293 (293) --
Class C -- 78,189 (78,189) --
Net Asset Value and Offering Price
Per Share
PIMCO Funds
-----------
Institutional class $ 1.00 $ -- $ -- $ 1.00
Administrative class $ 1.00 $ -- $ -- $ 1.00
Class A $ -- $ -- $ 1.00 $ 1.00
Class B $ -- $ -- $ 1.00 $ 1.00
Class C $ -- $ -- $ 1.00 $ 1.00
PIMCO Advisors Funds
--------------------
Institutional class $ -- $ -- $ -- $ --
Administrative class $ -- $ -- $ -- $ --
Class A $ -- $ 1.00 $ (1.00) $ --
Class B $ -- $ 1.00 $ (1.00) $ --
Class C $ -- $ 1.00 $ (1.00) $ --
</TABLE>
(1) In connection with the reorganization, the combined Portfolio will incur
non-recurring reorganization costs of approximately $20,000 or $0.00 per
share.
See Notes to Pro Forma combined financial statements.
<PAGE>
For the 12 months ended March 31, 1996
PRO FORMA COMBINED STATEMENTS OF OPERATIONS (unaudited)
All numbers are in thousands
<TABLE>
<CAPTION>
PIMCO Funds: PIMCO
Pacific Investment Advisors Funds
Management Series PIMS
Money Market
Money Money Fund
Market Market Pro Forma Pro Forma
Fund Fund Adjustments Combined
---------------- ---------------- ---------------- ----------------
Investment income:
<S> <C> <C> <C> <C>
Dividends, interest, and other $ 415 $ 5,235 $ - $ 5,650
---------------- ---------------- ---------------- ----------------
Expenses:
Investment advisory fees 10 89 47 146
Administrative fees 14 - 314 328
Service fees
--Administrative Class - - - -
--Class A - 16 8 24
--Class B - 1 1 2
--Class C - 73 37 110
Distribution fees
--Class B - 1 2 3
--Class C - - 329 329
Transfer agent and custody fees - 124 (124) -
Professional fees - 22 (22) -
Shareholder reports and notices - 41 (41) -
Trustees' fees - 10 - 10
Other - 33 (33) -
---------------- ---------------- ---------------- ----------------
Total expenses 24 410 518 952
---------------- ---------------- ---------------- ----------------
Net investment income 391 4,825 (518) 4,698
================ ================ ================ ================
Net increase in net assets resulting from
operations $ 391 $ 4,825 $ (518) $ 4,698
================ ================ ================ ===============
</TABLE>
See Notes to Pro Forma combined financial statements.
<PAGE>
- --------------------------------------------------------------------------------
PRO FORMA COMBINED SCHEDULES OF INVESTMENTS (Unaudited)
- --------------------------------------------------------------------------------
March 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PIMCO
PIMCO Money Advisors Pro Forma
Market Money Market Combined
------------------------------------------------------------------------------------
Principal Amount (000's)
------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY NOTES
7.875% due 07/15/96 $1,000 $ - $1,000
Total U.S. Treasury Notes
(Cost $1,006, $0 and $1,006, respectively)
U.S. GOVERNMENT AGENCIES
Federal National Mortgage Assn.
6.366% due 12/01/18 (a) 457 - 457
Student Loan Marketing Assn.
5.776% due 04/25/04 (a) 940 - 940
Total U.S. Government Agencies
(Cost $1,400, $0 and $1,400, respectively)
SHORT-TERM INSTRUMENTS
Discount Notes
Abbey National North America
5.300% due 05/09/96 - 5,000 5,000
Air Products & Chemicals, Inc.
5.370% due 06/21/96 300 - 300
Aluminum Co. of America
5.400% due 04/22/96 1,050 - 1,050
American Greetings Co.
5.350% due 04/04/96 1,000 - 1,000
Ameritech Corp.
5.120% due 04/29/96 700 - 700
Aon Corp.
5.250% due 05/13/96 800 - 800
Bass Financial
5.120% due 04/19/96 - 3,500 3,500
Bell Atlantic Financial Services, Inc.
5.330% due 04/05/96 1,000 - 1,000
Bell Atlantic Network Funding
5.420% due 04/11/96 - 2,500 2,500
BHF Finance
5.350% due 04/15/96 - 5,000 5,000
</TABLE>
<TABLE>
<CAPTION>
PIMCO
PIMCO Money Advisors
Market Money Market
----------------------------------------------------------
Value (000's)
----------------------------------------------------------
<S> <C> <C>
U.S. TREASURY NOTES
7.875% due 07/15/96 $1,006 $ -
Total U.S. Treasury Notes
(Cost $1,006, $0 and $1,006, respectively) 1,006 -
U.S. GOVERNMENT AGENCIES
Federal National Mortgage Assn.
6.366% due 12/01/18 (a) 460 -
Student Loan Marketing Assn.
5.776% due 04/25/04 (a) 940 -
Total U.S. Government Agencies
(Cost $1,400, $0 and $1,400, respectively) 1,400 -
SHORT-TERM INSTRUMENTS
Discount Notes
Abbey National North America
5.300% due 05/09/96 - 4,972
Air Products & Chemicals, Inc.
5.370% due 06/21/96 296 -
Aluminum Co. of America
5.400% due 04/22/96 1,047 -
American Greetings Co.
5.350% due 04/04/96 1,000 -
Ameritech Corp.
5.120% due 04/29/96 697 -
Aon Corp.
5.250% due 05/13/96 795 -
Bass Financial
5.120% due 04/19/96 - 3,491
Bell Atlantic Financial Services, Inc.
5.330% due 04/05/96 999 -
Bell Atlantic Network Funding
5.420% due 04/11/96 - 2,496
BHF Finance
5.350% due 04/15/96 - 4,990
</TABLE>
<TABLE>
<CAPTION>
% Combined
Pro Forma Value of Net
Combined Assets
------------------ -----------------------
Value (000's)
------------------
<S> <C> <C>
U.S. TREASURY NOTES
7.875% due 07/15/96 $1,006 0.8%
Total U.S. Treasury Notes
(Cost $1,006, $0 and $1,006, respectively) 1,006 0.8%
U.S. GOVERNMENT AGENCIES
Federal National Mortgage Assn.
6.366% due 12/01/18 (a) 460 0.4%
Student Loan Marketing Assn.
5.776% due 04/25/04 (a) 940 0.7%
Total U.S. Government Agencies
(Cost $1,400, $0 and $1,400, respectively) 1,400 1.1%
SHORT-TERM INSTRUMENTS
Discount Notes
Abbey National North America 4,972 3.9%
5.300% due 05/09/96
Air Products & Chemicals, Inc. 296 0.2%
5.370% due 06/21/96
Aluminum Co. of America 1,047 0.8%
5.400% due 04/22/96
American Greetings Co. 1,000 0.8%
5.350% due 04/04/96
Ameritech Corp. 697 0.6%
5.120% due 04/29/96
Aon Corp. 795 0.6%
5.250% due 05/13/96
Bass Financial 3,491 2.8%
5.120% due 04/19/96
Bell Atlantic Financial Services, Inc. 999 0.8%
5.330% due 04/05/96
Bell Atlantic Network Funding 2,496 2.0%
5.420% due 04/11/96
BHF Finance 4,990 3.9%
5.350% due 04/15/96
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
PRO FORMA COMBINED SCHEDULES OF INVESTMENTS (Unaudited)
- --------------------------------------------------------------------------------
March 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PIMCO
PIMCO Money Advisors Pro Forma
Market Money Market Combined
--------------------------------------------------------
Principal Amount (000's)
--------------------------------------------------------
<S> <C> <C> <C>
Canadian Wheat Board
5.220% due 04/09/96 - 3,000 3,000
5.220% due 04/12/96 - 2,000 2,000
Cooperative Association of
Tractor Dealers, Inc.
5.400% due 04/04/96 - 3,000 3,000
5.500% due 04/19/96 - 1,500 1,500
Corporate Asset Funding Co.,
Inc.
5.450% due 04/01/96 - 200 200
5.180% due 04/02/96 - 3,000 3,000
CSW Credit, Inc.
5.180% due 04/04/96 - 2,000 2,000
5.350% due 04/18/96 - 2,000 2,000
Dean Witter Discover Corp.
5.320% due 04/16/96 - 3,000 3,000
du Pont (E.I.) de Nemours
5.290% due 04/08/96 600 - 600
5.350% due 08/05/96 400 - 400
Dun & Bradstreet Corp.
5.520% due 04/09/96 400 - 400
Federal Home Loan Bank
5.230% due 04/10/96 1,000 - 1,000
5.220% due 06/26/96 500 - 500
Federal Home Loan Mortgage
Corp.
5.210% due 04/08/96 1,900 - 1,900
5.300% due 04/22/96 1,000 - 1,000
General Electric Capital Corp.
5.220% due 08/08/96 1,000 - 1,000
Golden Managers Acceptance
Corp.
5.350% due 05/01/96 - 5,000 5,000
Goldman Sachs & Co.
5.600% due 04/04/96 350 - 350
5.300% due 04/16/96 - 4,000 4,000
Government Development Bank
of Puerto Rico
5.400% due 05/01/96 - 5,000 5,000
Hewlett Packard Co.
5.240% due 04/18/96 750 - 750
</TABLE>
<TABLE>
<CAPTION>
PIMCO % Combined
PIMCO Money Advisors Pro Forma Value of Net
Market Money Market Combined Assets
--------------------------------------------------- ------------
Value (000's)
---------------------------------------------------
<S> <C> <C> <C> <C>
Canadian Wheat Board
5.220% due 04/09/96 - 2,997 2,997 2.4%
5.220% due 04/12/96 - 1,997 1,997 1.6%
Cooperative Association of
Tractor Dealers, Inc.
5.400% due 04/04/96 - 2,999 2,999 2.4%
5.500% due 04/19/96 - 1,496 1,496 1.2%
Corporate Asset Funding Co.,
Inc.
5.450% due 04/01/96 - 200 200 0.2%
5.180% due 04/02/96 - 3,000 3,000 2.4%
CSW Credit, Inc.
5.180% due 04/04/96 - 1,999 1,999 1.6%
5.350% due 04/18/96 - 1,995 1,995 1.6%
Dean Witter Discover Corp.
5.320% due 04/16/96 - 2,993 2,993 2.4%
du Pont (E.I.) de Nemours
5.290% due 04/08/96 599 - 599 0.5%
5.350% due 08/05/96 393 - 393 0.3%
Dun & Bradstreet Corp.
5.520% due 04/09/96 400 - 400 0.3%
Federal Home Loan Bank
5.230% due 04/10/96 999 - 999 0.8%
5.220% due 06/26/96 494 - 494 0.4%
Federal Home Loan Mortgage
Corp.
5.210% due 04/08/96 1,898 - 1,898 1.5%
5.300% due 04/22/96 997 - 997 0.8%
General Electric Capital Corp.
5.220% due 08/08/96 981 - 981 0.8%
Golden Managers Acceptance
Corp.
5.350% due 05/01/96 - 4,978 4,978 3.9%
Goldman Sachs & Co.
5.600% due 04/04/96 350 - 350 0.3%
5.300% due 04/16/96 - 3,991 3,991 3.2%
Government Development Bank
of Puerto Rico
5.400% due 05/01/96 - 4,978 4,978 3.9%
Hewlett Packard Co.
5.240% due 04/18/96 748 - 748 0.6%
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
PRO FORMA COMBINED SCHEDULES OF INVESTMENTS (Unaudited)
- --------------------------------------------------------------------------------
March 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PIMCO
PIMCO Money Advisors Pro Forma
Market Money Market Combined
--------------------------------------------------------------------
Principal Amount (000's)
--------------------------------------------------------------------
<S> <C> <C> <C>
Home Depot, Inc.
5.350% due 04/08/96 1,000 - 1,000
IBM Credit Corp.
5.120% due 04/11/96 800 - 800
Knight Ridder, Inc.
5.125% due 04/22/96 300 - 300
5.130% due 06/10/96 500 - 500
Lehman Brothers Holdings, Inc.
5.500% due 06/15/96 350 - 350
Matterhorn Capital Corp.
5.200% due 04/12/96 - 5,000 5,000
National Australia Funding
5.430% due 05/28/96 700 - 700
National Rural Utilities
Cooperative Finance Corp.
5.200% due 05/02/96 - 3,000 3,000
5.230% due 05/02/96 - 2,000 2,000
Nestle Capital Corp.
5.280% due 04/09/96 - 5,000 5,000
Oesterreichische Kontrol Bank
5.350% due 05/06/96 - 3,000 3,000
Pearson, Inc.
5.350% due 04/18/96 - 4,200 4,200
Pepsico, Inc.
5.220% due 04/08/96 - 2,500 2,500
5.320% due 04/25/96 - 2,000 2,000
PHH Corp.
5.240% due 04/22/96 - 2,000 2,000
5.330% due 04/24/96 - 3,000 3,000
Preferred Receivables Funding Corp.
5.350% due 04/17/96 - 4,000 4,000
Proctor & Gamble Co.
5.050% due 05/02/96 600 - 600
Redland Finance, Inc.
5.350% due 04/19/96 - 3,500 3,500
Sheffield Receivables Corp.
5.300% due 05/13/96 - 5,000 5,000
<CAPTION>
PIMCO
PIMCO Money Advisors Pro Forma
Market Money Market Combined
----------------------------------------------------------------------
Value (000's)
----------------------------------------------------------------------
<S> <C> <C> <C>
Home Depot, Inc.
5.350% due 04/08/96 999 - 999
IBM Credit Corp.
5.120% due 04/11/96 799 - 799
Knight Ridder, Inc.
5.125% due 04/22/96 299 - 299
5.130% due 06/10/96 495 - 495
Lehman Brothers Holdings, Inc.
5.500% due 06/15/96 350 - 350
Matterhorn Capital Corp.
5.200% due 04/12/96 - 4,992 4,992
National Australia Funding
5.430% due 05/28/96 694 - 694
National Rural Utilities
Cooperative Finance Corp.
5.200% due 05/02/96 - 2,987 2,987
5.230% due 05/02/96 - 1,991 1,991
Nestle Capital Corp.
5.280% due 04/09/96 - 4,994 4,994
Oesterreichische Kontrol Bank
5.350% due 05/06/96 - 2,984 2,984
Pearson, Inc.
5.350% due 04/18/96 - 4,189 4,189
Pepsico, Inc.
5.220% due 04/08/96 - 2,497 2,497
5.320% due 04/25/96 - 1,993 1,993
PHH Corp.
5.240% due 04/22/96 - 1,994 1,994
5.330% due 04/24/96 - 2,990 2,990
Preferred Receivables Funding Corp.
5.350% due 04/17/96 - 3,990 3,990
Proctor & Gamble Co.
5.050% due 05/02/96 597 - 597
Redland Finance, Inc.
5.350% due 04/19/96 - 3,491 3,491
Sheffield Receivables Corp.
5.300% due 05/13/96 - 4,969 4,969
<CAPTION>
% Combined
Value of Net
Assets
------------
<S> <C>
Home Depot, Inc.
5.350% due 04/08/96 0.8%
IBM Credit Corp.
5.120% due 04/11/96 0.6%
Knight Ridder, Inc.
5.125% due 04/22/96 0.2%
5.130% due 06/10/96 0.4%
Lehman Brothers Holdings, Inc.
5.500% due 06/15/96 0.3%
Matterhorn Capital Corp.
5.200% due 04/12/96 3.9%
National Australia Funding
5.430% due 05/28/96 0.5%
National Rural Utilities
Cooperative Finance Corp.
5.200% due 05/02/96 2.4%
5.230% due 05/02/96 1.6%
Nestle Capital Corp.
5.280% due 04/09/96 4.0%
Oesterreichische Kontrol Bank
5.350% due 05/06/96 2.4%
Pearson, Inc.
5.350% due 04/18/96 3.3%
Pepsico, Inc.
5.220% due 04/08/96 2.0%
5.320% due 04/25/96 1.6%
PHH Corp.
5.240% due 04/22/96 1.6%
5.330% due 04/24/96 2.4%
Preferred Receivables Funding Corp.
5.350% due 04/17/96 3.2%
Proctor & Gamble Co.
5.050% due 05/02/96 0.5%
Redland Finance, Inc.
5.350% due 04/19/96 2.8%
Sheffield Receivables Corp.
5.300% due 05/13/96 3.8%
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
PRO FORMA COMBINED SCHEDULES OF INVESTMENTS (Unaudited)
- --------------------------------------------------------------------------------
March 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PIMCO
PIMCO Money Advisors Pro Forma
Market Money Market Combined
---------------------------------------------------------------
Principal Amount (000's)
---------------------------------------------------------------
<S> <C> <C> <C>
Siemens Corp.
5.180% due 04/11/96 - 3,500 3,500
Southwestern Bell Capital Corp.
5.250% due 06/19/96 1,000 - 1,000
Statoil
5.320% due 04/23/96 - 4,000 4,000
Wal-Mart Stores
5.400% due 04/11/96 1,000 - 1,000
Xerox Credit Corp.
5.250% due 06/14/96 1,000 - 1,000
Repurchase Agreement
State Street Bank
4.750% due 04/01/96 103 - 103
(Dated 3/29/96. Collateralized by
U.S. Treasury Bond 8.750% 05/15/17
valued at $105,276. Repurchase
proceeds are $103,041.)
U.S. Treasury Bills
5.022% due 08/22/96 - 03/06/97 (b) 3,000 - 3,000
Total Short-Term Instruments (Cost $22,889,
$101,114 and $124,003, respectively)
Total Investments (Cost $25,295, $101,114
and $126,409, respectively)
Other Assets and Liabilities (Net)
Pro Forma Adjustments
Net Assets
<CAPTION>
PIMCO % Combined
PIMCO Money Advisors Pro Forma Value of Net
Market Money Market Combined Assets
---------------------------------------------------- ------------
Value (000's)
----------------------------------------------------
<S> <C> <C> <C> <C>
Siemens Corp.
5.180% due 04/11/96 - 3,495 3,495 2.7%
Southwestern Bell Capital Corp.
5.250% due 06/19/96 988 - 988 0.7%
Statoil
5.320% due 04/23/96 - 3,986 3,986 3.1%
Wal-Mart Stores
5.400% due 04/11/96 999 - 999 0.7%
Xerox Credit Corp.
5.250% due 06/14/96 989 - 989 0.7%
19,902 101,114 121,016 95.7%
Repurchase Agreement
State Street Bank
4.750% due 04/01/96 103 - 103 0.1%
(Dated 3/29/96. Collateralized by
U.S. Treasury Bond 8.750% 05/15/17
valued at $105,276. Repurchase
proceeds are $103,041.)
U.S. Treasury Bills
5.022% due 08/22/96 - 03/06/97 (b) 2,884 - 2,884 2.3%
Total Short-Term Instruments (Cost $22,889,
$101,114 and $124,003, respectively) 22,889 101,114 124,003 98.1%
Total Investments (Cost $25,295, $101,114
and $126,409, respectively) 25,295 101,114 126,409 100.0%
Other Assets and Liabilities (Net) 650 (641) 9 0.0%
Pro Forma Adjustments - - (20) 0.0%
Net Assets $25,945 $100,473 $126,398 100.0%
</TABLE>
Notes to Pro Forma Combined Schedules of Investments
(a) Variable rate security. The rate listed is as of March 31, 1996.
<PAGE>
- --------------------------------------------------------------------------------
PRO FORMA COMBINED SCHEDULES OF INVESTMENTS (Unaudited)
- --------------------------------------------------------------------------------
March 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PIMCO PIMCO % Combined
PIMCO Money Advisors Pro Forma PIMCO Money Advisors Pro Forma Value of Net
Market Money Market Combined Market Money Market Combined Assets
-------------------------------------------- -------------------------------------------- ------------
Principal Amount (000's) Value (000's)
-------------------------------------------- --------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
(b) Securities are grouped by coupon and represent a range of maturities.
<PAGE>
Notes to Pro Forma Financial Statements
PIMCO Funds: Pacific Investment Management Series
High Yield and Money Market Funds
Basis of Presentation:
Subject to the approval of the Agreement and Plan of Reorganization ("Plan of
Reorganization") by the shareholders of the High Income Fund and the Money
Market Fund (each an "Acquired Fund"), each a series of PIMCO Advisors Funds
("PAF"), the High Yield Fund and the Money Market Fund (each an "Acquiring
Fund"), each a series of PIMCO Funds ("PF"), would acquire, respectively, all
the assets of the PAF High Income Fund and the PAF Money Market Fund in exchange
for newly issued shares of beneficial interest of the Acquiring Fund (the
"Merger Shares") and the assumption by the respective Acquiring Fund of all of
the liabilities of the Acquired Fund followed by a distribution of the Merger
Shares to the shareholders of the Acquired Fund.
As a result of each proposed transaction, the Acquired Fund will receive a
number of Class A, Class B and Class C shares of the Acquiring Fund equal in
value to the value of the net assets of the Acquired Fund being transferred and
attributable to the Class A, Class B and Class C shares of the Acquired Fund.
Following the transfer, each Class A, Class B and Class C share of the Acquired
Fund will receive, on a tax-free basis, a number of full and fractional Class A,
Class B or Class C Merger Shares of the Acquiring Fund equal in value, as of the
close of business on the day of the exchange, to the value of the shareholder's
Class A, Class B or Class C Acquired Fund shares. The completion of these
transactions will result in the liquidation of the Acquired Fund.
The pro forma combined financial statements reflect the combined financial
position of the PF High Yield Fund with the PAF High Income Fund (hereafter the
"Combined High Yield Fund") and the combined financial position of the PF Money
Market Fund with the PAF Money Market Fund (hereafter the "Combined Money Market
Fund") at March 31, 1996, and the pro forma combined results of operations of
the Combined High Yield Fund and the Combined Money Market Fund for the period
from April 1, 1995 to March 31, 1996, as though the reorganization had occurred
on April 1, 1995.
The pro forma combined financial statements are presented for the information of
the reader and may not necessarily be representative of how the pro forma
combined financial statements would have appeared had the reorganization
actually occurred. The pro forma combined financial statements should be read in
conjunction with the historical financial statements of the respective
portfolios.
<PAGE>
Pro Forma Adjustments:
The pro forma combined Statements of Assets and Liabilities reflect the
reclassification of capital for the respective Acquired Funds into shares of
beneficial interest of the respective Acquiring Funds. Also, the paid in capital
and total liabilities reflect an adjustment for $123,671 and $20,000 at March
31, 1996 for the Combined High Yield Fund and the Combined Money Market Fund,
respectively, relating to the estimated non-recurring costs to effect the
reorganization including such items as legal, accounting, federal and state Blue
Sky Fees and proxy costs.
The pro forma combined Statements of Operations reflect the following
adjustments:
. A decrease in the advisory fee paid by the PAF High Income Fund as a result
of the application of the .25% advisory fee of the PF High Yield Fund.
Previously, the advisory fees paid by the Acquired Funds included certain
administrative services which will be included under an administrative fee
paid by the retail shareholders of the combined Funds as described below.
. An increase in the advisory fee paid by the PAF Money Market Fund as a
result of (i) the inapplicability of the fee waiver undertaken by the
current adviser to the PAF Money Market Fund and the (ii) application of
the .15% advisory fee for the PF Money Market Fund.
. An elimination of the transfer agent and custody fees, professional fees,
shareholder reports and notices and certain miscellaneous expenses such as
insurance and membership fees of trade organizations as a result of the
assumption of those expenses by the administrator, Pacific Investment
Management Company, as part of the .40% and .35% administrative fees paid
by the Class A, B and C shareholders of the Combined High Yield Fund and
the Combined Money Market Fund, respectively.
. Prior to the reorganization, the PAF Money Market Fund operated under a
self-imposed limitation, limiting 12b-1 services fees to .10% and 12b-1
distribution fees to .25%. Under the proposed structure, maximum 12b-1
service and distribution fees would be .25% and .75%, respectively. No
self-imposed limitations are anticipated under the proposed structure.
-2-
<PAGE>
PIMCO FUNDS
High Yield Fund, Total Return Fund,
Low Duration Fund and Money Market Fund
Form N-14
PART C
OTHER INFORMATION
Item 15. Indemnification.
Reference is made to Article IV of the Declaration of Trust, as
amended (the "Declaration of Trust"), of PIMCO Funds (the "Registrant") which is
incorporated herein by reference.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to trustees, officers and
controlling persons of the Registrant by the Registrant pursuant to the
Declaration of Trust or otherwise, the Registrant is aware that in the opinion
of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Act and, therefore, is 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 trustees, officers or
controlling persons of the Registrant in connection with the successful defense
of any action, suit or proceeding) is asserted by such trustees, officers or
controlling persons in connection with shares 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
issues.
Item 16. Exhibits.
1. (a) Declaration of Trust of Registrant/(1)/
(b) Establishment and Designation of Global, Foreign, Low Duration
South Africa Free and Total Return South Africa Free Portfolios
as Series of Registrant/(4)/
(c) Establishment and Designation of High Yield, Low Duration II and
Total Return II Portfolios as Series of Registrant/(5)/
<PAGE>
(d) Establishment and Designation of Income and Capital Preservation
Portfolio I and Income and Capital Preservation Portfolio II as
Series of Registrant/(6)/
(e) Amended and Restated Establishment and Designation of Series of
Shares of Registrant/(7)/
(f) Amended Designation of Two Series of Registrant/(7)/
(g) Second Amended and Restated Establishment and Designation of
Series of Shares of Registrant/(8)/
(h) Establishment and Designation of Moderate Duration and
VersaSTYLE Equity Funds as Series of Registrant/(9)/
(i) Amended Designation of Two Series of Registrant/(12)/
(j) Establishment and Designation of StocksPLUS Short Strategy Fund
as Series of Registrant/(13)/
(k) Redesignation of One Existing Series and Establishment and
Designation of Two New Series of Registrant/(14)/
(l) Form of Redesignation of One Series of Registrant/(15)/
(2) By-Laws/(1)/
(3) None
(4) Form of Agreement and Plan of Reorganization - filed as Appendix A to
Part A hereof
(5) (a) Article V (Shares of Beneficial Interest) of the Declaration of
Trust/(1)/
(b) Article III (Shareholders) of the By-Laws/(1)/
(6) (a) Investment Advisory Contract/(2)/
(b) Supplements to Investment Advisory Contract Relating to Global,
Foreign, Low Duration South Africa Free and Total Return South
Africa Free Portfolios/(4)/
-2-
<PAGE>
(c) Supplements to Investment Advisory Contract Relating to High
Yield, Low Duration II and Total Return II Portfolios/(5)/
(d) Supplements to Investment Advisory Contract Relating to Income
and Capital Preservation Portfolio I and Income and Capital
Preservation Portfolio II/(6)/
(e) Form of Supplements to Investment Advisory Contract Relating to
Moderate Duration Fund and VersaSTYLE Equity Fund/(9)/
(f) Form of Amended Investment Advisory Contract/(10)/
(g) Form of Supplement to Investment Advisory Contract/(11)/
(h) Form of Supplement to Investment Advisory Contract Relating to
StocksPLUS Short Strategy Fund/(13)/
(i) Supplements to Investment Advisory Contract/(14)/
(7) (a) Distribution Contract/(2)/
(b) Supplement to Distribution Contract Relating to Global, Foreign,
Low Duration South Africa Free and Total Return South Africa
Free Portfolios/(4)/
(c) Supplement to Distribution Contract Relating to High Yield, Low
Duration II and Total Return II Portfolios/(5)/
(d) Supplements to Distribution Contract Relating to Income and
Capital Preservation Portfolio I and Income and Capital
Preservation Portfolio II/(6)/
(e) Form of Distribution Contract as Amended May 31, 1994/(8)/
(f) Form of Supplements to Distribution Contract Relating to
Moderate Duration Fund and VersaSTYLE Equity Fund/(9)/
(g) Form of Amended Distribution Contract/(10)/
(h) Form of Supplement to Distribution Contract Relating to
StocksPLUS Short Strategy Fund/(13)/
(i) Supplements to Distribution Contract/(14)/
(j) Form of Distribution Contract is filed herewith
-3-
<PAGE>
(8) None
(9) Custody Agreement/(3)/
(10) (a) (i) Form of Distribution and Servicing Plan for Class
A shares is filed herewith
(ii) Form of Distribution and Servicing Plan for Class B shares
is filed herewith
(iii) Form of Distribution and Servicing Plan for Class C
shares is filed herewith
(b) Amended and Restated Multi-Class Plan adopted pursuant to
Rule 18f-3 is filed herewith
(11) Opinion and consent of counsel as to legality of securities being
registered is filed herewith
(12) Opinion of counsel as to tax matters - to be filed by post-effective
amendment
(13) Material Contracts
(a) Form of Distribution Plan for Administrative Class Shares/(9)/
(b) Form of Administrative Services Plan for Administrative Class
Shares/(8)/
(c) Administrative Services Contract/(2)/
(d) Supplements to Administrative Services Contract relating to
Global, Foreign, Low Duration South Africa Free and Total
Return South Africa Free Portfolios/(4)/
(e) Supplement to Administrative Services Contract Relating to High
Yield, Low Duration II and Total Return II Portfolios/(5)/
(f) Supplements to Administrative Services Contract Relating to
Income and Capital Preservation Portfolio I and Income and
Capital Preservation Portfolio II/(6)/
-4-
<PAGE>
(g) Form of Supplements to Administrative Services Contract Relating
to Moderate Duration Fund and VersaSTYLE Equity Fund/(9)/
(h) Form of Amended Administrative Services Contract/(10)/
(i) Form of Amended Administrative Services Contract/(11)/
(j) Form of Supplement to Administration Agreement Relating to
StocksPLUS Short Strategy Fund/(13)/
(k) Supplements to Administration Agreement/(14)/
(l) Form of Amendment to Administration Agreement is filed herewith
(m) Transfer Agency Agreement/(3)/
(14) (a) Consent of Price Waterhouse LLP is filed herewith
(b) Consent of Coopers & Lybrand LLP is filed herewith
(15) None
(16) Powers of Attorney for Messrs. Burns, Hardaway, Babcock, Kemp, Harris,
Popejoy and Curtis are filed herewith
(17) Copy of Registrant's Declaration under Rule 24f-2/(1)/
- ----------------------------------------------------------------
/(1)/ Filed with initial Registration Statement on February 19, 1987
(File No. 33-12113).
/(2)/ Filed with Pre-Effective Amendment No. 2 on April 21, 1987.
/(3)/ Filed with Post-Effective Amendment No. 3 on August 1, 1988.
/(4)/ Filed with Post-Effective Amendment No. 8 on August 3, 1990.
/(5)/ Filed with Post-Effective Amendment No. 10 on May 31, 1991.
/(6)/ Filed with Post-Effective Amendment No. 12 on August 29, 1991.
/(7)/ Filed with Post-Effective Amendment No. 15 on June 1, 1992.
-5-
<PAGE>
/(8)/ Filed with Post-Effective Amendment No. 20 on June 1, 1994.
/(9)/ Filed with Post-Effective Amendment No. 21 on August 1, 1994.
/(10)/ Filed with Post-Effective Amendment No. 22 on November 30, 1994.
/(11)/ Filed with Post-Effective Amendment No. 23 on June 1, 1995.
/(12)/ Filed with Post-Effective Amendment No. 24 on July 31, 1995.
/(13)/ Filed with Post-Effective Amendment No. 27 on January 16, 1996.
/(14)/ Filed with Post-Effective Amendment No. 28 on April 1, 1996.
/(15)/ Filed with Post-Effective Amendment No. 29 on June 14, 1996.
Item 17. Undertakings.
(a) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is a
part of this Registration Statement by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c) under the
Securities Act of 1933, the reoffering prospectus will contain the
information called for by the applicable registration form for the
reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
(b) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (a) above will be filed as a part of an amendment to
this Registration Statement and will not be used until the amendment is
effective, and that, in determining any liability under the Securities
Act of 1933, each post-effective amendment shall be deemed to be a new
Registration Statement for the securities offered therein, and the
offering of the securities at that time shall be deemed to be the
initial bona fide offering of them.
(c) The undersigned Registrant agrees to file, by post-effective amendment,
an opinion of counsel or a copy of an Internal Revenue Service ruling
supporting the tax consequences of the proposed mergers described in
this Registration Statement within a reasonable time after receipt of
such opinion or ruling.
6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Washington
in the District of Columbia on the 27th day of September, 1996.
PIMCO Funds
By: R. WESLEY BURNS*
---------------------------------
R. Wesley Burns, President
*By: /s/ Robert W. Helm
---------------------------------
Robert W. Helm, as Attorney-in-Fact
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 indicated.
Signature Title Date
R. WESLEY BURNS*
- -------------------------- President September 27, 1996
R. Wesley Burns (Principal Executive Officer)
JOHN P. HARDAWAY*
- -------------------------- Treasurer (Principal September 27, 1996
John P. Hardaway Financial and
Accounting Officer)
GUILFORD C. BABCOCK*
- -------------------------- Trustee September 27, 1996
Guilford C. Babcock
THOMAS P. KEMP*
- -------------------------- Trustee September 27, 1996
Thomas P. Kemp
7
<PAGE>
BRENT R. HARRIS*
- --------------------------- Trustee September 27, 1996
Brent R. Harris
WILLIAM J. POPEJOY*
- --------------------------- Trustee September 27, 1996
William J. Popejoy
VERN O. CURTIS*
- --------------------------- Trustee September 27, 1996
Vern O. Curtis
*By:
/s/ Robert W. Helm
---------------------------------
Robert W. Helm as Attorney-in-Fact
*Pursuant to Powers of Attorney filed herewith.
8
<PAGE>
EXHIBIT LIST
Exhibit No. Exhibit Name
- ----------- ------------
7(j) Form of Distribution Contract
10(a)(i) Form of Distribution and Servicing Plan
for Class A Shares
10(a)(ii) Form of Distribution and Servicing Plan
for Class B Shares
10(a)(iii) Form of Distribution and Servicing Plan
for Class C Shares
10(b) Amended and Restated Multi-Class Plan
11 Opinion and Consent of Counsel as to legality
of securities being issued
13(l) Form of Amendment to Administration
Agreement
14(a) Consent of Price Waterhouse LLP
14(b) Consent of Coopers & Lybrand LLP
16 Powers of Attorney
<PAGE>
Exhibit 7(j)
DISTRIBUTION CONTRACT
PIMCO Funds: Multi-Manager Series
840 Newport Center Drive
Newport Beach, California 92660
___________, 1996
PIMCO Advisors Distribution Company
2187 Atlantic Avenue
Stamford, Connecticut 06902
Dear Sirs:
This will confirm the agreement between the undersigned (the "Trust") and
you (the "Distributor") as follows:
1. Description of Trust and Classes of Shares. The Trust is an open-end
investment company which presently has the following [twenty] investment
portfolios: Equity Income Fund, Value Fund, Summit Fund, Enhanced Equity Fund,
Growth Fund, Capital Appreciation Fund, Mid Cap Growth Fund, Target Fund, Small
Cap Value Fund, Small Cap Growth Fund, Opportunity Fund, Micro Cap Growth Fund,
Innovation Fund, International Fund, [New International Fund], Emerging Markets
Fund, Precious Metals Fund, Balanced Fund and Tax Exempt Fund (each a "Fund,"
and collectively, the "Funds"). Additional investment portfolios may be
established in the future. This Contract shall pertain to the Funds and to such
additional investment portfolios as shall be designated in Supplements to this
Contract, as further agreed between the Trust and the Distributor. A separate
series of shares of beneficial interest in the Trust is offered to investors
with respect to each Fund, and each Fund currently offers its shares with
respect to five classes: Class A shares, Class B shares, and Class C shares
(together, the
<PAGE>
"Retail Classes"), and Institutional Class shares and Administrative Class
shares. The Trust engages in the business of investing and reinvesting the
assets of the Funds in the manner and in accordance with the investment
objective and restrictions specified in the Trust's currently effective
Prospectus or Prospectuses and Statement of Additional Information (together,
the "Prospectus") relating to the Retail, Institutional and Administrative
Classes of the Funds included in the Trust's Registration Statement, as amended
from time to time (the "Registration Statement"), as filed by the Trust under
the Investment Company Act of 1940, as amended (together with the rules and
regulations thereunder, the "1940 Act") and the Securities Act of 1933, as
amended (together with the rules and regulations thereunder, the "1933 Act").
Copies of the documents referred to in the preceding sentence have been
furnished to the Distributor. Any amendments to those documents shall be
furnished to the Distributor promptly. The Trust has adopted separate
Distribution and Servicing Plans pursuant to Rule 12b-l under the 1940 Act with
respect to each of the Retail Classes (the "Retail Class Plans") and has adopted
a Distribution Plan, also pursuant to Rule 12b-1, with respect to the
Administrative Class shares of the Funds (the "Administrative Distribution
Plan"). The Trust has also adopted an Administrative Services Plan with respect
to the Administrative Class shares of the Funds, in conformity with Rule 12b-1,
as if the expenditures made thereunder were subject to Rule 12b-1, excepting the
shareholder voting rights under Rule 12b-1 (the "Administrative Services Plan,"
and together with the Retail Class Plans and the Administrative Distribution
Plan, the "Plans").
2. Appointment and Acceptance. The Trust hereby appoints the Distributor
as a distributor of shares of beneficial interest in the Trust (the "shares")
which may from time to time be registered under the 1933 Act and as servicing
agent of shareholders and shareholder accounts of the Trust, and the Distributor
hereby accepts such appointment in accordance with the terms and conditions set
forth herein. As the Trust's agent, the Distributor shall, except to the extent
provided in Section 4 hereof, be the exclusive distributor for the unsold
portion of the shares.
3. Sale of Shares to Distributor and Sales by Distributor. The
Distributor will have the right, as principal, to sell shares of each Class of
each Fund directly to the public against orders therefor at the applicable
public offering price as described below in the case of Class A shares, and at
net asset value in the case of Class B shares, Class C shares, Institutional
Class shares and Administrative Class shares. For such purposes, the
Distributor will have the right to purchase shares at net asset value. The
Distributor will also have the right, as agent, to sell shares of a Fund
indirectly to the public through broker dealers who are members of the National
Association of Securities Dealers, Inc. and who are acting as introducing
brokers pursuant to clearing agreements with the Distributor ("introducing
brokers"), to broker dealers which are members of the National Association of
Securities Dealers, Inc. and who have entered into selling agreements with the
Distributor ("participating brokers") or through other financial intermediaries,
in each case against orders therefor. The price for introducing brokers,
participating brokers and other financial intermediaries shall be, in the case
of Class A shares, the applicable public offering price less a concession to be
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<PAGE>
determined by the Distributor, which concession will not exceed the amount of
the sales charge or underwriting discount, if any, described below and, in the
case of Class B shares, Class C shares, Institutional Class shares and
Administrative Class shares, net asset value.
The Trust shall sell through the Distributor, as the Trust's agent, shares
to eligible investors as described in the Prospectus. All orders through the
Distributor shall be subject to acceptance and confirmation by the Trust. The
Trust shall have the right, at its election, to deliver either shares issued
upon original issue or treasury shares.
Prior to the time of transfer of any shares by the Trust to, or on the
order of, the Distributor or any introducing broker, participating broker or
other financial intermediary, the Distributor shall pay or cause to be paid to
the Trust or to its order an amount in New York clearing house funds equal to
the applicable net asset value of the shares. Upon receipt of registration
instructions in proper form, the Distributor will transmit or cause to be
transmitted such instructions to the Trust or its agent for registration of the
shares purchased.
The public offering price of Class A shares shall be the net asset value of
such shares, plus any applicable sales charge as set forth in the Prospectus.
In no event will any applicable sales charge or underwriting discount exceed the
limitations on permissible sales loads imposed by Section 22(b) of the 1940 Act
and Section 26(d)(1) of Article III of the Rules of Fair Practice of the
National Association of Securities Dealers, Inc., as either or both may be
amended from time to time.
On every sale, the Trust shall receive the net asset value of the shares.
The net asset value of the shares shall be determined in the manner provided in
the Declaration of Trust and By-laws of the Trust as then amended or restated.
In the case of Class A shares, the Distributor may retain so much of any sales
charge or underwriting discount as is not allowed by the Distributor as a
concession to dealers and such sales charge or underwriting discount shall be in
addition to the fee paid to the Distributor in respect of Class A shares as
described in Section 5 hereof.
4. Sales of Shares by the Trust. In addition to sales by the Distributor,
the Trust reserves the right to issue shares at any time directly to its
shareholders as a stock dividend or stock split or to sell shares to its
shareholders or other persons at not less than net asset value to the extent
that the Trust, its officers, or other persons associated with the Trust
participate in the sale, or to the extent that the Trust or the transfer agent
for its shares receive purchase requests for shares.
5. Fees. For its services as servicing agent of a Fund's Class A
shareholders and Class A shareholder accounts, the Trust shall pay the
Distributor on behalf of the Fund a servicing fee at the annual rate of 0.25% of
the Fund's average daily net assets attributable to its Class A shares upon the
terms and conditions set forth in the Distribution and Servicing Plan attached
as Exhibit A hereto, and as amended from time to time, and may retain so much of
any sales charge or underwriting discount as is not allowed by the Distributor
as a
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<PAGE>
concession to dealers, and shall receive any contingent deferred sales charge as
provided in Section 8 hereof.
For its services as distributor of a Fund's Class B and Class C shares and
as servicing agent of Class B and Class C shareholders and Class B and Class C
shareholder accounts, the Trust shall pay the Distributor on behalf of the Fund
a distribution fee at the annual rate of 0.75% of the Fund's average daily net
assets, and a servicing fee at the annual rate of 0.25% of the Fund's average
daily net assets, attributable to the Fund's Class B shares and Class C shares,
respectively, upon the terms and conditions set forth in the relevant
Distribution and Servicing Plans attached as Exhibits B and C hereto, as amended
from time to time, and shall receive any contingent deferred sales charge as
provided in Section 8 hereof. The respective distribution and servicing fees
shall be accrued daily and paid monthly to the Distributor as soon as
practicable after the end of the calendar month in which they accrue, but in any
event within 5 business days following the last calendar day of each month.
The Trust shall reimburse the Distributor at an annual rate not to exceed
0.25% of the Fund's average daily net assets attributable to its Administrative
Class shares for payments made by the Distributor to various financial
intermediaries in connection with the distribution of Administrative Class
shares upon the terms and conditions set forth in the Administrative
Distribution Plan set forth as Exhibit D hereto.
6. Reservation of Right Not to Sell. The Trust reserves the right to
refuse at any time or times to sell any of its shares for any reason deemed
adequate by it.
7. Use of Sub-Agents; Non-exclusivity. The Distributor may employ such
sub-agents, including one or more participating brokers or introducing brokers,
for the purposes of selling shares of the Trust as the Distributor, in its sole
discretion, shall deem advisable or desirable. The Distributor may enter into
similar arrangements with other issuers and, except to the extent necessary to
perform its obligations hereunder, nothing herein shall be deemed to limit or
restrict the right of the Distributor, or any affiliate of the Distributor, or
any employee of the Distributor, to engage in any other business or to devote
time and attention to the management or other aspects of any other business,
whether of a similar or dissimilar nature, or to render services of any kind to
any other corporation, firm, individual or association.
8. Repurchase of Shares. The Distributor will act as agent for the Trust
in connection with the repurchase and redemption of shares by the Trust upon the
terms and conditions set forth in the Prospectus or as the Trust acting through
its Trustees may otherwise direct. The Distributor may employ such sub-agents,
including one or more participating brokers or introducing brokers, for such
purposes as the Distributor, in its sole discretion, shall deem to be advisable
or desirable. Any contingent deferred sales charge imposed on repurchases and
redemptions of Class A, Class B and Class C shares upon the terms and conditions
set forth in the Prospectus shall be paid to the Distributor in addition to the
fees with respect to Class A, Class B and Class C shares set forth in Section 5
hereof. The Trust
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<PAGE>
will take such steps as are commercially reasonable to track on a share-by-share
basis the aging of its shares for purposes of calculating any contingent
deferred sales charges and/or distribution fees.
9. Basis of Purchases and Sales of Shares. The Distributor's obligation
to sell shares hereunder shall be on a best efforts basis only and the
Distributor shall not be obligated to sell any specific number of shares.
Shares will be sold by the Distributor only against orders therefor. The
Distributor will not purchase shares from anyone other than the Trust except in
accordance with Section 8 hereof, and will not take "long" or "short" positions
in shares contrary to any applicable provisions of the Declaration of Trust of
the Trust, as amended.
10. Rules of Securities Associations, etc. As the Trust's agent, the
Distributor may sell and distribute shares in such manner not inconsistent with
the provisions hereof and the Trust's Prospectus as the Distributor may
determine from time to time. In this connection, the Distributor shall comply
with all laws, rules and regulations applicable to it, including, without
limiting the generality of the foregoing, all applicable rules or regulations
under the 1940 Act and of any securities association registered under the
Securities Exchange Act of 1934, as amended (together with the rules and
regulations thereunder, the "1934 Act"). The Distributor will conform to the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
and the securities laws of any jurisdiction in which it sells, directly or
indirectly, any shares. The Distributor also agrees to furnish to the Trust
sufficient copies of any agreement or plans it intends to use in connection with
any sales of shares in adequate time for the Trust to file and clear them with
the proper authorities before they are put in use, and not to use them until so
filed and cleared.
11. Independent Contractor. The Distributor shall be an independent
contractor and neither the Distributor nor any of its officers or employees as
such, is or shall be an employee of the Trust. The Distributor is responsible
for its own conduct and the employment, control and conduct of its agents and
employees and for injury to such agents or employees or to others through its
agents or employees. The Distributor assumes full responsibility for its agents
and employees under applicable statutes and agrees to pay all employer taxes
thereunder.
12. Registration and Qualification of Shares. The Trust agrees to execute
such papers and to do such acts and things as shall from time to time be
reasonably requested by the Distributor for the purpose of qualifying and
maintaining qualification of the shares for sale under the so-called Blue Sky
Laws of any state or for maintaining the registration of each Fund of the Trust
and the Trust under the 1933 Act and the 1940 Act, to the end that there will be
available for sale from time to time such number of shares as the Distributor
may reasonably be expected to sell. The Trust shall advise the Distributor
promptly of (a) any action of the Securities and Exchange Commission or any
authorities of any state or territory, of which it may be advised, affecting
registration or qualification of the Trust, a Fund or the
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<PAGE>
shares thereof, or rights to offer such shares for sale and (b) the happening of
any event which makes untrue any statement or which requires the making of any
change in the registration statement or Prospectus in order to make the
statements therein not misleading.
13. Securities Transactions. The Trust agrees that the Distributor may
effect a transaction on any national securities exchange of which it is a member
for the account of the Trust and any Fund of the Trust which is permitted by
Section 11(a) of the 1934 Act.
14. Expenses.
(a) The Distributor shall from time to time employ or associate with
it such persons as it believes necessary to assist it in carrying out its
obligations under this Contract. The compensation of such persons shall be paid
by the Distributor.
(b) The Distributor shall pay all expenses incurred in connection with
its qualification as a dealer or broker under Federal or state law.
(c) The Distributor will pay all expenses of preparing, printing and
distributing advertising and sales literature as such expenses relate to Retail
Class shares (apart from expenses of registering shares under the 1933 Act and
the 1940 Act and the preparation and printing of prospectuses and reports for
shareholders as required by said Acts and the direct expenses of the issue of
shares, except that the Distributor will pay the cost of the preparation and
printing of prospectuses and shareholders' reports used by it in the sale of
Trust shares). The Trust may enter into arrangements with affiliates of the
Distributor providing for the payment by such affiliates of some or all of these
expenses as they relate to Institutional and Administrative Class shares.
(d) The Trust shall pay or cause to be paid all expenses incurred in
connection with (i) the preparation, printing and distribution to shareholders
of the Prospectus and reports and other communications to existing shareholders,
(ii) future registrations of shares under the 1933 Act and the 1940 Act, (iii)
amendments of the Registration Statement subsequent to the initial public
offering of shares, (iv) qualification of shares for sale in jurisdictions
designated by the Distributor, including under the securities or so-called "Blue
Sky" laws of any State, (v) qualification of the Trust as a dealer or broker
under the laws of jurisdictions designated by the Distributor, (vi)
qualification of the Trust as a foreign corporation authorized to do business in
any jurisdiction if the Distributor determines that such qualification is
necessary or desirable for the purpose of facilitating sales of shares,
(vii) maintaining facilities for the issue and transfer of shares, (viii)
supplying information, prices and other data to be furnished by the Trust under
this Contract, (ix) any expenses assumed by the Trust with regard to shares of
each Retail Class of each Fund pursuant to the Retail Class Plan applicable to
that class; (x) any expenses assumed by the Trust with regard to the
Administrative Class shares of each Fund pursuant to the Administrative
Distribution Plan;
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<PAGE>
and (xi) any expenses assumed by the Trust with regard to the Administrative
Class shares of each Fund pursuant to the Administrative Services Plan.
(e) The Trust shall pay any original issue taxes or transfer taxes
applicable to the sale or delivery of shares or certificates therefor.
15. Indemnification of Distributor. The Trust shall prepare and furnish
to the Distributor from time to time such number of copies of the most recent
form of the Prospectus filed with the SEC as the Distributor may reasonably
request. The Trust authorizes the Distributor to use the Prospectus, in the
form furnished to the Distributor from time to time, in connection with the sale
of shares. The Trust shall indemnify, defend and hold harmless the Distributor,
its officers and trustees and any person who controls the Distributor within the
meaning of the 1933 Act, from and against any and all claims, demands,
liabilities and expenses (including the cost of investigating or defending such
claims, demands or liabilities and any counsel fees incurred in connection
therewith) which the Distributor, its officers and trustees or any such
controlling person may incur under the 1933 Act, the 1940 Act, the common law or
otherwise, arising out of or based upon any alleged untrue statement of a
material fact contained in the Registration Statement or the Prospectus or
arising out of or based upon any alleged omission to state a material fact
required to be stated in either or necessary to make the statements in either
not misleading. This Contract shall not be construed to protect the Distributor
against any liability to the Trust or its shareholders to which the Distributor
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under this Contract. This indemnity
agreement is expressly conditioned upon the Trust being notified of any action
brought against the Distributor, its officers or directors or any such
controlling person, which notification shall be given by letter or by telegram
addressed to the Trust at its principal office in Newport Beach, California, and
sent to the Trust by the person against whom such action is brought within 10
days after the summons or other first legal process shall have been served. The
failure to notify the Trust of any such action shall not relieve the Trust from
any liability which it may have to the person against whom such action is
brought by reason of any such alleged untrue statement or omission otherwise
than on account of the indemnity agreement contained in this Section 15. The
Trust shall be entitled to assume the defense of any suit brought to enforce any
such claim, demand or liability, but, in such case, the defense shall be
conducted by counsel chosen by the Trust and approved by the Distributor. If
the Trust elects to assume the defense of any such suit and retain counsel
approved by the Distributor, the defendant or defendants in such suit shall bear
the fees and expenses of any additional counsel retained by any of them, but in
case the Trust does not elect to assume the defense of any such suit, or in the
case the Distributor does not approve of counsel chosen by the Trust, the Trust
will reimburse the Distributor, its officers and directors or the controlling
person or persons named as defendant or defendants in such suit, for the fees
and expenses of any counsel retained by the Distributor or them. In addition,
the Distributor shall have the right to employ counsel to represent it, its
officers and directors and any such controlling person who may be subject to
liability arising
-7-
<PAGE>
out of any claim in respect of which indemnity may be sought by the Distributor
against the Trust hereunder if in the reasonable judgment of the Distributor it
is advisable for the Distributor, its officers and directors or such controlling
person to be represented by separate counsel, in which event the fees and
expense of such separate counsel shall be borne by the Trust. This indemnity
agreement and the Trust's representations and warranties in this Contract shall
remain operative and in full force and effect regardless of any investigation
made by or on behalf of the Distributor, its officers and directors or any such
controlling person. This indemnity agreement shall inure exclusively to the
benefit of the Distributor and its successors, the Distributor's officers and
directors and their respective estates and any such controlling persons and
their successors and estates. The Trust shall promptly notify the Distributor
of the commencement of any litigation or proceedings against it in connection
with the issue and sale of any shares.
16. Indemnification of Trust. The Distributor agrees to indemnify, defend
and hold harmless the Trust, its officers and trustees and any person who
controls the Trust within the meaning of the 1933 Act, from and against any and
all claims, demands, liabilities and expenses (including the cost of
investigating or defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which the Trust, its officers or trustees
or any such controlling person, may incur under the 1933 Act, the 1940 Act, the
common law or otherwise, but only to the extent that such liability or expense
incurred by the Trust, its officers or trustees or such controlling person
resulting from such claims or demands shall arise out of or be based upon (a)
any alleged untrue statement of a material fact contained in information
furnished in writing by the Distributor to the Trust specifically for use in the
Registration Statement or the Prospectus or shall arise out of or be based upon
any alleged omission to state a material fact in connection with such
information required to be stated in the Registration Statement or the
Prospectus or necessary to make such information not misleading, (b) any alleged
act or omission on the Distributor's part as the Trust's agent that has not been
expressly authorized by the Trust in writing, and (c) any claim, action, suit or
proceeding which arises out of or is alleged to arise out of the Distributor's
failure to exercise reasonable care and diligence with respect to its services
rendered in connection with investment, reinvestment, employee benefit and other
plans for shares. The foregoing rights of indemnification shall be in addition
to any other rights to which the Trust or a trustee may be entitled as a matter
of law. This indemnity agreement is expressly conditioned upon the Distributor
being notified of any action brought against the Trust, its officers or trustees
or any such controlling person, which notification shall be given by letter or
telegram addressed to the Distributor at its principal office in Stamford,
Connecticut, and sent to the Distributor by the person against whom such action
is brought, within 10 days after the summons or other first legal process shall
have been served. The failure to notify the Distributor of any such action
shall not relieve the Distributor from any liability which it may have to the
Trust, its officers or trustees or such controlling person by reason of any
alleged misstatement, omission, act or failure on the Distributor's part
otherwise than on account of the indemnity agreement contained in this Section
16. The Distributor shall have a right to control the defense of such action
with counsel of its own choosing and approved by the Trust if such
-8-
<PAGE>
action is based solely upon such alleged misstatement, omission, act or failure
on the Distributor's part, and in any other event the Trust, its officers and
trustees or such controlling person shall each have the right to participate in
the defense or preparation of the defense of any such action at their own
expense. If the Distributor elects to assume the defense of any such suit and
retain counsel approved by the Trust, the defendant or defendants in such suit
shall bear the fees and expenses of any additional counsel retained by any of
them, but in case the Distributor does not elect to assume the defense of any
such suit, or in the case the Trust does not approve of counsel chosen by the
Distributor, the Distributor will reimburse the Trust, its officers and trustees
or the controlling person or persons named as defendant or defendants in such
suit, for the fees and expenses of any counsel retained by the Trust or them. In
addition, the Trust shall have the right to employ counsel to represent it, its
officers and trustees and any such controlling person who may be subject to
liability arising out of any claim in respect of which indemnity may be sought
by the Trust against the Distributor hereunder if in the reasonable judgment of
the Trust it is advisable for the Trust, its officers and trustees or such
controlling person to be represented by separate counsel, in which event the
fees and expense of such separate counsel shall be borne by the Distributor.
This indemnity agreement and the Distributor's representations and warranties in
this Contract shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of the Trust, its officers and trustees
or any such controlling person. This indemnity agreement shall inure exclusively
to the benefit of the Trust and its successors, the Trust's officers and
trustees and their respective estates and any such controlling persons and their
successors and estates. The Distributor shall promptly notify the Trust of the
commencement of any litigation or proceedings against it in connection with the
issue and sale of any shares.
17. Assignment Terminates this Contract; Amendments of this Contract.
This Contract shall automatically terminate, without the payment of any penalty,
in the event of its assignment. This Contract may be amended only if such
amendment be approved either by action of the Trustees of the Trust or at a
meeting of the shareholders of the Trust by the affirmative vote of a majority
of the outstanding shares of the Trust, and by a majority of the Trustees of the
Trust who are not interested persons of the Trust and who have no direct or
indirect financial interest in the operation of the Plans or this Contract by
vote cast in person at a meeting called for the purpose of voting on such
approval.
18. Effective Period and Termination of this Contact. This Contract shall
take effect upon the date first above written and shall remain in full force and
effect continuously as to a Fund and a class of shares thereof (unless
terminated automatically as set forth in Section 17 hereof) until terminated:
(a) Either by such Fund or such class or the Distributor by not more
than sixty (60) days' nor less than thirty (30) days' written notice
delivered or mailed by registered mail, postage prepaid, to the other
party; or
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<PAGE>
(b) Automatically as to any Fund or class thereof at the close of
business one year from the date hereof, or upon the expiration of one year
from the effective date of the last continuance of this Contract, whichever
is later, if the continuance of this Contract is not specifically approved
at least annually by the Trustees of the Trust or the shareholders of such
Fund or such class by the affirmative vote of a majority of the outstanding
shares of such Fund or such class, and by a majority of the Trustees of the
Trust who are not interested persons of the Trust and who have no direct or
indirect financial interest in the operation of the Plans or this Contract
by vote cast in person at a meeting called for the purpose of voting on
such approval.
Action by a Fund or a class thereof under (a) above may be taken either (i)
by vote of the Trustees of the Trust, or (ii) by the affirmative vote of a
majority of the outstanding shares of such Fund or such class. The requirement
under (b) above that the continuance of this Contract be "specifically approved
at least annually" shall be construed in a manner consistent with the 1940 Act
and the rules and regulations thereunder.
Termination of this Contract pursuant to this Section 18 shall be without
the payment of any penalty.
If this Contract is terminated or not renewed with respect to one or more
Funds or classes thereof, it may continue in effect with respect to any Fund or
any class thereof as to which it has not been terminated (or has been renewed).
19. Limited Recourse. The Distributor hereby acknowledges that the
Trust's obligations hereunder with respect to the distribution fee or servicing
fee or contingent deferred sales charges payable with respect to the shares of
any Fund of the Trust or a particular class of shares of a Fund are binding only
on the assets and property belonging to such Fund or allocated to such class.
20. Certain Definitions. For the purposes of this Contract, the
"affirmative vote of a majority of the outstanding shares" means the affirmative
vote, at a duly called and held meeting of shareholders, (a) of the holders of
67% or more of the shares of the Trust, Fund or class, as the case may be,
present (in person or by proxy) and entitled to vote at such meeting, if the
holders of more than 50% of the outstanding shares of the Trust, Fund or class,
as the case may be, entitled to vote at such meeting are present in person or by
proxy, or (b) of the holders of more than 50% of the outstanding shares of the
Trust, Fund or class, as the case may be, entitled to vote at such meeting,
whichever is less.
For the purposes of this Contract, the terms "interested persons" and
"assignment" shall have the meanings defined in the 1940 Act, subject, however,
to such exemptions as may be granted by the Securities and Exchange Commission
under said Act. Certain other items used herein that are not otherwise defined
have the meaning given in the Trust's Prospectus or constituent agreements or
documents of the Trust.
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<PAGE>
The Declaration of Trust establishing the Trust, filed on February 19,
1987, a copy of which, together with all amendments thereto (the "Declaration"),
is on file in the Office of the Secretary of State of the Commonwealth of
Massachusetts, provides that the name "PIMCO Funds" refers to the trustees under
the Declaration collectively as trustees and not as individuals or personally,
and that no shareholder, trustee, officer, employee or agent of the Trust shall
be subject to claims against or obligatons of the Trust (or a particular Fund or
class of shares) to any extent whatsoever, but that the Trust (or a particular
Fund or class of shares) shall only be liable.
If the foregoing correctly sets forth the agreement between the Trust and
the Distributor, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
PIMCO FUNDS: PACIFIC INVESTMENT
MANAGEMENT SERIES
By:
___________________
Title:
ACCEPTED:
PIMCO ADVISORS DISTRIBUTION COMPANY
By:
_______________________________________
Title:
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<PAGE>
Exhibit 10(a)(i)
<PAGE>
PIMCO FUNDS: PACIFIC INVESTMENT MANAGEMENT SERIES
-------------------------------------------------
Distribution and Servicing Plan (Class A)
This Plan (the "Plan") dated as of __________, 1996, and amended
thereafter, constitutes the Distribution and Servicing Plan with respect to the
Class A shares of PIMCO FUNDS: PACIFIC INVESTMENT MANAGEMENT SERIES, a
Massachusetts business trust (the "Trust").
Section 1. The Trust will pay to the principal distributor of the
Trust's shares (the "Distributor") a fee (the "Servicing Fee") for services
rendered and expenses borne by the Distributor in connection with personal
service rendered to Class A shareholders of the Trust and/or maintenance of
Class A shareholder accounts, at an annual rate with respect to each Fund
(series) of the Trust (a "Fund") not to exceed 0.25% of the Fund's average daily
net assets attributable to its Class A shares. Subject to such limit and
subject to the provisions of Section 9 hereof, the Servicing Fee shall be as
approved from time to time by (a) the Trustees of the Trust and (b) the
Independent Trustees of the Trust and may be paid in respect of services
rendered and expenses borne in the past as to which no Servicing Fee was paid on
account of such limitation. If at any time this Plan shall not be in effect with
respect to all Funds of the Trust, the Servicing Fee shall be computed on the
basis of net assets attributable to Class A shares of those Funds for which the
Plan is in effect. The Servicing Fee shall be accrued daily and paid monthly or
at such other intervals as the Trustees shall determine.
Section 2. The Servicing Fee may be spent by the Distributor on
personal services rendered to Class A shareholders of the Trust and/or
maintenance of Class A shareholder accounts (but will generally not be spent on
record keeping charges, accounting expenses, transfer costs, or custodian fees).
The Distributor's expenditures may include, but shall not be limited to,
compensation to, and expenses (including telephone and overhead expenses) of,
financial consultants or other employees of the Distributor or of participating
or introducing brokers, certain banks and other financial intermediaries who aid
in the processing of purchase or redemption requests for Class A shares or the
processing of dividend payments with respect to Class A shares, who provide
information periodically to Class A shareholders showing their positions in a
Fund's Class A shares, who issue confirmations for transactions by Class A
shareholders, who forward communications from the Trust to Class A shareholders,
who render ongoing advice concerning the suitability of particular investment
opportunities offered by the Trust in light of Class A shareholders' needs, who
provide and maintain elective Class A shareholder services such as check writing
and wire transfer services, who provide and maintain pre-authorized investment
plans for Class A shareholders, who act as sole shareholder of record and
nominee for Class A shareholders, who respond to inquiries from Class A
shareholders
<PAGE>
relating to such services, who train personnel in the provision of such services
or who provide such similar services as permitted under applicable statutes,
rules or regulations.
Section 3. This Plan shall not take effect with respect to any Fund
of the Trust until it has been approved by a vote of at least a majority of the
outstanding Class A voting securities of that Fund. This Plan shall be deemed
to have been effectively approved with respect to any Fund if a majority of the
outstanding Class A voting securities of that Fund votes for the approval of
this Plan, notwithstanding that this Plan has not been approved by a majority of
the outstanding Class A voting securities of any other Fund or that this Plan
has not been approved by a majority of the outstanding Class A voting securities
of the Trust.
Section 4. This Plan shall not take effect until it has been
approved, together with any related agreements, by votes of the majority (or
whatever greater percentage may, from time to time, be required by Section 12(b)
of the Investment Company Act of 1940 (the "Act") or the rules and regulations
thereunder) of both (a) the Trustees of the Trust, and (b) the Independent
Trustees of the Trust cast in person at a meeting called for the purpose of
voting on this Plan or such agreement.
Section 5. This Plan shall continue in effect for a period of more
than one year after it takes effect only so long as such continuance is
specifically approved at least annually in the manner provided for approval of
this Plan in Section 4. It is acknowledged that the Distributor may expend or
impute interest expense in respect of its activities or expenses under this Plan
and the Trustees and the Independent Trustees may give such weight to such
interest expense as they determine in their discretion.
Section 6. Any person authorized to direct the disposition of monies
paid or payable by the Trust pursuant to this Plan or any related agreement
shall provide to the Trustees of the Trust, and the Trustees shall review, at
least quarterly, a written report of the amounts so expended and the purposes
for which such expenditures were made.
Section 7. This Plan may be terminated at any time with respect to
the Class A shares of any Fund by vote of a majority of the Independent
Trustees, or by vote of a majority of the outstanding Class A voting securities
of that Fund.
Section 8. All agreements with any person relating to implementation
of this Plan with respect to any Fund shall be in writing, and any agreement
related to this Plan with respect to any Fund shall provide:
A. That such agreement may be terminated at any time, without payment
of any penalty, by vote of a majority of the Independent Trustees
or by vote of majority of the outstanding Class A voting
securities of such Fund, on not more than 60 days' written notice
to any other party to the agreement; and
2
<PAGE>
B. That such agreement shall terminate automatically in the event
of its assignment.
Section 9. This Plan may not be amended to increase materially the
amount of Servicing Fees permitted pursuant to Section 1 hereof without approval
in the manner provided in Section 3 hereof, and all material amendments to this
Plan shall be approved in the manner provided for approval of this Plan
in Section 4 hereof.
Section 10. As used in this Plan, (a) the term "Independent Trustees"
shall mean those Trustees of the Trust who are not interested persons of the
Trust, and have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it, (b) the terms "assignment",
"interested person" and "majority of the outstanding voting securities" shall
have the respective meanings specified in the Act and the rules and regulations
thereunder, subject to such exemptions as may be granted by the Securities and
Exchange Commission, (c) the term "introducing broker" shall mean any broker or
dealer who is a member of the National Association of Securities Dealers, Inc.
and who is acting as an introducing broker pursuant to clearing agreements with
the Distributor; and (d) the term "participating broker" shall mean any broker
or dealer which is a member of the National Association of Securities Dealers,
Inc. and who has entered into a selling or dealer agreement with the
Distributor.
Section 11. This Plan has been adopted pursuant to Rule 12b-1 under the
Act and is designed to comply with all applicable requirements imposed under
such Rule. To the extent that any or all of the Servicing Fees may be deemed to
have financed any activity which is primarily intended to result in the sale of
the Trust's shares (within the meaning of Rule 12b-1), all those Servicing Fees
paid by the Trust shall be deemed to be made under this Plan and pursuant to
clause (b) of such Rule.
Dated: ______________, 1996
3
<PAGE>
Exhibit 10(a)(ii)
<PAGE>
PIMCO FUNDS: PACIFIC INVESTMENT MANAGEMENT SERIES
-------------------------------------------------
Distribution and Servicing Plan (Class B)
This Plan (the "Plan"), dated as of ____________, 1996, and amended
thereafter, constitutes the Distribution and Servicing Plan with respect to the
Class B shares of PIMCO FUNDS: PACIFIC INVESTMENT MANAGEMENT SERIES, a
Massachusetts business trust (the "Trust").
Section 1. The Trust will pay to the principal distributor of the Trust's
shares (the "Distributor") a fee (the "Distribution Fee") for services rendered
and expenses borne by the Distributor in connection with the distribution of
Class B shares of the Trust and another fee (the "Servicing Fee") in connection
with personal services rendered to Class B shareholders of the Trust and/or
maintenance of Class B shareholder accounts. The Distribution Fee shall be paid
at an annual rate with respect to each Fund (series) of the Trust (a "Fund") not
to exceed 0.75 of 1% of the Fund's average daily net assets attributable to its
Class B shares, and the Servicing Fee shall be paid at an annual rate not to
exceed 0.25 of 1% of the Fund's average daily net assets attributable to Class B
shares. Subject to such limits and subject to the provisions of Section 9
hereof, the Distribution and Servicing Fees shall be as approved from time to
time by (a) the Trustees of the Trust and (b) the Independent Trustees of the
Trust and may be paid in respect of services rendered and expenses borne in the
past as to which no Distribution and Servicing Fees were paid on account of such
limitation. If at any time this Plan shall not be in effect with respect to all
Funds of the Trust, the Distribution and Servicing Fees shall be computed on the
basis of sales of Class B shares or net assets attributable to Class B shares
(as applicable) of those Funds for which the Plan is in effect. The
Distribution and Servicing Fees shall be accrued daily and paid monthly or at
such other intervals as the Trustees shall determine.
Section 2. The Distribution Fee may be spent by the Distributor on any
activities or expenses primarily intended to result in the sale of Class B
shares of the Trust, including, but not limited to compensation to, and expenses
(including overhead and telephone expenses) of, financial consultants or other
employees of the Distributor or of participating or introducing brokers who
engage in distribution of Class B shares, preparing, printing and delivering
prospectuses and reports for other than existing Class B shareholders, providing
facilities to answer questions from other than existing Class B shareholders,
advertising and preparation, printing and distribution of sales literature,
receiving and answering correspondence, including requests for prospectuses and
statements of additional information, complying with federal and state
securities laws pertaining to the sale of Class B shares and assisting investors
in completing application forms and selecting dividend and other account options
for Class B shares. The Servicing Fee may be spent by the Distributor on
personal services rendered to Class B shareholders of the Trust and/or
maintenance of Class B shareholder accounts (but will
<PAGE>
generally not be spent on record keeping charges, accounting expenses, transfer
costs, or custodian fees). The Distributor's Servicing Fee expenditures may
include, but shall not be limited to, compensation to, and expenses (including
telephone and overhead expenses) of, financial consultants or other employees of
the Distributor or of participating or introducing brokers, certain banks and
other financial intermediaries who aid in the processing of purchase or
redemption requests for Class B shares or the processing of dividend payments
with respect to Class B shares, who provide information periodically to Class B
shareholders showing their positions in a Fund's Class B shares, who issue
confirmations for transactions by Class B shareholders, who forward
communications from the Trust to Class B shareholders, who render ongoing advice
concerning the suitability of particular investment opportunities offered by the
Trust in light of Class B shareholders' needs, who provide and maintain elective
Class B shareholder services such as check writing and wire transfer services,
who provide and maintain pre-authorized investment plans for Class B
shareholders, who act as sole shareholder of record and nominee for Class B
shareholders, who respond to inquiries from Class B shareholders relating to
such services, who train personnel in the provision of such services or who
provide such similar services as permitted under applicable statutes, rules or
regulations.
Section 3. This Plan shall not take effect with respect to any Fund of the
Trust until it has been approved by a vote of at least a majority of the
outstanding Class B voting securities of that Fund. This Plan shall be deemed
to have been effectively approved with respect to any Fund if a majority of the
outstanding Class B voting securities of that Fund votes for the approval of
this Plan, notwithstanding that this Plan has not been approved by a majority of
the outstanding Class B voting securities of any other Fund or that this Plan
has not been approved by a majority of the outstanding Class B voting securities
of the Trust.
Section 4. This Plan shall not take effect until it has been approved,
together with any related agreements, by votes of the majority (or whatever
greater percentage may, from time to time, be required by Section 12(b) of the
Investment Company Act of 1940 (the "Act") or the rules and regulations
thereunder) of both (a) the Trustees of the Trust, and (b) the Independent
Trustees of the Trust cast in person at a meeting called for the purpose of
voting on this Plan or such agreement.
Section 5. This Plan shall continue in effect for a period of more than
one year after it takes effect only so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
Section 4. It is acknowledged that the Distributor may expend or impute
interest expense in respect of its activities or expenses under this Plan and
the Trustees and the Independent Trustees may give such weight to such interest
expense as they determine in their discretion.
Section 6. Any person authorized to direct the disposition of monies paid
or payable by the Trust pursuant to this Plan or any related agreement shall
provide to the Trustees of the Trust, and the Trustees shall review, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made.
2
<PAGE>
Section 7. This Plan may be terminated at any time with respect to the
Class B shares of any Fund by vote of a majority of the Independent Trustees, or
by vote of a majority of the outstanding Class B voting securities of that Fund.
Section 8. All agreements with any person relating to implementation of
this Plan with respect to any Fund shall be in writing, and any agreement
related to this Plan with respect to any Fund shall provide:
A. That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Independent Trustees or by
vote of a majority of the outstanding Class B voting securities of such
Fund, on not more than 60 days' written notice to any other party to
the agreement; and
B. That such agreement shall terminate automatically in the event of its
assignment.
Section 9. This Plan may not be amended to increase materially the
aggregate amount of Distribution and Servicing Fees permitted pursuant to
Section 1 hereof without approval in the manner provided in Section 3 hereof,
and all material amendments to this Plan shall be approved in the manner
provided for approval of this Plan in Section 4 hereof.
Section 10. As used in this Plan, (a) the term "Independent Trustees"
shall mean those Trustees of the Trust who are not interested persons of the
Trust, and have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it, (b) the terms "assignment",
"interested person" and "majority of the outstanding voting securities" shall
have the respective meanings specified in the Act and the rules and regulations
thereunder, subject to such exemptions as may be granted by the Securities and
Exchange Commission, (c) the term "introducing broker" shall mean any broker or
dealer who is a member of the National Association of Securities Dealers, Inc.
and who is acting as an introducing broker pursuant to clearing agreements with
the Distributor; and (d) the term "participating broker" shall mean any broker
or dealer which is a member of the National Association of Securities Dealers,
Inc. and who has entered into a selling or dealer agreement with the
Distributor.
Section 11. This Plan has been adopted pursuant to Rule 12b-1 under the
Act and is designed to comply with all applicable requirements imposed under
such Rule. All Distribution Fees and, to the extent that any or all of the
Servicing Fees may be deemed to have financed any activity which is primarily
intended to result in the sale of the Trust's shares (within the meaning of Rule
12b-1), those Servicing Fees shall be deemed to have been paid under this Plan
and pursuant to clause (b) of such Rule.
Dated: _________________, 1996.
3
<PAGE>
Exhibit 10(a)(iii)
<PAGE>
PIMCO FUNDS: PACIFIC INVESTMENT MANAGEMENT SERIES
-------------------------------------------------
Distribution and Servicing Plan (Class C)
This Plan (the "Plan"), dated as of ____________, 1996, and amended
thereafter, constitutes the Distribution and Servicing Plan with respect to the
Class C shares of PIMCO FUNDS: PACIFIC INVESTMENT MANAGEMENT SERIES, a
Massachusetts business trust (the "Trust").
Section 1. The Trust will pay to the principal distributor of the Trust's
shares (the "Distributor") a fee (the "Distribution Fee") for services rendered
and expenses borne by the Distributor in connection with the distribution of
Class C shares of the Trust and another fee (the "Servicing Fee") in connection
with personal services rendered to Class C shareholders of the Trust and/or
maintenance of Class C shareholder accounts. The Distribution Fee shall be paid
at an annual rate with respect to each Fund (series) of the Trust (a "Fund") not
to exceed 0.75 of 1% of the Fund's average daily net assets attributable to its
Class C shares, and the Servicing Fee shall be paid at an annual rate not to
exceed 0.25 of 1% of the Fund's average daily net assets attributable to Class C
shares. Subject to such limits and subject to the provisions of Section 9
hereof, the Distribution and Servicing Fees shall be as approved from time to
time by (a) the Trustees of the Trust and (b) the Independent Trustees of the
Trust and may be paid in respect of services rendered and expenses borne in the
past as to which no Distribution and Servicing Fees were paid on account of such
limitation. If at any time this Plan shall not be in effect with respect to all
Funds of the Trust, the Distribution and Servicing Fees shall be computed on the
basis of sales of Class C shares or net assets attributable to Class C shares
(as applicable) of those Funds for which the Plan is in effect. The
Distribution and Servicing Fees shall be accrued daily and paid monthly or at
such other intervals as the Trustees shall determine.
Section 2. The Distribution Fee may be spent by the Distributor on any
activities or expenses primarily intended to result in the sale of Class C
shares of the Trust, including, but not limited to compensation to, and expenses
(including overhead and telephone expenses) of, financial consultants or other
employees of the Distributor or of participating or introducing brokers who
engage in distribution of Class C shares, preparing, printing and delivering
prospectuses and reports for other than existing Class C shareholders, providing
facilities to answer questions from other than existing Class C shareholders,
advertising and preparation, printing and distribution of sales literature,
receiving and answering correspondence, including requests for prospectuses and
statements of additional information, complying with federal and state
securities laws pertaining to the sale of Class C shares and assisting investors
in completing application forms and selecting dividend and other account options
for Class C shares. The Servicing Fee may be spent by the Distributor on
personal services rendered to Class C shareholders of the Trust and/or
maintenance of Class C shareholder accounts (but will
<PAGE>
generally not be spent on record keeping charges, accounting expenses, transfer
costs, or custodian fees). The Distributor's Servicing Fee expenditures may
include, but shall not be limited to, compensation to, and expenses (including
telephone and overhead expenses) of, financial consultants or other employees of
the Distributor or of participating or introducing brokers, certain banks and
other financial intermediaries who aid in the processing of purchase or
redemption requests for Class C shares or the processing of dividend payments
with respect to Class C shares, who provide information periodically to Class C
shareholders showing their positions in a Fund's Class C shares, who issue
confirmations for transactions by Class C shareholders, who forward
communications from the Trust to Class C shareholders, who render ongoing advice
concerning the suitability of particular investment opportunities offered by the
Trust in light of Class C shareholders' needs, who provide and maintain elective
Class C shareholder services such as check writing and wire transfer services,
who provide and maintain pre-authorized investment plans for Class C
shareholders, who act as sole shareholder of record and nominee for Class C
shareholders, who respond to inquiries from Class C shareholders relating to
such services, who train personnel in the provision of such services or who
provide such similar services as permitted under applicable statutes, rules or
regulations.
Section 3. This Plan shall not take effect with respect to any Fund of the
Trust until it has been approved by a vote of at least a majority of the
outstanding Class C voting securities of that Fund. This Plan shall be deemed
to have been effectively approved with respect to any Fund if a majority of the
outstanding Class C voting securities of that Fund votes for the approval of
this Plan, notwithstanding that this Plan has not been approved by a majority of
the outstanding Class C voting securities of any other Fund or that this Plan
has not been approved by a majority of the outstanding Class C voting securities
of the Trust.
Section 4. This Plan shall not take effect until it has been approved,
together with any related agreements, by votes of the majority (or whatever
greater percentage may, from time to time, be required by Section 12(b) of the
Investment Company Act of 1940 (the "Act") or the rules and regulations
thereunder) of both (a) the Trustees of the Trust, and (b) the Independent
Trustees of the Trust cast in person at a meeting called for the purpose of
voting on this Plan or such agreement.
Section 5. This Plan shall continue in effect for a period of more than
one year after it takes effect only so long as such continuance is specifically
approved at least annually in the manner provided for approval of this Plan in
Section 4. It is acknowledged that the Distributor may expend or impute
interest expense in respect of its activities or expenses under this Plan and
the Trustees and the Independent Trustees may give such weight to such interest
expense as they determine in their discretion.
Section 6. Any person authorized to direct the disposition of monies paid
or payable by the Trust pursuant to this Plan or any related agreement shall
provide to the Trustees of the Trust, and the Trustees shall review, at least
quarterly, a written report of the amounts so expended and the purposes for
which such expenditures were made.
2
<PAGE>
Section 7. This Plan may be terminated at any time with respect to the
Class C shares of any Fund by vote of a majority of the Independent Trustees, or
by vote of a majority of the outstanding Class C voting securities of that Fund.
Section 8. All agreements with any person relating to implementation of
this Plan with respect to any Fund shall be in writing, and any agreement
related to this Plan with respect to any Fund shall provide:
A. That such agreement may be terminated at any time, without payment of
any penalty, by vote of a majority of the Independent Trustees or by
vote of majority of the outstanding Class C voting securities of such
Fund, on not more than 60 days' written notice to any other party to the
agreement; and
B. That such agreement shall terminate automatically in the event of its
assignment.
Section 9. This Plan may not be amended to increase materially the
aggregate amount of Distribution and Servicing Fees permitted pursuant to
Section 1 hereof without approval in the manner provided in Section 3 hereof,
and all material amendments to this Plan shall be approved in the manner
provided for approval of this Plan in Section 4 hereof.
Section 10. As used in this Plan, (a) the term "Independent Trustees"
shall mean those Trustees of the Trust who are not interested persons of the
Trust, and have no direct or indirect financial interest in the operation of
this Plan or any agreements related to it, (b) the terms "assignment",
"interested person" and "majority of the outstanding voting securities" shall
have the respective meanings specified in the Act and the rules and regulations
thereunder, subject to such exemptions as may be granted by the Securities and
Exchange Commission, (c) the term "introducing broker" shall mean any broker or
dealer who is a member of the National Association of Securities Dealers, Inc.
and who is acting as an introducing broker pursuant to clearing agreements with
the Distributor; and (d) the term "participating broker" shall mean any broker
or dealer which is a member of the National Association of Securities Dealers,
Inc. and who has entered into a selling or dealer agreement with the
Distributor.
Section 11. This Plan has been adopted pursuant to Rule 12b-1 under the
Act and is designed to comply with all applicable requirements imposed under
such Rule. All Distribution Fees and, to the extent that any or all of the
Servicing Fees may be deemed to have financed any activity which is primarily
intended to result in the sale of the Trust's shares (within the meaning of Rule
12b-1), those Servicing Fees shall be deemed to have been paid under this Plan
and pursuant to clause (b) of such Rule.
Dated: _________________, 1996.
3
<PAGE>
Exhibit 10(b)
PIMCO FUNDS: PACIFIC INVESTMENT MANAGEMENT SERIES
AMENDED AND RESTATED MULTI-CLASS PLAN
Pursuant to Rule 18f-3 under the Investment Company Act of 1940
---------------------------------------------------------------
Effective Date [December 31, 1996]
WHEREAS, the Board of Trustees of the PIMCO Funds: Pacific Investment
Management Series (the "Trust") have considered the following Amended and
Restated Multi-Class Plan (the "Plan") under which the Trust may offer multiple
classes of shares of its now existing and hereafter created series pursuant to
Rule 18f-3 under the Investment Company Act of 1940, as amended (the "1940
Act"); and
WHEREAS, a majority of the Trustees of the Trust and a majority of the
Trustees who are not interested persons of the Trust have found the Plan, as
proposed, to be in the best interests of each class of the Trust individually
and the Trust as a whole;
NOW, THEREFORE, the Trust hereby approves and adopts the following Plan
pursuant to Rule 18f-3 of the 1940 Act:
1. FEATURES OF THE CLASSES
Each now existing and hereafter created series (each a "Fund") of the Trust
is authorized to issue from time to time its shares of beneficial interest in
five classes: Class A shares, Class B shares, Class C shares, Institutional
Class shares and Administrative Class shares. Each class is subject to such
investment minimums and other conditions of eligibility as are set forth in the
Trust's prospectus(es) as from time to time in effect (together with all
relevant Statements of Additional Information, the "Prospectus"). Each Fund
offers such classes of shares to such classes of persons as is set forth in the
Prospectus.
Shares of each class of a Fund shall represent an equal pro rata interest
in such Fund, and, generally, shall have identical voting, dividend, liquidation
and other rights, preferences, powers, restrictions, limitations, qualifications
and terms and conditions, except that: (a) each class shall have a different
designation; (b) each class of shares shall bear any Class Expenses, as defined
in Section 4 below; and (c) each class shall have exclusive voting rights on any
matter submitted to shareholders that relates solely to its service or
distribution arrangement and shall have separate voting rights on any matter
submitted to shareholders in which the interests of one class differ from the
interests of any other class.
<PAGE>
In addition, the Class A, Class B, Class C, Institutional Class and
Administrative Class shares shall have the features described in Sections 2, 3,
4 and 5 below. These features are subject to change, to the extent permitted by
law and by the Declaration of Trust and By-Laws of the Trust, by action of the
Board of Trustees of the Trust.
2. SALES CHARGE STRUCTURE
(a) Initial Sales Charge. Class A shares of the Funds are offered at a
--------------------
public offering price that is equal to their net asset value ("NAV") plus a
sales charge of up to 4.75% of the public offering price (which maximum may be
less for certain Funds, as described in the Prospectus). The sales charges on
Class A shares are subject to reduction or waiver as permitted by Rule 22d-1
under the 1940 Act, as described in the Prospectus.
Class B, Class C, Institutional Class and Administrative Class shares of
the Funds are offered at their NAV, without an initial sales charge.
(b) Contingent Deferred Sales Charge. A contingent deferred sales charge
--------------------------------
(a "CDSC") may be imposed on Class A, Class B or Class C shares under certain
circumstances. The Trust imposes a CDSC on redemptions of a particular class of
shares of a Fund if the investor redeems an amount which causes the current
value of the investor's account for the Fund to fall below the total dollar
amount of purchase payments subject to the CDSC, except that no CDSC is imposed
if the shares redeemed have been acquired through the reinvestment of dividends
or capital gains distributions or if the amount redeemed is derived from
increases in the value of the account above the amount of purchase payments
subject to a CDSC. In determining whether a CDSC is payable, it is assumed that
the purchase payment from which the redemption is made is the earliest purchase
payment from which a redemption or exchange has not already been effected. In
determining whether an amount is available for redemption of a certain class
without incurring a CDSC, the purchase payments made for all shares of that
class in the investor's account with the particular Fund are aggregated, and the
current value of all such shares is aggregated.
Purchases of Class A shares of each Fund (with the exception of the Trust's
Money Market Fund) of $1 million or more that are redeemed within eighteen
months of their purchase are subject to a CDSC of 1%. A CDSC on Class A shares
does not apply to an investor purchasing $1 million or more of a Fund's Class A
shares if such investor is otherwise eligible (i.e. without regard to the amount
of the purchase) to purchase Class A shares without any sales charge. A CDSC
does not apply to Class A shares of the Trust's Money Market Fund but, if Money
Market Fund Class A shares are purchased in a transaction that, for any other
Fund, would be subject to a CDSC and the Money Market Fund Class A shares are
subsequently exchanged for Class A shares of any other Fund, a CDSC will apply
to the shares of the Fund acquired by exchange for a period of 18 months from
the date of exchange.
-2-
<PAGE>
Class B shares that are redeemed within 6 years from purchase are subject
to a CDSC of up to 5% of the redemption amount to which the CDSC applies; such
percentage declines, eventually to 0%, the longer the shares are held, as
described in the Prospectus. As of the date of this Plan, purchases of Class B
shares are subject to a CDSC according to the following schedule:
<TABLE>
<CAPTION>
Years Since Purchase Percentage
Payment was Made CDSC
- ---------------- ----------
<S> <C>
First................... 5
Second.................. 4
Third................... 3
Fourth.................. 3
Fifth................... 2
Sixth................... 1
Seventh................. 0
Eighth.................. *
</TABLE>
* Class B shares convert into Class A shares as described below.
Class C shares are subject to a CDSC of 1% if redeemed within 1 year after
purchase.
As permitted by Rule 6c-10 under the 1940 Act and as described in the
Prospectus, the CDSC otherwise applicable to Class A, Class B and Class C is
subject to reduction or waiver in connection with particular classes of
transactions provided the conditions in Rule 22d-1 under the 1940 Act are
satisfied. As of the date of this Plan, examples of redemptions for which the
CDSC is not applicable include any partial or complete redemption following
death or disability of a shareholder from an account in which the deceased or
disabled is named, provided the redemption is requested within one year of the
death or initial determination of disability (which applies to all classes), and
any redemption resulting from a return of an excess contribution to a qualified
employer retirement plan or an IRA (which applies only to Class A and Class C
shares).
Institutional Class and Administrative Class shares are not subject to a
CDSC.
3. SERVICE, DISTRIBUTION AND ADMINISTRATIVE FEES
(a) Service and Distribution Fees. Class A, Class B and Class C shares
-----------------------------
pay PIMCO Advisors Distribution Company (the "Distributor") fees for services
rendered and expenses borne in connection with personal services rendered to
shareholders of that class and the maintenance of shareholder accounts ("Service
Fees"). Class A, Class B and Class C shares of each Fund pay a Service Fee of
up to 0.25% per annum of the average daily net assets of such Fund attributable
to such class, as described in the Prospectus. In addition, Class B and Class C
shares pay the Distributor fees in connection with the distribution of shares of
that
-3-
<PAGE>
class ("Distribution Fees"). Class B and Class C shares of each Fund pay a
Distribution Fee of up to 0.75% per annum of the average daily net assets of
such Fund attributable to such class, as described in the Prospectus. Class A
Service Fees and Class B and C Distribution and Service Fees ("12b-1 Fees") are
paid pursuant to separate plans adopted for each class pursuant to Rule 12b-1
under the 1940 Act ("12b-1 Plans").
The Trust has not adopted an administrative services plan or a distribution
plan with respect to the Institutional Class shares of the Funds. However,
Institutional Class shares may be offered through certain brokers and financial
intermediaries ("service agents") that have established a shareholder servicing
relationship with the Trust on behalf of their customers. The Trust pays no
compensation to such entities. Service agents may impose additional or different
conditions on the purchase or redemption of Trust shares and may charge
transaction or account fees. Service agents are responsible for transmitting to
their customers a schedule of any such fees and conditions.
The Trust has adopted an administrative services plan and a distribution
plan with respect to the Administrative Class shares of each Fund. Under the
terms of each plan, the Trust is permitted to reimburse, out of the
Administrative Class assets of each Fund, in an amount up to 0.25% on an annual
basis of the average daily net assets of that class ("Administrative Class
Fees"), financial intermediaries that provide services in connection with the
distribution of shares or administration of plans or programs that use Fund
shares as their funding medium, as described in the Prospectus. The same entity
may not receive both distribution and administrative services fees with respect
to the same assets but, with respect to separate assets, may receive fees under
both a distribution plan and an administrative services plan.
(b) Administration Fees. Each class of shares of a Fund pays an
-------------------
administration fee ("Administration Fees") to the Administrator, pursuant to an
administration agreement which may be amended from time to time, to provide for
such services as custody, transfer agency, accounting, legal and printing
services. The classes of shares of the Funds currently pay the following
Administration Fees, which constitute a percentage of the average daily net
asset value of each class of shares:
<TABLE>
<CAPTION>
Fees for Inst'l Class Fees for Class
Fund and Admin. Class A, B and C
---- ---------------- ----------
<S> <C> <C>
StocksPLUS Short Strategy 0.25% 0.40%
StocksPLUS 0.25% 0.40%
Strategic Balanced 0.25% 0.40%
International 0.25% 0.45%
Global 0.30% 0.45%
Foreign 0.25% 0.45%
</TABLE>
-4-
<PAGE>
<TABLE>
<S> <C> <C>
Global Income 0.30% 0.45%
LT U.S. Government 0.25% 0.40%
Commercial Mortgage 0.25% 0.40%
High Yield 0.25% 0.40%
Total Return III 0.25% 0.40%
Total Return II 0.25% 0.40%
Total Return 0.18% 0.40%
Moderate Duration 0.25% 0.40%
Low Duration III 0.25% 0.40%
Low Duration II 0.25% 0.40%
Low Duration 0.18% 0.40%
Short-Term 0.20% 0.35%
Money Market 0.20% 0.35%
</TABLE>
4. ALLOCATION OF INCOME AND EXPENSES
(a) Class A, Class B, Class C and Administrative Class shares pay the
expenses associated with their different distribution and shareholder servicing
arrangements. All classes pay their respective Administration Fees. Each class
of shares may, at the Trustees' discretion, also pay a different share of other
expenses (together with 12b-1 Fees, Administrative Class Fees and Administration
Fees, "Class Expenses"), not including advisory fees or other expenses related
to the management of the Trust's assets, if these expenses are actually incurred
in a different amount by that class, or if the class receives services of a
different kind or to a different degree than other classes.
(b) The net asset value of all outstanding shares representing interests in
a Fund shall be computed on the same days and at the same time. For purposes of
computing net asset value, the gross investment income of each Fund shall be
allocated to each class on the basis of the relative net assets of each class at
the beginning of the day adjusted for capital share activity for each class as
of the prior day as reported by the Fund's transfer agent, for non-daily
dividend Funds; and on the basis of the relative value of settled shares at the
beginning of the day adjusted for receipt of settled AM wires (if applicable),
for daily-dividend Funds. Realized and unrealized gains and losses for each
class will be allocated based on relative net assets at the beginning of the
day, adjusted for capital share activity for each class of the prior day, as
reported by the Fund's transfer agent. To the extent practicable, certain
expenses, (other than Class Expenses as defined above which shall be allocated
more specifically), shall be allocated to each class based on the relative net
assets of each class at the beginning of the day, adjusted for capital share
activity for each class as of the prior day, as reported by the Fund's transfer
agent, for non-daily dividend Funds; and on the basis of the relative value of
settled shares at the beginning of the day adjusted for receipt of settled AM
wires (if applicable), for daily-dividend Funds. Allocated expenses to each
class shall be subtracted from allocated gross income. These expenses include:
-5-
<PAGE>
(1) Expenses incurred by the Trust (including, but not limited to,
fees of Trustees, insurance and legal counsel) not attributable to a
particular Fund or to a particular class of shares of a Fund
("Corporate Level Expenses"); and
(2) Expenses incurred by a particular Fund but not attributable to any
particular class of such Fund's shares ("Fund Expenses").
Expenses of a Fund shall be apportioned to each class of shares depending
upon the nature of the expense item. Corporate Level Expenses and Fund Expenses
shall be allocated between the classes of shares based on the relative net
assets of each class at the beginning of the day, adjusted for capital share
activity for each class as of the prior day, as reported by the Fund's transfer
agent, for non-daily dividend Funds; and based on the relative value of settled
shares adjusted for receipt of settled AM wires (if applicable) at the beginning
of the day for daily-dividend Funds. Approved Class Expenses shall be allocated
to the particular class to which they are attributable. In addition, certain
expenses may be allocated differently if their method of imposition changes.
Thus, if a Class Expense can no longer be attributed to a class, it will be
charged to a Fund for allocation among classes, as determined by the Board of
Trustees. Any additional Class Expenses not specifically identified above which
are subsequently identified and determined to be properly allocated to one class
of shares shall not be so allocated until approved by the Board of Trustees of
the Trust in light of the requirements of the 1940 Act and the Internal Revenue
Code of 1986, as amended (the "Code").
5. EXCHANGE PRIVILEGES
Shareholders may exchange shares of one class of a Fund for shares of an
identical class of any other Fund of the Trust, or an identical class of any
series of PIMCO Funds: Multi-Manager Series, an affiliated registered investment
company advised by PIMCO Advisors, L.P., based upon each Fund's net asset value
per share, except (i) only private account clients of Pacific Investment
Management Company may purchase shares of the International Fund and (ii)
shareholders of Funds other than the Opportunity Fund are not permitted to
exchange any of their shares for Opportunity Fund shares unless the shareholders
are independently eligible to purchase Opportunity Fund shares. In addition, a
sales charge will apply on exchanges of Class A shares of the Trust's Money
Market Fund, on which currently no sales charge is paid at the time of purchase.
Class A shares of the Trust's Money Market Fund may be exchanged for shares
of any other Fund, but the usual sales charges applicable to investments in such
other Fund apply on exchanged Money Market Fund shares for which no sales charge
was paid at the time of purchase.
With respect to Class A, Class B and Class C shares subject to a CDSC, if
less than all of an investment is exchanged out of a Fund, any portion of the
investment attributable to
-6-
<PAGE>
capital appreciation and/or reinvested dividends or capital gains distributions
will be exchanged first, and thereafter any portions exchanged will be from the
earliest investment made in the Fund from which the exchange was made.
Although a CDSC does not apply to Class A shares of the Trust's Money Market
Fund, as indicated above, if Money Market Fund Class A shares purchased in a
transaction that would otherwise be subject to a CDSC are subsequently exchanged
for Class A shares of any other Fund, a CDSC will apply to the shares of the
Fund acquired by exchange for a period of 18 months from the date of the
exchange.
6. CONVERSION FEATURES
Class B shares of each Fund automatically convert to Class A shares of the
same Fund after they have been held for 7 years, and thereafter are subject to
the lower fees charged to Class A shares. In this regard, if there is any
material increase in 12b-1 Fees applicable to Class A shares without the
approval of the Class B shareholders, the Trust will establish a new class of
shares, into which Class B shares would convert, on the same terms as those that
applied to Class A shares before such increase. No other conversion features
exist between classes of shares of the Funds.
7. DIVIDENDS/DISTRIBUTIONS
Each Fund pays out as dividends substantially all of its net investment
income (which comes from dividends and interest it receives from its
investments) and net realized short-term capital gains.
All dividends and/or distributions will be paid in the form of additional
shares of the class of shares of the Fund to which the dividends and/or
distributions relate or, at the election of the shareholder, of another Fund or
a series of PIMCO Funds, at net asset value of such Fund or series, unless the
shareholder elects to receive cash. Dividends paid by each Fund are calculated
in the same manner and at the same time with respect to each class.
8. WAIVER OR REIMBURSEMENT OF EXPENSES
Expenses may be waived or reimbursed by any adviser or sub-adviser to the
Trust, by the Trust's underwriter or any other provider of services to the Trust
without the prior approval of the Trust's Board of Trustees.
9. EFFECTIVENESS OF PLAN
This Plan shall not take effect until it has been approved by votes of a
majority of both (a) the Trustees of the Trust and (b) the Independent Trustees
and supersedes all previous plans of the Trust adopted pursuant to Rule 18f-3
under the 1940 Act.
-7-
<PAGE>
10. MATERIAL MODIFICATIONS
This Plan may not be amended to modify materially its terms unless such
amendment is approved in the manner provided for initial approval hereof in
section 9 above.
11. LIMITATION OF LIABILITY
The Trustees of the Trust and the shareholders of each Fund shall not be
liable for any obligations of the Trust or any Fund under this Plan, and any
person, in asserting any rights or claims under this Plan, shall look only to
the assets and property of the Trust or such Funds in settlement of such right
or claim, and not to such Trustees or shareholders.
-8-
<PAGE>
Exhibit 11
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005-1208
(202) 636-3300
September 27, 1996
PIMCO Funds
840 Newport Center Drive
Suite 360
Newport Beach, California 92660
Dear Sirs:
We have acted as counsel to PIMCO Funds, a Massachusetts business trust
(the "Trust"), and we have a general familiarity with the Trust's business
operations, practices and procedures. You have asked for our opinion regarding
the issuance of shares of beneficial interest by the Trust in connection with
the acquisition by the High Yield Fund, a series of the Trust, of the assets of
the High Income Fund, a series of PIMCO Advisors Funds, a Massachusetts business
trust (the "PAF Trust"), the acquisition by the Total Return Fund, a series of
the Trust, of the assets of the Total Return Income Fund and the U.S. Government
Fund, both series of the PAF Trust, the acquisition by the Low Duration Fund, a
series of the Trust, of the assets of the Short-Intermediate Fund, a series of
the PAF Trust, and the acquisition of the Money Market Fund, a series of the
Trust, of the assets by the Money Market Fund, a series of the PAF Trust, which
will be registered on a Form N-14 Registration Statement (the "Registration
Statement") to be filed by the Trust with the Securities and Exchange
Commission.
We have examined originals or certified copies, or copies otherwise
identified to our satisfaction as being true copies, of various corporate
records of the Trust and such other instruments, documents and records as we
have deemed necessary in order to render this opinion. We have assumed the
genuineness of all signatures, the authenticity of all documents examined by us
and the correctness of all statements of fact contained in those documents.
On the basis of the foregoing, we are of the opinion that the shares of
beneficial interest of the Trust being registered under the Securities Act of
1933 in the Registration Statement will be legally and validly issued, fully
paid and non-assessable, upon transfer of assets pursuant to the terms of the
Agreement and Plan of Reorganization included in the Registration Statement.
We hereby consent to the filing of this opinion with and as part of the
Registration Statement.
Very truly yours,
/s/ Dechert Price & Rhoads
<PAGE>
EXHIBIT 13(l)
[Form of]
AMENDMENT DATED [DECEMBER 31,] 1996
TO
ADMINISTRATION AGREEMENT
DATED NOVEMBER 1, 1995
The Administration Agreement, dated as of November 1, 1995 (the
"Agreement") between PIMCO Funds (the "Trust"), a Massachusetts business trust,
and Pacific Investment Management Company (the "Administrator" or "PIMCO"), a
general partnership organized under the laws of California, is hereby amended as
follows:
(1) The second and third introductory paragraphs of the Agreement are
hereby amended so that said paragraphs read in their entirety as follows:
WHEREAS, the Trust is authorized to issue shares of beneficial
interest ("Shares") in separate series with each such series representing
interests in a separate portfolio of securities and other assets; and each
series of the Trust issues its Shares in five classes: Class A, Class B, Class
C, the Institutional Class and the Administrative Class, with each such class
representing interests in the same portfolio of securities and other assets; and
WHEREAS, the Trust has established nineteen series, which are
designated as the Money Market Fund; the Short-Term Fund; the Low Duration Fund;
the Low Duration Fund II; the Low Duration
<PAGE>
Fund III; the Moderate Duration Fund; the High Yield Fund; the Total Return
Fund; the Total Return Fund II; the Total Return Fund III; the Commercial
Mortgage Securities Fund; the Long-Term U.S. Government Fund; the Foreign Fund;
the Global Fund; the Global Income Fund; the International Fund; the StocksPLUS
Fund; the StocksPLUS Short Strategy Fund; and the Strategic Balanced Fund; such
series, together with any other series subsequently established by the Trust,
with respect to which the Trust desires to retain the Administrator to render
administrative services hereunder, and with respect to which the Administrator
is willing to do so, being herein collectively referred to also as the "Funds";
and
(2) Section 5 is hereby amended so that reads in its entirety as follows:
5. Compensation. As compensation for the services rendered under
------------
this Agreement, the Trust shall pay to the Administrator a monthly fee,
calculated as a percentage (on an annual basis) of the average daily value of
the net assets of each of the Funds during the preceding month. The fee rates
applicable to each Class of a Fund shall be set forth in a schedule to this
Agreement. The fees payable to the Administrator for all of the Funds shall be
computed and accrued daily and paid monthly. If the Administrator shall serve
for less than any whole month, the foregoing compensation shall be prorated.
- 2 -
<PAGE>
(3) In Section 7, Paragraph (h) of the expenses of the Trust is hereby
amended so that it reads as follows:
[The Trust shall bear the following expenses:]
(h) Any expenses allocated or allocable to a specific class
of shares, including fees paid pursuant to an administrative
services or distribution plan.
(4) Section 8 is hereby amended so that it reads in its entirety as
follows:
8. Liability. The Administrator shall give the Trust the benefit
---------
of the Administrator's best efforts in rendering services under this Agreement.
The Administrator may rely on information reasonably believed by it to be
accurate and reliable. As an inducement for the Administrator's undertaking to
render services under this Agreement, the Trust agrees that neither the
Administrator nor its stockholders, officers, directors, or employees shall be
subject to any liability for, or any damages, expenses or losses incurred in
connection with, any act or omission or mistake in judgment connected with or
arising out of any services rendered under this Agreement, except by reason of
willful misfeasance, bad faith, or gross negligence in performance of the
Administrator's duties, or by reason of reckless disregard of the
Administrator's obligations and duties
- 3 -
<PAGE>
under this Agreement. This provision shall govern only the liability to the
Trust of the Administrator and that of its stockholders, officers, directors,
and employees, and shall in no way govern the liability to the Trust or the
Administrator or provide a defense for any other person including persons that
provide services for the Funds as described in Section 2(b) of this Agreement.
(5) Term and Continuation. This Amendment to the Agreement shall take
---------------------
effect as of the date indicated above, and shall remain in effect, unless sooner
terminated as provided herein, for one year from such date, and shall continue
thereafter on an annual basis with respect to each Fund or class thereof
provided that such continuance is specifically approved at least annually (a) by
the vote of a majority of the Board of Trustees of the Trust, or (b) by vote of
a majority of the outstanding voting shares of the Fund or class, and provided
continuance is also approved by the vote of a majority of the Board of Trustees
of the Trust who are not parties to this Agreement or "interested persons" (as
defined in the 1940 Act) of the Trust, or PIMCO, cast in person at a meeting
called for the purpose of voting on such approval.
(a) This Agreement may be terminated with respect to the Institutional
Class and Administrative Class shares of the Funds (except for the Global
Income Fund):
- 4 -
<PAGE>
(i) by the Trust at any time with respect to the services
provided by the Administrator, by vote of a majority of the entire
Board of Trustees of the Trust or by a vote of a majority of the
outstanding voting shares of the Trust or, with respect to a
particular Fund, by vote of a majority of the outstanding voting
shares of the Administrative and Institutional Class shareholders of
such Fund, on 60 days' written notice to the Administrator;
(ii) at the expiration of the two-year period commencing the date
of its effectiveness (November 1, 1995), by the Administrator at any
time, without the payment of any penalty, upon 60 days' written notice
to the Trust.
(b) This Agreement may be terminated with respect to the Class A,
Class B or Class C Shares of the High Yield, Total Return, Low Duration,
and Money Market Funds, or with respect to any class of shares of the
Global Income Fund:
(i) by the Trust at any time with respect to the services
provided by the Administrator, without the payment of any penalty, by
vote of a majority of the entire Board of Trustees of the Trust or by
a vote of a majority of the outstanding voting shares of the Trust or,
with respect to a particular Fund or class, by vote
- 5 -
<PAGE>
of a majority of the outstanding voting shares of such Fund or class,
on 60 days' written notice to the Administrator;
(ii) at the expiration of the one-year period commencing on the
date of effectiveness of this Amendment, by the Administrator at any
time, without the payment of any penalty, upon 60 days' written notice
to the Trust.
(c) This agreement may be terminated with respect to the Class A,
Class B or Class C Shares of each Fund other than those Funds in Section
5(b) above:
(i) by the Trust at any time with respect to the services
provided by the Administrator, without the payment of any penalty, by
vote of a majority of the entire Board of Trustees of the Trust or by
a vote of a majority of the outstanding voting shares of the Trust or,
with respect to a particular Fund or class, by vote of a majority of
the outstanding voting shares of such Fund or class, on 60 days'
written notice to the Administrator;
(ii) by the Administrator at any time, without payment of any
penalty, upon 60 days' written notice to the Trust.
- 6 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this amendment to be executed
by their officers designated below on the day and year first above written.
PIMCO FUNDS
__________________________ By: __________________________________
Attest Title:
Title:
PACIFIC INVESTMENT MANAGEMENT COMPANY
__________________________ By: __________________________________
Attest Title:
Title:
- 7 -
<PAGE>
Schedule to
Administration Agreement
<TABLE>
<CAPTION>
Fee Rate
--------
Institutional
and
Administrative
Fund Classes (%) Class A, B and C (%)
---- ------------------------------------------- ----------------------------------------------
Custody and Other Custody and Other
Portfolio Accounting Expenses Total Portfolio Accounting Expenses Total
-------------------- -------- ----- -------------------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Money Market 0.10 0.10 0.20 0.10 0.25 0.35
Short-Term 0.10 0.10 0.20 0.10 0.25 0.35
Low Duration 0.10 0.08 0.18 0.10 0.30 0.40
Low Duration II 0.10 0.15 0.25 0.10 0.30 0.40
Low Duration III 0.10 0.15 0.25 0.10 0.30 0.40
Moderate Duration 0.10 0.15 0.25 0.10 0.30 0.40
High Yield 0.10 0.15 0.25 0.10 0.30 0.40
Total Return 0.10 0.08 0.18 0.10 0.30 0.40
Total Return II 0.10 0.15 0.25 0.10 0.30 0.40
Total Return III 0.10 0.15 0.25 0.10 0.30 0.40
Commercial Mortgage Securities 0.10 0.15 0.25 0.10 0.30 0.40
Long-Term U.S. Government 0.10 0.15 0.25 0.10 0.30 0.40
Foreign 0.10 0.15 0.25 0.10 0.35 0.45
Global 0.10 0.20 0.30 0.10 0.35 0.45
Global Income 0.10 0.20 0.30 0.10 0.35 0.45
International 0.10 0.15 0.25 0.10 0.35 0.45
StocksPLUS 0.10 0.15 0.25 0.10 0.30 0.40
StocksPLUS Short Strategy 0.10 0.15 0.25 0.10 0.30 0.40
Strategic Balanced 0.10 0.15 0.25 0.10 0.30 0.40
</TABLE>
- 8 -
<PAGE>
EXHIBIT 14(a)
Consent of Independent Accounts
We hereby consent to the incorporation by reference of our report dated May 10,
1996, relating to the financial statements and financial highlights appearing
in the Annual Report to Shareholders dated March 31, 1996 of PIMCO Funds, which
have been further incorporated into this registration statement of Form N-14 of
the PIMCO Funds. We also consent to the references to us under the heading
"Financial Highlights" in the Prospectus and under the headings "Independent
Accountants" and "Financial Statements" in the Statement of Additional
Information which are also incorporated by reference into this registration
statement of Form N-14 of the PIMCO Funds.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Kansas City, Missouri
September 26, 1996
<PAGE>
EXHIBIT 14(b)
Coopers & Lybrand, L.L.P.
a professional services firm
CONSENT OF INDEPENDENT ACCOUNTANTS
-----------------
We consent to the incorporation by reference in the Registration Statement on
Form N-14 of PIMCO Funds (on behalf of its High Yield Fund, Total Return Fund,
Low Duration Fund and Money Market Fund series) of our report dated November 16,
1995 on our audits of the financial statements and financial highlights of PIMCO
Advisors Funds dated July 12, 1996. We also consent to the reference to our firm
under the heading "Independent Accounts" in such Statement of Additional
Information, which is incorporated by reference into such Registration
Statement.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
New York, New York
September 26, 1996
<PAGE>
EXHIBIT 16
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Jeffrey L. Steele, Paul F. Roye, Jeffrey S. Puretz, and Robert W. Helm,
and each of them, his true and lawful attorney-in-fact and agent with full power
of substitution and resubstitution for him in his name, place, and stead, to
sign any and all registration statements applicable to PIMCO Funds (formerly
Pacific Investment Management Institutional Trust) and any amendments or
supplements thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
August 27, 1996 /s/ Brent R. Harris
-------------------
Brent R. Harris
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Jeffrey L. Steele, Paul F. Roye, Jeffrey S. Puretz, and Robert W. Helm,
and each of them, his true and lawful attorney-in-fact and agent with full power
of substitution and resubstitution for him in his name, place, and stead, to
sign any and all registration statements applicable to PIMCO Funds (formerly
Pacific Investment Management Institutional Trust) and any amendments or
supplements thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
August 27, 1996 /s/ Thomas P. Komo
------------------
Thomas P. Komo
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Jeffrey L. Steele, Paul F. Roye, Jeffrey S. Puretz, and Robert W. Helm,
and each of them, his true and lawful attorney-in-fact and agent with full power
of substitution and resubstitution for him in his name, place, and stead, to
sign any and all registration statements applicable to PIMCO Funds (formerly
Pacific Investment Management Institutional Trust) and any amendments or
supplements thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
August 27, 1996 /s/ Vern O. Curtis
------------------
Vern O. Curtis
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Jeffrey L. Steele, Paul F. Roye, Jeffrey S. Puretz, and Robert W. Helm,
and each of them, his true and lawful attorney-in-fact and agent with full power
of substitution and resubstitution for him in his name, place, and stead, to
sign any and all registration statements applicable to PIMCO Funds (formerly
Pacific Investment Management Institutional Trust) and any amendments or
supplements thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
August 27, 1996 /s/ William J. Popejoy
----------------------
William J. Popejoy
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Jeffrey L. Steele, Paul F. Roye, Jeffrey S. Puretz, and Robert W. Helm,
and each of them, his true and lawful attorney-in-fact and agent with full power
of substitution and resubstitution for him in his name, place, and stead, to
sign any and all registration statements applicable to PIMCO Funds (formerly
Pacific Investment Management Institutional Trust) and any amendments or
supplements thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
August 27, 1996 /s/ Guilford C. Babcock
-----------------------
Guilford C. Babcock
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Jeffrey L. Steele, Paul F. Roye, Jeffrey S. Puretz, and Robert W. Helm,
and each of them, his true and lawful attorney-in-fact and agent with full power
of substitution and resubstitution for him in his name, place, and stead, to
sign any and all registration statements applicable to PIMCO Funds (formerly
Pacific Investment Management Institutional Trust) and any amendments or
supplements thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
August 27, 1996 /s/ R. Wesley Burns
-------------------
R. Wesley Burns
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Jeffrey L. Steele, Paul F. Roye, Jeffrey S. Puretz, and Robert W. Helm,
and each of them, his true and lawful attorney-in-fact and agent with full power
of substitution and resubstitution for him in his name, place, and stead, to
sign any and all registration statements applicable to PIMCO Funds (formerly
Pacific Investment Management Institutional Trust) and any amendments or
supplements thereto, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
August 27, 1996 /s/ J. P. Hardaway
------------------
John P. Hardaway
