<PAGE>
PIMCO ADVISORS FUNDS
VALUE FUND
DISCOVERY FUND
----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
DECEMBER 20, 1996
----------------
To the Shareholders:
Notice is hereby given that a Special Meeting of Shareholders of the Value
Fund and the Discovery Fund (each an "Acquired Fund") will be held on Friday,
December 20, 1996 at 11:00 a.m. Eastern time at the offices of PIMCO Advisors
Funds at 2187 Atlantic Street, Stamford, Connecticut, to consider the
following:
1. TO BE VOTED UPON BY THE SHAREHOLDERS OF THE VALUE FUND ONLY: To
approve or disapprove an Agreement and Plan of Reorganization providing for
the transfer of all of the assets of the Value Fund to the NFJ Diversified
Low P/E Fund, a series of PIMCO Funds: Equity Advisors Series (the "New
Value Fund"), in exchange for shares of the New Value Fund and the
assumption by the New Value Fund of all of the liabilities of the Value
Fund, and the distribution of such shares to the shareholders of the Value
Fund in complete liquidation of the Value Fund.
2. TO BE VOTED UPON BY THE SHAREHOLDERS OF THE DISCOVERY FUND ONLY: To
approve or disapprove an Agreement and Plan of Reorganization providing for
the transfer of all of the assets of the Discovery Fund to the Cadence Mid
Cap Growth Fund, a series of PIMCO Funds: Equity Advisors Series (the "Mid
Cap Fund"), in exchange for shares of the Mid Cap Fund and the assumption
by the Mid Cap Fund of all of the liabilities of the Discovery Fund, and
the distribution of such shares to the shareholders of the Discovery Fund
in complete liquidation of the Discovery Fund.
3. To transact such other business as may properly come before the
meeting.
The Trustees have fixed the close of business on October 18, 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
November 4, 1996
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.
<PAGE>
PROSPECTUS/PROXY STATEMENT
ACQUISITION OF THE ASSETS OF: BY AND IN EXCHANGE FOR SHARES OF:
Value Fund NFJ Diversified Low P/E Fund
Discovery Fund Cadence Mid Cap Growth Fund
EACH A SERIES OF: EACH A SERIES OF:
PIMCO Advisors Funds PIMCO Funds: Equity Advisors Series
2187 Atlantic Street 840 Newport Center Drive, Suite 360
Stamford, Connecticut 06902 Newport Beach, California 92660
1-800-426-0107 1-800-927-4648
This Prospectus/Proxy Statement relates to the proposed mergers (the
"Mergers") of the Value Fund and the Discovery Fund (each an "Acquired Fund"),
series of PIMCO Advisors Funds (the "PAF Trust"), into, respectively, the NFJ
Diversified Low P/E Fund (to be renamed the "PIMCO Value Fund") and the
Cadence Mid Cap Growth Fund (to be renamed the "PIMCO Mid Cap Growth Fund")
(each an "Acquiring Fund"), series of PIMCO Funds: Equity Advisors Series (the
"PFEAS 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) The NFJ Diversified Low P/E Fund seeks long-term growth of capital
and income. It invests primarily in common stocks with below-average price
to earnings ratios relative to their industry group.
(2) The Cadence Mid Cap Growth Fund seeks growth of capital. It invests
primarily in common stocks of companies with market capitalizations in
excess of $500 million that have improving fundamentals and whose stock is
reasonably valued by the market.
The PFEAS Trust, formerly PIMCO Advisors Institutional Funds, is an open-end
series management investment company, organized as a Massachusetts business
trust in 1990, that currently offers shares of 13 separate funds. Each
Acquiring Fund is a diversified series of the PFEAS Trust.
Following the Mergers and similar transactions, it is anticipated that the
PFEAS Trust will be renamed "PIMCO Funds: Multi-Manager Series" to better
reflect its management structure; the NFJ Diversified Low P/E Fund will be
renamed the "PIMCO Value Fund"; and the Cadence Mid Cap Growth Fund will be
renamed the "PIMCO Mid Cap Growth Fund." Because of this, the NFJ Diversified
Low P/E Fund and the Cadence Mid Cap Growth Fund are sometimes referred to in
this Prospectus/Proxy Statement as the "New Value Fund" and the "Mid Cap
Fund," respectively.
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.
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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 PFEAS Trust, each dated September 15, 1996, as amended or
supplemented from time to time (the "PFEAS Prospectus" and the "PFEAS
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 PFEAS
Trust's Annual Report to Shareholders for the fiscal year ended June 30, 1996
(the "PFEAS Annual Report"); and (vi) a Statement of Additional Information
dated November 4, 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 PFEAS 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.
2
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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/or its affiliates. The restructuring involves, among
other components, several mergers between Funds in the PIMCO Mutual Funds
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
PFEAS 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 shares of the Acquiring Fund and for the assumption by the
Acquiring Fund of all of the liabilities of the Acquired Fund. The completion
of these transactions will result in the liquidation of each Acquired Fund.
PIMCO Advisors is the investment adviser to both Acquired Funds and to both
Acquiring Funds. PIMCO Advisors has delegated responsibility for managing the
portfolio of (i) each of the Value Fund and the New Value Fund to NFJ
Investment Group ("NFJ"), a subsidiary partnership of PIMCO Advisors, and (ii)
each of the Discovery Fund and the Mid Cap Fund to Cadence Capital Management
("Cadence"), another subsidiary partnership of PIMCO Advisors. The day-to-day
operations of the Value Fund and the New Value Fund are handled by the same
portfolio management team at NFJ. Similarly, the day-to-day operations of the
Discovery Fund and the Mid Cap Fund are handled by the same portfolio
management team at Cadence. Furthermore, as explained further below under
"Comparison of Investment Objectives, Policies and Restrictions," each
Acquiring Fund is managed in a similar manner to the corresponding Acquired
Fund, except that the Discovery Fund tends to place relatively greater
emphasis on stocks of companies with smaller capitalizations while the Mid Cap
Fund tends to place relatively greater emphasis on stocks of companies with
larger capitalizations.
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 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
respective 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 18 months 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 seven 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
3
<PAGE>
automatically to Class A shares seven 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 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 substantially lower levels
than have historically been experienced. See "Background and Reasons for the
Proposed Mergers."
OPERATING EXPENSES
The PFEAS 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. 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 its administrator, which bears the costs of such third-
party services to the Fund, as well as itself providing administrative
services to the Fund, in exchange for the administrative fee. The result of
this "unified" fee structure is an expense level for each Acquiring Fund that,
with limited exceptions, is precise and predictable under ordinary
circumstances. Furthermore, during the term of the Acquiring Funds'
administration agreement (initially, one year), investors in the Acquiring
Funds are, under ordinary circumstances, 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. The Acquiring Funds' administrator is currently Pacific
Investment Management Company ("PIMCO"), a subsidiary partnership of PIMCO
Advisors, but PIMCO Advisors is expected to become the Acquiring Funds'
administrator at or about the time of the Mergers. Administrative fee
arrangements for the Acquired Funds and the Acquiring Funds are discussed
further under "Information About the Mergers--Administrative Arrangements"
below.
For information about the expenses associated with the Mergers, see
"Information About the Mergers."
As the following tables demonstrate, each Merger would result in Value and
Discovery Fund shareholders receiving an immediate and significant reduction
in the level of Fund expenses borne by such shareholders compared to current
expenses. 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, 1996 (unaudited), and (ii) that each
4
<PAGE>
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 which follow 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.
<TABLE>
<CAPTION>
CURRENT EXPENSES
VALUE FUND
(FOR FISCAL YEAR ENDED PRO FORMA
SEPT. 30, 1996) EXPENSES
(UNAUDITED) NEW VALUE FUND
---------------------- --------------
<S> <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)....................... 5.50% 5.50%
Maximum contingent deferred sales
charge (as a percentage of original
purchase price)(2).................... 1.00%(3) 1.00%(3)(4)
ANNUAL FUND OPERATING EXPENSES (AS A
PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee........................... 0.70% 0.45%
Administrative Fee..................... 0.40%
12b-1 Fees............................. 0.25% 0.25%
Other Expenses......................... 0.38% -- (6)
---- ----
Total Fund Operating Expenses......... 1.33% 1.10%
CLASS B SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum initial sales charge imposed on
purchases (as a percentage of
offering price)....................... None None
Maximum contingent deferred sales
charge (as a percentage of original
purchase price)(2).................... 5.00% 5.00%(4)
ANNUAL FUND OPERATING EXPENSES (AS A
PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee........................... 0.70% 0.45%
Administrative Fee..................... 0.40%
12b-1 Fees............................. 1.00%(5) 1.00%(5)
Other Expenses......................... 0.38% -- (6)
---- ----
Total Fund Operating Expenses......... 2.08% 1.85%
CLASS C SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum initial sales charge imposed on
purchases (as a percentage of
offering price)....................... None None
Maximum contingent deferred sales
charge (as a percentage of original
purchase price)(2).................... 1.00% 1.00%(4)
ANNUAL FUND OPERATING EXPENSES (AS A
PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee........................... 0.70% 0.45%
Administrative Fee..................... 0.40%
12b-1 Fees............................. 1.00%(5) 1.00%(5)
Other Expenses......................... 0.38% -- (6)
---- ----
Total Fund Operating Expenses......... 2.08% 1.85%
</TABLE>
Footnotes appear on the following page.
5
<PAGE>
<TABLE>
<CAPTION>
CURRENT EXPENSES
DISCOVERY FUND
(FOR FISCAL YEAR ENDED PRO FORMA
SEPT. 30, 1996) EXPENSES
(UNAUDITED) MID CAP FUND
---------------------- ------------
<S> <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)....................... 5.50% 5.50%
Maximum contingent deferred sales
charge (as a percentage of original
purchase price)(2).................... 1.00%(3) 1.00%(3)(4)
ANNUAL FUND OPERATING EXPENSES (AS A
PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee........................... 0.75% 0.45%
Administrative Fee..................... 0.40%
12b-1 Fees............................. 0.25% 0.25%
Other Expenses......................... 0.40% -- (6)
---- ----
Total Fund Operating Expenses......... 1.40% 1.10%
CLASS B SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum initial sales charge imposed on
purchases (as a percentage of
offering price)....................... None None
Maximum contingent deferred sales
charge (as a percentage of original
purchase price)(2).................... 5.00% 5.00%(4)
ANNUAL FUND OPERATING EXPENSES (AS A
PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee........................... 0.75% 0.45%
Administrative Fee..................... 0.40%
12b-1 Fees............................. 1.00%(5) 1.00%(5)
Other Expenses......................... 0.40% -- (6)
---- ----
Total Fund Operating Expenses......... 2.15% 1.85%
CLASS C SHARES
SHAREHOLDER TRANSACTION EXPENSES
Maximum initial sales charge imposed on
purchases (as a percentage of
offering price)....................... None None
Maximum contingent deferred sales
charge (as a percentage of original
purchase price)(2).................... 1.00% 1.00%(4)
ANNUAL FUND OPERATING EXPENSES (AS A
PERCENTAGE OF AVERAGE NET ASSETS)
Advisory Fee........................... 0.75% 0.45%
Administrative Fee..................... 0.40%
12b-1 Fees............................. 1.00%(5) 1.00%(5)
Other Expenses......................... 0.40% -- (6)
---- ----
Total Fund Operating Expenses......... 2.15% 1.85%
</TABLE>
- --------
(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" below 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 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) 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
0.01%.
6
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EXAMPLES
An investment of $1,000 would incur the following expenses, assuming (1)
a 5% annual return and (2) no redemption:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A shares:
Value Fund (Current)..................... $68 $95 $124 $206
New Value Fund (Pro Forma)............... $66 $88 $112 $182
Discovery Fund (Current)................. $68 $97 $127 $214
Mid Cap Fund (Pro Forma)................. $66 $88 $112 $182
Class B shares:
Value Fund (Current)..................... $21 $65 $112 $212
New Value Fund (Pro Forma)............... $19 $58 $100 $188
Discovery Fund (Current)................. $22 $67 $115 $220
Mid Cap Fund (Pro Forma)................. $19 $58 $100 $188
Class C shares:
Value Fund (Current)..................... $21 $65 $112 $241
New Value Fund (Pro Forma)............... $19 $58 $100 $217
Discovery Fund (Current)................. $22 $67 $115 $248
Mid Cap Fund (Pro Forma)................. $19 $58 $100 $217
</TABLE>
An investment of $1,000 would incur the following expenses, assuming (1)
a 5% annual return and (2) redemption at the end of each period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Class A shares:
Value Fund (Current)..................... $68 $95 $124 $206
New Value Fund (Pro Forma)............... $66 $88 $112 $182
Discovery Fund (Current)................. $68 $97 $127 $214
Mid Cap Fund (Pro Forma)................. $66 $88 $112 $182
Class B shares:
Value Fund (Current)..................... $71 $95 $132 $212
New Value Fund (Pro Forma)............... $69 $88 $120 $188
Discovery Fund (Current)................. $72 $97 $135 $220
Mid Cap Fund (Pro Forma)................. $69 $88 $120 $188
Class C shares:
Value Fund (Current)..................... $31 $65 $112 $241
New Value Fund (Pro Forma)............... $29 $58 $100 $217
Discovery Fund (Current)................. $32 $67 $115 $248
Mid Cap Fund (Pro Forma)................. $29 $58 $100 $217
</TABLE>
The examples for Class A shares assume payment of the current maximum
applicable sales load.
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<PAGE>
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 similar to those of the corresponding Acquired Fund except as
otherwise noted. Both the Discovery Fund and the Mid Cap Fund emphasize medium
capitalization stocks. However, the Discovery Fund has placed relatively
greater emphasis than the Mid Cap Fund on stocks of companies with smaller
capitalizations, and the Mid Cap Fund has historically placed a greater
emphasis than the Discovery Fund on stocks of companies with larger
capitalizations. The investment objectives, policies and restrictions of the
Acquired Funds and the Acquiring Funds, and certain differences between them,
are summarized below.
Value Fund vs. New Value Fund
The investment objective of both Funds is long-term growth of capital and
current income. The Value Fund invests primarily in common stocks of companies
that are characterized by having below-average price to earnings ("P/E")
ratios and/or higher dividend yields relative to their industry groups. The
Value Fund may also invest in convertible securities and, for temporary
defensive purposes, money market instruments.
The New Value Fund invests primarily (normally at least 65% of its assets)
in common stocks characterized by having below-average P/E ratios relative to
their industry group. The Fund may also invest in convertible securities,
preferred stock, warrants (subject to certain limitations) and American
Depositary Receipts ("ADRs").
The Value Fund may invest up to 15% of its assets in securities which are
traded principally in securities markets outside of the United States and may
also invest without limit in securities of foreign issuers that are traded in
U.S. securities markets. Conversely, the New Value Fund does not invest in the
securities of foreign issuers except to a limited extent through ADRs.
Both Funds may engage in repurchase agreements, reverse repurchase
agreements and other borrowings and can lend their portfolio securities to
brokers, dealers and other financial institutions to earn income. Unlike the
Value Fund, the New Value Fund does not engage in transactions involving
options and futures contracts, foreign currencies and forward foreign currency
contracts.
Both Funds may invest in illiquid securities. While the Value Fund may
invest up to 15% of its net assets in illiquid securities, the New Value Fund
may not invest more than 10% of its net assets in illiquid securities.
Discovery Fund vs. Mid Cap Fund
The investment objective of the Discovery Fund is capital appreciation, with
no consideration given to income. The Fund invests primarily in common stocks
of companies with equity capitalizations of $500 million to $1 billion which
exhibit favorable growth characteristics and reasonable valuations. The Fund
may also invest in convertible securities and, for temporary defensive
purposes, money market instruments.
8
<PAGE>
The investment objective of the Mid Cap Fund is growth of capital. The Fund
invests primarily in common stocks of middle capitalization companies that
have improving fundamentals (such as growth of earnings and dividends) and
whose stock is reasonably valued by the market. The Fund usually invests in
approximately 60 to 100 common stocks selected from a universe of stocks with
market capitalizations in excess of $500 million at the time of investment,
excluding the 200 companies with the highest market capitalization. The Fund
may also invest in convertible securities, preferred stock, warrants (subject
to certain limitations) and ADRs.
While each of the Discovery and Mid Cap Funds emphasize companies with
capitalizations in excess of $500 million, the Discovery Fund has placed
primary emphasis on companies with capitalizations below $1 billion while the
Mid Cap Fund has placed relatively greater emphasis on companies with
capitalizations above $1 billion. Consequently, in connection with the
proposed Merger, it is expected that approximately one-third of the Discovery
Fund's portfolio (consisting of smaller capitalization companies) will be
liquidated and that a substantial portion of the proceeds will be used to
purchase stocks of companies with capitalizations ranging from approximately
$1 billion upward.
The Discovery Fund may invest up to 15% of its assets in securities which
are traded principally in securities markets outside of the United States and
may also invest without limit in securities of foreign issuers that are traded
in U.S. securities markets. Conversely, the Mid Cap Fund does not invest in
the securities of foreign issuers except to a limited extent through ADRs.
Both Funds may engage in repurchase agreements, reverse repurchase
agreements and other borrowings. The two Funds may also lend their portfolio
securities to brokers, dealers and other financial institutions to earn
income. The Discovery Fund, unlike the Mid Cap Fund, may engage in
transactions involving options and futures contracts, foreign currencies and
forward foreign currency contracts for hedging purposes. The Discovery Fund
may also purchase and sell (write) put and call options and stock index
options, purchase warrants, and make short sales of securities.
Both Funds can invest to a limited degree in illiquid securities. While the
Discovery Fund may invest up to 15% of its net assets in illiquid securities,
the Mid Cap Fund may not invest more than 10% of its net assets in these
securities.
David B. Breed, William B. Bannick, Katherine A. Burdon, Eric M. Wetlaufer
and Peter B. McManus, all of Cadence, are primarily responsible for the
management of the Discovery Fund and the Mid Cap Fund.
COMPARISON OF DISTRIBUTION POLICIES AND PURCHASE, EXCHANGE AND REDEMPTION
PROCEDURES
Each Acquired Fund and each Acquiring Fund distributes any net income at
least annually. The Discovery Fund and Mid Cap Fund declare and pay dividends
annually and the Value Fund and the New Value Fund declare and pay dividends
quarterly. Each Fund distributes any net realized capital gains at least
annually.
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 (which will be renamed "PIMCO Funds
Distribution Company" at or about the time of the Mergers) (the
"Distributor"), the principal underwriter of the PAF Trust, the PFEAS Trust
and PIMCO Funds: Pacific Investment Management Series ("PIMS"), a series
investment company affiliated with the PAF Trust and the PFEAS Trust that
currently offers 18 mostly fixed-income mutual funds, or through other broker-
dealers that have dealer agreements with the Distributor or have agreed to act
as introducing brokers for the Distributor.
9
<PAGE>
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 most of the other funds offered by either the PFEAS Trust
or by PIMS.
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 similar to the risks of an investment in the
corresponding Acquired Fund. Certain risks associated with an investment in
the Acquiring Funds are summarized below and compared with the corresponding
risks associated with an investment in the Acquired Funds. Except as noted
below, investments in each Acquiring Fund and its corresponding Acquired Fund
are generally subject to similar risks. 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."
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 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. It is the policy of the
Acquiring Funds, which invest primarily in common stock, to be as fully
invested as practicable in such securities at all times. This policy precludes
the Acquiring Funds from investing in debt securities as a defensive
investment posture (unlike the Acquired Funds, which may invest defensively
when conditions warrant), although the Acquiring Funds may invest in such
securities to provide for payment of expenses and to meet redemption requests.
Accordingly, investors in the Acquiring Funds bear the risk of general
declines in stock prices, and bear any risk that the Acquiring Fund's exposure
to such declines cannot be lessened by investing defensively.
Foreign Securities. Securities of foreign issuers 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. The Acquiring Funds, whose foreign
investments are limited to ADRs, may be exposed to less risk from foreign
investments than the Acquired Funds, which have the flexibility to invest more
significantly in foreign securities.
Low Capitalization Stocks. The Acquiring Funds, like the Acquired Funds, may
invest in common stock of companies that are smaller and have lower market
capitalizations than other publicly traded companies. The securities of
smaller, less seasoned companies may be subject to more abrupt or erratic
market movements than larger, more established companies. These companies may
have limited product lines, markets or financial resources, or may be
dependent upon a limited management group. As a result, the disposition of
securities to meet redemptions may require the Fund to sell these securities
at a disadvantageous time or at disadvantageous
10
<PAGE>
prices, or to make many small sales over a lengthy period of time. As
described above, the Discovery Fund has historically invested to a greater
extent in companies with smaller market capitalizations than has the Mid Cap
Fund, and thus the Mid Cap Fund may be subject to the foregoing risks to a
lesser extent than the Discovery Fund.
Repurchase Agreements. Investing in repurchase agreements subjects the
Acquiring Funds, like the Acquired Funds, to the risk that the default or
bankruptcy of the other party to the repurchase agreement could subject the
Fund to expenses, delays and risk of loss on the securities subject thereto.
The Acquiring Funds limit their investments in repurchase agreements maturing
in more than seven days and other illiquid securities to no more than 10% of
net assets, consistent with the Funds' policies on investments in illiquid
securities, while the limit for the Acquired Funds is 15% of net assets.
Reverse Repurchase Agreements and Borrowings. Reverse repurchase agreements
and borrowings subject each of the Acquiring Funds, like the Acquired Funds,
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. Unlike the Acquired Funds, the Acquiring Funds subject reverse repurchase
agreements to the Acquiring Funds' overall borrowing limit of 33 1/3% of a
Fund's total assets. The Acquired Funds are subject to an overall borrowing
limitation of 10% of a Fund's total assets (not including the amount
borrowed).
Loans of Portfolio Securities. The Acquired Funds and the Acquiring Funds
may 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.
Illiquid Securities. The Acquired Funds and the Acquiring Funds share
similar risks for investments in illiquid securities--specifically, higher
transaction costs. The Acquiring Funds may be exposed to slightly less risk,
however, since they limit their investments in illiquid securities to no more
than 10% of net asset value at the time of the investment, whereas each
Acquired Fund may invest up to 15% of its net asset value in illiquid
securities.
Derivative Instruments. The Acquiring Funds may not invest in derivative
instruments, unlike the Acquired Funds, which may enter into options and
futures contracts for hedging purposes or as a part of their investment
strategies. Neither the Acquiring Funds nor the Acquired Funds can engage in
swap agreements. Use of derivative 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.
SPECIAL MEETING OF SHAREHOLDERS
This Prospectus/Proxy Statement is furnished in connection with a Special
Meeting of Shareholders to be held on December 20, 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 November 4, 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.
11
<PAGE>
PROPOSALS 1 AND 2:
APPROVAL OR DISAPPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION
The shareholders of the Value Fund are being asked to approve or disapprove
a Merger between the Value Fund and the New Value Fund (Proposal 1) and the
shareholders of the Discovery Fund are being asked to approve or disapprove a
Merger between the Discovery Fund and the Mid Cap Fund (Proposal 2). 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 1, 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 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' Recommendations. 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 shares of the Acquired Fund
entitled to vote, present in person or represented by proxy, shall constitute
a quorum for the transaction of business for such Fund.
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 PFEAS Trust or PIMS, at net asset value at
the time of such exchange. See "Exchange Privilege" in Appendix B.
Each proposed Merger is subject to a number of conditions, including the
approval of the shareholders of both the relevant Acquired Fund and the
corresponding Acquiring Fund. A meeting of shareholders of each Acquiring Fund
will be held on or about December 20, 1996 to vote on the approval of the
Mergers. In the event that any Merger is not approved by the shareholders of
both the Acquired Fund and the Acquiring 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.
12
<PAGE>
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 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
Funds will be bearing a portion of the expenses associated with the Mergers,
including those described under "Information About the Mergers." The Trustees
also considered, in determining that the interests of shareholders would not
be diluted, the unrealized capital appreciation in each Acquiring Fund as
compared to the unrealized capital appreciation in the corresponding Acquired
Fund, in each case as a percentage of the Fund's total net assets. Those
percentages as of June 30, 1996 were as follows:
<TABLE>
<CAPTION>
UNREALIZED CAPITAL APPRECIATION
(AS A PERCENTAGE OF TOTAL NET ASSETS)
NAME OF FUND ON JUNE 30, 1996
------------ -------------------------------------
<S> <C>
New Value Fund......................... 6.0%
Value Fund............................. 7.0%
Mid Cap Fund........................... 13.4%
Discovery Fund......................... 10.3%
</TABLE>
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 Acquired Fund's expenses will be
spread, which, in part, has allowed the Trustees of the PFEAS Trust to
approve agreements that provide total fees and expenses at more favorable
rates and allow Acquired Fund shareholders to benefit from breakpoints in
administrative fees. As described more fully in the Overview under
"Operating Expenses," total expenses for each Acquired Fund will decline
immediately as a result of the Mergers.
(ii) Unified fee structure. Under the PFEAS 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. During the term of the Acquiring Funds' administration
agreement (initially, one year), Acquired Fund shareholders will also be
insulated, under ordinary circumstances, from price increases in third-
party services and from associated increased expense ratios arising from a
decline in net assets. On the other hand, under the terms of the
administration agreement, the Acquiring Funds' administrator and not the
shareholders would benefit from any price decreases in third-party services
and from decreased expense ratios arising from an increase in net assets.
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
similar to those of the corresponding Acquired 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.
13
<PAGE>
(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 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.
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 17, 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 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.
14
<PAGE>
The consummation of each Merger is subject to the conditions set forth in
the Agreement (any of which may be waived), which conditions include, among
others, the approval of the PFEAS shareholders of (a) a Second Amended and
Restated Declaration of Trust, as described below in "Declaration of Trust,"
and (b) the election of the Trustees of the PAF Trust to the Board of Trustees
of the PFEAS Trust. 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 Trustees on behalf of
the Acquired and Acquiring 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. In general, the Relevant Expense Caps
represent a percentage (approximately 50%) of the projected aggregate savings
in advisory and administrative fees for shareholders of the Acquired Funds
under the Acquiring Funds' "unified" fee structure for the first year
following the effective date of the Mergers. The currently estimated
restructuring expenses to be borne by the Funds and the Relevant Expense Caps
are as follows:
<TABLE>
<CAPTION>
NAME OF FUND CURRENT EXPENSE ESTIMATE RELEVANT EXPENSE CAP
------------ ------------------------ --------------------
<S> <C> <C>
New Value Fund................. $20,000 $20,000
Value Fund..................... $55,000 $70,496
Mid Cap Fund................... $20,000 $20,000
Discovery Fund................. $46,355 $46,355
</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 Internal Revenue Code.
In addition to the foregoing, as noted above, it is anticipated that the
Discovery Fund may restructure up to one-third of its portfolio in
anticipation of its Merger with the Mid Cap Fund. Brokerage expenses
associated with such restructuring have been estimated by PIMCO Advisors to be
as much as $75,000.
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 characteristics
identical 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 5.50% 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
15
<PAGE>
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 Fund's Class A shares. Class B shares of the Acquiring Funds are sold
without a front end sales charge, but are subject to a CDSC of up to 5% if
redeemed within seven years of original purchase. Class B shares of the
Acquiring Funds are also subject to 12b-1 distribution and servicing fees at
the annual rates of 0.75% and 0.25%, respectively, of the 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 front
end 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 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 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 currently serves (and PIMCO Advisors from
and after the Mergers will serve) 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 pays the
administrator an administrative fee at the annual rate of 0.40% of the first
$2.5 billion of the average daily net assets attributable in the aggregate to
each Fund's Class A, Class B and Class C shares and 0.35% of such assets in
excess of $2.5 billion.
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 PFEAS Trust's executive officers and
employees who are not officers, directors, stockholders, or employees of PIMCO
Advisors, PIMCO, or their 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 the PFEAS Trust, the Adviser, PIMCO or the sub-advisers
("Portfolio Managers") to the funds in the PFEAS 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
PFEAS 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 THE 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
16
<PAGE>
over time through the receipt of distribution fees in connection with the
Acquired 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 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 PFEAS 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.
As of June 30, 1996, the expenses incurred by the Distributor in
distributing shares of the PAF Trust were approximately $3,298,000 in excess
of payments under the PAF Trust's Distribution and Servicing Plan with respect
to Class C shares and $8,948,000 in excess of payments under the PAF Trust's
Distribution and Servicing Plan with respect to Class B shares.
DECLARATION OF TRUST. As part of the overall restructuring of the PIMCO
Mutual Funds (of which the proposed Mergers are a part), the PFEAS Trust's
Trustees have proposed to the PFEAS Trust's shareholders that they approve a
Second Amended and Restated Declaration of Trust (the "Proposed PFEAS
Declaration"), which would take the place of the current Agreement and
Declaration of Trust, as amended, of the PFEAS Trust (the "Current PFEAS
Declaration"). If the Proposed PFEAS Declaration is approved by the PFEAS
Trust's shareholders, it would become effective concurrently with the
effectiveness of the proposed Mergers. The PFEAS Trust's shareholders will
vote on the approval of the Proposed PFEAS Declaration on or about December
20, 1996. PAF Trust shareholders do not vote on the Proposed PFEAS
Declaration.
The Proposed PFEAS Declaration is substantially identical to the provisions
of the PAF Declaration of Trust. Thus, if the Proposed PFEAS Declaration is
approved, the Mergers would result in each Acquired Fund's shareholders
receiving shares in an entity governed by substantially identical provisions
to the entity in which they now hold shares. As noted above, the approval of
the Proposed PFEAS Declaration is a condition to the consummation of the
Mergers. However, if the Proposed PFEAS Declaration is not approved by the
PFEAS Trust's shareholders and the PAF Trust nonetheless proceeds with the
Mergers, then the Merger Shares would be governed by the provisions of the
Current PFEAS Declaration. Regardless of whether the Proposed PFEAS
Declaration is approved, the PFEAS Trust, like the PAF Trust, will be governed
by Massachusetts law, and the PFEAS Trust's operations, like those of the PAF
Trust, will remain subject to the provisions of the 1940 Act and the rules
thereunder.
Each of the Merger Shares will be fully paid and nonassessable by the PFEAS
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 Current PFEAS 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. At the time of each Merger, each
Acquiring Fund's shares will be 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 Current PFEAS Declaration disclaims
shareholder liability for acts or obligations of the PFEAS 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 PFEAS
Trust, the Acquiring Funds or the Trustees. The Current PFEAS Declaration
provides for indemnification out of Acquiring Fund property for all loss and
expense of any shareholder held personally
17
<PAGE>
liable for the obligations of the Acquiring Fund as a result of holding shares
of the Acquiring Fund. Thus, the risk of a shareholder's incurring financial
loss from shareholder liability is limited to circumstances in which such
disclaimer was inoperative and the Acquiring Fund was 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.
Certain differences between the Current PFEAS Declaration and the Proposed
PFEAS Declaration are summarized below:
Shareholder Voting Requirements--Generally. The Current PFEAS 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 (i.e.,
plurality, majority, supermajority), the circumstances in which shareholders
may call and hold meetings, and other information concerning shareholders'
general voting rights. The Proposed PFEAS Declaration states that shareholders
shall have power to vote as is provided for in, and may hold meetings and take
actions pursuant to, the provisions of the proposed Bylaws (the "Proposed
Bylaws"), which have been unanimously adopted by the PFEAS Trust's Trustees
contingent upon a favorable vote of the shareholders of the PFEAS Trust on the
Proposed PFEAS Declaration. The Proposed Bylaws, which are substantially
identical to the Bylaws currently in effect for PAF, in turn provide all
details regarding (i) the matters on which shareholders are entitled to vote,
(ii) the size of the vote required for approval of each matter and (iii) the
circumstances in which shareholders may call and hold meetings. The Proposed
Bylaws provide shareholders with voting powers which, with certain exceptions
as described in greater detail below, are substantially similar to the powers
provided for in the Current PFEAS Declaration. Under both the Current PFEAS
Declaration and the Proposed Bylaws, shareholders have the power 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 time as fewer than a majority of the Trustees have been
elected by the shareholders; (ii) with respect to any manager or sub-adviser
to the extent required by the 1940 Act; (iii) with respect to the termination
of the Trust; (iv) with respect to amendments to the Declaration of Trust
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 PFEAS Trust or its shareholders; and (vi) with respect to such additional
matters relating to the PFEAS Trust as may be required by law, the relevant
declaration of trust and bylaws or any registration statement of the PFEAS
Trust, or as the Trustees consider necessary or desirable.
Both the Current PFEAS Declaration and the Proposed PFEAS Declaration
provide that any amendment thereto that adversely affects the rights of
shareholders may be adopted only by an instrument in writing signed by a
majority of the then Trustees when authorized to do so by the vote of a
majority of the shares entitled to vote. However, the Proposed PFEAS
Declaration also provides that if fewer than all shareholders are affected by
an amendment, only the vote of the shareholders of those series or classes
affected by the amendment shall be required to vote on the amendment. The
Proposed Bylaws may be amended or repealed, in whole or in part, by a majority
of the Trustees then in office at any meeting of the Trustees, or by one or
more writings signed by such a majority. Although no shareholder vote would be
required to amend any portion of the Proposed Bylaws, including portions
setting forth shareholder voting rights, the PFEAS Trust would still be
subject to shareholder rights required by the 1940 Act and the rules and
regulations thereunder, the Securities and Exchange Commission and/or any
applicable state laws. Thus, under current law, (i) Trustees must be elected
by shareholders under certain circumstances, (ii) investment advisory
contracts must still be approved by a vote of at least a majority of the PFEAS
Trust's outstanding voting securities, (iii) distribution plans must still be
approved by a vote of at least a majority of outstanding voting securities and
(iv) auditors must still be selected annually at an annual meeting of
shareholders if such a meeting is held.
18
<PAGE>
Shareholder Voting Requirements--Reorganizations. The Current PFEAS
Declaration provides that shareholders shall have the power to vote with
respect to any proposed transaction whereby the PFEAS Trust, or any one or
more series thereof, merges into or consolidates with one or more trusts,
partnerships or associations. The term "merger" is in turn defined to include
any purchase or acquisition of any assets of another investment company. Under
the Current PFEAS Declaration, any such consolidation or merger requires a
Majority Shareholder Vote of each Series affected thereby. As used in the
Current PFEAS Declaration, the term "Majority Shareholder Vote" means, with
respect to the PFEAS Trust or any series eligible to vote (as the case may
be), the lesser of (A) 67% or more of the voting securities present at a
meeting, if the holders of more than 50% of the outstanding voting securities
of the PFEAS Trust or such series are present or represented by proxy; or (B)
more than 50% of the outstanding voting securities of the PFEAS Trust or such
series. Neither the Proposed PFEAS Declaration nor the Proposed Bylaws
requires any shareholder vote with respect to any proposed transaction whereby
the PFEAS Trust, or any one or more series thereof, as successor, survivor, or
non-survivor, consolidates with, merges into, or has merged into it, one or
more trusts, partnerships or associations. Under the Proposed PFEAS
Declaration and Proposed Bylaws, the shareholders would be entitled to vote
if, and to the extent that, the Trustees consider such a vote to be necessary
or desirable. Historically, the PAF Trust's Trustees have concluded that it
would be necessary or desirable for shareholders of the funds in the PAF Trust
to approve or disapprove a merger where the PAF Trust fund was not the
survivor. There can be no assurance that the PFEAS Trust's Trustees would
reach a similar conclusion or that they would do so in all cases.
Multi-Class Structure--Permitted Differences Between Classes. The Current
PFEAS Declaration provides that all shares of the PFEAS Trust or of any series
shall be identical to all other shares of the PFEAS Trust or the same series,
as the case may be, except that there may be variations between different
classes as to allocation of expenses, rights of redemption, special and
relative rights as to dividends, and on liquidation, conversion rights, and
conditions under which the several classes shall have separate voting rights.
The Proposed PFEAS Declaration does not enumerate the permitted ways in which
two or more classes of shares may differ but affords to the Trustees the right
to assign them such preferences and special or relative rights and privileges
(including conversion rights, if any) as the Trustees may determine or as
shall be set forth in the Proposed Bylaws.
Most series of the PFEAS Trust currently offer two classes of shares,
Institutional Class and Administrative Class shares, the primary difference
between the two classes being whether or not a service fee is charged. The
PFEAS Trust also expects that, in connection with the overall reorganization
of the mutual funds advised by PIMCO Advisors, a number of its funds will
offer three additional classes of shares, Class A, Class B and Class C shares,
beginning in mid-January, 1997. The primary differences among such additional
classes are described above in the Overview under "Proposed Transactions," and
these include whether such shares are subject to a front end sales load or a
CDSC, the duration of the application of any such CDSC, and whether such
shares are subject to a distribution fee. Under the Proposed PFEAS
Declaration, the PFEAS Trust would still be subject to the multi-class
requirements under the 1940 Act and the rules and regulations thereunder. In
particular, 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 arrangements.
Standards in Respect of Advisory and Distribution Contracts. The Current
PFEAS Declaration provides that all advisory and distribution contracts
entered into with certain interested persons of the PFEAS Trust must,
19
<PAGE>
inter alia, be "reasonable and fair" when entered into. It is unclear how this
contractual provision would be interpreted by a court of competent
jurisdiction. Under precedent dealing with Massachusetts corporations, a party
defending the fairness of an interested transaction has the burden of proof
and the statute of limitations on a contract is generally six years. While
there is no comparable provision in the Proposed PFEAS Declaration, if the
Proposed PFEAS Declaration were approved, all advisory and distribution
contracts entered into by the PFEAS Trust would remain subject to the
requirements of the 1940 Act and the rules and regulations thereunder and any
applicable state laws. For example, Section 36 of the 1940 Act imposes a
fiduciary duty on advisers and their affiliates with respect to the
compensation for services that they receive from registered investment
companies such as the Acquiring Funds. In a claim for excessive advisory or
distribution fees under Section 36 of the 1940 Act, the plaintiff bears the
burden of proof and the statute of limitations is one year. Relevant appellate
court precedent provides that the principal factor to be considered in
determining the reasonableness of an advisory fee under the 1940 Act is
whether the fee is "so disproportionately large that it bears no relationship
to the services rendered and could not have been the product of arm's-length
bargaining."
Indemnification of Trustees and Officers. The Proposed PFEAS Declaration
clarifies the procedures for determining whether a trustee, officer, or other
person acting under his or her direction is entitled to indemnification by the
PFEAS Trust. The Proposed PFEAS Declaration provides in general that a
trustee, officer or other person acting under their direction is entitled to
indemnification except with respect to any matter as to which such person
shall have been finally adjudicated in any action, suit or other proceeding
(a) not to have acted in good faith in the reasonable belief that such
person's action was in or not opposed to the best interest of the PFEAS Trust
or (b) to be liable to the PFEAS Trust or its shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such person's office.
ADDITION OF TRUSTEES OF THE PAF TRUST TO THE BOARD OF TRUSTEES OF THE PFEAS
TRUST. In connection with the overall restructuring of the PIMCO Mutual Funds
of which the Mergers are a part, all of the members of the Board of Trustees
of the PAF Trust who are not currently on the Board of Trustees of the PFEAS
Trust have been nominated to such board and those nominations have been
submitted to the current shareholders of the PFEAS Trust for election. As
noted above, the consummation of each Merger is subject to a number of
conditions, including the condition that the PFEAS Trust's shareholders elect
such persons as Trustees of the PFEAS Trust.
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 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 PFEAS 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
20
<PAGE>
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 of each
Acquired Fund and each Acquiring Fund as of June 30, 1996 and on a pro forma
basis as of that date, giving effect to the proposed acquisition of assets at
net asset value:
CAPITALIZATION TABLES
JUNE 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
VALUE NFJ DIVERSIFIED PRO FORMA
FUND LOW P/E FUND COMBINED*
------- --------------- ---------
<S> <C> <C> <C>
Net Assets (000's omitted)
Class A...................................... $ 8,423 $ -- $ 8,414
Class B...................................... 14,386 -- 14,370
Class C...................................... 29,489 -- 29,457
Institutional Class.......................... -- 52,727 52,669
Administrative Class......................... -- -- --
Shares outstanding (000's omitted)
Class A...................................... 692 -- 692
Class B...................................... 1,182 -- 1,182
Class C...................................... 2,424 -- 2,424
Institutional Class.......................... -- 4,232 4,232
Administrative Class......................... -- -- --
Net asset value per share
Class A...................................... $ 12.17 $ -- $ 12.17
Class B...................................... 12.17 -- 12.17
Class C...................................... 12.17 -- 12.17
Institutional Class.......................... -- 12.46 12.46
Administrative Class......................... -- -- --
</TABLE>
- --------
* Pro Forma net assets have been reduced by merger-related legal and
accounting costs and certain other costs.
<TABLE>
<CAPTION>
DISCOVERY CADENCE MID CAP PRO FORMA
FUND GROWTH FUND COMBINED*
--------- --------------- ---------
<S> <C> <C> <C>
Net Assets (000's omitted)
Class A.................................... $10,369 $ -- $10,365
Class B.................................... 19,075 -- 19,068
Class C.................................... 38,501 -- 38,487
Institutional Class........................ -- 231,011 230,930
Administrative Class....................... -- 1,071 1,071
Shares outstanding (000's omitted)
Class A.................................... 928 -- 928
Class B.................................... 1,721 -- 1,721
Class C.................................... 3,474 -- 3,474
Institutional Class........................ -- 11,881 11,881
Administrative Class....................... -- 55 55
Net asset value per share
Class A.................................... $ 11.17 $ -- $ 11.17
Class B.................................... 11.08 -- 11.08
Class C.................................... 11.08 -- 11.08
Institutional Class........................ -- 19.44 19.44
Administrative Class....................... -- 19.44 19.44
</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 Funds as of and for the fiscal year
ended June 30, 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.
21
<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 Prospectus/Proxy Statement. Further information
regarding the Acquiring Funds, including financial information, may be found
in the Merger Statement of Additional Information, the PFEAS Prospectus, the
PFEAS Statement of Additional Information and the PFEAS Annual Report, which
are available on request by calling 1-800-927-4648. Certain information and
commentary from the PFEAS 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 PFEAS 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 AND METHOD OF TABULATION. Shareholders of record of each
Acquired Fund at the close of business on October 18, 1996 (the "Record Date")
will be entitled to notice of and to vote at the Meeting or any adjournment
thereof. 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
22
<PAGE>
(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 will have no effect on the
outcome of the voting on the proposal.
The PFEAS Trust will use similar procedures to those described in the
foregoing paragraph at the meeting of shareholders of the Acquiring Funds to
be held on or about December 20, 1996 to vote on the approval of disapproval
of the Mergers. Shareholders of record of each Acquiring Fund as of October
18, 1996 will be entitled to notice of and to vote at such meeting. Approval
of the Merger with respect to each Acquiring Fund will require the affirmative
vote of the lesser of (i) 67% of the voting securities of the Acquiring Fund
present at such meeting, if the holders of more than 50% of the outstanding
voting shares of such Fund are present or represented by proxy, or (ii) 50% of
the outstanding voting securities of the Acquiring Fund. So long as the
holders of more than 50% of such shares are present or represented at such
meeting, abstentions and broker non-votes will have the effect of negative
votes on such approval.
As of the Record Date, as shown on the books of the PAF Trust, there were
issued and outstanding the following numbers of shares of beneficial interest
of each class of each Acquired Fund:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
----------- ------------- -------------
<S> <C> <C> <C>
Value Fund........................... 772,254.602 1,374,356.747 2,996,782.755
Discovery Fund....................... 930,630.784 1,779,545.447 3,208,378.585
</TABLE>
As of the Record Date, to the best of the knowledge of the PAF Trust and the
PFEAS Trust, the following persons owned of record or beneficially 5% or more
of the outstanding shares of the indicated classes of the Acquired Funds and
the Acquiring Funds:
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
OWNER OWNED OUTSTANDING
----------------------------------------------- ----------- -------------
<S> <C> <C> <C>
VALUE FUND Merrill Lynch, Pierce, Fenner & Smith, Inc. 99,378 12.86%
CLASS A for the sole benefit of its customers ("MLPFS")
Attn: Fund Administration
4800 Deer Lake Drive East, Floor 3
Jacksonville, FL 32246
VALUE FUND MLPFS 355,414 25.86%
CLASS B
VALUE FUND MLPFS 352,651 11.76%
CLASS C
FTC & Co. 187,406.481 6.25%
#022
Attn: Datalynx
P.O. Box 5508
Denver, CO 80217
DISCOVERY FUND MLPFS 154,783 16.63%
CLASS A
DISCOVERY FUND MLPFS 654,502 36.77%
CLASS B
DISCOVERY FUND MLPFS 638,942 19.91%
CLASS C
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
OWNER OWNED OUTSTANDING
------------------------------------------------------------- ------------- -------------
<S> <C> <C> <C>
NFJ DIVERSIFIED LOW P/E Pacific Mutual Life Insurance Company 2,040,756.360 46.31%*
FUND FBO PM Retirement Plan
INSTITUTIONAL CLASS 700 Newport Center Drive
Newport Beach, California 92660
The Northern Trust Company as Trustee for Great Lakes 863,461.875 19.59%
Chemical Master Retirement Trust
P.O. Box 2200
West Lafayette, Indiana 47906
BAC Local 19 Pension Trust Fund 312,980.893 7.10%
777 Davis Street
San Francisco, California 94126-2500
PM Charitable Foundation 275,939.195 6.26%
700 Newport Center Drive
Newport Beach, California 92660
CADENCE MID CAP GROWTH First Trust as Trustee for Dayton Hudson Corporation 2,105,080.446 20.35%
FUND P.O. Box 64010
INSTITUTIONAL CLASS St. Paul, Minnesota 55164-0010
Caremark International Inc. 883,887.454 8.54%
c/o State Street Bank & Trust
1 Enterprise Drive
North Quincy, Massachusetts 02171-2126
Fleet Bank for University of Massachusetts 718,798.331 6.95%
10 Tremont Street, 4th Floor
Boston, Massachusetts 02108
Berklee College of Music, Inc. 637,636.681 6.16%
1140 Boylston Street
Boston, Massachusetts 02215-3693
Staff Retirement Plan of the International Telecommunications 535,575.625 5.18%
Satellite Organization
3400 International Drive, N.W.
Washington, D.C. 20008-3006
CADENCE MID CAP GROWTH First Interstate Bank FBO 48,900.607 84.57%
FUND Choicemaster
ADMINISTRATIVE CLASS 5808 East Telephone Road, 2nd Floor
Ventura, California 93003
Canterbury Consultant FBO 5,258.486 9.09%
Sandra Hogue Trust
660 Newport Center Drive
Newport Beach, California 92660
</TABLE>
- --------
* Entity owned 25% or more of the outstanding shares of beneficial interest
of the Fund, and therefore may be presumed to "control" the Fund, as that
term is defined in the 1940 Act.
The percentages appearing in the foregoing table are not expected to change
as a result of the Mergers because each Acquiring Fund has outstanding only
Institutional and/or Administrative Class shares and each Acquired Fund has
outstanding only Class A, Class B and Class C shares. As of the Record Date,
the officers and Trustees of the PFEAS Trust and the PAF Trust as a group
beneficially owned less than 1% of the outstanding shares of each Acquiring
Fund.
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 PFEAS Trust and officers and employees of the Distributor and its
affiliates. In addition, the firm of Shareholder Communications Corporation
("SCC") has been retained
24
<PAGE>
to assist in the solicitation of proxies. The costs of retaining SCC and other
expenses incurred in connection with the solicitation of proxies, like the
other costs associated with the general restructuring of the PIMCO Mutual
Funds, will be borne only partially 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 or 2 of the Notice of Meeting) to implement the Merger with
respect to the relevant Acquired Fund.
SHAREHOLDER PROPOSALS AT FUTURE MEETINGS OF SHAREHOLDERS. The PAF
Declaration of Trust does not provide for annual meetings of shareholders and
the PAF Trust does not currently intend to hold such a meeting for
shareholders of the Acquired Funds in 1996 or 1997. Shareholder proposals for
inclusion in a proxy statement for any subsequent meeting of the Acquired
Funds' shareholders must be received by the PAF Trust a reasonable period of
time prior to any such meeting. If the Mergers are consummated, the Acquired
Funds will terminate in 1997, after which there would be no meetings of the
shareholders of the Acquired Funds.
ADJOURNMENT. If sufficient votes in favor of either 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 may still be acted upon by shareholders. 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 costs of any additional solicitation and of any adjourned
session will be borne as described above under "Information About the
Mergers."
November 4, 1996
25
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (the "Agreement") is made as of
November 1, 1996 by and between PIMCO Advisors Funds, a Massachusetts business
trust (the "PAF Trust"), on behalf of its [name of Acquired Fund] (the
"Acquired Fund"), and PIMCO Funds: Equity Advisors Series, a Massachusetts
business trust (the "PFEAS Trust"), on behalf of its [name of Acquiring Fund]
(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 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 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
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.
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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 PFEAS 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 PFEAS 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 PFEAS Trust. Each
of the PFEAS 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 PFEAS 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 June 30, 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 periods covered
thereby in conformity with generally accepted accounting principles.
d. The prospectus and statement of additional information of the PFEAS
Trust, each dated September 15, 1996, as supplemented September 27, 1996
and October , 1996 (collectively, the "PFEAS Prospectus"), previously
furnished to the Acquired Fund, did not as of such date and does not
contain, with respect to the PFEAS 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 PFEAS Trust or the Acquiring Fund,
threatened against the PFEAS Trust or the Acquiring Fund, which assert
liability on the part of the PFEAS 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 June 30, 1996 and those incurred
in the ordinary course of business as an investment company since June 30,
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 June 30, 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
PFEAS 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
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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 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 PFEAS
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) complied 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) did 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 PFEAS 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 PFEAS 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.
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.
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<PAGE>
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 will be furnished to the Acquiring
Fund prior to the Exchange Date. Such statement of assets and liabilities
and schedule will fairly present the financial position of the Acquired
Fund as of their date and said statements of operations and changes in net
assets will fairly reflect the results of its operations and changes in net
assets for the periods covered thereby in conformity with generally
accepted accounting principles.
d. The prospectus and statement of additional information of the PAF
Trust dated February 1, 1996 and July 12, 1996, respectively, as
supplemented September 27, 1996 (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 that will be 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.
A-4
<PAGE>
i. At the Exchange Date, the PAF Trust, on behalf of the Acquired Fund,
will have full right, power and authority to sell, assign, transfer and
deliver the Investments (as defined below) 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 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 meetings referred to in
Sections 7(a) and 7(c) 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, the Acquired Fund Proxy Statement or the
Acquiring Fund Proxy Statement made in reliance upon and in conformity with
information furnished by the Acquiring Fund for use in the Registration
Statement, the Acquired Fund Proxy Statement or the Acquiring Fund Proxy
Statement.
m. The Acquired 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.
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 PFEAS 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
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<PAGE>
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 the shareholders of the Acquiring 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 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. 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. 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
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<PAGE>
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 PFEAS 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 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 PFEAS 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"
shall be $20,000 for the Acquiring Fund and [$70,496--Value Fund]
[$46,355--Discovery Fund] for the Acquired Fund; provided, however, that
the Relevant Expense Caps for the Acquired Funds will be reduced, 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
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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 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 the
offices of Ropes & Gray, One International Place, Boston, Massachusetts 02110,
as of January 17, 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. The PFEAS Trust, on behalf of the Acquiring Fund, agrees to call a
meeting of the Acquiring Fund's shareholders as soon as is practicable
after the effective date of the Registration Statement for the purpose of
considering the acquisition of all of the Acquired Fund's assets in
exchange for the assumption by the Acquiring Fund of all of the Acquired
Fund's liabilities and the issuance to the Acquired Fund of the Merger
Shares as herein provided, and adopting this Agreement.
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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, and, after the
preparation and delivery to the Acquired Fund by the Acquiring Fund of a
preliminary version of the Acquiring Fund Proxy Statement which was
satisfactory to the Acquired Fund and to Ropes & Gray, filed the Acquiring
Fund Proxy Statement and related materials with the Commission in
preliminary form. 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 and the Acquiring Fund Proxy 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 (i)
the holders of the outstanding shares of beneficial interest of the
Acquired Fund entitled to vote and (ii) the holders of the outstanding
shares of beneficial interest of the Acquiring Fund entitled to vote; and
that shareholders of the PFEAS Trust shall have approved all of the matters
submitted to them at the meeting referred to in Section 7(c) hereof.
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, and a certificate of PIMCO Advisors L.P. representing and
warranting that there are no known liabilities, contingent or otherwise, of
the Acquired Fund required to be reflected on a balance sheet (including
notes thereto) in accordance with generally accepted accounting principles
that are not reflected in the Acquired Fund's statement of assets and
liabilities as of September 30, 1996 and in the Acquired Fund's statement
of assets and liabilities as of the Valuation Time.
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 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 date 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 date.
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 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.
A-9
<PAGE>
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 PFEAS Prospectus, the Acquired Fund Proxy
Statement and the Acquiring 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 PFEAS 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 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
(which opinion would be based upon certain factual representations and
subject to certain qualifications), in form satisfactory to Dechert Price &
Rhoads, with respect to the matters specified in Section 9(g) of this
Agreement.
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,
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<PAGE>
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.
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 PFEAS Trust or the Acquiring Fund,
threatened by the Commission.
k. That the PAF Trust and the PFEAS 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.
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
A-11
<PAGE>
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
PFEAS 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 (i)
the holders of the outstanding shares of beneficial interest of the
Acquired Fund entitled to vote and (ii) the holders of the outstanding
shares of beneficial interest of the Acquiring Fund entitled to vote; and
that shareholders of the PFEAS Trust shall have approved all of the matters
submitted to them at the meeting referred to in Section 7(c) hereof.
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
PFEAS 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 June 30, 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 PFEAS 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 PFEAS Trust's President
(or any Vice President) and Treasurer (or any Assistant Treasurer)
certifying that 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 date, 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 date.
e. That there shall not be any material litigation pending or threatened
with respect to the matters contemplated by this Agreement.
A-12
<PAGE>
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 PFEAS 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 PFEAS 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 PFEAS Trust on
behalf of the Acquiring Fund and, assuming that the Registration Statement,
the Acquired Fund Proxy Statement and the Acquiring 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 PFEAS
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 PFEAS Trust's Declaration of Trust or By-Laws,
or any provision of any agreement known to such counsel to which the PFEAS
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
PFEAS 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 PFEAS Trust whose responsibility it is to
advise the PFEAS 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 PFEAS 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.
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
A-13
<PAGE>
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 PFEAS 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 PFEAS Trust or the Acquiring Fund,
threatened by the Commission.
j. That the PAF Trust and PFEAS 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 shall 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 PFEAS 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 PAF Trust or the
Acquired Fund contained in the Registration Statement, the PAF Prospectus,
the Acquired Fund Proxy Statement, the Acquiring 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 shall 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
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<PAGE>
"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 PFEAS
Prospectus, the Acquired Fund Proxy Statement, the Acquiring 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 relating to the PFEAS Trust or the Acquiring Fund
required to be stated therein or necessary to make the statements relating
to the PFEAS 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 PFEAS Trust or the Acquiring Fund. The Indemnified
Parties will notify the PFEAS 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
PFEAS 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:
"THESE SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT TO [name of
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."
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<PAGE>
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 any investigation made by
them or on their behalf.
15. Sole Agreement; Amendments; Governing Law. 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 PFEAS 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 PFEAS 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, officers or shareholders of the PFEAS Trust
individually but are binding only upon the assets and property of the
Acquiring Fund.
PIMCO ADVISORS FUNDS, on behalf of
its [name of Acquired Fund]
By: _________________________________
PIMCO FUNDS: EQUITY ADVISORS SERIES,
on behalf of its [name of Acquiring
Fund]
By: _________________________________
Accepted and Agreed as to Section 5(a) only by PIMCO ADVISORS L.P.
By: _________________________________
Title: ______________________________
A-16
<PAGE>
APPENDIX B
OTHER INFORMATION ABOUT THE ACQUIRING FUNDS
PIMCO Funds: Equity Advisors Series (the "Trust"), formerly PIMCO Advisors
Institutional Funds, is an open-end management investment company ("mutual
fund") which currently offers thirteen separate investment portfolios, two of
which are the NFJ Diversified Low P/E Fund and the Cadence Mid Cap Growth 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 PIMCO Advisors L.P. ("PIMCO Advisors" or the "Adviser")
and its investment management affiliates. NFJ Investment Group ("NFJ") serves
as sub-adviser to the NFJ Diversified Low P/E Fund, and Cadence Capital
Management ("Cadence") serves as sub-adviser to the Cadence Mid Cap Growth
Fund. NFJ and Cadence are collectively referred to as the "Sub-Advisers."
Each Fund is authorized to offer its shares in five classes: Class A, Class
B, Class C, the Institutional Class and the Administrative Class. The
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 shares. Information regarding the Institutional Class and
Administrative Class shares of each Fund is contained in the current
Prospectus and the Statement of Additional Information of the Trust, which are
available upon request from the Trust without charge.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective and general investment policies of each Fund are
described below. There can be no assurance that the investment objective of
either Fund will be achieved. Because the market value of each Fund's
investments will change, the net asset value per share of each Fund also will
vary.
NFJ Diversified Low P/E Fund seeks long-term growth of capital and income.
In pursuing this objective, the Fund invests primarily in common stocks
characterized by having below-average price to earnings ("P/E") ratios
relative to their industry group. In selecting securities, the Sub-Adviser
classifies a universe of approximately 2,000 stocks by industry, each of which
has a minimum market capitalization of $200 million at the time of investment.
The universe is then screened to find the stocks with the lowest P/E ratios in
each industry, subject to application of quality and price momentum screens.
The stocks in each industry with the lowest P/E ratios that pass the quality
and price momentum screens are then selected for the Fund. The Fund usually
invests in approximately 50 stocks. Although quarterly rebalancing is a
general rule, replacements are made whenever an alternative stock within the
same industry has a significantly lower P/E ratio than the current Fund
holdings. See "Characteristics and Risks of Securities and Investment
Techniques" below and "Investment Objectives and Policies" in the current
Statement of Additional Information of the Trust (the "Statement of Additional
Information") for more details on investment practices.
Cadence Mid Cap Growth Fund seeks growth of capital. In pursuing this
objective, the Fund invests primarily in common stocks of middle
capitalization companies that have improving fundamentals (such as growth of
earnings and dividends) and whose stock is reasonably valued by the market.
Stocks for the Fund are selected from a universe of companies with market
capitalizations in excess of $500 million at the time of investment, excluding
the 200 companies with the highest market capitalization. The Fund usually
invests in approximately 60 to 100 common stocks. Each issue is screened and
ranked using five distinct computerized models, including: (i) a dividend
growth screen, (ii) an equity growth screen, (iii) an earnings growth screen,
(iv) an earnings momentum screen, and (v) an earnings surprise screen. The
Sub-Adviser believes that the models identify the stocks in the universe
exhibiting growth characteristics with reasonable valuations. Stocks are
replaced when they score worse-than-median screen ranks, have negative
earnings surprises, or show poor
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relative price performance. The universe is rescreened frequently to obtain a
favorable composition of growth and value characteristics for the entire Fund.
See "Characteristics and Risks of Securities and Investment Techniques" below
and "Investment Objectives and Policies" in the Statement of Additional
Information for more details on investment practices.
Each Fund invests primarily (normally at least 65% of its assets) in common
stock. Each Fund may maintain a portion of its assets, which will usually not
exceed 10%, in U.S. Government securities, high-quality debt securities (whose
maturity or remaining maturity will not exceed five years), money market
obligations, and in cash to provide for payment of the Fund's expenses and to
meet redemption requests.
Either of the Funds may temporarily not be invested primarily in equity
securities after receipt of significant new monies. Either of the Funds may
temporarily not contain the number of stocks in which the Fund normally
invests if the Fund does not have sufficient assets to be fully invested, or
pending the Sub-Adviser's ability to prudently invest new monies. It is the
policy of all of the Funds to be as fully invested in common stock as
practicable at all times. This policy precludes the Funds from investing in
debt securities as a defensive investment posture (although the Funds may
invest in such securities to provide for payment of expenses and to meet
redemption requests). Accordingly, investors in these Funds bear the risk of
general declines in stock prices and the risk that a Fund's exposure to such
declines cannot be lessened by investment in debt securities.
The Funds may also invest in convertible securities, preferred stock,
warrants subject to certain limitations, and American Depository Receipts
("ADRs"). For more information on these investment practices, see
"Characteristics and Risks of Securities and Investment Techniques" below and
"Investment Objectives and Policies" in the Statement of Additional
Information.
INVESTMENT RESTRICTIONS
Each Fund's investment objective, as set forth above 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 (as defined in the Investment Company Act of 1940 (the "1940
Act")). 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 to
securities issued or guaranteed by the U.S. Government or its agencies or
instrumentalities (or repurchase agreements with respect thereto);
(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,
except that this restriction does not apply to securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities;
(4) purchase or sell real estate, although it may purchase securities
secured by real estate or interests therein, or securities issued by
companies in the real estate industry or which invest in real estate or
interests therein;
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(5) purchase or sell commodities or commodities contracts (which, for the
purpose of this restriction, shall not include foreign currency or forward
foreign currency contracts), except that any Fund may engage in interest
rate futures contracts, stock index futures contracts, futures contracts
based on other financial instruments or one or more groups of instruments,
and on options on such futures contracts;
(6) 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, and except that effecting short sales will
be deemed not to constitute a margin purchase for purposes of this
restriction;
(7) borrow money, 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 and
continuing thereafter, there is asset coverage of 300% and (ii) enter into
reverse repurchase agreements and transactions in options, futures, options
on futures, and forward foreign currency contracts as described herein and
in the 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, and
collateral arrangements with respect to initial or variation margin
deposits for futures contracts, options on futures contracts, and forward
foreign currency contracts will not be deemed to be pledges of a Fund's
assets);
(8) issue senior securities, except insofar as a Fund may be deemed to
have issued a senior security by reason of borrowing money in accordance
with the Fund's borrowing policies, and except for purposes of this
investment restriction, collateral, escrow, or margin or other deposits
with respect to the making of short sales, the purchase or sale of futures
contracts or related options, purchase or sale of forward foreign currency
contracts, and the writing of options on securities are not deemed to be an
issuance of a senior security;
(9) 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
reverse 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 ("SEC") and the Trustees of the
Trust; or
(10) 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.
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) invest in securities of another open-end investment company;
(C) invest more than 10% of the net assets of a Fund (taken at market
value at the time of the investment) in "illiquid securities," illiquid
securities being defined to include repurchase agreements maturing in more
than seven days, certain loan participation interests, fixed time deposits
which are not subject to prepayment or provide withdrawal penalties upon
prepayment (other than overnight deposits), or
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other securities which legally or in the Adviser's or Sub-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 the
Adviser or Sub-Adviser has determined to be liquid under procedures
approved by the Board of Trustees); nor invest more than 5% of the net
assets of a Fund in securities that are illiquid because they are subject
to legal or contractual restrictions on resale;
(D) purchase any security if, as a result, the Fund will then have more
than 5% of its total assets invested in securities of companies (including
predecessor companies) that have been in continuous operation for less than
three years;
(E) purchase or retain securities of any issuer if, to the knowledge of
the Fund, any of the Fund's officers or Trustees, or any officer or
Director of PIMCO Advisors or the Sub-Adviser of the Fund, individually
owns more than one-half of 1% of the outstanding securities of the issuer
and together own beneficially more than 5% of such issuer's 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 the
Adviser;
(G) invest in a security if, with respect to 100% of the total assets,
the Fund would own more than 10% (taken at the time of such investment) of
the outstanding voting 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;
(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 reverse repurchase agreements which are
subject to the Fund's fundamental borrowing restriction), except for
temporary administrative purposes;
(J) sell securities or property short, except short sales against the
box;
(K) purchase, write, or sell puts, calls, straddles, spreads, or
combinations thereof, except that this restriction does not apply to puts
that are a feature of floating rate securities or to puts that are a
feature of other corporate debt securities, and except that any Fund may
engage in options on securities, options on securities indexes, options on
foreign currencies, options on futures contracts, and options on other
financial instruments or one or more groups of instruments;
(L) invest in warrants (other than warrants acquired by the Fund as part
of a unit or attached to securities at the time of purchase) if, as a
result, the investment in warrants (valued to the lower of cost or market)
would exceed 5% of the value of the Fund's net assets, of which not more
than 2% of the Fund's net assets may be invested in warrants not listed on
a recognized U.S. or foreign stock exchange;
(M) invest in securities sold in foreign over-the-counter markets unless
the foreign dealers effecting such transactions have a minimum net worth of
$20 million; or
(N) invest in oil, gas or other mineral exploration or development
programs (including oil, gas, or other mineral leases), except that a Fund
may invest in the securities of companies that invest in or sponsor those
programs.
For purposes of fundamental investment restriction (5), swap agreements are
not deemed to be commodities contracts. Unless otherwise indicated, all
limitations applicable to Fund investments 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 resulting from market fluctuations or other
changes in a Fund's total assets will
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not require a Fund to dispose of an investment until the Adviser or Sub-
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 or
Sub-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 different types of securities and investment techniques used by the
individual Funds all have attendant risks of varying degrees. For example,
with respect to common stock, there can be no assurance of capital
appreciation, and there is a risk of market decline. With respect to debt
securities, including money market instruments, there is the risk that the
issuer of a security may not be able to meet its obligation to make scheduled
interest or principal payments. In addition, the value of debt securities
generally rises and falls inversely with interest rates, and the longer the
maturity of the debt security, the more volatile it may be in terms of changes
in value. Because each Fund seeks a different investment objective and has
different investment policies, each is subject to varying degrees of
financial, market, and credit risks. Therefore, investors should carefully
consider the investment objective, investment policies, and potential risks of
any Fund or Funds before investing.
The following describes potential risks associated with different types of
investment techniques that may be used by the individual Funds. For more
detailed information on these investment techniques, as well as information on
the types of securities in which one or both of the Funds may invest, see the
Statement of Additional Information.
LOW CAPITALIZATION STOCKS
The Funds may invest in common stock of companies with market capitalization
that is low compared to other publicly traded companies. Investments in larger
companies present certain advantages in that such companies generally have
greater financial resources, more extensive research and development,
manufacturing, marketing and service capabilities, and more stability and
greater depth of management and technical personnel. Investments in smaller
companies may present greater opportunities for growth but also may involve
greater risks than customarily are associated with more established companies.
REPURCHASE AGREEMENTS
For the purposes of maintaining liquidity and achieving income, each Fund
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. The Cadence Mid Cap Growth Fund, whose investment objective does not
include the earning of income, will invest in repurchase agreements only as a
cash management technique with respect to that portion of the portfolio
maintained in cash. Each Fund will limit its investment in repurchase
agreements maturing in more than seven days consistent with the Fund's policy
on investment in illiquid securities.
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REVERSE REPURCHASE AGREEMENTS 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 assets determined to be liquid by the Sub-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.
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, a Fund will not borrow money, except
for temporary administrative purposes.
LOANS OF PORTFOLIO SECURITIES
For the purpose of achieving income, each Fund may lend its 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.
FOREIGN SECURITIES
The Funds may invest in ADRs. ADRs are dollar-denominated receipts issued
generally by domestic banks and representing the deposit with the bank of a
security of a foreign issuer, and are publicly traded on exchanges or over-
the-counter in the United States. 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; 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. Changes in foreign exchange rates also will affect the value of
securities denominated or quoted in currencies other than the U.S. dollar.
ILLIQUID SECURITIES
The Funds may invest in securities that are illiquid, but will not acquire
such securities if they would compose more than 10% of the value of a Fund's
net assets (taken at market value at the time of investment), and will not
invest in securities that are illiquid because they are subject to legal or
contractual restrictions on resale if such securities would compose more than
5% of the value of the Fund's net assets (taken at market value at the time of
investment). Certain illiquid securities may require pricing at fair value as
determined by in good faith under the supervision of the Trust's Board of
Trustees. A Sub-Adviser may be subject to significant delays in disposing of
illiquid securities, and transactions in illiquid securities may entail
registration expenses and other transaction costs that are higher than for
transactions in liquid securities.
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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 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 the Adviser or a Sub-
Adviser 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 currently are William D. Cvengros, Richard L.
Nelson, Lyman W. Porter, and Alan Richards. Additional information about the
Trustees and the Trust's executive officers may be found in the Statement of
Additional Information under the heading "Management--Trustees and Officers."
INVESTMENT ADVISER
PIMCO Advisors serves as Investment Adviser to the Funds pursuant to an
investment advisory agreement with the Trust. PIMCO Advisors is a Delaware
limited partnership organized in 1987. PIMCO Advisors provides investment
management and advisory services to private accounts of institutional and
individual clients and to mutual funds. Total assets under management by PIMCO
Advisors and its subsidiary partnerships at September 30, 1996 were
approximately $104.5 billion. A portion of the units of the limited partner
interest in PIMCO Advisors is traded publicly on the New York Stock Exchange.
The general partner of PIMCO Advisors is PIMCO Partners, G.P. Pacific Mutual
Life Insurance Company and its affiliates hold a substantial interest in PIMCO
Advisors through direct or indirect ownership of units of PIMCO Advisors, and
indirectly hold a majority interest in PIMCO Partners, G.P., with the
remainder held indirectly by a group composed of the Managing Directors of
PIMCO. PIMCO Advisors is governed by an Operating Board and Equity Board,
which exercise substantially all of the governance powers of the general
partner and serve as the functional equivalent of a board of directors. PIMCO
Advisors' address is 800 Newport Center Drive, Newport Beach, California
92660. PIMCO Advisors is registered as an investment adviser with the SEC.
PIMCO Advisors currently has six subsidiary partnerships, including Cadence
and NFJ.
Under the investment advisory agreement, PIMCO Advisors, subject to the
supervision of the Board of Trustees, is responsible for providing advice and
guidance with respect to the Funds and for managing, either directly or
through others selected by the Adviser, the investment of the Funds. PIMCO
Advisors also furnishes to the Board of Trustees periodic reports on the
investment performance of each Fund.
SUB-ADVISERS
Pursuant to sub-advisory agreements, PIMCO Advisors employs its affiliates
as Sub-Advisers for the Funds. PIMCO Advisors (not the Trust) compensates
these Sub-Advisers from its advisory fee. Under these agreements, a Sub-
Adviser has full investment discretion and makes all determinations with
respect to the investment of a
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Fund's assets, and makes all determinations respecting the purchase and sale
of a Fund's securities and other investments.
NFJ manages the NFJ Diversified Low P/E Fund. NFJ is an investment
management firm organized as a general partnership. NFJ has two partners:
PIMCO Advisors as the supervisory partner, and NFJ Management, Inc. as the
managing partner. NFJ Investment Group, Inc., the predecessor investment
adviser to NFJ, commenced operations in 1989. Accounts managed by NFJ had
combined assets as of September 30, 1996 of approximately $1.7 billion. NFJ's
address is 2121 San Jacinto, Suite 1440, Dallas, Texas 75201. NFJ is
registered as an investment adviser with the SEC.
Chris Najork is responsible for the day-to-day management of the NFJ
Diversified Low P/E Fund. Mr. Najork is a Managing Director and a founding
partner of NFJ and has 27 years' experience encompassing equity research and
portfolio management. He received his bachelor's degree and MBA from Southern
Methodist University. Mr. Najork is a Chartered Financial Analyst.
Cadence manages the Cadence Mid Cap Growth Fund. Cadence is an investment
management firm organized as a general partnership. Cadence has two partners:
PIMCO Advisors as the supervisory partner, and Cadence Capital Management,
Inc. as the managing partner. Cadence Capital Management Corporation, the
predecessor investment adviser to Cadence, commenced operations in 1988.
Accounts managed by Cadence had combined assets as of September 30, 1996 of
approximately $3.0 billion. Cadence's address is Exchange Place, 53 State
Street, Boston, Massachusetts 02109. Cadence is registered as an investment
adviser with the SEC.
David B. Breed, William B. Bannick, Katherine A. Burdon, Eric M. Wetlaufer
and Peter B. McManus are primarily responsible for the day-to-day management
of the Cadence Mid Cap Growth Fund. Mr. Breed is a Managing Director, Chief
Executive Officer, and founding partner of Cadence and has 23 years'
investment management experience. He has been the driving force in developing
the firm's growth-oriented stock screening and selection process and has been
with Cadence or its predecessor since its inception. Mr. Breed graduated from
the University of Massachusetts and received his MBA from the Wharton School
of Business. He is a Chartered Financial Analyst. Mr. Bannick is a Managing
Director and Executive Vice President of Cadence and has 11 years' investment
management experience. He had previously served as Executive Vice President of
George D. Bjurman & Associates and as Supervising Portfolio Manager of Trinity
Investment Management Corporation. Mr. Bannick joined Cadence's predecessor in
1992. He graduated from the University of Massachusetts and received his MBA
from Boston University. Mr. Bannick is a Chartered Financial Analyst. Ms.
Burdon is a Managing Director and Portfolio Manager of Cadence and has nine
years' investment management experience. She previously served as a Vice
President and Portfolio Manager of The Boston Company. Ms. Burdon joined
Cadence in 1993. She graduated from Stanford University and received a Master
of Science degree from Northeastern University. Ms. Burdon is a Chartered
Financial Analyst and Certified Public Accountant. Mr. Wetlaufer is a Managing
Director and Portfolio Manager of Cadence and has 11 years' investment
management experience. He previously served as Vice President of Northfield
Information Services. Mr. Wetlaufer joined Cadence in 1991. He graduated from
Wesleyan University and is a Chartered Financial Analyst. Mr. McManus is
Director of Fund Management of Cadence and has 19 years' investment management
experience. He previously served as a Vice President of Bank of Boston. Mr.
McManus joined Cadence in 1994. He graduated from the University of
Massachusetts, and is certified as a Financial Planner.
Registration as an investment adviser with the SEC does not involve
supervision by the SEC over investment advice. The sub-advisory agreements are
not exclusive, and NFJ and Cadence may provide, and currently are providing,
investment management services to other clients, including other investment
companies.
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FUND ADMINISTRATOR
Pacific Investment Management Company ("PIMCO"), 840 Newport Center Drive,
Suite 360, Newport Beach, CA 92660, 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, 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 Advisors, PIMCO,
or their 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 the Adviser,
PIMCO, the Sub-Advisers, or the 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
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.
It is expected that PIMCO Advisors will become the Funds' administrator,
replacing PIMCO, at or about the time that the Mergers are consummated, and
that PIMCO Advisors will provide or procure substantially identical services
to the Funds as were provided by PIMCO in that role, in part by retaining
PIMCO as sub-administrator to provide certain services.
ADVISORY AND ADMINISTRATIVE FEES
The Funds feature fixed advisory and administrative fees. For providing
investment advisory services to the Funds, PIMCO Advisors receives monthly
fees from each Fund at the annual rate of 0.45% of the average daily net
assets of the Fund.
For providing administrative services to the Funds as described above, PIMCO
receives, and PIMCO Advisors will receive, monthly fees from each Fund at an
annual rate of 0.40% of the first $2.5 billion of the average daily net assets
of the Fund attributable in the aggregate to the Fund's Class A, Class B and
Class C shares and 0.35% of such assets in excess of $2.5 billion.
Both the investment advisory and administration agreements for the Funds may
be terminated by the Trustees, or by PIMCO Advisors, on 60 days' written
notice. Following their initial two-year terms, the agreements will continue
from year to year if approved by the Trustees.
Pursuant to the sub-advisory agreements between the Adviser and each of the
Sub-Advisers, PIMCO Advisors (not the Trust) pays each Fund's Sub-Adviser a
fee of 0.45% annually of the average daily net assets of the Fund. The Trust's
Board of Trustees has approved a reduction in these fees payable by the
Adviser to NFJ and Cadence to 0.35% annually. Such reductions are subject to
the approval of the existing shareholders of each Fund and, if approved by
shareholders, would take effect on or about the date that the Mergers are
consummated.
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DISTRIBUTOR AND DISTRIBUTION AND SERVICING PLANS
PIMCO Advisors Distribution Company (to be renamed "PIMCO Funds Distribution
Company" at or about the time of the Mergers) (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 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 of 0.25% (calculated as a percentage of each Fund's average daily net
assets attributable to Class A shares).
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 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 0.75% and 0.25%, 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 of 0.75% and 0.25%, respectively
(calculated as a percentage of each Fund's average daily net assets
attributable to Class C shares).
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,
B-10
<PAGE>
may be spent by the Distributor on personal services rendered to shareholders
of those classes and the maintenance of 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
<TABLE>
<CAPTION>
SERVICING
FEE
---------
<S> <C>
All Funds........................................................ 0.25%
</TABLE>
CLASS B SHARES
(Payable only with respect to shares outstanding* for one year or more)
<TABLE>
<CAPTION>
SERVICING
FEE
---------
<S> <C>
All Funds........................................................ 0.25%
</TABLE>
CLASS C SHARES--ACQUIRED OR DEEMED TO BE ACQUIRED* 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)
<TABLE>
<CAPTION>
SERVICING DISTRIBUTION
FEE FEE
--------- ------------
<S> <C> <C>
All Funds........................................... 0.25% 0.65%
</TABLE>
CLASS C SHARES--DEEMED TO BE ACQUIRED* BEFORE JULY 1, 1991
<TABLE>
<CAPTION>
SERVICING
FEE
---------
<S> <C>
All Funds........................................................ 0.25%
</TABLE>
- --------
* Shares of the Funds acquired pursuant to the Mergers are deemed for this
purpose to have been acquired as of the date that the Acquired Fund shares
exchanged for such shares were acquired.
B-11
<PAGE>
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
0.50% 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 Class 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.
(the "Transfer Agent"), 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
HOW TO BUY SHARES
Class A, B and C shares of each Fund of the Trust are continuously offered
through the Distributor and 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 and 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.
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
B-12
<PAGE>
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. See "Distributions" below. 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
Purchases 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
B-13
<PAGE>
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 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
B-14
<PAGE>
privileges must be requested on the PIMCO Advisors Funds 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
Changes in registration or account privileges may be made in writing to 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
B-15
<PAGE>
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.
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 purchases 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
B-16
<PAGE>
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.
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-17
<PAGE>
<TABLE>
<CAPTION>
DISCOUNT OR
SALES CHARGE SALES CHARGE COMMISSION
AS % OF AS % OF TO DEALERS
NET AMOUNT THE PUBLIC AS % OF PUBLIC
AMOUNT OF PURCHASE INVESTED OFFERING PRICE OFFERING PRICE
- ------------------ ------------ -------------- --------------
<S> <C> <C> <C>
$0-$49,999........................... 5.82% 5.50% 4.75%
$50,000-$99,999...................... 4.71% 4.50% 3.75%
$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) 0.75%
</TABLE>
- --------
(1) 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,
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 sell Class A shares at net
asset value to certain employer-sponsored plans as outlined in "Sales at
Net Asset Value" below) according to the following schedule: 0.75% of the
first $2,000,000; 0.50% of amounts from $2,000,001 to $5,000,000 and 0.25%
of amounts over $5,000,000.
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 or
other series of the Trust or PIMCO Funds: Pacific Investment Management Series
("PIMS") (other than the Money Market Fund) 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.
B-18
<PAGE>
Cumulative Quantity Discount (Right of Accumulation). A purchase of
additional Class A shares of any 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 or other series of the Trust or
PIMS (other than the Money Market Fund) 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 Mid Cap Growth Fund worth
$25,000 at the current maximum offering price and wished to purchase Class A
shares of the Value Fund worth an additional $30,000, the sales charge for the
$30,000 purchase would be at the 4.50% rate applicable to a single $55,000
purchase of shares of the Value Fund, rather than the 5.50% 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.
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 or certain other series of the Trust or PIMS (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 or certain other series of the Trust or PIMS (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 or certain other series of the Trust or PIMS, you and your
spouse each purchase Class A shares of the Value 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 or such
other series of the Trust or PIMS 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 or certain other series of the Trust or PIMS).
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.
B-19
<PAGE>
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 to be redeemed may reinvest all or any portion of the redemption
proceeds in Class A shares of either Fund or certain other series of the Trust
or PIMS 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, profit-sharing 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 that 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
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 either d) or e) in
this paragraph.
Class A Deferred Sales Charge. 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.
B-20
<PAGE>
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."
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 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.
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.
B-21
<PAGE>
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."
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 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.
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).
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 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.
B-22
<PAGE>
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. 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 series of PIMS on which no commission has been paid are exchanged
for shares of a Fund, the Distributor intends to make the payments to
participating brokers that are described above applicable to that 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."
EXCHANGE PRIVILEGE
A shareholder may exchange Class A, Class B and Class C shares of any Fund
or other series of the Trust or PIMS for the same class of shares of any other
series 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 series of PIMS 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. 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
B-23
<PAGE>
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. 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
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.
B-24
<PAGE>
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: (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 $50,000 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 waive 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 seven 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 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
B-25
<PAGE>
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 or 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 wire 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 seven 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
B-26
<PAGE>
shareholder's bank. The 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 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
B-27
<PAGE>
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 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.
PORTFOLIO TRANSACTIONS
Pursuant to the portfolio management agreements, a Sub-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
Sub-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 Sub-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 Sub-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 Sub-Advisers manage 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. Trading in fixed income
securities does not generally involve the payment of brokerage commissions,
but does involve indirect transaction costs. 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 Sub-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 Sub-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 Sub-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 (ordinarily 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.
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
B-28
<PAGE>
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.
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
Shares begin earning dividends on the effective date of purchase, provided
notification deadlines are met. See "How to Buy Shares." Net investment income
from interest and dividends, if any, will be declared and paid quarterly to
shareholders of record by the NFJ Diversified Low P/E Fund. Net investment
income from interest and dividends, if any, will be declared and paid at least
annually to shareholders of record by the Cadence Mid Cap Growth Fund. Any net
realized capital gains from the sale of portfolio securities will be
distributed no less frequently than once yearly. Net realized short-term
capital gains may be paid more frequently. 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 or other series 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. Each Fund will advise shareholders annually of the amount and
nature of the dividends paid to them.
B-29
<PAGE>
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 a 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 Statement of
Additional Information.
OTHER INFORMATION
CAPITALIZATION
The Trust was organized as a Massachusetts business trust on August 24,
1990. 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. 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 Amended
and Restated Agreement and Declaration of Trust (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 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.
MULTIPLE CLASSES OF SHARES
In addition to Class A shares, Class B shares, and Class C shares, each Fund
offers Institutional Class shares, and the Cadence Mid Cap Growth Fund also
offers Administrative Class shares. These other classes of the Funds may have
different sales charges and expense levels, which will affect performance.
Investors may contact the Distributor at 800-426-0107 for more information
concerning other classes of shares of the Funds. This Prospectus/Proxy
Statement relates only to the Class A, Class B and Class C shares of the
Funds.
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. Shares entitle their holders to one vote per share (with
proportional voting for fractional shares). See "Other Information--Voting
Rights" in the 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
B-30
<PAGE>
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. 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 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: (i) the S&P
500, the Dow Jones Industrial Average, the EAFE Index, the MSCI Free Index,
the Baring Index, the IFC Index, the Russell 1000 Value Index, the Russell
1000 Growth Index, or other unmanaged indexes that measure performance of a
pertinent group of securities; (ii) other groups of mutual funds tracked by
Lipper Analytical Services ("Lipper"), a widely used independent research firm
which ranks mutual funds by overall performance, investment objectives, and
assets, or tracked by other services, companies, publications, or persons who
rank mutual funds on overall performance or other criteria; and (iii) the
Consumer Price Index (measure for inflation) to assess the real rate of return
from an investment in the Funds. Unmanaged indexes (i.e., other than Lipper)
generally do not reflect deductions from administrative and management costs
and expenses. The Adviser and any of the Sub-Advisers may also report to
shareholders or to the public in advertisements concerning the performance of
the Adviser and the Sub-Adviser as advisers to clients other than the Trust,
and on the comparative performance or standing of the Adviser or the Sub-
Adviser 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, the
Adviser or the Sub-Advisers, should be considered in light of the Fund's
investment objectives and policies, characteristics and quality of the Funds,
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 Statement of Additional Information.
Investment results of the Funds will fluctuate over time, and any
representations 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.
B-31
<PAGE>
APPENDIX C
(THE FOLLOWING PERFORMANCE INFORMATION AND COMMENTARY ARE EXCERPTED FROM THE
PFEAS TRUST'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 1996. THE
PERFORMANCE INFORMATION RELATES ONLY TO THE INSTITUTIONAL AND/OR ADMINISTRATIVE
CLASS SHARES OF THE ACQUIRING FUNDS. SUCH PERFORMANCE DOES NOT REFLECT THE
IMPOSITION OF THE DIFFERENT SALES CHARGES, CDSCS AND/OR 12B-1 FEES APPLICABLE TO
CLASS A, CLASS B AND CLASS C SHARES OF THE ACQUIRING FUNDS, WHICH WOULD HAVE
PRODUCED LOWER PERFORMANCE.)
NFJ DIVERSIFIED LOW P/E FUND
PORTFOLIO MANAGER: INVESTMENT OBJECTIVE AND PRIMARY INVESTMENTS:
NFJ Investment Group Seeks long-term growth of capital and income;
Dallas, Texas invests primarily in common stocks with below-
average price to earnings ratios relative to their
industry groups.
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
NFJ DIVER- S&P 500
SIFIED LOW INDEX
P/E FUND
<S> <C> <C>
1/01/92 $200,000 $200,000
6/30/92 $202,697 $198,726
6/30/93 $241,679 $225,765
6/30/94 $247,669 $228,763
6/30/95 $302,310 $288,481
6/30/96 $382,897 $363,827
</TABLE>
The line graph above assumes the investment of $200,000 on 1/1/92, the first
full month following the Fund's Institutional Class inception on 12/30/91,
compared with the S&P 500 Index, an unmanaged market index. Past performance is
not an indication of future results.
<TABLE>
<CAPTION>
Annualized Returns Ended 6/30/96
- -------------------------------------------------------------------
Since
1 Yr. 3 Yrs. 4 Yrs. Inception
<S> <C> <C> <C> <C>
NFJ Diversified
Low P/E
Fund (%) 26.66 16.58 17.24 15.71
- -------------------------------------------------------------------
S&P 500
Index (%) 26.12 17.25 n/a n/a
- -------------------------------------------------------------------
</TABLE>
. Cyclical and financial stocks, with their improved relative performance, were
overweighted in the Fund, enhancing returns.
. The underperformance of technology stocks during the fourth quarter of 1995
helped the Fund due to its considerably below-index weighting in this sector.
. Emphasis on mid cap issues was a setback in a market that rewarded large and
small cap stocks.
. The yield factor had been a drag on performance, but turned around to become
a positive influence.
C-1
<PAGE>
NFJ DIVERSIFIED LOW P/E FUND
ANNUAL REPORT EXCERPT--CONTINUED
PORTFOLIO COMPOSITION
TOP TEN COMMON STOCKS
<TABLE>
<CAPTION>
% of Total
Company Investments
- ----------------------------
<S> <C>
Sprint Corp. 2.7%
- ----------------------------
PHH Corp. 2.7%
- ----------------------------
Pharmacia &
Upjohn, Inc. 2.6%
- ----------------------------
Amoco Corp. 2.6%
- ----------------------------
Repsol 2.6%
- ----------------------------
American Home
Products 2.6%
- ----------------------------
Anheuser Busch 2.6%
- ----------------------------
Maytag Corp. 2.5%
- ----------------------------
Chase Manhattan
Corp. 2.5%
- ----------------------------
Phillip Morris
Co., Inc. 2.5%
- ----------------------------
Top Ten Total 25.9%
</TABLE>
Industry Classifications as a
Percent of Total Investments
<TABLE>
<S> <C>
Consumer Discretionary 14.9%
- ------------------------------------------------
Consumer Staples 10.0%
- ------------------------------------------------
Energy 10.3%
- ------------------------------------------------
Financial & Business Services 13.8%
- ------------------------------------------------
Health Care 8.5%
- ------------------------------------------------
Utilities 9.8%
- ------------------------------------------------
Short-Term Instruments 11.9%
- ------------------------------------------------
Other 20.8%
- ------------------------------------------------
</TABLE>
C-2
<PAGE>
CADENCE MID CAP GROWTH FUND
PORTFOLIO MANAGER: INVESTMENT OBJECTIVE AND PRIMARY INVESTMENTS:
Cadence Capital Management Seeks growth of capital; invests primarily in common
Boston, Massachusetts stocks of companies with market capitalizations in
excess of $500 million that have improving
fundamentals and whose stock is reasonably valued by
the market.
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
CADENCE MID
CAP GROWTH S&P MidCap
FUND INDEX
<S> <C> <C>
9/01/91 $200,000 $200,000
6/30/92 $215,126 $215,802
6/30/93 $270,638 $264,758
6/30/94 $268,017 $264,642
6/30/95 $339,767 $323,803
6/30/96 $413,028 $393,578
</TABLE>
The line graph above assumes the investment of $200,000 on 9/1/91, the first
full month following the Fund's Institutional Class inception on 8/26/91,
compared with the S&P MidCap Index, an unmanaged market index. The performance
of the Administrative Class from inception on 11/30/94 (shown below), reflects
the payment of a service fee in an amount not to exceed 0.25% on an annualized
basis. Past performance is not an indication of future results.
Annualized Returns Ended 6/30/96
- -----------------------------------------------------------------
<TABLE>
<CAPTION>
Since
1Yr. 3Yrs. 4Yrs. Inception
---- ----- ----- ---------
<S> <C> <C> <C> <C>
Cadence Mid Cap Growth
Fund Inst. Class (%) 21.56 15.13 17.71 16.10
- -----------------------------------------------------------------
Cadence Mid Cap Growth
Fund Admin. Class (%) 21.25 n/a n/a 29.60
- -----------------------------------------------------------------
S&P MidCap Index (%) 21.58 14.13 n/a n/a
- -----------------------------------------------------------------
</TABLE>
. Technology stocks came under severe pressure in the fourth quarter of 1995,
weakening investment results.
. The Fund's best-performing holdings were in health care, financial services,
and consumer services.
. HBO & Co., Guidant, Medtronic, and Health Management Associates set the pace
for the Fund's health care stocks. Financial Services was driven by attrac-
tive valuations, strong earnings growth, and actual results that exceeded
Wall Street expectations.
. Other strong performing holdings included Callaway Golf and Mattel in the
consumer goods area, Kroger and Tiffany in consumer services, and Loral, a
defense electronics company acquired by Lockheed Martin.
C-3
<PAGE>
CADENCE MID CAP GROWTH FUND
ANNUAL REPORT EXCERPT--CONTINUED
PORTFOLIO COMPOSITION
TOP TEN COMMON STOCKS
<TABLE>
<CAPTION>
% of Total
Company Investments
- ----------------------------
<S> <C>
Callaway Golf
Co. 1.9%
- ----------------------------
Raychem Corp. 1.7%
- ----------------------------
First Brands
Corp. 1.7%
- ----------------------------
America West
Airlines 1.6%
- ----------------------------
Parametric
Technology
Corp. 1.6%
- ----------------------------
Mattel, Inc. 1.6%
- ----------------------------
Praxair, Inc. 1.6%
- ----------------------------
HBO & Co. 1.6%
- ----------------------------
Cytec
Industries,
Inc. 1.6%
- ----------------------------
McDonnell
Douglas 1.6%
- ----------------------------
Top Ten Total 16.5%
</TABLE>
Industry Classifications as a Percent of Total Investments
<TABLE>
<CAPTION>
<S> <C>
Consumer Discretionary 11.0%
- ------------------------------------------------
Capital Goods 11.9%
- ------------------------------------------------
Financial & Business Services 30.9%
- ------------------------------------------------
Health Care 11.1%
- ------------------------------------------------
Materials & Processing 5.7%
- ------------------------------------------------
Technology 10.0%
- ------------------------------------------------
Short-Term Instruments 5.1%
- ------------------------------------------------
Other 14.3%
- ------------------------------------------------
</TABLE>
C-4
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
OVERVIEW.................................................................. 3
Proposed Transactions................................................... 3
Operating Expenses...................................................... 4
Examples................................................................ 7
Federal Income Tax Consequences......................................... 8
Comparison of Investment Objectives, Policies and Restrictions.......... 8
Comparison of Distribution Policies and Purchase, Exchange and Redemp-
tion Procedures........................................................ 9
RISK FACTORS.............................................................. 10
SPECIAL MEETING OF SHAREHOLDERS........................................... 11
PROPOSALS 1 and 2: APPROVAL OR DISAPPROVAL OF AGREEMENT AND PLAN OF
REORGANIZATION........................................................... 12
Background and Reasons for the Proposed Mergers......................... 13
Information About the Mergers........................................... 14
CAPITALIZATION TABLES..................................................... 21
INFORMATION ABOUT THE ACQUIRING FUNDS..................................... 22
INFORMATION ABOUT THE ACQUIRED FUNDS...................................... 22
VOTING INFORMATION........................................................ 22
APPENDIX A--AGREEMENT AND PLAN OF REORGANIZATION
APPENDIX B--OTHER INFORMATION ABOUT THE ACQUIRING FUNDS
Investment Objectives and Policies...................................... B-1
Investment Restrictions................................................. B-2
Characteristics and Risks of Securities and Investment Techniques....... B-5
Management of the Trust................................................. B-7
Purchase, Exchange and Redemption of Shares............................. B-12
Portfolio Transactions.................................................. B-28
Net Asset Value......................................................... B-28
Dividends, Distributions and Taxes...................................... B-29
Other Information....................................................... B-30
APPENDIX C--EXCERPTS FROM ANNUAL REPORT
</TABLE>
B
<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.
1. Proposal to approve the merger of [_] FOR [_] AGAINST [_] ABSTAIN
the 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.
- -------------------------------------------------------------------------------
[NAME OF FUND]
A SERIES OF PIMCO ADVISORS FUNDS
PROXY SOLICITED BY THE BOARD OF TRUSTEES
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS -- DECEMBER 20, 1996
The undersigned hereby appoints Robert A. Prindiville, Stephen J. Treadway and
Newton B. Schott, Jr., and each of them separately, 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 PIMCO Advisors Funds, on December 20, 1996 at 11:00 a.m.
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 proxy 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
_________________________________________________
Signature (if held jointly)
_________________________________________________
Date
<PAGE>
PIMCO FUNDS: EQUITY ADVISORS SERIES
NFJ Diversified Low P/E Fund
Cadence Mid Cap Growth Fund
STATEMENT OF ADDITIONAL INFORMATION
November 4, 1996
This Statement of Additional Information relates to proposed mergers (the
"Mergers") of the Value Fund and the Discovery Fund (each an "Acquired Fund"),
each a series of PIMCO Advisors Funds, a Massachusetts business trust (the "PAF
Trust"), with and into, respectively, the NFJ Diversified Low P/E Fund and the
Cadence Mid Cap Growth Fund (each an "Acquiring Fund"), each a series of PIMCO
Funds: Equity Advisors Series, a Massachusetts business trust (the "PFEAS
Trust").
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 November 4, 1996 (the "Prospectus/Proxy Statement") of the PFEAS
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: Equity
Advisors Series, 840 Newport Center Drive, Suite 360, Newport Beach, CA 92660,
or by calling (800) 927-4648.
Table of Contents
<TABLE>
<CAPTION>
Item Page
- ---- ----
<S> <C>
I. Additional Information about Acquiring and Acquired Funds ........... 2
II. Financial Statements ................................................ 2
1. Incorporation by Reference ...................................... 2
2. Unaudited Pro Forma Combined Financial Statements ............... 2
A. The PAF Trust's Value Fund and the PFEAS Trust's NFJ
Diversified Low P/E Fund ......................... 3
B. The PAF Trust's Discovery Fund and the PFEAS Trust's
Cadence Mid Cap Growth Fund ...................... 10
C. Notes to Pro Forma Financial Statements............... 19
</TABLE>
-1-
<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 PFEAS Trust,
each dated September 15, 1996, as supplemented October 31, 1996, which provide
further information relating to the Acquiring Funds and (ii) the current
Prospectus, dated February 1, 1996, as supplemented September 27, 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
foregoing documents has been filed with the Securities and Exchange Commission
and is incorporated herein by reference.
The PFEAS Trust currently offers Institutional Class shares and/or
Administrative Class shares of the Acquiring Funds to certain categories 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/or 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.
II. Financial Statements.
1. Incorporation by Reference. This Statement of Additional Information
--------------------------
is accompanied by the PFEAS Trust's Annual Report for the fiscal year ended June
30, 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, which
accompanies this Statement of Additional Information and is incorporated herein
by reference, includes financial statements for the Acquired Funds for the
fiscal year ended September 30, 1995.
2. Unaudited Pro Forma Combined Financial Statements. The following pro
-------------------------------------------------
forma combined financial statements for the Acquiring Funds should be read in
conjunction with the separate financial statements of the Acquiring and Acquired
Funds referred to in the preceding paragraph.
-2-
<PAGE>
A. The PAF Trust's Value Fund and the PFEAS Trust's NFJ Diversified Low P/E
Fund.
-3-
<PAGE>
June 30, 1996
PRO FORMA COMBINED STATEMENTS OF ASSETS AND LIABILITIES (unaudited)
All numbers are in thousands (except per share amounts)
<TABLE>
<CAPTION>
PIMCO Funds: PIMCO
Equity Advisors Advisors Funds
Series
New Value Fund
NFJ Div.
Low P/E Value Pro Forma Pro Forma
Fund Fund Adjustments Combined
---------------- ---------------- ---------------- -----------------
Assets:
<S> <C> <C> <C> <C>
Investments, at value $ 55,606 $ 49,577 $ - $ 105,183
Cash, receivables and other assets 638 3,235 (40) 3,833
---------------- ---------------- ---------------- -----------------
Total assets 56,244 52,812 (40) 109,016
---------------- ---------------- ---------------- -----------------
Liabilities:
Total liabilities 3,517 514 75 (2) 4,106
---------------- ---------------- ---------------- -----------------
Net Assets: $ 52,727 $ 52,298 $ (115) $ 104,910
================ ================ ================ =================
Cost of investments owned $ 52,446 $ 45,917 $ - $ 98,363
================ ================ ================ =================
Net Assets Consist of:
Paid in capital $ 48,467 $ 47,763 $ (115) $ 96,115
Undistributed
net investment income 348 33 - 381
Accumulated undistributed
net realized gain 752 842 - 1,594
Net unrealized appreciation 3,160 3,660 - 6,820
---------------- ---------------- ---------------- -----------------
Net assets $ 52,727 $ 52,298 $ (115) $ 104,910
================ ================ ================ =================
</TABLE>
See Notes to Pro Forma combined financial statements.
-4-
<PAGE>
June 30, 1996
PRO FORMA COMBINED STATEMENTS OF ASSETS AND LIABILITIES (unaudited)
All numbers are in thousands (except per share amounts)
<TABLE>
<CAPTION>
PIMCO Funds: PIMCO
Equity Advisors Advisors Funds
Series
New Value Fund
NFJ Div.
Low P/E Value Pro Forma Pro Forma
Fund Fund Adjustments Combined
---------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Shares Issued and Outstanding:
PIMCO Funds
-----------
Institutional class 4,232 - - 4,232
Administrative class - - - -
Class A - - 692 692
Class B - - 1,182 1,182
Class C - - 2,424 2,424
PIMCO Advisors Funds
---------------------
Institutional class - - - -
Administrative class - - - -
Class A - 692 (692) -
Class B - 1,182 (1,182) -
Class C - 2,424 (2,424) -
Net Asset Value Per Share (1):
PIMCO Funds
-----------
Institutional class $ 12.46 $ - $ - $ 12.46
Administrative class $ - $ - $ - $ -
Class A (1) $ - $ - $ 12.17 $ 12.17
Class B $ - $ - $ 12.17 $ 12.17
Class C $ - $ - $ 12.17 $ 12.17
PIMCO Advisors Funds
---------------------
Institutional class $ - $ - $ - $ -
Administrative class $ - $ - $ - $ -
Class A (1) $ - $ 12.17 $ (12.17) $ -
Class B $ - $ 12.17 $ (12.17) $ -
Class C $ - $ 12.17 $ (12.17) $ -
</TABLE>
(1) All per share amounts represent Net Asset Value per share. Maximum offering
price of $12.88 per share for Class A shares reflects the 5.5% 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 $75,000 or $0.01 per
share.
See Notes to Pro Forma combined financial statements.
-5-
<PAGE>
For the 12 months ended June 30, 1996
PRO FORMA COMBINED STATEMENTS OF OPERATIONS (unaudited)
All numbers are in thousands
<TABLE>
<CAPTION>
PIMCO Funds: PIMCO
Equity Advisors Advisors Funds
Series
New Value Fund
NFJ Div.
Low P/E Value Pro Forma Pro Forma
Fund Fund Adjustments Combined
------ ------ ----------- --------
Investment income:
<S> <C> <C> <C> <C>
Dividends, interest, and other $ 594 $ 972 $ -- $1,566
------ ------ ----- ------
Expenses:
Investment advisory fees 87 187 (65) 209
Administrative fees 49 -- 108 157
Service fees
--- Administrative Class -- -- -- --
--- Class A -- 11 -- 11
--- Class B -- 19 -- 19
--- Class C -- 36 -- 36
Distribution fees
--- Class B -- 57 -- 57
--- Class C -- 109 -- 109
Transfer agent and custody fees -- 58 (58) --
Professional fees -- 13 (13) --
Shareholder reports and notices -- 10 (10) --
Trustees' fees 1 3 -- 4
Other -- 14 (14) --
------ ------ ----- ------
Net expenses 137 517 (52) 602
------ ------ ----- ------
Net investment income (loss) 457 455 52 964
------ ------ ----- ------
Realized and unrealized gain (loss) on
security transactions:
Net realized gain (loss) on security transactions 1,583 842 -- 2,425
Net unrealized gain (loss) on security transactions 1,698 3,660 -- 5,358
------ ------ ----- ------
Net gain on security transactions 3,281 4,502 -- 7,783
------ ------ ----- ------
Net increase in net assets resulting from
operations $3,738 $4,957 $ 52 $8,747
====== ====== ===== ======
</TABLE>
See Notes to Pro Forma combined financial statements.
-6-
<PAGE>
<TABLE> <CAPTION>
NFJ PIMCO NFJ PIMCO % Combined
Diversified Advisors Pro Forma Diversified Advisors Pro Forma Value of Net
Low P/E Value Combined Low P/E Value Combined Assets
--------------------------------------- ---------------------------------------- ------------
Shares Value (000's)
--------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMON STOCKS
Capital Goods
Deere & Co. 23,600 13,000 36,600 $ 944 $ 520 $ 1,464 1.4%
GATX Corp. -- 11,000 11,000 -- 531 531 0.5%
944 1,051 1,995 1.9%
Consumer Discretionary
Brunswick Corp. 23,200 33,000 56,200 464 660 1,124 1.1%
Chrysler Corp. 22,105 16,000 38,105 1,371 992 2,363 2.3%
Dillard Department Stores 26,500 6,000 32,500 967 219 1,186 1.1%
Ford Motor Co. -- 14,000 14,000 -- 453 453 0.4%
Goodyear Tire & Rubber 17,900 10,000 27,900 864 483 1,347 1.3%
Harland (John H.) Co. -- 16,000 16,000 -- 394 394 0.4%
J.C. Penney Co., Inc. -- 9,400 9,400 -- 494 494 0.5%
Maytag Corp. 67,900 62,000 129,900 1,417 1,294 2,711 2.6%
Reebok International Limited 14,600 3,600 18,200 491 121 612 0.6%
Springs Industries, Inc., 'A' -- 10,000 10,000 -- 505 505 0.5%
Tandy Corp. 10,200 3,800 14,000 483 180 663 0.6%
Tupperware Corp. (a) 11,000 6,000 17,000 465 254 719 0.7%
Washington Post Co. 2,700 1,600 4,300 875 518 1,393 1.3%
Xerox Corp. 16,500 20,000 36,500 883 1,070 1,953 1.9%
8,280 7,637 15,917 15.3%
Consumer Staples
Anheuser Busch 18,900 17,000 35,900 1,418 1,275 2,693 2.6%
IBP, Inc. 30,100 18,000 48,100 832 497 1,329 1.3%
Philip Morris Co., Inc. 13,400 13,000 26,400 1,394 1,352 2,746 2.6%
RJR Nabisco Holdings Corp. -- 14,000 14,000 -- 434 434 0.4%
Supervalu, Inc. 29,800 31,000 60,800 939 977 1,916 1.8%
Unilever NV 6,600 4,000 10,600 958 581 1,539 1.4%
5,541 5,115 10,656 10.1%
Energy
Amoco Corp. 20,000 17,000 37,000 1,448 1,230 2,678 2.6%
Atlantic Richfield Co. 8,100 8,500 16,600 960 1,007 1,967 1.9%
Repsol SA - ADR 41,400 30,000 71,400 1,439 1,043 2,482 2.4%
Ultramar Corp. 48,000 60,000 108,000 1,392 1,740 3,132 3.0%
Union Texas Petroleum
Holdings, Inc. 24,600 14,000 38,600 480 273 753 0.6%
5,719 5,293 11,012 10.5%
</TABLE>
-7-
<PAGE>
- --------------------------------------------------------------------------------
PRO FORMA COMBINED SCHEDULES OF INVESTMENTS (Unaudited)
- --------------------------------------------------------------------------------
June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NFJ PIMCO NFJ PIMCO % Combined
Diversified Advisors Pro Forma Diversified Advisors Pro Forma Value of Net
Low P/E Value Combined Low P/E Value Combined Assets
-------------------------------------- --------------------------------------------- ------------
Shares Value (000's)
-------------------------------------- ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Financial & Business Services
Aetna Life & Casualty Co. - 7,000 7,000 - 501 501 0.5%
Bankers Trust N.Y. Corp. - 6,000 6,000 - 443 443 0.4%
Bear Stearns Cos. 38,850 63,000 101,850 918 1,488 2,406 2.3%
Chase Manhattan Corp. 19,984 18,000 37,984 1,411 1,271 2,682 2.6%
Loews Corp. 10,400 6,000 16,400 820 473 1,293 1.2%
Meditrust - 15,000 15,000 - 501 501 0.5%
Mellon Bank Corp. 22,400 22,000 44,400 1,277 1,254 2,531 2.4%
PHH Corp. 25,900 18,000 43,900 1,476 1,026 2,502 2.4%
PNC Bank Corp. - 14,500 14,500 - 431 431 0.4%
Provident Cos., Inc. 24,300 30,000 54,300 899 1,110 2,009 1.9%
Standard Federal Bancorp. 23,200 13,000 36,200 893 501 1,394 1.3%
7,694 8,999 16,693 15.9%
Health Care
American Home Products 23,700 22,000 45,700 1,425 1,323 2,748 2.6%
Baxter International, Inc. - 10,000 10,000 - 473 473 0.4%
Beckman Instruments 26,200 14,000 40,200 996 532 1,528 1.5%
Bristol Myers Squibb - 5,000 5,000 - 450 450 0.4%
Pharmacia & Upjohn, Inc. 33,010 29,000 62,010 1,465 1,287 2,752 2.6%
Tenet Healthcare Corp. (a) 40,400 22,000 62,400 863 470 1,333 1.3%
4,749 4,534 9,283 8.8%
Materials & Processing
Dow Chemical - 5,600 5,600 - 426 426 0.4%
Lennar Corp. 37,250 18,000 55,250 931 450 1,381 1.3%
Phelps Dodge Corp. 22,100 24,000 46,100 1,378 1,497 2,875 2.7%
Potlatch Corp. - 12,000 12,000 - 470 470 0.4%
PPG Industries, Inc. - 9,000 9,000 - 439 439 0.4%
Union Carbide Corp. 24,400 12,000 36,400 970 477 1,447 1.4%
Wellman, Inc. 20,300 9,500 29,800 475 222 697 0.7%
Willamette Industries 7,200 4,500 11,700 427 268 695 0.7%
4,181 4,248 8,429 8.0%
Technology
Harris Corp. 7,500 11,000 18,500 458 671 1,129 1.1%
Mentor Graphics Corp. (a) 29,200 12,500 41,700 475 203 678 0.6%
Northrop Grumman Corp. 13,800 23,000 36,800 940 1,567 2,507 2.4%
</TABLE>
-8-
<PAGE>
- --------------------------------------------------------------------------------
PRO FORMA COMBINED SCHEDULES OF INVESTMENTS (Unaudited)
- --------------------------------------------------------------------------------
June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NFJ PIMCO NFJ PIMCO % Combined
Diversified Advisors Pro Forma Diversified Advisors Pro Forma Value of Net
Low P/E Value Combined Low P/E Value Combined Assets
-------------------------------------------- ----------------------------------- ------------
Shares Value (000's)
-------------------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Raytheon Co. 18,400 10,000 28,400 950 516 1,466 1.4%
Seagate Technology (a) 22,000 12,000 34,000 990 540 1,530 1.5%
Teradyne, Inc. (a) 28,100 12,000 40,100 484 207 691 0.6%
4,297 3,704 8,001 7.6%
Transportation
AMR Corp. (a) 10,600 2,500 13,100 965 228 1,193 1.2%
Conrail, Inc. 17,900 11,000 28,900 1,187 730 1,917 1.8%
2,152 958 3,110 3.0%
Utilities
DTE Energy Co. 39,000 44,000 83,000 1,204 1,359 2,563 2.4%
NICOR, Inc. 32,800 36,000 68,800 931 1,022 1,953 1.9%
Pacific Gas & Electric 40,200 42,000 82,200 935 977 1,912 1.8%
Pacific Telesis 26,900 23,000 49,900 908 776 1,684 1.6%
Peoples Energy Corp. - 18,000 18,000 - 603 603 0.6%
P.P.& L. Resources, Inc. - 22,000 22,000 - 520 520 0.5%
Southern New England
Telecom. Corp. - 11,000 11,000 - 462 462 0.4%
Sprint Corp. 35,200 31,000 66,200 1,477 1,302 2,779 2.6%
U.S. West, Inc. - 16,000 16,000 - 510 510 0.5%
Washington Water Power Co. - 27,000 27,000 - 509 509 0.6%
5,455 8,038 13,493 12.9%
Total Common Stocks (Cost $45,852, $45,917
and $91,769, respectively) 49,012 49,577 98,589 94.0%
</TABLE>
SHORT-TERM INSTRUMENTS
<TABLE>
<CAPTION>
NFJ PIMCO NFJ PIMCO % Combined
Diversified Advisors Pro Forma Diversified Advisors Pro Forma Value of Net
Low P/E Value Combined Low P/E Value Combined Assets
-------------------------------------------- ----------------------------------- ------------
Principal Amount (000's) Value (000's)
-------------------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Repurchase Agreement
State Street Bank $6,594 - $6,594 6,594 - 6,594 6.3%
4.000% due 07/01/96
(Dated 06/28/96. Collateralized by U.S. Treasury Bond 9.250% due 02/15/16 valued at $6,726,300.
Repurchase proceeds are $6,596,198.)
Total Short-Term Instruments (Cost $6,594, $0 and
$6,594, respectively) 6,594 - 6,594 6.3%
Total Investments (Cost $52,446, $45,917 and
$98,363, respectively) 55,606 49,577 105,183 100.3%
Other Assets and Liabilities (Net) (2,879) 2,721 (158) -0.2%
Pro Forma Adjustments - - (115) -0.1%
Net Assets $52,727 $52,298 $104,910 100.0%
</TABLE>
Notes to Pro Forma Combined Schedules of Investments
(a) Non-income producing security.
-9-
<PAGE>
B. The PAF Trust's Discovery Fund and the PFEAS Trust's Cadence Mid Cap Growth
Fund.
-10-
<PAGE>
June 30, 1996
PRO FORMA COMBINED STATEMENTS OF ASSETS AND LIABILITIES (unaudited)
All numbers are in thousands (except per share amounts)
<TABLE>
<CAPTION>
PIMCO Funds: PIMCO Mid Cap
Equity Advisors Advisors Funds Growth Fund
Series
Cadence
Mid Cap Discovery Pro Forma Pro Forma
Growth Fund Fund Adjustments Combined
------------- --------------- ------------- ----------------
<S> <C> <C> <C> <C>
Assets:
Investments, at value $ 231,855 $ 59,378 $ -- $ 291,233
Cash, receivables and other assets 1,212 8,975 (40) 10,147
------------- --------------- ------------- ----------------
Total assets 233,067 68,353 (40) 301,380
------------- --------------- ------------- ----------------
Liabilities:
Total liabilities 985 408 66 (2) 1,459
------------- --------------- ------------- ----------------
Net Assets: $ 232,082 $ 67,945 $ (106) $ 299,921
============= =============== ============= ================
Cost of investments owned $ 200,715 $ 52,417 $ -- $ 253,132
============= =============== ============= ================
Net Assets Consist of:
Paid in capital $ 169,974 $ 64,842 $ (106) $ 234,710
Undistributed (overdistributed)
net investment income 2,129 (93) -- 2,036
Accumulated undistributed net
realized gain (loss) 28,839 (3,765) -- 25,074
Net unrealized appreciation 31,140 6,961 -- 38,101
------------ --------------- ------------- ----------------
Net assets $ 232,082 $ 67,945 $ (106) $ 299,921
============ =============== ============= ================
</TABLE>
See Notes to Pro Forma combined financial statements.
-11-
<PAGE>
June 30, 1996
PRO FORMA COMBINED STATEMENTS OF ASSETS AND LIABILITIES (unaudited)
All numbers are in thousands (except per share amounts)
<TABLE>
<CAPTION>
PIMCO Funds: PIMCO Mid Cap
Equity Advisors Advisors Funds Growth Fund
Series
Cadence
Mid Cap Discovery Pro Forma Pro Forma
Growth Fund Fund Adjustments Combined
------------- --------------- ------------- ----------------
<S> <C> <C> <C> <C>
Shares Issued and Outstanding:
PIMCO Funds
-----------
Institutional class 11,881 -- -- 11,881
Administrative class 55 -- -- 55
Class A -- -- 928 928
Class B -- -- 1,721 1,721
Class C -- -- 3,474 3,474
PIMCO Advisors Funds
--------------------
Institutional class -- -- -- --
Administrative class -- -- -- --
Class A -- 928 (928) --
Class B -- 1,721 (1,721) --
Class C -- 3,474 (3,474) --
Net Asset Value Per Share (1):
PIMCO Funds
-----------
Institutional class $ 19.44 $ -- $ -- $ 19.44
Administrative class $ 19.44 $ -- $ -- $ 19.44
Class A(1) $ -- $ -- $ 11.17 $ 11.17
Class B $ -- $ -- $ 11.08 $ 11.08
Class C $ -- $ -- $ 11.08 $ 11.08
PIMCO Advisors Funds
--------------------
Institutional class $ -- $ -- $ -- $ --
Administrative class $ -- $ -- $ -- $ --
Class A(1) $ -- $ 11.17 $ (11.17) $ --
Class B $ -- $ 11.08 $ (11.08) $ --
Class C $ -- $ 11.08 $ (11.08) $ --
</TABLE>
(1) All per share amounts represent Net Asset Value per share. Maximum offering
price of $11.82 per share for Class A shares reflects the 5.5% 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 $66,000 or $0.00 per
share.
See Notes to Pro Forma combined financial statements.
-12-
<PAGE>
For the 12 months ended June 30, 1996
PRO FORMA COMBINED STATEMENTS OF OPERATIONS (unaudited)
All numbers are in thousands
<TABLE>
<CAPTION>
PIMCO Funds: PIMCO Mid Cap
Equity Advisors Advisors Funds Growth Fund
Series
Cadence
Mid Cap Discovery Pro Forma Pro Forma
Growth Fund Fund Adjustments Combined
Investment income: ---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Dividends, interest, and other $ 3,080 $ 823 $ -- $ 3,903
--------------- -------------- ---------------- --------------
Expenses:
Investment advisory fees 890 354 (142) 1,102
Administrative fees 494 -- 189 683
Service fees
--- Administrative Class 2 -- -- 2
--- Class A -- 21 -- 21
--- Class B -- 34 -- 34
--- Class C -- 64 -- 64
Distribution fees
--- Class B -- 101 -- 101
--- Class C -- 191 -- 191
Transfer agent and custody fees -- 114 (114) --
Professional fees -- 19 (19) --
Shareholder reports and notices -- 18 (18) --
Trustees' fees 11 5 -- 16
Other -- 17 (17) --
--------------- ------------- --------------- -------------
Net expenses 1,397 938 (121) 2,214
--------------- ------------- ---------------- -------------
Net investment income (loss) 1,683 (115) 121 1,689
--------------- ------------- ---------------- -------------
Realized and unrealized gain (loss) on
security transactions:
Net realized gain (loss) on security transactions 36,703 (3,765) -- 32,938
Net unrealized gain (loss) on security transactions (3,281) 6,961 -- 3,680
--------------- ------------ --------------- -------------
Net gain on security transactions 33,422 3,196 -- 36,618
--------------- ------------ --------------- -------------
Net increase in net assets resulting from
operations $ 35,105 $ 3,081 $ 121 $ 38,307
=============== ============ =============== ============
</TABLE>
See Notes to Pro Forma combined financial statements.
-13-
<PAGE>
- --------------------------------------------------------------------------------
PRO FORMA COMBINED SCHEDULES OF INVESTMENTS (Unaudited)
- --------------------------------------------------------------------------------
June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PIMCO PIMCO % Combined
Cadence Mid Advisors Pro Forma Cadence Mid Advisors Pro Forma Value of Net
Cap Growth Discovery Combined Cap Growth Discovery Combined Assets
--------------------------------------- ------------------------------------- ------------
Shares Value (000's)
--------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMON STOCKS
Capital Goods
Belden, Inc. 112,000 24,400 136,400 $ 3,360 $ 732 $ 4,092 1.4%
Duriron Co., Inc. -- 30,000 30,000 -- 720 720 0.2%
EG&G, Inc. 126,400 34,600 161,000 2,702 740 3,442 1.1%
Harnischfeger Industries, Inc. 79,700 -- 79,700 2,650 -- 2,650 0.9%
IDEX Corp. -- 17,500 17,500 -- 665 665 0.2%
Mark IV Industries, Inc. 110,711 -- 110,711 2,505 -- 2,505 0.8%
McDonnell Douglas 76,300 -- 76,300 3,701 -- 3,701 1.2%
Medusa Corp. -- 25,200 25,200 -- 781 781 0.3%
Methode Electronics 'A' -- 52,500 52,500 -- 893 893 0.3%
Raychem Corp. 54,600 10,500 65,100 3,924 755 4,679 1.6%
Roper Industries, Inc. -- 20,100 20,100 -- 980 980 0.3%
Stolt-Nielsen SA 140,900 22,600 163,500 2,554 410 2,964 1.0%
Stolt-Nielsen SA - ADR (b) 100 11,300 11,400 2 210 212 0.1%
United Dominion Industries 116,500 32,400 148,900 2,680 745 3,425 1.1%
York International Corp. 65,800 -- 65,800 3,405 -- 3,405 1.2%
Consumer Discretionary 27,483 7,631 35,114 11.7%
Ameristar Casinos, Inc. (a) (b) -- 3,500 3,500 -- 46 46 0.0%
Callaway Golf Co. 129,400 27,000 156,400 4,303 898 5,201 1.7%
Consolidated Stores Corp. (a) 65,300 18,400 83,700 2,400 676 3,076 1.0%
Dollar General Corp. 78,900 -- 78,900 2,308 -- 2,308 0.8%
First Brands Corp. 145,100 29,400 174,500 3,918 794 4,712 1.6%
Friedman's, Inc. 'A' (a) (b) -- 30,000 30,000 -- 765 765 0.3%
K2, Inc. (b) -- 29,600 29,600 -- 803 803 0.3%
Liz Claiborne, Inc. 78,400 -- 78,400 2,715 -- 2,715 0.9%
Mattel, Inc. 131,589 -- 131,589 3,767 -- 3,767 1.3%
Omnicom Group 62,100 -- 62,100 2,888 -- 2,888 1.0%
SPX Corp. (b) -- 1,000 1,000 -- 24 24 0.0%
Tiffany & Co. 45,700 12,200 57,900 3,336 890 4,226 1.3%
Consumer Services 25,635 4,896 30,531 10.2%
Lennar Corp. 113,600 32,300 145,900 2,840 808 3,648 1.2%
</TABLE>
-14-
<PAGE>
- --------------------------------------------------------------------------------
PRO FORMA COMBINED SCHEDULES OF INVESTMENTS (Unaudited)
- --------------------------------------------------------------------------------
June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PIMCO PIMCO % Combined
Cadence Mid Advisors Pro Forma Cadence Mid Advisors Pro Forma Value of Net
Cap Growth Discovery Combined Cap Growth Discovery Combined Assets
------------------------------------- -------------------------------------- ------------
Shares Value (000's)
------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Oakwood Homes 129,300 31,400 160,700 648 3,315 1.1% 2,667
Promus Hotel Corp. (a) 97,800 97,800 2,897 1.0% 2,897
Redman Industries, Inc. (a) 135,900 38,200 174,100 793 3,613 1.2% 2,820
Ross Stores, Inc. 29,300 29,300 1,018 1,018 0.4%
United Video Satellite 'A' (a) 47,800 47,800 1,003 1,003 0.3%
Westwood One, Inc. (b) 4,700 4,700 71 71 0.0%
4,341 15,565 5.2% 11,224
Consumer Staples
Kroger Co. (a) 86,300 86,300 3,409 1.1% 3,409
Richfood Holdings, Inc. 96,800 28,400 125,200 923 4,069 1.4% 3,146
923 7,478 2.5% 6,555
Energy
Camco International, Inc. 20,000 20,000 677 677 0.2%
Flores & Rucks, Inc. (a) (b) 1,000 1,000 35 35 0.0%
Reading & Bates Corp. (a) 131,800 131,800 2,916 1.0% 2,916
Tosco Corp. 63,000 63,000 3,166 1.1% 3,166
712 6,794 2.3% 6,082
Financial & Business Services
Advanta Corp. 'A' 47,650 47,650 2,430 0.8% 2,430
Allmerica Financial Corp. 109,100 22,800 131,900 678 3,924 1.3% 3,246
American Re Corp. 64,400 64,400 2,890 1.0% 2,890
Associated Banc-Corp. 20,800 20,800 806 806 0.3%
Bank of Boston Corp. 40,100 40,100 1,985 0.7% 1,985
Baybanks, Inc. 19,200 19,200 2,069 0.7% 2,069
Centura Banks, Inc. 20,000 20,000 735 735 0.2%
Citizens Corp. 141,900 32,900 174,800 617 3,278 1.1% 2,661
City National Corp. 51,600 51,600 813 813 0.3%
Comdisco, Inc. 120,650 120,650 3,212 1.1% 3,212
Countrywide Credit Industries, Inc. 111,600 34,800 146,400 861 3,623 1.2% 2,762
Crestar Financial Corp. 49,800 49,800 2,658 0.9% 2,658
Cullen/Frost Bankers, Inc. 98,300 32,200 130,500 894 3,622 1.2% 2,728
Equifax 112,800 112,800 2,961 1.0% 2,961
Finova Group, Inc. 52,000 14,100 66,100 687 3,222 1.0% 2,535
First American Corp. 54,100 54,100 2,279 0.8% 2,279
First Commerce Corp. 63,700 18,800 82,500 665 2,918 1.0% 2,253
</TABLE>
-15-
<PAGE>
- --------------------------------------------------------------------------------
PRO FORMA COMBINED SCHEDULES OF INVESTMENTS (Unaudited)
- --------------------------------------------------------------------------------
June 30, 1996
- --------------------------------------------------------------------------------
<TABLE> <CAPTION>
PIMCO PIMCO % Combined
Cadence Mid Advisors Pro Forma Cadence Mid Advisors Pro Forma Value of Net
Cap Growth Discovery Combined Cap Growth Discovery Combined Assets
-------------------------------------- ------------------------------------- -----------
Shares Value (000's)
-------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
First USA, Inc. 40,500 40,500 2,228 2,228 2,228 0.7%
Green Tree Financial Corp. 88,400 23,400 111,800 2,763 731 3,494 1.2%
HCC Insurance Holdings, Inc. -- 33,750 33,750 -- 759 759 0.3%
Mark Twain Bancshares, Inc. 62,000 15,300 77,300 2,294 566 2,860 1.0%
Mid Ocean Limited 70,300 21,300 91,600 2,882 873 3,755 1.3%
Mutual Risk Management Limited 92,699 24,266 116,965 2,897 758 3,655 1.2%
NAC Re Corp. 77,900 17,900 95,800 2,610 600 3,210 1.0%
National Re Corp. -- 19,900 19,900 -- 751 751 0.3%
North Folk (b) -- 1,000 1,000 -- 26 26 0.0%
Olympic Financial Ltd. (a) (b) -- 1,000 1,000 -- 23 23 0.0%
One Valley Bancorp, Inc. (b) -- 1,000 1,000 -- 35 35 0.0%
Penncorp Financial Group, Inc. 71,100 24,800 95,900 2,257 787 3,044 1.0%
Protective Life Corp. 75,800 22,200 98,000 2,662 780 3,442 1.1%
Reinsurance Group of America -- 17,300 17,300 -- 653 653 0.2%
Selective Insurance Group -- 21,600 21,600 -- 702 702 0.2%
Southern National Corp. 100,600 -- 100,600 3,194 -- 3,194 1.1%
Summit Bancorp 76,060 -- 76,060 2,672 -- 2,672 0.9%
SunAmerica, Inc. 59,450 -- 59,450 3,359 -- 3,359 1.1%
The Money Store 103,200 30,175 133,375 2,283 668 2,951 1.0%
Trustmark Corp. 17,000 18,100 35,100 357 380 737 0.2%
Union Planters Corp. 80,100 25,900 106,000 2,433 787 3,220 1.0%
Vesta Insurance Group, Inc. -- 19,800 19,800 -- 661 661 0.2%
71,560 17,296 88,856 29.6%
Health Care
Beckman Instruments 75,900 20,900 96,800 2,884 794 3,678 1.3%
Biovail Corp. International (a) -- 1,000 1,000 -- 31 31 0.0%
Boston Scientific Corp. (a) 61,100 -- 61,100 2,750 -- 2,750 0.9%
Genzyme Corp. (a) 50,700 -- 50,700 2,548 -- 2,548 0.8%
Guidant Corp. 50,500 -- 50,500 2,487 -- 2,487 0.8%
HBO & Co. 55,400 -- 55,400 3,753 -- 3,753 1.3%
Health Management Associates 'A' 177,975 46,575 224,550 3,604 943 4,547 1.5%
ICN Pharmaceuticals, Inc. -- 34,200 34,200 -- 795 795 0.3%
Kinetic Concepts, Inc. -- 58,100 58,100 -- 901 901 0.3%
Ornda Healthcorp (a) 105,300 25,000 130,300 2,527 600 3,127 1.0%
Orthodontic Centers of America, Inc. -- 30,000 30,000 -- 795 795 0.3%
</TABLE>
-16-
<PAGE>
- --------------------------------------------------------------------------------
PRO FORMA COMBINED SCHEDULES OF INVESTMENTS (Unaudited)
- --------------------------------------------------------------------------------
June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PIMCO PIMCO % Combined
Cadence Mid Advisors Pro Forma Cadence Mid Advisors Pro Forma Value of Net
Cap Growth Discovery Combined Cap Growth Discovery Combined Assets
-------------------------------------- -------------------------------------- -------------
Shares Value (000's)
-------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
PHP Healthcare Corp. (b) 15,100 15,100 476 476 0.2%
Physican Reliance Network (a) -- 30,000 30,000 -- 668 668 0.2%
Physio-Control International 675 675 0.2%
Corp. -- 38,300 38,300 -- 27 27 0.0%
Rexall Sundown, Inc. (a) -- 1,000 1,000 -- 807 807 0.3%
Rotech Medical Corp. (a) (b) -- 41,400 41,400 -- 833 3,578 1.2%
Sybron Corp. (a) 109,800 33,300 143,100 2,745 721 721 0.2%
Universal Health Services, 598 2,942 1.0%
Inc. 'B' -- 27,600 27,600 -- 9,664 35,306 11.8%
Watson Pharmaceutical, Inc. (a) 61,900 15,800 77,700 2,344
Materials & Processing
Bemis, Inc. 86,800 23,900 110,700 25,642 837 3,875 1.3%
Cytec Industries, Inc. (a) 43,500 9,300 52,800 795 4,514 1.5%
Gencorp, Inc. -- 1,000 1,000 3,038 15 15 0.0%
Mississippi Chemical Corp. (b) -- 19,900 19,900 3,719 398 398 0.1%
Mueller Industries, Inc. (a) -- 22,800 22,800 -- 946 946 0.3%
Oregon Metallurgical -- 30 30 0.0%
Corp. (a) (b) -- 1,000 1,000 -- -- 3,760 1.3%
Praxair, Inc. 89,000 -- 89,000 817 3,562 1.2%
Texas Industries, Inc. 40,000 11,900 51,900 -- 980 980 0.3%
United Waste Systems, Inc. (a) -- 30,400 30,400 3,760 4,818 18,080 6.0%
Technology 2,745
Alliant Techsystems, Inc. (a) -- 14,000 14,000 -- 660 660 0.2%
Analog Devices (a) 108,400 23,100 131,500 13,262 589 3,353 1.1%
Ascend Communications, Inc. (a) 46,900 -- 46,900 -- 2,638 0.9%
Cadence Designs Systems,
Inc. (a) 82,400 39,150 121,550 -- 1,321 4,101 1.4%
Ceridian Corp. (a) 71,200 -- 71,200 2,764 -- 3,596 1.2%
Computer Horizons Corp. (a) -- 20,800 20,800 2,638 822 822 0.3%
Credence Systems Co. (a) 8,160 5,000 13,160 67 177 0.1%
McAfee Associates, Inc. (a) 71,700 19,500 91,200 2,780 956 4,469 1.5%
MEMC Electronic Materials,
Inc. (a) 57,200 -- 57,200 3,596 -- 2,217 0.7%
Parametric Technology Corp. (a) 87,200 20,000 107,200 -- 868 4,650 1.5%
Rational Software Corp. (a) -- 18,000 18,000 110 968 968 0.3%
Samina Corp. (a) -- 28,000 28,000 3,513 756 756 0.3%
Stratus Computer, Inc. (a) -- 1,000 1,000 29 29 0.0%
Structural Dynamics Research (a) 81,000 19,000 100,000 2,217 417 2,198 0.7%
</TABLE>
-17-
<PAGE>
- --------------------------------------------------------------------------------
PRO FORMA COMBINED SCHEDULES OF INVESTMENTS (Unaudited)
- --------------------------------------------------------------------------------
June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PIMCO PIMCO % Combined
Cadence Mid Advisors Pro Forma Cadence Mid Advisors Pro Forma Value of Net
Cap Growth Discovery Combined Cap Growth Discovery Combined Assets
------------------------------------------ ---------------------------------- -------------
Shares Value (000's)
------------------------------------------ ----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Wyle Electronics 18,900 18,900 625 625 0.2%
23,181 8,078 31,259 10.4%
Transportation
America West Airlines (a) 173,600 37,300 210,900 3,818 821 4,639 1.5%
Utilities
Allegheny Power System 93,100 93,100 2,874 2,874 1.0%
Portland General Corp. 84,300 84,300 2,602 2,602 0.9%
Vanguard Cellular Systems 'A' (a) 9,100 9,100 198 198 0.0%
5,476 198 5,674 1.9%
Total Common Stocks (Cost $188,778, $52,417
and $241,195, respectively) 219,918 59,378 279,296 93.1%
SHORT-TERM INSTRUMENTS
Principal Amount (000's)
Repurchase Agreement
State Street Bank $11,937 $11,937 11,937 11,937 4.0%
4.000% due 07/01/96
(Dated 06/28/96. Collateralized by
U.S. Treasury Bond 8.750% due 11/15/08
valued at $12,178,550. Repurchase
proceeds are $11,940,979.)
Total Short-Term Instruments (Cost $11,937,
$0 and $11,937, respectively) 11,937 11,937 4.0%
Total Investments (Cost $200,715, $52,417
and $253,132, respectively) 231,855 59,378 291,233 97.1%
Other Assets and Liabilities (Net) 227 8,567 8,794 2.9%
Pro Forma Adjustments (106) 0.0%
Net Assets $232,082 $67,945 $299,921 100.0%
Notes to Pro Forma Combined Schedules of Investments
(a) Non-income producing security.
(b) Security subject to sale upon completion of reorganization.
</TABLE>
-18-
<PAGE>
C. Notes to Pro Forma Financial Statements
PIMCO Funds: Equity Advisors Series
Cadence Mid Cap Growth and NFJ Diversified Low P/E Funds
Basis of Presentation:
Subject to the approval of the Agreement and Plan of Reorganization ("Plan of
Reorganization") by the shareholders of the Value Fund and the Discovery Fund
(each an "Acquired Fund") of PIMCO Advisors ("PAF") and the NFJ Diversified Low
P/E Fund (the "New Value Fund") and the Cadence Mid Cap Growth Fund (the "Mid
Cap Fund") (each an "Acquiring Fund") of PIMCO Funds: Equity Advisors Series
("PFEAS"), the New Value Fund and the Mid Cap Fund would acquire, respectively,
all the assets of the Value Fund and the Discovery 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 shareholder 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 New Value Fund with the Value Fund (hereafter the "Combined New
Value Fund") and the combined financial position of the Mid Cap Fund with the
Discovery Fund (hereafter the "Combined Mid Cap Fund") at June 30, 1996, and the
pro forma combined results of operations of the Combined New Value Fund and the
Combined Mid Cap Fund for the period from July 1, 1995 to June 30, 1996, as
though the reorganization had occurred on July 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.
-19-
<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, net assets and
total liabilities reflect an adjustment for $39,947 at June 30, 1996 for each
Combined Fund for the elimination of the capitalized asset representing the
organizational and registration costs incurred which were being amortized over
the period of benefit for the Acquired Funds not to exceed 60 months. In
addition, the additional paid-in-capital and total liabilities reflect an
adjustment for $74,942 and $66,355 at June 30, 1996 for the Combined New Value
Fund and the Combined Mid Cap Fund, respectively, for 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 Discovery Fund and the Value
Fund as a result of the application of the .45% advisory fee for each of
the New Value and Mid Cap Funds. Previously, advisory fees of .70% and .75%
paid, respectively, by the Value Fund and the Discovery Fund included
certain administrative services which will be included under a separate
.40% administrative fee to be paid by retail shareholders of the Combined
Funds described below.
. 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 (currently Pacific
Investment Management Company and to become PIMCO Advisors L.P. at the time
of the proposed transaction), as part of the .40% administrative fee paid
by the shareholders of the retail classes (i.e., Classes A, B, and C) of
the Acquired Fund.
. A decrease in other expenses as a result of the elimination of amortization
related to deferred organizational costs previously discussed.
-20-
